AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 12, 1999
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
SFX ENTERTAINMENT, INC.
(Exact Name of Registrant and its Guarantor Subsidiaries* as Specified in its
Charter)
(* A complete list is set forth on the following pages)

DELAWARE 7922 13-3977880
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization*) Classification Code Number*) Identification Number*)
----------------

650 MADISON AVENUE, 16TH FLOOR
NEW YORK, NEW YORK 10022
(212) 838-3100
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
----------------
ROBERT F.X. SILLERMAN, EXECUTIVE CHAIRMAN
SFX ENTERTAINMENT, INC.
650 MADISON AVENUE, 16TH FLOOR
NEW YORK, NEW YORK 10022
(212) 838-3100
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
----------------
COPY OF ALL COMMUNICATIONS TO:

AMAR BUDARAPU, ESQ. DANIEL A. NINIVAGGI, ESQ.
BAKER & MCKENZIE WINSTON & STRAWN
1200 SMITH STREET, SUITE 1200 200 PARK AVENUE
HOUSTON, TEXAS 77002 NEW YORK, NEW YORK 10166
(713) 427-5000 (212) 294-6700

----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
AMOUNT TO MAXIMUM MAXIMUM AMOUNT OF
BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED PER SECURITY(1) PRICE(1) FEE

9 1/8% Senior Subordinated Notes due 2008............ $200,000,000 100% $200,000,000 $55,600
Guarantees of 9 1/8% Senior Subordinated
Notes due 2008 .................................... (2) -- -- (3)

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(1) Estimated pursuant to Rule 457(f)(2) under the Securities Act solely for
purposes of calculating the registration fee.
(2) The 9 1/8% Senior Subordinated Notes due 2008 being registered will be
guaranteed on a senior subordinated basis by each of the Guarantor
Subsidiaries. No separate consideration was received for the guarantees.
(3) Pursuant to Rule 457(n) under the Securities Act, no separate fee is
payable for the guarantees.
----------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------

TABLE OF ADDITIONAL REGISTRANTS

Unless specified otherwise, the mailing address and phone number of the
additional registrants, each of which is a guarantor subsidiary, is c/o SFX
Entertainment, Inc., 650 Madison Avenue, 16th Floor, New York, New York 10022;
(212) 838-3100. The agent for service for the additional registrants is Howard
J. Tytel, c/o SFX Entertainment, Inc., 650 Madison Avenue, 16th Floor, New
York, New York 10022. The primary standard industry classification number for
all registrants is 7922.

STATE OR OTHER I.R.S.
JURISDICTION OF EMPLOYER
INCORPORATION OR IDENTIFICATION
NAME, ADDRESS, TELEPHONE NUMBER ORGANIZATION NUMBER
- ---------------------------------------------------------- ------------------ ---------------

AKG, Inc. (1) ............................................ California 94-2628377
American Artists, Inc. ................................... Massachusetts 04-2830220
American Artists Limited, Inc. ........................... Massachusetts 04-3178589
American Broadway, Inc. (2) .............................. Texas 76-0475585
Amphitheater Entertainment Partnership ................... Delaware pending
Ant Theatrical Productions, Inc. ......................... New York pending
Ardee Festivals N.J., Inc. ............................... Delaware 13-3933969
Atlanta Concerts, Inc. ................................... Delaware 13-3969854
Audrey & Jane, Inc. ...................................... California 95-4308177
Avalon Acquisition Corp. ................................. Delaware 13-4008946
Beach Concerts, Inc. ..................................... New York 13-3155946
BG Presents, Inc. (1) .................................... California 68-0320084
BGP Acquisition, L.L.C. .................................. Delaware pending
BGP Denver, Inc. ......................................... Delaware 13-4027214
Bill Graham Enterprises, Inc. (1) ........................ California 94-1734238
Bill Graham Management, Inc. (1) ......................... California 94-3129254
Bill Graham Presents, Inc. (1) ........................... California 94-1650714
Boston Playhouse Realty, Inc. ............................ Massachusetts 04-3279825
Boylston Street Theatre Corp. ............................ Massachusetts 04-3094563
Broadway Concerts, Inc. .................................. New York 13-3748971
Broadway Series Associates, Inc. ......................... Indiana 61-1297704
Broadway Series Management Group, Inc. ................... Ohio 31-1246380
Camarillo Amphitheater Managing Partners, Inc. ........... California 95-4540816
Cheva Touring Company .................................... Florida 65-0849218
Concert Productions International B.V. ................... The Netherlands N/A
Concerts, Inc. (3) ....................................... Nevada 86-0871933
Concert Productions (UK) Limited ......................... UK N/A
Conn Ticketing Company ................................... Connecticut 06-1450528
Connecticut Amphitheater Development Corporation ......... Connecticut 06-1416442
Connecticut Concerts Incorporated ........................ Connecticut 13-3748975
Connecticut Performing Arts Partners ..................... Connecticut 06-1420929
Connecticut Performing Arts, Inc. ........................ Connecticut 06-1411118
Contemporary Group Acquisition Corp. ..................... Delaware 13-3991262
Contemporary Group, Inc. (4) ............................. Missouri 43-1701968
Contemporary Marketing, Inc. (4) ......................... Missouri 43-1248261
Contemporary Productions Incorporated (4) ................ Missouri 43-1243654
Contemporary Sports Incorporated (4) ..................... Missouri 43-1245258
Cooley and Conlon Management Co. ......................... Georgia 58-1762653

Deer Creek Amphitheater Concerts, L.P. .................. Delaware 13-3951407
Deer Creek Amphitheater Concerts, Inc. .................. Delaware 13-3951407
Delsener/Slater Enterprises, Ltd. ....................... New York 13-2560412
DiCesare-Engler, Inc. ................................... Pennsylvania 25-1474385
DiCesare-Engler Promotions, Inc. ........................ Pennsylvania 25-1523877
DLC Corp. (f/k/a DLC Acquisition Corp.) ................. Delaware 13-4006444
DLC Funding Corp. ....................................... Delaware 13-4027213
Dumb Deal, Inc. ......................................... New York 13-2892073
Eagle Eye Entertainment Inc. ............................ Ontario, Canada 894241835
Eagle Eye Entertainment USA Inc. ........................ Delaware pending
EMI Acquisition Sub, Inc. ............................... Delaware 13-4006445
Entertainment Performing Arts, Inc. (2) ................. Texas 76-0297763
Event Merchandising, Inc. ............................... California 52-2062536
Exit 116 Revisited, Inc. ................................ New Jersey 13-3886101
Falk Associates Management Enterprises, Inc. ............ Delaware 36-3810092
Festival Productions, Inc. (2) .......................... Texas 74-1975839
Fillmore Corporation (1) ................................ Delaware 94-1687122
Fillmore Fingers, Inc. (1) .............................. California 94-2998317
Financial Advisory Management Enterprises, Inc. ......... Delaware 54-1621608
Gershwins' Fascinating Rhythm ........................... Florida 65-0865107
Grand Slam Sports Marketing, Inc. ....................... Florida 65-0265329
GSAC Partners ........................................... Delaware 76-051636
High Cotton, Inc. ....................................... Georgia 58-1802140
In House Tickets, Inc. .................................. New York 13-3077977
International Music (Canada) Inc. ....................... Ontario, Canada N/A
International Music Ltd. ................................ Bermuda N/A
International Music Tour II Ltd. ........................ Bermuda N/A
International Music Tour I Ltd. ......................... Bermuda N/A
International Music Tour II (USA) Inc. .................. Delaware 13-3921456
International Music Tour I (USA) Inc. ................... Delaware 13-3921455
International Music (USA) Inc. .......................... Delaware 13-3921454
Irvine Meadows Amphitheater ............................. California 95-3589576
Irving Plaza Concerts, Inc. ............................. Delaware 13-3938355
Jefko Touring Company ................................... New York 22-3495975
Magicsports--Grand Slam Management, Inc. ................ Florida 13-4042626
Magicworks Concerts, Inc. ............................... Florida 31-1528922
Magicworks Entertainment Asia Limited ................... Hong Kong N/A
Magicworks Entertainment Incorporated ................... Delaware 87-0425513
Magicworks Entertainment International, Inc. ............ Florida 65-0394100
Magicworks Exhibitions Joint Venture .................... Florida 65-0868670
Magicworks Exhibitions, Inc. ............................ Florida 65-0855062
Magicworks Fashion Management, Inc. ..................... Florida 13-4036641
Magicworks Merchandising, Inc. .......................... Florida 65-0054981
Magicworks Sports Management, Inc. ...................... Florida 65-0761899
Magicworks Theatricals, Inc. ............................ Ohio 34-1461096
Magicworks Transportation, Inc. ......................... Florida 65-0802722

Magicworks West, Inc. ................................... Florida 83-0244891
Marco Entertainment, Inc. ............................... D.C. 52-1092929
Melody Tent and Amphitheater, Inc. ...................... Pennsylvania 25-1567915
Murat Center Concerts, Inc. ............................. Delaware 13-3948205
Murat Center Concerts, L.P. ............................. Delaware 13-3951403
New Avalon, Inc. ........................................ California 95-3779054
NOC, Inc. ............................................... Connecticut 13-3738288
Northeast Ticketing Company ............................. Connecticut 06-1450528
Oakdale Theater Concerts, Inc. .......................... Delaware 13-3997242
Old PCI, Inc. (2) ....................................... Texas 76-0392584
PACE AEP Acquisition, Inc. (2) .......................... Texas 01-477749
PACE (UK) (2) ........................................... United Kingdom N/A
PACE Amphitheater Management, Inc. (2) .................. Texas 76-0474961
PACE Amphitheatres, Inc. (2) ............................ Texas 76-0250531
PACE Bayou Place, Inc. (2) .............................. Texas 76-0543571
PACE Communications, Inc. (2) ........................... Texas 76-0545041
PACE Concerts, Ltd. (2) ................................. Texas 76-0522083
PACE Concerts GP, Inc. (2) .............................. Texas 76-0522081
PACE Entertainment Corporation (2) ...................... Texas 74-1545442
PACE Entertainment Group, Ltd. (2) ...................... Texas 76-0522084
PACE Entertainment GP Corp. (2) ......................... Texas 76-0522082
PACE Milton Keynes, Inc. (2) ............................ Texas 76-0412384
PACE Motor Sports, Inc. (2) ............................. Texas 74-1990536
PACE Music Group, Inc. (2) .............................. Texas 76-0108294
PACE Productions, Inc. (2) .............................. Texas 76-0287817
PACE Theatrical Group, Inc. (2) ......................... Texas 76-0235495
PACE Touring, Inc. (2) .................................. Texas 76-0406630
PACE U.K. Holding Corporation (2) ....................... Texas 76-0412383
PACE Variety Entertainment, Inc. (2) .................... Texas 76-0546383
Pavilion Partners ....................................... Delaware 76-0306688
PEC, Inc. (3) ........................................... Nevada 86-0871934
Performing Arts Management of North Miami, Inc. ......... Florida 65-0245800
Polaris Amphitheater Concerts, Inc. ..................... Delaware 13-3948206
PTG-Florida, Inc. (5) ................................... Texas 58-1812340
QN Corp. ................................................ Connecticut pending
Rugrats American Tour, Ltd. ............................. Texas 76-0547132
SFX Acquisition Corp. ................................... Delaware pending
SFX Concerts of the Midwest, Inc. ....................... Delaware 13-3950590
SFX Concerts, Inc. ...................................... Delaware 13-3909179
SFX Delaware, Inc. ...................................... Delaware 13-3931550
SFX Network Group, L.L.C. ............................... Delaware N/A
SFX Sports Group, Inc. .................................. Delaware 13-4006446
SFX Touring, Inc. ....................................... Delaware 13-3993989
Shelli Meadows, Inc. .................................... California 95-4291320
Shoreline Amphitheatre, Ltd. (1) ........................ California 94-2997795
Shoreline Amphitheatre Partners (1) ..................... California 94-2997214

iii

SFX Radio Network, Inc. ............................. Pennsylvania 23-2828323
SM/PACE, Inc. (2) ................................... Texas 74-1855786
Southeast Ticketing Company ......................... Connecticut 06-1450527
Southern Promotions, Inc. ........................... Georgia 58-1421506
STEP Entertainment Services, Inc. ................... Canada N/A
Sunshine Concerts, L.L.C. ........................... Delaware 13-3951409
Sunshine Designs, L.P. .............................. Delaware 13-3951402
Sunshine Designs, Inc. .............................. Delaware 13-3948203
Suntex Acquisition, Inc. ............................ Delaware 13-3948208
Suntex Acquisition, L.P. ............................ Delaware 13-3951401
TAP Productions, Inc. ............................... Massachusetts 04-3178590
TBA Media, Inc. ..................................... California 95-3934091
Tennis Events, Inc. ................................. Florida 65-0646993
The Album Network, Inc. (6) ......................... California 93-3297803
The Gin Touring Company ............................. Florida 65-0825687
The Wedding Tour Company ............................ Texas 76-0548668
Ticket Service, Inc. ................................ Pennsylvania 25-1557403
Touring Artists Group, Inc. ......................... Florida 65-0394104
Touring Artists Group, Inc. ......................... Ohio 34-1708075
Touring Productions, Inc. (2) ....................... Texas 76-0161212
Tremont Street Theatre Corporation II, Inc. ......... Massachusetts 04-3279828
Tuneful Company, Inc. (2) ........................... Texas 34-1708075
Warrenton Street Theatre Corp. ...................... Massachusetts 13-3749267
West Coast Amphitheater Corp. ....................... California 95-4645319
Westbury Music Fair, L.L.C. ......................... Delaware 13-3984613
Western Amphitheater Partners ....................... California 76-0541785
Wolfgang Records (1) ................................ California 94-3223917

- ----------
The mailing addresses and phone numbers for the additional registrants are as
follows:

(1) 260 Fifth Avenue, San Francisco, California 94142; (415) 541-0800.

(2) 515 Post Oak Boulevard, Suite 300, Houston, Texas 77027; (713) 693-8600.

(3) 1325 Airmotive Way, Suite 130, Reno, Nevada 89502; (702) 322-2221.

(4) 1401 South Brentwood Boulevard, St. Louis, Missouri 63144; (314)
962-4000.

(5) 100 South Biscayne Boulevard, Suite 1200, Miami, Florida 33131; (305)
379-2700.

(6) 120 North Victory Boulevard, 3rd Floor, Burbank, California 91502; (818)
955-4000.

THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THE NEW NOTES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THE NEW NOTES, AND IT IS NOT SOLICITING AN OFFER TO BUY
THE NEW NOTES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION, DATED FEBRUARY 12, 1999

PROSPECTUS

[GRAPHIC OMITTED]

OFFER TO EXCHANGE ALL

OUTSTANDING 9 1/8% SENIOR SUBORDINATED NOTES DUE 2008
$200,000,000 PRINCIPAL AMOUNT

FOR

REGISTERED 9 1/8% SENIOR SUBORDINATED NOTES DUE 2008
$200,000,000 PRINCIPAL AMOUNT

We are offering you the opportunity to exchange your 9 1/8% Senior Subordinated
Notes due 2008 for our new 9 1/8% Senior Subordinated Notes due 2008 that are
registered under the Securities Act of 1933 in the exchange offer. Your Old
Notes are not registered under the Securities Act of 1933. Exchanging your Old
Notes for New Notes will provide you with notes that may be easier to sell and
transfer.

Material terms of the exchange offer:

o EXPIRATION. The exchange offer will expire at 5:00 p.m., New York
City time, on , 1999, unless we extend it.

o EXCHANGE. We will exchange all outstanding Old Notes that are validly
tendered and not validly withdrawn before the exchange offer expires.

o TERMS OF THE NOTES. The terms of the New Notes are substantially
identical to the Old Notes, except that the New Notes are registered
under the Securities Act of 1933. Certain transfer restrictions and
registration rights relating to the Old Notes do not apply to the New
Notes.

o WITHDRAWAL RIGHTS. You may withdraw tenders of Old Notes at any time
before the exchange offer expires.

o TAX CONSEQUENCES. We believe that the exchange of notes will not be a
taxable event for U.S. federal income tax purposes, but you should
see "United States Federal Tax Considerations" on page 185 for more
information.

o USE OF PROCEEDS. We will not receive any proceeds from the exchange
offer.

o TRADING. There is no existing market for the New Notes and we will
not apply to list them on any securities exchange.

SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN RISKS
THAT YOU SHOULD CONSIDER BEFORE YOU TENDER YOUR OLD NOTES AND PARTICIPATE IN
THIS EXCHANGE OFFER.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the New Notes or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
This prospectus is dated February , 1999.

PROSPECTUS SUMMARY

This summary highlights selected information from this prospectus and does
not contain all of the information that is important to you. We encourage you
to read all of the information in this prospectus carefully, including the
"Risk Factors" section, before you exchange your Old Notes. Unless otherwise
indicated, all references in this prospectus to "SFX," "Company," "we," "us,"
or "our" mean SFX Entertainment, Inc., including the entities acquired by SFX
and its subsidiaries. The pro forma information contained in this prospectus
gives effect to our acquisitions listed on page 39, our pending Marquee and
Cellar Door acquisitions as if they had occurred on January 1, 1997, an
offering of the Old Notes and a proposed equity offering of 4.8 million shares
of Class A common stock as if they had occurred on January 1, 1997. However,
the pending acquisitions or the proposed equity offering might not be
consummated on the terms described in this prospectus or at all.

SFX

SFX is the largest diversified promoter, producer and venue operator for
live entertainment events in the United States. Our major areas of focus within
the live entertainment industry include music, theater, sports and family
entertainment. We believe that our leadership position in the industry enhances
our ability to maximize ancillary revenue opportunities, including corporate
sponsorship sales, advertising, concession sales and product merchandising. For
the twelve months ended September 30, 1998, we had pro forma net revenue of
approximately $1.26 billion.

We own, partially or entirely, and/or operate 75 venues, constituting the
largest network of venues in the United States used principally for music
concerts and other live entertainment events. As a venue owner/operator, we
book and promote events in the venues that we control. We have 14 amphitheaters
in 9 of the top 10 markets, and own and/or operate venues in 30 of the top 50
markets overall. We also develop and manage touring Broadway shows, selling
subscription series in 38 markets.

During 1998, giving effect to our recent and pending Marquee and Cellar
Door acquisitions, approximately 35 million people attended 12,150 events
promoted and/or produced by SFX, including approximately 5,200 music concerts,
5,800 theatrical shows, over 800 family entertainment shows and over 350
specialized motor sports shows.

Our principal objectives are to maximize revenue and cash flow growth
opportunities by owning and/or operating leading live entertainment venues,
being a leading promoter and producer of live entertainment events and a
leading provider of talent representation services.

Since its formation in December 1997, SFX has pursued an aggressive
acquisition strategy, completing in excess of 20 acquisitions. In addition, we
have recently agreed to acquire Marquee Group, the Cellar Door group of
companies, interests in seven venues and other assets from entities controlled
by members of the Nederlander family, and Integrated Sports International. The
pending acquisitions are subject to a number of conditions, certain of which
are beyond our control. We are currently negotiating additional acquisitions of
live entertainment and related businesses.

SFX has filed a registration statement covering the proposed issuance of
approximately 4.8 million shares of Class A common stock. SFX expects to
consummate the proposed equity offering in mid February 1999. SFX intends to
use a portion of the net proceeds to pay the cash portion of the pending
acquisitions.

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

THE EXCHANGE OFFER

The Exchange Offer.......... We are offering to exchange up to $200,000,000
aggregate principal amount of our new 9 1/8%
Senior Subordinated Notes due 2008, or New Notes,
which have been registered under the Securities
Act of 1933, for a like amount of our outstanding
9 1/8% Senior Subordinated Notes due 2008, or Old
Notes, which we issued on November 25, 1998 in a
private offering. To exchange your Old Notes, you
must properly tender them and we must accept
them.

Expiration Date............. The exchange offer expires at 5:00 p.m., New
York City time, on , 1999, unless we extend
it.

Withdrawal Rights........... You may withdraw the tender of your Old Notes
at any time before 5:00 p.m., New York City time,
on the expiration date. If we decide for any
reason not to accept any Old Notes for exchange,
we will return your Old Notes without expense to
you promptly after the expiration or termination
of the exchange offer.

Conditions to the Exchange
Offer...................... The exchange offer is subject to customary
conditions, some of which we may waive. We
reserve the right to terminate and amend the
exchange offer at any time if any such condition
occurs before the expiration date.

Interest Payments........... The New Notes will bear interest from December
1, 1998. If we accept your Old Notes for
exchange, then you will waive all interest
accrued but not paid on such Old Notes.

Procedures for Tendering Old
Notes...................... If you are a holder of Old Notes who wishes to
accept the exchange offer for New Notes:

o you must complete, sign and date the
accompanying Letter of Transmittal, or a
facsimile thereof;

o arrange for The Depository Trust Company to
transmit certain required information to the
exchange agent in connection with a
book-entry transfer; or

o mail or otherwise deliver such
documentation, together with your Old Notes,
to the exchange agent at the address set
forth under "The Exchange Offer--Exchange
Agent."

Do not send Letters of Transmittal and
certificates representing Old Notes to us.

By tendering your Old Notes in this manner, you
will be representing, among other things, that:

o the New Notes you acquire pursuant to the
exchange offer are being acquired in the
ordinary course of your business;

o you are not participating, do not intend to
participate, and have no arrangement or
understanding with any person to participate,
in the distribution of the New Notes issued
to you in the exchange offer; and

o you are not an "affiliate" of ours.

Special Procedures for Beneficial
Owners..................... If you are a beneficial owner whose Old Notes
are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and wish to tender your Old Notes in the exchange
offer, please contact the registered owner as
soon as possible and instruct it to tender on
your behalf. If you wish to tender on your own
behalf, you must, prior to completing and
executing the Letter of Transmittal and
delivering your Old Notes, either arrange to have
your Old Notes registered in your name or obtain
a properly completed bond power from the
registered holder. The transfer of registered
ownership may take considerable time.

Guaranteed Delivery
Procedures.................. If you wish to tender your Old Notes and time
will not permit your required documents to reach
the exchange agent by the expiration date, or the
procedure for book-entry transfer cannot be
completed on time, you may tender your Old Notes
according to the guaranteed delivery procedures
set forth in "The Exchange Offer--Procedures for
Tendering Notes."

Appraisal or
Dissenters' Rights......... Owners of Old Notes do not have any appraisal or
dissenters' rights in the exchange offer.

Consequences of Not Exchanging
Old Notes.................. If you do not tender your Old Notes or we
reject your tender, you will not be entitled to
any further registration rights or exchange
rights, except under limited circumstances, and
your Old Notes will continue to be subject to
certain restrictions on transfer.

However, your Old Notes will remain outstanding
and entitled to the benefits of the indenture
governing the notes.

Resales..................... We believe that you can offer for resale,
resell or otherwise transfer the New Notes
without complying with further registration and
prospectus delivery requirements of the
Securities Act if you make the representations
described above under "Procedures for Tendering
Old Notes."

If you are unable to make any of such
representations and you transfer any New Notes
without delivering a proper prospectus or
without qualifying for a registration exemption,
you may incur liability under the Securities Act
and applicable state securities laws. We will
not assume or indemnify you against such
liability.

Federal Tax Consequences.... Your exchange of Old Notes for New Notes
pursuant to the exchange offer generally will not
result in any gain or loss to you for United
States federal income tax purposes. For more
information, see "United States Federal Tax
Considerations."

Use of Proceeds............. We will receive no proceeds from the exchange
offer. We will pay all of our expenses related to
the exchange offer.

Exchange Agent.............. ChaseMellon Shareholder Services, L.L.C. is the
exchange agent for the exchange offer.

SUMMARY DESCRIPTION OF THE NEW NOTES

The form and terms of the New Notes are substantially identical as the
form and terms of the Old Notes, except that the New Notes are registered under
the Securities Act. As a result, the New Notes do not bear legends restricting
their transfer and are not subject to the registration rights and liquidated
damage provisions contained in the Old Notes, except in limited circumstances.
The New Notes represent the same debt as the Old Notes. Both the Old Notes and
the New Notes are governed by the same indenture.

Securities Offered.......... $200,000,000 principal amount of our new 9 1/8%
Senior Subordinated Notes due 2008.

Maturity.................... December 1, 2008.

Interest Payment Dates...... June 1 and December 1, beginning June 1, 1999.

Subsidiary Guarantors....... Each guarantor is our subsidiary. However, not
all of our subsidiaries are guarantors of these
notes. If we cannot make payments on the notes
when they are due, the subsidiary guarantors must
make them instead.

Ranking..................... The New Notes and the subsidiary guarantees:

o are senior subordinated debts;

o are general unsecured obligations of ours;

o rank behind all of our existing and future
senior debt, and ahead or even with all of
our other debt; and

o rank even with our 9 1/8% Senior Subordinated
Notes due February 1, 2008.

Assuming we had completed the offering of the
Old Notes and the exchange of the New Notes on
September 30, 1998 and applied the proceeds as
intended, the New Notes and the subsidiary
guarantees:

o would have been subordinated to $207.0
million of senior debt; and

o would have ranked equally with $350.0
million of other senior subordinated debt.

Optional Redemption......... On or after December 1, 2003, we may redeem at
our option some or all of the New Notes at any
time at the redemption prices listed in the
section "Description of the New Notes--Optional
Redemption."

Before December 1, 2001, we may redeem up to
$70.0 million of the New Notes with the proceeds
of certain public offerings of our equity at the
redemption price listed in the section
"Description of the New Notes--Optional
Redemption."

Mandatory Redemption........ If we sell certain assets or experience
specific kinds of changes of control, we must
offer to repurchase your New Notes at 101% of the
principal amount plus accrued interest through
the repurchase date. For more information, see
"Description of the New Notes-- Repurchase at the
Option of Holders--Change of Control."

Certain Covenants........... The indenture covering the notes contains
covenants that, among other things, restrict our
ability and the ability of our subsidiaries to:

o borrow money;

o sell assets;

o pay dividends on stock or purchase stock;

o make certain payments or investments;

o use assets as security in other
transactions; and

o sell or transfer certain assets or merge
with or into other companies.

For more information on covenants, see
"Description of the New Notes--Certain
Covenants."

RISK FACTORS

You should consider carefully all of the information set forth in this
prospectus and, in particular, the specific factors set forth under "Risk
Factors" before deciding to tender your Old Notes and participate in the
exchange offer.

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

We are providing the following information to aid you in your analysis of
the financial aspects of this exchange offer. We derived this financial
information presented below from the audited and unaudited consolidated
financial statements of SFX and its predecessor. The information is only a
summary and you should read it in conjunction with our historical financial
statements and related notes appearing elsewhere in this document. See "Index
to Financial Statements." We derived the summary unaudited pro forma financial
information presented below from the SFX Unaudited Pro Forma Condensed Combined
Financial Statements included elsewhere in this prospectus.

The summary unaudited pro forma financial information gives effect to the
acquisitions completed by us in 1997 and 1998, the offering of the Old Notes,
the proposed equity offering and the pending acquisitions of Marquee and Cellar
Door as if they had occurred at the beginning of the periods presented. See
"SFX Unaudited Pro Forma Condensed Combined Financial Statements" and the table
"SFX Entertainment, Inc. Summary of Completed and Certain Pending Acquisitions"
on page 39 for selected financial information relating to each acquisition.

We expect to account for the pending Marquee and Cellar Door acquisitions
under the "purchase method." For accounting and financial reporting purposes,
we will allocate the purchase prices of the Marquee and Cellar Door
acquisitions to the assets acquired and liabilities assumed based on their
estimated fair values. SFX will allocate any excess purchase consideration to
goodwill and amortize such amount using the straight-line method over a period
of 15 years.

We believe that the operating performance of entertainment companies, such
as SFX, is measured, in part, by their ability to generate EBITDA. Further, we
use EBITDA as our primary indicator of our operating performance, and
secondarily as a measure of liquidity. "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, we believe that the industry accepts EBITDA
as a generally recognized measure of performance and that analysts who report
publicly on the performance of entertainment companies use EBITDA.
Nevertheless, you should not consider this measure in isolation or as a
substitute for operating income, net income, net cash provided by operating
activities or any other measure for determining the operating performance or
liquidity that is calculated in accordance with GAAP. EBITDA, as we calculate
it, may not be comparable to calculations of similarly titled measures
presented by other companies.

We believe there are adjustments that could affect EBITDA, but we have not
reflected them in the pro forma financial information. If we had made such
adjustments, Adjusted EBITDA on a pro forma basis would have been approximately
$116,875,000 for the year ended December 31, 1997 and $131,154,000 for the nine
months ended September 30, 1998. The adjustments include the elimination of
non-cash charges, the expected cost savings associated with the elimination of
duplicative staffing and general and administrative expenses in connection with
our 1998 acquisitions and the pending Marquee and Cellar Door acquisitions, and
include equity income from investments. While management believes that such
cost savings are achievable, our ability to fully achieve such cost savings is
subject to numerous factors, certain of which may be beyond our control.

Depreciation and amortization includes $1,264,000 of integration costs
incurred during the nine months ended September 30, 1998.

We have reduced corporate expenses for consulting fees earned from
Triathlon Broadcasting Company of $1,794,000 for the year ended December 31,
1997 and $398,000 for the nine months ended September 30, 1998. SFX
Broadcasting Inc. assigned the right to receive consulting fees payable under
the agreement with Triathlon to us in connection with our spin-off from SFX
Broadcasting. Triathlon has agreed to be acquired by a third party, and when
acquired, it will cease paying consulting fees. If the acquisition does not
occur, future fees may vary, above the minimum annual fee of $500,000,
depending upon the level of acquisition and financing activities of Triathlon.

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

YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
PRO FORMA
FOR THE 1997
ACQUISITIONS, THE
1998 ACQUISITIONS,
THE PENDING
MARQUEE
AND CELLAR DOOR
ACQUISITIONS,
THE OLD
NOTE OFFERING
PREDECESSOR AND THE PROPOSED
------------------------------------------------- EQUITY OFFERING
1993 1994 1995 1996 1997 1997
------------- ------------- ---------- ---------- -------------- --------------------
(UNAUDITED) (UNAUDITED)

STATEMENT OF
OPERATIONS DATA:
Revenue .................... $46,526 $92,785 $47,566 $ 50,362 $ 96,144 $ 1,001,191
Operating expenses ......... 45,635 90,598 47,178 50,686 83,417 892,159
Depreciation &
amortization .............. 762 755 750 747 5,431 89,156
Corporate expenses ......... -- -- -- -- 2,206 8,000
Non-cash compensation
and other non-cash
charges ................... -- -- -- -- -- 1,367
------- ------- ------- -------- ------------ -----------
Operating income (loss) 129 1,432 (362) (1,071) 5,090 10,509
Interest expense ........... (148) (144) (144) (60) (1,590) (70,115)
Other income
(expense) ................. 85 138 178 198 295 4,280
Equity income (loss)
from investments .......... -- (9) 488 524 509 5,489
------- --------- ------- -------- ------------ -----------
Income (loss) before
income taxes .............. 66 1,417 160 (409) 4,304 (49,837)
Income tax provision ....... (57) (5) (13) (106) (490) (4,915)
------- --------- ------- -------- ------------ -----------
Net income (loss) .......... 9 1,412 147 (515) 3,814 (54,752)
Accretion on temporary
equity--stock subject
to redemption (1) ......... -- -- -- -- -- (3,601)
------- -------- ------- -------- ------------ -----------
Net income (loss)
applicable to common
shares .................... $ 9 $1,412 $ 147 $ (515) $ 3,814 $ (58,353)
======= ======== ======= ======== ============ ===========
Net income (loss) per
common share (2) .......... $ 0.26 $ (1.60)
------------ -----------
Weighted average
common shares
outstanding (2) ........... 14,445,061 37,085,751
OTHER OPERATING
DATA (3)
Cash flow from:
Operating activities ...... $2,959 $ (453) $ 4,214 $ 1,005
Investment activities ..... -- -- (435) (73,296)
Financing activities ...... (477) (216) (1,431) 78,270
Ratio of earnings to
fixed charges (4) ........ 1.2x 4.6x 1.4x -- 2.5 x --

NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------
PRO FORMA
FOR THE 1997
ACQUISITIONS, THE
1998 ACQUISITIONS,
THE PENDING
MARQUEE
AND CELLAR DOOR
ACQUISITIONS,
THE OLD
NOTE OFFERING
AND THE PROPOSED
ACTUAL ACTUAL EQUITY OFFERING
1997 1998 1998
-------------- -------------- -------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)

STATEMENT OF
OPERATIONS DATA:
Revenue .................... $ 74,396 $ 680,376 $ 1,037,148
Operating expenses ......... 63,045 602,538 910,731
Depreciation &
amortization .............. 4,041 40,381 71,808
Corporate expenses ......... 1,307 5,839 6,000
Non-cash compensation
and other non-cash
charges ................... -- 32,895 33,262
------------ ------------ -----------
Operating income (loss) 6,003 (1,277) 15,347
Interest expense ........... (956) (31,709) (52,587)
Other income
(expense) ................. 213 2,152 (670)
Equity income (loss)
from investments .......... 1,344 3,964 5,968
------------ ------------ -----------
Income (loss) before
income taxes .............. 6,604 (26,870) (31,942)
Income tax provision ....... (2,952) (3,333) (4,617)
------------ ------------ -----------
Net income (loss) .......... 3,652 (30,203) (36,559)
Accretion on temporary
equity--stock subject
to redemption (1) ......... -- (1,925) (2,711)
------------ ------------ -----------
Net income (loss)
applicable to common
shares .................... $ 3,652 $ (32,128) $ (39,270)
============ ============ ===========
Net income (loss) per
common share (2) .......... $ 0.25 $ (1.38) $ (1.07)
------------ ------------ -----------
Weighted average
common shares
outstanding (2) ........... 14,382,778 23,262,122 37,085,751
OTHER OPERATING
DATA (3)
Cash flow from:
Operating activities ...... $ 789 $ 22,307
Investment activities ..... (71,997) (852,240)
Financing activities ...... 78,302 889,543
Ratio of earnings to
fixed charges (4) ........ 3.1 x -- --

AS OF DECEMBER 31, AS OF SEPTEMBER 30, 1998
---------------------------------------------------------- ------------------------------
PRO FORMA
FOR THE PENDING
MARQUEE
AND CELLAR DOOR
ACQUISITIONS,
THE OLD NOTE
PREDECESSOR OFFERING AND
----------------------------------------------- THE PROPOSED
1993 1994 1995 1996 1997 ACTUAL EQUITY OFFERING
------------- ------------- --------- --------- ---------- ------------- ----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)

BALANCE SHEET DATA:
Current assets ................. $1,823 $4,453 $3,022 $6,191 $ 11,220 $ 165,727 $ 321,583
Property and equipment, net..... 4,484 3,728 2,978 2,231 59,685 275,000 312,881
Intangible assets, net ......... -- -- -- -- 60,306 904,929 1,088,621
Total assets ................... 6,420 8,222 6,037 8,879 146,942 1,391,548 1,776,513
Current liabilities ............ 4,356 3,423 3,138 7,973 21,514 166,540 175,512
Long-term debt, including
current portion ............... -- 1,830 -- -- 16,178 742,474 757,039
Temporary equity--stock
subject to redemption(1) ...... -- -- -- -- -- 16,500 19,920
Shareholders' equity ........... 6,420 2,969 2,900 907 102,144 396,211 751,183

- ----------
(1) The PACE acquisition agreement provides that each PACE seller 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 SFX to purchase up to one-third of Class A common stock received
by that PACE seller, representing 500,000 shares in the aggregate, for a
cash purchase price of $33.00 per share. With certain limited exceptions,
the sellers may not assign the fifth year put option rights. We have
recorded the maximum amount payable under all fifth year put options,
$16,500,000, as temporary equity. For more information regarding the fifth
year put options, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."

The ProServ acquisition agreement provides that Marquee may be required to
repurchase up to all of the 545,000 shares of Marquee common stock, which
equals 46,652 shares of Class A common stock after giving effect to the
Marquee acquisition. The maximum amount payable under the put option,
$3,420,000, has been recorded as temporary equity.

(2) Includes 500,000 shares of Class A common stock issued to the PACE sellers
in connection with the fifth year put options and 46,652 shares of Class A
common stock related to the ProServ put options issued by Marquee; these
shares are not included in calculating the net loss per common share.

(3) For a calculation of EBITDA and Adjusted EBITDA, see page 11.

(4) For purposes of computing the ratio of earnings to fixed charges,
"earnings" consists of earnings before income taxes and fixed charges.
"Fixed charges" consists of interest on all indebtedness. Earnings were
insufficient to cover fixed charges by $393,000 for the year ended
December 31, 1996, $44,348,000 for the year ended December 31, 1997 pro
forma, $26,413,000 for the nine months ended September 30, 1998 and
$25,974,000 for the nine months ended September 30, 1998 pro forma.

SFX ENTERTAINMENT, INC.
COMPUTATION OF EBITDA AND ADJUSTED EBITDA

YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
PRO FORMA
FOR THE 1997
ACQUISITIONS, THE
1998 ACQUISITIONS,
THE PENDING
MARQUEE
AND CELLAR DOOR
ACQUISITIONS,
THE OLD
NOTE OFFERING
PREDECESSOR AND THE PROPOSED
----------------------------------------------- EQUITY OFFERING
1993 1994 1995 1996 1997 1997
------------- ------------ --------- ---------- ----------- --------------------
(UNAUDITED) (UNAUDITED)

Net income (loss) .......... $ 9 $1,412 $ 147 $ (515) $ 3,814 $ (54,752)
Add back:
Depreciation and
amortization ............. 762 755 750 747 5,431 89,156
Interest expense .......... 148 144 144 60 1,590 70,115
Income tax provision ...... 57 5 13 106 490 4,915
Less:
Other income (expense)..... (85) (138) (178) (198) (295) (4,280)
Equity income from
investments .............. -- 9 (488) (524) (509) (5,489)
----- ------ ------- ------ ------- ---------
EBITDA ..................... 891 2,187 388 (324) 10,521 99,665
Add:
Non-cash compensation
and other non-cash
charges .................. -- -- -- -- -- 1,367
Equity income from
investments .............. -- (9) 488 524 509 5,489
Expected acquisition
related cost savings
related to the
elimination of
duplicative staffing
and general and
administrative
expenses ................. -- -- -- -- -- 10,354
----- ------- ------- ------ ------- ---------
Adjusted EBITDA ............ $ 891 $2,178 $ 876 $ 200 $11,030 $ 116,875
===== ======= ======= ====== ======= =========

NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------
PRO FORMA
FOR THE 1997
ACQUISITIONS, THE
1998 ACQUISITIONS,
THE PENDING
MARQUEE
AND CELLAR DOOR
ACQUISITIONS,
THE OLD
NOTE OFFERING
AND THE PROPOSED
ACTUAL ACTUAL EQUITY OFFERING
1997 1998 1998
------------- ------------- -------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)

Net income (loss) .......... $ 3,652 $ (30,203) $ (36,559)
Add back:
Depreciation and
amortization ............. 4,041 40,381 71,808
Interest expense .......... 956 31,709 52,587
Income tax provision ...... 2,952 3,333 4,617
Less:
Other income (expense)..... (213) (2,152) 670
Equity income from
investments .............. (1,344) (3,964) (5,968)
-------- --------- ---------
EBITDA ..................... 10,044 39,104 87,155
Add:
Non-cash compensation
and other non-cash
charges .................. -- 32,895 33,262
Equity income from
investments .............. 1,344 3,964 5,968
Expected acquisition
related cost savings
related to the
elimination of
duplicative staffing
and general and
administrative
expenses ................. -- -- 4,769
-------- --------- ---------
Adjusted EBITDA ............ $ 11,388 $ 75,963 $ 131,154
======== ========= =========

RISK FACTORS

You should consider carefully the following risk factors and all of the
information set forth in this prospectus before tendering your Old Notes and
participating in the exchange offer. This prospectus contains forward-looking
statements which involve risks and uncertainties. Our actual results could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including those set forth in the following risk
factors and elsewhere in this prospectus. See "Safe Harbor for Forward-Looking
Statements."

RISKS RELATING TO THE NOTES

YOU MAY SUFFER NEGATIVE CONSEQUENCES IF YOU DO NOT EXCHANGE YOUR NOTES.

If you do not exchange your Old Notes for the New Notes pursuant to the
exchange offer, you will continue to be subject to the restrictions on transfer
of your Old Notes described in the legend on your Old Notes. In general, you
may only offer or sell the Old Notes if they are registered under the
Securities Act and applicable state securities laws, or offered and sold
pursuant to an exemption from such requirements. We do not intend to register
the Old Notes under any law. In addition, if you exchange your Old Notes in the
exchange offer for the purpose of participating in a distribution of the
exchange notes, you may be deemed to have received restricted securities and,
if so, will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
To the extent Old Notes are tendered and accepted in the exchange offer, the
trading market, if any, for the Old Notes would be damaged. For more
information on the consequences of not exchanging your Old Notes, see "The
Exchange Offer--Consequences of Failure to Exchange."

SFX HAS A SUBSTANTIAL AMOUNT OF DEBT, WHICH MAY HARM OUR FINANCIAL HEALTH
AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE NOTES.

We have a substantial amount of debt, and the amount of our debt is likely
to substantially increase in the future. Our consolidated debt as of September
30, 1998 would have been approximately $757.0 million, on a pro forma basis
after giving effect to the pending Marquee and Cellar Door acquisitions, the
proposed equity offering and the offering of the Old Notes.

The amount of our debt could have significant negative consequences for us
and for your investment in us. These consequences include:

o making it more difficult for us to make payments required by the notes;

o making us more vulnerable to general adverse economic and industry
conditions;

o limiting our ability to obtain money to pay for future acquisitions,
working capital, capital expenditures and other general corporate
requirements;

o dedicating more of our cash flow to paying off our debt, which will
reduce the amount of cash available to pay for working capital, capital
expenditures or other general corporate needs;

o limiting our flexibility in planning for, or reacting to, changes in
our business and the industry; and

o placing us at a competitive disadvantage to competitors that have less
debt.

Our ability to pay principal and interest on our debt on time, to
refinance our debt, or to pay for planned expenditures will depend on various
factors, some of which we will not be able to control. These factors include
restrictions contained in our credit facility and the indentures relating to
the Old Notes and the Notes due February 2008, which may limit our ability to,
among other things, borrow additional funds. We may be unable to generate
enough money to pay our debts because of insufficient cash flow from operations
or because we are not able to raise additional capital funds by selling
securities. We may also be required to refinance a part of our debt before the
debt matures. For more details about our financial resources, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

SFX, AS A HOLDING COMPANY, DEPENDS ON ITS SUBSIDIARIES TO MEET ITS
FINANCIAL OBLIGATIONS.

We are a holding company with no significant assets other than the stock
of our subsidiaries. In order to meet our financial needs, we will rely
exclusively on repayments of interest and principal on intercompany loans made
by us to our operating subsidiaries and income from dividends and other cash
flow from such subsidiaries. We cannot assure you that our operating
subsidiaries will generate sufficient net income to pay upstream dividends or
cash flow to make payments of interest and principal to us in respect of our
intercompany loans.

YOUR RIGHT TO RECEIVE PAYMENTS ON THESE NOTES IS JUNIOR TO OUR EXISTING
INDEBTEDNESS AND POSSIBLY ALL OF OUR FUTURE BORROWINGS.

The notes and the subsidiary guarantees rank behind all the indebtedness
of us and our subsidiaries which guarantee the notes, other than trade
payables, and all of our and their future borrowings, other than trade
payables, except any future indebtedness that expressly provides that it ranks
equal with, or subordinated in right of payment to, the notes and the
guarantees. The notes rank the same as our Notes due February 2008 in the
principal amount of $350.0 million. As a result, upon any distribution to our
creditors or the creditors of the Subsidiary Guarantors in a bankruptcy,
liquidation or reorganization or similar proceeding relating to us or the
Subsidiary Guarantors or our or their property, the holders of our senior debt
and of the Subsidiary Guarantors will be entitled to be paid in full in cash
before any payment may be made with respect to the notes or the subsidiary
guarantees.

In addition, all payments on the notes and the guarantees will be blocked
in the event of a payment default on senior debt and may be blocked for up to
179 days each year in the event of certain non-payment defaults on senior debt.

If a bankruptcy, liquidation or reorganization or similar proceeding
relating to us or the Subsidiary Guarantors occurs, holders of the notes will
participate with trade creditors and all other holders of our subordinated
indebtedness and of the Subsidiary Guarantors in the assets remaining after we
and the Subsidiary Guarantors have paid all of the senior debt. In any of these
cases, we and the Subsidiary Guarantors may not have sufficient funds to pay
all of our creditors and holders of notes may receive less, pro rata, than the
holders of senior debt.

Our obligations under the notes are subordinate and junior in right of
payment to all of our existing and future senior debt. As of September 30,
1998, on a pro forma basis giving effect to the pending Marquee and Cellar Door
acquisitions, the proposed equity offering, and the offering of the Old Notes,
approximately $700.0 million of our total consolidated indebtedness would have
been senior debt, including approximately $150.0 million of

borrowings under the senior credit facility. The indenture allows us to borrow
substantial additional indebtedness, including senior debt, in the future. See
"Description of Indebtedness."

YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES COULD BE ADVERSELY AFFECTED IF
ANY OF SFX'S NON-GUARANTOR SUBSIDIARIES DECLARES BANKRUPTCY, LIQUIDATES OR
REORGANIZES.

Some but not all of our subsidiaries guarantee the notes. In a bankruptcy,
liquidation or reorganization of any of the non-guarantor subsidiaries, holders
of their indebtedness and their trade creditors will generally be entitled to
payment of their claims from the assets of those subsidiaries before any assets
are made available for distribution to us. Assuming we had completed the
offering of the Old Notes on September 30, 1998, the notes would have been
effectively junior to $207.0 million of indebtedness and other liabilities,
including trade payables, of these non-guarantor subsidiaries and approximately
$197.0 million would have been available to those subsidiaries for future
borrowing under our credit facility after giving effect to our pending
acquisitions. The non-guarantor subsidiaries generated 2% of our consolidated
revenues and 3% of our consolidated EBITDA in the nine-month period ended
September 30, 1998 and held 3% of our consolidated assets as of September 30,
1998, in each case after giving effect to our pending Marquee and Cellar Door
acquisitions.

SFX'S CREDIT FACILITY AND INDENTURES RESTRICT ITS OPERATIONS.

Our indentures and our credit facility restrict our ability and our
subsidiaries' ability to, among other things:

o sell or transfer assets;

o incur additional debt;

o repay other debt;

o pay dividends;

o make certain investments or acquisitions;

o repurchase or redeem capital stock;

o engage in mergers or consolidations; and

o engage in certain transactions with subsidiaries and affiliates.

The indentures and the credit facility also require us to comply with
certain financial ratios, as discussed in "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."

These restrictions may interfere with our ability to obtain financing or
to engage in other necessary or desirable business activities.

If we cannot comply with the requirements in our credit facility, then the
lenders may require us to repay immediately all of the outstanding debt under
our credit facility. If our debt payments were accelerated, our assets might
not be sufficient to fully repay our debt. These lenders may also require us to
use all of its available cash to repay our debt or may prevent us from making
payments to other creditors on certain portions of our outstanding debt.

We may not be able to obtain a waiver of these provisions or refinance our
debt, if needed. In such a case, our business, results of operations and
financial condition would suffer.

FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO
VOID GUARANTEES AND REQUIRE NOTE HOLDERS TO RETURN PAYMENTS FROM GUARANTORS.

Any of our creditors may file a lawsuit objecting to our obligations under
the New Notes or the use of the proceeds from the Old Notes. A court could void
our obligations under the New Notes, subordinate the New Notes to our other
debt or order the holders to return any amounts paid for the Old Notes to us or
to a fund benefitting the creditors if the court finds we intended to defraud a
creditor, or did not receive fair value for the Old Notes, and we either:

o were insolvent or became insolvent by offering the Old Notes;

o did not have enough capital to engage in our business; or

o intended to or believed that we overextended our debt obligations.

Creditors of the Subsidiary Guarantors may also object to the Subsidiary
Guarantors' guarantees of the New Notes. In such circumstances, a court could
order the relief outlined above for the same reasons outlined above. In
addition, the creditors of the Subsidiary Guarantors could claim that since the
guarantees were made for our benefit, the Subsidiary Guarantors did not receive
fair value for the guarantees.

The measure of insolvency for fraudulent transfer laws will vary in
different jurisdictions. We believe that at the time we incurred the debt
constituting the Old Notes and the subsidiary guarantees, we and the Subsidiary
Guarantors were neither insolvent nor to be rendered insolvent as a result. We
cannot assure you, however, that a court passing on the same questions would
reach the same conclusions.

SFX MAY NOT HAVE THE FUNDS NECESSARY TO FINANCE A CHANGE OF CONTROL OFFER
FOR THE NOTES.

Upon the occurrence of certain change of control events, we will be
required to repay significant debt and offer to repurchase all outstanding
notes. If Mr. Sillerman directly or indirectly owns less than 30% of the
combined voting power of the Class A and Class B common stock of SFX, then a
"Change in Control" will occur under the senior credit facility. This would
require us to repay all outstanding debt under the senior credit facility. Mr.
Sillerman's voting power will decrease to 34.3% after giving effect to the
pending Marquee and Cellar Door acquisitions and the proposed equity offering.
This amount will decrease if we sell additional voting stock to third parties
or issue it in acquisitions.

In addition, if anyone other than Mr. Sillerman owns over 35% of the
voting power of SFX common stock, we are required to offer to repurchase the
notes and the Notes due February 2008 at 101% of their principal amount plus
accrued interest and liquidated damages. If a change of control were to occur,
we cannot assure you that we would have sufficient money or be able to arrange
financing to perform the obligations or that the restrictions in other
indebtedness permit us from performing our obligations. The indenture does not
protect holders of notes from certain corporate transactions such as a highly
leveraged transaction, reorganization, restructuring, merger or similar event
that does not result in a change of control. You should read "Description of
the New Notes--Repurchase at the Option of Holders--Change of Control" and
"Description of Indebtedness" for more information.

IF AN ACTIVE TRADING MARKET DOES NOT DEVELOP FOR THESE NOTES, IT WILL BE
DIFFICULT TO SELL THESE NOTES OR TO RECEIVE AN ATTRACTIVE PRICE.

The New Notes have no existing trading market. We do not intend to apply
for listing or quotation of the New Notes on any exchange. Therefore, we do not
know the extent to which investor interest will lead to the development of a
trading market or how liquid that market might be. We also cannot assure you
regarding your ability to sell New Notes or the price at which the New Notes
might be sold. Although the initial purchasers of the Old Notes have informed
us that they currently intend to make a market in the New Notes, they are not
obligated to do so, and any such market-making may be discontinued at any time
without notice. As a result, the market price of the New Notes could be harmed.
Historically, the market for non-investment grade debt, such as the New Notes,
has been subject to disruptions that have caused substantial volatility in the
prices of such securities. Any such disruptions may reduce the value of the New
Notes.

COMPANY SPECIFIC RISKS

IF SFX IS UNABLE TO INTEGRATE THE OPERATIONS OF ITS VARIOUS BUSINESSES,
ITS OVERALL BUSINESS MAY SUFFER.

We have grown rapidly since our formation in December 1997, mainly by
acquiring established live entertainment businesses. If we are unable to
integrate our various businesses effectively, then our business, financial
condition and operating results may suffer. As of September 30, 1998, on a pro
forma basis, our 1998 acquisitions represented 74% of our revenues and 67% of
our assets, while the pending Marquee and Cellar Door acquisitions collectively
represented 11% of our revenues and 16% of our assets.

As you evaluate our prospects, you should consider the many risks we will
encounter during our process of integrating these acquired businesses,
including:

o the distraction of management's attention from other business concerns;

o our entry into markets where we have previously limited or no
experience; and

o potential loss of key employees or customers of the acquired
businesses.

Although our management has significant experience, it may be unable to
effectively integrate the acquired businesses and/or integrate Marquee, Cellar
Door and/or other companies we expect to acquire in our pending acquisitions,
if such acquisitions are consummated, without encountering the difficulties
described above, and the combined companies may not benefit as expected from
the integration.

IF SFX IS UNABLE TO COMPLETE ITS PENDING ACQUISITIONS, SFX'S BUSINESS MAY
SUFFER.

Our pending acquisitions are important components in the implementation of
our overall business strategy. However, we may be unable to complete our
pending acquisitions on the terms described in this prospectus or at all. If
the trading price of Class A common stock reflects the market's expectation
that we will complete our pending acquisitions, then the price of Class A
common stock may drop if we are unable to complete these acquisitions.

IF SFX IS UNABLE TO COMPLETE OTHER ACQUISITIONS IN THE FUTURE, SFX'S
BUSINESS MAY SUFFER.

We are currently negotiating additional acquisitions and expect to seek
additional acquisitions of live entertainment and related businesses in the
future. However, we may be unable to:

o identify and acquire additional suitable businesses;

o obtain the financing necessary to acquire the businesses; or

o obtain lenders' consents under our credit facility to acquire the
businesses.

Our inability to obtain financing for future acquisitions or to complete
acquisitions due to regulatory concerns could damage our business, financial
condition and results of operations.

Even if we are able to complete future acquisitions, they could result in
our issuance of more of our stock, which may dilute the value of existing
common stock; incurring a substantial amount of additional debt; and/or
amortizing expenses related to goodwill and other intangible assets. Any or all
of these actions could damage our business, financial condition and results of
operations.

SFX MAY BE FORCED TO SELL SOME OF ITS SUBSIDIARIES, WHICH MAY PREVENT SFX
FROM REALIZING THE FULL VALUE OF THESE SUBSIDIARIES.

We have granted rights to re-purchase some of our subsidiaries. These
rights may discourage potential bidders for the affected assets from
negotiating with us, and may keep us from realizing the full productive value
of these subsidiaries over time.

PACE. In connection with our acquisition of PACE Entertainment
Corporation, Brian Becker received an option to acquire PACE's then existing
motor sports business--or, if that business is sold, PACE's then existing
theatrical business--at its fair market value. Mr. Becker may only exercise
this option within 15 days after February 25, 2000. Mr. Becker's exercise of
this option would result in termination of his employment agreement. Mr.
Becker's exercise of this option could damage our business, financial condition
and results of operations.

In addition, from February 25, 1999 to February 25, 2000, Mr. Becker will
also have a right of first refusal under certain circumstances to acquire
PACE's then existing theatrical or motor sports line of business at a price
equal to 95% of any proposed purchase price by a third party. On a pro forma
basis for our 1998 acquisitions and the pending Marquee and Cellar Door
acquisitions, specialized motor sports would have accounted for approximately
5%, and theatrical would have accounted for approximately 21%, of our total net
revenues for the nine months ended September 30, 1998.

DON LAW. In connection with our acquisition of Blackstone Entertainment,
LLC, also known as "Don Law," we granted the seller a right of first offer and
refusal. The right allows the seller to purchase, with certain exceptions, the
assets we acquired in the acquisition if we elect to sell those assets before
July 2, 2000.

BGP. We have agreed that we will not sell the assets of BG Presents, Inc.
before February 24, 2001, without giving the sellers the opportunity to
purchase the assets on the same terms.

In addition, we have granted similar rights of first refusal to sellers in
certain other acquisitions.

SFX MAY HAVE LOWER REVENUES BECAUSE IT IS UNABLE TO SECURE APPROPRIATE
ARTISTS, EVENTS AND VENUES.

As a participant in the live entertainment industry, our ability to
generate revenues is highly sensitive to public tastes, which are
unpredictable. A change in public tastes, an increase in competition or a lack
of performer or event availability could damage our business, financial
condition and results of operations. Similarly, our ability to generate
revenues from live entertainment events may be limited if other competitive
forms of entertainment are available. Since we rely on unrelated parties to
create and perform live entertainment content, any lack of availability of
popular musical artists, touring Broadway shows, specialized motor sports
talent and other performers could limit our ability to generate revenues.

We require access to venues to generate revenues from live entertainment
events. We operate a number of our live entertainment venues under leasing or
booking agreements. Our long-term success will depend in part on our ability to
renew these agreements when they expire or end. We may be unable to renew these
agreements on acceptable terms or at all, and we may be unable to obtain
favorable agreements with new venues.

SFX MAY HAVE ENVIRONMENTAL LIABILITIES THAT COULD AFFECT ITS RESULTS OR
OPERATIONS OR FINANCIAL CONDITION.

We may be subject to significant environmental liabilities. We own or
lease, or have other contractual interests in, numerous pieces of real
property, many of which we recently acquired. Our properties are subject to
environmental laws and regulations relating to the use, storage, disposal,
emission and release of hazardous and non-hazardous substances or materials.
Our properties may also be subject to noise level restrictions, which may
affect, among other things, the hours of operation of our venues. Additionally,
certain laws and regulations could hold us strictly, jointly and severally
responsible for the correction of hazardous substance contamination at our
facilities or at third-party waste disposal sites, and could hold us
responsible for any personal or property damage related to the contamination.

THE DEPARTMENT OF JUSTICE INVESTIGATION MAY HARM SFX'S OPERATIONS.

We have received a preliminary inquiry from the Department of Justice
seeking information on our acquisitions of live entertainment venues and
businesses throughout the United States. The Department of Justice is
investigating whether these acquisitions might give us undue market power in
producing, promoting or exhibiting live entertainment events. We have
cooperated with the Department of Justice, and believe that our operations and
plan of acquisitions comply with applicable antitrust laws. However, if the
Department of Justice disagrees, it might file a lawsuit to force us to divest
ourselves of some of our operations. Such a lawsuit could have a material
adverse impact on our business, results of operations and financial condition.
For more information concerning the Department of Justice's preliminary
inquiry, see "Business--Regulatory Matters."

POTENTIAL CONFLICTS OF INTEREST MAY AFFECT SFX'S OPERATIONS.

We are subject to potential conflicts of interest arising out of our
relationship with our affiliates. We have issued, and may issue in the future,
shares of Class B common stock, which has 10 votes per share in most matters.
Robert F.X. Sillerman and Michael G. Ferrel will control approximately 37.9% of
our total voting power after the consummation of the pending Marquee and Cellar
Door acquisitions and the proposed equity offering. Messrs. Sillerman and
Ferrel are also officers and directors of ours. The holders of these shares
will probably have the ability to control certain decisions concerning the
management of SFX which may present conflicts of interest between the holders
of the notes and the holders of the Class B common stock. The holders of Class
B common stock generally will have the ability to control our business affairs
and to determine the outcome of most corporate transactions or other matters
requiring stockholder approval. Such matters requiring stockholder approval
include, among others:

o an amendment to our articles of incorporation;

o the authorization of additional shares of capital stock; and

o a merger, consolidation or sale of all or substantially all of our assets
or stock.

The holders of Class B common stock thus can prevent or cause a change of
control of SFX, either of which may adversely affect us or our results of
operations.

SFX'S OPERATIONS MAY SUFFER FROM YEAR 2000 COMPUTER PROBLEMS.

Year 2000 issues exist when computers record dates using two digits rather
than four, and then use the dates for arithmetic operations, comparisons or
sorting. A two-digit recording may recognize a date using "00" as 1900 rather
than 2000, which could cause computer systems to perform inaccurate
computations or fail to operate. Although we do not anticipate being subject to
a material impact in this area, if we and the companies with which we do
business do not take adequate preventative action, then the Year 2000 problem
could damage our business, financial condition and results of operations. For
more information concerning our Year 2000 compliance issues, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Year 2000 Compliance."

THE EXCHANGE OFFER

PURPOSE OF THE EXCHANGE OFFER

We sold the Old Notes on November 25, 1998 to Morgan Stanley & Co.
Incorporated, Lehman Brothers Inc., BancBoston Roberston Stephens Inc. and BNY
Capital Markets, Inc. (collectively, the "Initial Purchasers") pursuant to a
purchase agreement. The Initial Purchasers subsequently placed the Old Notes
with qualified institutional buyers in reliance on Rule 144A under the
Securities Act of 1933 and in non-U.S. transactions pursuant to Regulation S
under the Securities Act. As a condition to the sale of the Old Notes, SFX, the
Subsidiary Guarantors and the Initial Purchasers entered into the Registration
Rights Agreement on November 25, 1998.

Pursuant to the Registration Rights Agreement, we agreed that, unless the
exchange offer is not permitted by applicable law or Securities and Exchange
Commission policy, we would:

o file with the Commission a registration statement under the Securities Act
with respect to the New Notes within 100 days of such agreement's
execution;

o use its best efforts to cause such registration statement to become
effective under the Securities Act within 145 days of such agreement's
execution; and

o upon effectiveness of the registration statement, commence the exchange
offer and use its best efforts to maintain the effectiveness of the
registration statement and keep the exchange offer open for at least 20
business days.

A copy of the Registration Rights Agreement is filed as a copy to the
registration statement of which this prospectus is a part. We are making this
exchange offer to satisfy our obligations under the Registration Rights
Agreement. The term "holder," with respect to the exchange offer, means any
person in whose name Old Notes are registered on our books or any other person
who has obtained a properly completed bond power from the registered holder, or
any person whose Old Notes are held of record by The Depository Trust Company
("DTC"). Other than pursuant to the Registration Rights Agreement, we are not
required to file any registration statement to register any outstanding Old
Notes. Holders of Old Notes who do not tender their Old Notes or whose Old
Notes are tendered but not accepted would have to rely on exemptions to
registration requirements under the securities laws, including the Securities
Act, if they wish to sell their Old Notes.

RESALE OF THE NEW NOTES

We are making the exchange offer in reliance on the position of the staff
of the Commission as set forth in certain interpretive letters addressed to
third parties in other transactions. However, we have not sought our own
interpretive letter and there can be no assurance that the staff would make a
similar determination with respect to the exchange offer as it has in such
interpretive letters to third parties. Based on these interpretations by the
staff of the Commission, we believe that a holder who exchanges the Old Notes
for the New Notes in the ordinary course of business and who is not
participating, does not intend to participate, and has no arrangement with any
person to participate, in the distribution of the New Notes, will be allowed to
resell the New Notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the New Notes a
prospectus that satisfies the requirements of the Securities Act.

Any holder of Old Notes who is an "affiliate" of ours or who intends to
distribute the New Notes, or any broker-dealer who purchased Old Notes from us
to resell pursuant to Rule 144A or any other available exemption under the
Securities Act:

o cannot rely on the staff's interpretations in the above-mentioned
interpretive letters;

o cannot tender Old Notes in the exchange offer; and

o must comply with the registration and prospectus delivery requirements of
the Securities Act to transfer the Old Notes, unless the sale is exempt.

In addition, if any broker-dealer acquired Old Notes for its own account
as a result of market-making or other trading activities and exchanges the Old
Notes for the New Notes, the broker-dealer must deliver a prospectus with any
resales of the New Notes.

Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. A broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act if it makes this
acknowledgment and delivers a prospectus in connection with any resale. A
broker-dealer may use this prospectus, as it may be amended or supplemented
from time to time, in connection with resales of New Notes received in exchange
for Old Notes where such Old Notes were acquired by such broker-dealer as a
result of market-making or other trading activities. Pursuant to the
Registration Rights Agreement, we agreed to make this prospectus, as it may be
amended or supplemented from time to time, available to broker-dealers for use
in connection with any resale for a period of 180 days after the Commission
declares the registration statement effective. See "Plan of Distribution."

TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING NOTES

Subject to the terms and conditions set forth in this prospectus and in
the accompanying Letter of Transmittal, we will accept for exchange Old Notes
which are properly tendered on or prior to the Expiration Date and not
withdrawn as permitted below. We will issue $1,000 principal amount of New
Notes in exchange for each $1,000 principal amount of outstanding Old Notes
surrendered pursuant to the exchange offer. As used in this prospectus, the
term "Expiration Date" means 5:00 p.m., New York City time, on , 1999;
provided, however, that if we, in our sole discretion, have extended the period
of time for which the exchange offer is open, the term "Expiration Date" means
the latest time and date to which we extend the exchange offer.

The form and terms of the New Notes are substantially identical as the
form and terms of the Old Notes, except that:

o the New Notes are registered under the Securities Act and, therefore, the
New Notes do not bear legends restricting their transfer; and

o holders of the New Notes will not be entitled to the rights of holders of
Old Notes under the Registration Rights Agreement, which rights will
terminate upon the consummation of the exchange offer.

The New Notes will evidence the same debt as the Old Notes, which they replace.
The New Notes will be issued under, and be entitled to the benefits of, the
indenture, which authorized the issuance of the Old Notes. The indenture will
treat the Old Notes and the New Notes as a single class of debt securities.

As of the date of this prospectus, $200.0 million aggregate principal
amount of the Old Notes are outstanding. This prospectus and the Letter of
Transmittal are first being sent on

or about , 1999, to all holders of Old Notes known to us. Our obligation
to accept Old Notes for exchange pursuant to the exchange offer is subject to
certain conditions as set forth below under "--Certain Conditions to the
Exchange Offer."

Holders of the Old Notes do not have any appraisal or dissenters' rights
under the indenture in connection with the exchange offer. We intend to conduct
the exchange offer in accordance with the provisions of the registration rights
agreement and the applicable requirements of the Securities Act, the Securities
and Exchange Act of 1934, as amended, and the related rules and regulations of
the Commission.

If holders do not tender Old Notes or tender Old Notes that we do not
accept, their Old Notes will remain outstanding. Any Old Notes will be entitled
to the benefits of the indenture, but will not be entitled to any further
registration, except under limited circumstances. See "Risk Factors--Risks
Relating to the Notes--You may suffer negative consequences if you do not
exchange your notes."

We expressly reserve the right, at any time or from time to time, to
extend the period of time during which the exchange offer is open, and thereby
delay acceptance for exchange of any Old Notes, by giving written notice of
such extension to the Old Note holders as described below. During any such
extension, all Old Notes previously tendered will remain subject to the
exchange offer, and we may accept such notes for exchange. We will return at no
expense to the holder, any Old Notes not accepted for exchange as promptly as
practicable after the expiration or termination of the exchange offer.

We expressly reserve the right to amend or terminate the exchange offer,
and not to accept for exchange any Old Notes not already accepted for exchange,
if any of the events specified below under "--Certain Conditions to the
Exchange Offer" should occur. We will give written notice of any extension,
amendment, nonacceptance or termination to the holders of the Old Notes as
promptly as practicable. We will issue notices, in the case of any extension of
the exchange offer, by means of a press release or other public announcement no
later than 9:00 a.m., New York City time, on the next business day after the
previously scheduled expiration date.

PROCEDURES FOR TENDERING NOTES

Tender

When an Old Note holder validly tenders, and we accept, the Old Notes,
this will constitute a binding agreement between us and such holder subject to
the terms and conditions set forth in this prospectus and the Letter of
Transmittal.

To validly tender in the exchange offer, a holder must transmit a properly
completed and duly executed Letter of Transmittal, including all other
documents required by such Letter of Transmittal, to Chase Mellon Shareholder
Services, L.L.C., the exchange agent, at one of the addresses set forth below
under "Exchange Agent" on or prior to the Expiration Date. In addition, either:

o the exchange agent must receive the certificates for the Old Notes and the
Letter of Transmittal; or

o the exchange agent must receive, prior to , 1999, a timely
confirmation of a book-entry transfer of such Old Notes into the exchange
agent's account at DTC according to the procedure for book-entry transfer
described below; or

o the holder must comply with the guaranteed delivery procedures described
below.

If you tender fewer than all of your Old Notes, you should fill in the
amount of notes tendered in the appropriate box on the Letter of Transmittal.
If you do not indicate the amount tendered in the appropriate box, we will
assume you are tendering all Old Notes that you hold.

THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT YOUR OWN ELECTION AND RISK. DELIVERY OF DOCUMENTS TO
DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE
EXCHANGE AGENT. IF SUCH DELIVERY IS BY MAIL, WE RECOMMEND REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED. IN ALL CASES, YOU SHOULD ALLOW
SUFFICIENT TIME TO ASSURE TIMELY DELIVERY. DO NOT SEND LETTERS OF TRANSMITTAL
OR OLD NOTES TO US.

Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder of Old Notes promptly and
instruct such registered holder of Old Notes to tender on behalf of the
beneficial owner. If such beneficial owner wishes to tender on its own behalf,
such beneficial owner must, prior to completing and executing the Letter of
Transmittal and delivering its Old Notes, either:

o make appropriate arrangements to register ownership of the Old Notes in such
beneficial owner's name; or

o obtain a properly completed bond power from the registered holder of the Old
Notes.

The transfer of record ownership may take considerable time.

Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
are tendered:

o by a registered Old Note holder who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" on the
Letter of Transmittal; or

o for the account of an Eligible Institution.

An "Eligible Institution" is a firm which is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or by a commercial bank or trust company having an office or
correspondent in the United States. If signatures on a Letter of Transmittal or
a notice of withdrawal are required to be guaranteed, the guarantor must be an
Eligible Institution. If Old Notes are registered in the name of a person other
than a signer of the Letter of Transmittal, the Old Notes surrendered for
exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as determined by us
in our sole discretion, duly executed by the registered holder with the
signature thereon guaranteed by an Eligible Institution.

Determination of Validity

We, in our sole discretion, will determine all questions as to the
validity, form, eligibility, including time of receipt, and acceptance of Old
Notes tendered for exchange. Our determination will be final and binding. We
reserve the absolute right to reject any and all tenders of Old Notes
improperly tendered or to not accept any Old Notes which acceptance might, in
our judgment or that of our counsel, be unlawful. We also reserve the absolute
right to waive any defects or irregularities or conditions of the exchange
offer as to any Old Notes either before or after the Expiration Date, including
the right to waive the ineligibility of any holder who seeks to tender Old
Notes in the exchange offer. We need not waive similar conditions or
irregularities in the case of other Old Notes. Our interpretation of the

terms and conditions of the exchange offer as to any particular Old Notes
either before or after the Expiration Date, including the Letter of Transmittal
and the instructions thereto, will be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Old Notes
for exchange must be cured within such reasonable period of time as we shall
determine. Neither we, the exchange agent nor any other person shall be under
any duty to give notification of any defect or irregularity with respect to any
tender of Old Notes for exchange, nor shall any of us incur any liability for
failure to give such notification.

If a person or persons other than the registered holder or holders of Old
Notes signs the Letter of Transmittal, such Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name or names of the registered holder or holders that appear on the Old
Notes.

If trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity sign the Letter of Transmittal or any Old Notes or powers of attorney,
such persons should so indicate when signing, and you must submit proper
evidence satisfactory to us of such persons' authority to so act unless we
waive this requirement.

By tendering, each holder will represent to us that, among other things:

(1) the New Notes to be acquired by the holder of the Old Notes in connection
with the exchange offer are being acquired by the holder in the ordinary
course of business of the holder;

(2) the holder has no arrangement or understanding with any person to
participate in the distribution of New Notes;

(3) the holder acknowledges and agrees that any person who is a broker-dealer
registered under the Exchange Act or is participating in the exchange
offer for the purposes of distributing the New Notes must comply with the
registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction of the New Notes
acquired by such person and cannot rely on the position of the staff of
the Commission set forth in certain no-action letters;

(4) the holder understands that a secondary resale transaction described in
clause (3) above and any resales of New Notes obtained by such holder in
exchange for Old Notes acquired by such holder directly from us should be
covered by an effective registration statement containing the selling
security holder information required by Item 507 or Item 508, as
applicable, of Regulation S-K of the Commission; and

(5) the holder is not an "affiliate," as defined in Rule 405 of the
Securities Act, of ours.

ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES

We will issue to the exchange agent New Notes for Old Notes validly
tendered and accepted and not validly withdrawn promptly after the Expiration
Date. See "--Certain Conditions to the Exchange Offer" below. For purposes of
the exchange offer, we will be deemed to have accepted properly tendered Old
Notes for exchange when, as and if we have given oral or written notice to the
exchange agent, with written confirmation of any oral notice to be given
promptly thereafter. The exchange agent might not deliver the New Notes to all
tendering holders at the same time. The timing of delivery depends upon when
the exchange agent receives and processes the required documents.

For each Old Note accepted for exchange, the Old Note holder will receive
a New Note having a principal amount at maturity equal to that of the
surrendered Old Note. The New Notes bear interest at a rate equal to 9 1/8% per
annum. Interest on the New Notes is payable semi-annually on each December 1
and June 1, commencing on June 1, 1999. Registered holders of the New Notes on
the relevant record date for the first interest payment date following the
consummation of the exchange offer will receive interest accruing from the most
recent date to which interest has been paid on the Old Notes. Holders of Old
Notes that are accepted for exchange will be deemed to have waived the right to
receive any interest accrued on the Old Notes.

In all cases, the issuance of New Notes for Old Notes that are accepted
for exchange pursuant to the exchange offer will be made only after the
exchange agent timely receives either certificates for such Old Notes or
book-entry confirmation of such Old Notes into the exchange agent's account at
DTC, a properly completed and duly executed Letter of Transmittal and all other
required documents. If for any reason set forth in the terms and conditions of
the exchange offer we do not accept any tendered Old Notes, or if Old Notes are
submitted for a greater amount than the holder desires to exchange, we will
return such unaccepted or non-exchanged Old Notes without expense to the
tendering holder--or, in the case of Old Notes tendered by book-entry
procedures described below, such non-exchanged Old Notes will be credited to an
account maintained with DTC--as promptly as practicable after the expiration or
termination of the exchange offer.

The exchange agent is an agent for SFX for receiving tenders of the Old
Notes, Letters of Transmittal and related documents. The exchange agent is also
an agent for tendering holders for receiving the Old Notes, Letters of
Transmittal and related documents and transmitting the New Notes to validly
tendering holders. If for any reason, we:

o delay the acceptance or exchange of any Old Notes;

o extend the exchange offer; or

o are unable to accept or exchange Old Notes,

then the exchange agent may, on behalf of SFX and subject to Rule 14e-1(c)
under the Exchange Act, retain tendered notes. Notes retained by the exchange
agent may not be withdrawn, except according to the withdrawal procedures
outlined in the section entitled "--Withdrawal Rights" below.

In tendering Old Notes, you must warrant in the Letter of Transmittal
that:

o you have full power and authority to tender, exchange, sell, assign and
transfer Old Notes;

o SFX will acquire good, marketable and unencumbered title to the tendered Old
Notes, free and clear of all liens, restrictions, charges and other
encumbrances; and

o the Old Notes tendered for exchange are not subject to any adverse claims or
proxies.

You also must warrant and agree that you will, upon request, execute and
deliver any additional documents requested by us or the exchange agent to
complete the exchange, sale, assignment and transfer of the Old Notes.

BOOK-ENTRY TRANSFER

In order to facilitate the exchange offer, the exchange agent will request
DTC to establish an account with respect to the Old Notes for the exchange
offer within two business days after the date of this prospectus. Additionally,
any financial institution that is a

participant in DTC's book-entry systems may make book-entry delivery of Old
Notes by causing DTC to transfer such Old Notes into the exchange agent's
account at DTC in accordance with DTC's procedures for transfer. Although
delivery of Old Notes may be effected through book-entry transfer at DTC, the
Letter of Transmittal or facsimile thereof, with any required signature
guarantees and other required documents, must in any case be transmitted to and
received by the exchange agent at one of the addresses set forth below under
"--Exchange Agent" on or prior to the Expiration Date or the guaranteed
delivery procedures described below must be complied with.

GUARANTEED DELIVERY PROCEDURES

If a registered holder of Old Notes desires to tender such Old Notes and
the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the exchange agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, then a tender may be effected if:

o the tender is made through an Eligible Institution;

o before the Expiration Date, the exchange agent receives from such Eligible
Institution a properly completed and duly executed Letter of Transmittal,
or a facsimile thereof, and notice of guaranteed delivery, substantially in
the form provided by us, by telegram, telex, facsimile transmission, mail
or hand delivery, setting forth the name and address of the holder of the
Old Notes and the amount of Old Notes tendered, stating that the tender is
being made thereby and guaranteeing that within three New York Stock
Exchange trading days after the date of execution of the notice of
guaranteed delivery, the certificates for all physically tendered Old
Notes, in proper form for transfer, or a book-entry confirmation, as the
case may be, and any other documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the exchange agent; and

o the exchange agent receives the certificates for all physically tendered Old
Notes, in proper form for transfer, or a book-entry confirmation, as the
case may be, and all other documents required by the Letter of Transmittal,
within five New York Stock Exchange trading days after the date of
execution of the notice of guaranteed delivery.

WITHDRAWAL RIGHTS

You may withdraw tenders of Old Notes at any time on or before the
Expiration Date.

To validly withdraw, you must send a written notice of withdrawal to the
exchange agent at one of the addresses set forth below under "--Exchange
Agent." Any such notice of withdrawal must:

o specify the name of the person who tendered the Old Notes to be withdrawn;

o identify the Old Notes you want to withdraw, including the total amount of
such Old Notes; and

o where certificates for Old Notes have been transmitted, specify the name in
which such Old Notes are registered, if different from that of the
withdrawing holder.

If certificates for Old Notes have been delivered or otherwise identified
to the exchange agent, then, before the release of such certificates the
withdrawing holder must also submit the serial numbers of the particular
certificates to be withdrawn and signed notice of withdrawal with signatures
guaranteed by an Eligible Institution unless such holder is an

Eligible Institution. If Old Notes have been tendered pursuant to the procedure
for book-entry transfer described above, any notice of withdrawal must specify
the name and number of the account at DTC to be credited with the withdrawn Old
Notes and otherwise comply with the procedures of such facility. We will
determine all questions as to the validity, form and eligibility, including
time of receipt, of such notices. Our determination will be final and binding
on all parties. Any Old Notes so withdrawn will be deemed not to have been
validly tendered for exchange for purposes of the exchange offer. Any Old Notes
which have been tendered for exchange but which are not exchanged for any
reason will be returned to the holder thereof without cost to such holder, or,
in the case of Old Notes tendered by book-entry transfer into the exchange
agent's account at DTC pursuant to the book-entry transfer procedures described
above, such Old Notes will be credited to an account with DTC specified by the
holder, as soon as practicable after withdrawal, rejection of tender or
terminations of the exchange offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures described under "--Procedures for
Tendering" above at any time on or before the Expiration Date.

CERTAIN CONDITIONS TO THE EXCHANGE OFFER

Notwithstanding any other provision of the exchange offer, we will not be
required to accept for exchange, or to issue New Notes in exchange for, any Old
Notes. We may terminate or amend the exchange offer, if at any time before the
acceptance of such Old Notes for exchange or the exchange of the New Notes for
such Old Notes, any of the following events will occur, which in our sole
judgment in any case, and regardless of the circumstances, including any action
by us, giving rise to any event described below, makes it inadvisable to
proceed with the exchange offer and/or acceptance for exchange or with such
exchange:

o if any court, governmental agency or other governmental regulatory or
administrative agency or commission threatens, institutes or issues any
action, injunction or order of decree seeking to restrain or prohibit the
making or consummation of the exchange offer or any other transaction
contemplated by the exchange offer, or assessing or seeking any damage as a
result of the exchange offer or resulting in a material delay in our
ability to accept or exchange some or all of the Old Notes pursuant to the
exchange offer;

o if any government or governmental authority, agency or court, domestic or
foreign, takes, proposes to take or threatens to take any action, or seeks,
proposes, introduces, enacts, promulgates or deems applicable to the
exchange offer or any of the transactions contemplated by the exchange
offer any statute, rule, regulation, order or injunction that in our sole
judgment might directly or indirectly result in any of the consequences
referred to above, holders having obligations with respect to resales and
transfers of New Notes greater than those described in the Commission's
interpretation referred to in this section under the heading
"--Consequences of Exchanging Notes," or other consequences, which would
otherwise make it inadvisable to proceed with the exchange offer;

o the staff no longer allows the New Notes to be offered for resale, resold
and otherwise transferred by certain holders without compliance with the
registration and prospectus delivery provisions of the Securities Act;

o if any general suspension of or general limitation on prices for, or trading
in, securities on any national securities exchange or in the
over-the-counter market occurs;

o if any limitation by any governmental agency or authority which may
adversely affect our ability to complete the transactions contemplated by
the exchange offer occurs;

o if a declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States or any limitation by any governmental
agency or authority which adversely affects the extension of credit occurs;

o if a commencement of a war, armed hostilities or other similar international
calamity directly or indirectly involving the United States, or, in the
case of any of the foregoing existing at the time of the commencement of
the exchange offer, a material acceleration or worsening thereof occurs; or

o if any change, or any development involving a prospective change, occurs or
is threatened in our and our subsidiaries' business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects taken as a whole that, in our sole judgment, is or may be adverse
to us, or we become aware of facts that, in our sole judgment have or may
have adverse significance with respect to the value of the Old Notes or the
New Notes.

The foregoing conditions are for our sole benefit and we may assert them
regardless of the circumstances giving rise to any such condition or we may
waive them in whole or in part at any time and from time to time in our sole
discretion. Our failure at any time to exercise any of the foregoing rights
will not be deemed a waiver of any such right and each such right will be
deemed an ongoing right which we may assert at any time and from time to time.

In addition, we will not accept for exchange any Old Notes tendered, and
no New Notes will be issued in exchange for any such Old Notes, if at such time
any stop order shall be threatened or in effect with respect to the
registration statement of which this prospectus constitutes a part, or the
qualification of the indenture under the Trust Indenture Act
of 1939.

EXCHANGE AGENT

ChaseMellon Shareholder Services, L.L.C. will be the exchange agent for
the exchange offer. All executed Letters of Transmittal should be directed to
the exchange agent at the addresses set forth below.

By U.S. Mail: By Hand:
ChaseMellon Shareholder Services, L.L.C. ChaseMellon Shareholder Services, L.L.C.
Post Office Box 3301 120 Broadway, 13th Floor
South Hackensack, NJ 07606 New York, NY 10271
Attn: Reorganization Department Attn: Reorganization Department

By Overnight Delivery:
ChaseMellon Shareholder Services, L.L.C.
85 ChallengerRoad--Mail Drop--Reorg
Ridgefield Park, NJ 07660
Attn: Reorganization Department
By Facsimile: (201) 296-4293
Confirm Facsimile Only: (201) 296-4860

DELIVERY OF A LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE
LISTED ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF
TRANSMITTAL.

INFORMATION AGENT

Georgeson & Company Inc. will be the information agent for the exchange
offer. Questions and requests for assistance, requests for additional copies of
this prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the information agent at the address
set forth below:

Georgeson & Company Inc.
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect: (212) 440-9800
All Others Call Toll Free: 1-800-223-2065

FEES AND EXPENSES

We will not make any payment to brokers, dealers or others soliciting
acceptances of the exchange offer other than to the information agent.

We will pay the estimated cash expenses to be incurred in connection with
the exchange offer, which are estimated in the aggregate to be $500,000.

ACCOUNTING TREATMENT

For accounting purposes, we will recognize no gain or loss as a result of
the exchange offer. We will amortize the expenses of the exchange offer over
the term of the New Notes.

TRANSFER TAXES

Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who
instruct us to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the exchange offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.

REGULATORY MATTERS

We are not aware of any governmental or regulatory approvals that are
required in order to consummate the exchange offer.

CONSEQUENCES OF EXCHANGING NOTES

Based on interpretations by the staff of the Commission as set forth in
no-action letters issued to third parties in other transactions, we believe
that New Notes issued pursuant to the exchange offer in exchange for Old Notes
may be offered for resale, resold or otherwise transferred by a holder thereof,
other than any holder which is an "affiliate" of ours within the meaning of
Rule 405 under the Securities Act or a holder that is a broker-dealer who
acquires New Notes to resell pursuant to Rule 144A or any other available
exemption under the Securities Act, without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such
New Notes are acquired in the ordinary course of such holder's business and
such holder has no arrangement or understanding with any person to participate
in the distribution of such New Notes. However, we do not intend to request the
Commission to consider, and the Commission has not considered, the exchange
offer in the context of a no-action letter and we cannot guarantee that the
staff of the Commission would make a similar determination with respect to the
exchange offer as in such other circumstances. If any holder is an affiliate of
ours, is engaged in or intends to engage in or has any arrangement or
understanding with respect to the distribution of the New Notes to be acquired
pursuant to the exchange offer, such holder must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any resale transaction. Each broker-dealer that receives New Notes for its own
account in exchange for Old Notes must acknowledge that such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities and that it will deliver a prospectus in connection with any
resale of such New Notes.

In addition, to comply with the securities laws of certain jurisdictions,
if applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with.

CONSEQUENCES OF FAILURE TO EXCHANGE

Participation in the exchange offer is voluntary. You are urged to consult
with your financial and tax advisors in making your decision on what action to
take.

The Old Notes which are not exchanged for the New Notes pursuant to the
exchange offer will remain restricted securities. Accordingly, such Old Notes
may be resold only:

o to a person whom the seller reasonably believes is a qualified institutional
buyer, as defined in Rule 144A under the Securities Act, in a transaction
meeting the requirements of Rule 144A;

o in a transaction meeting the requirements of Rule 144 under the Securities
Act;

o outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act;

o in accordance with another exemption from the registration requirements of
the Securities Act, and based upon an opinion of counsel, if we so request,
to us; or

o pursuant to an effective registration statement.

and, in each case, in accordance with any applicable securities laws of any
state of the United States or any other applicable jurisdiction. We do not
currently anticipate that we will register the Old Notes under the Securities
Act.

As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of, this exchange offer, the
Company will have fulfilled a covenant contained in the Registration Rights
Agreement. Holders of Old Notes who do not tender their Old Notes in the
exchange offer will continue to hold such Old Notes and will be entitled to all
the rights and limitations applicable thereto under the Indenture, except for
any such rights under the Registration Rights Agreement that by their terms
terminate or cease to have further effectiveness as a result of the making of
this exchange offer. All untendered Old Notes will continue to be subject to
the restrictions on transfer set forth in the Indenture. To the extent that Old
Notes are tendered and accepted in the exchange offer, the trading market for
untendered Old Notes could be adversely affected.

USE OF PROCEEDS

SFX will not receive any proceeds from the exchange offer.

SFX used $178.0 million of the net proceeds of the offering of the Old
Notes to repay substantially all outstanding borrowings under the revolving
portion of its senior credit facility.

CAPITALIZATION

The following table includes, as of September 30, 1998, the historical
capitalization of SFX and the pro forma capitalization of SFX to reflect the
offering of the Old Notes, the consummation of the pending Marquee and Cellar
Door acquisitions and the consummation of the proposed equity offering. This
information should be read in conjunction with the financial statements and the
related notes thereto included elsewhere herein.

SEPTEMBER 30, 1998
------------------------------
(IN THOUSANDS)
ACTUAL PRO FORMA
------------- --------------
(UNAUDITED) (UNAUDITED)

Cash and cash equivalents .......................................... $ 65,589 $ 197,565
========== ==========
Debt:
Senior credit facility ............................................. $ 346,000 $ 150,000
9 1/8% senior subordinated notes due February 1, 2008 .............. 350,000 350,000
9 1/8% senior subordianted notes due December 1, 2008 .............. -- 200,000
Other long-term debt ............................................... 23,122 23,122
Capital lease obligations .......................................... 12,922 12,922
Deferred purchase consideration .................................... 10,430 20,995
---------- ----------
Total debt ......................................................... $ 742,474 $ 757,039
---------- ----------
Temporary equity--stock subject to redemption(1) ................... $ 16,500 $ 19,920
---------- ----------
Stockholders' equity:
Preferred stock, $.01 par value, 25,000,000 shares authorized, none
outstanding as of September 30, 1998 actual and pro forma ......... -- --
Class A common stock, $.01 par value, 100,000,000 shares
authorized, 28,753,194 shares issued and outstanding as of
September 30, 1998 actual, and 35,388,714 shares issued and
outstanding pro forma(2) .......................................... 288 354
Class B common stock, $.01 par value, 10,000,000 shares
authorized, 1,697,037 shares issued and outstanding as of
September 30, 1998 actual and pro forma ........................... 17 17
Additional paid-in capital ......................................... 431,617 786,523
Deferred compensation .............................................. (7,397) (7,397)
Accumulated deficit ................................................ (28,314) (28,314)
---------- ----------
Total stockholders' equity ......................................... $ 396,211 $ 751,183
---------- ----------
Total capitalization ............................................... $1,155,185 $1,528,142
========== ==========

- ----------
(1) The PACE agreement provides each PACE seller with an option, exercisable
between February 25, 2003 and May 26, 2003, to require SFX to purchase up
to one-third of the shares of Class A common stock received by that
seller, representing 500,000 shares in the aggregate, for a cash purchase
price of $33.00 per share. With certain limited exceptions, the PACE
sellers cannot assign the option rights. The maximum amount payable under
the options of $16.5 million is presented as temporary equity in SFX's
historical balance sheet, and the increase on a pro forma basis
represents Marquee's potential obligation to repurchase 545,135 shares of
Marquee common stock issued in connection with certain of its
acquisitions, of which 59,027 shares are in escrow.

Marquee has determined that it is probable that the financial thresholds
required to be met for the release of these escrowed shares will be
achieved in 1998. These shares are not included in stockholders' equity.

(2) Gives effect on a pro forma basis to the issuance of an aggregate of
1,472,570 shares of Class A common stock estimated to be issued in the
Marquee acquisition, an aggregate of 360,360 shares of Class A common
stock anticipated to be issued in the Cellar Door acquisition, an
aggregate of 4.8 million shares of Class A common stock to be issued in
the proposed equity offering and issuances of additional shares of Class A
common stock since September 30, 1998. Does not include shares issuable,
subject to certain conditions, upon conversion of the Class B common stock
or shares issuable upon exercise of outstanding options.

SFX UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The following information is based on the audited and unaudited financial
statements of our company and certain of the other companies which we have
acquired as well as the audited and unaudited financial statements of Marquee
and Cellar Door. The pro forma information set forth below does not give effect
to the pending Nederlander and ISI acquisitions as well as certain other recent
acquisitions.

The SFX Unaudited Pro Forma Condensed Combined Balance Sheet at September
30, 1998, is presented as if SFX had completed the Old Note offering, the
pending Marquee and Cellar Door acquisitions and the proposed equity offering
as of September 30, 1998.

The SFX Unaudited Pro Forma Condensed Combined Statements of Operations
for the year ended December 31, 1997, and the nine months ended September 30,
1998, are presented as if SFX had completed SFX's 1997 acquisitions, SFX's 1998
acquisitions, the Old Note offering, the pending Marquee and Cellar Door
acquisitions and the proposed equity offering as of January 1, 1997.

To help facilitate your evaluation and review of the following pro forma
information, beginning on page 59, we have included the unaudited pro forma
condensed combined statements of operations of Marquee for the year ending
December 31, 1997, and nine months ended September 30, 1998.

In addition, the SFX Unaudited Pro Forma Condensed Combined Financial
Statements do not reflect certain purchase price adjustments and future
contingent payments, which may be payable pursuant to the various acquisition
agreements.

In our opinion, all adjustments necessary to fairly present this pro forma
information have been made. The SFX Unaudited Pro Forma Condensed Combined
Financial Statements are based upon, and should be read in conjunction with,
the historical financial statements of SFX and certain of the businesses
previously acquired by SFX and the related notes to such financial statements
contained elsewhere in this document. The pro forma information is based upon
tentative allocations of purchase price and does not purport to be indicative
of the results that would have been reported had such events actually occurred
on the date specified, nor is it indicative of SFX's future results. Purchase
accounting is based upon preliminary asset valuations, which are subject to
change. Final asset valuations are not expected to differ materially from the
preliminary valuations. In addition, the operations data include adjustments to
operating expenses to reflect anticipated savings that SFX management believes
it will be able to achieve through the implementation of its operating
strategy. However, there can be no assurance that SFX will be able to achieve
such savings.

The SFX Unaudited Pro Forma Condensed Combined Financial Statements and
notes thereto contain forward-looking statements that involve risks and
uncertainties, including those described in "Risk Factors" or elsewhere herein.
Therefore, the actual results of SFX may differ materially from those discussed
herein. See "Risk Factors." SFX undertakes no obligation to publicly release
the result of any revisions to these forward-looking statements that may be
made to reflect any future events or circumstances.

SFX ENTERTAINMENT, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1998
(IN THOUSANDS)

PENDING MARQUEE AND CELLAR DOOR ACQUISITIONS
AND OLD NOTE OFFERING
I
-----------------------------------------------
SFX CELLAR PRO FORMA
ENTERTAINMENT DOOR MARQUEE ADJUSTMENTS
(ACTUAL) A B C
--------------- ------------- ------------- -------------------

Assets:
Current assets .............................. $ 165,727 $ (62,405) $ (17,275) $ 110,640(a)
Property and equipment, net of
accumulated depreciation of $12,144 ........ 275,000 34,986 2,895 --
Intangible assets, net of accumulated
amortization of $28,551..................... 904,929 65,635 110,557 7,500 (b)
Other assets ................................ 45,892 2,088 5,814 (366)(d)
---------- --------- --------- ----------
Total Assets ................................ $1,391,548 $ 40,304 $ 101,991 $ 117,774
========== ========= ========= ==========
Liabilities and Stockholders' Equity:
Current liabilities ......................... $ 166,540 $ 11,729 $ 11,451 $ (14,208)(c)
Deferred taxes .............................. 60,601 -- -- --
Senior credit facility ...................... 346,000 -- -- (67,652)(c)
Senior subordinated notes ................... 350,000 -- -- 200,000 (a)
Other long-term debt ........................ 23,122 -- -- --
Capital lease obligations ................... 12,922 -- -- --
Deferred purchase consideration ............. 10,430 6,788 3,777 --
Other liabilities ........................... 5,354 1,787 1,615 --
Minority interest ........................... 3,868 -- -- (366)(d)
Temporary equity--stock subject to
redemption ................................. 16,500 -- 3,420 --
Stockholders, equity:
Class A common stock ........................ 288 4 14 --
Class B common stock ........................ 17 -- -- --
Additional paid-in capital .................. 431,617 19,996 81,714 --
Deferred compensation ....................... (7,397) -- -- --
Accumulated deficit ......................... (28,314) -- -- --
---------- --------- --------- ----------
Total stockholders' equity .................. 396,211 20,000 81,728 --
Total Liabilities & Stockholders' Equity $1,391,548 $ 40,304 $ 101,991 $ 117,774
========== ========= ========= ==========

PRO FORMA
FOR THE PENDING
PRO FORMA MARQUEE AND
FOR THE CELLAR DOOR
PENDING MARQUEE THE ACQUISITIONS,
AND CELLAR DOOR PROPOSED THE OLD NOTE
ACQUISITIONS AND EQUITY OFFERING AND
THE OLD NOTE OFFERING THE PROPOSED
OFFERING II EQUITY OFFERING
----------------- ------------- ----------------

Assets:
Current assets .............................. $ 196,687 $ 124,896 $ 321,583
Property and equipment, net of
accumulated depreciation of $12,144 ........ 312,881 -- 312,881
Intangible assets, net of accumulated
amortization of $28,551..................... 1,088,621 -- 1,088,621
Other assets ................................ 53,428 -- 53,428
---------- ----------- ----------
Total Assets ................................ $1,651,617 $ 124,896 $1,776,513
========== =========== ==========
Liabilities and Stockholders' Equity:
Current liabilities ......................... $ 175,512 $ -- $ 175,512
Deferred taxes .............................. 60,601 -- 60,601
Senior credit facility ...................... 278,348 (128,348) 150,000
Senior subordinated notes ................... 550,000 -- 550,000
Other long-term debt ........................ 23,122 -- 23,122
Capital lease obligations ................... 12,922 -- 12,922
Deferred purchase consideration ............. 20,995 -- 20,995
Other liabilities ........................... 8,756 -- 8,756
Minority interest ........................... 3,502 -- 3,502
Temporary equity--stock subject to
redemption ................................. 19,920 -- 19,920
Stockholders, equity:
Class A common stock ........................ 306 48 354
Class B common stock ........................ 17 -- 17
Additional paid-in capital .................. 533,327 253,196 786,523
Deferred compensation ....................... (7,397) -- (7,397)
Accumulated deficit ......................... (28,314) -- (28,314)
---------- ----------- ----------

Total stockholders' equity .................. 497,939 253,244 751,183
Total Liabilities & Stockholders' Equity $1,651,617 $ 124,896 $1,776,513
========== =========== ==========

I. PENDING MARQUEE AND CELLAR DOOR ACQUISITIONS AND THE OLD NOTE OFFERING

A. CELLAR DOOR

AS OF SEPTEMBER 30, 1998 (IN THOUSANDS)
--------------------------------------------------
PRO FORMA CELLAR DOOR
AS REPORTED ADJUSTMENTS ACQUISITION
------------- ------------------- ------------

Assets:
Current assets ................................... $ 9,095 $ (71,500)(a) $ (62,405)
Property and equipment, net ...................... 34,986 -- 34,986
Intangible assets, net ........................... 256 58,591 (b) 65,635
6,788 (c)
Other assets ..................................... 4,420 (2,332)(d) 2,088
------- ---------- ---------
Total Assets ..................................... $48,757 $ (8,453) $ 40,304
======= ========== =========
Liabilities & Stockholders' Equity:
Current liabilities .............................. $16,130 $ (4,401)(d) $ 11,729
Long-term debt ................................... 23,500 (23,500)(a) --
Deferred Purchase Consideration .................. -- 6,788 (c) 6,788
Other Liabilities ................................ 1,787 -- 1,787
Stockholders' equity ............................. 7,340 (7,340)(e) 20,000
20,000 (a)
------- ---------- ---------
Total Liabilities & Stockholders' Equity ......... $48,757 $ (8,453) $ 40,304
======= ========== =========

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

(a) To reflect the Cellar Door acquisition for $71,500,000 in cash
including the repayment of $23,500,000 of Cellar Door's debt and
$1,500,000 of fees and expenses, and the issuance of $20,000,000 of
SFX Class A common stock or 360,360 shares, assuming that the shares
are issued at $55.50 per share.

(b) To reflect the excess of the purchase price paid over the fair value
of net tangible assets acquired of $58,591,000.

(d) To reflect the elimination of related parties' notes.

(e) To reflect the elimination of Cellar Door's historical stockholders'
equity.

B. MARQUEE

AS OF SEPTEMBER 30, 1998 (IN THOUSANDS)
-----------------------------------------------------
PRO FORMA MARQUEE
AS REPORTED ADJUSTMENTS ACQUISITION(A)
------------- ------------------- ---------------

Assets:
Current assets ................................... $21,825 $ (39,100)(a) $ (17,275)
Property and equipment, net ...................... 2,895 -- 2,895
Intangible assets, net ........................... 59,648 50,909 (b) 110,557
Other assets ..................................... 5,814 -- 5,814
------- ---------- ---------
Total Assets ..................................... $90,182 $ 11,809 $ 101,991
======= ========== =========
Liabilities & Stockholders Equity:
Current liabilities .............................. $11,451 $ -- $ 11,451
Long-term debt ................................... 33,140 (33,140)(a) --
Deferred purchase consideration .................. 3,777 -- 3,777
Other liabilities ................................ 1,615 -- 1,615
Temporary equity -- stock subject to
redemption ...................................... 3,420 -- 3,420
Stockholders' equity ............................. 36,779 (36,779)(c) 81,728
81,728 (a)
------- ---------- ---------
Total Liabilities & Stockholders' Equity ......... $90,182 $ 11,809 $ 101,991
======= ========== =========

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

(a) To reflect the issuance of 1,472,570 shares of SFX Class A common
stock valued at approximately $81,727,635, and the repayment of
$33,140,000 of Marquee's debt and $6,000,000 in cash for related
fees and expenses. The number of shares and the value of the stock
to be issued is based on a $55.50 price per share and an exchange
ratio of .0856.

(b) To reflect the excess of the purchase price paid over the fair value
of net tangible assets acquired of $50,909,000. If the price of
SFX's common stock is $42.75 or less, the goodwill arising from the
merger may decrease by approximately $28,207,000.

C. PRO FORMA ADJUSTMENTS:

(a) Represents the application of the net proceeds of the Old Note
offering to repay substantially all of the revolving portion of
SFX's credit facility, and borrowings under such facility to finance
the purchase price of the Marquee and Cellar Door acquisitions of
$110,640,000, including the repayment of Marquee's debt and related
fees and expenses.

(b) To record debt issuance costs related to the Old Note offering.

(c) Reflects the payment of the $14,208,000 tax indemnification
liability on December 31, 1998 and a $67,652,000 net paydown of
existing borrowings under the credit agreement.

(d) Reflects the elimination of PACE's minority interest due to the
Cellar Door acquisition.

II. THE PROPOSED EQUITY OFFERING

The adjustments represent the estimated proceeds from the proposed equity
offering of $253,224,000, based on an offering price of $55.50 per share net of
anticipated underwriting discount and fees and expenses related to the proposed
equity offering, the repayment of amounts outstanding under SFX's credit
facility of $128,348,000 and additional cash for general corporate purposes,
including potential future acquisitions of $124,896,000.

SFX ENTERTAINMENT, INC.
SUMMARY OF COMPLETED AND CERTAIN PENDING ACQUISITIONS
(IN THOUSANDS)

CASH
CONSIDERATION
DATE AND VALUE OF NUMBER OF
COMPANY/ACTIVITY ACQUIRED ASSUMED DEBT STOCK ISSUED SHARES ISSUED(1)
- -------------------- -------------------- -------------- -------------- ------------------

Delsener/Slater January 2, 1997 $ 26,815 $ -- --
Meadows March 1, 1997 16,354 7,500 247
Sunshine June 1, 1997 57,489 4,000 152
Westbury January 8, 1998 8,835 1,000 75
BGP February 24, 1998 72,827 7,500 563
PACE and Pavilion February 25, 1998 220,683 20,000 1,500
Contemporary February 27, 1998 82,702 18,700 1,403
Network February 27, 1998 56,784 10,000 750
Concert/Southern March 4, 1998 16,908 -- --
USA Motor Sports March 25, 1998 4,000 -- --
Avalon May 14, 1998 26,840 -- --
Oakdale June 3, 1998 11,900 -- --
FAME June 4, 1998 82,241 35,960 1,000
Don Law July 2, 1998 92,195 -- --
Magicworks September 11, 1998 115,740 -- --
Other Acquisitions Third quarter 1998 115,386 10,000 300
Deferred financing
costs -- -- --
Cellar Door First Quarter 1999 76,788 20,000 360
Marquee First Quarter 1999 33,140 81,728 1,472
Working capital -- -- --
---------- -------- -----
Subtotal 1,117,627 216,388 7,822
Proposed Equity
Offering First Quarter 1999 -- -- --
---------- -------- -----
Total $1,117,627 $216,388 7,822
========== ======== =====
Deferred financing
costs (3) -- -- --

RELATED DEBT,
CAPITAL LEASES
AND DEFERRED PRO FORMA INTEREST EXPENSE
PURCHASE ----------------------------------
CONSIDERATION YEAR ENDED
SOURCE OF AT SEPTEMBER 30, INTEREST DECEMBER 31, NINE MONTHS ENDED,
COMPANY/ACTIVITY FUNDS(2) 1998 RATE 1997 SEPTEMBER 30, 1998
- -------------------- ----------------------------------------- ----------------- ------------ -------------- -------------------

Delsener/Slater Capital contribution $ 2,204 10.000% $ 220 $ 165
Meadows Capital contribution 14,366 8.31% 1,194 895
Sunshine Capital contribution 1,306 8.58% 112 84
Westbury February 2008 Notes 8,835 9.125% 806 605
BGP February 2008 Notes 72,827 9.125% 6,645 4,984
PACE and Pavilion February 2008 Notes 220,683 9.125% 20,137 15,103
Contemporary February 2008 Notes and credit facility 82,702 8.71% 7,203 5,403
Network Credit facility 56,784 8.15% 4,628 3,471
Concert/Southern Credit facility 16,908 8.15% 1,378 1,034
USA Motor Sports Credit facility 4,000 8.15% 326 245
Avalon Credit facility 26,840 8.15% 2,188 1,641
Oakdale Equity offering -- -- -- --
FAME Equity offering -- -- -- --
Don Law Equity offering -- -- -- --
Magicworks Credit facility 115,740 8.84% 10,237 7,678
Other Acquisitions Equity offering and credit facility 100,376 8.15% 8,182 6,136
Deferred financing
costs 18,903 8.15% 1,541 1,156
Cellar Door Credit facility 78,288 9.125% 7,144 5,358
Marquee Credit facility 42,917 9.125% 3,916 2,934
Working capital Credit facility 21,708 9.125% 1,981 1,486
----------------------------------------- ---------- ---------- --------
Subtotal 885,387 77,838 58,378
Proposed Equity
Offering (128,348) (10,113) (7,584)
---------- ---------- --------
Total $ 757,039 $ 67,725 $ 50,794
========== ========== ========
Deferred financing
costs (3) 26,403(4) 2,390 1,793
---------- --------
$ 70,115 $ 52,587
========== ========

- -------
(1) The number of shares issued was based upon the market price either agreed
upon by SFX and the sellers before SFX's stock was publicly traded or at
the price over a reasonable period of time before and after the
announcement of the transaction.

(2) Assumes that the tax indemnification payments of $93.7 million paid as of
September 30, 1998, were funded with the proceeds from SFX's public
offering of 8,050,000 shares of Class A common stock on May 27, 1998.

(3) Represents interest associated with amounts assumed to be borrowed to pay
deferred financing costs.

(4) Deferred financing costs are being amortized over the term of the
agreement.

SFX ENTERTAINMENT, INC.
SUMMARY OF DEPRECIATION AND AMORTIZATION EXPENSE
(IN THOUSANDS)

PRO FORMA AMORTIZATION EXPENSE
----------------------------------
GOODWILL AND OTHER PROPERTY AND YEAR ENDED NINE MONTHS ENDED
INTANGIBLE ASSETS, AMORTIZATION EQUIPMENT, DEPRECIATION DECEMBER 31, SEPTEMBER 30,
COMPANY/ACTIVITY GROSS PERIOD GROSS PERIOD 1997 1998
- -------------------- -------------------- -------------- -------------- -------------- -------------- -------------------

Delsener/Slater $ 23,627 15 years $ 21,682 5-20 years $ 1,575 $ 1,181
Meadows 3,243 15 years 26,370 5-39 years 216 162
Sunshine 37,619 15 years 28,991 5-40 years 2,508 1,881
Westbury 11,512 15 years 500 7 years 767 576
BGP 51,441 15 years 37,431 7-30 years 3,429 2,572
PACE and Pavilion 182,423 2-15 years 94,515 7-30 years 13,028 9,771
Contemporary 68,692 15 years 25,651 7-30 years 4,579 3,435
Network 62,055 15 years 3,798 7-20 years 4,137 3,103
Concert/Southern 16,227 15 years 709 7 years 1,082 811
USA Motor Sports 2,759 15 years -- -- 184 138
Avalon 27,418 15 years 4,268 7-30 years 1,828 1,371
Oakdale 12,536 15 years 268 7 years 836 627
FAME 120,138 15 years 297 7 years 8,021 6,016
Don Law 64,049 15 years 27,571 7-30 years 4,270 3,202
Magicworks 110,350 15 years 2,068 7 years 7,357 5,518
Other Acquisitions 128,168 10-15 years 2,958 7-30 years 9,614 7,210
Corporate -- -- 10,067 3-10 years -- 3,989(1)
Deferred financing
costs 18,903 10 years -- -- -- --
Cellar Door 65,635 15 years 34,986 7-30 years 4,376 3,282
Marquee 110,557 15 years 2,895 7 years 7,370 5,527
---------- -------------- -------- -------------- ------- -----------
Deferred financing
costs 7,500 15 years -- -- --
Total $1,124,852 $325,025 $75,177 $ 60,372
========== ======== ======= ===========

PRO FORMA
DEPRECIATION AND AMORTIZATION
PRO FORMA DEPRECIATION EXPENSE EXPENSE
---------------------------------- ---------------------------------
YEAR ENDED NINE MONTHS ENDED YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
COMPANY/ACTIVITY 1997 1998 1997 1998
- -------------------- -------------- ------------------- -------------- ------------------

Delsener/Slater $ 1,417 $ 1,063 $ 2,992 $ 2,244
Meadows 624 468 840 630
Sunshine 1,008 756 3,516 2,637
Westbury 72 53 839 629
BGP 1,357 1,018 4,786 3,590
PACE and Pavilion 2,685 1,957 15,713 11,728
Contemporary 1,402 1,051 5,981 4,486
Network 332 249 4,469 3,352
Concert/Southern 101 76 1,183 887
USA Motor Sports -- -- 184 138
Avalon 610 457 2,438 1,828
Oakdale 38 29 874 656
FAME 43 32 8,064 6,048
Don Law 1,137 853 5,407 4,055
Magicworks 295 221 7,652 5,739
Other Acquisitions 284 212 9,898 7,422
Corporate 941 1,716 941 5,705
Deferred financing
costs -- -- -- --
Cellar Door 1,219 914 5,595 4,196
Marquee 414 311 7,784 5,838
------- ------- ------- -------
Deferred financing
costs -- -- -- --
Total $13,979 $11,436 $89,156 $71,808
======= ======= ======= =======

- -------
(1) Represents the $2,725,000 write-off of the Triathlon asset and $1,264,000
of integration costs.

SFX ENTERTAINMENT, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

PRO FORMA
SFX FOR THE SFX 1997
ENTERTAINMENT SFX 1997 SFX 1998 ACQUISITIONS
(ACTUAL) ACQUISITIONS ACQUISITIONS AND THE SFX 1998
I II III ACQUISITIONS
--------------- -------------- -------------- ------------------

Revenue ....................................... $96,144 $14,243 $ 773,514 $ 883,901
Cost of revenue ............................... 73,881 8,696 569,500 652,077
Selling, general and administrative
expenses ..................................... 9,536 4,597 121,306 135,439
Depreciation & amortization ................... 5,431 3,802 66,544 75,777
--
Corporate expenses, net of Triathlon fees ..... 2,206 -- 5,794 8,000
Non-cash compensation and other
non-cash charges ............................. -- -- -- --
------- ------- --------- ---------
Operating income (loss) ....................... 5,090 (2,852) 10,370 12,608
Interest expense .............................. 1,590 742 63,632 65,964
Equity (income) loss from investments ......... (509) -- (5,354) (5,863)
Other income .................................. (295) (1) (2,640) (2,936)
------- ---------- --------- ---------
Income (loss) before
income tax expense ........................... 4,304 (3,593) (45,268) (44,557)
Income tax expense (benefit) .................. 490 -- 4,367 4,857
------- --------- --------- ---------
Net income (loss) ............................. $ 3,814 $(3,593) $ (49,635) (49,414)
========= =========
Accretion on put option ....................... -- (3,300)
------- ---------
Net income (loss) applicable to common
shares ....................................... $ 3,814 $ (52,714)
======= =========
Net income (loss) per common share ............ $ 0.26 $ (1.76)
======= =========
Weighted average common shares
outstanding (1) (2) .......................... 14,445 30,454
======= =========

PRO FORMA
FOR THE SFX
1997 ACQUISITIONS,
THE SFX 1998
PENDING MARQUEE AND CELLAR DOOR ACQUISITIONS,
ACQUISITIONS THE OLD NOTE
AND THE OLD NOTE OFFERING OFFERING AND THE
IV ------------- THE PENDING PROPOSED
-------------------------- PRO FORMA MARQUEE AND EQUITY
CELLAR DOOR MARQUEE ADJUSTMENTS CELLAR DOOR OFFERING
A B C ACQUISITIONS V
------------- ----------- ------------- ------------------- ------------

Revenue ....................................... $63,966 $ 53,324 $ -- $1,001,191 $ --
Cost of revenue ............................... 49,073 34,383 -- 735,533 --
Selling, general and administrative
expenses ..................................... 9,092 12,095 -- 156,626 --
Depreciation & amortization ................... 5,595 7,784 -- 89,156 --
Corporate expenses, net of Triathlon fees ..... -- -- -- 8,000 --
Non-cash compensation and other
non-cash charges ............................. -- (1,367) -- 1,367 --
------- -------- --------- ---------- ----------
Operating income (loss) ....................... 206 (2,305) -- 10,509 --
Interest expense .............................. -- -- 14,264 80,228 (10,113)
Equity (income) loss from investments ......... (601) -- 975 (5,489) --
Other income .................................. (369) -- (975) (4,280) --
------- -------- --------- ---------- ----------
Income (loss) before
income tax expense ........................... 1,176 (2,305) (14,264) (59,950) 10,113
Income tax expense (benefit) .................. 5 53 -- 4,915 --
------- -------- --------- ---------- ----------
Net income (loss) ............................. $ 1,171 (2,358) $ (14,264) (64,865) $ 10,113
======= ========= ==========
Accretion on put option ....................... (301) (3,601)
-------- ----------
Net income (loss) applicable to common
shares ....................................... $ (2,659) $ (68,466)
======== ==========
Net income (loss) per common share ............ $ (2.16)
==========
Weighted average common shares
outstanding (1) (2) .......................... 32,286
==========

PRO FORMA
FOR THE SFX
1997 ACQUISITIONS,
THE SFX 1998
ACQUISITIONS,
THE OLD NOTE
OFFERING,
THE PENDING
MARQUEE
AND CELLAR DOOR
ACQUISITIONS
AND THE
PROPOSED
EQUITY
OFFERING
-------------------

Revenue ....................................... $1,001,191
Cost of revenue ............................... 735,533
Selling, general and administrative
expenses ..................................... 156,626
Depreciation & amortization ................... 89,156
Corporate expenses, net of Triathlon fees ..... 8,000
Non-cash compensation and other
non-cash charges ............................. 1,367
----------
Operating income (loss) ....................... 10,509
Interest expense .............................. 70,115
Equity (income) loss from investments ......... (5,489)
Other income .................................. (4,280)
----------
Income (loss) before
income tax expense ........................... (49,837)
Income tax expense (benefit) .................. 4,915
----------
Net income (loss) ............................. (54,752)
Accretion on put option ....................... (3,601)
Net income (loss) applicable to common
shares ....................................... $ (58,353)
==========
Net income (loss) per common share ............ $ (1.60)
==========
Weighted average common shares
outstanding (1) (2) .......................... 37,086
==========

- -------
See footnotes on following page.

- ----------
(1) Includes 500,000 shares of SFX Class A common stock issued to the PACE
sellers in connection with the fifth year put options and 46,652 shares
of SFX Class A common stock related to the ProServ put options issued by
Marquee--such shares are not included in calculating the net loss per
common share.

(2) Reconciliation of historical weighted average shares outstanding to pro
forma weighted average shares.

CLASS A & B WEIGHTED
ISSUANCE OF COMMON SHARES DATE ISSUED SHARES OUTSTANDING AVERAGE SHARES
- ------------------------------------------------------------------ ------------- -------------------- ---------------

Class A common shares issued to SFX Broadcasting, Inc.
shareholders' in the spin-off (a) ............................... 1/1/97 12,864 12,864
Class B common shares issued to SFX Broadcasting, Inc.
shareholders' in the spin-off (a) ............................... 1/1/97 1,047 1,047
Class A common shares issued in the Meadows acquisition .......... 2/28/97 247 208
Class A common shares issued to employees ........................ 4/15/97 400 286
Class A common shares issued in the Sunshine acquisition ......... 6/1/97 68 40
------ ------
Subtotal ......................................................... 1/1/98 14,626 14,445
======
Class A common shares issued for the Westbury, PACE, BGP,
Contemporary and Network acquisitions ........................... 4/27/98 4,291
Class A common shares issued to employees in connection
with the spin-off ............................................... 4/27/98 1,533
Class B common shares issued to employees in connection
with the spin-off ............................................... 4/27/98 650
Class A common shares issued in the 1998 Equity Offering ......... 5/5/98 8,050
Class A common shares issued in the FAME acquisition ............. 6/4/98 1,000
Class A common shares issued for the other acquisitions .......... 7/10/98 300
Class A common shares issued after September 30, 1998 ............ 4
------
Pro forma weighted average common shares outstanding
before pending acquisitions and the proposed equity
offering ........................................................ 30,454
Class A common shares expected to be issued in the Cellar
Door acquisition ................................................ 360
Class A common shares expected to be issued for the
Marquee merger .................................................. 1,472
------
Pro forma weighted average common shares outstanding
before the proposed equity offering ............................. 32,286
Class A common shares expected to be issued in the
proposed equity offering ........................................ 4,800
------
Pro forma weighted average common shares outstanding ............. 37,086
======

- ----------
(a) Shares are assumed to be outstanding at the beginning of the period
since SFX was a wholly owned subsidiary of SFX Broadcasting, Inc. at
the time.

I. SFX'S ACTUAL OPERATING RESULTS FOR THE YEAR ENDED DECEMBER 31, 1997

EBITDA for the year ended December 31, 1997 was $10,521,000 and
$99,665,000 for SFX on an actual basis and a pro forma basis, respectively.
EBITDA is defined as earnings before interest, taxes, other income, net, equity
income (loss) from investments and depreciation and amortization. Although
EBITDA is not a measure of performance calculated in accordance with GAAP, SFX
believes that the entertainment industry accepts EBITDA as a generally
recognized measure of performance and that analysts who report publicly on the
performance of entertainment companies use EBITDA. Nevertheless, you should not
consider this measure in isolation or as a substitute for operating income, net
income, net cash provided by operating activities or any other measure for
determining SFX's operating performance or liquidity which is calculated in
accordance with GAAP. EBITDA, as we calculate it, may not be comparable to
calculations of similarly titled measures presented by other companies. Cash
flows from operating, investing and financing activities for SFX for the year
ended December 31, 1997 were $1,005,000, ($73,296,000) and $78,270,000,
respectively.

We believe there are other adjustments that could affect EBITDA, but we
have not reflected them herein. If we had made such adjustments, Adjusted
EBITDA on a pro forma basis would have been approximately $116,875,000 for the
year ended December 31, 1997. The adjustments include the elimination of
non-cash compensation and other non-cash charges of $1,367,000, the expected
cost savings in connection with SFX's 1998 acquisitions, the pending Marquee
and Cellar Door acquisitions associated with the elimination of duplicative
staffing and general and administrative expenses of $10,354,000, and equity
income from investments of $5,489,000. While management believes that such cost
savings are achievable, SFX's ability to fully achieve such cost savings is
subject to numerous factors, certain of which may be beyond SFX's control. See
"Risk Factors."

II. SFX 1997 ACQUISITIONS

SFX acquired Delsener/Slater, Meadows and Sunshine Promotions on January
2, 1997, March 20, 1997, and June 24, 1997, respectively. These adjustments
represent the historical operating results of Meadows and Sunshine Promotions
prior to their respective acquisitions by SFX. The following represents the
historical operating results of these companies prior to their acquisition by
SFX.

PRO FORMA
DELSENER/ FOR THE SFX
SUNSHINE MEADOWS SLATER PRO FORMA 1997
ACQUISITION ACQUISITION ACQUISITION(A) ADJUSTMENTS ACQUISITIONS
------------- ------------- ---------------- ---------------- -------------

Revenue .............................................. $11,692 $ 601 $1,950 $ -- $14,243
Cost of revenue ...................................... 7,779 325 592 -- 8,696
Selling, general and administrative expenses ......... 3,826 306 465 -- 4,597
Depreciation & amortization .......................... 836 321 245 2,400 (b) 3,802
------- ----- ------ --------- -------
Operating income (loss) .............................. (749) (351) 648 (2,400) (2,852)
Interest expense ..................................... -- 171 -- 571 (c) 742
Other (income) expenses .............................. -- (1) -- -- (1)
------- -------- ------ --------- -------
Income (loss) before income tax expense .............. (749) (521) 648 (2,971) (3,593)
Income tax expense (benefit) ......................... -- -- -- -- --
------- ------- ------ --------- -------
Net income (loss) .................................... $ (749) $(521) $ 648 $ (2,971) $(3,593)
======= ======= ====== ========= =======

- ----------
(a) Delsener/Slater acquired Westbury Music Fair and Irving Plaza on
January 8, 1998, and November 19, 1997, respectively.
Delsener/Slater results includes the historical operating results of
Westbury and Irving Plaza prior to their acquisitions.

(b) Reflects the increase in depreciation and amortization resulting
from the preliminary purchase accounting treatment of the
acquisitions. SFX amortizes goodwill and other intangibles over
periods ranging from 2-15 years.

III. SFX 1998 ACQUISITIONS SFX acquired PACE, including USA Motor Sports, and
Pavilion on February 25, 1998; Contemporary on February 27, 1998; BG
Presents, Inc. ("BGP") on February 24, 1998; Album Network, Inc., SJS
Entertainment Corporation and the Network 40 (collectively "Network") on
February 27, 1998; and Concert/Southern on March 4, 1998. In May 1998, SFX
acquired Irvine Meadows Amphitheater, New Avalon, Inc, TBA Media, Inc. and
West Coast Amphitheater (collectively "Avalon"). In June 1998, SFX acquired
FAME and Oakdale. In July 1998, SFX acquired Don Law, and in September
1998, SFX acquired Magicworks. In addition, in the third quarter of 1998,
SFX acquired seven other companies herein defined as the Other
Acquisitions. The following represents the historical operating results of
these companies prior to their acquisition by SFX.

YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
-------------------------------------------------------------------------------------
PACE
AND CONCERTS
PAVILION CONTEMPORARY BGP NETWORK SOUTHERN FAME
ACQUISITIONS ACQUISITION ACQUISITION ACQUISITION ACQUISITION ACQUISITION
A B C D E F
-------------- -------------- ------------- ------------- ------------- -------------

Revenue ..................... $284,360 $103,300 $105,553 $28,322 $14,797 $10,881
Cost of revenue ............. 218,119 75,820 82,356 6,399 9,878 --
Selling, general and
administrative expenses 43,044 15,400 14,274 13,178 2,642 3,457
Depreciation &
amortization ............... 7,053 1,320 1,027 351 79 115
Corporate expenses .......... -- -- -- -- -- --
Other expenses .............. -- -- -- -- -- --
-------- -------- -------- ------- ------- -------
Operating income (loss) ..... 16,144 10,760 7,896 8,394 2,198 7,309
Interest expense ............ 6,772 266 917 195 -- 79
Equity (income) loss from
investments ................ (7,399) -- -- -- 48 --
Other (income) expenses...... 1,290 (357) (270) (78) (60) (143)
-------- -------- -------- ------- ------- -------
Income (loss) before
income tax expense ......... 15,481 10,851 7,249 8,277 2,210 7,373
Income tax expense
(benefit) .................. 3,569 -- 1,687 127 -- 700
-------- -------- -------- ------- ------- -------
Net income (loss) ........... $ 11,912 $ 10,851 $ 5,562 $ 8,150 $ 2,210 $ 6,673
======== ======== ======== ======= ======= =======

YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
-------------------------------------------------------------------------------------------
AVALON OAKDALE DON LAW MAGICWORKS OTHER PRO FORMA
ACQUISITION ACQUISITION ACQUISITION ACQUISITION ACQUISITIONS ADJUSTMENTS
G H I J K L
------------- ------------- ------------- ------------- -------------- -------------------

Revenue ..................... $27,265 $16,435 $50,588 $38,963 $ 93,050 --
Cost of revenue ............. 20,077 10,866 38,644 28,165 79,176 --
Selling, general and
administrative expenses 3,629 3,854 5,097 8,290 8,441 --
Depreciation &
amortization ............... 410 51 2,033 634 430 53,041 (a)
Corporate expenses .......... -- -- -- -- -- 5,794 (b)
Other expenses .............. -- -- -- -- -- --
------- ------- ------- ------- -------- ---------
Operating income (loss) ..... 3,149 1,664 4,814 1,874 5,003 (58,835)
Interest expense ............ 94 1,508 1,072 686 254 51,789 (c)
Equity (income) loss from
investments ................ -- -- -- (541) (1,561) 862 (d)
1,581 (e)
1,656 (f)
Other (income) expenses...... -- (79) (329) (135) 39 (862)(d)
(1,656)(f)
------- ------- ------- ------- -------- ---------
Income (loss) before
income tax expense ......... 3,055 235 4,071 1,864 6,271 (112,205)
Income tax expense
(benefit) .................. 949 -- -- 747 22 (2,834))(g)
(600)(h)
------- ------- ------- ------- -------- ---------
Net income (loss) ........... $ 2,106 $ 235 $ 4,071 $ 1,117 $ 6,249 $(108,771)
======= ======= ======= ======= ======== =========

YEAR ENDED
DECEMBER 31,
1997
(IN THOUSANDS)
--------------
PRO FORMA
FOR THE
SFX 1998
ACQUISITIONS
-------------

Revenue ..................... $ 773,514
Cost of revenue ............. 569,500
Selling, general and
administrative expenses 121,306
Depreciation &
amortization ............... 66,544
Corporate expenses .......... 5,794
Other expenses .............. --
---------
Operating income (loss) ..... 10,370
Interest expense ............ 63,632
Equity (income) loss from
investments ................ (5,354)
Other (income) expenses...... (2,640)
---------
Income (loss) before
income tax expense ......... (45,268)
Income tax expense
(benefit) .................. 4,367
---------
Net income (loss) ........... $ (49,635)
=========

A. PACE AND PAVILION ACQUISITIONS

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

YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
-----------------------------------------------------------------------------
PACE AND
PACE PAVILION USA MOTOR PRO FORMA PAVILION
AS REPORTED AS REPORTED SPORTS ADJUSTMENTS ACQUISITIONS
------------- ------------- ----------- ----------------- -------------

Revenue ................................... $176,168 $ 98,632 $8,560 $ 1,000(a) $284,360
Cost of revenue ........................... 147,969 64,419 5,731 -- 218,119
Selling, general and administrative
expenses ................................. 22,200 18,839 2,575 (570)(b) 43,044
Depreciation & amortization ............... 1,985 4,045 23 1,000 (a) 7,053
Other expenses ............................ 1,139 -- -- (1,139)(c) --
-------- -------- ------ --------- --------
Operating income .......................... 2,875 11,329 231 1,709 16,144
Interest expense .......................... 2,384 4,388 -- -- 6,772
Equity (income) loss from investments ..... (8,134) (1,831) -- 2,566 (d) (7,399)
Other (income) expenses ................... 53 1,304 (67) -- 1,290
-------- -------- ------ --------- --------
Income before income tax expense .......... 8,572 7,468 298 (857) 15,481
Income tax expense ........................ 3,569 -- -- -- 3,569
-------- -------- ------ --------- --------
Net income ................................ $ 5,003 $ 7,468 $ 298 $ (857) $ 11,912
======== ======== ====== ========= ========

- ----------

PRO FORMA ADJUSTMENTS:

(a) To reflect non-cash revenue and related amortization expense
resulting from SFX granting Blockbuster naming rights to three
venues for two years for no future consideration as part of its
agreement to acquire Blockbuster's indirect 33 1/3% interest in
Pavilion. SFX recorded deferred revenue and an offsetting intangible
asset at the time of the PACE acquisition relating to the naming
rights.

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

(c) Reflects the elimination of non-recurring restricted stock
compensation to PACE executives, as SFX does not maintain a
restricted stock compensation plan and the new employment agreements
with the PACE executives do not provide for such compensation.

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

B. CONTEMPORARY ACQUISITION

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

YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
-------------------------------------------------------------------
CONTEMPORARY RIVERPORT PRO FORMA CONTEMPORARY
AS REPORTED AS REPORTED ADJUSTMENTS ACQUISITION
-------------- ------------- ------------------ -------------

Revenue .............................................. $ 89,053 $14,247 $ -- $103,300
Cost of revenue ...................................... 66,940 8,880 -- 75,820
Selling, general and administrative expenses ......... 23,880 2,750 (11,230)(a) 15,400
Depreciation & amortization .......................... 541 779 -- 1,320
--------- ------- ---------- --------
Operating income (loss) .............................. (2,308) 1,838 11,230 10,760
Interest expense ..................................... 192 74 -- 266
Equity (income) from investments ..................... (1,002) -- 1,002 (b) --
Other (income) expenses .............................. (117) (240) -- (357)
--------- ------- ---------- --------
Income (loss) before income tax expense .............. (1,381) 2,004 10,228 10,851
Income tax expense (benefit) ......................... -- -- -- --
--------- ------- ---------- --------
Net income (loss) .................................... $ (1,381) $ 2,004 $ 10,228 $ 10,851
========= ======= ========== ========

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

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

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

C. BGP ACQUISITION

YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
------------------------------------------------
AS REPORTED PRO FORMA BGP
(A) ADJUSTMENTS ACQUISITION
------------- ----------------- ------------

Revenue .............................................. $105,553 $ -- $105,553
Cost of revenue ...................................... 82,356 -- 82,356
Selling, general and administrative expenses ......... 17,602 (3,328)(b) 14,274
Depreciation & amortization .......................... 1,027 -- 1,027
-------- --------- --------
Operating income ..................................... 4,568 3,328 7,896
Interest expense ..................................... 917 -- 917
Other (income) expenses .............................. (270) -- (270)
-------- --------- --------
Income (loss) before income tax expense .............. 3,921 3,328 7,249
Income tax expense ................................... 1,687 -- 1,687
-------- --------- --------
Net income ........................................... $ 2,234 $ 3,328 $ 5,562
======== ========= ========

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

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

(b) Reflects the elimination of certain officers' salaries and bonuses
and other consulting expenses which will not be paid under SFX's new
employment and other contracts. The amount of the pro forma
adjustment to eliminate salaries and bonuses is based on SFX's

agreements with the affected employees that a bonus will not be paid unless
there is a significant improvement in the results of BGP. Accordingly, no
such bonus is reflected in the pro forma statement of operations because,
if BGP's results were similar to those in these pro forma statements of
operations, SFX would not be contractually obligated to pay a bonus.

D. NETWORK ACQUISITION

YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
------------------------------------------------
PRO FORMA NETWORK
AS REPORTED ADJUSTMENTS ACQUISITION
------------- ----------------- ------------

Revenue .............................................. $28,322 $ -- $28,322
Cost of revenue ...................................... 6,399 -- 6,399
Selling, general and administrative expenses ......... 20,504 (7,326)(a) 13,178
Depreciation & amortization .......................... 351 351
------- --------- -------
Operating income (loss) .............................. 1,068 7,326 8,394
Interest expense, net ................................ 195 -- 195
Other (income) expenses .............................. (78) -- (78)
------- --------- -------
Income (loss) before income tax expense .............. 951 7,326 8,277
Income tax expense ................................... 127 -- 127
------- --------- -------
Net income ........................................... $ 824 $ 7,326 $ 8,150
======= ========= =======

- ----------
PRO FORMA ADJUSTMENT:

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

E. CONCERT/SOUTHERN ACQUISITION

YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
----------------------------------------------
CONCERT/
PRO FORMA SOUTHERN
AS REPORTED ADJUSTMENTS ACQUISITION
------------- --------------- ------------

Revenue .............................................. $14,797 $ -- $14,797
Cost of revenue ...................................... 9,878 -- 9,878
Selling, general and administrative expenses ......... 3,071 (429)(a) 2,642
Depreciation & amortization .......................... 79 -- 79
------- ------- -------
Operating income ..................................... 1,769 429 2,198
Other (income) expenses .............................. (60) -- (60)
Equity (income) loss from investments ................ 80 (32)(b) 48
------- ------- -------
Income before income tax expense ..................... 1,749 461 2,210
Income tax expense ................................... -- -- --
------- ------- -------
Net income ........................................... $ 1,749 $ 461 $ 2,210
======= ======= =======

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

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

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

F. FAME ACQUISITION

YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
-------------------------------------------------
PRO FORMA FAME
AS REPORTED ADJUSTMENTS ACQUISITION
------------- ------------------ ------------

Revenue .............................................. $ 10,881 $ -- $10,881
Cost of revenue ...................................... -- -- --
Selling, general and administrative expenses ......... 13,002 (10,595)(a) 3,457
1,050 (b)
Depreciation & amortization .......................... 115 -- 115
-------- ---------- -------
Operating income (loss) .............................. (2,236) 9,545 7,309
Interest expense ..................................... 79 -- 79
Other (income) expenses .............................. (143) -- (143)
-------- ---------- -------
Income (loss) before income tax expense .............. (2,172) 9,545 7,373
Income tax expense (benefit) ......................... -- 700 (c) 700
-------- ---------- -------
Net income (loss) .................................... $ (2,172) $ 8,845 $ 6,673
======== ========== =======

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

(a) Reflects the elimination of certain officers' distributions of
earnings which will not be paid under SFX's new employment
contracts. The FAME acquisition agreement provides for payments by
SFX to the FAME sellers of additional amounts up to an aggregate of
$15.0 million in equal annual installments over 5 years contingent
on the achievement of certain financial targets and for additional
payments by SFX if FAME's financial performance exceeds the target
by certain amounts. The financial targets were not met during the
pro forma period, therefore such additional payments are not
included in these pro forma financial statements. Had such targets
been met, or exceeded, the additional payments would have been
rewarded as additional consideration in the acquisition of FAME. If
FAME should meet the targets in the future, SFX will record the
payments as additional purchase price.

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

G. AVALON ACQUISITION

YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
------------------------------------------------
PRO FORMA AVALON
AS REPORTED ADJUSTMENTS ACQUISITION
------------- ----------------- ------------

Revenue .............................................. $27,265 $ -- $27,265
Cost of revenue ...................................... 20,077 -- 20,077
Selling, general and administrative expenses ......... 4,327 (698)(a) 3,629
Depreciation & amortization .......................... 410 -- 410
Corporate expenses ................................... -- -- --
------- --------- -------
Operating income (loss) .............................. 2,451 698 3,149
Interest expense ..................................... 94 -- 94
Other expenses ....................................... 1,581 (1,581)(b) --
------- --------- -------
Income (loss) before income tax expense .............. 776 2,279 3,055
Income tax expense ................................... 249 700 (c) 949
------- --------- -------
Net income ........................................... $ 527 $ 1,579 $ 2,106
======= ========= =======

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

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

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

H. OAKDALE ACQUISITION

YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
--------------------------------------------
PRO FORMA OAKDALE
AS REPORTED ADJUSTMENTS ACQUISITION
------------- ------------- ------------

Revenue .............................................. $16,435 $ -- $16,435
Cost of revenue ...................................... 10,866 -- 10,866
Selling, general and administrative expenses ......... 3,854 -- 3,854
Depreciation & amortization .......................... 51 -- 51
------- ---- -------
Operating income (loss) .............................. 1,664 -- 1,664
Interest expense ..................................... 1,508 -- 1,508
Other (income) expenses .............................. (79) -- (79)
------- ---- -------
Income before income tax expense ..................... 235 -- 235
Income tax expense ................................... -- -- --
------- ---- -------
Net income ........................................... $ 235 $ -- $ 235
======= ==== =======

I. DON LAW ACQUISITION

YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
------------------------------------------------
PRO FORMA DON LAW
AS REPORTED ADJUSTMENTS ACQUISITION
------------- ----------------- ------------

Revenue .............................................. $50,588 $ -- $50,588
Cost of revenue ...................................... 38,644 -- 38,644
Selling, general and administrative expenses ......... 5,757 (610) (a) 5,097
(50)(b)
Depreciation & amortization .......................... 2,033 -- 2,033
------- -------- -------
Operating income ..................................... 4,154 660 4,814
Interest expense ..................................... 1,072 -- 1,072
Other (income) expenses .............................. (329) -- (329)
------- -------- -------
Income before income tax expense ..................... 3,411 660 4,071
Income tax expense ................................... -- -- --
------- -------- -------
Net income ........................................... $ 3,411 $ 660 $ 4,071
======= ======== =======

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

(a) Reflects adjustment to eliminate payments made to employees
associated with membership interest.

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

J. MAGICWORKS ACQUISITION

YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
--------------------------------------------
PRO FORMA MAGICWORKS
AS REPORTED ADJUSTMENTS ACQUISITION
------------- ------------- ------------

Revenue .............................................. $38,963 $ -- $38,963
Cost of revenue ...................................... 28,165 -- 28,165
Selling, general and administrative expenses ......... 8,290 -- 8,290
Depreciation & amortization .......................... 634 -- 634
------- ---- -------
Operating income (loss) .............................. 1,874 -- 1,874
Interest expenses .................................... 686 -- 686
Equity (income) loss from investments ................ (541) -- (541)
Other (income) expenses .............................. (135) -- (135)
------- ---- -------
Income before income tax expense ..................... 1,864 -- 1,864
Income tax expense ................................... 747 -- 747
------- ---- -------
Net income ........................................... $ 1,117 $ -- $ 1,117
======= ==== =======

K. OTHER ACQUISITIONS

Reflects the historical combined operating results of the seven businesses
acquired by SFX in the third quarter of 1998. In the aggregate, such
acquisitions are not material to SFX's financial position or results of
operations.

YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
------------------------------------------------
PRO FORMA OTHER
HISTORICAL ADJUSTMENTS ACQUISITIONS
------------ ----------------- -------------

Revenue ............................................. $ 93,050 $ -- $ 93,050
Cost of revenue ..................................... 79,176 -- 79,176
Selling, general and administrative expense ......... 10,064 (1,623)(a) 8,441
Depreciation & amortization ......................... 430 -- 430
-------- --------- --------
Operating income .................................... 3,380 1,623 5,003
Interest expense .................................... 254 -- 254
Equity (income) loss from investments ............... (1,561) -- (1,561)
Other (income) expenses ............................. 39 -- 39
-------- --------- --------
Income (loss) before income tax expense ............. 4,648 1,623 6,271
Income tax expense .................................. 22 -- 22
-------- --------- --------
Net income .......................................... $ 4,626 $ 1,623 $ 6,249
======== ========= ========

- ----------
PRO FORMA ADJUSTMENT:

(a) Reflects the elimination of consulting fees.

L. PRO FORMA ADJUSTMENTS

(a) Reflects the increase in depreciation and amortization resulting
from the preliminary purchase accounting treatment of the
acquisitions. SFX amortizes goodwill and other intangibles over
periods ranging from 2-15 years.

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

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

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

(f) To reflect the elimination of PACE's equity income in Magicworks.

(g) Represents an adjustment to the provision for state and local income
taxes. The calculation treats all companies acquired as "C"
Corporations and reflects the impact of non-deductible goodwill and
tax savings related to the pro forma adjustments.

(h) To reflect the federal tax benefit for interest expense.

IV. PENDING MARQUEE AND CELLAR DOOR ACQUISITIONS AND THE OLD NOTE OFFERING

A. CELLAR DOOR

YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
------------------------------------------------
PRO FORMA CELLAR DOOR
AS REPORTED ADJUSTMENTS ACQUISITION
------------- ----------------- ------------

Revenue .............................................. $63,966 $ -- $63,966
Cost of revenue ...................................... 49,073 -- 49,073
Selling, general and administrative expenses ......... 12,152 (3,060)(a) 9,092
Depreciation & amortization .......................... 1,613 3,982 (b) 5,595
------- --------- -------
Operating income (loss) .............................. 1,128 (922) 206
Interest expense ..................................... 2,398 (2,398)(c) --
Equity income from investments ....................... (601) -- (601)
Other income ......................................... (369) -- (369)
------- --------- -------
Income (loss) before income tax expense .............. (300) 1,476 1,176
Income tax expense ................................... 5 -- 5
------- --------- -------
Net income (loss) .................................... $ (305) $ 1,476 $ 1,171
======= ========= =======

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

(a) Reflects the elimination of certain management fees and certain
officers' salaries, bonuses and other compensation which will not be
paid under SFX's new employment agreements and other contracts.

(b) Reflects the increase of $3,982,000 in depreciation and amortization
resulting from the preliminary purchase accounting treatment of
Cellar Door. SFX amortizes goodwill over 15 years.

B. MARQUEE

YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
-------------------------------------------------
MARQUEE PRO FORMA MARQUEE
PRO FORMA (A) ADJUSTMENTS ACQUISITION
--------------- ---------------- ------------

Revenue .............................................. $ 53,324 $ -- $ 53,324
Cost of revenue ...................................... 34,383 -- 34,383
Selling, general and administrative expenses ......... 12,095 -- 12,095
Depreciation and amortization ........................ 4,561 3,223 (b) 7,784
Non-cash charges and financing expense ............... 1,367 -- 1,367
-------- --------- --------
Operating income (loss) .............................. 918 (3,223) (2,305)
Interest expense ..................................... 3,323 (3,323)(c) --
-------- --------- --------
Income (loss) before income tax expense .............. (2,405) 100 (2,305)
Income tax expense ................................... 53 -- 53
-------- --------- --------
Net income (loss) .................................... (2,458) 100 (2,358)
Accretion on put option .............................. (301) -- (301)
-------- --------- --------
Net loss applicable to common share .................. $ (2,759) $ 100 $ (2,659)
======== ========= ========

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

(a) Represents the pro forma results for Marquee. See Marquee's
unaudited pro forma condensed combined statement of operations
beginning on page 59.

(b) Reflects the increase of $3,223,000 in depreciation and amortization
resulting from the preliminary purchase accounting treatment of
Marquee. SFX amortizes goodwill over 15 years.

C. PRO FORMA ADJUSTMENT

Reflects the incremental depreciation and amortization expense, SFX's
incremental interest expense related to the pending Marquee and Cellar
Door acquisitions and the elimination of Cellar Door's equity income in
certain PACE companies. See pages 39 and 40 for details of the
adjustments. Also, reflects no tax benefit on pro forma adjustments given
SFX's loss position.

V. THE PROPOSED EQUITY OFFERING

Reflects a reduction in interest expense of $10,113,000 due to repayment
of outstanding borrowings under the revolving portion of SFX's credit facility
in connection with the proposed equity offering.

SFX ENTERTAINMENT, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

SFX
ENTERTAINMENT
(ACTUAL) SFX 1998 ACQUISTIONS PRO FORMA FOR
I II THE SFX 1998 ACQUISITIONS
--------------- ---------------------- ---------------------------

Revenue ............................. $ 680,376 $244,718 $ 925,094
Cost of revenue ..................... 519,552 178,745 698,297
Selling, general and
administrative expenses ............ 82,986 30,631 113,617
Depreciation & amortization,
including integration costs ........ 40,381 21,393 61,774
Corporate expenses, net of
Triathlon fees ..................... 5,839 161 6,000
Noncash compensation and other
non cash charges ................... 32,895 -- 32,895
--------- -------- ---------
Operating income (loss) ............. (1,277) 13,788 12,511
Interest expense .................... 31,709 17,764 49,473
Equity (income) loss from
investments ........................ (3,964) (1,270) (5,234)
Other (income) expenses ............. (2,152) 2,822 670
--------- -------- ---------
Income (loss) before income tax
expense ............................ (26,870) (5,528) (32,398)
Income tax expense (benefit) ........ 3,333 280 3,613
--------- -------- ---------
Net income (loss) ................... (30,203) $ (5,808) (36,011)
========
Accretion on put option ............. (1,925) (2,475)
--------- ---------
Net loss applicable to common
shares ............................. $ (32,128) $ (38,486)
========= =========
Net loss per common share ........... $ (1.38) $ (1.28)
========= =========
Weighted average common
shares outstanding (1) (2) ......... 23,262 30,454
========= =========

PRO FORMA
PENDING MARQUEE AND CELLAR DOOR
ACQUISITIONS FOR THE SFX 1998
AND THE OLD NOTE OFFERING ACQUISITIONS,
III THE OLD NOTE OFFERING THE
--------------------------------------- AND THE PENDING PROPOSED
PRO FORMA MARQUEE AND EQUITY
CELLAR DOOR MARQUEE ADJUSTMENTS CELLAR DOOR OFFERING
A B C ACQUISITIONS IV
------------- ----------- ------------- ----------------------- -----------

Revenue ............................. $63,206 $48,848 -- $1,037,148 $ --
Cost of revenue ..................... 51,323 30,777 -- 780,397 --
Selling, general and
administrative expenses ............ 6,067 10,650 -- 130,334 --
Depreciation & amortization,
including integration costs ........ 4,196 5,838 $ -- 71,808 --
Corporate expenses, net of
Triathlon fees ..................... -- -- -- 6,000 --
Noncash compensation and other
non cash charges ................... -- 367 -- 33,262 --
------- ------- --------- ---------- ---------
Operating income (loss) ............. 1,620 1,216 -- 15,347 --
Interest expense .................... -- -- 10,698 60,171 (7,584)
Equity (income) loss from
investments ........................ (645) -- (89) (5,968) --
Other (income) expenses ............. (89) -- 89 670 --
------- ------- --------- ---------- ---------
Income (loss) before income tax
expense ............................ 2,354 1,216 (10,698) (39,526) 7,584
Income tax expense (benefit) ........ 4 1,000 -- 4,617 --
------- ------- --------- ---------- ---------
Net income (loss) ................... $ 2,350 216 $ (10,698) (44,143) $ 7,584
======= ========= =========
Accretion on put option ............. (236) (2,711)
------- ----------
Net loss applicable to common
shares ............................. $ (20) $ (46,854)
======= ==========
Net loss per common share ........... $ (1.48)
==========
Weighted average common
shares outstanding (1) (2) ......... 32,286
==========

PRO FORMA FOR
THE SFX 1998
ACQUISITIONS,
THE OLD NOTE
OFFERING,
THE PENDING
MARQUEE AND
CELLAR DOOR
ACQUISITIONS
AND THE PROPOSED
EQUITY OFFERING
-----------------

Revenue ............................. $1,037,148
Cost of revenue ..................... 780,397
Selling, general and
administrative expenses ............ 130,334
Depreciation & amortization,
including integration costs ........ 71,808
Corporate expenses, net of
Triathlon fees ..................... 6,000
Noncash compensation and other
non cash charges ................... 33,262
----------
Operating income (loss) ............. 15,347
Interest expense .................... 52,587
Equity (income) loss from
investments ........................ (5,968)
Other (income) expenses ............. 670
----------
Income (loss) before income tax
expense ............................ (31,942)
Income tax expense (benefit) ........ 4,617
----------
Net income (loss) ................... (36,559)
Accretion on put option ............. (2,711)
----------
Net loss applicable to common
shares ............................. $ (39,270)
==========
Net loss per common share ........... $ (1.07)
==========
Weighted average common
shares outstanding (1) (2) ......... 37,086
==========

See footnotes on following page.

- ----------
(1) Includes 500,000 shares of SFX Class A common stock issued to the PACE
sellers in connection with the fifth year put option and 46,652 shares of
SFX Class A common stock related to the ProServ put options issued by
Marquee. Such shares are not included in calculating the net loss per
common share.

(2) Reconciliation of historical weighted average shares outstanding to
proforma weighted average shares.

CLASS A & B
DATE SHARES WEIGHTED AVERAGE
ISSUANCE OF COMMON SHARES ISSUED OUTSTANDING SHARES
- ------------------------------------------------------ ---------- ------------- -----------------

Class A common shares outstanding .................... 1/1/98 13,579 13,579
Class B common shares outstanding .................... 1/1/98 1,047 1,047
Class A common shares issued for Westbury, PACE,
BGP, Contemporary, and Network acquisitions ......... 4/27/98 4,291 2,460
Class A common shares issued to employees in
connection with the spin-off ........................ 4/27/98 1,533 882
Class B common shares issued to employees in
connection with the spin-off ........................ 4/27/98 650 374
Class A common shares issued in the 1998 Equity
Offering ............................................ 5/5/98 8,050 4,394
Class A common shares issued in the FAME
acquisition ......................................... 6/4/98 1,000 436
Class A common shares issued for the other
acquisitions ........................................ 7/10/98 300 90
Class A common shares issued after
September 30, 1998 .................................. 4 --
------ ------
Subtotal ............................................. 30,454 23,262
======
Class A common shares expected to be issued in the
Cellar Door acquisition ............................. 360
Class A common shares expected to be issued for the
Marquee acquisition ................................. 1,472
------
Weighted average common shares outstanding before
the proposed equity offering ........................ 32,286
Class A common shares expected to be issued in the
proposed equity offering ............................ 4,800
------
Pro forma weighted average common shares
outstanding ......................................... 37,086
======

NOTES TO PRO FORMA STATEMENTS:

I. Represents SFX's actual operating results for the nine months ended
September 30, 1998.

EDITDA for the nine months ended September 30, 1998, was $39,104,000 and
$87,155,000 for SFX on an actual basis and a pro forma basis, respectively.
EBITDA is defined as earnings before interest, taxes, other income, net,
equity income (loss) from investments and depreciation and amortization.
Although EBITDA is not a measure of performance calculated in accordance
with GAAP, we believe that the entertainment industry accepts EBITDA as a
generally recognized measure of performance and that analysts who report
publicly on the performance of entertainment companies use EBITDA.
Nevertheless, you should not consider this measure in isolation or as a

substitute for operating income, net income, net cash provided by operating
activities or any other measure for determining SFX's operating performance
or liquidity that is calculated in accordance with GAAP. EBITDA, as we
calculate it, may not be comparable to calculations of similarly titled
measures presented by other companies. Cash flows from operating, investing
and financing activities for SFX for the nine months ended September 30,
1998, were $22,307,000, ($852,240,000) and $889,543,000, respectively.

We believe there are other adjustments that could affect EBITDA, but we
have not reflected them herein. If we had made such adjustments, Adjusted
EBITDA on a pro forma basis would have been approximately $131,154,000 for
the nine months ended September 30, 1998. The adjustments include the
elimination of non-cash compensation and other non-cash charges of
$33,262,000, the expected cost savings in connection with SFX's 1997
acquisitions, SFX's 1998 acquisitions and the pending Marquee and Cellar
Door acquisitions associated with the elimination of duplicative staffing
and general and administrative expenses of $4,769,000, and equity income
from investments of $5,968,000. While management believes that such cost
saving are achievable, SFX's ability to fully achieve such cost savings is
subject to numerous factors, certain of which may be beyond SFX's control.

II. SFX 1998 ACQUISITIONS SFX acquired PACE, including USA Motor Sports, and
Pavilion, Contemporary, BGP, Network and Concert/Southern on February 25,
1998, February 27, 1998, February 24, 1998, February 27, 1998, and March 4,
1998, respectively. In May 1998, SFX acquired Avalon. In June 1998, SFX
acquired FAME and Oakdale. In July 1998, SFX acquired Don Law, and in
September 1998 SFX acquired Magicworks. In addition, in the third quarter
of 1998 SFX acquired seven other companies herein defined as the Other
Acquisitions. The following represents the historical operating results of
these companies prior to their acquisition by SFX.

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
-------------------------------------------------------------------------------------
PACE & CONCERT/
PAVILION COMTEMPORARY BGP NETWORK SOUTHERN FAME
ACQUISITIONS ACQUISITION ACQUISITION ACQUISITION ACQUISITION ACQUISITION
-------------- -------------- ------------- ------------- ------------- -------------

Revenue ......................... $ 86,206 $7,882 $ 16,075 $4,154 $ 524 $2,144
Cost of revenue ................. 67,744 6,711 14,149 1,047 276 1,742
Selling, general &
administrative expenses ........ 17,906 1,544 2,652 2,902 362 295
Depreciation & amortization...... 1,049 254 213 51 9 27
Corporate expenses .............. -- -- -- -- -- --
-------- ------ -------- ------ ------ ------
Operating income (loss) ......... (493) (627) (939) 154 (123) 80
Interest expense ................ 1,148 -- 165 37 -- 42
Equity (income) loss from
investments .................... 549 -- -- -- 20 --
Other (income) expenses ......... (176) (122) 67 (14) -- (26)
-------- ------ -------- ------ ------ ------
Income (loss) before income
tax expense .................... (2,014) (505) (1,171) 131 (143) 64
Income tax expense (benefit)..... (475) -- -- 3 -- --
-------- ------ -------- ------ ------ ------
Net income (loss) ............... $ (1,539) $ (505) $ (1,171) $ 128 $ (143) $ 64
======== ====== ======== ====== ====== ======

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
------------------------------------------------------------------------------------------
PRO FORMA
AVALON OAKDALE DON LAW MAGICWORKS OTHER ADJUSTMENTS
ACQUISITION ACQUISITION ACQUISITION ACQUISITION ACQUISITIONS A
------------- ------------- ------------- ------------- -------------- ------------------

Revenue ......................... $ 2,269 $5,982 $20,566 $54,547 $44,369 $ --
Cost of revenue ................. 2,467 3,787 14,598 46,292 19,932 --
Selling, general &
administrative expenses ........ 1,338 1,535 2,437 6,070 6,512 (13,185)(a)
263 (b)
Depreciation & amortization...... 220 28 2,661 -- 191 16,690 (c)
Corporate expenses .............. -- -- -- -- -- 161 (d)
-------- ------ ------- ------- ------- -----------
Operating income (loss) ......... (1,756) 632 870 2,185 17,734 (3,929)
Interest expense ................ -- -- -- -- 404 15,968 (e)
Equity (income) loss from
investments .................... (370) -- -- (235) (958) (276)(f)
Other (income) expenses ......... -- -- (166) -- 240 370 (g)
2,373 (h)
276 (f)
-------- ------ ------- ------- ------- -----------
Income (loss) before income
tax expense .................... (1,386) 632 1,036 2,420 18,048 (22,640)
Income tax expense (benefit)..... -- -- -- 950 -- (198)(i)
-------- ------ ------- ------- ------- -----------
Net income (loss) ............... $ (1,386) $ 632 $ 1,036 $ 1,470 $18,048 $ (22,442)
======== ====== ======= ======= ======= ===========

FOR THE NINE
MONTHS ENDED
SEPTEMBER 30,
1998
(IN THOUSANDS)
--------------
PRO FORMA
FOR THE SFX
1998
ACQUISITIONS
-------------

Revenue ......................... $244,718
Cost of revenue ................. 178,745
Selling, general &
administrative expenses ........ 30,631
Depreciation & amortization...... 21,393
Corporate expenses .............. 161
--------
Operating income (loss) ......... 13,788
Interest expense ................ 17,764
Equity (income) loss from
investments .................... (1,270)
Other (income) expenses ......... 2,822
Income (loss) before income
tax expense .................... (5,528)
Income tax expense (benefit)..... 280
--------
Net income (loss) ............... $ (5,808)
========

- ----------
A. PRO FORMA ADJUSTMENTS:

(a) To reflect the elimination of $10,723,000 of PACE's non-cash stock
and other non-recurring compensation, $1,173,000 and $1,289,000 of
Network's and FAME's excess compensation, respectively.

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

(c) Reflects the increase of $18,108,000 in depreciation and
amortization resulting from the preliminary purchase accounting
treatment of SFX's 1998 acquisitions. SFX amortizes goodwill and
other intangibles over periods ranging for 2-15 years.

(d) To record incremental corporate overhead, personnel and
administrative expenses that management estimates will be necessary
as a result of SFX's acquisitions.

(e) Reflects the incremental interest expense associated with additional
borrowing related to SFX's 1998 acquisitions.

(f) Reflects the elimination of PACE's equity income in certain
Magicworks tours.

(g) To reclassify $370,000 of PACE's equity income in Avalon following
the Avalon acquisition.

(h) Reflects the elimination of interest income earned from investing
borrowings used to fund acquisitions.

(i) Represents an adjustment to the provision for state and local income
taxes and a Federal tax benefit for interest expense at Magicworks.
The calculation treats all companies to be acquired as "C"
Corporations and reflects the impact of non-deductible goodwill.

III. PENDING MARQUEE AND CELLAR DOOR ACQUISITIONS AND THE OLD NOTE OFFERING

A. CELLAR DOOR

NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN
THOUSANDS)
--------------------------------------------
PRO FORMA CELLAR DOOR
AS REPORTED ADJUSTMENTS ACQUISITION
------------- ----------------- ------------

Revenue .............................................. $63,206 $ -- $63,206
Cost of revenue ...................................... 51,323 -- 51,323
Selling, general and administrative expenses ......... 6,697 (630)(a) 6,067
Depreciation & amortization .......................... 1,272 2,924 (b) 4,196
------- --------- -------
Operating income (loss) .............................. 3,914 (2,294) 1,620
Interest (income) expense ............................ 1,610 (1,610)(c) --
Equity (income) loss from investments ................ (645) -- (645)
Other income ......................................... (89) -- (89)
------- --------- -------
Income (loss) before income tax expense .............. 3,038 (684) 2,354
Income tax expense ................................... 4 -- 4
------- --------- -------
Net income (loss) .................................... $ 3,034 $ (684) $ 2,350
======= ========= =======

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

(a) Reflects the elimination of certain management fees which will not
be paid under SFX's new agreements.
(b) Reflects the increase of $2,924,000 in depreciation and amortization
resulting from the preliminary purchase accounting treatment of
Cellar Door. SFX amortizes goodwill over 15 years.

B. MARQUEE

NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN
THOUSANDS)
-----------------------------------------------
MARQUEE PRO FORMA MARQUEE
PRO FORMA(A) ADJUSTMENTS ACQUISITION
-------------- ------------------- ------------

Revenue ................................... $48,848 $ -- $48,848
Cost of revenue ........................... 30,777 -- 30,777
Selling, general and administrative
expenses ................................. 10,650 -- 10,650
Depreciation & amortization ............... 3,569 2,269 (b) 5,838
Corporate expenses ........................ -- -- --
Non cash compensation and other non cash
charges .................................. 367 -- 367
------- ---------- -------
Operating income (loss) ................... 3,485 (2,269) 1,216
Interest expense .......................... 2,359 (2,359))(c) --
Equity (income) loss from investment ...... -- -- --
Other (income) expenses ................... -- -- --
------- ---------- -------
Income/(loss) before income tax expense ... 1,126 90 1,216
Income tax expense (benefit) .............. 1,000 -- 1,000
------- ---------- -------
Net income ................................ 126 90 216
Accretion on put option ................... (236) -- (236)
------- ---------- -------
Net loss applicable to common shares ...... $ (110) $ 90 $ (20)
======= ========== =======

PRO FORMA ADJUSTMENTS:

(a) Reflects the pro forma results of Marquee. See Marquee's unaudited
pro forma condensed combined statement of operations beginning on
page 59.

(b) Reflects the increase of $2,269,000 in depreciation and amortization
resulting from the preliminary purchase accounting treatment of
Marquee. SFX amortizes goodwill over 15 years.

C. PRO FORMA ADJUSTMENTS

To reflect the elimination of Cellar Door's equity income in certain PACE
businesses. Reflects the incremental amortization expense associated with
the fees and expenses incurred in connection with the merger and the Cellar
Door acquisition and SFX's incremental interest expense. Reflects no tax
benefit on pro forma adjustments given SFX's loss position.

IV. THE PROPOSED EQUITY OFFERING

Reflects a reduction in interest expense of $7,584,000 due to repayment of
outstanding borrowings under the revolving portion of SFX's credit facility in
connection with the proposed equity offering.

THE MARQUEE GROUP, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

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

MARQUEE
MARQUEE 1997 PRO FORMA
AS REPORTED ACQUISITIONS(1) ADJUSTMENTS
------------- ----------------- -----------------

Revenues ..................... $ 21,268 $13,685 $ --
Operating expenses ........... 14,459 9,375 (680)(2)
General and
administrative expenses 6,316 3,678 (1,003)(2)
Loss on abandonment of
lease ....................... 466 -- --
Deferred compensation
and other non-cash
expenses .................... 145 110 (110)(2)
Depreciation &
amortization ................ 371 105 953 (3)
-------- ------- ----------
Income (loss) from
operations .................. (489) 417 840
Interest expense (income),
net ......................... 22 120 (120)(4)
Financing expense ............ 756 -- --
Income (loss) before
income taxes ................ (1,267) 297 960
Income taxes ................. 45 45 --
-------- ------- ----------
Net income (loss) ............ (1,312) 252 960
Accretion of obligation
related to the put option
issued in connection
with the ProServ
acquisition ................. 59 -- 242 (5)
-------- ------- ----------
Net income (loss)
applicable to common
stockholders ................ $ (1,371) $ 252 $ 718
======== ======= ==========
Net loss per share
applicable to common
stockholders -- basic ....... $ (0.15)
========
Weighted average common
stock outstanding ........... 9,377
========

PRO FORMA
FOR THE
MARQUEE
1997
ACQUISITIONS,
MARQUEE
PRO FORMA 1998
FOR THE ACQUISITIONS
MARQUEE MARQUEE AND THE
1997 1998 PRO FORMA MARQUEE
ACQUISITIONS ACQUISITIONS(6) ADJUSTMENTS CREDIT AGREEMENT
-------------- ----------------- ----------------- -----------------

Revenues ..................... $34,953 $18,371 $ -- $ 53,324
Operating expenses ........... 23,154 13,795 (2,566)(7) 34,383
General and
administrative expenses 8,991 3,179 (75) (7) 12,095
Loss on abandonment of
lease ....................... 466 -- -- 466
Deferred compensation
and other non-cash
expenses .................... 145 -- -- 145
Depreciation &
amortization ................ 1,429 132 3,000 (8) 4,561
------- ------- ---------- --------
Income (loss) from
operations .................. 768 1,265 (359) 1,674
Interest expense (income),
net ......................... 22 (32) 233 (9) 3,323
3,100 (10)
Financing expense ............ 756 -- -- 756
Income (loss) before
income taxes ................ (10) 1,297 (3,692) (2,405)
Income taxes ................. 90 287 (324)(11) 53
------- ------- ---------- --------
Net income (loss) ............ (100) 1,010 (3,368) (2,458)
Accretion of obligation
related to the put option
issued in connection
with the ProServ
acquisition ................. 301 -- -- 301
------- ------- ---------- --------
Net income (loss)
applicable to common
stockholders ................ $ (401) $ 1,010 $ (3,368) $ (2,759)
======= ======= ========== ========
Net loss per share
applicable to common
stockholders -- basic ....... $ (0.03) $ (0.16)
======= ========
Weighted average common
stock outstanding ........... 16,559 17,108
======= ========

1997 PRO FORMA ADJUSTMENTS FOR STATEMENT OF OPERATIONS

(1) Marquee acquired ProServ, Inc. and ProServ Television, Inc., and QBQ
Entertainment Inc. in October 1997 and included the results of their
operations only from the acquisition date in its consolidated results of
operations for the year ended December 31, 1997. Therefore, for pro forma
purposes, the results of operations of Marquee's 1997 acquisitions for the
period prior to the acquisition date are presented separately and are as
follows:

PROSERV QBQ COMBINED
----------- --------- ---------

Revenues ........................................ $11,987 $1,698 $13,685
Operating expenses .............................. 8,926 449 9,375
General and administrative expenses ............. 3,240 438 3,678
------- ------ -------
(179) 811 632
Deferred compensation and other non-cash expenses 110 -- 110
Depreciation and amortization ................... 105 -- 105
------- ------ -------
Income (loss) from operations ................... (394) 811 417
Interest expense (income), net .................. 152 (32) 120
------- ------ -------
Income (loss) before income taxes ............... (546) 843 297
Income taxes .................................... 45 -- 45
------- ------ -------
Net income (loss) ............................... $ (591) $ 843 $ 252
======= ====== =======

(2) To reduce expenses to reflect contractually agreed to reductions in
personnel, officers' salaries, employee benefits and other costs in
connection with Marquee's 1997 acquisitions for the period prior to the
acquisitions.

(3) To reflect full year amortization of intangibles arising from Marquee's
1997 acquisitions.

(4) To reduce ProServ interest expense to reflect the reduction in debt as a
result of the acquisition.

(5) To reflect full year expense related to the accretion of the put option.

(6) The Marquee 1998 acquisitions consisting of Alphabet City Industries, Inc.
and Alphabet City Sport Records, Inc., Cambridge Holding Corporation, Park
Associations Limited ("PAL"), Tony Stephen Associates Limited, and Halcyon
Days Production, Inc., Robbins Entertainment Group, Inc. and Tollin
Robbins Management, LLC (collectively, "Tollin/Robbins") includes the
historical results of operations for 1997 as follows:

ALPHABET CITY CAMBRIDGE PAL TOLLIN/ROBBINS TONY STEPHENS COMBINED
--------------- ----------- ------------ ---------------- --------------- -----------
NOTE (A) NOTE (A)

Revenues ................... $2,976 $1,319 $4,889 $5,073 $4,114 $18,371
Operating expenses ......... 2,216 768 3,775 3,648 3,388 13,795
General and
administrative
expenses ................. 653 571 813 846 296 3,179
------ ------ ------ ------ ------ -------
107 (20) 301 579 430 1,397
Depreciation and
amortization ............. 4 9 23 75 21 132
------ ------ ------ ------ ------ -------
Income (loss) from
operations ............... 103 (29) 278 504 409 1,265
Interest expense
(income), net ............ -- (12) (8) -- (12) (32)
------ ------ ------ ------ ------ -------
Income (loss) before
income taxes ............. 103 (17) 286 504 421 1,297
Income taxes ............... 23 -- 74 80 110 287
------ ------ ------- ------ ------ -------
Net income (loss) .......... $ 80 $ (17) $ 212 $ 424 $ 311 $ 1,010
====== ====== ======= ====== ====== =======

- ----------
Note (a)--Translated from British Pounds at the average exchange rate for the
year.

(7) To adjust expenses to reflect compensation agreements entered into in
connection with Marquee's 1998 acquisitions.

(8) To record the amortization of the intangibles arising from Marquee's 1998
acquisitions--over 10-15 years.

(9) To record imputed interest expense, at interest rates ranging from 8.4% to
10.5%, on the obligations to certain sellers in connection with
Marquee's 1998 acquisitions--$800,000 of imputed interest to be
amortized over 4 to 5 years.

(10) To reflect interest expense, at interest rates ranging from 8.4% to 10.5%,
total borrowings of $33.1 million, including the amortization of deferred
financing costs of approximately $750,000 amortized over 3 years,
associated with the Marquee credit agreement used to finance Marquee's
1998 acquisitions.

(11) To record the impact of Marquee's 1998 acquisitions pro forma adjustments,
net of the benefit of consolidated net operating loss carryforwards.

THE MARQUEE GROUP, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)

PRO FORMA
FOR THE
MARQUEE
1997
ACQUISITIONS,
MARQUEE
1998
ACQUISITIONS
MARQUEE AND THE
MARQUEE 1998 PRO FORMA MARQUEE
AS REPORTED ACQUISITIONS(1) ADJUSTMENTS CREDIT AGREEMENT
------------- ----------------- ----------------- -----------------

Revenues ....................... $ 35,470 $13,378 $ -- $48,848
Operating expenses ............. 23,726 8,544 (1,493)(2) 30,777
General and administrative
expenses ...................... 8,239 2,826 (251)(2) 10,650
(164)(3)
Deferred compensation and
other non-cash expenses ....... 367 -- -- 367
Depreciation & amortization..... 1,463 66 2,040 (4) 3,569
-------- ------- --------- -------
Income (loss) from
operations .................... 1,675 1,942 (132) 3,485
Interest expense (income),
net ........................... 120 (17) 176 (5) 2,359
2,080 (6)
---------
Income (loss) before income
taxes ......................... 1,555 1,959 (2,388) 1,126
Income taxes ................... 541 161 298 (7) 1,000
-------- ------- --------- -------
Net Income (loss) .............. 1,014 1,798 (2,686) 126
Accretion of obligation
related to the put option
issued in connection with
the ProServ acquisition ....... 236 -- -- 236
-------- ------- --------- -------
Net income (loss) applicable
to common stockholders ........ $ 778 $ 1,798 $ (2,686) $ (110)
======== ======= ========= =======
Net income (loss) per share
applicable to common
stockholders--basic and
dilutive ...................... $ 0.05 $ (0.01)
======== =======
Weighted average common
stock outstanding ............. 16,801 17,124
======== =======

1998 PRO FORMA ADJUSTMENTS FOR STATEMENT OF OPERATIONS

(1) Marquee acquired Alphabet City, Cambridge, PAL, Tollin/Robbins, and Tony
Stephens during 1998 and included the results of their operations only
from the acquisition date in its consolidated results of operations for
the nine months ended September 30, 1998. Therefore, for pro forma
purposes, the results of operations of Marquee's 1998 acquisitions for
the period prior to the acquisition date are presented separately and are
as follows:

ALPHABET TOLLIN/ TONY
CITY CAMBRIDGE PAL ROBBINS STEPHENS COMBINED
---------- ----------- ------------ --------- ------------ -----------

Revenues ................... $1,476 $691 $2,576 $5,509 $3,126 $13,378
Operating expenses ......... 1,186 303 1,966 2,424 2,665 8,544
General and administrative
expenses .................. 346 156 906 1,259 159 2,826
------ ---- ------ ------ ------ -------
(56) 232 (296) 1,826 302 2,008
Depreciation and
amortization .............. 4 2 -- 50 10 66
------ ---- ------ ------ ------ -------
Income (loss) from
operations ................ (60) 230 (296) 1,776 292 1,942
Interest expense (income),
net ....................... -- (1) (8) -- (8) (17)
------ ------ -------- ------ -------- -------
Income (loss) before income
taxes ..................... (60) 231 (288) 1,776 300 1,959
Income taxes ............... 20 85 (30) 86 161
------ ----- ------- ------- -------
Net income (loss) .......... $ (80) $146 $(258) $1,776 $ 214 $ 1,798
====== ===== ======= ====== ======= =======

(2) To adjust expenses to reflect compensation agreements entered into in
connection with Marquee's 1998 acquisitions.

(3) To reduce expenses for loss on transfer of property to former owners of
PAL and other nonrecurring costs.

(4) To record the amortization of the excess of the purchase price over the
net assets acquired associated with Marquee's 1998 acquisitions--over
10-15 years.

(5) To record imputed interest expense, at interest rates ranging from 8.4%
to 10.5%, on the obligations to certain sellers in connection with
Marquee's 1998 acquisitions--$800,000 of imputed interest to be amortized
over 4 to 5 years.

(6) To reflect interest expense, at interest rate ranging from 8.4% to 10.5%,
total borrowings of $33.1 million, including the amortization of deferred
financing costs of approximately $750,000 amortized over 3 years,
associated with the Marquee credit agreement used to finance Marquee's
1998 acquisitions.

(7) To record the impact of Marquee's 1998 acquisitions Pro Forma
Adjustments, net of the benefit of consolidated net operating loss
carryforwards.

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

The following discussion of the financial condition and results of
operations of SFX should be read in conjunction with the consolidated financial
statements and related notes thereto included in this prospectus. The following
discussion contains certain forward-looking statements that involve risks and
uncertainties. SFX's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to the differences are
discussed in "Risk Factors" and elsewhere in this prospectus. SFX 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.

SFX'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 SFX and in third-party venues. In connection with all
of its live entertainment events, SFX 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 for
SFX's 1998 acquisitions and the pending Marquee and Cellar Door acquisitions,
SFX's music businesses, including venue operations, comprised approximately 61%
of net revenues, theater comprised approximately 21% of net revenues, sports,
including representation of professional athletes and specialized motor sports,
comprised approximately 10% of net revenues and other operations comprised
approximately 8% of SFX's net revenues for the nine months ended September 30,
1998.

Promotion of events involves booking talent, renting or providing the
event venue, marketing the event to attract ticket buyers and providing for
local services required in the production of the event, such as security and
stage hands. Promoters generally receive revenues from the sale of tickets and
sponsorships. When an event is promoted at a venue owned or managed by the
promoter, the promoter also generally receives a percentage of revenues from
concessions, merchandising, parking, premium box seats and ticket rebates. SFX
earns promotion revenues principally by promoting music concerts, touring
Broadway shows and 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 intellectual property and other rights related to the
production. SFX earns revenues by producing:

o touring Broadway shows;

o specialized motor sports events; and

o other proprietary and non-proprietary entertainment events.

THE SPIN-OFF

On April 27, 1998, SFX Broadcasting, Inc., a company primarily engaged in
the radio broadcasting business, spun off SFX, one of its subsidiaries. In
connection with the spin-off, SFX and Broadcasting entered into a distribution
agreement, a tax sharing agreement and an employee benefits agreement, each of
which provides for certain indemnification obligations by SFX. See "--Liquidity
and Capital Resources--Spin-Off."

FINANCINGS

OLD NOTE OFFERING

On November 25, 1998, SFX completed an offering of $200.0 million in
principal amount of 9 1/8% Senior Subordinated Notes due December 1, 2008.
Interest is payable on the Old Notes on June 1 and December 1 of each year. SFX
used the proceeds from the Old Note offering to repay substantially all
outstanding borrowings under the revolving portion of its credit facility. SFX
is obligated to offer to exchange substantially identical publicly registered
notes for all outstanding Old Notes pursuant to this exchange offer.

FEBRUARY 2008 NOTE OFFERING

On February 11, 1998, SFX completed an offering of $350.0 million in
principal amount of 9 1/8% Senior Subordinated Notes due February 1, 2008 (the
"February 2008 Notes"). Interest is payable on these February 2008 Notes on
February 1 and August 1 of each year. SFX used the proceeds from the February
2008 Note offering and the initial borrowings under SFX's credit facility to
consummate certain of SFX's 1998 acquisitions. On July 15, 1998, SFX
consummated the exchange of substantially identical publicly registered notes
for all outstanding February 2008 Notes. All original February 2008 Notes were
tendered for exchange and were canceled upon the issuance of the same principal
amount of exchange notes.

SENIOR CREDIT FACILITY

On February 26, 1998, SFX executed a Credit and Guarantee Agreement which
established a $300.0 million senior secured credit facility comprised of a
$150.0 million eight-year term loan and a $150.0 million seven-year reducing
revolving credit facility. On September 10, 1998, SFX entered into an agreement
with The Bank of New York to increase the revolving portion of SFX's credit
facility for a total borrowing availability of $350.0 million under its credit
facility. SFX was required to obtain the consent of the lenders under its
credit facility to consummate the Old Note offering. In connection with such
consent, the applicable margins under its credit facility were amended. In
connection with the proposed equity offering, SFX is seeking a consent from the
lenders under its credit facility. See "--Liquidity and Capital
Rources--Sources of Liquidity."

SFX has had discussions with its lenders regarding an amendment to its
credit facility that would increase total borrowing availability thereunder to
$550.0 million and modify certain covenants. Although no assurances can be
given, SFX expects to enter into this amendment by the end of the first quarter
of 1999.

1998 EQUITY OFFERING

On May 27, 1998, SFX consummated an offering of 8,050,000 shares of Class
A common stock at an offering price of $43.25 per share (the "1998 Equity
Offering") and received net proceeds of approximately $329.0 million. SFX used
the proceeds to consummate certain of its 1998 acquisitions, to fund $97.3
million of tax indemnity payments and to pay fees and other expenses. See
"--Liquidity and Capital Resources."

PROPOSED EQUITY OFFERING

SFX anticipates issuing approximately 4,800,000 shares of Class A common
stock in the proposed equity offering. See "--Liquidity and Capital
Resources--Sources of Liquidity."

1997 ACQUISITIONS

SFX entered the live entertainment business in January 1997 with
Broadcasting's acquisition of Delsener/Slater, a New York-based concert
promotion company for an

aggregate consideration of $26.8 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,
a 17,500-seat complex located in Holmdel, New Jersey, which was formerly known
as the Garden State Arts Center. In March 1997, Delsener/Slater acquired, for
aggregate consideration of $23.8 million, companies which hold a 37-year lease
to operate the Meadows, a 25,000-seat indoor/outdoor complex located in
Hartford, Connecticut. In June 1997, Broadcasting acquired Sunshine Promotions,
Inc., a concert promoter in the Midwest, and certain other related companies
for an aggregate cash consideration of $57.5 million and $4.0 million shares of
Broadcasting stock. 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, and 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 "Business--1997 Acquisitions."

The cash portion of the purchase price for the 1997 Acquisitions was
financed through capital contributions from Broadcasting.

1998 ACQUISITIONS

ACQUISITION OF WESTBURY

On January 8, 1998, SFX acquired a long-term lease for Westbury Music
Fair, located in Westbury, New York, for an aggregate consideration of
approximately $3.0 million and 75,019 shares of Class A common stock having a
negotiated value of approximately $1.0 million, which are subject to certain
put and call rights. During the period between the closing and January 8, 2000,
SFX has the right to repurchase all of such shares for an aggregate
consideration of $2.0 million, and the seller has the right to require SFX to
purchase all of such shares for an aggregate consideration of $750,000. SFX
financed the purchase price with its cash on hand.

ACQUISITION OF PACE AND PAVILION PARTNERS

On February 25, 1998, SFX acquired all of the outstanding capital stock of
PACE. In connection with the PACE acquisition, SFX acquired 100% of Pavilion, a
partnership that owns interests in ten venues, by acquiring one-third of
Pavilion through the acquisition of PACE and acquiring two-thirds of Pavilion
through separate agreements between SFX and Pavilion, PACE and Blockbuster and
PACE and Sony. The total consideration for the PACE acquisition was
approximately $109.5 million in cash, the repayment of approximately $20.6
million of debt and the issuance of 1.5 million shares of Class A common stock
having a negotiated value of approximately $20.0 million. The total
consideration for the Pavilion acquisition was approximately $90.6 million,
comprised of $41.4 million in cash, the repayment of $43.1 million of debt and
the assumption of approximately $6.1 million of debt related to a capital
lease. See "--Liquidity and Capital Resources--Future Contingent Payments." SFX
financed the purchase price with borrowings under its credit facility and with
a portion of the proceeds of the February 2008 Note offering.

ACQUISITION OF CONTEMPORARY

On February 27, 1998, SFX acquired Contemporary. The Contemporary
acquisition involved the merger of Contemporary International Productions
Corporation with and into SFX, the acquisition by a wholly-owned subsidiary of
SFX 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 for the Contemporary acquisition was
approximately $101.4 million, including $72.8 million in cash, a payment for
working capital of $9.9 million, and the issuance of 1,402,850 shares of Class
A common stock having a negotiated value of approximately $18.7 million. See
"--Liquidity and Capital Resources--Future Contingent Payments." In May 1998,
SFX and the Contemporary sellers agreed to place 140,000 of the shares issued
in connection with the Contemporary acquisition into an escrow account. SFX
may, at any time before May 18, 1999, cancel the escrowed shares in full
settlement of certain claims which SFX has made against the Contemporary
sellers. SFX financed the purchase price with borrowings under its credit
facility and with a portion of the proceeds of the February 2008 Note offering.

ACQUISITION OF BGP

On February 24, 1998, SFX acquired all of the outstanding capital stock of
BGP for a total consideration of $60.8 million in cash, $12.0 million in
repayment of debt, which amount was at least equal to BGP's working capital,
and 562,640 shares of Class A common stock having a negotiated value of
approximately $7.5 million. SFX financed the purchase price with borrowings
under its credit facility and with a portion of the proceeds of the February
2008 Note offering.

ACQUISITION OF NETWORK

On February 27, 1998, SFX acquired Network. In the Network acquisition,
SFX 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 paid was
approximately $66.8 million, including approximately $52.0 million in cash, a
payment for working capital of $1.8 million, reimbursed seller's costs of
$500,000, the purchase of an office building and related property for
approximately $2.5 million and the issuance of approximately 750,000 shares of
Class A common stock having a negotiated value of approximately $10.0 million.
The purchase price is subject to an increase based on Network's actual 1998
EBITDA, as defined in the acquisition agreement. The increase will be $4.0
million if such EBITDA equals or exceeds $9.0 million, and may be as much as
$14.0 million if such EBITDA is greater than $11.0 million. Any increase will
be payable in Class A common stock, or in certain circumstances in cash, by no
later than March 20, 1999. See "--Liquidity and Capital Resources--Future
Contingent Payments." 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. SFX financed the
purchase price with borrowings under its credit facility and with a portion of
the proceeds of the February 2008 Note offering. In connection with the Network
acquisition, the selling stockholders were reimbursed for working capital in
excess of $500,000.

ACQUISITION OF CONCERT/SOUTHERN

On March 4, 1998, SFX acquired Concert/Southern for a total cash
consideration of $16.9 million. This amount includes payments of $1.6 million,
representing the present value of a deferred purchase obligation, and $300,000
for the working capital adjustment. SFX financed the purchase price with
borrowings under its credit facility and with a portion of the proceeds of the
February 2008 Note offering.

ACQUISITION OF USA MOTOR SPORTS

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

ACQUISITION OF AVALON

On May 14, 1998, SFX acquired all the outstanding equity interests in
Avalon for a total cash purchase price of $26.8 million. SFX financed the
purchase price with borrowings under the Senior Credit Facility, which it
subsequently repaid with a portion of the proceeds from the 1998 Equity
Offering.

ACQUISITION OF OAKDALE

On June 3, 1998, SFX acquired certain assets of Oakdale for a purchase
price of $9.4 million in cash and the assumption of $2.5 million of
liabilities. At the closing, SFX also made a non-recourse loan to the Oakdale
sellers in the amount of $11.4 million, a portion of which was used to repay
outstanding indebtedness. In addition, SFX may be required to make an
additional payment to the sellers based on the Oakdale and Meadows combined
EBITDA, as defined in the acquisition agreement. If this EBITDA exceeds $5.5
million in 1999, SFX will be obligated to pay the amount of such excess
multiplied by a factor of between 5.0 and 5.8. SFX financed the purchase price
with a portion of the proceeds from the 1998 Equity Offering.

ACQUISITION OF FAME

On June 4, 1998, SFX acquired all of the outstanding capital stock of
FAME. The aggregate purchase price for FAME was approximately $82.2 million in
cash and 1.0 million shares of Class A common stock having a negotiated value
of approximately $35.9 million. The cash portion of the purchase price includes
$7.9 million which SFX paid in connection with certain taxes to which FAME will
be subject and excluding approximately $4.7 million of taxes paid which will be
refunded to SFX in 1999. Under the FAME acquisition agreement, SFX is obligated
to pay to the FAME sellers additional amounts up to an aggregate of $15.0
million in equal annual installments over 5 years contingent on the achievement
of certain EBITDA targets, as described in the acquisition agreement. See
"--Liquidity and Capital Resources--Future Contingent Payments." The agreement
also provides for additional payments by SFX if FAME's EBITDA performance
exceeds the targets by certain amounts. The additional payments are to be made
within 120 days after the end of the year to which they relate. SFX financed
the purchase price with a portion of the proceeds from the 1998 Equity
Offering.

ACQUISITION OF DON LAW

On July 2, 1998, SFX acquired certain assets of Don Law, for an aggregate
cash consideration of approximately $92.2 million, including the repayment of
approximately $7.0 million in debt. SFX financed the purchase price with a
portion of the proceeds of the 1998 Equity Offering.

ACQUISITION OF MAGICWORKS

On September 11, 1998, SFX purchased all of the outstanding shares of
common stock of Magicworks, a publicly traded company, for a total
consideration of approximately $115.7 million in cash. SFX consummated the
acquisition by means of a tender offer, in which it purchased approximately
98.7% of the Magicworks shares, followed by a merger in which the remaining
shares were converted into cash consideration. SFX financed the acquisition
with available cash and borrowings under its credit facility.

OTHER ACQUISITIONS

In the third quarter of 1998, SFX completed the acquisition of seven
companies in the theatrical and music segments. The seven acquisitions included
two concert promotion

companies, two theatrical presenters, a theatrical presenter and venue
owner/operator, a concert merchandising company and an equity owner of an SFX
amphitheater. The aggregate purchase price for these acquisitions was $107.2
million in cash, $8.2 million in deferred purchase consideration and 300,000
shares of Class A common stock having a negotiated value of approximately $10.0
million, which are subject to piggyback and demand registration rights. SFX may
also be required to make additional payments to the sellers of certain of the
acquired companies based on the companies' EBITDA as defined in the acquisition
agreements for the years 1998 through 2000. SFX financed the purchase prices
with available cash and a portion of the proceeds of the 1998 Equity Offering.

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 certain of these acquisition agreements are
exhibits to the registration statement of which this prospectus is a part and
are incorporated herein by reference. Pursuant to the acquisition agreements
and the related agreements, SFX:

o under certain circumstances, may be required to repurchase shares of
its Class A common stock or make additional payments in connection
therewith (See "--Liquidity and Capital Resources--Future Contingent
Payments");

o has granted certain rights of first refusal, certain of which are
exercisable at 95% of the proposed purchase price; and

o in connection with the PACE acquisition, has granted Brian Becker, an
Executive Vice President, a Member of the Office of the Chairman and a
director of SFX, the option to acquire, after February 25, 2000, SFX's
then existing motor sports line of business -- or, if that business has
previously been sold, SFX's then existing theatrical line of business --
at its then fair market value.

See "Risk Factors--Company Specific Risks--SFX may be forced to sell some of
its subsidiaries, which may prevent SFX from realizing the full value of these
subsidiaries" and "Management-- Employment Agreements and Arrangements with
Certain Officers and Directors--Becker Employment Agreement."

SFX's 1998 acquisitions were accounted for using the purchase method of
accounting, and the intangible assets created in the purchase transactions will
generally be amortized against future earnings, if any, over a 15-year period.
The amount of amortization will be substantial and will continue to affect
SFX's operating results in the future. These expenses, however, do not result
in an outflow of cash by SFX and do not impact EBITDA.

The consummation of the acquisitions by SFX and other future acquisitions
will result in substantial charges to earnings relating to interest expense and
the recognition and amortization of goodwill and other intangible assets. As of
September 30, 1998, SFX's goodwill was approximately $905.0 million. This
balance will substantially increase due to the pending Marquee and Cellar Door
acquisitions. Goodwill and other intangible assets are being amortized using
the straight-line method over periods up to 15 years.

RECENT ACQUISITION

On January 11, 1999, SFX completed the acquisition of a company in the
concert promotion and production industry, for a total consideration of $39.0
million. This amount includes $6.5 million in deferred purchase consideration
based on foreign tax credits SFX may become entitled to before January 2004 and
$4.0 million in deferred purchase consideration based on the seller's EBITDA,
as defined in the acquisition agreement. SFX financed the acquisition with
borrowings under its credit facility.

PENDING ACQUISITIONS

MARQUEE ACQUISITION

On July 23, 1998, SFX and Marquee entered into the merger agreement
whereby a wholly-owned subsidiary of SFX will be merged with and into Marquee
and Marquee will become a wholly-owned subsidiary of SFX. The merger agreement,
as amended, provides that each share of Marquee common stock will be converted
into a number of shares of Class A common stock based on the Exchange Ratio, as
defined on page 115.

CELLAR DOOR ACQUISITION

In January 1999, SFX entered into a stock purchase agreement with John J.
Boyle and members of his family, the stockholders of the Cellar Door group of
companies. Under the terms of this agreement, SFX will acquire all of the
issued and outstanding capital stock of Cellar Door for a purchase price of:

o $70.0 million in cash payable at closing, less an amount equal to
Cellar Door's "secured fund" indebtedness and capitalized leases;

o shares of Class A common stock with a value of $20.0 million, up to
$15.0 million of which SFX may elect to pay in cash; and

o $8.5 million payable in five equal annual installments beginning on the
first anniversary of the closing date. In addition, SFX will issue to
the seller options to purchase 100,000 shares of Class A common stock.
See "Agreements Related to the Pending Acquisitions--Cellar Door."

NEDERLANDER ACQUISITION

On February 1, 1999, SFX and the owners of Nederlander entered into
definitive agreements for the acquisition of certain interests in seven venues
and other assets of Nederlander for an aggregate purchase price of
approximately $93.6 million in cash. SFX made payments to the sellers upon
signing of the agreements in the aggregate amount of $7.5 million as a down
payment toward the aggregate purchase price. SFX is required to make an
additional down payment to the sellers of $5.0 million toward the aggregate
purchase price if and when a second request for additional information is made
under the HSR Act. The agreement relating to the venues in Cincinnati requires
SFX to make an earn-out payment to the sellers in 2000 of up to $3.2 million
depending on the level of earnings generated by operation of the Crown Arena.
If SFX sells or transfers any of the interests in Crown Arena within ten years
of the closing, SFX will be obligated to pay a portion of the consideration it
receives to the sellers of Nederlander. The agreement relating to Mesa del Sol
Centre for the Performing Arts provides for earn-out payments based on the
financial performance of this venue. See "Agreements Related to the Pending
Acquisitions--Nederlander." The closing will be subject to customary closing
conditions, including obtaining the required approval under the HSR Act.

ISI ACQUISITION

On January 26, 1999, SFX entered into a definitive agreement to acquire
Integrated Sports International for an aggregate purchase price of $14.1
million in cash and 60,000 shares of Class A common stock. In addition, during
the five year period following the closing of the acquisition, SFX may be
required to make additional payments of up to $7.5 million in cash and 50,000
shares of Class A common stock, based on the achievement by ISI of certain
target levels of EBITDA, as defined in the acquisition agreement, during such
period. SFX expects to complete the ISI acquisition during the first quarter of
1999.

SFX expects to complete the pending Marquee, Cellar Door and ISI
acquisitions during the first quarter of 1999 and the Nederlander acquisition
during the second quarter of 1999. However, the timing and completion of SFX's
pending acquisitions are subject to a number of customary closing conditions,
certain of which are beyond the control of SFX including, in the case of the
Nederlander acquisition, approvals under the HSR Act. No assurance can be given
that SFX will be able to complete its pending acquisitions on the terms
described herein or at all. See "Risk Factors--Company Specific Risks--If SFX
is unable to complete its pending acquisitions, SFX's business may suffer."

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

The consummation of the pending acquisitions by SFX and other future
acquisitions will result in substantial charges to earnings relating to
interest expense and the recognition and amortization of goodwill and other
intangible assets. As of September 30, 1998, SFX's goodwill and other
intangibles was approximately $905.0 million. This balance will increase due to
the pending Marquee, Cellar Door, Nederlander and ISI acquisitions. Goodwill
and other intangibles are being amortized using the straight-line method over
2-15 years.

SFX is also currently pursuing certain additional acquisitions; however,
it has not entered into any definitive agreements with respect to such
acquisitions, and there can be no assurance that it will do so. See "Risk
Factors--Company Specific Risks--If SFX is unable to complete other
acquisitions in the future, SFX's business may suffer."

AGREEMENT WITH TICKETMASTER

On November 16, 1998, SFX and Ticketmaster entered into a binding letter
of intent pursuant to which SFX granted Ticketmaster the exclusive right to
sell and distribute tickets for SFX's events worldwide.

PROPOSED STOCK OPTION PLAN

Following a recommendation of SFX's compensation committee, SFX has,
subject to stockholder approval, adopted a new incentive stock option plan
covering options to acquire up to three million shares of Class A common stock
and approved the grant of the options thereunder to acquire shares of Class A
common stock. SFX anticipates that the proposed stock option plan will be
submitted to a vote of the stockholders at SFX's first annual meeting scheduled
to be held in the spring of 1999.

RESULTS OF OPERATIONS

The operating performance of entertainment companies, such as SFX, is
measured, in part, by their ability to generate EBITDA. Further, SFX uses
EBITDA as its primary indicator of its operating performance, and secondarily
as a measure of liquidity. "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, SFX believes that the entertainment industry accepts
EBITDA as a generally recognized measure of performance and analysts who report
publicly on the performance of entertainment companies use EBITDA.
Nevertheless, you should not consider this measure in isolation or as a
substitute for

operating income, net income, net cash provided by operating activities or any
other measure for determining our operating performance or liquidity that is
calculated in accordance with GAAP. EBITDA, as SFX calculates it, may not be
comparable to calculations of similarly titled measures presented by other
companies.

SFX's operations consist primarily of:

o concert promotion and venue operation;

o the promotion and production of theatrical events, particularly touring
Broadway shows;

o the promotion and production of motor sports events; and

o representation of professional athletes.

SFX also engages in various other activities ancillary to its live
entertainment businesses.

CONCERT PROMOTION/VENUE OPERATION

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

Revenue from ticket sales is affected primarily by the number of events
SFX promotes, the average ticket price and the number of tickets sold. The
average ticket price depends on the popularity of the artist whom SFX 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 SFX
assumes the risk of ticket sales, although profits per event would tend to be
lower. Operating margins can vary from period to period.

SFX'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

SFX's theatrical operations are directed mainly towards the promotion and
production of touring Broadway shows, which generate revenues primarily from
ticket sales and

sponsorships. SFX 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. To reduce its dependency on the success of any single touring
production, SFX sells advance annual subscriptions that provide the purchaser
with tickets for all of the shows that SFX intends to tour in the particular
market during the touring season. Historically, approximately 28% of ticket
sales for touring Broadway shows presented by SFX were sold through advance
annual subscriptions. Subscription related revenues received before the event
date are initially recorded on the balance sheet as deferred revenue; after the
event occurs, they are recorded on the statement of operations as gross
revenue. Expenses are capitalized on the balance sheet as prepaid expenses
until the event occurs. Subscriptions for touring Broadway shows typically
cover approximately two-thirds of SFX'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.

SFX 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. SFX monitors the recoverability of these
investments on a regular basis, and SFX may be required to take write-offs if
the original production closes or if SFX 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

SFX'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. 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 before 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 deferred 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, SFX may be required to sell either its motor
sports or theatrical lines of business. See "Risk Factors--Company Specific
Risks--SFX may be forced to sell some of its subsidiaries, which may prevent
SFX from realizing the full value of these subsidiaries."

REPRESENTATION OF PROFESSIONAL ATHLETES

Through FAME, SFX's talent representation activities consist principally
of the representation of team sports athletes, primarily in the NBA, in player
contract and endorsement negotiations. FAME also provides certain investment
advisory services to its clients through an affiliate. FAME typically receives
a percentage of monies earned by a player, generally approximately 4% of a
player's sports contract and typically from 15% to 25% of endorsement deals.
Revenue from these sources is recognized as the player receives his salary or
endorsement payments based on the terms of the negotiated agreement. Revenue
from these sources is dependent upon a number of variables, many of which are
outside SFX's control, including a player's skill, health, public appeal and
the appeal of the sport in which the player participates. Principal operating
expenses include salaries, wages and travel and entertainment expenses.

On a pro forma basis for SFX's 1998 acquisitions, FAME's revenues would
have comprised approximately 1.0% of SFX's revenues for the nine months ended
September 30, 1998. The owners of the teams in the NBA had locked out their
players from participation in league activities and suspended the 1998-99
basketball season indefinitely, causing cancellation of some of the games for
the 1998-99 basketball season. The suspension of the NBA season ended on
January 6, 1999, and the NBA season began February 5, 1999 with a reduced game
schedule. The cancellation of over 30 games for the current NBA season will
have a negative impact on FAME's revenues and EBITDA.

OTHER BUSINESSES

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

SFX 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

SFX's operations and revenues have been largely seasonal in nature, with
generally higher revenue generated in the second and third quarters of the
year. For example, on a pro forma basis for SFX's 1997 and 1998 acquisitions,
SFX generated approximately 63% of its revenues in the second and third
quarters for the twelve months ended September 30, 1998. SFX's outdoor venues
are primarily used in the summer months and do not generate substantial revenue
in the late fall, winter and early spring. Similarly, the musical concerts that
SFX promotes largely occur in the second and third quarters. SFX's
entertainment marketing and consulting in connection with musical concerts also
predominantly generate revenues in the second and third quarters. Therefore,
the seasonality of SFX's business causes -- and will probably continue to cause
- -- a significant variation in SFX's quarterly operating results. These
variations in demand could have a material adverse effect on the timing of
SFX's cash flows and, therefore, on its ability to service its obligations with
respect to its indebtedness. However, SFX believes that this variation may be
somewhat offset with

the acquisition of typically non-summer seasonal businesses in SFX's 1998
acquisitions, such as motor sports, which is winter-seasonal, and touring
Broadway shows, which typically tour between September and May.

RECENT DEVELOPMENTS

SFX expects to release its results of operations for the fourth quarter
and fiscal year ended December 31, 1998 on or about March 1, 1999. Although its
year-end audit has not been completed, SFX expects to report that revenues,
operating income and EBITDA during the fourth quarter of 1998 did not grow at
the same rate as during the nine months ended September 30, 1998. The fourth
quarter results were impacted by the loss of revenue during the NBA lock-out
and results in SFX's theatrical business, which was adversely affected in part
by the Livent Inc. bankruptcy. In addition, as a result of the bankruptcy
filing of Livent Inc. in November 1998, SFX is considering a one-time, non-cash
charge of approximately $5.6 million in the fourth quarter of 1998 in order to
fully reserve against advances relating to the touring productions of Ragtime
and Showboat. Management's expectations are based on a preliminary review of
the results of operations of SFX, its recently acquired companies and Cellar
Door and Marquee for the fourth quarter of 1998. Actual results may deviate
from our current expectations.

HISTORICAL RESULTS

NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1997

SFX's revenue increased by $606.0 million to $680.4 million for the nine
months ended September 30, 1998, compared to $74.4 million for the nine months
ended September 30, 1997, primarily as a result of $578.5 million attributable
to SFX's 1998 acquisitions and $12.4 million attributable to the acquisitions
of the Meadows in March 1997 and Sunshine Promotions in June 1997. SFX's 1998
acquisitions significantly increased the concert promotion and venues operation
business and expanded SFX's business to include theatrical promotion and
production, motor sports promotion and production, representation of
professional athletes and radio magazine publishing, programming and research.

Cost of revenue increased by $539.5 million to $602.5 million for the nine
month period ended September 30, 1998, compared to $63.0 million for the nine
months ended September 30, 1997, primarily as a result of $513.5 million
attributable to SFX's 1998 acquisitions and $12.6 million attributable to the
acquisition of Sunshine Promotions in June 1997.

Depreciation and amortization expense increased to $40.3 million for the
nine month period ended September 30, 1998, compared to $4.0 million for the
nine month period ended September 30, 1997, due to the inclusion of $31.1
million of depreciation and amortization expense related to SFX's 1998
acquisitions and the acquisition of Sunshine Promotions in June 1997 and $1.2
million related to the completion of capacity expansion projects at two
amphitheaters. In addition, SFX recorded a $2.7 million write down of deferred
expense relating to the Triathlon Broadcasting Company agreement and recorded
$1.3 million of integration costs for the nine month period ended September 30,
1998. SFX recorded the fixed assets of the SFX's 1998 acquisitions and the
Sunshine Promotions acquisition at fair value and recorded intangible assets
equal to the excess of purchase price over the fair value of the net tangible
assets, which are being amortized over a 2-15 year period.

Corporate expenses were $5.8 million for the nine month period ended
September 30, 1998, net of $398,000 in fees earned from Triathlon, compared to
$1.3 million for the nine

months ended September 30, 1997, net of Triathlon fees of $1.7 million. The
increase in corporate expense reflects the growth of SFX's operations and the
formation of SFX Live, the national marketing division of the Company. The fees
earned from Triathlon are based on consulting services provided by or on behalf
of SCMC, a private investment company in which Messrs. Sillerman and Tytel have
economic interests, that makes investments in and provides financial consulting
services to companies engaged in the media business. These fees 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 Broadcasting, and Broadcasting assigned
its rights to receive the fees to SFX, pursuant to the distribution agreement.
Triathlon has announced that it has agreed to be acquired by a third party.
When Triathlon is acquired, it will cease paying consulting fees. See "Certain
Relationships and Related Transactions--Triathlon Fees."

Non-cash compensation and other non-cash charges recorded in the second
and third quarter of 1998 of $32.9 million consisted of:

o $23.9 million of compensation related to sale of 650,000 shares of Class B
common stock and 190,000 shares of Class A common stock at a purchase price
of $2.00 per share to certain executive officers pursuant to employment
agreements;

o $7.5 million associated with the issuance of 247,177 shares of Class A
common stock to Mr. Sillerman in connection with the repurchase (the
"Meadows Repurchase") of shares of Broadcasting issued to the sellers of
Meadows; and

o $1.5 million related to the issuance of stock options to certain executive
officers pursuant to employment agreements exercisable for an aggregate of
352,500 shares of SFX Class A common stock.

Of these options, 345,000 vest over three years and have an exercise price
of $5.50 per share. SFX is recording non-cash compensation charges of
approximately $3.3 million annually over the three-year exercise period. See
"Management--Executive Compensation" and "Certain Relationships and Related
Transactions--Meadows Repurchase."

The operating loss was $1.3 million for the nine month period ended
September 30, 1998, compared to income of $6.0 million for the nine months
ended September 30, 1997, due to the results discussed above.

Interest expense, net of investment income, was $28.2 million in the nine
months ended September 30, 1998, compared to $743,000 for the nine months ended
September 30, 1997, primarily as a result of $724.5 million attributable to the
incurrence of additional debt related to SFX's 1998 acquisitions and $15.7
million attributable to the debt assumed in connection with the Meadows and
Sunshine Promotions acquisitions.

Minority interest was $1.3 million for the nine months ended September 30,
1998, compared to no minority interest for the nine months ended September 30,
1997, as a result of SFX's 1998 acquisitions.

Income from equity investments was $4.0 million for the nine months ended
September 30, 1998, compared to income of $1.3 million for the nine months
ended September 30, 1997, as a result of SFX's 1998 acquisitions.

Income tax expense was $3.3 million for the nine month period ended
September 30, 1998. The provision is primarily for state and local taxes and
reflects the impact of non-deductible goodwill amortization and other non-cash
compensation and other non-cash charges. No federal tax benefit has been
recognized due to the uncertainty of realizing a tax benefit for SFX's losses.

SFX's net loss increased to $30.2 million for the nine month period ended
September 30, 1998, as compared to net income of $3.7 million for the nine
months ended September 30, 1997, due to the factors discussed above.

EBITDA would have been $39.1 million for the nine months ended September
30, 1998. EBITDA, excluding non-cash compensation and other non-cash charges of
$32.9 million, increased to $72.0 million for the nine month period ended
September 30, 1998, compared to $10.0 million for the nine months ended
September 30, 1997, primarily as a result of $65.1 million attributable to
SFX's 1998 acquisitions and a deficit of $202,000 attributable to the
acquisition of Sunshine Promotions in June 1997.

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

SFX's concert promotion revenue increased by 91% to $96.1 million for the
year ended December 31, 1997, compared to $50.4 million for the year ended
December 31, 1996, as a result of the acquisitions of Sunshine Promotions and
Meadows, which increased concert promotion revenue by $45.5 million.

Cost of revenue increased by 65% to $83.4 million for the year ended
December 31, 1997, compared to $50.7 million for the year ended December 31,
1996, primarily as a result of the acquisitions of Sunshine Promotions and
Meadows, which increased concert operating expenses revenue by $37.1 million,
which was offset in part by $4.4 million in decreased officer salary expense
paid to the former owners of Delsener/Slater.

Depreciation and amortization expense increased to $5.4 million for the
year ended December 31, 1997, compared to $747,000 for the year ended December
31, 1996, due to the inclusion of $2.6 million of depreciation and amortization
expense related to the acquisitions of Sunshine Promotions and Meadows and $1.4
million in depreciation and amortization recorded in 1997 related to the
purchase of Delsener/Slater on January 2, 1997 and $657,000 of depreciation and
amortization relating to the corporate office. In 1997, SFX 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 no corporate
expenses for the year ended December 31, 1996. These expenses represent the
incremental costs of operating SFX's corporate offices, and therefore did not
exist in 1996.

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 and Sunshine Promotions.

Equity income in unconsolidated subsidiaries decreased 3% to $509,000 for
the year ended December 31, 1997, compared to $524,000 for the year ended
December 31, 1996.

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.

SFX'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 $8.3 million attributable to SFX's 1997 acquisitions, $4.4 million
attributable to the reduction in officers' salary expense and $340,000
attributable to improved operating results.

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

SFX'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.

Cost of revenue 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.

SFX'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 for
the year ended December 31, 1996, compared to $488,000 for the year ended
December 31, 1995, primarily as a result of $210,000 of income from the
investment in the PNC Bank Arts Center, offset by lower income from SFX's other
equity investments that was $174,000 lower.

SFX'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.

SFX'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 operating income of $902,000 and officers' salary expense that was
$2,424,000 higher, partially offset by general and administrative expenses that
were $809,000 lower.

PRO FORMA RESULTS

NINE MONTHS ENDED SEPTEMBER 30, 1998

On a pro forma basis, assuming all acquisitions and relating financings
were completed as of January 1, 1997, revenue for the nine months ended
September 30, 1998 would have been $1.0 billion, as compared to the actual
results of $680.4 million. Cost of revenue would have been $780.4 million, as
compared to the actual results of $519.6 million. Selling, general and
administrative expenses would have been $130.3 million, as compared to the
actual results of $83.0 million. Depreciation and amortization would have been
$71.8 million, as compared to the actual results of $40.4 million. These
increases in revenue, cost of revenue,

selling, general and administrative expenses and depreciation and amortization
resulted primarily from the inclusion of the operating results from each of the
acquired businesses and pending acquisitions for the entire period.

Corporate expenses would have been $6.0 million net of Triathlon fees, as
compared to the actual results of $5.8 million, reflecting the incremental cost
to the corporate office of operating a larger enterprise. Non-cash compensation
and other non-cash charges would have been $33.3 million, as compared to the
actual results of $32.9 million as a result of including Marquee's operations
in the pro forma results. Operating income for the nine months ended September
30, 1998 would have been $15.3 million, as compared to the actual loss of $1.3
million, due to the results discussed above.

Interest expense would have been $52.6 million for the nine months ended
September 30, 1998, as compared to the actual results of $31.7 million.
Interest increased primarily as a result of assumption in the pro forma
financial statements that the debt used to fund the acquisitions are
outstanding at the beginning of the period.

Income from equity investments would have been $6.0 million, as compared
to the actual results of $4.0 million. Income tax expense would have been $4.6
million, as compared to the actual provision of $3.3 million. These increases
reflect the inclusion of the operating results of the completed and pending
acquisitions for the entire period.

SFX's net loss for the nine months ended September 30, 1998 would have
been $36.6 million, as compared to the actual results of $30.2 million, due to
the results discussed above.

EBITDA would have been $87.2 million as compared to EBITDA of $39.1
million on a historical basis, due to the results discussed above. EBITDA,
excluding non-cash charges of $33.3 million, would have been $120.4 million, as
compared to EBITDA, excluding non-cash charges of $32.9 million, of $72.0
million on a historical basis.

YEAR ENDED DECEMBER 31, 1997

On a pro forma basis, assuming all acquisitions and related financings had
been completed as of January 1, 1997, revenue for the year ended December 31,
1997 would have been $1.0 billion, as compared to the actual results of $96.1
million. Cost of revenue would have been $735.5 million, as compared to the
actual results of $73.9 million. Selling, general and administrative expenses
would have been $156.6 million, as compared to the actual results of $9.5
million. Depreciation and amortization would have been $89.2 million, as
compared to the actual results of $5.4 million. The increase in revenue, cost
of revenue, selling, general and administrative expenses and depreciation and
amortization was a result of the inclusion of the operating results from each
of the acquired businesses and pending acquisitions for the entire period.

Corporate expenses, net of Triathlon fees would have been $8.0 million, as
compared to the actual results of $2.2 million, reflecting the incremental cost
to the corporate office of operating the larger enterprise. Non-cash
compensation and other non-cash charges would have been $1.4 million, resulting
from historical costs incurred by Marquee. Operating income for the year ended
December 31, 1997 would have been $10.5 million, as compared to the actual
results of $5.1 million, due to the results discussed above.

Interest expense would have been $70.0 million, as compared to the actual
results of $1.6 million. Interest increased primarily as a result of the
assumption in the pro forma financial statements that the debt used to fund the
acquisitions are outstanding at the beginning of the period.

Income from equity investments would have been $5.5 million, as compared
to the actual results of $509,000. Income tax expense would have been $4.9
million, as compared to the actual provision of $490,000. These increases
reflect the inclusion of the operating results of the completed and pending
acquisitions for the entire period.

SFX's net loss for the year ended December 31, 1997 would have been $54.8
million, as compared to the actual results of net income of $3.8 million, due
to the results discussed above.

EBITDA would have been $99.7 million as compared to EBITDA of $10.5
million on a historical basis, due to the results discussed above. EBITDA,
excluding non-cash charges of $1.4 million, would have been $101.0 million, as
compared to actual results of $10.5 million.

LIQUIDITY AND CAPITAL RESOURCES

SFX's principal need for funds has been for acquisitions, interest
expense, working capital needs, certain payments in connection with the SFX
spin-off and, to a lesser extent, capital expenditures. SFX's principal sources
of funds has been proceeds from the February 2008 Note offering, the 1998
Equity Offering, the Old Note offering, borrowings under its credit facility
and cash flows from operations. SFX intends to use the net proceeds from the
proposed equity offering to repay all of the revolving portion of its credit
facility, to repay the outstanding debt of Marquee in connection with the
Marquee acquisition, to pay the cash consideration in connection with the
Nederlander and ISI acquisitions for general corporate purposes, including
future acquisitions and to pay fees and expenses related to the pending Marquee
acquisition and the proposed equity offering. SFX intends to use the additional
borrowing availability under its credit facility to complete the Cellar Door
acquisition, to pay fees and expenses in connection therewith and for other
general corporate purposes, including future acquisitions. The foregoing
represents SFX's best current estimate of the allocation of the net proceeds of
the proposed equity offering and anticipated uses of borrowings under its
credit facility based on the current status of its business. As noted elsewhere
herein, such estimates and anticipated uses could be subject to significant
change.

HISTORICAL CASH FLOWS

Net cash provided by operations was $22.3 million for the nine months
ended September 30, 1998, as compared to $789,000 for the nine months ended
September 30, 1997. The increase was primarily attributable to an increase in
operating income, before depreciation, amortization and non-cash compensation
and other non-cash charges of $40.4 million related to SFX's 1998 acquisitions,
partially offset by other changes in working capital.

Net cash used in investing activities for the nine months ended September
30, 1998 was $852.2 million as compared to $72.0 million for the nine months
ended September 30, 1997. The increase was primarily the result of SFX's 1998
acquisitions. During the nine months ended September 30, 1997, SFX completed
the acquisitions of Delsener/Slater, the Meadows and Sunshine Promotions.

Net cash provided by financing activities for the nine months ended
September 30, 1998, was $889.5 million as compared to $78.3 million for the
nine months ended September 30, 1997. During 1998, SFX completed the February
2008 Note offering for $350.0 million, borrowed $346.0 million under its credit
facility and completed the 1998 Equity Offering for $329.0 million, net, offset
by tax indemnification payments and SFX spin-off related payments to
Broadcasting of $113.9 million and the payment of debt issuance costs of $17.5
million.

PENDING ACQUISITIONS

SFX will be required to refinance approximately $33.1 million of Marquee's
debt in connection with the Marquee acquisition. The aggregate cash
consideration in the Cellar Door acquisition is expected to consist of
approximately $78.5 million, including $8.5 million to be paid over five years.
The aggregate cash consideration in the ISI acquisition is expected to be $14.1
million. Additionally, the aggregate cash consideration in the Nederlander
acquisition is expected to be $93.6 million. SFX expects to incur approximately
$9.8 million in fees and expenses related to the pending Marquee, Cellar Door
and Nederlander acquisitions.

FUTURE CONTINGENT PAYMENTS

Certain of the agreements relating to SFX's 1998 acquisitions provide for
purchase price adjustments and other future contingent payments under certain
circumstances. The PACE acquisition agreement provides that each PACE seller
will have an option, exercisable for 90 days after the fifth anniversary of the
closing of the PACE acquisition, to require SFX to repurchase up to 500,000
shares of the Class A common stock received by that seller for $33.00 in cash
per share, for an aggregate purchase price of up to $16.5 million. Pursuant to
the terms of Brian Becker's employment agreement with SFX, during the period
between December 12, 1999, and December 27, 1999, Mr. Becker, an Executive Vice
President, a director and a Member of the Office of the Chairman of SFX, will
have the option to, among other things, require SFX to purchase any stock or
options granted to him by SFX and/or pay him an amount equal to the present
value of the compensation payable during the remaining term of his employment
agreement. Exercise of such option would result in termination of Mr. Becker's
employment agreement. See "Management--Employment Agreements and Arrangements
with Certain Officers and Directors--Becker Employment Agreement."

Moreover, if the average trading price of the Class A common stock is less
than $13.33 during the twenty days before the second anniversary of the
Contemporary acquisition, SFX will be required to pay one-half of such
difference for each of the 1,402,850 shares issued in the acquisition and still
held by the sellers of Contemporary on such date.

Pursuant to the Network acquisition agreement, SFX agreed to increase the
purchase price for Network based on Network's actual 1998 EBITDA, as defined in
the acquisition agreement. The increase will be payable as follows:

o by $4.0 million if the 1998 EBITDA equals or exceeds $9.0 million;

o by an additional $4 for each $1 of additional 1998 EBITDA between $9.0
million and $10.0 million; and

o by an additional $6 for each $1 of additional 1998 EBITDA between $10.0
million and $11.0 million.

This contingent consideration of up to $14.0 million is payable in shares of
Class A common stock or, in certain circumstances, in cash by no later than
March 20, 1999.

Pursuant to the agreement relating to the acquisition of FAME, SFX is
obligated to pay to the FAME sellers additional amounts up to $15.0 million in
equal annual installments over five years contingent on the achievement by FAME
of certain EBITDA targets, as defined in the acquisition agreement. The FAME
agreement also provides for additional payments by SFX to the FAME sellers if
FAME's EBITDA performance exceeds the targets by certain amounts. Furthermore,
if SFX disposes of all or substantially all of the assets or voting

interests of FAME during the five years following the closing of the FAME
acquisition, certain payments may become due to the FAME sellers out of the
proceeds of such sale.

Pursuant to the agreement relating to the acquisition of certain assets of
Oakdale, SFX may be required to make an additional payment to the sellers based
on the Oakdale and Meadows combined EBITDA, as defined in the Oakdale
acquisition agreement. If this EBITDA exceeds $5.5 million in 1999, SFX will be
obligated to pay the Oakdale sellers between 5.0 to 5.8 times the amount of
such excess.

In addition, pursuant to the agreement relating to the acquisition of one
of the seven companies in the theatrical and music segments in July, August and
September 1998, if the EBITDA, as defined in the acquisition agreement, exceeds
$14.3 million in 1998 and $30.0 million in 1999, SFX will be obligated to pay
the sellers such excess.

Pursuant to the agreement relating to the acquisition of a concert
promotion and production company in January 1999, SFX may be obligated to pay
to the seller additional amounts up to $4.0 million over five years contingent
on the achievement by certain business segments of the seller of certain EBITDA
targets. Additionally, SFX deposited $6.5 million into an escrow account. The
release of such funds from escrow to the seller is dependent upon SFX achieving
certain foreign tax savings.

Certain of SFX's 1998 acquisitions and the pending Nederlander and ISI
acquisitions also provide for additional future payments based on the acquired
companies' performance. No assurance can be given that SFX will have sufficient
cash or other available sources of capital to make any or all of the future or
contingent payments described above.

SPIN-OFF

In connection with the SFX spin-off, SFX entered into the tax sharing
agreement with Broadcasting. Pursuant to such agreement, SFX is responsible for
certain taxes incurred by Broadcasting, including income taxes imposed with
respect to income generated by SFX for periods before the spin-off and taxes
resulting from gain recognized by Broadcasting in the spin-off. SFX has made an
estimated payment of $108.0 million in taxes in connection with the spin-off.
Management's estimates of the amount of the indemnity payment are based on
assumptions which management believes are reasonable. However, upon the
completion of all final tax returns, including any potential tax audits, such
assumptions could be modified in a manner that would result in a significant
variance in the actual amount of the tax indemnity.

INTEREST ON NOTES AND BORROWINGS UNDER THE SENIOR CREDIT FACILITY

On February 11, 1998, SFX completed the private placement of the February
2008 Notes, which were subsequently exchanged for the publicly registered notes
on July 15, 1998. Interest is payable on the exchange notes on February 1 and
August 1 of each year. In addition, as of October 30, 1998, SFX had borrowed
$346.0 million under the SFX credit facility, at an interest rate of
approximately 7.89%, to fund a portion of SFX's 1998 acquisitions. On November
25, 1998, SFX completed the offering of the Old Notes, which are required to be
exchanged for publicly registered New Notes. In the event the Old Notes are not
so exchanged, liquidated damages to the holders of the Old Notes will become
payable. Interest is payable on the Old Notes on June 1 and December 1 of each
year. In addition, as of January 26, 1999, SFX had term loan indebtedness of
$149.0 million under its credit facility.

The degree to which SFX will be leveraged could have important
consequences including, but not limited to:

o making it more difficult for SFX to satisfy its obligations with respect to
the February 2008 Notes and Old Notes;

o increasing SFX's vulnerability to general adverse economic and industry
conditions;

o limiting SFX's ability to obtain additional financing to fund future
acquisitions, working capital, capital expenditures and other general
corporate requirements;

o requiring the dedication of a substantial portion of SFX's cash flow from
operations to the payment of principal of, and interest on, its
indebtedness, thereby reducing the availability of such cash flow to fund
working capital, capital expenditures, or other general corporate purposes;

o limiting SFX's flexibility in planning for, or reacting to, changes in its
business and the industry; and

o placing SFX at a competitive disadvantage vis-a-vis less leveraged
competitors.

In addition, its credit facility, the indenture governing the February
2008 Notes and the indenture governing the Old Notes contain financial and
other restrictive covenants that will limit the ability of SFX to, among other
things, borrow additional funds for future acquisitions or otherwise. Failure
by SFX to comply with such covenants could result in an event of default which,
if not cured or waived, could have a material adverse effect on SFX's business,
financial condition and results of operations. SFX's indebtedness under its
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. Most
of SFX's subsidiaries have also guaranteed the February 2008 Notes, Old Notes
and borrowings under the credit facility. If SFX were unable to repay any
borrowings when due, the lenders could attempt to seize SFX's and its
subsidiaries' assets and the capital stock of SFX's subsidiaries. In addition,
the degree to which SFX is leveraged could prevent it from repurchasing all of
the February 2008 Notes and Old Notes tendered to it upon the occurrence of a
change of control. See "Risk Factors--Risks Relating to Notes--SFX's credit
facility and indentures restrict its operations" and "--SFX may not have the
funds necessary to finance a change of control offer for the notes."

SFX'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 SFX's operations. There can be no assurance that SFX will be
able to make planned borrowings, that SFX's business will generate sufficient
cash flow from operations, or that future borrowings will be available in an
amount to enable SFX to service its debt and to make necessary capital or other
expenditures. SFX may be required to refinance a portion of the principal
amount of its indebtedness before its maturities. There can be no assurance
that SFX will be able to raise additional capital through the sale of
securities, the disposition of assets or otherwise for any refinancing.

CAPITAL EXPENDITURES

Capital expenditures totaled $44.6 million for the nine months ended
September 30, 1998. SFX estimates that its remaining capital expenditures for
1998 were approximately $3.4 million, including $2.4 million of major projects
and $1.0 million of other capital expenditures. SFX expects capital
expenditures to be approximately $37.0 million, including $25.0 million of
major projects, in 1999, and are anticipated to be funded with cash flow from
operations.

YEAR 2000 COMPLIANCE

SFX is currently working to resolve the potential impact of the Year 2000
on the processing of date-sensitive information by SFX's computer systems. The
Year 2000 problem is the result of computer programs being written using two
digits, rather than four, to define the applicable year. Any of SFX's programs
that have time-sensitive software may recognize a date using "00" as the Year
1900 rather than the Year 2000, which could result in miscalculations or system
failures. The problem is not limited to computer systems. Year 2000 issues will
also potentially affect every non-information technology system that has an
embedded microchip, such as elevators.

ASSESSMENT. SFX management has been conducting a review of its exposure to
the Year 2000 problem. Based on SFX's internal review and discussions with
third parties regarding the Year 2000 problem, SFX believes that its exposure
to potential Year 2000 problems exists in two general areas: technological
operations, including non-information technology systems, which are in the sole
control of SFX; and technological operations which are dependent in some way on
one or more third parties. Failure to achieve high levels of Year 2000
compliance in either area could have a material adverse impact on SFX.

REMEDIATION AND IMPLEMENTATION. In the area of technological operations
which are under SFX's exclusive control, SFX is currently involved in the
identification and remediation of affected technological functions, including
non-information technology systems. SFX is addressing 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 will provide improved reporting, allow for more detailed
analysis, handle SFX's 1998 acquisitions, the Marquee and the Cellar Door
acquisitions and be Year 2000 compliant. SFX expects that business segments
representing 88% of SFX's pro forma revenue for the year ended September 30,
1998 will have the new year 2000 compliant accounting and financial systems
installed as of January 1, 1999. SFX expects its remaining business segments to
have the new year 2000 compliant accounting and financial systems installed
before the summer of 1999. SFX is in the identification and assessment phase
with respect to its non-information technology systems, which is projected to
continue until the summer of 1999.

TESTING. SFX will begin updating and testing its systems after their
installation, and expects that all testing will be complete by the summer of
1999. Upon completion, SFX will be able to identify any internal computer
systems that remain non-compliant. At present, it is anticipated that SFX's
action plan for addressing Year 2000 problems will be successfully completed in
all material respects in advance of January 1, 2000.

ESTIMATED COSTS. The total financial effect that Year 2000 issues will
have on SFX cannot be predicted with any certainty at this time. In fact, in
spite of all efforts being made to rectify these problems, the success of SFX's
efforts will not be known with certainty until the year 2000 actually arrives.
SFX anticipates that the cost of implementing the new accounting and reporting
systems will be approximately $4.5 million, of which approximately $2.4 million
has been spent to date. Based on its assessment to date, SFX does not believe
that expenses related to addressing the Year 2000 problem will have a material
effect on the operations and financial condition of SFX.

THIRD PARTIES. In the area of technological operations dependent in some
way on one or more third parties, including vendors, suppliers, joint venture
partners or major customers, the situation is much less in SFX's ability to
predict or control. SFX has begun to assess the level of Year 2000 problems
associated with their various vendors, suppliers, joint venture

partners and major customers. SFX's significant vendors are ticketing
companies, payroll processors, utility companies and banks. SFX is
communicating with some of these third parties to assess their compliance
efforts and SFX's exposure resulting from Year 2000 issues. SFX is in the
process of requesting written assurances of Year 2000 compliance from each of
its significant suppliers as a part of SFX's contingency planning process.
Although SFX is making these efforts to ensure that the third parties on which
it is heavily reliant are Year 2000 compliant, it cannot predict the likelihood
of such compliance occurring nor the direct or indirect costs to SFX of
non-compliance by those third parties or of securing such services from
compliant third parties. SFX has no control over these third parties'
compliance and cannot give assurances that these third parties' representations
to SFX are accurate. Therefore, there can be no guarantee that Year 2000
problems originating with a third party will not occur and no absolute
assurance that third parties will convert their systems in a timely manner.
Assuming that such third parties are not or do not become Year 2000 compliant
in a timely manner, to the extent SFX is unable to replace the goods, services
or customers with alternate sources of supply and demand on a timely and
economically equivalent basis, such failure would likely have a material
adverse effect on SFX's business and results of operations. However, SFX does
not anticipate that it will be subject to a material impact in this area.

CONTINGENCY PLAN. SFX has not completed its implementation and testing of
Year 2000 compliant systems. However, a reasonably likely worst case scenario
is that certain of SFX's material suppliers or customers will be unable to
fully become Year 2000 compliant in a timely manner, which will disrupt SFX's
ability to provide services and generate revenues in certain areas in which it
does business. For example, disruptions in ticketing operations would
significantly reduce attendance. Disruptions in transportation could affect the
provision of concessions for sale at SFX's venues. These disruptions would
continue until alternate sources of supply and demand could be located. Based
on the results of the implementation and testing of SFX's Year 2000 affected
systems and the ongoing assessment of the readiness of its vendors, suppliers,
joint venture partners and major customers, SFX will develop appropriate
contingency plans that address the most reasonably likely worst case scenarios.
SFX expects to have such contingency plans in place by the summer of 1999. A
failure to address Year 2000 issues successfully could have a material adverse
effect on SFX's business, financial condition or results of operations.

SOURCES OF LIQUIDITY

As of September 30, 1998, SFX's cash and cash equivalents totaled $65.6
million, and its working capital was a negative $8.0 million. In February 1998,
SFX received the proceeds from the $350.0 million offering of its February 2008
Notes and borrowed $150.0 million under its credit facility. On May 27, 1998,
SFX received approximately $329.0 million in net proceeds from the 1998 Equity
Offering. SFX used the proceeds from the 1998 Equity Offering to repay certain
indebtedness, fund the tax indemnification payments and consummate the FAME,
Oakdale and certain other acquisitions. In the third quarter of 1998, SFX used
the remaining proceeds of the 1998 Equity Offering and borrowed an additional
$196.0 million under its credit facility to complete the Don Law acquisition,
the Magicworks acquisition and the acquisition of the seven companies in the
theatrical and music segments. On November 25, 1998, SFX received approximately
$192.5 million in net proceeds from the Old Note offering, which it used to
repay indebtedness under the revolving portion of its credit facility.

SFX contemplates issuing approximately 4,800,000 shares of Class A common
stock in the proposed equity offering. Assuming an offering price of $55.50,
the net proceeds of the

offering are expected to be approximately $253.2 million. SFX currently expects
to use the estimated net proceeds from the proposed equity offering to repay
borrowings under its credit facility and to repay Marquee's indebtedness in the
pending Marquee acquisition. SFX intends to finance the cash portion of the
purchase price of the pending acquisitions with a portion of the net proceeds
of the proposed equity offering and borrowings under its credit facility. There
can be no assurance that the proposed equity offering will be consummated.

SFX has incurred and will continue to incur substantial amounts of
indebtedness. As of September 30, 1998, on a pro forma basis giving effect to
the Old Note offering and the application of the net proceeds therefrom, the
consummation of the Cellar Door acquisition and the Marquee acquisition,
anticipated borrowings under the SFX credit facility and the proposed equity
offering and the application of the estimated proceeds therefrom, SFX's
consolidated debt would have been approximately $757.0 million. On the same
basis, SFX's consolidated debt would consist of:

o $350.0 million of February 2008 Notes;

o $200.0 million of Old Notes;

o $150.0 million in borrowings under the SFX credit facility; and

o $57.0 million in other debt.

SFX's temporary equity would have been $19.9 million, and its stockholders'
equity would have been approximately $751.2 million.

SFX's ratio of total debt to total capitalization as of September 30, 1998
would have been approximately 0.50 to 1. See "SFX Unaudited Pro Forma Condensed
Combined Financial Statements." SFX may incur indebtedness from time to time to
finance future acquisitions, for capital expenditures or for other purposes.
See "Risk Factors--Risks Relating to the Notes--SFX has a substantial amount of
debt, which may harm our financial health and prevent us from fulfilling our
obligations under the notes" and "--Company Specific Risks--If SFX is unable to
complete other acquisitions in the future, SFX's business may suffer."

SFX's credit facility originally consisted of a $150.0 million seven-year
reducing revolving facility and a $150.0 million eight-year term loan. On
September 10, 1998, SFX entered into an agreement with The Bank of New York to
increase its borrowing availability under the revolver portion of SFX's credit
facility by an additional $50.0 million, which increased the aggregate amount
of borrowing availability under the SFX credit facility to approximately $350.0
million. As of February 5, 1999, SFX had outstanding approximately $285.0
million of borrowings under its credit facility. Giving pro forma effect to the
proposed equity offering and the application of the proceeds therefrom,
anticipated borrowings under its credit facility and consummation of the
Marquee, Cellar Door, ISI and Nederlander acquisitions, SFX expects to have
$150.0 million outstanding under its credit facility. Loans outstanding under
its credit facility will bear interest, at SFX's option, at 1.625 to 3.625
percentage points over LIBOR or the greater of the Federal Funds rate plus
0.50% or The Bank of New York's prime rate. The interest rate spreads on the
term loan and the revolver portion of the credit facility will be adjusted
based on SFX's Total Leverage Ratio, as defined in the SFX credit facility. SFX
will pay a per annum commitment fee on unused availability under the revolver
of 0.375% to 0.5% and a per annum letter of credit fee equal to the Applicable
LIBOR Margin, as defined in the SFX credit facility, for the revolver then in
effect.

The revolver and term loan portion of the SFX's credit facility contain
usual and customary covenants, including limitations on:

o line of business;
o additional indebtedness;
o liens;
o acquisitions;
o asset sales;
o dividends, repurchases of stock and other cash distributions;
o total leverage;
o senior leverage; and
o ratios of Operating Cash Flow, as defined in the SFX credit facility, to pro
forma interest expense, debt service and fixed charges.

SFX's obligations under the revolver and term loan are secured by substantially
all of its assets, including property, stock of subsidiaries and accounts
receivable and are guaranteed by SFX's subsidiaries.

The consummation of the Old Note offering was conditioned upon the receipt
of the consent of the lenders under the SFX credit facility. In connection with
such consent, SFX agreed to increase the applicable margins as described above.
SFX paid a consent fee to each consenting lender of 0.25% of such lender's
commitment amount. In addition, SFX obtained a consent of the lenders in
connection with the proposed equity offering.

SFX has had discussions with its lenders to amend its credit facility to
increase borrowing availability to $550.0 million and amend certain covenants.
The new facility is subject to the execution of a definitive agreement, which
SFX expects to enter into by the end of first quarter of 1999, although no
assurances can be given in this regard.

The net proceeds to SFX from the proposed equity offering are expected to
be approximately $253.2 million. The aggregate consideration to be paid in the
Marquee, Cellar Door, ISI and Nederlander acquisitions is expected to be
approximately $220.8 million, including the repayment of approximately $33.1
million in debt. SFX intends to use a portion of the net proceeds from the
proposed equity offering to temporarily repay borrowings under the revolving
portion of its credit facility, which had an outstanding balance of $135.0
million as of February 5, 1999. Total borrowing availability under the revolver
is $200.0 million. SFX intends to finance the cash portion of the purchase
price of the pending acquisitions with the remaining net proceeds of the
proposed equity offering and borrowings under its credit facility. The
availability of funds under the credit facility is subject to compliance with
certain financial covenants, and there can be no assurance that the funds
required to complete the pending acquisitions will be available to SFX when
needed. If SFX is unable to complete the Cellar Door acquisition, it may be
required to pay the seller $10.0 million as liquidated damages. If SFX is
unable to complete the Nederlander acquisition, it may be required to pay the
seller up to $12.5 million as liquidated damages. In addition, SFX would be
required to pay liquidated damages of $2.0 million to ISI in the event it is
not able to close the acquisition on or prior to April 15, 1999. See
"Agreements Related to Pending Acquisitions."

Furthermore, certain agreements of SFX, including the distribution
agreement, the tax sharing agreement, employee benefits agreement, certain
employment agreements and the agreements relating to the completed acquisitions
and the pending Marquee, Cellar Door, Nederlander and ISI acquisitions, provide
for tax and other indemnities, purchase price adjustments, repurchase of SFX
stock and future contingent payments in certain circumstances. There can be no
assurance that SFX will have sufficient sources of funds to make such payments
should they come due.

In addition, consistent with its operating strategy, SFX is currently
negotiating additional acquisitions and expects to pursue additional
acquisitions in the live entertainment business in the future. However, SFX has
not entered into any definitive agreements with respect to such acquisitions
and there can be no assurance that it will do so. Any such acquisitions could
result in SFX:

o issuing more of its stock, which may dilute the value of existing stock of
SFX;

o incurring a substantial amount of additional debt; and/or

o amortizing expenses related to goodwill and other intangible assets.

However, there can be no assurance that SFX will be able to obtain financing
for such acquisitions on terms acceptable to SFX or at all. Any or all of these
actions could have a material adverse impact on SFX's business, financial
condition and results of operations. See "Risk Factors--Company Specific
Risks--If SFX is unable to complete other acquisitions in the future, SFX's
business may suffer."

SFX may also be obligated to make payments relating to ongoing and future
litigation. See "Business--Litigation."

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("FAS 131"), which is effective for years
beginning after December 15, 1997. FAS 131 establishes standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. FAS 131 is effective for financial
statements for fiscal years beginning after December 15, 1997, and therefore
the Company will adopt the new requirements for fiscal year 1998. Management
has completed its review of FAS 131 and has preliminarily determined that its
reportable segments will be music, theater, sports and other.

In June 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"), which is effective for fiscal years beginning after
December 15, 1998. Under SOP 98-5, the costs of start-up activities, including
organizational costs, would be expensed as incurred. SOP 98-5 broadly defines
start-up activities as those one-time activities related to opening a new
facility, introducing a new product or service, conducting business in a new
territory, conducting business with a new class of customer or beneficiary,
initiating a new process in an existing facility or beginning a new operation.
SOP 98-5 is effective for financial statements for fiscal years beginning after
December 15, 1998. Earlier application is encouraged. The initial application
of SOP 98-5 is to be reported as a cumulative effect of a change in accounting
principle. Management has preliminarily determined that SOP 98-5 will not have
a material effect on its financial position.

OVERVIEW OF THE LIVE ENTERTAINMENT INDUSTRY

CONCERT PROMOTION INDUSTRY

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

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

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

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

Concert venues generally consist of:

o stadiums, which typically have 32,000 or more seats;

o amphitheaters or arenas, which typically have 5,000 to 32,000 seats;

o clubs, which typically have less than 2,000 seats; and

o theaters, which typically have 100 to 5,000 seats.

Amphitheaters are generally outdoor venues that are used primarily in the
summer season. They have become increasingly popular venues for concerts
because the seating configuration is designed specifically for concert events,
often resulting in more available seats, fewer

obstructed seats, better lines of sight to the stage and superior acoustics. In
addition, because they typically cost less to construct, maintain and operate
than traditional multi-purpose stadiums and arenas, amphitheaters often are
able to host concerts and other events that would not be profitable in a
stadium or arena.

THEATRICAL INDUSTRY

The audience for live professional theater has increased significantly in
the last two decades. According to Variety Magazine, gross ticket sales for the
entire industry of touring Broadway shows and Broadway shows have increased
from $476.5 million during the 1987-8 season to $1.4 billion during the 1997-8
season, a compounded annual growth rate of 11.0%. During this time, the number
of touring weeks and markets where touring Broadway shows could profitably be
presented have expanded. Sales for touring Broadway shows have grown as a
percentage of total industry gross ticket sales, from approximately 47% in the
1987-8 season to approximately 59% in the 1997-8 season. The growth of the
national theatrical industry has resulted, in part, from:

o the development of local subscription series for touring Broadway shows;

o the construction of new performing arts centers with seating capacities of
2,500 or more in many municipalities;

o an increase in the quality of touring Broadway shows; and

o an increase in the number of multiple-week engagements produced for
presentation outside of New York City.

Touring Broadway shows are typically revivals of previous commercial successes
or reproductions of theatrical shows currently playing on Broadway in New York
City.

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

A producer of a Broadway show or a touring Broadway show first acquires
the rights to the work from its owners, who typically receive royalty payments
in return. The producer then assembles the cast of the play, hires a director
and arranges for the design and construction of sets and costumes. The producer
of a touring Broadway show also must arrange transportation and schedule the
show with local promoters. The local promoter of a touring Broadway show, who
generally operates or has relationships with venues in individual markets,
provides all local services such as selling tickets, hiring local personnel,
buying advertising and paying a fixed guarantee, typically between $100,000 and
$400,000, to the producer of the show for each week that the show is presented.
The promoter then has the right to recover the amount of the guarantee plus its
local costs from ticket revenues. The promoter and the producer share any
remaining ticket revenues, with the producer typically receiving approximately
60% of the profits. Although touring Broadway shows are generally substantially
less expensive to produce than Broadway shows, their financing may take place
through a limited partnership with third-party investors who receive a profit
interest in the production. Often, investors in touring Broadway shows will
also invest in the

underlying Broadway show, in part to help secure touring rights. After
investors have received the complete return of their investment, net profits
are split between the limited partners and the show's producer. The amount of
net profits allocated to the show's producer, including fees and royalties,
varies somewhat, but is normally in the range of 50% after certain profit
participations are deducted. After certain net profits, a producer may also
receive a production fee and royalties. A typical touring Broadway show
requires 45 playing weeks with a weekly guarantee from the local promoter of
approximately $250,000 to recoup production and touring costs; more elaborate
touring productions with larger casts or sets, such as The Phantom of the Opera
or Miss Saigon, generally require significantly higher weekly revenues and
additional playing weeks to recoup production and touring costs.

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

MOTOR SPORTS INDUSTRY

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

In general, most markets host one to four motor sports events each year,
with larger markets hosting more performances. Stadiums and arenas typically
work with producers and promoters to manage the scheduling of events to
maximize each event's results and each season's revenues. The cost of producing
and promoting a typical single stadium event ranges from $300,000 to $600,000,
and the cost of producing and presenting a typical single arena event ranges
from $50,000 to $150,000. Typically, third parties create and finance monster
trucks, demolition derbies, thrill acts, air shows and other motor sports
concepts and events. They may perform in an individual event or in an entire
season of events. As in other motor sports, corporate sponsorships and
television exposure are important financial components that contribute to the
success of a single event or season of events.

TALENT REPRESENTATION INDUSTRY

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

BUSINESS

SUMMARY

SFX is the largest diversified promoter, producer and venue operator for
live entertainment events in the United States. In addition, with its
acquisition of FAME in June 1998, SFX became a leading full-service marketing
and management company specializing in the representation of team sports
athletes, primarily in professional basketball. SFX owns, partially or
entirely, and/or operates under lease or exclusive booking arrangements, the
largest network of venues used principally for music concerts and other live
entertainment events in the United States, with 75 venues in 30 of the top 50
markets, including 14 amphitheaters in 9 of the top 10 markets. SFX's major
areas of focus within the live entertainment industry include music, theater,
sports and family entertainment.

SFX has benefited from significant growth in the live entertainment
industry over the last several years. SFX believes that its ability to provide
integrated services as a promoter, producer, venue operator and manager of live
entertainment events will encourage wider use of its venues by performers. SFX
further believes that this ability will allow SFX to capture a greater
percentage of revenues generated by those events and may contribute to the
overall growth of the live entertainment industry.

Through its large number of venues, its strong, branded presence in each
market served and its long operating history, SFX is able to provide integrated
promotion and production services for a broad variety of live entertainment
events locally, regionally and nationally. During 1998, giving effect to SFX's
recent and pending Marquee and Cellar Door acquisitions, approximately 35
million people attended 12,150 events promoted and/or produced by SFX,
including approximately 5,200 music concerts, 5,800 theatrical shows, over 800
family entertainment shows and over 350 specialized motor sports shows. These
events included:

o music concerts featuring artists such as The Rolling Stones, Phish,
Fleetwood Mac, Ozzy Osbourne and Alanis Morissette;
o music festivals such as the George Strait Country Music Festival;
o touring theatrical productions such as Jekyll & Hyde, Rent and The Magic
of David Copperfield; and
o specialized motor sports events, such as Truck Fest and American
Motorcycle Association Supercross racing events.

SFX also represents many prominent and prestigious athletes and
broadcasters for contract and marketing services. In addition, SFX's event
marketing programs reached over 15 million people in 1997. SFX believes that
its ability to provide integrated live entertainment services will, among other
things, encourage wider use of its venues by performers and allow SFX to
capture a greater percentage of revenues from national tours and ancillary
revenue sources.

SFX'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 SFX and in third-party venues. As promoter, SFX
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, SFX:

o creates tours for music concerts, theatrical events, specialized motor
sports and other events;
o develops and manages touring Broadway touring theatrical shows; and
o develops specialized motor sports and other live entertainment events.

As venue owner/operator, SFX books and promotes events in the venues which
it controls. SFX believes that its leadership position in the industry enhances
its ability to maximize ancillary revenue opportunities, including corporate
sponsorship sales, advertising, concession sales and product merchandising. For
the twelve months ended September 30, 1998, SFX had pro forma net revenue of
approximately $1.26 billion. In addition, SFX represents over 100 professional
athletes, many of whom are professional basketball players. The following chart
sets forth, on a pro forma basis, the appropriate percentages of SFX's net
revenues for the nine months ended September 30, 1998, represented by its major
areas of focus:

NINE MONTHS ENDED
SEPTEMBER 30, 1998
(% OF PRO FORMA
LIVE ENTERTAINMENT NET REVENUES)
- ---------------------------------------------------------------------- -------------------

Music, including venue operations ........................... 61%
Theater ..................................................... 21%
Sports, including representation of professional athletes and
specialized motor sports operations ........................ 10%

In addition, SFX recently created a family entertainment division to
encompass certain of its family-oriented music and theater operations.

BROADCASTING MERGER AND THE SPIN-OFF

Broadcasting was formed in 1992 principally to acquire and operate radio
broadcasting stations. Broadcasting formed SFX as its wholly-owned subsidiary
in December 1997. On May 29, 1998, Broadcasting merged with and into an
affiliate of Hicks, Muse Tate & Furst Incorporated. As a condition to the
Broadcasting merger, Broadcasting contributed to SFX all of its assets relating
to its entertainment business, and, on April 27, 1998, distributed the SFX
common stock to certain stockholders of Broadcasting on a pro rata basis. The
spin-off separated Broadcasting's entertainment business from its
radio-broadcasting business and enabled Broadcasting buyer to acquire only
Broadcasting's radio broadcasting business in the Broadcasting merger.

In conjunction with the Broadcasting merger and the spin-off, SFX,
Broadcasting and Broadcasting buyer entered into the distribution agreement,
the tax sharing agreement and the employee benefits agreement. Each of these
agreements provides for indemnification obligations by SFX and Broadcasting.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--
Spin-Off."

1997 ACQUISITIONS

Broadcasting formed SFX Concerts, Inc. ("Concerts") in January 1997 to
acquire and hold Broadcasting's live entertainment operations. Broadcasting
formed SFX as a wholly-owned subsidiary in December 1997 to be the parent
company of Concerts. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

DELSENER/ SLATER

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

MEADOWS

In March 1997, Concerts acquired the stock of certain companies which own
and operate the Meadows, a 25,000-seat indoor/outdoor complex located in
Hartford, Connecticut. See "Certain Relationships and Related
Transactions--Meadows Repurchase."

SUNSHINE PROMOTIONS

In June 1997, Concerts acquired the stock of Sunshine Promotions, one of
the largest concert promoters in the Midwest. 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, a 2,700-seat theater and
2,200-seat ballroom located in Indianapolis, Indiana.

1998 ACQUISITIONS

The following is a brief description of the businesses SFX acquired in
1998. 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 certain of these acquisition agreements
are filed as exhibits to the registration statement of which this prospectus is
a part and are incorporated herein by reference. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

WESTBURY

On January 8, 1998, SFX acquired a long-term lease for Westbury Music
Fair, located in Westbury, New York.

BGP

On February 24, 1998, SFX acquired BGP, one of the oldest promoters and
producers of live entertainment in the United States and the principal promoter
of live entertainment in the San Francisco Bay area.

PACE AND PAVILION PARTNERS

On February 25, 1998, SFX acquired all of the outstanding capital stock of
PACE, one of the largest diversified promoters and producers of live
entertainment in the United States. PACE has what SFX believes to be the
largest distribution network in each of its music concerts, theatrical shows
and motor sports events business segments. In connection with the acquisition
of PACE, SFX has obtained 100% of Pavilion, a partnership that owns interests
in venues owned by SFX, by acquiring one-third of Pavilion through the
acquisition of PACE and the remaining two-thirds of Pavilion from Sony and
Blockbuster. Under certain circumstances, SFX may be required to sell either
its motor sports or theatrical lines of business. See "Risk Factors--Company
Specific Risks--SFX may be forced to sell some of its subsidiaries, which may
prevent SFX from realizing the full value of these subsidiaries."

In connection with its acquisition of partnership interests in Lakewood
Amphitheater in Atlanta, Georgia and Starplex Amphitheater in Dallas, Texas,
PACE entered into a co-promotion agreement with its partner. The co-promotion
agreement contains a provision that purports, under certain circumstances, to
require PACE to co-promote, and share one-half of the profits and losses, with
such partnership certain concerts which are presented by PACE or any of its
affiliates in another venue located in either Atlanta, Georgia or Dallas,
Texas. However, SFX acquired an interest in Chastain Park Amphitheater, also in
Atlanta, in the Concert/Southern acquisition described below. SFX is currently
involved in litigation with its partner. See "--Litigation."

CONTEMPORARY

On February 27, 1998, SFX 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. Contemporary is a
vertically-integrated live entertainment and special event promoter and
producer, venue operator and consumer marketer. Contemporary is also one of the
top special event sales promotion and marketing companies in the country.
Contemporary develops programs for national consumer product companies and for
demonstrating, sampling and selling products to consumers. Contemporary's
clients have included AT&T, CBS TV, Radio Shack, Coca Cola USA, Reebok, Nabisco
and the NBA.

NETWORK

On February 27, 1998, SFX acquired Album Network, Inc., SJS Entertainment
Corporation and the assets of The Network 40 as well as an office building and
related property. Network is engaged in music marketing, research and artist
development activities and is a publisher of trade magazines for radio
broadcasters, music retailers, performers and record industry executives.

CONCERT/SOUTHERN

On March 4, 1998, SFX acquired Concert/Southern, a promoter of live
entertainment in the Atlanta metropolitan area.

USA MOTOR SPORTS

On March 25, 1998, PACE acquired a 67% interest in certain assets and
liabilities of USA Motor Sports. The remaining 33% interest is held by
Contemporary.

AVALON

On May 14, 1998, SFX acquired Avalon, a leading music concert producer and
promoter in the Los Angeles area.

OAKDALE

On June 3, 1998, SFX acquired certain assets of Oakdale. Oakdale is a
promoter and producer of concerts in Connecticut and the owner of the Oakdale
Theater, a new 4,800 seat facility located in Wallingford, Connecticut.

FAME

On June 4, 1998, SFX acquired all of the outstanding capital stock of
FAME, a leading full-service marketing and management company which specializes
in the representation of team sports athletes, primarily in professional
basketball. FAME was founded in 1992 by David Falk and Curtis Polk and
currently represents some of the premier athletes in professional team sports,
including, among others, Michael Jordan, Patrick Ewing, Alonzo Mourning, Juwan
Howard and Allen Iverson. In addition, FAME provides specialized financial
advisory services to its clients. Mr. Falk continues to serve as the Chairman
of FAME and was appointed as a Member of the Office of the Chairman and a
director of SFX. SFX believes that, through its acquisition of FAME, it will be
able to capitalize on the cross-marketing opportunities that may arise by
virtue of representing prominent team athletes while selling corporate
sponsorships and other marketing rights at its existing venues.

DON LAW

On July 2, 1998, SFX acquired certain assets of Don Law, a concert and
theater promoter in New England. Don Law currently owns and/or operates three
venues in New England with an aggregate seating capacity of 27,400.

MAGICWORKS

On September 11, 1998, SFX purchased all of the outstanding shares of
common stock of Magicworks, a publicly-traded company. Magicworks specializes
in the production and promotion of live entertainment events such as theatrical
shows, musical concerts, ice skating shows and other forms of live
entertainment. Magicworks also provides personal representation and sports
marketing services to professional athletes in such sports as figure skating,
baseball and tennis.

OTHER ACQUISITIONS

In the third quarter of 1998, SFX completed the acquisition of seven
additional companies in the theatrical and music segments. The seven
acquisitions included two concert promotion companies, two theatrical
presenters, a theatrical presenter and venue owner/operator, a concert
merchandising company and an equity owner of an SFX amphitheater.

RECENT ACQUISITION

On January 11, 1999, SFX acquired all of the outstanding equity interests
of a company involved in business management and tour production in music and
the performing arts.

PENDING ACQUISITIONS

MARQUEE ACQUISITION

On July 23, 1998, SFX and Marquee entered into a merger agreement whereby
a wholly owned subsidiary of SFX will be merged with and into Marquee and
Marquee will become a wholly owned subsidiary of SFX. See "Agreements Related
to the Pending Acquisitions--Marquee." Marquee provides integrated event
management, television programming and production, marketing, talent
representation and consulting services in the sports, news and other
entertainment industries. Marquee's event management, television programming
and production and marketing services involve:

o managing sporting events, such as professional tennis, golf and bowling
tournaments;
o producing television programs, principally sports entertainment and
children's programs; and
o marketing professional and collegiate athletic leagues and
organizations.

CELLAR DOOR ACQUISITION

In January 1999, SFX entered into an agreement to acquire all of the
issued and outstanding capital stock of Cellar Door. Cellar Door is a leading
promoter and producer of live entertainment events. See "Agreements Related to
the Pending Acquisitions--Cellar Door."

NEDERLANDER ACQUISITION

On February 1, 1999, SFX entered into definitive agreements for the
acquisition of certain interests in seven venues and other assets from entities
controlled by members of the Nederlander family and other persons. The
interests in the venues to be acquired consist of:

o 50% interests in long-term leases and booking and management agreements for
The World Music Theatre in Chicago and the Alpine/Valley Music Amphitheatre
in East Troy, Wisconsin, serving the Milwaukee/North Chicago market;

o a long-term lease for the Merriweather Post Pavilion in Columbia, Maryland,
serving the Washington D.C. and Baltimore markets; and

o booking and management agreements for the Riverbend Music Center and the
Crown Arena, a one-third interest in the ownership of the Crown Arena, a
lease for the Taft Theater and a short term lease for Bogart's Club, all in
Cincinnati.

In addition, the agreements cover 100% interests in entities that provide
concert performances and hold rights to construct the Mesa del Sol Centre for
the Performing Arts in Albuquerque, New Mexico. See "Agreements Related to the
Pending Acquisitions--
Nederlander."

ISI ACQUISITION

On January 26, 1999, SFX entered into a definitive agreement to acquire
ISI. ISI is a full-service marketing company utilizing a completely integrated
approach in the development of client programs. ISI is involved in:

o corporate consulting and property marketing;
o athletic/celebrity marketing and representation;
o team and venue services;
o event planning and management; and
o licensing and merchandising.

The consummation of each pending acquisition is subject to the
satisfaction of a number of conditions, which, in some cases, are out of SFX's
control. No assurance can be given that the pending acquisitions will be
consummated on the terms described in this prospectus, or at all.

SFX is also currently pursuing certain additional acquisitions; however,
it has not entered into any definitive agreements with respect to such
acquisitions and there can be no assurance that it will do so.

AGREEMENT WITH TICKETMASTER

On November 13, 1998, SFX and Ticketmaster entered into a binding letter
of intent in which SFX granted Ticketmaster the exclusive right to sell and
distribute tickets for SFX's events worldwide. SFX anticipates that the
revenues associated with its ticket sales will increase in 1999 as a result of
this agreement. SFX is currently evaluating its existing internal ticket
operations, which were acquired in SFX's 1998 acquisitions; however, SFX does
not believe that its ticketing operations are material to its financial
condition or results of operation.

SERVICES PROVIDED BY SFX

SFX is engaged in:

o booking and promoting live entertainment events and tours;

o producing live entertainment events and tours;
o owning and/or operating concert and other entertainment venues;
o representing professional athletes; and
o selling corporate sponsorships and advertising, and providing marketing
and consulting services to third-parties.

BOOKING AND PROMOTION

SFX books and promotes music concerts, theatrical events, 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. SFX books and promotes events in a
number of types of venues that are owned and/or operated by SFX or by third
parties. See "--Venue Operations." SFX primarily promotes concerts performed by
newer performers having widespread popularity--such as Phish, Dave Matthews
Band and Hootie & the Blowfish--and by more established performers having
relatively long-standing and more stable bases of popularity--such as James
Taylor and Jimmy Buffett. SFX 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. SFX also believes that the market
research and audience demographics database that it acquired in SFX's 1998
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 SFX believes will increase ticket
pre-sales and overall sales in a cost-efficient manner.

The following table identifies artists whose events SFX recently promoted,
on a pro forma basis:

Aerosmith Elton John Phil Collins
Alabama Fleetwood Mac* Pink Floyd
Alanis Morissette James Taylor Phish
Bette Midler Janet Jackson R.E.M.
Billy Joel Jerry Seinfeld* Rod Stewart*
Brooks & Dunn Jimmy Buffett 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

- ----------
* SFX produced a national tour.

PRODUCTION

SFX is currently involved in creating tours for music concert and other
live entertainment events. SFX's production activities include:

o creating tours for music concert, theatrical, specialized motor sports
and other live entertainment events;
o developing and managing touring Broadway shows; and
o developing 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. SFX plans to increase its production of national music tours.

PACE 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--typically 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. SFX believes it is the largest multiple-market presenter of touring
Broadway shows in the United States. SFX competes with other producers and
presenters 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. SFX's competitors, some
of whom have also been partners of PACE and Magicworks 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
presenters. On a pro forma basis, SFX would have had a producing interest or
investment in the following shows for 1997 and/or 1998, among others:

SHOW TITLE TYPE SFX'S INVOLVEMENT
- ----------------------------- -------------------- --------------------------

Big Touring Production
Cabaret Touring Production
Damn Yankees Touring Production
Death Trap Touring Production
Evita Touring Production
Funny Girl Touring Production
The Gin Game Touring Production
Harmony Development Production
Jekyll & Hyde Broadway Production
Kiss of the Spiderwoman Touring Production
Lord of the Dance Touring (Europe) Production
The Magic of Touring Production
David Copperfield
Man of La Mancha Touring Production
Smokey Joe's Cafe Touring Production
The Sound of Music Touring Production
Victor, Victoria Touring Production and Investment
West Side Story Touring Production
A Chorus Line Touring (US & UK) Investment
Annie Broadway Investment
Carousel Touring Investment
Cirque 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

SFX 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. Most
of these cities have only a limited number of venues that can accommodate a
touring Broadway show.

100

SFX currently sells subscription series for its touring Broadway shows in
the following 38 markets that maintain active touring schedules:

Albuquerque, NM Indianapolis, IN Pittsburgh, PA
Atlanta, GA Jacksonville, FL Portland, OR
Austin, TX Long Beach, CA Salt Lake City, UT
Baltimore, MD Louisville, KY San Antonio, TX
Boise, ID Miami, FL Seattle, WA
Boston, MA Milwaukee, WI Tampa, FL
Cincinnati, OH Minneapolis, MN Tempe, AZ
Colorado Springs, CO Nashville, TN Tucson, AZ
Columbus, OH New Orleans, LA Wallingford, CT
Dallas, TX Omaha, NE Wichita, KS
Eugene, OR Orange County, CA Ottawa, Canada
Ft. Lauderdale, FL Orlando, FL Edmonton, Canada
Houston, TX Palm Beach, FL

SFX also produces motor sports events, such as monster truck events,
tractor pulls, mud races, demolition derbies and motor cross races, and designs
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. SFX 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--Company Specific Risks--SFX may be forced
to sell some of its subsidiaries, which may prevent SFX from realizing the full
value of these subsidiaries."

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

VENUE OPERATIONS

SFX derives revenues from its venue operations primarily from corporate
sponsorships and advertising, concessions, merchandise, parking and other
related items. A venue operator typically receives for each event it hosts a
fixed fee or percentage of ticket sales for use of the venue, as well as a fee
representing 40-50% of total concession sales from the vendors and 10-25% of
total merchandise sales from the performer. As a venue owner, SFX typically
receives 100% of sponsorship and advertising revenues. Since few artists will
play in every available market during a tour, SFX 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 a
performer's decision to choose to perform in an amphitheater market. SFX also
competes with other venues to promote an artist in that city.

SFX believes that it controls the largest network of venues used
principally for music concerts and other live entertainment events in the
United States. Upon closing of the pending Cellar Door acquisition, SFX will
wholly or partially own and/or operate 75 venues in 30 of the top 50 markets,
including 14 amphitheaters in 9 of the top 10 markets. The following chart sets
forth certain information with respect to the venues that SFX wholly or
partially owns and/or operates:

101

TOTAL AVG. NO. OF TOTAL
MARKET TYPE OF SFX'S SEATING ATTENDANCE EVENTS SEATS SOLD
MARKET AND VENUE RANK (1) VENUE INTEREST CAPACITY IN 1997 IN 1997 IN 1997
- ------------------------------- ---------- -------------- ------------- --------------- -------------- ----------- ---------------

NEW YORK--NORTHERN NEW 1
JERSEY--LONG ISLAND:
PNC Bank Arts Center amphitheater 22-year 17,500 6,456 57 368,004
(formerly Garden State lease that
Arts Center) ................. expires
October 31,
2017
Jones Beach Theatre ........... amphitheater 10-year 14,400 7,992 45 359,653
license
agreement
that expires
December 31,
1999
Roseland Ballroom ............. theater exclusive 3,600 2,614 41 107,174
booking
agent
Westbury Music Fair ........... theater 43-year 2,870 2,198 148 325,348
lease that
expires
December 31,
2034
Irving Plaza .................. theater 10-year 1,121 963 208 200,250
lease that
expires
July 30,
2007
Beacon Theatre ................ theater 49% 2,849 2,000(2) 40(2) 80,000(2)
partnership
interest in
15-year
lease that
expires
December 31,
2006
LOS ANGELES--RIVERSIDE-- 2
ORANGE COUNTY:
Glen Helen Blockbuster amphitheater 25-year 25,000(3) 10,162 15 152,432
Pavilion ..................... lease that
expires
July 1, 2018
Irvine Meadows amphitheater facility 15,500 11,537 19 219,211
Amphitheater ................. owned;
20-year land
lease that
expires
February
28, 2017
Thousand Oaks Civic Arts theater 5-year 1,800 1,164 24 27,929
Plaza ........................ exclusive
booking
agent for
contemporary
music
events that
expires
May 2003
CHICAGO--GARY--KENOSHA: 3
The Palace Theater(4) ......... theater 50% 2,350 N/A N/A N/A
partnership
interest in
49-year
lease that
expires
May, 2048

102

TOTAL AVG. NO. OF TOTAL
MARKET TYPE OF SFX'S SEATING ATTENDANCE EVENTS SEATS SOLD
MARKET AND VENUE RANK (1) VENUE INTEREST CAPACITY IN 1997 IN 1997 IN 1997
- ---------------------------------- ---------- -------------- ----------------- ---------- ------------ --------- -----------

Rosemont Horizon ................. arena 10-year 17,500 N/A N/A N/A
consulting
agreement
that expires
January 1,
2009(5)
Rosemont Theater ................. theater 10-year 4,000 N/A N/A N/A
consulting
agreement
that expires
January 1,
2009(5)
WASHINGTON--BALTIMORE: 4
Nissan Pavilion at Stone amphitheater 20-year 25,000 11,116 31 344,600
Ridge(6) ........................ lease that
expires
June 9,
2014
SAN FRANCISCO--OAKLAND--SAN 5
JOSE:
Shoreline Amphitheater ........... amphitheater facility 22,000 12,600 40 504,013
owned; land
leased for
35 years,
expiring
November 30,
2021
Concord Pavilion ................. amphitheater 10-year 12,500 6,226 42 261,479
exclusive
outside
booking
agent until
December 31,
2005
Greek Theater .................... theater 4-year 8,500 6,191 9 55,718
promotion
agreement
that expires
October 31,
2002
Warfield Theatre ................. theater 10-year 2,250 1,677 77 129,129
lease that
expires
May 31,
2008
Fillmore Auditorium .............. theater 10-year 1,249 1,051 180 189,103
lease that
expires
August 31,
2007
Punch Line Comedy Club ........... club 5-year lease 175 97 422 41,138
that expires
September 15,
2001
PHILADELPHIA--WILMINGTON-- 6
ATLANTIC CITY:
Blockbuster/SONY Music amphitheater 31-year 25,000 8,973 54 484,528
Entertainment Centre at lease that
the Waterfront .................. expires
September 29,
2025
BOSTON--WORCESTER--LAWRENCE: 7
Great Woods Center for the amphitheater owned 19,500 11,943 54 644,875
Performing Arts .................
Harborlights Pavilion(7) ......... amphitheater license 4,800 3,180 45 143,100
agreement

103

TOTAL AVG. NO. OF TOTAL
MARKET TYPE OF SFX'S SEATING ATTENDANCE EVENTS SEATS SOLD
MARKET AND VENUE RANK (1) VENUE INTEREST CAPACITY IN 1997 IN 1997 IN 1997
- -------------------------------- ---------- -------------- ---------------- --------------- ------------ --------- ---------------

Orpheum Theatre ................ theater 4-year 2,700 2,475 184 622,586
operating
agreement
that expires
December 31,
2000
Avalon ......................... club 5-year 1,350 1,116 54 60,213
exclusive
booking
agent until
June 30,
2003 and
beneficial
owner of a
minority
interest
Charles Playhouse (main theater owned 525 439 416 182,448
stage) ........................
Charles Playhouse (basement) theater owned 200 104 416 43,480
Wilbur Theatre ................. theater 5-year lease 1,223 959 129 123,732
that expires
August 25,
2001
Colonial Theatre ............... theater 8-year lease 1,704 1,330 208 276,754
that expires
August 31,
2001
DETROIT--ANN ARBOR--FLINT: 8
Pine Knob Music Theatre(6) ..... amphitheater preferred 16,646 11,277 45 507,469
booking
The Palace at Auburn arena preferred 15,000(8) 15,893 23 365,549
Hills(6) ...................... booking
Detroit State Theatre(6) ....... theater exclusive 3,000 2,388 36 85,979
booking
Meadowbrook amphitheater exclusive 7,619 4,235 5 21,174
Amphitheater(6) ............... booking
DALLAS--FORT WORTH: 9
Starplex Amphitheater .......... amphitheater 32.5% 20,500 8,799 35 307,981
partnership
interest in
31 year
lease that
expires
December 31,
2028
HOUSTON--GALVESTON--BRAZORIA: 10
Cynthia Woods Mitchell amphitheater 15-year 13,000 8,381 35 293,350
Pavilion ...................... management
contract
that expires
December 31,
2009
Aerial Theater at Bayou theater 50% 2,800 3,223 18 58,019(9)
Place ......................... partnership
interest in
10-year
lease that
expires
December 31,
2007

104

TOTAL AVG. NO. OF TOTAL
MARKET TYPE OF SFX'S SEATING ATTENDANCE EVENTS SEATS SOLD
MARKET AND VENUE RANK (1) VENUE INTEREST CAPACITY IN 1997 IN 1997 IN 1997
- -------------------------------- ---------- -------------- -------------- ---------- ------------ ---------- -----------

ATLANTA: 11
Lakewood Amphitheater .......... amphitheater 32.5% 19,000 9,257 32 296,225
partnership
interest in
35-year
lease that
expires
January 1,
2019
Chastain Park Amphitheater ..... amphitheater 10-year 7,000 5,777 28 161,755
lease that
expires
December 31,
2000
Roxy Theater ................... club 7-year lease 1,500 848 102 86,498
that expires
March 31,
2004
Cotton Club .................... club 5-year lease 650 403 151 60,829
that expires
August 30,
2000
MIAMI--FORT LAUDERDALE: 12
Sunrise Musical Theatre (6) .... theater owned 3,968 3,366 34 114,444
Parker Playhouse ............... theater 4-year 1,185 749 112 83,904
exclusive
booking
that expires
October 17,
2000
SEATTLE--TACOMA--BREMERTON: 13
White River Amphitheatre amphitheater long-term 20,000 N/A N/A N/A
(10) .......................... management
agreement
PHOENIX--MESA: 16
Desert Sky Blockbuster amphitheater 60-year 19,900 9,179 23 211,114
Pavilion ...................... lease that
expires
June 30,
2049
ST. LOUIS: 18
Riverport Amphitheater ......... amphitheater owned 21,000 10,531 42 442,302
American Theater ............... theater 10-year 2,000 1,510 24 36,236
lease that
expires
July 31,
2004
Westport Playhouse ............. theater year-to-year 1,100 880 15 13,196
lease, with
renewal
under
negotiation
PITTSBURGH: 19
Star Lake Amphitheater ......... amphitheater 45-year 22,500 12,361 42 519,182
lease that
expires
December 31,
2034

105

TOTAL AVG. NO. OF TOTAL
MARKET TYPE OF SFX'S SEATING ATTENDANCE EVENTS SEATS SOLD
MARKET AND VENUE RANK (1) VENUE INTEREST CAPACITY IN 1997 IN 1997 IN 1997
- --------------------------------- ---------- -------------- ----------------- ---------- ------------ ---------- -----------

I.C. Light Amphitheater ......... amphitheater year to year 4,235 2,257 82 185,029
license
agreement
expired
December 31,
1998 (extension
to December 31,
2004 negotiated-
awaiting
execution of
agreement)
DENVER-BOULDER-GREELEY: 21
Mammoth Events Center ........... theater owned 3,000 N/A N/A N/A
KANSAS CITY: 24
Sandstone Amphitheater. ......... amphitheater 10-year 18,000 8,109 32 259,488
lease that
expires
December 31,
2002
Starlight Theater ............... theater concert 9,000 3,772 9 33,948
presentation
agreement
that expires
September 30,
2000
Memorial Hall ................... theater 5-year 3,000 1,910 11 21,014
management
contract
that expires
January 1,
2004
MILWAUKEE--RACINE: 25
Marcus Amphitheater (6) ......... amphitheater 50% 22,828 8,334 11 91,670
partnership
in lease that
expires in
2000
Modjeska Theater(6) ............. theater exclusive 1,800 965 21 20,262
booking
SACRAMENTO--YOLO: 26
Punch Line Comedy Club .......... club 9-year lease 245 90 355 31,834
that expires
December 31,
2000
Yuba County amphitheater owned 18,500 N/A N/A N/A
Amphitheatre (10) ..............
NORFOLK--VIRGINIA BEACH-- 27
NEWPORT NEWS:
GTE Virginia Beach amphitheater 30-year 20,000 10,428 32 333,688
Amphitheater(6). ............... lease that
expires in
2026
The Boathouse(6) ................ concert hall lease that 2,460 1,494 42 62,762
expires 2013
The Abyss(6) .................... club exclusive 900 329 16 5,269
booking
INDIANAPOLIS: 28
Deer Creek Music Center ......... amphitheater owned 21,000 11,348 42 476,617
Murat Theatre ................... theater and 50-year 2,700 1,412 144 211,920
ballroom lease that
expires
August 31,
2045
COLUMBUS: 30
Polaris Amphitheater ............ amphitheater owned 20,000 7,732 39 301,555

106

TOTAL AVG. NO. OF TOTAL
MARKET TYPE OF SFX'S SEATING ATTENDANCE EVENTS SEATS SOLD
MARKET AND VENUE RANK (1) VENUE INTEREST CAPACITY IN 1997 IN 1997 IN 1997
- ------------------------------- ---------- -------------- -------------- ---------- ---------------- ------------- ----------------

CHARLOTTE--GASTONIA--ROCK 32
HILL:
Charlotte Blockbuster amphitheater owned 18,000 8,592 34 292,135
Pavilion .....................
HARTFORD: 37
Meadows Music Theater ......... amphitheater facility 25,000 9,807 26 254,982
owned; land
leased for
40 years
until
September 13,
2034
Oakdale Theater ............... theater facility 4,800 2,944 142 418,000
owned;
15-year land
lease that
expires
June 3,
2013 and
SFX will
purchase
land upon
expiration
NASHVILLE: 40
Starwood Amphitheater ......... amphitheater owned 17,000 8,208 25 205,204
ROCHESTER: 41
Finger Lakes Amphitheater ..... amphitheater year to year 12,700 6,123 15 91,845
co-promotion
agreement
that expires
December 31,
1999
RALEIGH--DURHAM--CHAPEL 45
HILL:
Walnut Creek Amphitheater ..... amphitheater 40-year 20,000 10,498 40 419,919
lease that
expires
October 31,
2030 (11)
Harro East Theater ............ theater/ 7-year 1,050 1,000(12) 13(12) 13,000(12)
ballroom exclusive
booking
that expires
November 4,
2005
WEST PALM BEACH--BOCA 48
RATON:
SONY Music/Blockbuster
Coral Sky Amphitheater ....... amphitheater lease that 20,000 11,244 26 292,340
expires
December 31,
2005 (11)
Royal Poinciana Playhouse ..... theater 6-year lease 878 601 84 50,509
that expires
October 31,
2004

LOUISVILLE: 49
Palace Theatre ................ theatre 50% 2,700 N/A N/A N/A
ownership
RICHMOND--PETERSBURG: 51
Classic Amphitheatre(6) ....... amphitheater year to year 11,000 6,208 14 86,917
management
contract

107

TOTAL AVG. NO. OF TOTAL
MARKET TYPE OF SFX'S SEATING ATTENDANCE EVENTS SEATS SOLD
MARKET AND VENUE RANK (1) VENUE INTEREST CAPACITY IN 1997 IN 1997 IN 1997
- ---------------------------------- ---------- -------------- --------------- ---------- ------------ --------- -----------

SPRINGFIELD: 70
Tanglewood ....................... amphitheater exclusive 13,802 5,786 8 46,289
booking
agent--expires
July 27,
1999
RENO: 125
Reno Hilton Amphitheater ......... amphitheater 4-year 8,500 3,420 19 64,983
exclusive
promotion
agreement
that expires
December 31,
2001

- ----------
(1) Based on the July 1996 population of metropolitan statistical areas as set
forth in the Internet Press Release, dated December 1997, by the
Population Estimates Program, Population Division, U.S. Bureau of the
Census. Excludes venues where SFX sells subscriptions for touring Broadway
shows.

(2) Approximate numbers.

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

(4) Venue is closed for renovation and is scheduled to re-open in May 1999.

(5) Consulting agreement provides for booking, group sales and marketing
consultation services. Venue is available for rental by all promoters.

(6) Venues to be acquired in the Cellar Door acquisition.

(7) SFX has negotiated a new license agreement for this facility and is
awaiting approval of this agreement by the appropriate governmental
authority.

(8) Additional seating of approximately 5,000 is available for certain events.

(9) Includes New Year's Eve Festival with attendance of approximately 15,000.

(10) Venue is currently under development.

(11) Upon closing of the Cellar Door acquisition, SFX will own a 100% interest
in each of these leases. SFX currently holds a 66% partnership interest in
the Walnut Creek Amphitheater lease and a 75% partnership interest in the
SONY Music/Blockbuster Coral Sky Amphitheater lease.

(12) Approximate numbers based on reported sellouts of all but one show.

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

REPRESENTATION OF PROFESSIONAL ATHLETES AND OTHER PERSONALITIES

Upon consummation of the FAME acquisition in June 1998, SFX became a
leading full-service provider of marketing and management services,
specializing in the representation of team sports athletes, primarily in
professional basketball. It generates revenues through the negotiation of
professional sports contracts and endorsement contracts for its clients. FAME's
clients have endorsed products for companies such as Nike, McDonald's,
Coca-Cola and Chevrolet. In addition, FAME generates a small portion of its
revenues by providing certain financial management and planning services to its
clients, through its investment affiliate that was also acquired in the FAME
acquisition, which is a registered investment advisor. SFX believes that it
will be able to capitalize on the synergies which exist between the
representation of athletes in corporate marketing opportunities and the sale of
corporate sponsorships and other marketing rights at its existing venues.

108

FAME has derived a significant portion of its revenues to date from a
small number of its clients, primarily in professional basketball. SFX
estimates that five of FAME's basketball clients accounted for approximately
78% of FAME's revenue for the nine months ended September 30, 1998, and, on a
pro forma basis, FAME's revenues would have comprised approximately 1% of SFX's
revenues for the same period. The amount of endorsement and other revenues that
these clients generate is a function of, among other things, the clients'
professional performance and public appeal. Factors beyond SFX's control, such
as injuries to clients, declining skill or labor unrest, among others, could
have a material adverse affect on SFX's operations. Representation agreements
with clients are generally for a term equal to the term of the player's
professional sports contract but are terminable on 15 days' notice, although
FAME would continue to be entitled to the revenue streams generated during the
remaining term of any contracts that it negotiated. The termination or
expiration of FAME's contracts with certain clients could have a material
adverse affect on SFX's operations.

The pending Marquee and ISI acquisitions would substantially increase
SFX's talent representation business. Marquee represents over 500 professional
athletes, broadcasters, musicians and entertainers. Marquee's services
encompass the negotiation of employment agreements and the creation and
evaluation of endorsement, promotional and other business opportunities for
such personalities. ISI is a full service sports marketing company offering an
extensive array of services, including athlete marketing and representation.

The owners of the teams in the NBA locked out their players from
participation in league activities from July 1, 1998, to January 6, 1999, which
caused cancellation of some of the games for the current basketball season. The
NBA season began on February 5, 1999, with a reduced game schedule. The
cancellation of over 30 games for the current NBA season will have a negative
impact on FAME's revenues and EBITDA.

SPONSORSHIPS AND ADVERTISING; MARKETING AND OTHER SERVICES

To maximize revenues, SFX actively pursues the sale of local, regional and
national corporate sponsorships, including naming venues such as the PNC Bank
Arts Center and designating "official" event or tour sponsors, providers of
concessions such as 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 SFX's venues currently have no sponsorship arrangements in many of the
available categories, including naming rights. SFX believes that the national
venue network it has assembled will likely attract a larger number of major
corporate sponsors and enable SFX to sell national sponsorship rights at a
premium over local or regional sponsorship rights. SFX also pursues the sale of
corporate advertising at its venues, and believes that it has substantial
billboard and other advertising space available that it has not yet begun to
utilize. SFX also believes that its relationships with advertisers will enable
it to better utilize available advertising space and the aggregation of its
audiences nationwide will create the opportunity for advertisers to access a
nationwide market.

SFX provides a variety of marketing and consulting services derived from
or complementary to its live entertainment operations, including local,
regional and national live marketing programs and subscription or fee based
radio and music industry data compilation and distribution. Live marketing
programs are generally specialized advertising campaigns designed to promote a
client's product or service by providing samples or demonstrations in a live
format, typically at malls and college campuses. For example, Contemporary
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

109

service. Additionally, SFX believes that Contemporary is one of the leading
producers of national mall touring events, producing over 65 events every year
in the country's shopping malls. These events, either in stores or mall
congregation areas, are designed to promote brand awareness and drive follow-up
sales. Contemporary recently had mall tour campaigns for Newsweek magazine and
for Radio Shack. SFX 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 United
States. 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, 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.

SFX 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 SFX's magazines
focuses on research and insight common to a specific contemporary radio format.
SFX also provides radio airplay and music retail research services to record
labels, artist managers, retailers and radio broadcasters.

SFX, through Network, 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, SFX produces eight daily radio "show
prep" services that stations use to supplement in-house content production.
Network also provides consulting and entertainment marketing services to
corporate clients with music business interests.

OPERATING STRATEGY

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

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

A key component of SFX's strategy is to own and/or operate a network of
leading live entertainment venues in the nation's top 50 markets. SFX believes
that this strategy will enhance its ability to:

o 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;

o sell additional products and maximize numerous other related revenue
sources, including sponsorships and other marketing opportunities;

o position itself to produce national tours by leading performers to capture
a greater percentage of revenues from those tours;

o encourage wider use by performers of SFX's venues by providing centralized
access to a nationwide network of venues; and

o take advantage of economies of scale to increase, for example, concession
and related revenues.

SFX believes that it controls the largest network of venues used
principally for music concerts and other live entertainment events in the
United States. Upon closing of the pending Cellar Door acquisition, SFX will
wholly or partially own and/or operate under lease or exclusive booking
arrangements 75 venues, including 14 amphitheaters in 9 of the top 10 markets,
located in 30 of the top 50 markets.

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MAXIMIZE ANCILLARY REVENUE OPPORTUNITIES

SFX intends to enhance revenues and cash flows by maximizing revenue
sources arising from and related to its leadership position in the live
entertainment business. Management believes that these related revenue sources
generally have higher margins than promotion and production revenues and
include, among others, the sale of corporate sponsorship, naming and other
rights, concessions, merchandise, parking and other products and services and
the sale of rights to advertise to SFX's large aggregate national audience.
Categories available for sponsorship arrangements include the naming of the
venue itself and the designation of "official" event or tour sponsors,
concessions providers, 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 SFX's venues currently have no sponsorship arrangements in many of the
available categories, including naming rights. SFX also intends to maximize
related revenues by developing and exploiting intellectual property rights
associated with its production of musical concert tours and themed events such
as regional music festivals and branded characters created as an integral part
of the content, marketing and merchandising of certain motor sports events.
Additionally, SFX intends to maximize related revenues by developing Internet
opportunities, including affinity clubs, through the creation of a common SFX
web site.

SFX has recently agreed to sell naming rights for four venues. SFX has
also recently entered into 16 national sponsorships covering national tours
arranged by SFX or for the exploitation of the SFX national network of venues.
The majority of these sponsorships are for clients that are either new to SFX
or to the entertainment industry generally. SFX believes that significant
additional opportunities for various types of sponsorships remain available for
sale.

EXPLOIT SYNERGIES OF THE ACQUIRED BUSINESSES

SFX plans to maximize revenues by exploiting synergies among, and
incorporating the best business practices of, its various existing businesses,
including the businesses to be acquired. SFX also intends to exploit synergies
resulting from the consolidation of venue ownership and SFX's expanding overall
size. For example, SFX believes that the radio industry trade publications of
Network will enable SFX 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 SFX. In addition, SFX believes that it will be able to
capitalize on the cross-marketing opportunities that may arise by virtue of
representing prominent team athletes while selling corporate sponsorships and
other marketing rights at its existing venues.

INCREASE USE OF VENUES; DIVERSIFICATION OF ACTS AND VENUES

Typically, a venue is not used for many of the dates available for live
entertainment events in any given season. SFX believes that it will be able to
increase the utilization of its venues through:

o its ability to affect scheduling on a nationwide basis;

o its local knowledge, relationships and expertise; and

o 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.

SFX believes that a diversified portfolio of performers, events and venues
reduces reliance on the commercial success of any one performer, event or
venue.

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INNOVATIVE EVENT MARKETING

SFX plans to use innovative event marketing to increase admissions,
sponsorship and advertising revenues and to develop ticketing strategies more
accurately reflecting demand, resulting in increases in both lower prices and
premium priced tickets. In particular, SFX believes that it can increase the
profitability of its venues by offering premium ticket packages, including:

o season ticket packages that include amenities such as preferred
seating, VIP parking, waiter service, private club and/or "upscale"
concession menus;

o subscription series packages, allowing customers to purchase tickets
for a set of performances; and

o preferred seating, such as box seating and VIP seating areas, which
typically generate higher revenues per seat.

SFX acquired market research and audience demographics databases through
certain of SFX's 1998 acquisitions. These databases, when combined with SFX's
existing audience data collection efforts, will permit highly-effective
targeted marketing, such as direct-mail and subscription series campaigns,
which SFX believes will increase ticket pre-sales and overall sales in a
cost-efficient manner.

STRICT COST CONTROLS; NATIONALLY COORDINATED BOOKING, MARKETING &
ACCOUNTING

SFX'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, SFX believes that its size will enable it to achieve substantial
economies of scale by:

o completing the implementation of a nationally coordinated booking
system for contracting for and scheduling acts, while continuing to
utilize the substantial local expertise of the acquired businesses;

o establishing a centralized marketing team to exploit ancillary
revenue streams on local, regional and national levels, including
from sponsorship, advertising and merchandising opportunities; and

o 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. SFX 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, SFX believes that it will be better able to coordinate
negotiations with performers and talent agents, addressing what SFX believes is
a growing desire among performers and talent agents to deal with fewer, more
sophisticated promoters. SFX intends to pursue additional strategic
acquisitions of:

o amphitheater and other live entertainment venues;

o local and regional promoters and producers of music concert,
theatrical, specialized motor sports and other live entertainment
events; and

o companies in the sports marketing and talent representation industry.

112

In addition to the pending Cellar Door, ISI and Nederlander acquisitions, SFX
is currently in the process of negotiating certain additional acquisitions of
live entertainment and related businesses; however, it has not entered into
definitive agreements with respect to any of such acquisitions and there can be
no assurance that it will do so. See "Risk Factors--Company Specific Risks--If
SFX is unable to complete other acquisitions in the future, SFX's business may
suffer."

REGULATORY MATTERS

Because SFX relies on acquisitions of existing businesses and assets for
its growth, restrictions imposed by local, state and federal regulatory,
licensing, approval and permit requirements, including those relating to
zoning, operation of public facilities, consumer protection and antitrust, will
significantly affect its ability to acquire and operate its business. For
example, the Federal Trade Commission and the Antitrust Division of the U.S.
Department of Justice have the authority to challenge SFX's acquisitions on
antitrust grounds before or after the acquisitions are completed. Each state
where SFX operates may also challenge an acquisition under state or federal
antitrust laws. SFX may be unable to obtain the licenses, approvals and permits
it requires, including approvals under the HSR Act, from time to time to
acquire and operate live entertainment businesses in accordance with its
expansion strategy.

SFX received a preliminary inquiry from the Department of Justice seeking
information on SFX's acquisitions of live entertainment venues and businesses
throughout the United States. The Department of Justice is investigating
whether these acquisitions might give SFX undue market power in producing,
promoting or exhibiting live entertainment events. No assurances can be given
regarding the outcome of this inquiry.

PROPERTIES

SFX's executive offices are located at 650 Madison Avenue, 16th Floor, New
York, New York 10022. SFX wholly or partially owns and/or operates 75 venues as
more fully described under "--Services Provided by SFX--Venue Operations." In
addition, SFX owns or leases office space throughout the United States and
abroad in connection with its operations.

LITIGATION

In a complaint filed October 8, 1998 in the Superior Court of the State of
California, Los Angeles County, Universal Concerts II, Inc., a California
corporation formerly named MCA Concerts II, Inc., brought suit against PACE
Amphitheaters, Inc., PACE Entertainment Group, Inc., SFX Entertainment, Inc.,
Brian Becker and Allen Becker. The complaint alleged, among other things, that
SFX's acquisitions of PACE and Concert/Southern caused breaches of PACE's
various agreements with Universal. The complaint alleged that PACE is in breach
of a co-promotion agreement, that Brian and Allen Becker are in breach of
non-competition agreements and that SFX has intentionally interfered with
contracts between the plaintiff and certain of the defendants. The defendants
have removed the case from the State Court to the Federal Court for the Central
Division of California and have answered the complaint denying liability.
Although the lawsuit seeks damages in an unspecified amount, in SFX
management's view, the realistic amount in controversy is not material to the
business or prospects of SFX. The defendants intend to defend the case
vigorously.

On November 20, 1998, a group of plaintiffs filed a complaint against 11
talent agencies and 29 promoters, including SFX, several of its subsidiaries
and other entities to be acquired

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in the pending Cellar Door acquisition. According to the complaint, the
plaintiffs are five corporations owned by African-Americans. The compliant
alleges action by the defendants to exclude African-Americans from promoting
concerts and seeks injunctive relief and damages for civil rights and antitrust
violations. The focus of the action appears to be industry-wide, rather than
specifically directed at SFX. SFX intends to defend the action vigorously.

On May 5, 1998, Herbert Beherens, a Marquee stockholder, filed a class
action complaint in Chancery Court in the State of Delaware, New Castle County,
CA #16355NC against SFX, certain of its directors and Marquee. The complaint
alleged that SFX proposed an acquisition of Marquee and that the proposed
acquisition would be unfair to Marquee's public stockholders. The complaint
sought an order enjoining the proposed transaction, or, in the alternative,
awarding rescissory and compensatory damages.

On July 22, 1998, the parties entered into a Memorandum of Understanding,
pursuant to which the parties reached an agreement providing for a settlement
of the action. Pursuant to the settlement, SFX acknowledged that the legal
action was a significant factor in SFX improving the terms of its offer to
acquire Marquee. The settlement also provided for the defendants to pay
plaintiffs' counsel an aggregate of $310,000, including all fees and expenses
as approved by the court. The settlement was conditioned on the closing of the
merger, completion of confirmatory discovery and approval of the court.

On October 16, 1998, SFX and Marquee entered into amendment no. 3 to the
merger agreement. In doing so, SFX and Marquee took into consideration the
concerns and interests of the plaintiffs in the litigation, but they did not
amend the Memorandum of Understanding or revise the settlement at that time.

On January 24, 1999, SFX and Marquee entered into amendment no. 4 to the
merger agreement. At or about the same time, the parties to the lawsuit entered
into an amended Memorandum of Understanding which modified the terms of the
settlement. In addition to the terms and conditions in the Memorandum of
Understanding, in the revised settlement, the defendants acknowledged that the
pending lawsuit was the sole factor in SFX's decision to improve the terms of
its offer to acquire Marquee as reflected in amendment no. 4.

The revised settlement also provides that the defendants will pay
plaintiffs' attorneys' fees and expenses, as approved by the Court, in an
amount not to exceed $385,000. The revised settlement is conditioned upon
consummation of the merger, completion of any necessary discovery by the
plaintiffs and approval of the Delaware Court. There can be no assurance,
however, that the revised settlement will be approved by the Court as proposed,
or at all. Pursuant to the revised settlement, the defendants deny that they
have acted improperly in any way or breached any fiduciary duty.

Although SFX 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.

EMPLOYEES

As of December 31, 1998, SFX had approximately 1,300 full-time employees.
Upon closing of the pending Marquee and Cellar Door acquisitions, SFX expects
to have approximately 1,650 full-time employees. SFX will also, from time to
time, hire or contract for part-time or seasonal employees or independent
contractors, although its staffing needs will vary. Management believes that
its relations with its employees are good. A number of the employees of SFX are
covered by collective bargaining agreements. See "Management."

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AGREEMENTS RELATED TO THE PENDING ACQUISITIONS

The following is a summary of the anticipated material terms of the
agreements related to the pending Marquee, Cellar Door and Nederlander
acquisitions. This summary is not intended to be a complete description of the
terms of the agreements and is subject to, and qualified in its entirety by
reference to, the agreements, copies of which have been filed as exhibits to
the registration statement filed with the Commission of which this prospectus
is a part, and are incorporated herein by reference. There can be no assurance
that SFX will be able to consummate the Marquee, Cellar Door and Nederlander
acquisitions on the terms described herein, or at all. See "Risk
Factors--Company Specific Risks--If SFX is unable to complete its pending
acquisitions, SFX's business may suffer."

MARQUEE

SFX entered into an agreement and plan of merger, dated July 23, 1998, as
amended, with SFX Acquisition Corp., a wholly-owned subsidiary of SFX ("Sub"),
and Marquee. Pursuant to this agreement, Sub will merge with and into Marquee,
and Marquee will continue as the surviving corporation of the merger. If the
merger is completed, Marquee stockholders will receive shares of SFX's Class A
common stock. The "Exchange Ratio" is the number of shares of SFX's Class A
common stock to be issued for each share of Marquee common stock in the merger.
It will be based on the average of the last reported sale price of the Class A
common stock for the fifteen trading days ending five days before the merger
(the "SFX Stock Price"). The Exchange Ratio will be calculated as follows:

o If the SFX Stock Price is $42.75 or less, the Marquee stockholders will
receive 0.1111 shares of SFX Class A common stock for each share of
Marquee common stock;

o If the SFX Stock Price is over $42.75 but no more than $60.00, the
Marquee stockholders will receive $4.75 worth of SFX Class A common
stock for each share of Marquee common stock;

o If the SFX Stock Price is over $60.00 but no more than $66.00, the
Marquee stockholders will receive shares of SFX stock equal to 0.1 minus
1.25/SFX Stock Price for each share of Marquee common stock; or

o If the SFX Stock Price is over $66.00, the Marquee stockholders will
receive $5.35 worth of SFX Class A common stock for each share of
Marquee common stock.

On February 11, 1999, the closing sale price for the Class A common stock
was $56 7/8 per share.

The consummation of the merger is subject to the satisfaction of a number
of conditions set forth in the merger agreement, including, but not limited to,
the approval by the Marquee stockholders of the transactions contemplated
thereby, the Class A common stock to be issued in the merger being approved for
listing on the Nasdaq National Market, the absence of legal restraints or
prohibitions that prevent the completion of the merger, and the receipt of all
applicable consents to the merger from third parties and regulatory agencies.
See "Business--Regulatory Matters."

The board of directors of SFX and Marquee may jointly agree in writing to
terminate the merger agreement without completing the merger. The merger
agreement may also be terminated in certain other circumstances, including, but
not limited to, the following:

(1) Either SFX or Marquee may terminate the merger agreement if:

115

(a) the merger is not completed by April 30, 1999, subject to certain
exceptions;

(b) a law or court order permanently prohibits the merger; or

(2) SFX may terminate the merger agreement if, among other things:

(a) the Marquee board of directors or the special committee of the Marquee
board of directors withdraws or modifies its recommendation in favor
of the merger in a manner adverse to SFX;

(b) the Marquee board of directors or the special committee of the Marquee
board of directors recommends to the Marquee stockholders a competing
takeover proposal or fails to recommend against accepting a competing
takeover proposal;

(c) any person, other than SFX, Sub or any of their affiliates, acquires
beneficial ownership or the right to acquire beneficial ownership of,
or any group beneficially owns, more than 25% of the outstanding
shares of Marquee common stock;

(d) Marquee breaches any representation, warranty, covenant or agreement,
or any representation or warranty of Marquee becomes untrue subject to
certain limitations; or

(e) SFX's financial advisor revokes its written fairness opinion under
certain circumstances.

(3) Marquee may terminate the merger agreement if, among other things:

(a) SFX breaches any representation, warranty, covenant or agreement, or
any representation or warranty of SFX becomes untrue, subject to
certain limitations;

(b) Marquee accepts a competing takeover proposal; or

The merger agreement requires Marquee to pay a termination fee of $900,000
to SFX, and expenses of up to $500,000, if: (i) the merger agreement is
terminated under clauses (2)(a), (2)(b), (2)(c) or (3)(b) above (except for
certain terminations under clause (2)(a)); or (ii) the merger agreement is
terminated under clause (1)(a) or (1)(c) above, and in either event a takeover
proposal was made prior to termination and definitive documentation for the
takeover proposal is entered into within 12 months of such termination. If the
merger agreement is terminated under clause (1)(c) above, but the $900,000 fee
and expenses are not due, then Marquee will be required to pay SFX a
termination fee of $500,000.

CELLAR DOOR

o $70.0 million in cash, minus an amount equal to Cellar Door's secured
indebtedness and capitalized leases;

o $8.5 million in cash, to be paid in five equal annual installments;

116

o $20.0 million in shares of SFX Class A common stock, valued based on a
twenty-day trading average, provided that SFX will have the option to
substitute up to $15.0 million of such amount in cash; and

o options to purchase an aggregate of 100,000 shares of SFX's Class A
common stock, granted over a five-year period.

Mr. Boyle will be entitled to retain all net income of Cellar Door for 1998,
subject to certain limitations. In addition, Mr. Boyle will become an employee
of SFX and the Chairman of SFX's Music Group at closing, with an annual base
salary of $300,000. He will also be appointed as a non-voting observer to SFX's
board of directors.

The agreement also provides that 50% of the shares issuable at closing
will be subject to:

o a right of Mr. Boyle to "put" any of those shares to SFX at a price
equal to 90% of the value originally ascribed to them, exercisable for
30 days after the second anniversary of the closing of the Cellar Door
acquisition;

o a right of SFX to "call" any of those shares at a price equal to 120%
of the value originally ascribed to them, exercisable during the same
period as the "put" right; and

o a restriction on transfer for 2 years and 30 days after issuance.

The remaining 50% of the shares issuable at closing will be subject to a
restriction on transfer for 1 year after issuance.

The closing of the Cellar Door acquisition is expected to occur during the
first quarter of 1999. The consummation of the Cellar Door acquisition is
subject to the satisfaction of customary conditions. The agreement also
provides that if claims exceed $500,000 in the aggregate, Mr. Boyle will
indemnify SFX in full for certain indemnifiable claims arising after the
closing.

The applicable waiting period under the HSR Act relating to the pending
Cellar Door acquisition has expired.

SFX will be required to pay Mr. Boyle $10.0 million in liquidated damages
if:

o Cellar Door terminates the stock purchase agreement because the
closing of the Cellar Door acquisition does not occur, and Cellar
Door is not in material breach of any of its representations,
warranties or covenants under the agreement, or

o SFX does not complete the acquisition of Cellar Door for reasons
other than a material misrepresentation or material breach of
warranty by Cellar Door under the stock purchase agreement, a
material breach by Cellar Door of its obligations under the
agreement, or failure of certain conditions precedent.

NEDERLANDER

On February 1, 1999, SFX entered into definitive agreements for the
acquisition of certain interests in seven venues and other assets from entities
controlled by members of the Nederlander family and other persons for an
aggregate purchase price of approximately $93.6 million in cash.

The interests in the venues to be acquired consist of:

o 50% interests in long-term leases and booking and management agreements for
The World Music Theatre in Chicago and the Alpine Valley Music amphitheatre
in East Troy, Wisconsin, serving the Milwaukee/North Chicago market;

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o A long-term lease for the MerriweatherPost Pavilion in Columbia, Maryland,
serving the Washington, D.C. and Baltimore markets; and,

o Booking and management agreements for the Riverbend Music Center and the
Crown Arena; a one-third interest in the ownership of the Crown Arena; a
long-term lease for the Taft Theater; and a short-term lease for the
Bogart's Club, all in Cincinnati.

In addition, the agreements cover 100% interests in entities that provide
concert performances and hold rights to construct the Mesa del Sol Centre for
the Performing Arts in Albuquerque, New Mexico.

Consummation of the acquisitions is subject to the satisfaction of a
number of conditions, including, without limitation, the expiration or
termination of the waiting period under the HSR Act.

Under the terms of the agreements, SFX made payments to the sellers upon
the signing of the agreements in the aggregate amount of $7.5 million as a down
payment toward the aggregate purchase price. SFX is required to make an
additional down payment to the sellers of $5 million toward the aggregate
purchase price if and when a second request for additional information is made
under the HSR Act.

Under the terms of the agreements, the sellers will be entitled to retain
the initial $7.5 million down payment if:

o the closing has not occurred on or prior to August 31, 1999, the waiting
period under the HSR Act has not been terminated and the sellers terminate
the agreement, having satisfied all of the other conditions to SFX's
obligation to close; however, the sellers are entitled to retain the entire
$12.5 million down payment in such circumstance if SFX failed to use its
reasonable best efforts to obtain the termination of the waiting period
under the HSR Act,

o the sellers terminate the agreements by reason of a breach by SFX that has
or could reasonably be expected to have a material adverse effect on SFX,
and SFX has failed to cure the breach after not less than 10 days' notice
thereof, or,

o if SFX refuses to close the transaction when all of the conditions to its
obligation to close have been satisfied or are readily capable of being
satisfied, in which case the sellers are entitled to retain the entire
$12.5 million down payment.

The agreement relating to the venues in Cincinnati requires SFX to make an
earn-out payment to the sellers in 2000 of up to $3.2 million depending on the
level of earnings generated by operation of the Crown Arena. In addition, in
the event that SFX sells or otherwise transfers any of the interests in Crown
Arena within ten years after the closing, SFX is obligated to pay one-third--or
one-quarter if the transaction occurs after the fifth anniversary of the
closing--of the consideration received by SFX, less one-third of the debt
encumbering the Crown Arena at the time of closing, closing costs and capital
expenditures incurred at the Crown Arena by SFX prior to the date of such
transaction. The agreement relating to Mesa del Sol provides for an Earn-Out
based on the financial performance of Mesa del Sol.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Pursuant to the Certificate of Incorporation and Bylaws, the Board manages
the business of SFX. The Board conducts its business through meetings of the
Board and its committees. The standing committees of the Board are described
below.

The Bylaws authorize the Board to fix the number of directors from time to
time. The number of directors of SFX is currently eleven. All directors hold
office until the next annual meeting of stockholders following their election
or until their successors are elected and qualified. Officers of SFX 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 are 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:

o the individuals who previously served as directors of Broadcasting;

o Brian Becker, who was appointed to the SFX board of directors upon the
consummation of the PACE acquisition; and

o David Falk, the Chairman and a founder of FAME, who was appointed as a
director and a Member of the Office of the Chairman of SFX upon the
consummation of the FAME acquisition.

All of the individuals who previously served as directors of Broadcasting
ceased to be directors of Broadcasting at the time of the Broadcasting merger.

All of the executive officers of Broadcasting entered into five-year
employment agreements with SFX, except D. Geoffrey Armstrong, who resigned as
an executive officer of SFX. See "--Employment Agreements and Arrangements with
Certain Officers and Directors."

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

AGE AS OF
NAME POSITION(S) HELD WITH SFX FEBRUARY 10, 1999
- ------------------------------- ---------------------------------------------- ------------------

Robert F.X. Sillerman ......... Director, Executive Chairman and Member 50
of the Office of the Chairman
Michael G. Ferrel ............. Director, President, Chief Executive Officer 49
and Member of the Office of the Chairman
Brian E. Becker ............... Director, Executive Vice President and 42
Member of the Office of the Chairman
David Falk .................... Director and Member of the Office of the 48
Chairman
Howard J. Tytel ............... Director, Executive Vice President, General 52
Counsel, Secretary and Member of the
Office of the Chairman
Thomas P. Benson. ............. Director, Vice President and Chief Financial 36
Officer
Richard A. Liese .............. Director, Senior Vice President and 48
Associate General Counsel
D. Geoffrey Armstrong ......... Director 41
James F. O'Grady, Jr. ......... Director 70
Paul Kramer ................... Director 66
Edward F. Dugan ............... Director 64
Robert M. Gutkowski(1)......... Non-voting observer to Board of Directors 50
John J. Boyle(2) .............. Non-voting observer to Board of Directors 64

- ----------
(1) Upon closing of the Marquee acquisition, SFX will appoint Mr. Gutkowski
as a non-voting observer to its Board of Directors.
(2) Upon closing of the Cellar Door acquisition, SFX will appoint Mr. Boyle
as a non-voting observer to its Board of Directors.

119

ROBERT F.X. SILLERMAN has served as the Executive Chairman, a Member of
the Office of the Chairman and a director of SFX since its formation in
December 1997. Mr. Sillerman also served as the Executive Chairman of
Broadcasting from July 1, 1995 until the consummation of the Broadcasting
merger. From 1992 through June 30, 1995, Mr. Sillerman served as Chairman of
the board of directors and Chief Executive Officer of 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 of directors and a founding stockholder of Marquee, a publicly-traded
company organized in 1995 which is engaged in various aspects of the sports,
news and other entertainment industries. Mr. Sillerman is also a founder and a
significant stockholder of Triathlon, a publicly-traded company that owns and
operates radio stations in medium and small-sized markets in the mid-western
and western United States. For the last twenty years, Mr. Sillerman has been a
senior executive of and principal investor in numerous entities in the
broadcasting business. In 1993, Mr. Sillerman became the Chancellor of the
Southampton campus of Long Island University.

MICHAEL G. FERREL has served as the President, Chief Executive Officer, a
Member of the Office of the Chairman and a director of SFX since its formation
in December 1997. Mr. Ferrel also served as the President, Chief Executive
Officer and a director of Broadcasting from November 22, 1996 until the
consummation of the Broadcasting merger. Mr. Ferrel served as President and
Chief Operating Officer of Multi-Market Radio, Inc., a wholly-owned subsidiary
of Broadcasting ("MMR"), 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 an Executive Vice President, a Member of the
Office of the Chairman and a director of SFX since the consummation of the PACE
acquisition in February 1998. Mr. Becker has served as Chief Executive Officer
of PACE since 1994 and 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.

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

HOWARD J. TYTEL has served as an Executive Vice President, General
Counsel, Secretary and a director of SFX since its formation in December 1997.
In January 1999, Mr. Tytel was elected as a Member of the Office of the
Chairman. Mr. Tytel also served as a director,

120

General Counsel, Executive Vice President and Secretary of Broadcasting from
1992 until the consummation of the Broadcasting merger. 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. From 1993 to 1998, Mr. Tytel
was Of Counsel to the law firm of Baker & McKenzie, which represented
Broadcasting and currently represents SFX and other entities with which Messrs.
Sillerman and Tytel are affiliated on various matters.

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

RICHARD A. LIESE has served as a Senior Vice President since September,
1998, and as a Vice President, Associate General Counsel and a director of SFX
since its formation in December 1997. Mr. Liese also served as a director, Vice
President and Associate General Counsel of Broadcasting, having served in such
capacity from 1995 until the consummation of the Broadcasting merger. Mr. Liese
has also been the Assistant General Counsel and Assistant Secretary of SCMC
since 1988. In addition, from 1993 until April 1995, he served as Secretary of
MMR.

D. GEOFFREY ARMSTRONG has served as a director of SFX since its formation
in December 1997. He served as an Executive Vice President of SFX from its
formation until September 1, 1998. Mr. Armstrong currently serves as a director
of Capstar Broadcasting Corporation, a publicly-traded radio broadcasting
company. Mr. Armstrong also served as the Chief Operating Officer and an
Executive Vice President of Broadcasting, having served in such capacity from
November 22, 1996 until the consummation of the Broadcasting merger. Mr.
Armstrong served as a director of Broadcasting from 1993 until the consummation
of the Broadcasting merger. Mr. Armstrong became the Chief Operating Officer of
Broadcasting in June 1996 and the Chief Financial Officer, Executive Vice
President and Treasurer of Broadcasting in April 1995. Mr. Armstrong was Vice
President, Chief Financial Officer and Treasurer of Broadcasting from 1992
until March 1995. He had been Executive Vice President and Chief Financial
Officer of Capstar, a predecessor of Broadcasting, since 1989. From 1988 to
1989, Mr. Armstrong was the Chief Executive Officer of Sterling Communications
Corporation.

JAMES F. O'GRADY, JR. has served as a director of SFX since its formation
in December 1997. Mr. O'Grady also served as a director of Broadcasting prior
to the consummation of the Broadcasting merger. Mr. O'Grady has been President
of O'Grady and Associates, a media brokerage and consulting company, since
1979. Mr. O'Grady has been a director of Orange and Rockland Utilities, Inc.
and of Video for Broadcast, Inc. since 1991, respectively. Mr. O'Grady has been
the co-owner of Allcom Marketing Corp., a corporation that provides

121

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

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

ROBERT M. GUTKOWSKI will become a non-voting observer to the board of
directors of SFX upon closing of the Marquee acquisition. Mr. Gutkowski has
served as President, Chief Executive Officer and a director of Marquee since
December 1995. Since March 1997, Mr. Gutkowski has been a member of the board
of directors of the Professional Bowlers Association. Mr. Gutkowski has more
than 20 years of experience in the television, sports and entertainment
industries. From September 1994 until December 1995, Mr. Gutkowski was a
consultant to sports-related businesses. From November 1991 to September 1994,
he served as President and Chief Executive Officer of Madison Square Garden
Corporation, where he oversaw the operations of the New York Knicks, the New
York Rangers, the MSG Entertainment Group, the MSG Cable Network, Madison
Square Garden and the Paramount Theater. From July 1990 to November 1991, Mr.
Gutkowski served as President of MSG Entertainment Group, having served as
Executive Vice President thereof from September 1987 to July 1990. From October
1985 to September 1987, he served as President of Madison Square Garden
Network. Prior to his tenure at Madison Square Garden, Mr. Gutkowski was Vice
President-Sales for Paramount Television Domestic Distribution. From February
1981 to September 1983, Mr. Gutkowski was Vice President-Programming for ESPN.

JOHN J. BOYLE will become a non-voting observer to the board of directors
of SFX and the Chairman of SFX's Music Group upon closing of the Cellar Door
acquisition. Mr. Boyle currently serves as the Chief Executive Officer and
Chairman of the board of directors of Cellar Door. Mr. Boyle purchased Cellar
Door in 1963, and has been in the concert promotion business for over thirty
years. See "Agreements Related to the Pending Acquisitions--Cellar Door."

AUDIT COMMITTEE

The Audit Committee reviews and reports to the Board on various auditing
and accounting matters, including the selection, quality and performance of
SFX'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 also reviews certain related-party transactions and
potential conflict-of-interest situations involving officers, directors or
stockholders of SFX. The members of the Audit Committee are Messrs. Kramer,
O'Grady and Dugan.

122

COMPENSATION COMMITTEE

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

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Board approved the issuance of shares of Class A common stock to
holders, as of the SFX spin-off record date, of stock options or SARs of SFX
Broadcasting, whether or not vested. These holders included the members of the
Compensation Committee. The issuance was approved to allow the holders of these
options and SARs to participate in the SFX spin-off in a similar manner as
holders of SFX Broadcasting's Class A common stock and as consideration for
past services to SFX. In connection with this issuance, Mr. Kramer received
13,000 shares of Class A common stock, Mr. O'Grady received 13,000 shares of
Class A common stock and Mr. Dugan received 3,000 shares of Class A common
stock.

STOCK OPTION COMMITTEE

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

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE
FOR THE YEAR ENDED DECEMBER 31, 1998

The following table sets forth the annual and long-term compensation
earned by the Executive Chairman and SFX's four other most highly compensated
executive officers (the "Named Executive Officers") during 1998. SFX did not
pay any compensation to its executive officers in 1997 or 1996.

ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------ --------------------------------
SECUTITIES
UNDERLYING
RESTRICTED STOCK OPTION
NAME AND POSITION SALARY(1) BONUS(2) AWARDS($)(3) AWARDS(#)
- ---------------------------------------- ----------- ---------- ------------------ -----------

Robert F.X. Sillerman $291,667 -- $14,250,000 620,000
Executive Chairman and Member of the
Office of the Chairman
Michael G. Ferrel 204,167 -- 4,275,000 225,000
President, Chief Executive Officer and
Member of the Office of the Chairman
Brian E. Becker 245,000 -- -- 75,000
Executive Vice President and Member of
the Office of the Chairman
David Falk 183,750 -- -- 100,000
Member of the Office of the Chairman
Howard J. Tytel 175,000 -- 2,280,000 105,000
Executive Vice President, General
Counsel, Secretary and Member of the
Office of the Chairman

123

- ----------
(1) SFX began compensating Messrs. Sillerman and Ferrel upon the consummation
of the SFX Broadcasting merger, which occurred on May 29, 1998. SFX began
compensating Mr. Falk on June 4, 1998, upon the consummation of the FAME
acquisition. SFX began compensating Mr. Tytel on June 1, 1998. SFX began
compensating Mr. Becker upon the consummation of the PACE acquisition,
which occurred on February 25, 1998. See "Certain Relationships and
Related Party Transactions" for additional transactions between SFX and
the Named Executive Officers.

(2) The employment agreements of each of these executives provide for the
payment of annual incentive bonuses in the discretion of the SFX Board.
While the payment and amount of any such bonus is wholly within the
discretion of the SFX Board, the Board will likely consider each
executive's contribution to SFX's operating results, growth, realization
of strategy and prospects in awarding bonuses. SFX currently expects to
determine and pay bonuses, if any, by the end of the first quarter of
1999.

(3) In the SFX spin-off, SFX awarded Mr. Sillerman 500,000 and Mr. Ferrel
150,000 restricted shares of Class B common stock and Mr. Tytel was
awarded 80,000 restricted shares of Class A common stock. Each such
indiviual paid $2.00 per share for such restricted stock. The price of
Class A common stock, as reported on the Nasdaq National Market, was
$30.50. The value of the shares of restricted stock is reported in the
table above. On December 31, 1998, the closing price of Class A common
stock, as reported on the Nasdaq National Market, was $54.875. On
December 31, 1998, the value of the shares of restricted stock held by
Messrs. Sillerman, Ferrel and Tytel was $26,437,500, $7,931,250 and
$4,230,000, respectively. All calculations of the value of the restricted
stock assumes that the shares of Class B common stock are equal in value
to the shares of Class A common stock.

124

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES

The following table sets forth, for each of the Named Executive Officers,
certain information concerning the exercise of stock options during 1998,
including the year-end value of unexercised options.

NUMBER OF
SECURITIES
UNDERLYING VALUE OF
UNEXERCISED UNEXERCISED IN-
OPTIONS AT THE-MONEY OPTIONS
FY-END (#) AT FY-END ($)(1)
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) VALUE REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ----------------------- ----------------- -------------------- --------------- ------------------

Robert F.X. Sillerman 0 0 0/620,000 0/15,268,750
Michael G. Ferrel 0 0 0/225,000 0/5,562,500
Brian E. Becker 0 0 0/75,000 0/1,225,000
David Falk 0 0 0/100,000 0/1,325,500
Howard J. Tytel 0 0 0/105,000 0/2,588,125

- ----------
(1) Calculated by determining the difference between the closing price of
Class A common stock as reported on the Nasdaq National Market on
December 31, 1998 ($54.875) and the exercise price of the options.

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth information with respect to each grant of
stock options during 1998 to the Named Executive Officers.

INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT
------------------------------------------------------------- ASSUMED
ANNUAL RATES OF STOCK PRICE
NUMBER OF % OF TOTAL APPRECIATION
SECURITIES OPTIONS FOR OPTION TERM (10 YEARS)(1)
UNDERLYING GRANTED TO EXERCISE OR ---------------------------------
OPTIONS/ EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SHARE)(2) DATE 5%($) 10%($)
- ----------------------- ------------- -------------- -------------- ----------- ------------- --------------

Robert F.X. Sillerman 250,000 12.9% $ 43.25 5/27/08 $6,812,500 $17,192,500
250,000 12.9 29.125 4/27/08 4,586,250 11,576,250
120,000 6.2 5.50 1/15/08 416,400 1,050,000
Michael G. Ferrel 100,000 5.2 43.25 5/27/08 2,725,000 6,877,000
75,000 3.9 29.125 4/27/08 1,375,875 3,472,875
50,000 2.6 5.50 1/15/08 173,500 437,500
Brian E. Becker 50,000 2.6 43.25 5/27/08 1,362,500 3,438,500
25,000 1.3 29.125 4/27/08 458,625 1,157,625
David Falk 100,000 5.2 41.62 6/4/08 2,622,000 6,618,000
Howard J. Tytel 50,000 2.6 43.25 5/27/08 1,362,500 3,438,500
30,000 1.6 29.125 4/27/08 550,350 1,389,150
25,000 1.3 5.50 1/15/08 86,250 218,750

- ----------
(1) The dollar gains under these columns result from calculations required by
the SEC and assume 5% and 10% growth rates in the trading prices of the
Class A common stock. The figures given are not intended to forecast
future price appreciation of the Class A common stock. The gains reflect
a future value based upon growth at these prescribed rates.

(2) The $43.25 and $29.125 exercise prices represent the fair market value of
a share of Class A common stock on the date of grant. On January 15, 1998
the shares of Class A common stock had not yet commenced trading on the
Nasdaq National Market System. The Board of Directors of SFX determined
that $5.50 was the fair market value of a share of Class A common stock
on January 15, 1998.

125

SFX 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."

STOCK OPTION AND RESTRICTED STOCK PLAN

SFX's 1998 Stock Option and Restricted Stock Plan provides for the
issuance of options to purchase up to 2,000,000 shares of Class A common stock.
The purpose of the plan is to provide additional incentive to officers and
employees of SFX. 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 is administered by the Stock Option Committee. The Board has
approved the issuance of stock options exercisable for an aggregate of
1,982,166 shares under the plan. See "--Employment Agreements and Arrangements
with Certain Officers and Directors" and "--Option Grants."

PROPOSED STOCK OPTION PLAN

Following a recommendation by SFX's compensation committee, SFX has,
subject to stockholder approval, adopted a new incentive stock option plan
covering options to acquire up to 3,000,000 shares of Class A common stock and
granted the options available thereunder to certain officers and employees of
SFX. The plan will be designed to broaden the equity ownership of SFX's
employees at all levels. SFX anticipates that the proposed stock option plan
will be submitted to a vote of the stockholders at SFX's first annual meeting
scheduled to be held in the spring of 1999.

COMPENSATION OF DIRECTORS

Directors employed by SFX receive no compensation for attending meetings.
Each non-employee director receives a fee of $1,500 for each Board meeting
which he attends and is reimbursed for travel expenses. Each non-employee
director who is also a member of a committee receives an additional $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 receives $500 for attending the committee meeting.

In addition, SFX adopted a deferred compensation plan for the non-employee
directors effective as of January 1, 1998. Pursuant to the plan, SFX pays each
non-employee director a quarterly retainer of $7,500, at least one-half of
which must be paid in shares of Class A common stock which are credited to a
book-entry account maintained by SFX for each participant. Each non-employee
director's account was initially credited with 5,455 shares of Class A common
stock representing one year's annual retainer fee based upon $5.50 per share.

SPIN-OFF SHARES

SFX issued shares of Class A common stock to holders, as of the spin-off
record date, of stock options or SARs of 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

SFX has entered into employment agreements with each of its executive
officers. The employment agreements became effective upon the SFX Broadcasting
merger or shortly thereafter, except for Mr. Becker's employment agreement,
which is described below.

126

AGREEMENTS WITH MESSRS. SILLERMAN, FERREL, TYTEL AND BENSON

The respective employment agreements provide for annual base salaries of
$500,000 for Mr. Sillerman, $350,000 for Mr. Ferrel, $300,000 for Mr. Tytel and
$235,000 for Mr. Benson, increased annually by the greater of five percent or
the rate of inflation. Each executive officer will receive a bonus to be
determined annually in the discretion of the Board, on the recommendation of
its Compensation Committee. Each employment agreement is for a term of five
years, and unless terminated or not renewed by either party, the term will
continue thereafter on a year-to-year basis on terms identical to those at the
time of renewal.

If an executive officer is terminated by SFX without Cause or if there is
a Constructive Termination Without Cause as such terms are defined in the
respective employment agreements then such executive officer will be entitled
to receive the following payments:

o base salary for a period of three years following his termination or
until the end of the term of the employment agreement, whichever is
longer;
o a bonus for the unexpired term of the agreement, based on the bonus
received for the year before termination, multiplied by the unexpired
term; and
o options to purchase shares of Class A common stock.

If the executive officer is terminated for any reason other than Cause, or
if there is a Constructive Termination Without Cause as such terms are defined
in the respective employment agreements following a change in control of SFX,
then the executive officer will be entitled to receive, in addition to the
foregoing, additional options to purchase shares of Class A common stock. SFX
has also agreed to indemnify the executive officers for taxes incurred if any
of the change of control payments are deemed "parachute payments" under the
Internal Revenue Code. Mr. Tytel's agreement permits him or SFX to end his
employment after one year, in which case all of his options would immediately
vest, he would receive two years' salary paid in a lump sum and would be
granted options to purchase between 25,000 and 50,000 shares of Class A common
stock at the lowest exercise price of any options granted by SFX during that
year.

In connection with entering into the employment agreements, SFX sold the
following shares of restricted stock:

o 500,000 shares of Class B common stock to Mr. Sillerman;
o 150,000 shares of Class B common stock to Mr. Ferrel;
o 80,000 shares of Class A common stock to Mr. Tytel; and
o 10,000 shares of Class A common stock to Mr. Benson.

The shares of restricted stock were sold to the officers at a purchase
price of $2.00 per share. In addition, the Board, on the review and
recommendation of the Compensation Committee, also approved the issuance of the
following stock options exercisable for shares of Class A common stock:

o options to purchase 120,000 shares to Mr. Sillerman;
o options to purchase 50,000 shares to Mr. Ferrel;
o options to purchase 25,000 shares to Mr. Tytel;
o options to purchase 10,000 shares to Mr. Benson; and
o options to purchase 40,000 shares to Mr. Armstrong, who was then an SFX
officer.

The Board, other than Messrs. Kramer, O'Grady and Dugan, also approved the
issuance of stock options to purchase 2,500 shares of Class A common stock to
each of Messrs. Kramer, O'Grady and Dugan. The options will vest in one year
and will have an exercise price of $5.50 per share. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

127

Upon the SFX Broadcasting merger, SFX assumed Broadcasting's obligations
arising under the employment agreements or arrangements between Broadcasting
and SFX's executive officers, with certain exceptions. SFX also assumed the
obligation to make the following change of control payments under the following
individuals' existing employment agreements with SFX Broadcasting:

o Mr. Sillerman -- approximately $3.3 million;
o Mr. Ferrel -- approximately $1.5 million; and
o Mr. Benson -- approximately $200,000.

BECKER EMPLOYMENT AGREEMENT

As a condition to execution of the PACE agreement, SFX entered into an
employment agreement with Brian Becker, the Chief Executive Officer and
President of PACE. The agreement has a term of five years that commenced on
February 25, 1998. Mr. Becker continues to be President and Chief Executive
Officer of PACE. In addition, for the term of his employment, Mr. Becker will
serve as a member of SFX's Office of the Chairman, an Executive Vice President
of SFX and a director of each of PACE and SFX, subject to shareholder approval.
During the term of his employment, Mr. Becker will receive 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 an annual bonus at the
discretion of the Board.

SFX has agreed that it will not sell either the theatrical or motor sports
lines of business of PACE before February 25, 1999. If SFX sells one of the
lines of business after the first anniversary, it has agreed not to sell the
other line of business before March 11, 2000. Mr. Becker's employment agreement
gives him a right of first refusal if, between February 25, 1999 and February
25, 2000, SFX receives a bona fide offer from a third party to purchase all or
substantially all of either the theatrical or motor sports lines of business at
a price equal to 95% of the proposed purchase price. The Fifth Year Put Option
(as defined in the PACE acquisition agreement and described in note 1 to
Selected Consolidated Financial Data) will also be immediately exercisable as
of such closing. If Mr. Becker does not exercise his right of first refusal and
either of the theatrical or motor sports lines 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 February 25, 2000, and ending August 25, 2000. If
Mr. Becker does not exercise his right of first refusal and if SFX does not
consummate the proposed sale, he will be paid an administrative fee of
$100,000. Mr. Becker would thereafter retain all rights to Becker's right of
first refusal.

Beginning on December 12, 1999, Mr. Becker will have the option (the
"Becker Second Year Option"), exercisable within 15 days thereafter, to one or
more of the following:

o to sell to SFX any stock or options and/or any compensation to be paid
to Mr. Becker by SFX;

o to become a consultant to SFX for no more than an average of 20 hours
per week for the remainder of the term at the same level of compensation
set forth in his employment agreement; or

o to 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 his employment agreement.

Exercise of the Becker Second Year Option would result in the termination
of Mr. Becker's employment agreement.

128

Mr. Becker's employment agreement may be terminated by SFX for Cause, as
defined in the agreement, by SFX upon Mr. Becker's death or permanent
disability, 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 SFX at any time
in SFX's sole discretion or by Mr. Becker at any time after one of the
following, among other things:

o failure to elect or re-elect Mr. Becker as a director of SFX;

o a reduction in Mr. Becker's base salary or in the formula to calculate
his bonus;

o discontinuation of Mr. Becker's participation in any stock option,
bonus or other employee benefit plan;

o the sale of either the motor sports or theatrical line of business to
any person other than Mr. Becker before March 7, 2000, unless Mr. Becker
elected not to exercise Becker's right of first refusal;

o the sale of all or substantially all of the assets of PACE;

o a change of control of SFX; or

o the failure by SFX 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:

o from the date of termination until February 25, 2003, SFX 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 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;

o for one year after the date of termination, SFX 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

o if the termination occurs before March 11, 2000, Mr. Becker will retain
the Becker Second Year Option and Becker's 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 SFX or its affiliates or
solicit any employees to leave SFX or its affiliates. However, these
restrictions will not apply if Mr. Becker exercises his rights, or SFX breaches
its obligations, with respect to Becker's right of first refusal or the Becker
Second Year Option.

FALK EMPLOYMENT AGREEMENT

On April 29, 1998, SFX entered into an employment agreement with David
Falk. The agreement has a term of five years commencing June 4, 1998. Mr. Falk
is the Chairman of FAME and SFX's Sports Group and is a Member of the Office of
Chairman of SFX and a director of SFX. Pursuant to the agreement, Mr. Falk
directs the day to day operations of FAME and SFX's Sports Group and any other
sports businesses acquired by SFX. The agreement provides for an annual base
salary of $315,000, reviewed annually and increased by a minimum of 4.0% per
year. In addition, Mr. Falk will be considered for an annual bonus consistent
with the bonuses given to other senior executives of SFX. Mr. Falk received an
option to purchase 100,000 shares of Class A common stock at an exercise price
of $41.62 per share. The option will fully vest on June 4, 1999. In addition,
SFX has agreed to make annual stock option grants to Mr. Falk to purchase at
least 30,000 shares of Class A common stock in the first four years of his
employment agreement.

129

SFX may terminate Mr. Falk's employment at any time With or Without Cause,
as defined in the agreement. If the agreement is terminated for any reason
other than a voluntary termination or termination for cause, then:

o all stock options granted pursuant to the agreement will immediately
vest and become exercisable;

o any remaining stock options to be granted pursuant to the agreement
will immediately be granted and will vest and become exercisable; and

o SFX will be obligated to pay Mr. Falk his base salary and annual
bonuses at a rate equal to 50% of his base salary through the original
term of the agreement, as well as certain additional benefits.

In addition, if a Change in Control, as defined in the agreement, occurs, SFX
may be required to pay a portion of certain taxes incurred by Mr. Falk as a
result of the Change of Control.

For one year following the termination of the employment agreement by Mr.
Falk or termination by SFX for Cause, as defined in the agreement, except in
certain events, Mr. Falk has agreed that he will not become employed in any
capacity by, or become an officer, director, shareholder or general partner of
any entity that competes with any material business of FAME as conducted as of
the closing date of the FAME acquisition and he will not solicit any employee
of SFX or any entities that are directly or indirectly controlled by SFX to
leave such employment.

In the past, SFX and Broadcasting have also entered into certain
additional agreements and arrangements with their officers and directors. See
"Certain Relationships and Related Transactions."

OPTION GRANTS

On April 27, 1998, SFX granted the following options to purchase shares of
Class A common stock at $29.125 per share:

o options to purchase 250,000 shares to Mr. Sillerman;
o options to purchase 75,000 shares to Mr. Ferrel;
o options to purchase 25,000 shares to Mr. Becker;
o options to purchase 30,000 shares to Mr. Tytel;
o options to purchase 35,000 shares to Mr. Armstrong; and
o options to purchase 15,000 shares to Mr. Benson.

On May 27, 1998, SFX granted the following options to purchase shares of
Class A common stock at $43.25 per share:

o options to purchase 250,000 shares to Mr. Sillerman;
o options to purchase 100,000 shares to Mr. Ferrel;
o options to purchase 50,000 shares to Mr. Becker;
o options to purchase 50,000 shares to Mr. Tytel;
o options to purchase 50,000 shares to Mr. Armstrong; and
o options to purchase 25,000 shares to Mr. Benson.

These options vest over five years, starting one year from the date of
grant.

130

PRINCIPAL STOCKHOLDERS

The following table sets forth information regarding ownership of SFX's
common stock as of February 11, 1999, by each executive officer of SFX, each
director of SFX, the directors and executive officers of SFX as a group and
each person known by SFX to own beneficially more than 5% of any class of SFX's
common stock.

CLASS A COMMON STOCK AFTER
THE PENDING MARQUEE
AND CELLAR DOOR ACQUISITIONS
CLASS A AND THE PROPOSED
COMMON STOCK EQUITY OFFERING (1)
------------------------------- -------------------------------
NAME AND ADDRESS OF NUMBER OF PERCENT OF NUMBER OF PERCENT OF
BENEFICIAL OWNER(2) SHARES CLASS SHARES CLASS
- ------------------------------- ------------------ ------------ ------------------ ------------

Directors and Executive
Officers:
Robert F.X. Sillerman ......... 2,653,005(3) 9.2% 2,764,899(4) 7.8%
Michael G. Ferrel ............. 145,303(5) * 145,303(5) *
Brian E. Becker ............... 29,402(6) * 29,402(6) *
David Falk .................... 325,000(7) 1.1 325,000(7) *
Howard J. Tytel ............... 454,604(8) 1.6 471,131(9) 1.4
Thomas P. Benson .............. 22,333(10) * 22,333(10) *
Richard A. Liese .............. 2,800(11) * 0(11) *
D. Geoffrey Armstrong ......... 175,133(12) * 175,133(12) *
James F. O'Grady, Jr. ......... 17,272(13) * 17,272(13) *
Paul Kramer ................... 18,422(14) * 18,422(14) *
Edward F. Dugan ............... 8,422(13) * 8,422(13) *
All directors and executive
officers as a group
(11 persons) ................. 3,397,092 11.8% 3,508,986 9.9%
5% Stockholders:
Zweig-DiMenna International
Limited and affiliated
companies(15) ................ 1,450,400 5.0% 1,450,400 4.1%
P.O. Box N-9932
Maritime House,
Frederick Street
Nassau, Bahamas

PERCENT OF
TOTAL VOTING PERCENT OF
POWER BEFORE TOTAL VOTING
THE PENDING POWER AFTER THE
CLASS B MARQUEE AND PENDING MARQUEE
COMMON STOCK CELLAR DOOR AND CELLAR DOOR
------------------------------- ACQUISITIONS AND ACQUISITIONS AND
NAME AND ADDRESS OF NUMBER OF PERCENT OF THE PROPOSED THE PROPOSED
BENEFICIAL OWNER(2) SHARES CLASS EQUITYOFFERING EQUITYOFFERING (1)
- ------------------------------- ------------------ ------------ ------------------ -------------------

Directors and Executive
Officers:
Robert F.X. Sillerman ......... 1,524,168(4) 89.8% 39.1% 34.3%
Michael G. Ferrel ............. 172,869(5) 10.2 4.1 3.6
Brian E. Becker ............... -- -- * *
David Falk .................... -- -- * *
Howard J. Tytel ............... -- -- 1.0 *
Thomas P. Benson .............. -- -- * *
Richard A. Liese .............. -- -- * *
D. Geoffrey Armstrong ......... -- -- * *
James F. O'Grady, Jr. ......... -- -- * *
Paul Kramer ................... -- -- * *
Edward F. Dugan ............... -- -- * *
All directors and executive
officers as a group
(11 persons) ................. 1,697,037 100.0% 44.5% 39.0%
5% Stockholders:
Zweig-DiMenna International
Limited and affiliated
companies(15) ................ -- -- 3.2% 2.8%
P.O. Box N-9932
Maritime House,
Frederick Street
Nassau, Bahamas

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

(1) Assumes for the Marquee acquisition that the Exchange Ratio is 0.0856,
assuming an SFX stock price of $55.50, and that SFX will issue 360,360
shares of Class A common stock in connection with the Cellar Door
acquisition.

(2) Unless otherwise set forth above, the address of each stockholder is the
address of SFX, 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, "beneficial ownership" means the sole or shared power to vote, or
to direct the disposition of, a security, and a person is deemed to have
"beneficial ownership" of any security that the person has the right to
acquire within 60 days of February 3, 1999. Unless noted otherwise,
information as to beneficial ownership is based on statements furnished
to SFX by the beneficial owners and stockholders possess sole voting and
dispositive power with respect to shares listed on this table. As of
February 11, 1999, there were issued and outstanding 28,755,784 shares of
Class A common stock and 1,697,037 shares of Class B common stock.

(3) Includes 39,343 shares of Class A common stock held by SCMC and options
to purchase an aggregate of 40,000 shares of Class A common stock held by
Mr. Sillerman which are, or will become, exercisable within 60 days of
February 11, 1999. Also includes 446,271 shares of Class A common stock
and options to purchase 8,333 shares of Class A common stock held by Mr.
Tytel that Mr. Sillerman has the right to vote. Excludes options to
purchase an aggregate of 580,000 shares of Class A common stock held by
Mr. Sillerman which are not exercisable within 60 days of February 11,
1999. If the 1,524,168 shares of Class B common stock held by Mr.
Sillerman were included in calculating his ownership of the Class A
common stock, Mr. Sillerman would beneficially own 4,177,173 shares of
Class A common stock, representing approximately 13.8% of the class. See
"Management--Employment Agreements and Arrangements with Certain Officers
and Directors."

131

(4) Includes 39,343 shares of Class A common stock held by SCMC and options
to purchase an aggregate of 40,000 shares of Class A common stock held by
Mr. Sillerman which are, or will become, exercisable within 60 days of
February 11, 1999. Also includes 458,814 shares of Class A common stock,
11,329 options and 998 warrants held by Mr. Tytel that Mr. Sillerman has
the right to vote. Includes options to be received by Mr. Sillerman in
the Marquee acquisition to purchase an aggregate of 18,689 shares of
Class A common stock and warrants to be received in the Marquee
acquisition to purchase an aggregate of 5,597 shares of Class A common
stock which are, or will become, exercisable within 60 days of February
11, 1999. Excludes options to be received in the Marquee acquisition to
purchase 9,685 shares of Class A common stock and options previously
issued to purchase an aggregate of 580,000 shares of Class A common stock
which are not exercisable within 60 days of February 11, 1999. If the
1,524,168 shares of Class B common stock held by Mr. Sillerman were
included in calculating his ownership of the Class A common stock, then
Mr. Sillerman would beneficially own 4,289,067 shares of Class A common
stock, representing approximately 11.6% of the class upon closing of the
pending Marquee and Cellar Door acquisitions and this offering. See
"Management--Employment Agreements and Arrangements with Certain Officers
and Directors."

(5) Includes options to purchase an aggregate of 16,666 shares of Class A
common stock held by Mr. Ferrel which are, or will become, exercisable
within 60 days of February 11, 1999. Excludes options to purchase an
aggregate of 208,334 shares of Class A common stock held by Mr. Ferrel
which are not exercisable within 60 days of February 11, 1999. If the
172,869 shares of Class B common stock held by Mr. Ferrel were included
in calculating his ownership of Class A common stock, then Mr. Ferrel
would beneficially own 318,172 shares of Class A common stock,
representing less than 1% of the class upon closing of the pending
Marquee and Cellar Door acquisitions and this offering. See
"Management--Employment Agreements and Arrangements with Certain Officers
and Directors."

(6) Excludes options to purchase an aggregate of 75,000 shares of Class A
common stock held by Mr. Becker which are not exercisable within 60 days
of February 11, 1999.

(7) Excludes options to purchase an aggregate of 100,000 shares of Class A
common stock held by Mr. Falk which are not exercisable within 60 days of
February 11, 1999.

(8) Includes options to purchase an aggregate of 8,333 shares of Class A
common stock held by Mr. Tytel which are, or will become, exercisable
within 60 days of February 11, 1999. Excludes options to purchase an
aggregate of 96,667 shares of Class A common stock held by Mr. Tytel
which are not exercisable within 60 days of February 11, 1999. Mr. Tytel
also has an economic interest in SCMC, which beneficially owns 39,343
shares of Class A common stock, although he lacks voting or dispositive
power with respect to the shares beneficially held by SCMC. Mr. Sillerman
has the right to vote all of the shares of Class A common stock
beneficially owned by Mr. Tytel. See "Management--Employment Agreements
and Arrangements with Certain Officers and Directors."

(9) Includes options to purchase an aggregate of 8,333 shares of Class A
common stock held by Mr. Tytel which are, or will become, exercisable
within 60 days of February 11, 1999. Also includes 2,996 options and 998
warrants that are, or will become, exercisable for shares of Class A
common stock within 60 days of February 11, 1999. Excludes options to be
received in the Marquee acquisition to purchase 1,256 shares of Class A
common stock and 571 stock appreciation rights to be received in the
Marquee acquisition not exercisable within 60 days of February 11, 1999.
Also excludes options previously issued to purchase an aggregate of
96,667 shares of Class A common stock held by Mr. Tytel which are not
exercisable within 60 days of February 11, 1999. Mr. Tytel also has an
economic interest in SCMC, which beneficially owns 39,343 shares of Class
A common stock, although he lacks voting or dispositive power with
respect to the shares beneficially held by SCMC. Mr. Sillerman has the
right to vote all of the shares of Class A common stock beneficially
owned by Mr. Tytel.

132

(10) Includes options to purchase an aggregate of 3,333 shares of Class A
common stock held by Mr. Benson which are, or will become, exercisable
within 60 days of February 11, 1999. Excludes options to purchase an
aggregate of 46,667 shares of Class A common stock held by Mr. Benson
which are not exercisable within 60 days of February 11, 1999.

(11) Excludes options to purchase an aggregate of 10,000 shares of Class A
common stock held by Mr. Liese which are not exercisable within 60 days
of February 11, 1999.

(12) Includes options to purchase an aggregate of 13,333 shares of Class A
common stock held by Mr. Armstrong which are, or will become, exercisable
within 60 days of February 11, 1999. Excludes options to purchase an
aggregate of 111,667 shares of Class A common stock held by Mr. Armstrong
which are not exercisable within 60 days of February 11, 1999.

(13) Includes options to purchase an aggregate of 2,500 shares of Class A
common stock held by each of Messrs. O'Grady and Dugan which are
currently exercisable. Excludes 5,455 shares credited to each of these
individuals' accounts in the deferred compensation plan for non-employee
directors.

(14) Excludes 5,455 shares credited to Mr. Kramer's account in the deferred
compensation plan for non-employee directors.

(15) Based on information contained in a Schedule 13G filed with the SEC on
June 8, 1998. The aggregate number of shares is beneficially owned as
follows: 714,300 shares by Zweig-DiMenna International Limited, a British
Virgin Islands corporation; 328,200 by Zweig-DiMenna Partners, L.P., a
New York limited partnership; 197,500 shares by Zweig-DiMenna Special
Opportunities, L.P., a Delaware limited partnership; 124,000 shares by
Zweig-DiMenna International Managers, Inc., a Delaware corporation, on
behalf of a discretionary account; 83,400 shares by Gotham Advisors,
Inc., a Delaware corporation, on behalf of a discretionary account and
3,000 shares by Zweig-DiMenna Investors L.P., a Delaware limited
partnership. The principal business office for each of these entities,
other than Zweig-DiMenna International Limited, whose address is set
forth in the above table, is 900 Third Avenue, New York, New York 10022.

POSSIBLE CHANGE IN CONTROL

Mr. Sillerman has pledged an aggregate of 793,401 of his shares of Class B
common stock as collateral for a line of credit, under which he currently has
no outstanding borrowings. He continues to be entitled to exercise voting and
consent rights with respect to the pledged shares, with certain restrictions.
However, if he defaults in the payment of any future loans extended to him
under the line of credit, the bank will be entitled to sell the pledged shares.
Although the Class B common stock has 10 votes per share in most matters, the
pledged shares will automatically convert into shares of Class A common stock
upon such a sale. Such a sale of the pledged shares would reduce Mr.
Sillerman's share of the voting power of SFX's common stock, and would
therefore be likely to result in a change of control of SFX. See "Risk
Factors--Risks Relating to the Notes--SFX may not have the funds necessary to
finance a change of control offer for the notes."

133

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

POTENTIAL CONFLICTS OF INTEREST

Until the closing of the pending Marquee acquisition, Messrs. Sillerman
and Tytel may have conflicts of interest between Marquee and SFX. Mr. Sillerman
has an aggregate equity interest of approximately 6.1% in Marquee and is the
Chairman of its Board of Directors, and Mr. Tytel has an equity interest in
Marquee of approximately 1.1% and is one of its directors. However, Messrs.
Sillerman and Tytel did not represent the interests of Marquee in negotiations
with SFX relating to the merger. SFX may directly compete with Marquee before
the consummation of the merger in obtaining representation agreements with
particular athletes and endorsement opportunities for its clients. In addition,
SFX anticipates that, from time to time, it will enter into transactions and
booking and other arrangements with Marquee and Marquee's clients. In addition,
TSC, an entity controlled by Mr. Sillerman and in which Mr. Tytel also has an
equity interest, has provided financial consulting services to Marquee and will
continue to do so until consummation of the Marquee acquisition. TSC's services
are provided by certain directors, officers and employees of SFX who are not
separately compensated for their services by TSC. In any transaction,
arrangement or competition with Marquee before the closing of the acquisition,
Messrs. Sillerman and Tytel are likely to have conflicts of interest between
their duties as officers and directors of SFX, on the one hand, and their
duties as directors of Marquee and their interests in TSC and Marquee, on the
other hand. See "--Triathlon Fees."

Pursuant to the employment agreement entered into between Brian Becker and
SFX in connection with the acquisition of PACE, Mr. Becker has the option,
exercisable within 15 days after February 25, 2000, to purchase SFX's motor
sports line of business or, if that line of business has been sold, SFX's
theatrical line of business -- at its then fair market value. Exercise of such
option would result in the termination of Mr. Becker's employment agreement.
Mr. Becker's option may present a conflict of interest in his role as a
director of SFX. See "Risk Factors--Company Specific Risks--SFX may be forced
to sell some of its subsidiaries, which may prevent SFX from realizing the full
value of these subsidiaries" and "Management."

AGREEMENTS PRIOR TO THE SPIN-OFF

In January 1998, to retain the services of certain officers and directors
of SFX and, if necessary, to facilitate Broadcasting's ability to pursue an
alternative transaction to the SFX spin-off, as contemplated in the
Broadcasting merger agreement, SFX reached an agreement with such individuals
to waive the individuals' right to receive shares of SFX in the spin-off in
return for the right to receive one share of Class A common stock regardless of
the number of shares that were otherwise distributable in the spin-off or, in
an alternative transaction, receive $4.20 in value of stock of the acquiring
company or $4.20 in cash depending on the circumstances for each share of
Broadcasting common stock held by them or were entitled to receive. The amount
of $4.20 was based on the value attributed to the Class A common stock in the
fairness opinion obtained by Broadcasting in connection with the Broadcasting
merger. If the spin-off was consummated, SFX was permitted to satisfy its
obligations by delivering shares in connection with the spin-off. The following
table sets forth the executive officers and directors who entered into such an
agreement, along with the number of shares of Broadcasting common stock that
they held or were entitled to receive:

134

NAME SHARES OF SFX BROADCASTING
- -------------------------------------- ----------------------------------

Robert F.X. Sillerman ......... 1,326,248 of Class A common stock
1,024,168 of Class B common stock
Michael G. Ferrel ............. 98,637 of Class A common stock
22,869 of Class B common stock
Howard J. Tytel ............... 248,615 of Class A common stock
Thomas P. Benson .............. 9,000 of Class A common stock
Richard A. Liese .............. 2,800 of Class A common stock
D. Geoffrey Armstrong ......... 161,800 of Class A common stock
James F. O'Grady, Jr. ......... 14,772 of Class A common stock
Paul Kramer ................... 15,922 of Class A common stock
Edward F. Dugan ............... 5,922 of Class A common stock

In accordance with this agreement, SFX's obligations were deemed satisfied
upon delivery of the shares in connection with the SFX spin-off. No cash
payment was made.

EMPLOYMENT AGREEMENTS

SFX has entered into employment agreements with each of its current
executive officers. The employment agreements provide for annual base salaries
of $500,000 for Mr. Sillerman, $350,000 for Mr. Ferrel, $315,000 for Mr. Falk,
$300,000 for Mr. Tytel and $235,000 for Mr. Benson. Mr. Becker's employment
agreement provides for 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.

In connection with entering into the employment agreements, SFX sold the
following restricted shares of stock: 500,000 shares of its Class B common
stock to Mr. Sillerman; 150,000 shares of its Class B common stock to Mr.
Ferrel; 80,000 shares of its Class A common stock to Mr. Tytel; and 10,000
shares of its Class A common stock to Mr. Benson. The shares were sold to the
officers at a purchase price of $2.00 per share. In addition, the SFX Board, on
the recommendation of its compensation committee, also has approved the
issuance of stock options to its officers and directors exercisable for an
aggregate of 252,500 shares of SFX's Class A common stock. The options will
vest over three years and will have an exercise price of $5.50 per share. SFX
will record non-cash compensation charges over the three-year exercise period
to the extent that the fair value of the underlying Class A common stock
exceeds the exercise price. See "Management--Employment Agreements and
Arrangements with Certain Officers and Directors."

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 Broadcasting merger, SFX assumed all obligations under
any employment agreement or arrangement between Broadcasting, or any of its
subsidiaries, and any employee of SFX, 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 included the obligation to make cash payments aggregating
approximately $3.3 million to Mr. Sillerman, $1.5 million to Mr. Ferrel and
$200,000 to Mr. Benson after the termination of their employment with
Broadcasting following the Broadcasting merger. SFX has paid these amounts. In
addition, SFX's assumed

135

obligations 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
Broadcasting in connection with the Broadcasting merger.

INDEMNIFICATION OF MR. SILLERMAN

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

RELATIONSHIP BETWEEN HOWARD J. TYTEL AND BAKER & MCKENZIE

Howard J. Tytel, who is the Executive Vice President, General Counsel,
Secretary, Member of the Office of the Chairman and a director of SFX, was "Of
Counsel" to the law firm of Baker & McKenzie from 1993 to May 31, 1998. Mr.
Tytel was also an executive vice president, the general counsel and a director
of Broadcasting. Baker & McKenzie served as counsel to Broadcasting and
currently serves as counsel to SFX, Marquee and certain other affiliates of Mr.
Sillerman. Baker & McKenzie formerly compensated Mr. Tytel based, in part, on
the fees it received from providing legal services to Broadcasting, SFX,
Marquee, other affiliates of Mr. Sillerman and other clients introduced to the
firm by Mr. Tytel. Baker & McKenzie has agreed to a severance arrangement with
Mr. Tytel, which is not based on fees received by Baker & McKenzie. From April
27, 1998, the date of the spin-off, until May 31, 1998, SFX incurred and paid
Baker & McKenzie approximately $1.5 million for legal services. SFX believes
that this arrangement was as fair to SFX as any that could have been obtained
from an unrelated party on an arms-length basis.

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,
Broadcasting and SFX. In consideration for certain services provided by Mr.
Tytel in connection with those ventures, Mr. Tytel has generally 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
Broadcasting did not compensate Mr. Tytel directly, 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 Broadcasting. In 1997, these cash fees
aggregated approximately $5.0 million. In connection with the consummation of
the SFX Broadcasting merger and certain related transactions, Mr. Tytel
received 308,374 shares of SFX's Class A common stock, with Mr. Sillerman
retaining the right to vote these shares, and cash fees from TSC, SCMC and Mr.
Sillerman personally. Mr Tytel has also granted Mr. Sillerman the right to vote
all other shares of SFX Class A common stock beneficially owned by him. In
addition, Mr. Tytel continues to have an economic interest in SCMC, which
beneficially owns 39,343 shares of Class A common stock. See "--Assumption of
Employment Agreements; Certain Change of Control Payments" and "--Employment
Agreements."

136

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. Triathlon paid fees of $3,000,000 for the year ended December 31,
1996, fees of $1,794,000 for the year ended December 31, 1997 and fees of
$530,000 for the year ended December 31, 1998. These fees 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 assigned its rights to
receive these fees to SFX. All services provided by SCMC are provided by
employees of SFX. Triathlon has announced that it has agreed to be acquired by
a third party. Triathlon will pay a fee to SFX in connection with such
acquisition. When Triathlon is acquired, it will cease paying consulting fees
for SCMC's services.

AGREEMENTS WITH BROADCASTING

SFX and Broadcasting have entered into various agreements with respect to
the spin-off and related matters. For the terms of these agreements, see the
distribution agreement, tax sharing agreement and the employment benefits
agreement, each of which has been filed as an exhibit to the registration
statement of which this prospectus is a part.

COMMON STOCK RECEIVED IN THE SPIN-OFF

In the SFX spin-off, the holders of Broadcasting's Class A common stock,
Series D preferred stock and warrants, upon exercise, received shares of Class
A common stock, whereas Messrs. Sillerman and Ferrel, as the holders of
Broadcasting's Class B common stock, which is entitled to ten votes per share
on most matters, received shares of Class B common stock. Class A common stock
and Class B common stock have similar rights and privileges, except that the
Class B common stock has greater voting rights. See "Description of Capital
Stock." The issuance of the Class B common stock in the spin-off was intended
to preserve Messrs. Sillerman's and Ferrel's relative voting power after the
spin-off. After giving effect to the Marquee acquisition, the Cellar Door
acquisition, the proposed equity offering and this offering, Mr. Sillerman may
be deemed to beneficially own approximately 35.0% of the combined voting power
of SFX, and Messrs. Sillerman and Ferrel may be deemed to beneficially own
approximately 38.5% of the combined voting power of SFX. Accordingly, Mr.
Sillerman, alone and together with SFX's current directors and executive
officers, will generally be able to control the outcome of the votes of the
stockholders on most matters. See "Principal Stockholders."

In addition, in August 1997, the board of directors of Broadcasting
approved amendments to certain warrants to purchase an aggregate of 600,000
shares of SFX Broadcasting's Class A common stock. The warrants were held by
SCMC, an entity controlled by Mr. Sillerman. The amendments memorialized the
original intent of the directors of Broadcasting that SCMC receive the
aggregate number of shares of Class A common stock that it would have received
if it had exercised the warrants immediately before the spin-off. Because of
these amendments, SCMC received 600,000 shares of Class A common stock in the
spin-off.

137

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

On April 27, 1998, SFX issued 522,941 shares of its Class A common stock
to holders as of the spin-off record date of the stock options or SARs of
Broadcasting, whether or not vested. SFX also issued 325,000 shares to Mr.
Sillerman and 70,000 shares to Mr. Ferrel with respect to options issuable
under their employment agreements with Broadcasting. In addition, SFX issued
325,000 shares of its Class A common stock to Mr. Sillerman and 30,000 shares
of SFX Class A common stock to Mr. Ferrel, which corresponded to
change-of-control options of SFX Broadcasting that they waived in connection
with the SFX Broadcasting merger. The issuances were made in consideration for
past services to SFX and to allow holders of such options and SARs to
participate in the spin-off in a manner similar to holders of Broadcasting's
Class A common stock. Additionally, many of the option and SAR holders are
officers, directors or employees of SFX. The members of the SFX Board, other
than Messrs. Becker and Falk, received an aggregate of 850,479 shares pursuant
to such issuances.

MEADOWS REPURCHASE

In connection with the acquisition of Meadows Music Theater, Broadcasting
obtained an option, as subsequently amended, to repurchase 247,177 shares of
its Class A common stock (the "Meadows Shares") for an aggregate purchase price
of $8.2 million. However, Broadcasting was restricted from exercising the
Meadows Repurchase by certain loan covenants and other restrictions. Pursuant
to the terms of the Broadcasting merger agreement, since the Meadows Shares
were outstanding at the effective time of the SFX Broadcasting merger, working
capital was decreased by approximately $10.3 million.

In January 1998, Mr. Sillerman committed to finance the $8.2 million
exercise price of the Meadows Repurchase to offset the $10.3 million reduction
to working capital. In consideration for his commitment, the board of directors
of Broadcasting agreed that Mr. Sillerman would receive approximately the
number of shares of Class A common stock to be issued in the spin-off with
respect to the Meadows Shares. At the time Broadcasting accepted Mr.
Sillerman's commitment, the board of directors of Broadcasting valued Class A
common stock to be issued in the spin-off at $4.20 per share, the value
attributed to such shares in the fairness opinion obtained by Broadcasting in
connection with the Broadcasting merger. The transaction was approved by
Broadcasting's board of directors, including the independent directors.

In April 1998, Broadcasting assigned the option for the Meadows Shares to
an unaffiliated third party and, in connection therewith, agreed to pay such
party a fee of $75,000. Mr. Sillerman subsequently advanced such party the $8.2
million exercise price for the Meadows Repurchase, the repayment of which
became due upon the Broadcasting merger. The third party has exercised the
option and transferred to Mr. Sillerman Class A common stock issued in the
spin-off with respect to the Meadows Shares. The Meadows Shares were tendered
in the Broadcasting merger by the third party in exchange for the per share
Broadcasting merger consideration of $75. The third party subsequently repaid
the advance from Mr. Sillerman and transferred $10.3 million, the remainder of
such consideration net of the third party fee, to SFX.

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DESCRIPTION OF INDEBTEDNESS

SENIOR CREDIT FACILITY

The following is a summary of the material terms of the credit agreement
for the Senior Credit Facility. This summary is not complete. It is subject to,
and qualified in its entirety by reference to, the credit agreement for the
Senior Credit Facility, which has been filed as an exhibit to the registration
statement of which this prospectus is a part. See "Where You Can Find More
Information."

In February 1998, SFX executed a Credit and Guarantee Agreement (the
"Senior Credit Facility") which established $300.0 million of senior secured
credit facilities. The Senior Credit Facility was then comprised of the $150.0
million eight-year term loan and the $150.0 million seven-year reducing
revolver. Borrowings under the Senior Credit Facility are secured by
substantially all the assets of SFX, including a pledge of the outstanding
stock of substantially all of its subsidiaries, and are guaranteed by
substantially all of SFX's subsidiaries. On February 27, 1998, SFX borrowed
$150.0 million pursuant to the term loan in connection with certain of its 1998
Acquisitions. On September 10, 1998, SFX entered into an agreement with The
Bank of New York to increase its borrowing availability under the revolving
portion of the Senior Credit Facility by an additional $50.0 million to $200.0
million, which increased the aggregate amount of borrowing availability under
the Senior Credit Facility to approximately $350.0 million. SFX is currently in
discussions with the lenders under the Senior Credit Facility to increase the
total borrowing availability thereunder to $550.0 million. While SFX expects to
be able to secure such additional borrowing availability, no assurances can be
given that it will be able to do so. As of February 5, 1999, SFX had
approximately $285.0 million of borrowings under the Senior Credit Facility.

GENERAL

The Senior Credit Facility provides for borrowings in a principal amount
of up to $350.0 million, subject to certain covenants and conditions.
Borrowings under the Senior Credit Facility may be used by SFX to finance
Permitted Acquisitions (as defined in the Senior Credit Facility) and for
working capital and general corporate purposes. Up to $20.0 million of the
revolver is available for the issuance of standby letters of credit. Each
Permitted Acquisition must be in the same line of business, or other business
incidental or related thereto, as SFX and must have the prior written consent
of the Required Lenders (as defined in the Senior Credit Facility) if the cost
of the Permitted Acquisition exceeds $50.0 million.

INTEREST RATES; FEES

Loans outstanding under the Senior Credit Facility bear interest, at SFX's
option, at certain spreads over LIBOR or the greater of the Federal Funds rate
plus 0.50% or The Bank of New York's prime rate. The interest rate spreads on
the term loan and the revolver are adjusted based on SFX's Total Leverage
Ratio, as defined below. SFX pays an annual commitment fee on unused
availability under the revolver of 0.50% if SFX's Total Leverage Ratio is
greater than or equal to 4.0 to 1.0, and 0.375% if that ratio is less than 4.0
to 1.0. SFX also pays an annual letter of credit fee equal to the Applicable
LIBOR Margin, as defined in the Senior Credit Facility, for the revolver then
in effect.

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MANDATORY PREPAYMENTS AND COMMITMENT REDUCTIONS

Commitments to lend under the revolver will be reduced in equal quarterly
installments commencing March 31, 2000, in annual percentages of the borrowings
under the revolver as of December 31, 1999 according to the following schedule:
by 10.0% in 2000; by 15.0% in 2001; by 20.0% in 2002; by 25.0% in 2003; by
25.0% in 2004; and by the remaining 5.0% upon final maturity. The term loan
will be reduced by $1.0 million per year until final maturity, at which point
the remaining balance will be due and payable. Amounts outstanding under the
Senior Credit Facility will be subject to, among others, the following
mandatory prepayments, which will also permanently reduce commitments:

o 100.0% of the net cash proceeds received from permitted Asset Sales (as
defined in the Senior Credit Facility), subject to standard reinvestment
provisions;

o 50.0% of Excess Cash Flow (as defined in the Senior Credit Facility),
calculated for each fiscal year beginning with the year ending December
31, 2000; and

o 50.0% of net proceeds of any equity issuance, to the extent that the
Total Leverage Ratio is greater than or equal to 5.0 to 1.0.

COLLATERAL AND GUARANTEES

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

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

o incur additional indebtedness and other obligations;

o grant liens;

o consummate mergers, acquisitions, investments and asset dispositions;

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

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

o amend certain agreements, including SFX's organizational documents, and
its outstanding senior subordinated notes and indentures;

o make acquisitions and dispositions;

o engage in transactions with affiliates;

o engage in sale and leaseback transactions; and

o change lines of business.

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

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o a maximum ratio (the "Total Leverage Ratio") of all outstanding amounts
under the Senior Credit Facility and any other borrowed money and
similar type indebtedness, including capital lease obligations, of SFX
and its subsidiaries, on a consolidated basis ("Total Debt"), less cash
and cash equivalents in excess of $5.0 million, to, for the most
recently completed four fiscal quarters:
(a) revenues, less

(b) expenses, excluding depreciation, amortization other than
amortization of capitalized pre-production costs, interest expense
and income tax expense, plus

(d) the lesser of the equity income from Unconsolidated Investments (as
defined in the Senior Credit Facility) and cash dividends and other
cash distributions from Unconsolidated Investments, however, the
total amount determined under this clause (d) will not exceed 10.0%
of Operating Cash Flow before overhead, (the amount referred to
"Operating Cash Flow"); Operating Cash Flow is to be adjusted to
reflect acquisitions and dispositions consummated during the
calculation period as if those transactions were consummated at the
beginning of the period (with adjustment, "Adjusted Operating Cash
Flow");

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

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

o minimum ratio (the "Debt Service Ratio") of Adjusted Operating Cash
Flow, to the sum of:

(a) the sum of all interest expense and commitment fees calculated for
the four fiscal quarters following the calculation quarter, giving
effect to the Total Debt outstanding and the interest rates in
effect as of the date of the determination and the commitment
reductions and debt amortization scheduled during that period, and

(b) the scheduled current maturities of Total Debt and current
commitment reductions with respect to the revolver, each measured
for the four fiscal quarters immediately succeeding the date of
determination; and

o a minimum ratio (the "Fixed Charges Ratio") of the sum of Operating
Cash Flow to the sum of, for the four most recently completed fiscal
quarters, the following paid during that period:

(a) Interest Expense (as defined in the Senior Credit Facility) plus the
scheduled maturities of Total Debt and current commitment
reductions with respect to the revolver,

(b) cash income taxes,

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(d) Unconsolidated Investments (as defined in the Senior Credit
Facility).

The Total Leverage Ratio for the most recently completed 12 month period
may not at any time exceed: 6.50x from September 30, 1998 to December 30, 1998;
6.25x from December 31, 1998 to June 29, 1999; 5.75x from June 30, 1999 to
December 30, 1999; 5.25x from December 31, 1999 to December 30, 2000; 4.50x
from December 31, 2000 to December 30, 2001; and 3.75x on December 31, 2001 and
thereafter.

The Senior Leverage Ratio for the most recently completed 12 month period
may not at any time exceed: 3.25x from September 30, 1998 to December 30, 1999;
3.00x from December 31, 1999 to December 30, 2000; and 2.50x on December 31,
2000 and thereafter.

The Pro Forma Interest Expense Ratio may not at the end of any fiscal
quarter be less than 1.50x before December 31, 1998, and 2.00x on January 1,
1999 and thereafter.

The Pro Forma Debt Service Ratio may not at any fiscal quarter end be less
than 1.25x before December 31, 1998, and 1.50x on January 1, 1999 and
thereafter.

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

The Senior Credit Facility also prohibits prepayment of any subordinated
notes, including the Notes.

EVENTS OF DEFAULT

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

CHANGE OF CONTROL

"Change of Control" is defined in the Senior Credit Facility as the
failure of Mr. Sillerman, any Affiliate (as defined therein) of Mr. Sillerman,
or any Affiliate of Mr. Sillerman together with any executor, heir or successor
appointed to take control of Mr. Sillerman's affairs in the event of his death,
disability or incapacity, to own directly or indirectly, in the aggregate, of
record and beneficially, more than 30% of the voting power of all issued and
outstanding capital stock of SFX; or the occurrence of any Person (as defined
in the Senior Credit Facility), other than as provided above, owning,
beneficially, more than 10% of the voting power of all issued and outstanding
capital stock of SFX.

DESCRIPTION OF THE FEBRUARY 2008 NOTES

The following is a summary of the material terms contained in the
indenture governing the February 2008 Notes. This summary is not complete. It
is subject to the terms of an indenture, which was filed as an exhibit to the
registration statement of which this prospectus is a part. See "Where You Can
Find More Information."

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

RANKING

The February 2008 Notes are general unsecured obligations of SFX,
subordinate in right to all Senior Debt (as defined in the February 2008 Note
indenture), whether outstanding on the date of the Feburary 2008 Note indenture
or thereafter incurred, of SFX and senior in right of payment to or pari passu
with all other indebtedness of SFX. See "Capitalization."

SUBSIDIARY GUARANTEES

SFX's payment obligations under the February 2008 Notes are jointly and
severally guaranteed on a senior subordinated basis by all of its current and
future domestic subsidiaries, with certain specified exceptions.

OPTIONAL REDEMPTION

Except as noted below, the February 2008 Notes are not redeemable at SFX's
option before February 1, 2003. Thereafter, the February 2008 Notes will be
subject to redemption at any time at the option of SFX, in whole or in part, at
specified redemption prices plus accrued and unpaid interest and Liquidated
Damages (as defined in the February 2008 Note indenture), if any, thereon to
the applicable redemption date. In addition, at any time prior to February 1,
2001, SFX may on any one or more occasions redeem up to 35.0% of the original
aggregate principal amount of the February 2008 Notes at a redemption price of
109.125% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of redemption, with the net
proceeds of one or more offerings of common equity of SFX. However, at least
65.0% of the original aggregate principal amount of the February 2008 Notes
must remain outstanding immediately after each occurrence of redemption.

CHANGE OF CONTROL

After the occurrence of a Change of Control (as defined in the February
2008 Note indenture), SFX will be required to make an offer to repurchase the
February 2008 Notes at a price equal to 101% of their principal amount,
together with accrued and unpaid interest and Liquidated Damages, if any, to
the date of purchase.

CERTAIN COVENANTS

The February 2008 Note indenture contains certain covenants that, among
other things, significantly limit the ability of SFX and its subsidiaries to

o incur additional Indebtedness (as defined in the February 2008 Note
indenture);

o issue preferred stock;

o pay dividends;

o make certain other restricted payments;

o create certain Liens (as defined in the February 2008 Note indenture);

o enter into certain transactions with affiliates;

o sell assets of SFX or its Restricted Subsidiaries (as defined in the
February 2008 Note indenture);

143

o issue or sell Equity Interests (as defined in the February 2008 Note
indenture) of SFX's Restricted Subsidiaries; or

o enter into certain mergers and consolidations.

In addition, under certain circumstances, SFX will be required to offer to
purchase February 2008 Notes at a price equal to 100.0% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to
the date of purchase, with the proceeds of certain Asset Sales (as defined in
the February 2008 Note indenture).

EXCHANGE OFFER

On July 15, 1998, SFX consummated the exchange of substantially identical
publicly registered February 2008 Notes for all outstanding February 2008
Notes. All original February 2008 Notes were tendered for exchange and were
cancelled upon the issuance of the same principal amount of exchanged February
2008 Notes.

OTHER DEBT

In addition to the amounts outstanding under the Senior Credit Facility,
the February 2008 Notes and the Old Notes described below, SFX had
approximately $57.0 million of long-term debt outstanding on a pro forma basis
at September 30, 1998, which was incurred primarily in connection with SFX's
1997 and 1998 acquisitions.

DESCRIPTION OF THE OLD NOTES

On November 25, 1998, SFX consummated the $200.0 million private placement
of the Old Notes. The terms of the Old Notes are substantially identical to
those of the New Notes, including ranking, guarantees by subsidiaries of SFX,
redemption, and restrictive covenants. See "Description of the New Notes".
However, the Old Notes have not been registered under the Securities Act, and
may not be offered or sold except pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities
Act.

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DESCRIPTION OF THE NEW NOTES

You can find the definitions of certain terms used in this description
under the subheading "Certain Definitions." In this description, the words
"Company" and "SFX" refer only to SFX Entertainment, Inc. and not to any of its
subsidiaries.

The Old Notes were, and the New Notes will be, issued by SFX under the
Indenture dated November 25, 1998 (the "Indenture") among itself, the
Guarantors and The Chase Manhattan Bank, as trustee (the "Trustee"). The terms
of the Old Notes and the New Notes (collectively, the "Notes") include those
stated in the Indenture and those made part of the Indenture by reference to
the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The
New Notes are substantially identical to the terms and provisions of the Old
Notes, except for certain transfer restrictions and registration rights
relating to the Old Notes. The term "Notes" refers to both the Old Notes and
the New Notes.

The following description is a summary of the material provisions of the
Indenture. It does not restate the Indenture in its entirety. Because this is a
summary, we urge you to read the Indenture and the relevant portions of the
Trust Indenture Act because they, and not this description, define your rights
as holders of the Notes. We have filed copies of the Indenture as an exhibit to
the registration statement which includes this prospectus.

GENERAL

The Notes are:

- general unsecured obligations of SFX;

- subordinated in right of payment to all existing and future Senior Debt
of SFX;

- equivalent in ranking to February 2008 Notes; and

- unconditionally guaranteed by the Subsidiary Guarantors.

As of September 30, 1998, after giving pro forma effect to the offering of
the Old Notes and the application of the net proceeds therefrom, anticipated
borrowings under the Senior Credit Facility, the consummation of the pending
Marquee and Cellar Door acquisitions and the consummation of the proposed
equity offering and the applications of the proceeds therefrom, SFX would have
had approximately $207.0 million of Senior Debt outstanding. The Indenture
permits SFX to incur additional debt, including additional Senior Debt, subject
to certain restrictions. See "--Certain Covenants--Incurrence of Indebtedness
and Issuance of Preferred Stock."

PRINCIPAL, MATURITY AND INTEREST

SFX issued the Old Notes with a maximum aggregate principal amount of
$200.0 million. SFX will issue Notes in denominations of $1,000 and integral
multiples of $1,000. The Notes will mature on December 1, 2008.

Interest on the Notes will accrue at the rate of 9 1/8% per annum and will
be payable semi-annually in arrears on December 1 and June 1 of each year,
commencing on June 1, 1999. SFX will make each interest payment to the holders
of record of these Notes on the immediately preceding November 15 and May 15.

Interest on the Notes will accrue from the date of original issuance or,
if interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.

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METHODS OF RECEIVING PAYMENTS ON THE NOTES

If a holder of a Note has given wire transfer instructions to SFX, SFX
will make all principal, premium and interest payments on those Notes in
accordance with those instructions. All other payments on these Notes will be
made at the office or agency of the Paying Agent and Registrar within the City
and State of New York unless SFX elects to make interest payments by check
mailed to the holders at their address set forth in the register of holders.

SUBORDINATION

The payment of principal, premium, interest and Liquidated Damages, if
any, on the Notes will be subordinated to the prior payment in full of all
Senior Debt of SFX.

The holders of Senior Debt of SFX will be entitled to receive payment in
full of all Obligations due in respect of such Senior Debt--including interest
after the commencement of any such proceeding at the rate specified in the
applicable Senior Debt--before the holders of Notes will be entitled to receive
any payment with respect to the Notes. However, holders of Notes may receive
Permitted Junior Securities and payments made from the trust described under
"--Legal Defeasance and Covenant Defeasance" if any distribution to SFX's
creditors occurs:

(1) in a liquidation or dissolution of SFX;

(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to SFX or its property;

(3) in an assignment for the benefit of creditors; or

(4) in any marshaling of SFX's assets or liabilities.

SFX also may not make any payment in respect of the Notes except in
Permitted Junior Securities or from the trust described under the caption
"--Legal Defeasance and Covenant Defeasance," if:

(1) a payment default on any Designated Senior Debt occurs and is
continuing beyond any applicable grace period; or

(2) any other default occurs and is continuing with respect to any
Designated Senior Debt that permits holders of that Designated Senior
Debt to accelerate its maturity and the Trustee receives a notice of
such default (a "Payment Blockage Notice") from SFX or the holders of
such Designated Senior Debt.

Payments on the Notes may and must be resumed:

(1) in the case of a payment default, upon the date on which such default
is cured or waived or has ceased to exist or such Designated Senior
Debt has been discharged or repaid in full; and

(2) in case of a nonpayment default, the earlier of the date on which
such nonpayment default is cured or waived or 179 days after the date
on which the applicable Payment Blockage Notice is received or has
ceased to exist or such Designated Senior Debt has been discharged or
repaid in full, unless the maturity of any Designated Senior Debt has
been accelerated.

No new period of payment blockage may be commenced unless and until 360
days have elapsed since the effectiveness of the immediately prior Payment
Blockage Notice. No nonpayment default that existed or was continuing on the
date of delivery of any Payment

146

Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent
Payment Blockage Notice unless such default has been cured or waived.

SFX must promptly notify holders of Senior Debt if payment of the Notes is
accelerated because of an Event of Default.

As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, holders of Notes may recover less ratably than
creditors of SFX who are holders of Senior Debt. See "Risk Factors--Risks
Relating to the Notes--Your right to receive payments on these notes is junior
to our existing indebtedness and possibly all of our future borrowings."

SUBSIDIARY GUARANTEES

Each of SFX's current and future domestic Restricted Subsidiaries (the
"Guarantors"), except for the Non-Guarantor Subsidiaries, will jointly and
severally guarantee SFX's obligations under the Notes (the "Subsidiary
Guarantees"). See "Risk Factors--Risks Relating to the Notes--SFX has a
substantial amount of debt, which may harm our financial health and prevent us
from fulfilling our obligations under the notes." Each Subsidiary Guarantee
will be subordinated in right of payment to all existing and future Senior Debt
of such Guarantor. The Indenture will permit the Guarantors to incur additional
indebtedness, including additional Senior Debt, subject to certain
restrictions. See "--Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock." The obligations of each Guarantor under its Subsidiary
Guarantee will be limited as necessary to prevent that Subsidiary Guarantee
from constituting a fraudulent conveyance under applicable law.

A Guarantor may not consolidate with or merge with or into, whether or not
such Guarantor is the surviving Person, another corporation, Person or entity
unless:

(1) the Person formed by or surviving any such consolidation or merger,
if other than such Guarantor, assumes all the obligations of such
Guarantor pursuant to a supplemental indenture reasonably satisfactory
to the Trustee, under the Notes, the Indenture and the Registration
Rights Agreement;

(2) immediately after giving effect to such transaction, no Default or
Event of Default exists; and

(3) SFX would be permitted by virtue of SFX's pro forma Debt to Cash Flow
Ratio, immediately after giving effect to such transaction, to incur
at least $1.00 of additional Indebtedness pursuant to the Debt to Cash
Flow Ratio test set forth in the covenant described below under the
caption "--Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock."

The Subsidiary Guarantee of a Guarantor will be released:

(1) in connection with any sale or other disposition of all or
substantially all of the assets of that Guarantor, including by way of
merger or consolidation, if SFX applies the Net Proceeds of that sale
or other disposition, in accordance with the applicable provisions of
the Indenture; or

(2) in connection with any sale of all of the capital stock of a
Guarantor, if SFX applies the Net Proceeds of that sale in accordance
with the applicable provisions of the Indenture.

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OPTIONAL REDEMPTION

Before December 1, 2001, SFX may, on any one or more occasions, redeem up
to 35% of the aggregate principal amount of Notes originally issued under the
Indenture at a redemption price of 109.125% of the principal amount thereof,
plus accrued and unpaid interest and Liquidated Damages, if any, to the
redemption date, with the net cash proceeds of an offering of common equity of
SFX, other than Disqualified Stock; provided that:

(1) at least 65% of the aggregate principal amount of the Notes
originally issued in the Offering remain outstanding immediately after
the occurrence of each such redemption, excluding Notes held by SFX
and its Subsidiaries; and

(2) each such redemption shall occur within 75 days after the date of the
closing of any such offering of common equity of SFX.

Except pursuant to the preceding paragraph, SFX will not be able to redeem
the Notes prior to December 1, 2003.

After December 1, 2003, SFX may redeem all or a part of the Notes upon not
less than 30 nor more than 60 days' notice, at the redemption prices, expressed
as percentages of principal amount, set forth below, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning on December 1 of the
years indicated below:

YEAR PERCENTAGE
- ------------------------------------- -------------

2003 ......................... 104.563%
2004 ......................... 103.042
2005 ......................... 101.521
2006 and thereafter .......... 100.000%

SELECTION AND NOTICE

If less than all of the Notes are to be redeemed at any time, the Trustee
will select Notes for redemption in compliance with the requirements of the
principal national securities exchange, if any, on which the Notes are listed.
If the Notes are not so listed, the Trustee will make the selection of Notes
for redemption on a pro rata basis, by lot or by such method as the Trustee
shall deem fair and appropriate. No Notes of $1,000 or less shall be redeemed
in part. Notices of redemption shall be mailed by first class mail at least 30
but not more than 60 days before the redemption date to each holder of Notes to
be redeemed at its registered address. Notices of redemption may not be
conditional.

If any Note is to be redeemed in part only, the notice of redemption that
relates to such Note shall state the portion of the principal amount thereof to
be redeemed. A new Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the holder thereof upon cancellation of
the original Note. Notes called for redemption become due on the date fixed for
redemption. On and after the redemption date, interest ceases to accrue on
Notes or portions of them called for redemption.

MANDATORY REDEMPTION

Except as set forth below under the caption "--Repurchase at the Option of
Holders," SFX is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.

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REPURCHASE AT THE OPTION OF HOLDERS

CHANGE OF CONTROL

If a Change of Control occurs, each holder of Notes will have the right to
require SFX to make an offer (a "Change of Control Offer") to each holder of
Notes to repurchase all or any part, equal to $1,000 or an integral multiple
thereof, of such holder's Notes. In the Change of Control Offer, SFX will offer
payment in cash equal to 101% of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the date of purchase
(the "Change of Control Payment"). Within ten days following a Change of
Control, SFX will mail a notice to each holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Notes on the date specified in such notice, which date shall be no earlier than
30 days and no later than 60 days from the date such notice is mailed (the
"Change of Control Payment Date"), pursuant to the procedures required by the
Indenture and described in such notice. SFX will comply with the requirements
of Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable
in connection with the repurchase of the Notes as a result of a Change of
Control.

On the Change of Control Payment Date, SFX will, to the extent lawful:

(1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer;

(2) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all Notes or portions thereof so
tendered; and

(3) deliver or cause to be delivered to the Trustee the Notes so accepted
together with an Officers' Certificate stating the aggregate principal
amount of Notes or portions thereof being purchased by SFX.

The Paying Agent will promptly mail to each holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail, or cause to be transferred by book entry, to each holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof.

Prior to complying with the provisions of this "Change of Control"
covenant, but in any event within 90 days following a Change of Control, SFX
will either repay all outstanding Senior Debt or obtain the requisite consents,
if any, under all agreements governing outstanding Senior Debt to permit the
repurchase of Notes required by this covenant. SFX will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.

The provisions described above that require SFX to make a Change of
Control Offer following a Change of Control will be applicable whether or not
any other provisions of the Indenture are applicable. Except as described above
with respect to a Change of Control, the Indenture does not contain provisions
that permit the holders of the Notes to require SFX to repurchase or redeem the
Notes in the event of a takeover, recapitalization or similar transaction.

The Senior Credit Facility prohibits SFX from purchasing any Notes
following a Change of Control and provide that certain change of control events
with respect to SFX would constitute a default thereunder. Any other future
credit agreements or other agreements relating to Senior Debt to which SFX
becomes a party may contain similar restrictions. If a

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Change of Control occurs at a time when SFX is prohibited from purchasing
Notes, SFX could seek the consent of its lenders to the purchase of Notes or
could attempt to refinance the borrowings that contain such prohibition. If SFX
does not obtain such a consent or repay such borrowings, SFX will remain
prohibited from purchasing Notes. SFX's failure to purchase tendered Notes
following a Change of Control would constitute an Event of Default under the
Indenture which, in turn, is expected to constitute as default under the Senior
Credit Facility. In such circumstances, the subordination provisions in the
Indenture would likely restrict payments to the holders of Notes. See
"--Subordination."

SFX will not be required to make a Change of Control Offer upon a Change
of Control if a third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set forth in the
Indenture applicable to a Change of Control Offer made by SFX and purchases all
Notes validly tendered and not withdrawn under such Change of Control Offer.

ASSET SALES

SFX will not, and will not permit any of its Restricted Subsidiaries to,
consummate an Asset Sale unless:

(1) SFX or the Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the
fair market value of the assets or Equity Interests issued or sold or
otherwise disposed of; and

(2) at least 75% of the consideration therefor received by SFX or such
Restricted Subsidiary is in the form of cash. For purposes of this
provision, each of the following shall be deemed cash:

(a) any liabilities, as shown on SFX's or such Restricted Subsidiary's
most recent balance sheet, of SFX or such Restricted Subsidiary,
other than contingent liabilities and liabilities that are by their
terms subordinated to the Notes or any guarantee thereof, that are
assumed by the transferee of any such assets pursuant to a
customary novation agreement that releases SFX or such Restricted
Subsidiary from further liability;

(b) any securities, notes or other obligations received by SFX or such
Restricted Subsidiary from such transferee that are immediately
converted by SFX or such Restricted Subsidiary into cash, to the
extent of the cash received; and

(c) escrowed cash that SFX reasonably believes will be released from
escrow within 365 days from the date of consummation of such Asset
Sale.

However, SFX and its Restricted Subsidiaries will be permitted to
consummate an Asset Sale without complying with the preceding paragraph if:

(1) SFX or the applicable Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal
to the fair market value of the assets or other property sold, issued
or otherwise disposed of; and

(2) at least 75% of the consideration for such Asset Sale constitutes a
controlling interest in a Permitted Business, long-term assets used or
useful in a Permitted Business and/or cash or Cash Equivalents;

provided that any cash or Cash Equivalents received by SFX or any of its
Restricted Subsidiaries in connection with any Asset Sale permitted to be
consummated under this paragraph shall constitute Net Proceeds subject to the
provisions of the next paragraph.

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Within 365 days of the receipt of any Net Proceeds from an Asset Sale, SFX
may apply such Net Proceeds, at its option:

(1) to repay Senior Debt;

(2) to acquire a controlling interest in another Permitted Business; and

(3) to make a capital expenditure or to acquire other long-term assets
that are used or useful in a Permitted Business.

Pending the final application of any such Net Proceeds, SFX may temporarily
reduce Senior Debt or otherwise invest such Net Proceeds in any manner that is
not prohibited by the Indenture.

Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $10.0 million, SFX will be required
to make an offer to all holders of Notes and all holders of other pari passu
Indebtedness containing provisions similar to those set forth in the Indenture
with respect to offers to purchase or redeem such other pari passu Indebtedness
with the proceeds of sales of assets (an "Asset Sale Offer"). The offer price
in any Asset Sale Offer will be equal to 100% of the principal amount thereof,
plus accrued and unpaid interest and Liquidated Damages, if any, to the date of
purchase and will be paid in cash. If any Excess Proceeds remain after
consummation of an Asset Sale Offer, SFX may use such Excess Proceeds for any
purpose not otherwise prohibited by the Indenture. If the aggregate principal
amount of Notes and such other pari passu Indebtedness surrendered by holders
thereof exceeds the amount of Excess Proceeds, the Trustee shall select the
Notes and such other pari passu Indebtedness to be purchased on a pro rata
basis. Upon completion of an Asset Sale Offer, the amount of Excess Proceeds
shall be reset at zero.

CERTAIN COVENANTS

RESTRICTED PAYMENTS

SFX will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly:

(1) declare or pay any dividend or make any other payment or distribution
on account of SFX's or any of its Restricted Subsidiary's Equity
Interests, including, without limitation, any payment in connection
with any merger or consolidation involving SFX or any Restricted
Subsidiary, or to any direct or indirect holders of SFX's Equity
Interests in their capacity as such, other than dividends or
distributions payable in Equity Interests, other than Disqualified
Stock, of SFX to SFX or any Wholly Owned Restricted Subsidiary of SFX;

(2) purchase, redeem or otherwise acquire or retire for value, including,
without limitation, in connection with any merger or consolidation
involving SFX, any Equity Interests of SFX or any of its Restricted
Subsidiaries or any direct or indirect parent of SFX, other than any
such Equity Interests owned by SFX or any Restricted Subsidiary of
SFX;

(3) make any payment on or with respect to, or purchase, redeem, defease
or otherwise acquire or retire for value any Indebtedness of SFX or
any Restricted Subsidiary that is subordinated to the Notes or any
guarantee of the Notes, except a payment of interest or principal at
Stated Maturity; or

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(4) make any Restricted Investment, all such payments and other actions
set forth in clauses (1) through (4) above being collectively referred
to as "Restricted Payments;"

unless, at the time of and after giving effect to such Restricted Payment:

(1) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;

(2) SFX would, at the time of such Restricted Payment and after giving
pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Debt to Cash Flow Ratio test set forth in the first paragraph
of the covenant described below under caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock;" and

(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by SFX and its Restricted Subsidiaries
after November 25, 1998, excluding Restricted Payments permitted by
clauses (2), (3) and (4) of the next paragraph, is less than the sum,
without duplication, of:

(a) 50% of the Consolidated Net Income of SFX for the period, taken as
one accounting period, from the beginning of the first fiscal
quarter commencing after November 25, 1998 to the end of SFX's most
recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment,
or, if such Consolidated Net Income for such period is a deficit,
less 100% of such deficit; plus

(b) 100% of the aggregate net cash proceeds received by SFX as a
contribution to its common equity capital or from the issue or sale
since November 25, 1998 of Equity Interests of SFX, other than
Disqualified Stock, or from the issue or sale of Disqualified Stock
or debt securities of SFX that have been converted into such Equity
Interests, other than Equity Interests, or Disqualified Stock or
convertible debt securities, sold to a Subsidiary of SFX and other
than Disqualified Stock or convertible debt securities that have
been converted into Disqualified Stock; plus

(c) 50% of any dividends received by SFX or a Wholly Owned Restricted
Subsidiary after November 25, 1998 from an Unrestricted Subsidiary
of SFX, to the extent that such dividends were not otherwise
included in Consolidated Net Income of SFX for such period; plus

(d) to the extent that any Restricted Investment that was made after
November 25, 1998 is sold for cash or otherwise liquidated or
repaid for cash, the lesser of (i) the cash return of capital with
respect to such Restricted Investment, less the cost of
disposition, if any, and (ii) the initial amount of such Restricted
Investment.

The preceding provisions will not prohibit:

(1) the payment of any dividend within 60 days after its date of
declaration, if at the date of declaration such payment would have
complied with the provisions of the Indenture;

(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any Equity Interests of SFX or subordinated
Indebtedness of SFX or any Guarantor in

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exchange for, or out of the net cash proceeds of the substantially
concurrent sale, other than to a Subsidiary of SFX, of other Equity
Interests of SFX, other than any Disqualified Stock; provided that the
amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement, defeasance or other acquisition
shall be excluded from clause (3)(b) of the preceding paragraph; and
provided further that no Default or Event of Default shall have occurred
and be continuing immediately after such transaction;

(3) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness with the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness; provided that no
Default or Event of Default shall have occurred and be continuing
immediately after such transaction;

(4) the payment of any dividend by a Restricted Subsidiary of SFX to the
holders of Equity Interests on a pro rata basis;

(5) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of SFX or any Restricted Subsidiary of
SFX held by any member of SFX's--or any of its Restricted
Subsidiaries'--management or board of directors pursuant to any
management equity subscription agreement, stock option agreement or
other similar agreement; provided that the aggregate price paid for
all such repurchased, redeemed, acquired or retired Equity Interests
shall not exceed $250,000 in any twelve-month period and no Default or
Event of Default shall have occurred and be continuing immediately
after such transaction; and

(6) the repurchase, redemption or other acquisition or retirement for
value or payment made in respect of any Equity Interests of SFX or any
Restricted Subsidiary of SFX pursuant to any of the agreements
relating to the Pending Acquisitions, each as in effect on the date of
the Indenture; provided that no Default or Event of Default shall have
occurred and be continuing immediately after such transaction.

The amount of all Restricted Payments, other than cash, shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by SFX or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The Board
of Directors shall determine in good faith the fair market value of any
non-cash Restricted Payment. The Board of Directors' resolution with respect
thereto shall be delivered to the Trustee. Not later than the date of making
any Restricted Payment, SFX shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by the covenant "Restricted
Payments" were computed.

The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, the aggregate fair market value of all
outstanding Investments by SFX and its Restricted Subsidiaries in the
Subsidiary so designated will be deemed to be a Restricted Payment at the time
of such designation and will reduce the amount available for Restricted
Payments under the first paragraph of this covenant. Such designation will only
be permitted if such Restricted Payment would be permitted at such time and if
such Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.

Any such designation by the Board of Directors shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the Board Resolution
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing conditions. If, at any time, any
Unrestricted Subsidiary would fail to meet the

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definition of an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Indenture. Any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of SFX as
of such date, and, if such Indebtedness is not permitted to be incurred as of
such date under the covenant described under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock," SFX shall be in default of such
covenant. The Board of Directors of SFX may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary. However, such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of SFX of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if:

(1) such Indebtedness is permitted under the covenant described under the
caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock," calculated on a pro forma basis as if such designation had
occurred at the beginning of the four-quarter reference period; and

(2) no Default or Event of Default would be in existence immediately
following such designation.

INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK

SFX will not, and will not permit any of its Subsidiaries to, directly or
indirectly, create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness, including Acquired Debt, and SFX will
not issue any shares of Disqualified Stock and will not permit any of its
Subsidiaries to issue any shares of preferred stock; provided, that, if no
Default or Event of Default has occurred and is continuing, SFX may incur
Indebtedness, including Acquired Debt, or issue shares of Disqualified Stock
and the Guarantors may issue shares of preferred stock if, SFX's Debt to Cash
Flow Ratio at such time after giving pro forma effect to such incurrence or
issuance as of such date and to the use of the proceeds therefrom as if the
same had occurred at the beginning of the most recently ended four full fiscal
quarter period of SFX for which internal financial statements are available,
would have been no greater than 7.0 to 1.0, if such incurrence or issuance is
prior to December 31, 1999, or 6.5 to 1.0 thereafter.

So long as no Default shall have occurred and be continuing or would be
caused thereby, the preceding paragraph will not apply to the incurrence of any
of the following types of Indebtedness (collectively, "Permitted Debt"):

(1) the incurrence by SFX, and the guarantee thereof by Guarantors, of
Indebtedness and Letters of Credit under one or more Credit Facilities;
provided that the aggregate principal amount at any time outstanding
does not exceed $400.0 million, with letters of credit being deemed to
have a principal amount equal to the maximum potential liability of SFX
and the Guarantors thereunder, less the aggregate amount of all
repayments, optional or mandatory, of the principal of any term
Indebtedness under a Credit Facility that have been made since the date
of the Indenture and less the aggregate amount of all commitment
reductions of any revolving Indebtedness under a Credit Facility
pursuant to clause (1) of the third paragraph of the covenant described
above under the caption "--Repurchase at the Option of Holders--Asset
Sales";

(2) the incurrence by SFX and the guarantee thereof by the Guarantors of
Indebtedness represented by the Notes and the Subsidiary Guarantees;

154

(3) the incurrence by SFX and its Restricted Subsidiaries of the Existing
Indebtedness;

(4) the incurrence by SFX or its Restricted Subsidiaries of Indebtedness
represented by Capital Lease Obligations, mortgage financings or
purchase money obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction
or improvement of property, plant or equipment used in the business of
SFX or such Restricted Subsidiary, in an aggregate amount not to exceed
$5.0 million at any time outstanding;

(5) the incurrence by SFX or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace Indebtedness, other
than intercompany Indebtedness, that was permitted by the Indenture to
be incurred by the first paragraph of this covenant, or by clauses (2),
(3), (4), (5), (7) or (10) of this paragraph;

(6) the incurrence of Indebtedness between or among SFX and any of its
Restricted Subsidiaries; provided that:

(a) if SFX is the obligor on such Indebtedness, such Indebtedness is
expressly subordinated to the prior payment in full of all
Obligations with respect to the Notes; and

(b) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than
SFX or a Restricted Subsidiary, and any sale or other transfer of
any such Indebtedness to a Person that is not either SFX or a
Restricted Subsidiary, shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by SFX or such
Restricted Subsidiary, as the case may be;

(7) the incurrence by SFX or any of its Restricted Subsidiaries of Hedging
Obligations that are incurred for the purpose of fixing or hedging
interest rate risk with respect to any floating rate Indebtedness that
is permitted by the terms of this Indenture to be outstanding;

(8) the guarantee by SFX or any of the Guarantors of Indebtedness that was
permitted to be incurred by another provision of this covenant;

(9) the incurrence by SFX's Unrestricted Subsidiaries of Non-Recourse
Debt, provided that if any such Indebtedness ceases to be Non-Recourse
Debt of an Unrestricted Subsidiary, such event shall be deemed to
constitute an incurrence of Indebtedness by a Restricted Subsidiary of
SFX that was not permitted by this clause (9);

(10) the issuance of preferred stock by SFX pursuant to the Contemporary
Agreement, as in effect on the date of the Indenture; and

(11) the incurrence by SFX or any of its Restricted Subsidiaries of
additional Indebtedness in an aggregate principal amount at any time
outstanding, including all Permitted Refinancing Indebtedness incurred
pursuant to clause (5) above to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (11), not to exceed
$10.0 million.

For purposes of determining compliance with this covenant, if an item of
Indebtedness meets the criteria of more than one of the categories of Permitted
Debt described in clauses (1) through (11) above or is entitled to be incurred
pursuant to the first paragraph of this covenant, SFX shall, in its sole
discretion, classify such item of Indebtedness in any manner that complies with
this covenant and such item of Indebtedness will be treated as having been
incurred pursuant to only one of such clauses or pursuant to the first
paragraph hereof.

155

LIMITATION ON OTHER SENIOR SUBORDINATED DEBT

The Indenture provides that:

(1) SFX will not directly or indirectly incur any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt and senior
in any respect in right of payment to the Notes; and

(2) no Guarantor will incur any Indebtedness that is subordinate or junior
in right of payment to its Guarantor Senior Debt and senior in any
respect in right of payment to such Guarantor's Subsidiary Guarantee.

LIENS

SFX will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create, incur, assume or suffer to exist any Lien
securing Indebtedness or trade payables on any asset now owned or hereafter
acquired, or any income or profits therefrom or assign or convey any right to
receive income therefrom, except Permitted Liens.

SALE AND LEASEBACK TRANSACTIONS

SFX will not, and will not permit any of its Restricted Subsidiaries to,
enter into any sale and leaseback transaction; provided that SFX and the
Guarantors may enter into a sale and leaseback transaction if:

(1) SFX or such Guarantor could have

(a) incurred Indebtedness in an amount equal to the Attributable
Debt relating to such sale and leaseback transaction
pursuant to the Debt to Cash Flow Ratio test set forth in
the first paragraph of the covenant described above under
the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock;" and

(b) incurred a Lien to secure such Indebtedness pursuant to the
covenant described above under the caption "--Liens;"

(2) the gross cash proceeds of such sale and leaseback transaction are at
least equal to the fair market value of the property that is the
subject of such sale and leaseback transaction; and

(3) the transfer of assets in such sale and leaseback transaction is
permitted by, and the proceeds of such transaction are applied in
compliance with, the covenant described above under the caption
"--Repurchase at the Option of Holders--Asset Sales."

DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES

SFX will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to:

(1) pay dividends or make any other distributions on its Capital Stock to
SFX or any of its Restricted Subsidiaries, or with respect to any other
interest or participation in, or measured by, its profits, or pay any
indebtedness owed to SFX or any of its Restricted Subsidiaries;

(2) make loans or advances to SFX or any of its Restricted Subsidiaries;
or

(3) transfer any of its properties or assets to SFX or any of its
Restricted Subsidiaries.

156

However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:

(1) Existing Indebtedness as in effect on November 25, 1998;

(2) the Senior Credit Facility and any amendments, modifications,
restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof, and any other agreement governing
or relating to Senior Debt, provided that such amendments,
modifications, restatements, renewals, increases, supplements,
refundings, replacement or refinancings and other agreements are no
more restrictive with respect to such dividend and other payment
restrictions than those contained in the Senior Credit Facility;

(3) the Indenture, the Notes and the Subsidiary Guarantees;

(4) applicable law;

(5) any instrument governing Indebtedness or Capital Stock of a Person
acquired by SFX or any of its Restricted Subsidiaries as in effect at
the time of such acquisition,except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition,
which encumbrance or restriction is not applicable to any Person, or
the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired; provided that, in the
case of Indebtedness, such Indebtedness was permitted by the terms of
the Indenture to be incurred;

(6) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;

(7) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in
clause (3) above on the property so acquired;

(8) Permitted Refinancing Indebtedness; provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive than those contained in the
agreements governing the Indebtedness being refinanced;

(9) Liens securing Indebtedness otherwise permitted to be incurred
pursuant to the provisions of the covenant described above under the
caption "--Liens" that limits the right of the debtor to dispose of the
assets securing such Indebtedness;

(10) provisions with respect to the disposition or distribution of assets
or property in joint venture agreements and other similar agreements
entered into in the ordinary course of business; and

(11) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business.

ISSUANCES AND SALES OF EQUITY INTERESTS IN RESTRICTED SUBSIDIARIES

SFX will not, and will not permit any Restricted Subsidiary of SFX to,
transfer, convey, sell, lease or otherwise dispose of any Equity Interests in
any Restricted Subsidiary of SFX to any Person, other than SFX or a Restricted
Subsidiary of SFX, unless:

(1) such transfer, conveyance, sale, lease or other disposition is of all
the Equity Interests in such Restricted Subsidiary; and

157

(2) the cash Net Proceeds, if any, from such transfer, conveyance, sale,
lease or other disposition are applied in accordance with the covenant
described above under the caption "--Repurchase at the Option of
Holders--Asset Sales."

Further, SFX will not permit any Restricted Subsidiary of SFX to issue any of
its Equity Interests, other than, if necessary, shares of its Capital Stock
constituting directors' qualifying shares, to any Person other than to SFX or a
Restricted Subsidiary of SFX except as permitted pursuant to the covenant
described above under the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock."

MERGER, CONSOLIDATION OR SALE OF ASSETS

SFX may not consolidate or merge with or into another corporation, Person
or entity, whether or not SFX is the surviving corporation, or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions, to another
corporation, Person or entity; unless:

(1) either

(a) SFX is the surviving corporation or

(b) the entity or the Person formed by or surviving any such
consolidation or merger, if other than SFX, or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall
have been made is a corporation organized or existing under the laws
of the United States, any state thereof or the District of Columbia;

(2) the entity or Person formed by or surviving any such consolidation or
merger, if other than SFX, or the entity or Person to which such sale,
assignment, transfer, lease, conveyance or other disposition shall
have been made assumes all the obligations of SFX under the Notes, the
Indenture and the Registration Rights Agreement pursuant to a
supplemental indenture in a form reasonably satisfactory to the
Trustee;

(3) immediately after such transaction no Default or Event of Default
exists; and

(4) except in the case of a merger of SFX with or into a Wholly Owned
Restricted Subsidiary of SFX, SFX or the entity or Person formed by or
surviving any such consolidation or merger, if other than SFX, or to
which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made will, both immediately prior to and
immediately after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Debt to Cash Flow Ratio test
set forth in the first paragraph of the covenant described above under
the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock."

TRANSACTIONS WITH AFFILIATES

SFX will not, and will not permit any of its Restricted Subsidiaries to,
make any payment to, or sell, lease, transfer or otherwise dispose of any of
its properties or assets to, or purchase any property or assets from, or enter
into or make or amend any transaction, contract, agreement, understanding,
loan, advance or guarantee with, or for the benefit of, any Affiliate (each of
the foregoing, an "Affiliate Transaction"), unless:

(1) such Affiliate Transaction is on terms that are no less favorable to
SFX or such Restricted Subsidiary than those that would have been
obtained in a comparable transaction by SFX or such Restricted
Subsidiary with an unrelated Person; and

158

(2) SFX delivers to the Trustee:

(a) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate
consideration in excess of $1.0 million, a resolution of the
Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with
clause (1) above and that a majority of the disinterested
members of the Board of Directors approved such Affiliate
Transaction; and

(b) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate
consideration in excess of $5.0 million, an opinion as to the
fairness to SFX of such Affiliate Transaction from a
financial point of view issued by an accounting, appraisal or
investment banking firm of national standing.

The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:

(1) any employment agreement entered into by, and any compensation paid
by, SFX or any of its Restricted Subsidiaries, in each case, approved
by the Compensation Committee;

(2) transactions between or among SFX and/or its Restricted Subsidiaries;

(3) payment of reasonable and customary directors fees to the Board of
Directors of SFX and of its Restricted Subsidiaries consistent with
past practices and the issuance of shares of SFX to the Directors who
were holders of options or stock appreciation rights in Broadcasting
as of the Spin-Off record date, whether or not vested;

(4) fees and compensation paid to, and indemnity provided on behalf of,
officers, directors or employees of SFX or any of its Restricted
Subsidiaries, as determined by the Board of Directors of SFX or of any
such Restricted Subsidiary, to the extent such fees and compensation
are reasonable, customary and consistent with past practices;

(5) the transactions specifically contemplated by the Merger Agreement,
the agreements relating to the Pending Acquisitions or by instruments
referred to in any such agreements, in each case, as the same are in
effect on the date of the Indenture;

(6) the Spin-Off Transactions;

(7) the transactions specifically contemplated by the Delsener/Slater
Employment Agreements, in each case, as in effect on the date of the
Indenture;

(8) the Meadows Repurchase and the Series E Preferred Repurchase;
provided that SFX receives either:

(a) a cash payment from Broadcasting or Broadcasting Buyer or an
Affiliate thereof at or prior to the date of the Merger at
least equal to the aggregate amount expended by SFX in the
Meadows Repurchase and the Series E Preferred Repurchase less
$3.0 million; or

(b) an increase in favor of SFX in the Working Capital
Adjustment, including the avoidance of a decrease,
contemplated by the Merger Agreement in an amount at least
equal to the aggregate amount expended by SFX in the Meadows
Repurchase and the Series E Preferred Repurchase less $3.0
million; or

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(c) any combination thereof adding up to an amount at least equal
to the aggregate amount expended by SFX in the Meadows
Repurchase and the Series E Preferred Repurchase less $3.0
million; and

(9) any Restricted Payment that is permitted by the provisions of the
Indenture described above under the caption "--Restricted Payments."

ADDITIONAL SUBSIDIARY GUARANTEES

If SFX or any of its Restricted Subsidiaries acquires or creates another
domestic Restricted Subsidiary after the date of the Indenture, other than the
Non-Guarantor Subsidiaries, or if any domestic Unrestricted Subsidiary becomes
a Restricted Subsidiary of SFX, then such Subsidiary will execute a Subsidiary
Guarantee of the Notes and deliver an opinion of counsel, in accordance with
the terms of the Indenture.

PAYMENTS FOR CONSENT

SFX will not, and will not permit any of its Subsidiaries to, directly or
indirectly, pay or cause to be paid any consideration to any holder of any
Notes as an inducement to any consent, waiver or amendment of any of the terms
or provisions of the Indenture or the Notes unless such consideration is
offered to be paid or is paid to all holders of the Notes that consent, waive
or agree to amend in the time frame set forth in the solicitation documents
relating to such consent, waiver or agreement.

BUSINESS ACTIVITIES

SFX will not, and will not permit any Restricted Subsidiary to, engage in
any business other than Permitted Businesses, unless it would not be material
to SFX and its Restricted Subsidiaries taken as a whole.

REPORTS

Whether or not required by the Commission, so long as any Notes are
outstanding, SFX will furnish to the holders of Notes, within the time periods
specified in the Commission's rules and regulations:

(1) all quarterly and annual financial information that would be required to
be contained in a filing with the Commission on Forms 10-Q and 10-K if
SFX were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
that describes the financial condition and results of operations of SFX
and its consolidated Subsidiaries and, with respect to the annual
information only, a report thereon by SFX's certified independent
accountants; and

(2) all current reports that would be required to be filed with the
Commission on Form 8-K if SFX were required to file such reports.

In addition, whether or not required by the Commission, SFX will file a
copy of all such information and reports referred to in clauses (1) and (2)
above with the Commission for public availability within the time periods
specified in the Commission's rules and regulations, unless the Commission will
not accept such a filing, and make such information available to securities
analysts and prospective investors upon request.

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EVENTS OF DEFAULT AND REMEDIES

Each of the following constitutes an Event of Default:

(1) default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the Notes, whether or not
prohibited by the subordination provisions of the Indenture;

(2) default in payment when due of the principal of or premium, if any,
on the Notes, whether or not prohibited by the subordination
provisions of the Indenture;

(3) failure by SFX or any Restricted Subsidiary to comply with the
provisions described under the captions "--Repurchase at the Option of
Holders--Change of Control" or "--Certain Covenants--Merger,
Consolidation or Sale of Assets";

(4) failure by SFX or any Restricted Subsidiary for 30 days after written
notice by the Trustee or the holders of at least 25% in principal
amount of the then outstanding Notes to comply with the provisions
described under the captions "--Repurchase at the Option of
Holders--Asset Sales," "--Certain Covenants--Restricted Payments" or
"--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock";

(5) failure by SFX or any Restricted Subsidiary for 60 days after written
notice by the Trustee or the holders of at least 25% in principal
amount of the then outstanding Notes to comply with any of its other
agreements in the Indenture or the Notes;

(6) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by SFX or any of its Restricted
Subsidiaries, or the payment of which is guaranteed by SFX or any of
its Restricted Subsidiaries, whether such Indebtedness or guarantee
now exists or is created after the date of the Indenture, if that
default:

(a) is caused by a failure to pay principal of or premium, if
any, or interest on such Indebtedness prior to the expiration
of the grace period provided in such Indebtedness on the date
of such default (a "Payment Default"); or

(b) results in the acceleration of such Indebtedness prior to its
express maturity;

and, in each case, the principal amount of any such Indebtedness, together
with the principal amount of any other such Indebtedness under which there
has been a Payment Default or the maturity of which has been so
accelerated, aggregates $10.0 million or more;

(7) failure by SFX or any of its Restricted Subsidiaries to pay final
judgments aggregating in excess of $10.0 million, which judgments are
not paid, discharged or stayed for a period of 60 days;

(8) except as permitted by the Indenture, any Subsidiary Guarantee shall
be held in any judicial proceeding to be unenforceable or invalid or
shall cease for any reason to be in full force and effect or any
Guarantor, or any Person acting on behalf of any Guarantor, shall deny
or disaffirm its obligations under its Subsidiary Guarantee; and

(9) certain events of bankruptcy or insolvency with respect to SFX or any
of SFX's Restricted Subsidiaries that constitutes a Significant
Subsidiary or any group of Restricted Subsidiaries of SFX that, taken
together, would constitute a Significant Subsidiary.

161

If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. However, if an Event
of Default arises from certain events of bankruptcy or insolvency, with respect
to SFX, any Restricted Subsidiary of SFX that constitutes a Significant
Subsidiary or any group of Restricted Subsidiaries of SFX that, taken together,
would constitute a Significant Subsidiary, all outstanding Notes will become
due and payable immediately.

Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, holders of a
majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
holders of the Notes notice of any continuing Default or Event of Default,
except a Default or Event of Default relating to the payment of principal or
interest, if it determines that withholding notice is in their interest.

If an Event of Default occurs by reason of any willful action or inaction
taken or not taken by or on behalf of SFX with the intention of avoiding
payment of the premium that SFX would have had to pay if SFX then had elected
to redeem the Notes pursuant to the optional redemption provisions of the
Indenture, an equivalent premium will also become immediately due and payable
to the extent permitted by law upon the acceleration of the Notes. If an Event
of Default occurs prior to December 1, 2003 by reason of any willful action or
inaction taken or not taken by or on behalf of SFX with the intention of
avoiding the prohibition on redemption of the Notes prior to such date, then
the premium specified in the Indenture will also become immediately due and
payable to the extent permitted by law upon the acceleration of the Notes.

The holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.

SFX is required to deliver to the Trustee annually a statement regarding
compliance with the Indenture. Upon becoming aware of any Default or Event of
Default, SFX is required to deliver to the Trustee a statement specifying such
Default or Event of Default.

NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS

No director, officer, employee or stockholder of SFX or any Guarantor, as
such, will have any liability for any obligations of SFX or any Guarantor under
the Notes, the Subsidiary Guarantees, the Indenture or for any claim based on,
in respect of, or by reason of, such obligations or their creation. Each holder
of Notes by accepting a Note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the Notes. The waiver
may not be effective to waive liabilities under the federal securities laws.

LEGAL DEFEASANCE AND COVENANT DEFEASANCE

SFX may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes and to have each
Guarantor's obligation discharged with respect to its Subsidiary Guarantee
("Legal Defeasance"), except for:

(1) the rights of holders of outstanding Notes to receive payments in respect
of the principal of and premium, interest and Liquidated Damages, if any,
on the Notes when such payments are due from the trust referred to below;

162

(2) SFX's obligations with respect to the Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes
and the maintenance of an office or agency for payment and money for
security payments held in trust;

(3) the rights, powers, trusts, duties and immunities of the Trustee, and
SFX's obligations in connection therewith; and

(4) the Legal Defeasance provisions of the Indenture.

In addition, SFX may, at its option and at any time, elect to have the
obligations of SFX and each Guarantor released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Notes. If Covenant Defeasance
occurs, certain events, not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events, described under the caption "Events of
Default" will no longer constitute an Event of Default with respect to the
Notes.

In order to exercise either Legal Defeasance or Covenant Defeasance:

(1) SFX must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will
be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of and premium,
interest and Liquidated Damages, if any, on the outstanding Notes on the
stated maturity or on the applicable redemption date, as the case may be,
and SFX must specify whether the Notes are being defeased to maturity or
to a particular redemption date;

(2) in the case of Legal Defeasance, SFX shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the
Trustee confirming that:

(a) SFX has received from, or there has been published by, the Internal
Revenue Service a ruling or

(b) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that,
and based thereon such opinion of counsel shall confirm that, the
holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such Legal Defeasance had not occurred;

(3) in the case of Covenant Defeasance, SFX shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable
to the Trustee confirming that the holders of the outstanding Notes will
not recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred;

(4) no Default or Event of Default shall have occurred and be continuing on
the date of such deposit, other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit, or
insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the
date of deposit;

(5) such Legal Defeasance or Covenant Defeasance will not result in a breach
or violation of, or constitute a default under any material agreement or
instrument, other than the Indenture, to which SFX or any of its
Subsidiaries is a party or by which SFX or any of its Subsidiaries is
bound;

163

(6) SFX shall have delivered to the Trustee an opinion of counsel to the
effect that after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;

(7) SFX shall have delivered to the Trustee an Officers' Certificate stating
that the deposit was not made by SFX with the intent of preferring the
holders of Notes over the other creditors of SFX with the intent of
defeating, hindering, delaying or defrauding creditors of SFX or others;
and

(8) SFX shall have delivered to the Trustee an Officers' Certificate and an
opinion of counsel, each stating that all conditions precedent provided
for relating to the Legal Defeasance or the Covenant Defeasance have been
complied with.

TRANSFER AND EXCHANGE

A holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents and SFX may require a
holder to pay any taxes and fees required by law or permitted by the Indenture.
SFX is not required to transfer or exchange any Note selected for redemption.
Also, SFX is not required to transfer or exchange any Note for a period of 15
days before a selection of Notes to be redeemed. The registered holder of a
Note will be treated as the owner of it for all purposes.

AMENDMENT, SUPPLEMENT AND WAIVER

The Indenture, the Notes and the Subsidiary Guarantees may be amended or
supplemented with the consent of the holders of at least a majority in
principal amount of the Notes then outstanding, including, without limitation,
consents obtained in connection with a purchase of, or tender offer or exchange
offer for, Notes. Any existing default or compliance with any provision of the
Indenture, the Notes or the Subsidiary Guarantees may be waived with the
consent of the holders of a majority in principal amount of the then
outstanding Notes, including consents obtained in connection with a tender
offer or exchange offer for Notes.

However, without the consent of each holder affected, an amendment or
waiver may not, with respect to any Notes held by a non-consenting holder:

(1) reduce the principal amount of Notes whose holders must consent to an
amendment, supplement or waiver,

(2) reduce the principal of or change the fixed maturity of any Note or
alter the provisions with respect to the redemption of the Notes,
other than provisions relating to the covenants described above under
the caption "--Repurchase at the Option of Holders;"

(3) reduce the rate of or change the time for payment of interest on any
Note;

(4) waive a Default or Event of Default in the payment of principal of or
premium, interest or Liquidated Damages, if any, on the Notes except a
rescission of acceleration of the Notes by the holders of at least a
majority in aggregate principal amount of the Notes and a waiver of
the payment default that resulted from such acceleration;

(5) make any Note payable in money other than that stated in the Notes;

164

(6) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of holders of Notes to receive
payments of principal of or premium, interest or Liquidated Damages,
if any, on the Notes;

(7) waive a redemption payment with respect to any Note, other than a
payment required by one of the covenants described above under the
caption "--Repurchase at the Option of Holders;"

(8) release any Guarantor from its Subsidiary Guarantee; or

(9) make any change in the foregoing amendment and waiver provisions.

In addition, any amendment to the provisions of Article 10 of the
Indenture relating to subordination will require the consent of the holders of
at least 75% in aggregate principal amount of the Notes then outstanding if
such amendment would adversely affect the rights of holders of Notes.

Notwithstanding the preceding, without the consent of any holder of Notes,
SFX, a Guarantor, with respect to a Subsidiary Guarantee or the Indenture to
which it is a party, and the Trustee may amend or supplement the Indenture, the
Notes or any Subsidiary Guarantee:

(1) to cure any ambiguity, defect or inconsistency;

(2) to provide for uncertificated Notes in addition to or in place of
certificated Notes;

(3) to provide for the assumption of SFX's or any Guarantor's obligations
to holders of Notes in the case of a merger or consolidation or sale
of substantially all of SFX's assets;

(4) to make any change that would provide any additional rights or
benefits to the holders of Notes or that does not adversely affect the
legal rights under the Indenture of any such holder; or

(5) to comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture
Act.

CONCERNING THE TRUSTEE

If the Trustee becomes a creditor of SFX, the Indenture limits its right
to obtain payment of claims in certain cases, or to realize on certain property
received in respect of any such claim as security or otherwise. The Trustee
will be permitted to engage in other transactions; however, if it acquires any
conflicting interest it must eliminate such conflict within 90 days, apply to
the Commission for permission to continue or resign.

The holders of a majority in principal amount of the then outstanding
Notes will have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that if an Event of Default occurs
and continues, the Trustee will be required, in the exercise of its power, to
use the degree of care of a prudent man in the conduct of his own affairs.
Subject to such provisions, the Trustee will be under no obligation to exercise
any of its rights or powers under the Indenture at the request of any holder of
Notes, unless such holder shall have offered to the Trustee security and
indemnity satisfactory to it against any loss, liability or expense.

165

BOOK-ENTRY, DELIVERY AND FORM

The Old Notes have been sold in reliance on Rule 144A ("Rule 144A Notes")
and on Regulation S ("Regulation S Notes"). Rule 144A Notes are represented by
one or more Notes in registered, global form without interest coupons
(collectively, the "Rule 144A Global Notes"). Regulation S Notes initially are
represented by one or more Notes in registered, global form without interest
coupons (collectively, the "Regulation S Global Notes" and, together with the
Rule 144A Global Notes, the "Global Notes"). The Global Notes have been
deposited with the Trustee as custodian for DTC, in New York, New York, and are
registered in the name of DTC or its nominee, in each case, for credit to an
account of a direct or indirect participant in DTC.

Except as set forth below, the Global Notes may be transferred, in whole
and not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for
Notes in certificated form except in the limited circustances described below.

All Old Notes bear restrictive legends and some transfers of beneficial
interests in the Global Notes are subject to the applicable rules and
procedures of DTC and its direct or indirect participants including, if
applicable, those of Euroclear System ("Euroclear") and Cedel S.A. ("Cedel").

Initially, the Trustee will act as Paying Agent and Registrar. The Notes
may be presented for registration of transfer and exchange at the offices of
the Registrar.

DEPOSITORY PROCEDURES

The following description of the operations and procedures of DTC,
Euroclear and Cedel are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to changes by them.

DTC has advised SFX that it is a limited-purpose trust company created to
hold securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between Participants through electronic book-entry changes
in accounts of its Participants. The Participants include securities brokers
and dealers, including the Initial Purchasers, banks, trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly (collectively, the "Indirect Participants").
Persons who are not Participants may beneficially own securities held by or on
behalf of DTC only through the Participants or the Indirect Participants. The
ownership interests in, and transfers of ownership interests in, each security
held by or on behalf of DTC are recorded on the records of the Participants and
Indirect Participants.

DTC has also advised SFX that, pursuant to procedures established by it:

(1) upon deposit of the Global Notes, DTC has credited the accounts of
Participants designated by the Initial Purchasers with portions of the
principal amount of the Global Notes; and

(2) ownership of such interests in the Global Notes is shown on, and the
transfer of ownership thereof may be effected only through, records
maintained by DTC, with respect to the Participants, or by the
Participants and the Indirect Participants, with respect to other
owners of beneficial interest in the Global Notes.

166

Investors in the Rule 144A Global Notes may hold their interests therein
directly through DTC, if they are Participants in such system, or indirectly
through organizations, including Euroclear and Cedel, which are Participants in
such system. Investors in the Regulation S Global Notes must initially hold
their interests therein through Euroclear or Cedel, if they are participants in
such systems, or indirectly through organizations that are participants in such
systems. After the expiration of a restricted distribution period, investors
may also hold interests in the Regulation S Global Notes through organizations
other than Euroclear and Cedel that are Participants in the DTC system.
Euroclear and Cedel hold interests in the Regulation S Global Note on behalf of
their Participants through customers' securities accounts in their respective
names on the books of their respective depositories. The depositories, in turn,
hold such interests in the Regulation S Global Notes in customers' securities
accounts in the depositories' names on the books of DTC. All interests in a
Global Note, including those held through Euroclear or Cedel, may be subject to
the procedures and requirements of DTC. Those interests held by Euroclear or
Cedel may be also be subject to the procedures and requirements of such system.

Except as described below, owners of interests in the Global Notes will
not have Notes registered in their names, will not receive physical delivery of
Notes in certificated form and will not be considered the registered owners or
"Holders" thereof under the Indenture for any purpose.

Payments in respect of the principal of, and premium, if any, Liquidated
Damages, if any, and interest on a Global Note registered in the name of DTC or
its nominee will be payable to DTC in its capacity as the registered holder
under the Indenture. Under the terms of the Indenture, SFX and the Trustee will
treat the persons in whose names the Notes, including the Global Notes, are
registered as the owners thereof for the purpose of receiving such payments and
for any and all other purposes whatsoever. Consequently, neither SFX, the
Trustee nor any agent of SFX or the Trustee has or will have any responsibility
or liability for:

(1) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of any
beneficial ownership interest in the Global Notes, or for maintaining,
supervising or reviewing any of DTC's records or any Participant's or
Indirect Participant's records relating to the beneficial ownership
interests in the Global Notes; or

(2) any other matter relating to the actions and practices of DTC or any
of its Participants or Indirect Participants.

DTC has advised SFX that its current practice, upon receipt of any payment
in respect of securities such as the Notes, including principal and interest,
is to credit the accounts of the relevant Participants with the payment on the
payment date, in amounts proportionate to their respective holdings in the
principal amount of beneficial interest in the relevant security as shown on
the records of DTC unless DTC has reason to believe it will not receive payment
on such payment date. Payments by the Participants and the Indirect
Participants to the beneficial owners of Notes will be governed by standing
instructions and customary practices and will be the responsibility of the
Participants or the Indirect Participants and will not be the responsibility of
DTC, the Trustee or SFX. Neither SFX nor the Trustee will be liable for any
delay by DTC or any of its Participants in identifying the beneficial owners of
the Notes, and SFX and the Trustee may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee for all purposes.

Except for trades involving only Euroclear and Cedel participants,
interests in the Global Notes will trade in DTC's Same-Day Funds Settlement
System and secondary market

167

trading activity in such interests will, therefore, settle in immediately
available funds, subject in all cases to the rules and procedures of DTC and it
participants.

Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear and Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.

DTC has advised SFX that it will take any action permitted to be taken by
a holder of Notes only at the direction of one or more Participants to whose
account DTC has credited the interests in the Global Notes and only in respect
of such portion of the aggregate principal amount of the Notes as to which such
Participant or Participants has or have given such direction. However, if there
is an Event of Default under the Notes, DTC reserves the right to exchange the
Global Notes for legended Notes in certificated form, and to distribute such
Notes to its Participants.

Although DTC, Euroclear and Cedel have agreed to the foregoing procedures
to facilitate transfers of interests in the Global Notes among Participants in
DTC, Euroclear and Cedel, they are under no obligation to perform or to
continue to perform such procedures, and such procedures may be discontinued at
any time. Neither SFX nor the Trustee nor any of their respective agents will
have any responsibility for the performance by DTC, Euroclear or Cedel or their
respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.

CERTIFICATED NOTES

If:

(1) DTC

(a) notifies SFX that it is unwilling or unable to continue as depositary
for the Global Notes and SFX fails to appoint a successor depositary
or

(b) has ceased to be a clearing agency registered under the Exchange
Act;

(2) SFX, at its option, notifies the Trustee in writing that it elects to
cause the issuance of the certificated notes; or

(3) there shall have occurred and be continuing a Default or Event of
Default with respect to the Notes,

a Global Note will be exchangeable for definitive Notes in registered form
("Certificated Notes"). Upon any such issuance, the Trustee is required to
register such Certificated Notes in the name of, and cause the same to be
delivered to, such person or persons, or the nominee of any thereof.

In addition, beneficial interests in a Global Note may be exchanged for
Certificated Notes upon request but only upon prior written notice given to the
Trustee by or on behalf of DTC in accordance with the Indenture. Further,
Certificated Notes may be exchanged for beneficial interests in Global Notes
upon a delivery by the holder of a certificate to the Trustee that the transfer
will comply with the transfer restrictions of the Note.

Neither SFX nor the Trustee will be liable for any delay by the Global
Note holder or the depositary in identifying the beneficial owners of Notes and
SFX and the Trustee may conclusively rely on, and will be protected in relying
on, instructions from the Global Note holder or the depositary for all
purposes.

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SAME DAY SETTLEMENT AND PAYMENT

The Indenture requires that payments in respect of the Notes represented
by the Global Notes (including principal, premium, if any, interest and
Liquidated Damages, if any) be made by wire transfer of immediately available
funds to the accounts specified by the Global Note holder. With respect to
certificated Notes, SFX will make all payments of principal, premium, if any,
interest and Liquidated Damages, if any, by wire transfer of immediately
available funds to the accounts specified by the holder thereof or, if no such
account is specified, by mailing a check to each such holder's registered
address. SFX expects that secondary trading in the certificated Notes will also
be settled in immediately available funds.

REGISTRATION RIGHTS; LIQUIDATED DAMAGES

Holders of the New Notes are not entitled to any registration rights with
respect to the New Notes. SFX, the Guarantors and the Initial Purchasers
entered into the Registration Rights Agreement for the benefit of the holders
of the Old Notes, pursuant to which SFX and the Guarantors agreed to use its
best efforts to file with the Commission the Exchange Offer Registration
Statement with respect to the New Notes by March 5, 1999 and use their best
efforts to have the Exchange Offer Registration Statement declared effective by
the Commission on or prior to April 19, 1999. Unless the exchange offer would
not be permitted by applicable law or Commission policy, SFX will commence the
exchange offer and use its best efforts to issue, on or before 30 business days
after the date on which the Exchange Offer Registration Statement was declared
effective by the Commission, New Notes in exchange for all Old Notes tendered
prior thereto in the exchange offer. Upon the Exchange Offer Registration
Statement being declared effective, SFX will offer the New Notes in exchange
for surrender of the Old Notes.

If:

(1) SFX and the Guarantors are not required to file the Exchange Offer
Registration Statement or permitted to consummate the exchange offer
because the exchange offer is not permitted by applicable law or
Commission policy; or

(2) any holder of Transfer Restricted Securities notifies SFX before the
20th day following consummation of the exchange offer that:

(a) it is prohibited by law or Commission policy from participating in
the exchange offer; or

(b) that it may not resell the New Notes acquired by it in the exchange
offer to the public without delivering a prospectus and the
prospectus contained in the Exchange Offer Registration Statement is
not appropriate or available for such resales; or

SFX and the Guarantors will file with the Commission no later than 30 days
after the filing obligation arises a Shelf Registration Statement to cover
resales of the Notes by the holders thereof who satisfy certain conditions
relating to the provision of information in connection with the Shelf
Registration Statement. SFX and the Guarantors will use their best efforts to
cause the applicable registration statement to be declared effective as
promptly as possible by the Commission on or prior to 90 days after such
obligation arises.

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For purposes of the foregoing, "Transfer Restricted Securities" means each
Note until:

(1) the date on which such Note has been exchanged by a person other than
a broker-dealer for an a New Note in the exchange offer;

(2) following the exchange by a broker-dealer in the exchange offer of an
Old Note for a New Note, the date on which such New Note is sold to a
purchaser who receives from such broker-dealer on or prior to the date
of such sale a copy of the prospectus contained in the Exchange Offer
Registration Statement;

(3) the date on which such Old Note has been effectively registered under
the Securities Act and disposed of in accordance with the Shelf
Registration Statement; or

(4) the date on which such Old Note is distributed to the public pursuant
to Rule 144 under the Securities Act.

If:

(1) SFX and the Guarantors fail to file any of the Registration
Statements required by the registration rights agreement on or before
the date specified for such filing;

(2) any of such Registration Statements is not declared effective by the
Commission on or prior to the date specified for such effectiveness
(the "Effectiveness Target Date");

(3) SFX fails to consummate the exchange offer within 30 business days of
the Effectiveness Target Date with respect to the Exchange Offer
Registration Statement; or

(4) the Shelf Registration Statement or the Exchange Offer Registration
Statement is declared effective but thereafter ceases to be effective
or usable in connection with resales of Transfer Restricted Securities
during the periods specified in the Registration Rights
Agreement--each such event referred to in clauses (1) through (4)
above a "Registration Default,"

then SFX and the Guarantors will pay Liquidated Damages to each holder of
Notes, with respect to the first 90-day period immediately following the
occurrence of the first Registration Default, equal to $.05 per week per $1,000
principal amount of Notes held by such holder. Liquidated Damages will increase
by an additional $.05 per week per $1,000 principal amount of Notes with
respect to each subsequent 90-day period until all Registration Defaults have
been cured, up to a maximum Liquidated Damages for all Registration Defaults of
$.50 per week per $1,000 principal amount of Notes. SFX will pay all accrued
Liquidated Damages on each Damages Payment Date to the Global Note holder by
wire transfer of immediately available funds or by federal funds check and to
holders of Certificated Securities by wire transfer to the accounts specified
by them or by mailing checks to their registered addresses if no such accounts
have been specified. Following the cure of all Registration Defaults, the
accrual of Liquidated Damages will cease.

CERTAIN DEFINITIONS

Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.

"Acquired Debt" means, with respect to any specified Person:

(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified
Person, including, without

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limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person; and

(2) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.

"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of
the Voting Stock of a Person is deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" have correlative meanings.

"Acquired Businesses" means each of the businesses to be acquired by SFX
pursuant to the Pending Acquisitions.

"Asset Sale" means:

(1) the sale, lease, conveyance or other disposition of any assets or
rights--including, without limitation, by way of a sale and
leaseback--excluding sales of services and ancillary products in the
ordinary course of business consistent with past practices; provided
that the sale, lease, conveyance or other disposition of all or
substantially all of the assets of SFX and its Restricted Subsidiaries
taken as a whole will be governed by the provisions of the Indenture
described above under the caption "--Repurchase at the Option of
Holders--Change of Control" and/or the provisions described above
under the caption "--Certain Covenants--Merger, Consolidation or Sale
of Assets" and not by the provisions of the Asset Sale covenant; and

(2) the issue or sale by SFX or any of its Subsidiaries of Equity
Interests of any of SFX's Subsidiaries, in the case of either clause
(1) or (2), whether in a single transaction or a series of related
transactions that have a fair market value in excess of $5.0 million,
or for net proceeds in excess of $5.0 million.

Notwithstanding the preceding, the following items will not be deemed to be an
Asset Sale:

(1) a transfer of assets by SFX to a Wholly Owned Restricted Subsidiary
or by a Wholly Owned Restricted Subsidiary to SFX or to another Wholly
Owned Restricted Subsidiary;

(2) an issuance of Equity Interests by a Wholly Owned Restricted
Subsidiary to SFX or to another Wholly Owned Restricted Subsidiary;

(3) the transfer of obsolete equipment in the ordinary course of
business;

(4) the sale and leaseback of any assets within 90 days of the
acquisition of such assets; and

(5) a Restricted Payment that is permitted by the covenant described
above under the caption "--Certain Covenants--Restricted Payments."

"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in such
sale and leaseback transaction,

171

including any period for which such lease has been extended or may, at the
option of the lessor, be extended. Such present value shall be calculated using
a discounted rate equal to the rate of interest implicit in such transaction,
determined in accordance with GAAP.

"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person", as such term is used in Section 13(d)(3)
of the Exchange Act, such "person" shall be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire, whether such
right is currently exercisable or is exercisable only upon the occurrence of a
subsequent condition.

"Broadcasting Merger" means the merger of SBI Radio Acquisition
Corporation with and into SFX Broadcasting, Inc., pursuant to which SFX
Broadcasting, Inc. became a subsidiary of SBI Holding Co.

"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.

"Capital Stock" means:

(1) in the case of a corporation, corporate stock;

(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents, however
designated, of corporate stock;

(3) in the case of a partnership or limited liability company,
partnership or membership interests, whether general or limited; and

(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person.

"Cash Equivalents" means:

(1) United States dollars;

(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof
having maturities of not more than six months from the date of
acquisition;

(3) certificates of deposit and eurodollar time deposits with maturities
of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight
bank deposits, in each case with any domestic commercial bank having
capital and surplus in excess of $500.0 million and a Thompson Bank
Watch Rating of "B" or better;

(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3)
above entered into with any financial institution meeting the
qualifications specified in clause (3) above;

(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Corporation and in each
case maturing within six months after the date of acquisition; and

(6) money market funds at least 95% of the assets of which constitute
Cash Equivalents of the kinds described in clauses (1) through (5) of
this definition.

"Cellar Door Agreement" means any agreement by SFX to acquire the Cellar
Door music promotion and entertainment business, on terms similar to the letter
of intent dated August 12, 1998, and any additional agreements related thereto.

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"Change of Control" means the occurrence of any of the following:

(1) the sale, lease, transfer, conveyance or other disposition, other
than the Spin-Off or by way of merger or consolidation, in one or a
series of related transactions, of all or substantially all of the
assets of SFX and its Subsidiaries taken as a whole to any
"person"--as such term is used in Section 13(d)(3) of the Exchange
Act--other than the Principal or a Related Party of the Principal;

(2) the adoption of a plan relating to the liquidation or dissolution of
SFX;

(3) the consummation of any transaction, including, without limitation,
any merger or consolidation, the result of which is that any "person,"
as defined above, other than the Principal and his Related Parties,
becomes the Beneficial Owner, directly or indirectly, of more than 35%
of the Voting Stock of SFX; or

(4) the first day on which a majority of the members of the Board of
Directors of SFX are not Continuing Directors.

"Compensation Committee" means a committee of at least two members of the
Board of Directors of SFX, a majority of whom are:

(1) independent directors elected by the holders of Class A common stock
of SFX; and

(2) not interested in the particular transactions being approved.

"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus, without
duplication:

(1) an amount equal to any extraordinary loss plus any net loss realized
in connection with an Asset Sale, to the extent such losses were
deducted in computing such Consolidated Net Income; plus

(2) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net
Income; plus

(3) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or
not capitalized, including, without limitation, amortization of debt
issuance costs and original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations,
the interest component of all payments associated with Capital Lease
Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect
of letter of credit or bankers' acceptance financings, and net
payments, if any, pursuant to Hedging Obligation, to the extent that
any such expense was deducted in computing such Consolidated Net
Income; plus

(4) depreciation expense for such period, to the extent the same was
deducted in computing such Consolidated Net Income; plus

(5) all amortization expense and other non-cash expenses--excluding any
such non-cash expense to the extent that it represents an accrual of
or reserve for cash expenses in any future period--for such period, to
the extent the same was deducted in computing such Consolidated Net
Income; plus

(6) unusual and nonrecurring charges paid or accrued in 1997 or 1998,
including, but not limited to, legal, accounting, investment banking,
severance, termination, non-compete and consent fees relating to the
Merger Agreement, the Spin-Off, the Pending Acquisitions and
transactions related thereto; minus

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(7) non-cash items increasing such Consolidated Net Income for such
period; minus

(8) except to the extent already deducted in computing Consolidated Net
Income for such period, preproduction expenses and investments in
theatrical productions incurred or made during such period by SFX or
any Restricted Subsidiary as set forth in SFX's Consolidated Statement
of Cash Flows; plus

(9) any cash return of capital paid to SFX or a Restricted Subsidiary
during such period associated with a preproduction expense or
investment in theatrical productions to the extent the same was
deducted pursuant to clause (8) above in computing Consolidated Cash
Flow for such period or a prior period, in each case, on a
consolidated basis and determined in accordance with GAAP.

"Consolidated Indebtedness" means, with respect to any Person as of any
date of determination, the sum, without duplication, of:

(1) the total amount of Indebtedness and Attributable Debt of such Person
and its Restricted Subsidiaries; plus

(2) the total amount of Indebtedness and Attributable Debt of any other
Person, to the extent that such Indebtedness or Attributable Debt has
been guaranteed by the referent Person or by one or more of its
Restricted Subsidiaries or is secured by a Lien on assets of the
referent Person or any of its Restricted Subsidiaries; plus

(3) the aggregate liquidation value of all Disqualified Stock of such
Person and all preferred stock of Restricted Subsidiaries of such
Person, in each case, determined on a consolidated basis in accordance
with GAAP.

"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that:

(1) the Net Income, but not loss, of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting
shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Restricted
Subsidiary thereof;

(2) the Net Income of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not
at the date of determination permitted without any prior governmental
approval, that has not been obtained, or, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders;

(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall
be excluded;

(4) the cumulative effect of a change in accounting principles shall be
excluded; and

(5) the Net Income, but not loss, of any Unrestricted Subsidiary shall be
excluded, whether or not distributed to SFX or one of its Restricted
Subsidiaries.

"Contemporary Agreement" means the agreement by SFX to acquire The
Contemporary Group, dated as of December 12, 1997, and the agreements related
thereto, each as in effect on the date of the Indenture.

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"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of SFX who

(1) was a member of such Board of Directors on the date of the Indenture;
or

(2) was nominated for election or elected to such Board of Directors with
the approval of a majority of the Continuing Directors who were
members of such Board at the time of such nomination or election.

"Credit Facility" or "Credit Facilities" means one or more debt
facilities, including, without limitation, the Senior Credit Facility, or
commercial paper facilities with banks or other institutional lenders providing
for revolving credit loans, term loans, receivables financing, including
through the sale of receivables to such lenders or to special purpose entities
formed to borrow from such lenders against such receivables, or letters of
credit, in each case, as amended, restated, modified, renewed, refunded,
replaced or refinanced in whole or in part from time to time. Indebtedness
under Credit Facilities outstanding on the date on which Notes are first issued
and authenticated under the Indenture shall be deemed to have been incurred on
such date in reliance on the exception provided by clause (1) of the definition
of Permitted Debt.

"Debt to Cash Flow Ratio" means, with respect to any Person as of any date
of determination (the "Calculation Date"), the ratio of the Consolidated
Indebtedness of such Person as of such date, to the Consolidated Cash Flow of
such Person for the four most recent full fiscal quarters ending immediately
prior to such date for which internal financial statements are available. Such
determination is made on a pro forma basis after giving effect to all
acquisitions and dispositions of assets made by such Person and its Restricted
Subsidiaries from the beginning of such four-quarter period through and
including such date of determination, including any related financing
transactions, as if such acquisitions and dispositions had occurred at the
beginning of such four-quarter period.

For purposes of making the computation referred to above:

(1) acquisitions that have been made by such Person or any of its
Restricted Subsidiaries, including through mergers or consolidations
and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period
and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for such reference period shall be calculated
without giving effect to clause (3) of the proviso set forth in the
definition of Consolidated Net Income; and

(2) the Consolidated Cash Flow attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses
disposed of by SFX or any of its Restricted Subsidiaries prior to the
Calculation Date,

will be excluded.

"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.

"Delsener/Slater Employment Agreements" means:

(1) the employment agreement dated January 2, 1997, among Broadcasting,
Delsener/Slater Enterprises, Inc. and Mitch Slater; and

(2) the employment agreement dated January 2, 1997 among Broadcasting,
Delsener/Slater Enterprises, Inc. and Ron Delsener, in each case as in
effect on the date of the Indenture.

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"Designated Senior Debt" means:

(1) any Indebtedness outstanding under the Senior Credit Facility; and

(2) any other Senior Debt or Guarantor Senior Debt permitted under the
Indenture the principal amount of which is $25.0 million or more and
that has been designated by SFX as "Designated Senior Debt."

"Disqualified Stock" means any Capital Stock that, by its terms, or by the
terms of any security into which it is convertible or for which it is
exchangeable at the option of the holder thereof, or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature. Notwithstanding the preceding sentence, any Capital
Stock that would constitute Disqualified Stock solely because the holders
thereof have the right to require SFX to repurchase such Capital Stock upon the
occurrence of a Change of Control or an Asset Sale will not constitute
Disqualified Stock if the terms of such Capital Stock provide that the Issuer
may not repurchase or redeem any such Capital Stock pursuant to such provisions
unless such repurchase or redemption complies with the covenant described above
under the caption "--Certain Covenants--Restricted Payments."

"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock, but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock.

"Existing Indebtedness" means Indebtedness in existence on the date of the
Indenture, other than Indebtedness under Credit Facilities, until such
Indebtedness is repaid.

"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.

"Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit and reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.

"Hedging Obligations" means the obligations of any Person under:

(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and

(2) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates.

"Indebtedness" means, with respect to any Person without duplication, any
indebtedness of such Person, whether or not contingent, in respect of

(1) borrowed money;

(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit, or reimbursement agreements in respect thereof;

(3) banker's acceptances;

(4) representing Capital Lease Obligations; or

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(5) the balance deferred and unpaid of the purchase price of any
property or representing any Hedging Obligations, except any such
balance that constitutes an accrued expense or trade payable,

if and to the extent any of the foregoing indebtedness, other than letters of
credit and Hedging Obligations, would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP. In addition,
"Indebtedness" includes all indebtedness of others secured by a Lien on any
asset of such Person, whether or not such indebtedness is assumed by such
Person, and to the extent not otherwise included, the guarantee by such Person
of any indebtedness of any other Person.

The amount of any Indebtedness outstanding as of any date will be:

(1) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount; and

(2) the principal amount thereof, together with any interest thereon
that is more than 30 days past due, in the case of any other
Indebtedness.

"Investments" means, with respect to any Person, all investments by such
Person in other Persons, including Affiliates, in the forms of direct or
indirect loans, including guarantees of Indebtedness or other obligations,
advances or capital contributions, excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business,
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If SFX or any Subsidiary of SFX sells or otherwise disposes of any Equity
Interests of any direct or indirect Subsidiary of SFX such that, after giving
effect to any such sale or disposition, such Person is no longer a Subsidiary
of SFX, SFX shall be deemed to have made an Investment on the date of any such
sale or disposition equal to the fair market value of the Equity Interests of
such Subsidiary not sold or disposed of in an amount determined as provided in
the third paragraph of the covenant described above under the caption
"--Certain Covenants--Restricted Payments."

"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code, or equivalent statutes of any jurisdiction.

"Marquee" means The Marquee Group, Inc., a Delaware corporation.

"Marquee Merger Agreement" means the Agreement and Plan of Merger dated
July 23, 1998, as amended, providing for the merger of a wholly owned
subsidiary of SFX with and into Marquee, and all transactions and agreements
specifically contemplated thereby or by instruments referred to therein, each
as in effect on the date of the Indenture.

"Meadows Repurchase" means the transfer by Broadcasting to SFX of an
option to repurchase, and the purchase by SFX, of up to 250,838 shares of Class
A common stock of Broadcasting for $33.00 per share, pursuant to an option
granted in connection with the Agreement of Merger, dated February 12, 1997, by
and among Broadcasting, NOC Acquisition Corp., CAPCO Acquisition Corp., QN
Acquisition Corp., Nederlander of Connecticut, Inc., Connecticut Amphitheater
Development Corporation, QN Corp., Connecticut Performing Arts, Inc. and
Connecticut Performing Arts Partners and the

177

stockholders of Nederlander of Connecticut, Inc., Connecticut Amphitheater
Development Corporation and QN Corp. listed on the signature pages thereto and
the transfer of such stock to Broadcasting prior to the Broadcasting Merger.

"Merger Agreement" means the Agreement and Plan of Merger dated as of
August 24, 1997, that provides for the Broadcasting Merger and all transactions
and agreements specifically contemplated thereby or by instruments referred to
therein, each as in effect on the date of the Indenture.

"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however:

(1) any gain, but not loss, together with any related provision for
taxes on such gain, but not loss, realized in connection with:

(a) any Asset Sale, including, without limitation, dispositions
pursuant to sale and leaseback transactions; or

(b) the disposition of any securities by such Person or any of
its Restricted Subsidiaries or the extinguishment of any
Indebtedness of such Person or any of its Restricted
Subsidiaries; and

(2) any extraordinary gain, but not loss, together with any related
provision for taxes on such extraordinary gain, but not loss.

"Net Proceeds" means the aggregate cash proceeds received by SFX or any of
its Restricted Subsidiaries in respect of any Asset Sale, including, without
limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale, net of the direct costs
relating to such Asset Sale, including, without limitation, legal, accounting
and investment banking fees, and sales commissions, and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof, after
taking into account any available tax credits or deductions and any tax sharing
arrangements, amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets that were the subject of such Asset
Sale and any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP.

"Non-Guarantor Subsidiaries" means Walnut Creek Amphitheater Partnership,
Coral Sky Amphitheater Partnership, PACE Entertainment Charitable Foundation
and PTG-Florida, Inc./BSMG Joint Venture.

"Non-Recourse Debt" means Indebtedness:

(1) as to which neither SFX nor any of its Restricted Subsidiaries

(a) provides credit support of any kind, including any
undertaking, agreement or instrument that would constitute
Indebtedness,

(b) is directly or indirectly liable, as a guarantor or
otherwise, or

(2) no default with respect to which, including any rights that the
holders thereof may have to take enforcement action against an
Unrestricted Subsidiary, would permit, upon notice, lapse of time or
both, any holder of any other Indebtedness, other than the Notes
being offered hereby, of SFX or any of its Restricted Subsidiaries to
declare a default on such other Indebtedness or cause the payment
thereof to be accelerated or payable prior to its stated maturity;
and

178

(3) as to which the lenders have been notified in writing that they will
not have any recourse to the stock or assets of SFX or any of its
Restricted Subsidiaries.

"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.

"Pace Agreement" means the agreement by SFX to acquire PACE Entertainment
Corporation, including the Agreements relating to the Sony Acquisition and the
Blockbuster Acquisition to acquire a 100% interest in Pavilion Partners, dated
December 12, 1997 and the agreements related thereto, each as in effect on the
date of the Indenture.

"Pace Acquisition Facility" means the agreement by SFX, pursuant to the
Pace Agreement, to provide to PACE Entertainment Corporation up to an aggregate
of $25.0 million to be used to fund certain acquisitions, as in effect on the
date of the Indenture.

"Pending Acquisitions" means the acquisition by SFX of

(1) Cellar Door; and

(2) Marquee and including the transactions and agreements specifically
related thereto.

"Permitted Business" means the live entertainment business and any
business reasonably similar, complementary, ancillary or related thereto,
including the Pending Acquisitions.

"Permitted Investments" means:

(1) any Investment in SFX or in a Guarantor;

(2) any Investment in Cash Equivalents;

(3) any Investment by SFX or any Restricted Subsidiary of SFX in a
Person engaged in a Permitted Business, if:

(a) as a result of, or concurrently with, such Investment such
Person becomes a Guarantor; or

(b) as a result of, or concurrently with, such Investment such
Person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to,
or is liquidated into, SFX or a Guarantor; or

(c) SFX or a Guarantor has entered into a binding agreement to
acquire such Person or all or substantially all of the
assets of such Person, which agreement is in effect on the
date of such Investment, and such Person becomes a Guarantor
or such transaction is consummated, in each case within 180
days of the date of such Investment;

(4) any Restricted Investment made as a result of the receipt of
non-cash consideration from an Asset Sale that was made pursuant to
and in compliance with the covenant described above under the caption
"--Repurchase at the Option of Holders--Asset Sales;"

(5) any obligations or shares of Capital Stock received in connection
with or as a result of a bankruptcy, workout or reorganization of the
issuer of such obligations or shares of Capital Stock;

(6) any Investment received involuntarily;

179

(7) any acquisition of assets solely in exchange for the issuance of
Equity Interests, other than Disqualified Stock, of SFX;

(8) any Investment made under the Pace Acquisition Facility pursuant to
the Pace Agreement as in effect on the date of the Indenture;

(9) any Investment owned by any of the Acquired Businesses as of the
date such Acquired Business is acquired;

(10) other Investments in Persons engaged in Permitted Businesses,
measured on the date each such Investment was made and without giving
effect to subsequent changes in value, when taken together with all
other Investments made pursuant to this clause (10) that are at the
time outstanding, not to exceed 5% of Total Tangible Assets;

(11) the consummation of the Pending Acquisitions;

(12) the Meadows Repurchase and the Series E Preferred Repurchase;
provided that SFX receives either;

(c) any combination thereof adding up to an amount at least
equal to the aggregate amount expended by SFX in the Meadows
Repurchase and the Series E Preferred Repurchase less $3.0
million; and

(13) other Investments in any Person, measured on the date each such
Investment was made and without giving effect to subsequent changes
in value, when taken together with all other Investments made
pursuant to this clause (13) that are at the time outstanding, not to
exceed $4.0 million.

"Permitted Junior Securities" means Equity Interests in SFX or debt
securities of SFX or the relevant Guarantor that are subordinated to all Senior
Debt, and any debt securities issued in exchange for Senior Debt, or Guarantor
Senior Debt, and any debt securities issued in exchange for Guarantor Senior
Debt, as applicable, to substantially the same extent as, or to a greater
extent than, the Notes are subordinated to Senior Debt or the Subsidiary
Guarantees are subordinated to Guarantor Senior Debt, as applicable, pursuant
to the Indenture.

"Permitted Liens" means:

(1) Liens securing Senior Debt that was permitted by the terms of the
Indenture to be incurred;

(2) Liens in favor of SFX or any of its Restricted Subsidiaries;

(3) Liens on property of a Person existing at the time such Person is
merged into or consolidated with SFX or any Restricted Subsidiary of
SFX, provided that such

180

Liens were not incurred in contemplation of such merger or
consolidation and do not extend to any assets other than those of the
Person merged into or consolidated with SFX;

(4) Liens on property existing at the time of acquisition thereof by SFX
or any Restricted Subsidiary of SFX, provided that such Liens were in
existence prior to the contemplation of such acquisition;

(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;

(6) Liens existing on the date of the Indenture;

(7) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor; and

(8) Liens incurred in the ordinary course of business of SFX or any
Restricted Subsidiary of SFX with respect to obligations that do not
exceed $2.0 million at any one time outstanding.

"Permitted Refinancing Indebtedness" means any Indebtedness of SFX or any
of its Restricted Subsidiaries or any Disqualified Stock of SFX issued in
exchange for, or the net proceeds of which are used to extend, refinance,
renew, replace, defease or refund other Indebtedness of SFX or any of its
Restricted Subsidiaries; provided that:

(1) the principal amount, or accreted value or liquidation preference,
if applicable, of such Permitted Refinancing Indebtedness does not
exceed the principal amount of, or accreted value, if applicable,
plus accrued interest on, the Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded, plus the amount of
reasonable expenses incurred in connection therewith;

(2) such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life
to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded;

(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is pari passu with the Notes, such Permitted
Refinancing Indebtedness is pari passu with or subordinated in right
of payment to the Notes or is Disqualified Stock;

(4) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the
Notes, such Permitted Refinancing Indebtedness is subordinated in
right of payment to the Notes on terms at least as favorable to the
holders of Notes as those contained in the documentation governing
the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded or is Disqualified Stock; and

(5) such Indebtedness is incurred either by SFX or by the Restricted
Subsidiary that is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded, or such
Disqualified Stock is issued by SFX, as applicable.

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"Principal" means Robert F.X. Sillerman.

"Related Party" with respect to the Principal means:

(1) any spouse or immediate family member of the Principal; or

(2) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially
holding an 80% or more controlling interest of which consist of the
Principal and/or such other Persons referred to in the immediately
preceding clause (1).

"Restricted Investment" means an Investment other than a Permitted
Investment.

"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.

"Senior Credit Facility" means that certain credit agreement by and among
SFX, the Guarantors, the lenders party thereto, The Bank of New York, as
Administrative Agent, Lehman Commercial Paper Inc. and Goldman Credit Partners
L.P., each as Co-Agents, as contemplated by that certain commitment letter by
and among SFX, the Guarantors, The Bank of New York, as Arranger, and Lehman
Brothers Inc. and Goldman, Sachs & Co., each as Co-Arrangers, each as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time.

"Senior Debt" means:

(1) all Indebtedness outstanding under Credit Facilities and all Hedging
Obligations with respect thereto;

(2) any other Indebtedness of SFX or any Guarantor permitted to be
incurred under the terms of the Indenture, other than the February
2008 Notes, unless the instrument under which such Indebtedness is
incurred expressly provides that it is on a parity with or
subordinated in right of payment to the Notes or the Subsidiary
Guarantees; and

(3) all Obligations of SFX or any Guarantor with respect to the
foregoing.

Notwithstanding anything to the contrary in the foregoing, Senior Debt will not
include:

(1) any liability for federal, state, local or other taxes owed or owing
by SFX;

(2) any Indebtedness of SFX or any Guarantor to any of its Subsidiaries
or other Affiliates;

(3) any trade payables; or

(4) any Indebtedness that is incurred in violation of the Indenture;

provided that Indebtedness under Credit Facilities will not cease to be Senior
Debt if borrowed based upon a written certificate from a purported officer of
SFX to the effect that such Indebtedness was permitted by the Indenture to be
incurred. The Notes will be pari passu with the February 2008 Notes.

"Series E Preferred Repurchase" means the purchase by SFX of up to $14.2
million in liquidation preference of 12 5/8% Series E Cumulative Exchangeable
Preferred Stock due October 31, 2006 of Broadcasting and the dividend or other
transfer of such stock to Broadcasting prior to the Broadcasting Merger.

"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.

182

"Spin-Off" means the distribution of the common stock of SFX pro rata to
the holders of Broadcasting or other disposition pursuant to, or as permitted
by, the Merger Agreement of all the capital stock and assets of SFX and its
Subsidiaries.

"Spin-Off Transaction" means the Spin-Off, the Merger Agreement and
related transactions described or referred to in the Offering Memorandum of SFX
dated February 5, 1998.

"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and will not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.

"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled, without regard to the occurrence of
any contingency, to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person, or a
combination thereof.

"Total Tangible Assets" means, as of any date,

(1) the total consolidated assets of SFX and its Restricted
Subsidiaries, as set forth on SFX's most recently available internal
consolidated balance sheet; minus

(2) the total consolidated intangible assets of SFX and its Restricted
Subsidiaries, as set forth on such consolidated balance sheet.

"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution, but only to the extent that such Subsidiary:

(1) has no Indebtedness other than Non-Recourse Debt;

(2) is not party to any agreement, contract, arrangement or
understanding with SFX or any Restricted Subsidiary unless the terms
of any such agreement, contract, arrangement or understanding are no
less favorable to SFX or such Restricted Subsidiary than those that
might be obtained at the time from Persons who are not Affiliates of
SFX;

(3) is a Person with respect to which neither SFX nor any of its
Restricted Subsidiaries has any direct or indirect obligation

(a) to subscribe for additional Equity Interests or

(b) to maintain or preserve such Person's financial condition or
to cause such Person to achieve any specified levels of
operating results;

(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of SFX or any of its Restricted
Subsidiaries; and

(5) has at least one director on its board of directors that is not a
director or executive officer of SFX or any of its Restricted
Subsidiaries and has at least one executive officer that is not a
director or executive officer of SFX or any of its Restricted
Subsidiaries.

"Voting Stock" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board
of Directors of such Person.

183

"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing:

(1) the sum of the products obtained by multiplying

(a) the amount of each then remaining installment, sinking fund,
serial maturity or other required payments of principal,
including payment at final maturity, in respect thereof, by

(b) the number of years, calculated to the nearest one-twelfth,
that will elapse between such date and the making of such
payment; by

(2) the then outstanding principal amount of such Indebtedness.

"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which, other than directors' qualifying shares, will at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.

184

UNITED STATES FEDERAL TAX CONSIDERATIONS
The following is a general discussion of certain United States federal tax
consequences associated with the exchange of the Old Notes for the New Notes
pursuant to the exchange offer and disposition of the New Notes. This summary
applies only to a beneficial owner of New Notes who acquired Old Notes at the
initial offering for the original offering price thereof and who acquires the
New Notes pursuant to the exchange offer. This discussion is based upon the
United States federal tax law now in effect, which is subject to change,
possibly retroactively. This discussion does not consider any specific facts or
circumstances that may apply to a particular holder. Prospective investors are
urged to consult their tax advisors regarding the United States federal tax
consequences of acquiring, holding, and disposing of the New Notes, as well as
any tax consequences that may arise under the laws of any foreign, state,
local, or other taxing jurisdiction.

For purposes of this discussion, a "U.S. Holder" means a holder of New
Notes that is either a citizen or resident of the United States, a corporation,
partnership, or other entity created or organized in the United States or under
the laws of the United States or of any political subdivision thereof, an
estate whose income is includible in gross income for United States federal
income tax purposes regardless of its source, or a trust whose administration
is subject to the primary supervision of a United States court and which has
one or more United States persons who have the authority to control all
substantial decisions of the trust. A non-U.S. Holder is a holder of New Notes
other than a U.S. Holder.

EXCHANGE OFFER

The exchange of Old Notes for New Notes pursuant to the exchange offer
will not constitute a "significant modification" of the Old Notes for United
States federal income tax purposes and, accordingly, the New Notes received
will be treated as a continuation of the Old Notes in the hand of such holder.
As a result, there will be no United States federal income tax consequences to
a U.S. Holder who exchanges Old Notes for New Notes pursuant to the exchange
offer, and any such holder will have the same adjusted tax basis and holding
period in the New Notes for United States federal income tax purposes as it had
in the Old Notes immediately before the exchange.

STATED INTEREST

The holders of New Notes will include stated interest in gross income in
accordance with their methods of accounting for tax purposes as if the exchange
had not occurred (including interest on Old Notes to the date of the issuance
of the New Notes).

DISPOSITION

In general, a U.S. Holder of New Notes will recognize gain or loss upon
the sale, exchange, redemption or other taxable disposition of the New Notes
measured by the difference between the amount of cash and fair market value of
property received (not attributable to accrued, but unpaid interest) and the
holder's tax basis in the New Notes. Any such gain or loss will generally be
long-term capital gain or loss, provided that the New Notes constitute a
capital asset in the hands of the holder and had been held for more than one
year (including the period that such holder held the Old Notes exchanged for
such New Notes).

185

NON-U.S. HOLDERS

Under present United States federal income and estate tax law, assuming
certain certification requirements are satisfied (which include identification
of the beneficial owner of the instrument), and subject to the discussion of
backup withholding below:

(a) payments of interest on the New Notes to any non-U.S. Holder will not
be subject to United States federal income or withholding tax, provided
that:

(1) the holder does not actually or constructively own 10% or more of
the total combined voting power of all classes of stock of SFX entitled
to vote,

(2) the holder is not (i) a bank receiving interest pursuant to a loan
agreement entered into in the ordinary course of its trade or business
or (ii) a controlled foreign corporation that is related to SFX through
stock ownership, and

(3) such interest payments are not effectively connected with the
conduct of a United States trade or business of the holder;

(b) a holder of New Notes who is a non-U.S. Holder will not be subject to
the United States federal income tax on gain realized on the sale,
exchange, or other disposition of New Notes, unless:

(1) such holder is an individual who is present in the United States
for 183 days or more during the taxable year and certain other
requirements are met, or

(2) the gain is effectively connected with the conduct of a United
States trade or business of the holder; and

(c) if interest on the New Notes is exempt from withholding of United
States federal income tax under the rules described above (without regard
to the certification requirement), the New Notes will not be included in
the estate of a deceased non-U.S. Holder for United States federal estate
tax purposes.

The certification referred to above may be made on an Internal Revenue
Service Form W-8 or a substantially similar substitute form.

INFORMATION REPORTING AND BACKUP WITHHOLDING

SFX will, where required, report to the holders of New Notes and the
Internal Revenue Service the amount of any interest paid on the New Notes in
each calendar year and the amounts of federal tax withheld, if any, with
respect to such payments. A noncorporate U.S. Holder may be subject to
information reporting and to backup withholding at a rate of 31% with respect
to payments of principal and interest made on New Notes, or on proceeds of the
disposition of New Notes before maturity, unless such U.S. Holder provides a
correct taxpayer identification number or proof of an applicable exemption, and
otherwise complies with applicable requirements of the information reporting
and backup withholding rules. Such information may be made on an Internal
Revenue Service Form W-9 or a substantially similar substitute form.

Under temporary United States Treasury regulations, United States
information reporting requirements and backup withholding tax will generally
not apply to interest paid on the New Notes to a non-U.S. Holder at an address
outside the United States. Payments by a United States office of a broker of
the proceeds of a sale of the New Notes are subject to both backup withholding
at a rate of 31% and information reporting unless the holder certifies its
non-U.S. Holder status under penalties of perjury and provides its name and
address or otherwise establishes an exemption. This certification may be made
on an Internal

186

Revenue Service Form W-8 or a substantially similar substitute form.
Information reporting requirements (but not backup withholding) will also apply
to payments of the proceeds of sales of the New Notes by foreign offices of
United States brokers, or foreign brokers with certain types of relationships
to the United States, unless the broker has documentary evidence in its records
that the holder is a non-U.S. Holder and certain other conditions are met, or
the holder otherwise establishes an exemption.

Backup withholding is not an additional tax. Any amount withheld under the
backup withholding rules will be refunded or credited against the holder's
United States federal income tax liability, provided that the required
information is furnished to the Internal Revenue Service.

NEW TREASURY REGULATIONS APPLICABLE TO NON-U.S. HOLDERS

On October 6, 1997, the United States Treasury Department issued final
Treasury regulations governing certification procedures regarding both United
States federal withholding tax and backup withholding tax on certain amounts
paid to non-U.S. Holders after December 31, 1999. The new Treasury regulations
modify and, in general, unify the way in which non-U.S. Holders may establish
eligibility for United States federal withholding tax exemptions, including
that under a tax treaty, and an exemption from backup withholding.

For example, the new Treasury regulations will require new forms, which
non-U.S. Holders will generally have to provide earlier than you would have had
to provide replacements for expiring existing forms. The new Treasury
regulations also clarify the standards upon which withholding agents of
non-U.S. Holders may rely, add requirements in order for non-U.S. Holders to
claim reduced federal tax withholding under a tax treaty, and provide different
procedures in order for foreign intermediaries and flow-through entities (such
as foreign partnerships) to claim the benefit of applicable exemptions if they
receive payments on behalf of non-U.S. Holders.

The new Treasury regulations are particularly complex. Non-U.S. Holders
should consult their tax advisors concerning the effect, if any, of such new
Treasury regulations on their investment in the New Notes.

187

PLAN OF DISTRIBUTION

Based on interpretations by the Commission set forth in no-action letters
issued to third parties in similar transactions, SFX believes that the New
Notes issued in the exchange offer for the Old Notes may be offered for resale,
resold and otherwise transferred by holders without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that the New Notes are acquired in the ordinary course of such holders'
business and the holders are not engaged in, and do not intend to engage in,
and have no arrangement or understanding with any person to participate in, a
distribution of New Notes. This position does not apply to any holder that is:

(1) an "affiliate" of SFX within the meaning of Rule 406 under the
Securities Act;

(2) a broker-dealer who acquired Notes directly from SFX; or

(3) a broker-dealer who acquired Notes as a result of market-making or
other trading activities.

Any broker-dealers ("Participating Broker-Dealers") receiving New Notes in the
exchange offer are subject to a prospectus delivery requirement with respect to
resales of the New Notes. To date, the Commission has taken the position that
Participating Broker- Dealers may fulfill their prospectus delivery
requirements with respect to transactions involving an exchange of securities
such as the exchange pursuant to the exchange offer, other than a resale of an
unsold allotment from the sale of the Old Notes to the initial purchasers, with
this prospectus.

Each broker dealer that receives New Notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. A broker-dealer may use this
prospectus, as it may be amended or supplemented from time to time, in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. SFX has agreed that for a period of 180 days after the
Expiration Date, it will make this prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. For
a period of 180 days after the Commission declares the registration statement
containing this prospectus effective, SFX will promptly send additional copies
of the prospectus and any amendment or supplement to this prospectus to any
broker-dealer that requests such document in the Letter of Transmittal.

SFX will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the exchange offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of New Notes and any
commission or concessions received by any persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.

188

SFX has agreed to pay all expenses incident to the exchange offer other
than commissions or concessions of any brokers or dealers and will indemnify
the holders of the Notes, including any broker-dealers, against certain
liabilities, including liabilities under the Securities Act.

Each broker-dealer that receives New Notes for its own account pursuant to
the exchange offer agrees that, upon receipt of notice from SFX of the
happening of any event which makes any statement in the prospectus untrue in
any material respect or which requires the making of any changes in the
prospectus in order to make the statements therein not misleading, which notice
SFX agrees to deliver promptly to such broker-dealer, such broker-dealer will
suspend use of the prospectus until SFX has amended or supplemented the
prospectus to correct such misstatement or omission and has furnished copies of
the amended or supplemental prospectus to such broker-dealer.

LEGAL MATTERS

Baker & McKenzie, Houston, Texas, will pass upon certain legal matters
with respect to the validity of the issuance of the New Notes.

189

EXPERTS

Ernst & Young LLP, independent auditors, have audited the following
financial statements which are included herein, as set forth in their reports:

o the consolidated financial statements of the Company as of and for the year
ended December 31, 1997;

o the consolidated financial statements of Delsener/Slater Enterprises, Ltd.
and Affiliated Companies (Predecessor) as of December 31, 1996 and for the
years ended December 31, 1995 and 1996;

o the consolidated financial statements of PACE Entertainment Corporation and
Subsidiaries as of September 30, 1996, and for the years ended September
30, 1996 and 1995;

o the combined financial statements of Contemporary Group as of December 31,
1996 and 1997, and for the years ended December 31, 1995, 1996, and 1997;

o the combined financial statements of The Album Network, Inc. and Affiliated
Companies as of September 30, 1996 and 1997, and for the years ended
September 30, 1996 and 1997;

o the consolidated financial statements of BG Presents, Inc. and Subsidiaries
as of January 31, 1997 and 1998 and for the years ended January 31, 1996,
1997, and 1998;

o the combined financial statements of Concert/Southern Promotions and
Affiliated Companies as of December 31, 1997, and for the year ended
December 31, 1997;

o the combined financial statements of Falk Associates Management Enterprises,
Inc. as of December 31, 1996 and 1997, and for the years ended December 31,
1996 and 1997;

o the combined financial statements of Blackstone Entertainment LLC as of
December 31, 1996 and 1997 and for the years ended December 31, 1996 and
1997; and

o the consolidated financial statements of The Marquee Group, Inc. as of
December 31, 1997 and for the years ended December 31, 1996 and 1997.

These financial statements are included herein in reliance on their
reports, given on their authority as experts in accounting and auditing.

Arthur Andersen LLP, independent auditors, have audited the following
financial statements which are included herein, as set forth in their reports:

o the combined financial statements of Connecticut Performing Arts, Inc. and
Connecticut Performing Arts Partners as of December 31, 1995 and 1996, and
for the years ended December 31, 1995 and 1996;

o the combined financial statements of Deer Creek Partners, L.P. and Murat
Centre, L.P. as of December 31, 1995 and 1996, and for the years ended
December 31, 1995 and 1996;

o the consolidated financial statements of PACE Entertainment Corporation and
Subsidiaries as of September 30, 1997, and for the year ended September 30,
1997;

o the consolidated financial statements of Pavilion Partners as of September
30, 1997 and for the year ended September 30, 1997;

190

o the financial statements of Riverport Performing Arts Centre, Joint Venture
as of December 31, 1997 and 1996 and for the years ended December 31, 1997
and 1996; and

o the consolidated financial statements of Magicworks Entertainment
Incorporated as of December 31, 1996 and 1997, and for the years ended
December 31, 1996 and 1997.

These financial statements are included herein in reliance on their
reports, given on their authority as experts in accounting and auditing.

PricewaterhouseCoopers LLP, independent accountants, have audited the
financial statements of Pavilion Partners for the year ended October 31, 1995,
for the eleven months ended September 30, 1996 and as of September 30, 1996.
These financial statements are included herein in reliance on their report,
given on their authority as experts in auditing and accounting.

Grant Thornton, independent auditors, have audited the financial
statements of Park Associates Limited as of December 31, 1997 and for the year
ended December 31, 1997. These financial statements are included herein in
reliance on their reports, given on their authority as experts in accounting
and auditing.

Richard E. Woodhall, independent auditors, have audited the financial
statements of Tony Stephens Associates Limited as of April 30, 1998 and for the
year ended April 30, 1998. These financial statements are included herein in
reliance on their report, given on their authority as experts in accounting and
auditing.

PricewaterhouseCoopers LLP, independent accountants, have audited the
financial statements of ProServ, Inc. as of December 31, 1996 and for the years
ended December 31, 1996 and 1995. These financial statements are included
herein in reliance on their reports, given on their authority as experts in
accounting and auditing.

David Berdon & Co., LLP, independent auditors, have audited the financial
statements of QBQ Entertainment, Inc. as of December 31, 1995 and 1996. These
financial statements are included herein in reliance on their reports, given on
their authority as experts in accounting and auditing.

191

WHERE YOU CAN FIND MORE INFORMATION

We are subject to the informational requirements of the Exchange Act and
file periodic reports, registration statements and other information with the
Commission. You may inspect and copy the registration statement on Form S-4,
including exhibits, and our periodic reports, registration statements and other
information filed with the Commission at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the Commission's regional offices located
at 7 World Trade Center, New York, New York 10048 and at Citicorp Center, 500
West Madison Street (Suite 1400), Chicago, Illinois 60661. You may obtain
copies from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. Please call the Commission at
1-800-SEC-0330 for more information on the public reference rooms. The
Commission also maintains a Web site at http://www.sec.gov which contains our
reports, registration statements and information statements and other
information.

We have filed with the Commission a registration statement on Form S-4
under the Securities Act with respect to our offering of New Notes. This
prospectus, which constitutes part of the registration statement, does not
contain all of the information in the registration statement on Form S-4. You
will find additional information about us and the New Notes in the registration
statement on Form S-4. All statements made in this prospectus concerning the
provisions of legal documents are not necessarily complete and you should read
the documents which are filed as exhibits to the registration statement or
otherwise filed by us with the Commission.

If we are not required to be subject to the reporting requirements of the
Exchange Act in the future, we will be required under the indenture for the New
Notes to continue to file with the Commission and to furnish to holders of the
New Notes the information, documents and other reports specified in Sections 13
and 15(d) of the Exchange Act.

192

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

SFX believes that certain statements contained in this prospectus are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 and are considered prospective. These include
statements contained under "Prospectus Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
"Business." The following statements are or may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995:

o statements before, after or including the words "may," "will," "could,"
"should," "believe," "expect," "future," "potential," "anticipate,"
"intend," "plan," "estimate" or "continue" or the negative or other
variations of these words; and

o other statements about matters that are not historical facts.

SFX may be unable to achieve future results covered by the forward-looking
statements. The statements are subject to risks, uncertainties and other
factors that could cause actual results to differ materially from the future
results that the statements express or imply. Please do not put undue reliance
on these forward-looking statements, which speak only as of the date of this
prospectus.

193

INDEX TO FINANCIAL STATEMENTS

SFX ENTERTAINMENT: PAGE
----
SFX ENTERTAINMENT, INC.
Consolidated Balance Sheets as of September 30, 1998 (unaudited) and December 31, 1997 F-6
Consolidated Statements of Operations for the three months ended September 30, 1998 and
1997 (unaudited) ..................................................................... F-7
Consolidated Statements of Operations for the nine months ended September 30, 1998
and 1997 (unaudited) ................................................................. F-8
Consolidated Statements of Shareholders' Equity for the nine months ended September 30,
1998 and 1997 (unaudited) ............................................................ F-9
Consolidated Statements of Cash Flows for the nine months ended September 30, 1998 and
1997 (unaudited) ..................................................................... F-10
Notes to Consolidated Financial Statements (unaudited) ................................ F-11
Reports of Independent Auditors ....................................................... F-22
Consolidated Balance Sheets as of December 31, 1997 and 1996 (Predecessor) ............ F-24
Consolidated Statements of Operations for the years ended December 31, 1997, 1996
(Predecessor) and 1995 (Predecessor) ................................................. F-25
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996
(Predecessor) and 1995 (Predecessor) ................................................. F-26
Notes to Consolidated Financial Statements ............................................ F-27
CONNECTICUT PERFORMING ARTS, INC. AND CONNECTICUT PERFORMING
ARTS PARTNERS
Report of Independent Public Accountants .............................................. F-42
Combined Balance Sheets as of December 31, 1995 and 1996 .............................. F-43
Combined Statements of Operations for the years ended December 31, 1995 and 1996 ...... F-44
Combined Statements of Shareholders' and Partners' Equity (Deficit) for the years ended
December 31, 1995 and 1996 ........................................................... F-45
Combined Statements of Cash Flows for the years ended December 31, 1995 and 1996 ...... F-46
Notes to Combined Financial Statements ................................................ F-47
DEER CREEK PARTNERS, L.P. AND MURAT CENTRE, L.P.
Report of Independent Public Accountants .............................................. F-55
Combined Balance Sheets as of December 31, 1995 and 1996 and March 31, 1997 (unaudited) F-56
Combined Statements of Operations and Partners' Equity (Deficit) for the years ended
December 31, 1995 and 1996 and the three months ended March 31, 1996 and 1997
(unaudited) .......................................................................... F-58
Combined Statements of Cash Flows for the years ended December 31, 1995 and 1996 and
the three months ended March 31, 1996 and 1997 (unaudited) ........................... F-59
Notes to Combined Financial Statements ................................................ F-60
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
Report of Independent Public Accountants .............................................. F-66
Report of Independent Auditors ........................................................ F-67
Consolidated Balance Sheets as of September 30, 1996 and 1997 and December 31, 1997
(unaudited) .......................................................................... F-68
Consolidated Statements of Operations for the years ended September 30, 1995, 1996 and
1997 and the three months ended December 31, 1996 and 1997 (unaudited) ............... F-69
Consolidated Statements of Shareholders' Equity for the years ended September 30, 1995,
1996 and 1997 and the three months ended December 31, 1997 (unaudited) ............... F-70
Consolidated Statements of Cash Flows for the years ended September 30, 1995, 1996 and
1997 and the three months ended December 31, 1996 and 1997 (unaudited) ............... F-71

F-1

INDEX TO FINANCIAL STATEMENTS (CONTINUED)

Notes to Consolidated Financial Statements .............................................. F-72
PAVILION PARTNERS
Report of Independent Public Accountants ................................................ F-86
Report of Independent Accountants ....................................................... F-87
Consolidated Balance Sheets as of September 30, 1996 and 1997 and December 31, 1997
(unaudited) ............................................................................ F-88
Consolidated Statements of Income for the year ended October 31, 1995, eleven months
ended September 30, 1996, the year ended September 30, 1997 and the three months ended
December 31, 1996 and 1997 (unaudited) ................................................. F-89
Consolidated Statements of Partners' Capital for the year ended October 31, 1995, eleven
months ended September 30, 1996, the year ended September 30, 1997 and the three
months ended December 31, 1997 (unaudited) ............................................. F-90
Consolidated Statements of Cash Flows for the year ended October 31, 1995, eleven months
ended September 30, 1996, the year ended September 30, 1997 and the three months ended
December 31, 1996 and 1997 (unaudited) ................................................. F-91
Notes to Consolidated Financial Statements .............................................. F-92
CONTEMPORARY GROUP
Report of Independent Auditors .......................................................... F-101
Combined Balance Sheets as of December 31, 1996 and 1997 ................................ F-102
Combined Statements of Operations for the years ended December 31, 1995, 1996 and 1997 .. F-103
Combined Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997 .. F-104
Combined Statements of Stockholders' Equity for the years ended December 31, 1995, 1996
and 1997 ............................................................................... F-105
Notes to Combined Financial Statements .................................................. F-106
RIVERPORT PERFORMING ART CENTRE, JOINT VENTURE
Report of Independent Public Accountants ................................................ F-110
Balance Sheets as of December 31, 1997 and 1996 ......................................... F-111
Statements of Income and Changes in Partners' Equity for the years ended December 31,
1997 and 1996 .......................................................................... F-112
Statements of Cash Flows for the years ended December 31, 1997 and 1996 ................. F-113
Notes to Financial Statements ........................................................... F-114
THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES
Report of Independent Auditors .......................................................... F-117
Combined Balance Sheets as of September 30, 1996 and 1997 ............................... F-118
Combined Balance Sheets as of December 31, 1997 (unaudited) ............................. F-119
Combined Statements of Operations and Stockholders' Deficit for the years ended September
30, 1996 and 1997 ...................................................................... F-120
Combined Statements of Operations and Stockholders' Deficit for the three months ended
December 31, 1997 (unaudited) .......................................................... F-121
Combined Statements of Cash Flows for the years ended September 30, 1996 and 1997 ....... F-122
Combined Statements of Cash Flows for the three months ended December 31, 1997
(unaudited) ............................................................................ F-123
Notes to Combined Financial Statements .................................................. F-124
BG PRESENTS, INC. AND SUBSIDIARIES
Report of Independent Auditors .......................................................... F-129
Consolidated Balance Sheets as of January 31, 1997 and 1998 ............................. F-130
Consolidated Income Statements for the years ended January 31, 1996, 1997 and 1998 ...... F-131

F-2

INDEX TO FINANCIAL STATEMENTS (CONTINUED)

Consolidated Statements of Cash Flows for the years ended January 31, 1996, 1997 and 1998 F-132
Consolidated Statements of Stockholders' Equity for the years ended January 31, 1996, 1997
and 1998 ................................................................................ F-133
Notes to Consolidated Financial Statements .............................................. F-134
CONCERT/SOUTHERN PROMOTIONS AND AFFILIATED COMPANIES
Report of Independent Auditors ........................................................... F-140
Combined Balance Sheet as of December 31, 1997 ........................................... F-141
Combined Statement of Operations for the year ended December 31, 1997 .................... F-142
Combined Statement of Cash Flows for the year ended December 31, 1997 .................... F-143
Combined Statements of Stockholders' Equity for the year ended December 31, 1997 ......... F-144
Notes to Combined Financial Statements ................................................... F-145
FALK ASSOCIATES MANAGEMENT ENTERPRISES, INC.
Report of Independent Auditors ........................................................... F-148
Combined Balance Sheets as of December 31, 1996 and 1997 and March 31, 1998 (unaudited) . F-149
Combined Statements of Operations and Stockholders' Equity (Deficit) for the years ended
December 31, 1996 and 1997 and the three months ended March 31, 1997 and 1998
(unaudited) ............................................................................. F-150
Combined Statements of Cash Flows for the years ended December 31, 1996 and 1997 and
the three months ended March 31, 1997 and 1998 (unaudited) .............................. F-151
Notes to Combined Financial Statements ................................................... F-152
BLACKSTONE ENTERTAINMENT LLC
Report of Independent Auditors ........................................................... F-157
Combined Balance Sheets as of December 31, 1996 and 1997 and June 30, 1998 (unaudited) ... F-158
Combined Statements of Income for the years ended December 31, 1996 and 1997 and the six
months ended June 30, 1997 and 1998 (unaudited) ......................................... F-159
Combined Statements of Cash Flows for the years ended December 31, 1996 and 1997 and
the six months ended June 30, 1997 and 1998 (unaudited) ................................. F-160
Combined Statement of Members' Equity for the years ended December 31, 1996 and 1997
and the six months ended June 30, 1998 (unaudited) ...................................... F-161
Notes to Combined Financial Statements ................................................... F-162
MAGICWORKS ENTERTAINMENT INCORPORATED
Report of Independent Certified Public Accountants ....................................... F-169
Consolidated Balance Sheets as of December 31, 1997 and 1996 and June 30, 1998
(unaudited) ............................................................................. F-170
Consolidated Statements of Income for the years ended December 31, 1997 and 1996 and the
six months ended June 30, 1998 and 1997 (unaudited) ..................................... F-171
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997 and
1996 .................................................................................... F-172
Consolidated Statements of Cash Flows for the years ended December 31, 1997 and 1996 and
the six months ended June 30, 1998 and 1997 (unaudited) ................................. F-173
Notes to Consolidated Financial Statements ............................................... F-174
THE MARQUEE GROUP, INC.:
THE MARQUEE GROUP, INC.
Consolidated Balance Sheets at September 30, 1998 (unaudited) and December 31, 1997 ...... F-186
Consolidated Statements of Operations for the three and nine months ended September 30,
1998 and 1997 (unaudited) ............................................................... F-187

F-3

INDEX TO FINANCIAL STATEMENTS (CONTINUED)

Consolidated Statements of Cash Flows for the nine months ended September 30, 1998 and
1997 (unaudited) ....................................................................... F-188
Consolidated Statements of Stockholders' Equity for the nine months ended September 30,
1998 (unaudited) ....................................................................... F-189
Notes to Consolidated Financial Statements .............................................. F-190
Report of Independent Auditors .......................................................... F-194
Consolidated Balance Sheet as of December 31, 1997 ...................................... F-195
Consolidated Statements of Operations for the years ended December 31, 1996 and 1997 .... F-196
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996
and 1997 ............................................................................... F-197
Consolidated Statements of Cash Flows for the years ended December 31, 1996 and 1997 .... F-198
Notes to Consolidated Financial Statements .............................................. F-199
ALPHABET CITY SPORTS RECORDS, INC. AND ALPHABET CITY
INDUSTRIES, INC.
Report of Independent Auditors .......................................................... F-210
Combined Balance Sheet as of December 31, 1997 and June 30, 1998 (unaudited) ............ F-211
Combined Statements of Income for the period from April 11, 1996 (inception) to
December 31, 1996 and for the year ended December 31, 1997 and for the six months
ended June 30, 1997 and 1998 (unaudited) ............................................... F-212
Combined Statements of Cash Flows for the period from April 11, 1996 (inception) to
December 31, 1996 and for the year ended December 31, 1997 and for the six months
ended June 30, 1997 and 1998 (unaudited) ............................................... F-213
Notes to Combined Financial Statements .................................................. F-214
CAMBRIDGE HOLDING CORPORATION, INC. AND SUBSIDIARY
Report of Independent Auditors .......................................................... F-218
Consolidated Balance Sheet as of December 31, 1997 and June 30, 1998 (unaudited) ........ F-219
Consolidated Statement of Operations for the year ended December 31, 1997 and for the six
months ended June 30, 1997 and 1998 (unaudited) ........................................ F-220
Consolidated Statement of Cash Flows for the year ended December 31, 1997 and for the six
months ended June 30, 1997 and 1998 (unaudited) ........................................ F-221
Notes to Consolidated Financial Statements .............................................. F-222
PARK ASSOCIATES LIMITED
Report of Independent Auditors .......................................................... F-224
Balance Sheet as of December 31, 1997 ................................................... F-225
Statement of Profit and Loss Account for the year ended December 31, 1997 ............... F-226
Statement of Cash Flows for the year ended December 31, 1997 ............................ F-227
Notes to Financial Statements ........................................................... F-228
Balance Sheet as of June 30, 1998 (unaudited) ........................................... F-236
Statements of profit and loss account for the six months ended June 30, 1997 and 1998
(unaudited) ............................................................................ F-237
Statements of cash flows for the six months ended June 30, 1997 and 1998 (unaudited) .... F-238
Notes to Financial Statements ........................................................... F-239
TOLLIN-ROBBINS ENTERTAINMENT
Report of Independent Auditors .......................................................... F-242
Combined Balance Sheets as of December 31, 1997 and 1996 and June 30, 1998 (unaudited) .. F-243
Combined statements of operations for the years ended December 31, 1997 and 1996 and for
the six months ended June 30, 1997 and 1998 (unaudited) ................................ F-244

F-4

INDEX TO FINANCIAL STATEMENTS (CONTINUED)

Combined Statements of Stockholders' Equity and for the years ended December 31, 1996
and 1997 and for the six months ended June 30, 1998 (unaudited) ......................... F-245
Combined Statements of Cash Flows for the years ended December 31, 1996 and 1997 and for
the six months ended June 30, 1997 and 1998 (unaudited) ................................. F-246
Notes to Combined Financial Statements ................................................... F-247
TONY STEPHENS ASSOCIATES LIMITED
Report of Independent Auditors ........................................................... F-252
Balance Sheet as of April 30, 1998 ....................................................... F-253
Statement of Profit and Loss Account for the year ended April 30, 1998 ................... F-254
Statement of Cash Flows for the year ended April 30, 1998 ................................ F-255
Notes to Financial statements ............................................................ F-256
Balance Sheet as of June 30, 1998 (unaudited) ............................................ F-259
Statements of Profit and Loss Accounts for the six months ended June 30, 1997 and 1998
(unaudited) ............................................................................. F-260
Statements of Cash Flows for the six months ended June 30, 1997 and 1998 (unaudited) ..... F-261
Notes to Financial Statements ............................................................ F-262
PROSERV, INC. AND SUBSIDIARIES
Report of Independent Accountants ........................................................ F-266
Consolidated Balance Sheets as of December 31, 1996 and June 30, 1997 (unaudited) ........ F-267
Consolidated Statements of Operations for the years ended December 31, 1996 and 1995
and for the six months ended June 30, 1997 (unaudited) and 1996 (unaudited) ............. F-268
Consolidated Statements of Stockholders' Equity/(Deficit) for the years ended December 31,
1996 and 1995 and for the six months ended June 30, 1997 (unaudited) .................... F-269
Consolidated Statements of Cash Flows for the years ended December 31, 1996 and 1995
and for the six months ended June 30, 1997 (unaudited) and 1996 (unaudited) ............. F-270
Notes to Consolidated Financial Statements ............................................... F-271
QBQ ENTERTAINMENT, INC.
Report of Independent Auditors ........................................................... F-284
Balance Sheets as of December 31, 1996 and June 30, 1997 (unaudited) ..................... F-285
Statements of Operations for the years ended December 31, 1996 and 1995 and for the
six months ended June 30, 1997 and 1996 (unaudited) ..................................... F-286
Statements of Stockholders' Equity (Deficiency) for the years ended December 31, 1996
and 1995 and the six months ended June 30, 1997 (unaudited) ............................. F-287
Statements of Cash Flows for the years ended December 31, 1996 and 1995 and for the
six months ended June 30, 1997 and 1996 (unaudited) ..................................... F-288
Notes to Financial Statements ............................................................ F-289

F-5

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

September 30, December 31,
1998 1997
---------- --------
ASSETS ..................................................................... (Unaudited)
Current assets:
Cash and cash equivalents ................................................. $ 65,589 $ 5,979
Accounts receivable ....................................................... 68,042 3,831
Prepaid expenses .......................................................... 27,375 --
Receivables from equity investees ......................................... 974 --
Other current assets ...................................................... 3,747 1,410
---------- --------
Total current assets ....................................................... 165,727 11,220
Property and equipment, net of accumulated depreciation of $12,144 at
September 30, 1998 and $2,610 at December 31, 1998 ........................ 275,000 59,685
Deferred acquisition costs ................................................. 551 6,213
Goodwill and other intangible assets, net of accumulated amortization of
$28,551 at September 30, 1998 and $2,745 at December 31, 1998 ............. 904,929 60,306
Investment in and receivables from equity investees, less current portion... 22,406 937
Note receivable from related parties and employees ......................... 12,610 --
Other assets ............................................................... 10,325 8,581
---------- --------
TOTAL ASSETS ............................................................... $1,391,548 $146,942
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ..................................... $ 66,202 $ 2,715
Deferred revenue .......................................................... 73,608 3,603
Income taxes payable ...................................................... 480 1,707
Due to SFX Broadcasting ................................................... 26,250 11,539
Current portion of long-term debt ......................................... 4,238 755
Current portion of capital lease obligations .............................. 674 168
Current portion of deferred purchase consideration ........................ 2,313 1,950
---------- --------
Total current liabilities .................................................. 173,765 22,437
Long-term debt, less current portion ....................................... 714,884 14,929
Capital lease obligations, less current portion ............................ 12,248 326
Deferred purchase consideration, less current portion ...................... 8,117 4,289
Deferred income taxes ...................................................... 60,601 2,817
Other ...................................................................... 5,354 --
---------- --------
TOTAL LIABILITIES .......................................................... 974,969 44,798
Minority interest .......................................................... 3,868 --
Temporary equity - stock subject to redemption ............................. 16,500 --
Shareholders' equity:
Preferred Stock, $.01 par value, 25,000,000 shares authorized, none
issued and outstanding as of September 30, 1998 and December 31,
1997 .................................................................... -- --
Class A common stock, $.01 par value, 100,000,000 shares authorized;
28,753,194 and 13,579,024 shares issued and outstanding as of
September 30, 1998 and December 31, 1997, respectively .................. 288 136
Class B common stock, $.01 par value, 10,000,000 shares authorized;
1,697,037 and 1,047,037 shares issued and outstanding as of
September 30, 1998 and December 31, 1997, respectively .................. 17 10
Additional paid in capital ................................................. 431,617 98,184
Deferred compensation ...................................................... (7,397) --
Accumulated (deficit) earnings ............................................. (28,314) 3,814
---------- --------
Total shareholders' equity ................................................. 396,211 102,144
---------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................................. $1,391,548 $146,942
========== ========

See accompanying notes.

F-6

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

Three Months Ended September 30,
--------------------------------
1998 1997
------------ ----------------
Revenue ....................................................... $ 388,034 $ 43,425
Operating expenses:
Cost of revenue .............................................. 331,857 35,569
Depreciation and amortization, including $1,014 of integration
costs in 1998 .............................................. 21,207 2,345
Corporate expenses, net of Triathlon fees .................... 2,510 259
Non-cash compensation and other non-cash charges ............. 843 --
------------ -----------
356,417 38,173
------------ -----------
Income from operations ........................................ 31,617 5,252
Income from equity investments ................................ (2,139) (1,344)
Interest expense .............................................. 13,488 378
Investment income ............................................. (967) (95)
Minority interest ............................................. 916 --
------------ -----------
Income before provision for income taxes ...................... 20,319 6,313
Provision for income taxes .................................... 1,983 295
------------ -----------
Net income .................................................... 18,336 6,018
Accretion on stock subject to redemption ...................... (825) -
------------ -----------
Net income applicable to common shares ........................ $ 17,511 $ 6,018
============ ===========
Basic Earnings per common share ............................... $ 0.58 $ 0.41
============ ===========
Dilutive earnings per common share ............................ $ 0.57 $ 0.41
============ ===========
Weighted average basic common shares outstanding .............. 30,420,883 14,626,061
Weighted average dilutive common shares outstanding ........... 30,881,777 14,626,061
Pro Forma:
Income before provision for income taxes ...................... $ 20,319 $ 6,313
Pro forma provision for income taxes .......................... 1,983 2,952
------------ -----------
Pro forma net income .......................................... 18,336 3,361
Accretion on stock subject to redemption ...................... (825) --
------------ -----------
Pro forma net income applicable to common stock ............... $ 17,511 $ 3,361
============ ===========
Pro forma earnings per share:
Basic ........................................................ $ 0.58 $ 0.23
============ ===========
Diluted ...................................................... $ 0.57 $ 0.23
============ ===========

See accompanying notes.

F-7

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

Nine Months Ended September 30,
-------------------------------
1998 1997
------------ ---------------

Revenue ............................................................... $ 680,376 $ 74,396
Operating expenses:
Cost of revenue ...................................................... 602,538 63,045
Depreciation and amortization, including $1,264 of integration
costs in 1998 ...................................................... 40,381 4,041
Corporate expenses, net of Triathlon fees ............................ 5,839 1,307
Non-cash compensation and other non-cash charges ..................... 32,895 --
------------ -----------
681,653 68,393
------------ -----------
Income (loss) from operations ......................................... (1,277) 6,003
Income from equity investments ........................................ (3,964) (1,344)
Interest expense ...................................................... 31,709 956
Investment income ..................................................... (3,466) (213)
Minority interest ..................................................... 1,314 --
------------ -----------
Income (loss) before provision for income taxes ....................... (26,870) 6,604
Provision for income taxes ............................................ 3,333 2,952
------------ -----------
Net income (loss) ..................................................... (30,203) 3,652
Accretion on stock subject to redemption .............................. (1,925) --
------------ -----------
Net income (loss) applicable to common shares ......................... $ (32,128) $ 3,652
============ ===========
Basic and dilutive net income (loss) per common share ................. $ (1.38) $ 0.25
============ ===========
Weighted average basic and dilutive common shares outstanding ......... 23,262,122 14,382,778
Pro Forma:
Income (loss) before provision for income taxes ....................... $ (26,870) $ 6,604
Pro forma provision for income taxes .................................. 3,333 2,956
------------ -----------
Pro forma net income (loss) ........................................... (30,203) 3,652
Accretion on stock subject to redemption .............................. (1,925) --
------------ -----------
Pro forma net income (loss) applicable to common stock ................ $ (32,128) $ 3,652
============ ===========
Pro forma earnings (loss) per share ................................... $ (1.38) $ 0.25
============ ===========

See accompanying notes.

F-8

SFX ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
(UNAUDITED)

Nine Months Ended September 30,
-------------------------------
1998 1997
----------- ------------

Balances at January 1, ................................................... $ 102,144 $ --
Net assets contributed by SFX Broadcasting .............................. -- 97,726
Liabilities in excess of assets of SFX Broadcasting, Inc. assumed in
the Spin-Off, principally federal income taxes of $105.0 million......... (129,237) --
Sale of 8,050,000 Shares of Class A Common Stock ......................... 329,004 --
Issuance of 5,837,874 shares of Class A Common Stock for
acquisitions ............................................................ 97,466 --
Issuance of 190,000 shares of Class A Common Stock pursuant to
employment agreements ................................................... 8,511 --
Issuance of 650,000 shares of Class B Common Stock pursuant to
employment agreements ................................................... 18,526 --
Net income (loss) ........................................................ (30,203) 6,309
----------- ---------
Balances at September 30 ................................................. $ 396,211 $104,035
=========== =========

See accompanying notes.

F-9

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

Nine Months Ended September 30,
-------------------------------
1998 1997
----------- ------------

Operating activities:
Net (loss) income ........................................................ $ (30,203) $ 6,309
Adjustment to reconcile net (loss) income to net cash provided by
operating activities:
Depreciation and amortization, including $1,264 of integration
costs ................................................................. 40,381 4,041
Pretax income of equity investees, net of distributionsreceived ......... 1,030 458
Non-cash charges ........................................................ 32,895 --
Minority interest ....................................................... 1,314 --
Changes in operating assets and liabilities, net of amounts
acquired:
Accounts receivable ..................................................... (9,620) (1,019)
Prepaid expenses ........................................................ (6,296) (2,419)
Other current assets .................................................... (1,744) --
Other assets ............................................................ (3,191) (275)
Receivable from related parties and employees ........................... (2,162) --
Accounts payable and accrued expenses ................................... (14,475) (16)
Accrued interest and dividends .......................................... 7,595 --
Deferred revenue ........................................................ 6,783 (6,290)
----------- ----------
Net cash provided by operating activities ................................ 22,307 789
----------- ----------
Investing activities:
Purchases of businesses, net of cash acquired ........................... (807,135) (69,645)
Deposits and other payments for pending acquisitions .................... (551) --
Purchases of property and equipment ..................................... (44,554) (2,352)
----------- ----------
Net cash used in investing activities .................................... (852,240) (71,997)
----------- ----------
Financing activities:
Capital contributed by SFX Broadcasting ................................. -- 78,855
Proceedsfrom issuance of senior subordinated debt and
borrowings under the credit agreement ................................. 723,500 --
Proceeds from sale of common stock ...................................... 330,683 --
Repayment of debt and capital lease obligation .......................... (33,049) (553)
Payments made to SFX Broadcasting pursuant to the Spin-Off .............. (113,876) --
Other, principally debt issuance costs .................................. (17,715) --
----------- ----------
Net cash provided by financing activities ................................ 889,543 78,302
----------- ----------
Net increase in cash and cash equivalents ................................ 59,610 7,094
Cash and cash equivalents at beginning of period ......................... 5,979 --
=========== ==========
Cash and cash equivalents at end of period ............................... $ 65,589 $ 7,094
=========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest ................................................... $ 22,807 $ 897
=========== ==========
Cash paid for income taxes ............................................... $ 17,217 $ --
=========== ==========

Supplemental disclosure of non-cash investing and financing activities:

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

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

o The balance sheet includes certain assets and liabilities that have been
contributed to the Company by SFX Broadcasting.

See accompanying notes.

F-10

SFX ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. ORGANIZATION AND BASIS OF PRESENTATION

SFX Entertainment, Inc. ("SFX" or the "Company") is a leading promoter,
producer and venue operator for live entertainment events. In addition, the
Company is a leading full-service marketing and management company specializing
in the representation of team sports athletes, primarily in professional
basketball.

The Company owns and/or operates the largest network of venues in the country
used principally for music concerts and other live entertainment events. Upon
completion of all pending acquisitions, it will have 68 venues either directly
owned or operated under lease or exclusive arrangements, including 13
amphitheaters in 9 of the top 10 markets. The Company also develops and manages
touring Broadway shows, selling subscriptions series in 38 of the markets that
maintain active touring schedules with approximately 240,000 subscribers last
year. Through its large number of venues and the long operating histories of
the businesses it has acquired, SFX operates an integrated franchise that
promotes and produces a broad variety of live entertainment events locally,
regionally and nationally. Pro forma for all completed acquisitions, during
1997, approximately 30 million people attended 11,300 events promoted and/or
produced by SFX, including approximately 5,400 music concerts, 5,600 theatrical
shows and over 200 specialized motor sports events.

SFX was formed as a wholly-owned subsidiary of SFX Broadcasting, Inc. in
December 1997 and as the parent company of SFX Concerts, Inc ("Concerts").
Concerts was formed in January 1997 to acquire and hold SFX Broadcasting's live
entertainment operations. The Company had no substantive operations until its
acquisition of Delsener/Slater Enterprises, Ltd. and affiliated companies
("Delsener/Slater") in January 1997.

In August 1997, SFX Broadcasting agreed to the merger (the "Broadcasting Merger
Agreement") among SBI Holdings, Inc. (the "Buyer"), SBI Radio Acquisition
Corporation, a wholly owned subsidiary of the Buyer, and SFX Broadcasting (the
"Broadcasting Merger") and to the spin-off of the Company to the shareholders
of SFX Broadcasting (the "Spin-Off"). The Spin-Off was completed on April 27,
1998 and the Broadcasting Merger was completed on May 29, 1998.

Information with respect to the three and nine months ended September 30, 1998
and 1997 is unaudited. The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, the unaudited interim financial statements contain
all adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the financial position, results of operations and cash flows of
the Company, for the periods presented.

In 1998 the Company's income taxes are calculated on a stand alone basis
including the period through April 27, 1998 in which the Company was a member
of the SFX Broadcasting's Consolidated federal income tax return. In 1997, the
Company's income taxes reflected the federal benefit for the operating losses
of SFX Broadcasting.

In June 1997, the Financial Accounting Standards Board issued Statement No. 131
("SFAS 131"), "Disclosure About Segments of an Enterprise and Related
Information," which establishes new standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that these enterprises report selected information
about operating segments in interim financial reports. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. SFAS 131 is effective for financial statements for fiscal
years beginning after December 31, 1997, and therefore the Company will adopt
the new requirements in 1998. Management has completed its review of SFAS 131
and as such has preliminarily determined that its reportable segments will be
music, theatrical, sports and other.

F-11

In June 1998, the American Institute of Certified Public Accountants issued
Statement of Position No. 98-5, "Reporting on the Costs of Start-Up Activities"
("SOP 98-5"), which is effective for fiscal years beginning after December 15,
1998. Under SOP 98-5, the costs of start-up activities, including
organizational costs, would be expensed as incurred. SOP 98-5 broadly defines
start-up activities as those one-time activities related to opening a new
facility, introducing a new product or service, conducting business in a new
territory, conducting business with a new class of customer or beneficiary,
initiating a new process in an existing facility or beginning a new operation.
SOP 98-5 is effective for financial statements for fiscal years beginning after
December 15, 1998. Earlier application is encouraged. The initial application
of SOP 98-5 is to be reported as a cumulative
effect of a change in accounting principle. Management has preliminarily
determined that SOP 98-5 will not have a material effect on its financial
position.

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. However, this
seasonality is somewhat offset by typically non-summer seasonal businesses such
as touring Broadway Shows (which typically tour between September and May) and
motor sports (which produces revenue predominantly in the first quarter).

2. ACQUISITIONS

1997 Acquisitions

In January 1997, SFX Broadcasting acquired Delsener/Slater, a concert promotion
company which has long-term leases or is the exclusive promoter for seven of
the major concert venues in the New York City metropolitan area. Total
aggregate consideration was 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 over five years and $1,000,000 to be paid without interest over ten years.
In March 1997, the Company acquired the stock of certain companies which own
and operate the Meadows Music Theater (the "Meadows"), an indoor/outdoor
complex located in Hartford, Connecticut for $900,000 in cash, 250,838 shares
of SFX Broadcasting Class A Common Stock with a value of approximately
$7,500,000 and the assumption of approximately $15,400,000 in debt. In June
1997, the Company acquired the stock of Sunshine Promotions, Inc. and certain
other related companies ("Sunshine Promotions"), an owner-operator of venues
and a concert promoter 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 in
debt.

The Delsener/Slater, Meadows, and Sunshine Promotions acquisitions are
collectively referred to herein as the "1997 Acquisitions." The 1997
Acquisitions were financed through capital contributions from SFX Broadcasting
and were accounted for under the purchase method of accounting.

1998 Acquisitions

Westbury

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

F-12

BGP

On February 24, 1998, the Company acquired all of the outstanding capital stock
of BG Presents ("BGP"), an owner-operator of venues for live entertainment and
a promoter in the San Francisco Bay area (the "BGP Acquisition"), for total
consideration of approximately $80.3 million (including the repayment of $12.0
million in BGP debt and the issuance upon the Spin-Off of 562,640 shares of
Class A Common Stock of the Company valued by the parties at $7.5 million). The
sellers of BGP provided net working capital (as defined in the acquisition
agreement) at the closing in an amount equal to or greater than long-term debt.

PACE

On February 25, 1998, the Company acquired all of the outstanding capital stock
of PACE Entertainment Corporation ("PACE"), a diversified producer and promoter
of live entertainment in the United States (the "PACE Acquisition"), for total
consideration of approximately $150.1 million (including issuance upon the
Spin-Off of 1,500,000 shares of the Company's Class A Common Stock valued by
the parties at $20.0 million and assumption of approximately $20.6 million of
debt). In related transactions, the Company acquired, for total consideration
of $90.6 million comprised of $41.4 million in cash, the repayment of
approximately $43.1 million of debt and the assumption of approximately $6.1
million 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. The stock, which is subject to redemption, has been recorded as
temporary equity on the accompanying consolidated balance sheet and is being
accreted over a five-year period.

Under the terms of an employment agreement entered into by the Company with an
officer of PACE, the officer will have the right, two years from the date of
the acquisition, to purchase PACE's motor sports division at fair value. If the
motor sports division has been sold by the Company, the officer would be
entitled to purchase PACE's theatrical division for its fair value. In
addition, on March 25, 1998, PACE paid $4.0 million to acquire a 67% interest
in certain assets and liabilities of USA Motor Sports, a producer and promoter
of motor sports events. The remaining 33% interest is owned by the Contemporary
Group.

Contemporary

On February 27, 1998, the Company acquired the Contemporary Group
("Contemporary"), a fully-integrated live entertainment and special event
promoter and producer, venue owner and operator and consumer marketer, for
total consideration of approximately $101.4 million comprised of $72.8 million
in cash, a payment for working capital of approximately $9.9 million and the
issuance of preferred stock of the Company valued by the parties at $18.7
million which, upon the Spin-Off, was converted into 1,402,850 shares of Class
A Common Stock of the Company (the "Contemporary Acquisition"). The
Contemporary Acquisition involved the merger of Contemporary International
Productions Corporation with and into the Company, the acquisition by a wholly
owned subsidiary of the Company of substantially all of the assets, excluding
certain cash and receivables, of the remaining members of Contemporary and the
acquisition by Contemporary of the 50% interest in the Riverport Amphitheater
Joint Venture not owned by Contemporary. If any of the Contemporary sellers
owns any shares of the Company's Class A Common Stock received in the
Contemporary Acquisition on the second anniversary of the closing date and the
average trading price of such stock over the 20-day period ending on such
anniversary date is less than $13.33 per share, then the Company will make a
one-time cash payment to each individual holding such shares that is equal to
the product of (i) the

F-13

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's received by such
individual in the Contemporary Acquisition and owned as of such anniversary
date. In May 1998 the Company placed 140,000 of the shares issued in connection
with the Contemporary Acquisition into an escrow account. The Company may, at
its sole discretion, cancel such shares at any time.

Network

On February 27, 1998, the Company acquired the Network Magazine Group ("Network
Magazine"), a publisher of trade magazines for the radio broadcasting industry,
and SJS Entertainment Corporation ("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 which, in turn, is
sold to national network advertisers (the "Network Acquisition"), for total
consideration of approximately $66.8 million comprised of $52.0 million in
cash, a payment for working capital of approximately $1.8 million, reimbursed
sellers costs of $500,000, the purchase of an office building and property for
$2.5 million and the issuance upon the Spin-Off of approximately 750,000 shares
of Class A Common Stock of the Company valued by the parties at $10.0 million.
The $2.5 million purchase of the office building and property is comprised of
cash of approximately $700,000 and the assumption of debt of approximately $1.8
million. The Company is also obligated to pay the sellers an additional payment
in Class A 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 $14.0 million. In the Network
Acquisition, the Company, through a wholly owned subsidiary, acquired all of
the outstanding capital stock of each of The Album Network, Inc. and SJS
Entertainment Corporation and purchased substantially all of the assets and
properties and assumed substantially all of the liabilities and obligations of
The Network 40, Inc.

Concert/Southern

On March 4, 1998, the Company acquired Concert/Southern Promotions
("Concert/Southern"), a promoter of live music events in the Atlanta, Georgia
metropolitan area (the "Concert/Southern Acquisition"), for total cash
consideration of approximately $16.9 million, which includes a $300,000 payment
for working capital.

Avalon

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

Oakdale

On June 3, 1998, the Company acquired certain assets of Oakdale Concerts, LLC
and Oakdale Development Limited Partnership (collectively, "Oakdale"), a
promoter and producer of concerts in Connecticut and the owner of the 4,800
seat Oakdale Music Theater, for a purchase price of $9.4 million in cash and
the assumption of $2.5 million in liabilities (the "Oakdale Acquisition"). The
Company also made a non-recourse loan to the Oakdale sellers in the amount of
$11.4 million. In addition, pursuant the Oakdale Agreement, if the future
operating results (as defined in the Oakdale Agreement) of the Oakdale Theater
and the Meadows exceeds $5.5 million in 1999, the Company will be obligated to
pay between 5.0 to 5.8 times the amount of such excess to the Oakdale sellers.

FAME

On June 4, 1998, the Company acquired Falk Associates Management Enterprises,
Inc. and Financial Advisory Management Enterprises, Inc. (collectively,
"FAME"), a full-service marketing and

F-14

management company which specializes in the representation of team sports
athletes, primarily in professional basketball. The aggregate purchase price
for FAME was approximately $82.2 million in cash (including approximately $7.9
million which the Company paid in connection with certain taxes incurred by
FAME and the FAME sellers and excluding $4.7 million of taxes paid on behalf of
the sellers which will be refunded to the Company in 1999) and 1.0 million
shares of Class A Common Stock, valued at approximately $36.0 million (the
"FAME Acquisition"). The agreement also provides for payments by the Company to
the FAME sellers of additional amounts up to an aggregate of $15.0 million in
equal annual installments over 5 years contingent on the achievement of certain
operating performance targets. The agreement also provides for additional
payments by the Company if FAME's operating performance exceed the targets by
certain amounts.

Don Law

On July 2, 1998, the Company acquired certain assets of Blackstone
Entertainment, LLC ("Don Law"), a concert and theater promoter in New England,
for an aggregate consideration of approximately $92.2 million, including the
repayment of approximately $7.0 million in debt. Don Law currently owns and/or
operates three venues in New England with an aggregate seating capacity of
27,400. Don Law also acts as the sole ticket operator for all of its own venues
as well as several third party venues.

Magicworks

On September 11, 1998, the Company purchased all of the outstanding shares of
common stock of Magicworks Entertainment Incorporated ("Magicworks"), a
producer and promoter of theatrical shows, musical concerts, ice skating shows
and other live entertainment events. The total consideration was $118.9 million
in cash, including approximately $3.2 million in fees and expenses and the
repayment of $2.4 million in convertible notes which the Company is required to
repay upon presentation for conversion into Magicworks stock (the "Magicworks
Acquisition"). The acquisition was consummated by means of a tender offer (in
which approximately 98.7% of Magicworks shares were purchased) followed by a
merger (in which the remaining shares were converted into cash consideration).

Other Acquisitions

During the third quarter of 1998, the Company completed the acquisition of
seven companies in the theatrical and music segments, principally in the areas
of programming, touring and merchandising (collectively the "Other
Acquisitions"). The aggregate purchase price was $104.7 million in cash,
approximately $10.0 million in stock (300,000 shares of the Company's Class A
Common Stock) and $10.0 million of deferred payments. In addition, the Company
is required to make a loan to certain sellers in an amount equal to taxes
incurred by the sellers in connection with one of the transactions. The Company
expects that the amount of the loan will be approximately $750,000.

The Westbury Acquisition, the BGP Acquisition, the PACE Acquisition, the
Contemporary Acquisition, the Network Acquisition, the Concert/Southern
Acquisition, the Avalon Acquisition, the Oakdale Acquisition, the FAME
Acquisition, the Don Law Acquisition, the Magicworks Acquisition and the Other
Acquisitions are collectively referred to herein as the "1998 Acquisitions."
The 1998 Acquisitions were accounted for under the purchase method of
accounting and funded with the proceeds of the Note Offering, the Equity
Offering, the Credit Agreement (each as defined herein) and available cash. The
purchase prices of the 1998 Acquisitions have been preliminarily allocated to
the assets acquired and liabilities assumed and are subject to change.

Operating results for the 1997 Acquisitions and the 1998 Acquisitions are
included herein from their respective acquisition dates. Operating results
associated with the assets and liabilities contributed by SFX Broadcasting are
also included herein. Prior to the Spin-Off, SFX Broadcasting provided various
administrative services to the Company. SFX Broadcasting allocated these
expenses on the basis of direct usage. In the opinion of management, this
method of allocation was reasonable and allocated expenses approximated what
the Company would have incurred on a stand-alone basis. Intercompany
transactions and balances have been eliminated in consolidation.

F-15

The following pro forma summary represents the consolidated results for the
nine months ended September 30, 1998 and the year ended December 31, 1997 as if
the 1997 Acquisitions and the 1998 Acquisitions had occurred at January 1,
1997, after giving effect to certain adjustments, including amortization of
intangible assets and interest expense on the acquisition debt. These pro forma
results have been included for comparative purposes only and do not purport to
be indicative of what would have occurred had the acquisitions been made as of
that date or of results which may occur in the future (in thousands).

PRO FORMA
Nine Months Ended Year Ended
September 30, 1998 December 31, 1997
-------------------- ------------------

Revenues $ 925,094 $ 883,901
Net loss applicable to common shares $ (38,486) $ (52,714)
Loss applicable to common shares $ (1.29) $ (1.76)

3. FINANCING

Note Offering and Guarantees by Subsidiaries

On February 11, 1998, the Company completed an offering of $350.0 million
9 1/8% Senior Subordinated Notes (the "Notes" and "Note Offering") due 2008.
Interest is payable on the Notes on February 1 and August 1 of each year. On
July 15, 1998, the Company consummated the exchange of substantially identical
publicly registered notes (the "Exchange Notes") for all outstanding Notes. All
Notes were tendered for exchange and were cancelled upon the issuance of the
same principal amount of Exchange Notes.

The Company is a holding company that has no operating assets or operations of
its own. Substantially all of the Company's subsidiaries are wholly owned and
have jointly and severally guaranteed the Company's indebtedness represented by
the Exchange Notes (the "Guarantors"). Certain subsidiaries which are not
wholly owned (the "Non-Guarantor Subsidiaries"), do not guarantee such
indebtedness.

Full financial statements of the Guarantors and Non-Guarantor Subsidiaries have
not been included because, pursuant to their respective guarantees, the
Guarantors are jointly and severally liable with respect to the Exchange Notes
and management believes that the Non-Guarantor Subsidiaries are not material to
the Company on a consolidated basis. Accordingly, the Company does not believe
that the information contained in separate full financial statements of the
Guarantors or Non-Guarantor Subsidiaries would be material to investors. The
following are summarized unaudited statements setting forth certain financial
information concerning the Guarantors and Non-Guarantor Subsidiaries as of and
for the nine months ended September 30, 1998 (in thousands).

F-16

SFX SFX
Entertainment Non-Guarantor Entertainment
Inc. Guarantors Subsidiaries Eliminations Consolidated
--------------- -------------- --------------- ---------------- --------------

Current assets $ 8,910 $ 148,522 $ 8,295 $ -- $ 165,727
Property and equipment, net 8,905 256,182 9,913 -- 275,000
Goodwill and other intangible assets,
net 29,972 853,660 21,297 -- 904,929
Investment in subsidiaries 1,111,914 22,406 -- (1,111,914) 22,406
Other assets 3,648 16,768 3,070 -- 23,486
---------- ---------- ------- ------------ ----------
Total assets $1,163,349 $1,297,538 $42,575 $ (1,111,914) $1,391,548
========== ========== ======= ============ ==========
Current liabilities $ 42,455 $ 127,678 $ 3,632 $ -- $ 173,765
Long-term debt, less current portion 697,753 29,379 12,767 (12,767) 727,132
Other liabilities 10,430 63,179 463 -- 74,072
Minority interest -- 2,579 1,289 -- 3,868
Temporary equity 16,500 -- -- -- 16,500
Shareholders' equity 396,211 1,074,723 24,424 (1,099,147) 396,211
---------- ---------- ------- ------------ ----------
Total liabilities and shareholders'
equity $1,163,349 $1,297,538 $42,575 $ (1,111,914) $1,391,548
========== ========== ======= ============ ==========
Revenue $ -- $ 659,858 $20,518 $ -- $ 680,376
Operating expenses 48,047 615,916 17,690 -- 681,653
Interest expense, net 27,669 591 507 (524) 28,243
Minority interest -- 392 922 -- 1,314
Income from equity investments -- (3,964) -- -- (3,964)
Provision for income taxes -- 3,333 -- -- 3,333
---------- ---------- ------- ------------ ----------
Net (loss) income $ (75,716) $ 43,590 $ 1,399 $ 524 $ (30,203)
========== ========== ======= ============ ==========
Cash flow from operations $ (45,994) $ 70,023 $(1,722) $ -- $ 22,307
Cash flow used in investing activities (844,051) (7,816) (373) -- (852,240)
Cash flow from financing activities 891,252 (1,704) (5) -- 889,543
Cash at the beginning of the period -- 2,916 3,063 -- 5,979
---------- ---------- --------- ------------ ----------
Cash at the end of the period $ 1,207 $ 63,419 $ 963 $ -- $ 65,589
========== ========== ========= ============ ==========

The following are summarized unaudited statements setting forth certain
financial information concerning the Guarantors and Non-Guarantor Subsidiaries
as of and for the three months ended September 30, 1998 (in thousands).

SFX SFX
Entertainment Non-Guarantor Entertainment
Inc. Guarantors Subsidiaries Eliminations Consolidated
--------------- -------------- --------------- -------------- --------------

Revenue $ -- $372,039 $15,995 $ -- $388,034
Operating expenses 7,745 335,722 12,950 -- 356,417
Interest expense, net 12,361 119 208 (167) 12,521
Minority interest -- (7) 923 -- 916
Income from equity investments -- (2,139) -- -- (2,139)
Provision for income taxes -- 1,983 -- -- 1,983
--------- --------- ------- ------ --------
Net (loss) income $ (20,106) $36,361 $ 1,914 $ 167 $ 18,336
========= ========= ======= ====== ========

Credit Agreement

On February 26, 1998, the Company executed a Credit and Guarantee Agreement
(the "Credit Agreement" or "Credit Facility") 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 (the "Revolver"). In addition, in September
1998, the Company received an increase in its borrowing availability under the
Revolver by $50.0 million, which increased the Company's availability under the
Credit Agreement to $350.0 million. 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 the Bank of
New York's prime rate. The interest rate spreads on the Term Loan and the
Revolver are adjusted based on the Company's Total Leverage Ratio (as defined
in the Credit Agreement). The Company pays 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

F-17

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.
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. As of November 13, 1998, the Company had borrowed $346.0 million
under the Credit Agreement to consummate certain of the 1998 Acquisitions.

In addition, the Company has received a commitment letter from its lenders to
replace its existing credit facility with a new $600.0 million credit facility.
The new facility is subject to the execution of a definitive agreement and will
differ from the current credit facility in several respects including
applicable financial ratios, interest rate margins and term of repayment. The
Company and its lenders are presently reviewing the pending commitment in light
of recent developments in the credit markets. The Company may renegotiate the
existing commitment, which renegotiations may significantly alter the principal
terms, or the Company may consider alternative forms of debt financing. If a
new credit facility is consummated and the terms of the agreement are
substantially different than the terms of the existing credit facility, the
Company may be required to write off the remaining deferred financing costs
related to the current credit facility in the form of an extraordinary loss.

Equity Offering

On May 27, 1998, the Company consummated an offering of 8,050,000 shares of
Class A Common Stock at an offering price of $43.25 per share (the "Equity
Offering"). The proceeds received by the Company, after deducting the
underwriting discount and offering expenses, were approximately $329.0 million.
The proceeds were used to (i) repay certain indebtedness and consummate certain
of the 1998 Acquisitions and (ii) pay $93.7 million of the tax indemnification
obligation related to the Spin-Off (see Note 6).

4. CAPITAL STOCK

In order to facilitate the Spin-Off, the Company revised its capital structure
to increase its authorized capital stock and to effect a stock split. The
authorized capital stock of the Company consists of 110,000,000 shares of
Common Stock (comprised of 100,000,000 shares of Class A Common Stock and
10,000,000 shares of Class B Common Stock), and 25,000,000 shares of preferred
stock, par value $.01 per share.

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

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

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

During January 1998, the Board of Directors and SFX Broadcasting, as sole
stockholder, approved and adopted a stock option and restricted stock plan
providing for the issuance of restricted shares of the Company's Class A Common
Stock and options to purchase shares of the Company's Class A Common Stock
totaling up to 2,000,000 shares. In January 1998, the Company granted options
exercisable for an aggregate of 345,000 shares of the Company's Class A Common
Stock at an exercise price of $5.50 which will vest over three years and 7,500
shares of the Company's Class A Common Stock at an exercise price of $5.50
which vests over one year. The Company will record non-cash compensation
charges over the three-year vesting period of approximately $3.3 million

F-18

annually. Between April and August 1998, the Company granted options
exercisable for an aggregate of 1,629,666 shares of Class A Common Stock at
exercise prices ranging from $29.125 to $45.875.

During January 1998, in connection with the expectation of certain executive
officers entering into employment agreements with the Company, the Board of
Directors, upon recommendation of the Compensation Committee, approved the sale
of an aggregate of 650,000 shares of the Company's Class B Common Stock and
190,000 shares of the Company's Class A Common Stock to certain officers for a
purchase price of $2.00 per share. Such shares were issued in April 1998. A
non-cash charge to earnings was recorded by the Company in the second quarter
of approximately $23.9 million associated with the sale.

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

5. NON-CASH CHARGES

Non-cash charges recorded in the second and third quarters of 1998 of $32.9
million consisted of (a) $23.9 million of compensation related to the sale of
650,000 shares of Class B Common Stock and 190,000 shares of Class A Common
Stock at a purchase price of $2.00 per share to certain executive officers
pursuant to employment agreements, (b) $7.5 million associated with the
issuance of 247,177 shares of Class A Common Stock to Mr. Robert F.X.
Sillerman, Executive Chairman of the Company, in connection with the repurchase
of shares of SFX Broadcasting issued to the sellers of the Meadows and (c) $1.5
million related to the issuance of stock options to certain executive officers
pursuant to employment agreements exercisable for an aggregate of 352,500
shares of Class A Common Stock.

In addition, a $2.7 million write down of the remaining balance of the deferred
expense relating to the Triathlon Broadcasting Company ("Triathlon") agreement
was recorded in the second quarter of 1998 as a result of Triathlon's recent
agreement to be acquired by a third party. If a third party acquires Triathlon,
the consulting fee agreement would be terminated. The write down was recorded
as a charge to amortization expense.

6. SPIN-OFF

Pursuant to the terms of the Spin-Off, SFX Broadcasting contributed to the
Company all of the assets relating to its live entertainment businesses and the
Company assumed all of SFX Broadcasting's liabilities pertaining to the live
entertainment businesses, as well as certain other liabilities including the
obligation to make change of control payments to certain employees of SFX
Broadcasting of approximately $5.0 million, as well as the obligation to
indemnify one-half of certain of these employees' excise tax. At the time of
the Broadcasting Merger, the Company preliminarily received $2.0 million of net
Working Capital (as defined in the Broadcasting Merger Agreement). Any
additional payments which may be payable upon the final determination of the
Working Capital will be reflected as an increase or decrease, as the case may
be, to equity.

In connection with the Spin-Off, the Company entered into a tax sharing
agreement with SFX Broadcasting. Pursuant to the tax sharing agreement, as
amended, the Company is responsible for certain taxes incurred by SFX
Broadcasting, including income taxes imposed with respect to income generated
by the Company for periods prior to the Spin-Off and taxes resulting from gain
recognized by SFX Broadcasting in the Spin-Off. The Company believes that the
amount of taxes it will be required to pay in connection with the Spin-Off will
be approximately $108.0 million, of which $93.7 million was paid on or before
September 30, 1998. The remaining $14.3 million portion of the tax indemnity
payment is payable on December 31, 1998. Management's estimates of the amount
of the indemnity payment are based on assumptions which management believes are
reasonable. However, upon the completion of all final tax returns, including
any potential tax audits, such assumptions could be modified in a manner that
would result in a significant variance in the actual amount of the tax
indemnity.

F-19

7. DILUTIVE EARNINGS PER SHARE

A reconciliation of the number of shares used for calculating basic earnings
per common share and diluted earnings per common share for the three months
ended September 30, 1998 follows:

Average number of common shares outstanding 30,420,883
Effect of stock options 460,894
----------
30,881,777
==========

Options to purchase 1,117,666 shares of common stock at prices ranging from
$43.25 to $45.88 were outstanding at September 30, 1998, but were not included
in the computation of diluted earnings per common share because the options'
exercise price was greater than the average market price of the Company's
common stock during the three months ended September 30, 1998. In addition,
diluted earnings per share was not adjusted for the impact of common stock
issued to the PACE sellers, which is subject to redemption by the Company,
because to do so would have been antidilutive.

Outstanding stock options at September 30, 1998 had no dilutive effect on basic
earnings per share during the nine months ended September 30, 1998 due to the
Company's net loss position. The Company did not have any dilutive securities
outstanding during the nine-months and three-months ended September 30, 1997.

8. COMMITMENTS AND CONTINGENCIES

Pursuant to a real estate purchase agreement with the sellers of Oakdale, the
Company has agreed to purchase the land, building and improvements of the
Oakdale Theater at the end of the Company's fifteen-year lease of the premises
in June 2013 for $15.4 million. In June 1998, the Company extended an $11.4
million note receivable to the sellers which is secured by the property.

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

9. SUBSEQUENT EVENTS

Pending Acquisitions

Marquee

The Company has entered into an agreement and plan of merger (the "Marquee
Merger Agreement"), dated as of July 23, 1998, as amended, with The Marquee
Group, Inc. ("Marquee"), pursuant to which Marquee will become a wholly-owned
subsidiary of the Company. Pursuant to the Marquee Merger Agreement, at the
effective time of the merger, for each outstanding share of common stock of
Marquee: (i) if the Company's stock price is $42.75 or less, Marquee
shareholders will receive 0.1111 shares of the Company's Class A Common Stock;
(ii) if the Company's stock price is over $42.75 but no more than $60.00,
Marquee shareholders will receive $4.75 worth of the Company's Class A Common
Stock; (iii) if the Company's stock price is over $60.00, but no more than
$66.00, Marquee shareholders will receive between $4.75 and $5.35 worth of the
Company's common stock; or (iv) if the Company's stock price is over $66.00,
Marquee shareholders will receive $5.35 worth of the Company's Class A Common
Stock. Marquee is a publicly traded company that provides integrated event
management, television production, marketing and consulting services in the
sports, news and entertainment industries. The Company expects to incur
approximately $6.0 million in fees and expenses related to the transaction.

Cellar Door

On August 13, 1998, the Company and the beneficial owner of all of the
outstanding equity interests of the entities comprising the Cellar Door Group
of Companies (collectively, "Cellar Door") entered into a letter of intent with
respect to the Company's acquisition of all of the outstanding capital stock of
Cellar Door (the "Cellar Door Acquisition"). Pursuant to the letter of intent,
the aggregate

F-20

purchase price for Cellar Door will be $70.0 million in cash payable at
closing, Class A Common Stock with a value of $20.0 million (based upon the
average closing price of the Class A Common Stock for the twenty business day
period ending on the business day prior to the closing) and $8.5 million
payable in five equal annual installments beginning on the first anniversary of
the closing date. In addition, the Company will issue to the seller options to
purchase 100,000 shares of the Company's Class A Common Stock. The closing will
be subject to customary closing conditions, including the entry into a
definitive acquisition agreement and obtaining the required approval under the
HSR Act (as defined herein). If the Company is unable to complete the Cellar
Door Acquisition, it may be required to pay the seller $10.0 million as
liquidated damages. Cellar Door is a leading promoter and producer of live
entertainment events. The Company expects to incur approximately $1.5 million
in fees and expenses related to the transaction.

The Marquee merger and the Cellar Door Acquisition are collectively referred to
herein as the "Pending Acquisitions." The Company expects to complete the
Pending Acquisitions during the first quarter of 1999. However, the timing and
completion of the Pending Acquisitions are subject to a number of conditions,
including the approval of the stockholders of Marquee, the expiration or
termination of any applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 for the Cellar Door Acquisition, and the
receipt of all applicable consents from third parties and regulatory agencies.
Certain of these conditions are beyond the Company's control and there can be
no assurance that each of the Pending Acquisitions will be consummated during
the first quarter of 1999, on the terms described herein, or at all. In
connection with the HSR Act filing for the Marquee merger, the Company received
notice of a preliminary inquiry from the Antitrust Division of the U.S.
Department of Justice relating to the Cellar Door Acquisition and seeking
information on the overall scope of the Company's operations. The Company
intends to cooperate with the Department of Justice inquiry. While the Company
believes that the Cellar Door Acquisition, along with the Company's overall
business and plan of acquisitions, are in compliance with applicable antitrust
laws, there can be no assurance that the results of such inquiry will not have
a material adverse impact on the Company's ability to consummate the Cellar
Door Acquisition or its business, results of operations and financial
conditions.

ISI

In January 1999, the Company entered into a definitive agreement to acquire
Integrated Sports International ("ISI") for an aggregate purchase price of
$14.1 million in cash and 60,000 shares of Class A Common Stock. In addition,
during the five-year period following the closing of the acquisition, the
Company may be required to make additional payments of up to $7.5 million in
cash and 50,000,000 shares of Class A Common Stock based on the achievement of
ISI of certain target levels of EBITDA, as defined in the acquisition
agreement, during such period. The Company expects to complete the ISI
acquisition during the first quarter of 1999. The Company would be required to
pay liquidated damages of $2.0 million to ISI in the event it is not able to
close the acquisition on or prior to April 15, 1999.

Nederlander

On February 1, 1999, the Company and the owners of Nederlander entered into
definitive agreements for the acquisition of certain interests in seven venues
and other assets of Nederlander for an aggregate purchase price of approximately
$93.6 million in cash plus future earn-out payments depending on the level of
future earnings generated.

Stock Incentive Plan

Following a recommendation of the Company's compensation committee, the Company
has, subject to stockholder approval, adopted a new incentive stock option plan
covering options to acquire up to three million shares of the Company's Class A
Common Stock. The plan will be designed to broaden the equity ownership of the
Company's employees at all levels. The Company anticipates that the proposed
stock plan will be submitted to a vote of the stockholders at the Company's
first annual meeting scheduled to be held in the spring of 1999.

Note Offering

On November 25, 1998, the Company completed an offering of $200.0 million in
principal amount of 9 1/8% Senior Subordinated Notes due December 1, 2008.
Interest is payable on the notes on June 1 and December 1 of each year.

Common Stock Offering

In January 1999 the Company filed a registration statement on Form S-1 with the
Securities and Exchange Commission for the registration of 5,520,000 shares of
its Class A Common Stock.

F-21

REPORT OF INDEPENDENT AUDITORS

Board of Directors
SFX Entertainment, Inc.

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

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

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

ERNST & YOUNG LLP

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

F-22

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-23

SFX ENTERTAINMENT, INC.

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

DECEMBER 31,
--------------------------
PREDECESSOR
1997 1996
----------- ------------

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

See accompanying notes.

F-24

SFX ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)

YEAR ENDED DECEMBER 31,
---------------------------------------------
PREDECESSOR PREDECESSOR
1997 1996 1995
-------------- ------------- ------------

Concert revenue ................................................ $ 96,144 $ 50,362 $47,566
Operating expenses:
Cost of revenue ............................................... 83,417 50,686 47,178
Depreciation and amortization ................................. 5,431 747 750
Corporate expenses, net of Triathlon fees of $1,794 in
1997 ......................................................... 2,206 -- --
----------- -------- -------
$ 91,054 $ 51,433 $47,928
----------- -------- -------
Income (loss) from operations .................................. 5,090 (1,071) (362)
Investment income .............................................. 295 198 178
Interest expense ............................................... (1,590) (60) (144)
Equity in pretax income of unconsolidated subsidiaries ......... 509 524 488
----------- -------- -------
Income (loss) before provision for income taxes ................ $ 4,304 $ (409) $ 160
Provision for income taxes ..................................... 490 106 13
----------- -------- -------
Basic and diluted net income (loss) ............................ $ 3,814 $ (515) $ 147
=========== ======== =======
Net income (loss) per common share ............................. $ 0.26
===========
Weighted average basic and dilutive common shares
outstanding ................................................... 14,445,061
===========
Pro Forma:
Income (loss) before provision for income taxes ................ $ 4,304 $ (409) $ 160
Pro forma provision for income taxes ........................... 2,540 106 13
----------- -------- -------
Pro forma net income (loss) .................................... $ 1,764 $ (515) $ 147
=========== ======== =======
Pro forma earnings per share ................................... $ 0.12
===========

See accompanying notes.

F-25

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 assets ............................................. (275) -- --
Accounts payable and accrued expenses .................... (325) 4,759 (1,326)
Income taxes payable ..................................... 917 -- --
Deferred revenue ......................................... (7,147) 16 (784)
--------- -------- --------
Net cash provided by (used in) operating activities ......... 1,005 4,214 (453)
INVESTING ACTIVITIES:
Purchase of concert promotion businesses, net of cash
acquired ................................................. (71,213) -- --
Investment in GSAC Partnership ............................. -- (435) --
Purchase of property and equipment ......................... (2,083) -- --
--------- -------- --------
Net cash used in investing activities ....................... (73,296) (435) --
--------- -------- --------
FINANCING ACTIVITIES:
Capital contributed by SFX Broadcasting .................... 79,093 -- --
Payment of debt ............................................ (823) -- --
Proceeds from issuance of common stock and capital
contributions ............................................ -- 152 --
Loan from stockholder ...................................... -- 47 --
Distributions paid ......................................... -- (1,630) (216)
--------- -------- --------
Net cash provided by (used in) financing activities ......... 78,270 (1,431) (216)
Net increase in cash and cash equivalents ................... 5,979 2,348 (669)
Cash and cash equivalents at beginning of period ............ -- 2,905 3,574
--------- -------- --------
Cash and cash equivalents at end of period .................. $ 5,979 $ 5,253 $ 2,905
========= ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ...................................... $ 1,504 $ 60 $ 144
========= ======== ========
Cash paid for income taxes .................................. $ -- $ 106 $ 13
========= ======== ========

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
o Issuance of equity securities, including deferred equity security issuance
and assumption of debt in connection with certain acquisitions (see Note 1).

o Agreements to pay future cash consideration in connection with certain
acquisitions (see Note 1).
o The balance sheet includes certain assets and liabilities which have been
contributed by SFX Broadcasting to the Company in connection with the
Spin-Off.

See accompanying notes.

F-26

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.

Sunshine Promotions

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

The Delsener/Slater, Meadows, and Sunshine Promotions acquisitions are
collectively referred to herein as the "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 contributed by SFX Broadcasting
to the Company in connection with the Spin-Off

F-27

SFX ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(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 .............. $ 221 $ 2,668

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 was
completed on April 27, 1998 and the Broadcasting Merger is expected to be
completed in the second quarter of 1998.

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

SFX Broadcasting and the Company entered into a tax sharing agreement.
Under the tax sharing agreement, the Company will agree to pay to SFX
Broadcasting the amount of the tax liability of SFX Broadcasting and the
Company combined, to the extent properly attributable to the Company for the
period up to and including the Spin-Off, and will indemnify SFX Broadcasting
for any tax adjustment made in subsequent years that relates to taxes properly
attributable to the Company during the period prior to and including the
Spin-Off. SFX Broadcasting, in turn, will indemnify the Company for any

F-28

SFX ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

tax adjustment made in years subsequent to the Spin-Off that relates to taxes
properly attributable to the SFX Broadcasting during the period prior to and
including the Spin-Off. The Company also will be responsible for any taxes of
SFX Broadcasting resulting from the Spin-Off, including any income taxes but
only to the extent that the income taxes result from the gain on the
distribution that exceeds the net operating losses of SFX Broadcasting and the
Company available to offset such gain including net operating losses generated
in the current year prior to the Spin-Off.

The actual amount of the gain will be based on the excess of the value of
the Company's Common Stock on the date of the Spin-Off over the tax basis of
that stock. The Company believes that the value of the Company's Common Stock
for tax purposes will be determined by no later than the first trading day
following the date on which the Company's Common Stock is distributed in the
Spin-Off. Increases or decreases in the value of the Company's Common Stock
subsequent to such date will not effect the tax liability. The Company expects
that such indemnity payment will be due on or about June 15, 1998.

2. RECENT ACQUISITIONS AND FINANCING

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

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

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

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

F-29

SFX ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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, 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.

F-30

SFX ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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."

3. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

Cash and Cash Equivalents

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

Property and Equipment

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

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

F-31

SFX ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

financing activity of Triathlon. The cost of acquiring the fees is being
amortized over the term of the agreement which expires on June 1, 2005.
Triathlon has announced its intention to enhance shareholder value through a
sale. The Company's management believes that the capitalized cost of acquiring
the right to receive fees from Triathlon is recoverable.

Revenue Recognition

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

Risks and Uncertainties

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

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

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

Advertising Costs

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

Income Taxes

In 1998, the Company's income taxes are calculated on a stand alone basis
involving the period through April 27, 1998 in which the Company was a member
of SFX Broadcasting's Consolidated federal income tax return. In 1998, the
Company's income taxes reflected the federal benefit for the operating losses
of SFX Broadcasting.

F-32

SFX ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

Loss Per Common Share

Basic loss per common share is based upon the net loss applicable to
common shares after preferred dividend requirements and upon the weighted
average of common shares outstanding during the period. Diluted loss per common
share adjusts for the effect of convertible securities and stock options only
in the periods presented in which such effect would have been dilutive. There
were no dilutive securities during the year ended December 31, 1997.

Earnings per share for the years ended December 31, 1996 and 1995 have not
been presented herein since the operations for those years relate to the
predecessor of the Company and such information would not be meaningful.

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-33

SFX ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 lease obligations .................. 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

F-34

SFX ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8.9% per annum through February 1, 1998, and thereafter at the index rate, as
defined, plus 2.5%. In addition, the Meadows is required to make principal
payments in an amount equal to 10% of the annual gross revenue, as defined, in
excess of $13,000,000 on or before the March 1 following each calendar year
commencing March 1, 1998. In 1997, gross revenues did not exceed the defined
threshold and thus no principal payment was made on March 1, 1998.

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 --

F-35

SFX ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. PROPERTY AND EQUIPMENT

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

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
======== ========

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):

PREDECESSOR PREDECESSOR
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-36

SFX ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. INCOME TAXES

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

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.

F-37

SFX ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

PREDECESSOR
---------------------
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):

EMPLOYMENT
OPERATING LEASES 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
spring of 1999.

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

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

F-38

SFX ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

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

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

10. RELATED PARTY TRANSACTIONS

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

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

11. CAPITAL STOCK

In order to facilitate the Spin-Off, the Company recently revised its
capital structure to increase its authorized capital stock and to effect a
stock split. The authorized capital stock of the Company consists of
110,000,000 shares of Common Stock (comprised of 100,000,000 shares of Class A
Common Stock and 10,000,000 shares of Class B Common Stock), and 25,000,000
shares of preferred stock, par value $.01 per share.

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

Holders of the Company's Class A Common Stock are entitled to one vote and
holders of the Company's Class B Common Stock are entitled to ten votes on all
matters submitted to a vote of

F-39

SFX ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

shareholders except for (a) the election of directors, (b) with respect to any
"going private" transaction involving the Chairman and (c) as otherwise
provided by law.

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

12. DEFINED CONTRIBUTION PLAN

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

13. SUBSEQUENT EVENTS (UNAUDITED)

During January 1998, in connection with certain executive officers
entering into employment agreements with the Company, the Board of Directors,
upon recommendation of the Compensation Committee, approved the sale of an
aggregate of 650,000 shares of the Company's Class B Common Stock and 90,000
shares of the Company's Class A Common Stock to certain executive officers for
a purchase price of $2.00 per share. Such shares will be issued on or about the
effective date of the Spin-Off. A substantial non-cash charge to earnings will
be recorded by the Company at the time of the Spin-Off based on then fair value
of such shares.

In addition, the Board, upon recommendation of the Compensation Committee,
has approved the issuance of stock options exercisable for 1,002,500 shares of
the Company's Class A Common Stock. Of these options, 252,500 will vest over
three years and will have an exercise price of $5.50 per share, and the
remainder will vest over five years and will have an exercise price of $30.50.
The Company will record non-cash compensation charges over the three-year
period with respect to the 252,000 options to be issued to the extent that the
fair value of the Company's Class A Common Stock exceeds the exercise price of
such options.

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

In connection with the acquisition of Meadows Music Theater, Broadcasting
obtained an option, as subsequently amended, to repurchase 247,177 shares of
its Class A common stock (the "Meadows Shares") for an aggregate purchase price
of $8.2 million (the "Meadow Repurchase"). However, Broadcasting was restricted
from exercising the Meadows Repurchase by certain loan covenants and other
restrictions. Pursuant to the terms of the Broadcasting Merger agreement, since
the Meadows Shares were outstanding at the effective time of the Broadcasting
Merger, Working Capital was decreased by approximately $10.3 Million.

In January 1998, Mr. Sillerman committed to finance the $8.2 million
exercise price of the Meadows Repurchase in order to offset the $10.3 million
reduction to Working Capital. In consideration for his commitment, the board of
directors of Broadcasting agreed that Mr. Sillerman would receive approximately
the number of shares of SFX's Class A common stock to be issued in the Spin-Off
with respect to the Meadows Shares. At the time Broadcasting accepted Mr.
Sillerman's commitment, the board of directors of Broadcasting valued SFX's
Class A common stock to be issued

F-40

SFX ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

in the Spin-Off at $4.20 per share, the value attributed to such shares in the
fairness opinion obtained by Broadcasting in connection with the Broadcasting
Merger. The transaction was approved by Broadcasting's board of directors,
including the independent directors.

In April 1998, Broadcasting assigned the option for the Meadows Shares to
an unaffiliated third party and, in connection therewith, agreed to pay such
party a fee of $75,000. Mr. Sillerman subsequently advanced such party the $8.2
million exercise price for the Meadows Repurchase, the repayment of which
became due upon the Broadcasting Merger. The third party has exercised the
option and transferred to Mr. Sillerman SFX's Class A common stock issued in
the Spin-Off with respect to the Meadows Shares. The Meadows Shares were
tendered in the Broadcasting Merger by the third party in exchange for the per
share Broadcasting Merger consideration of $75. The third party subsequently
repaid the advance from Mr. Sillerman and transferred $10.3 million, the
remainder of such consideration net of the third party fee, to SFX.

F-41

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of Connecticut Performing Arts, Inc. and
the Partners of Connecticut Performing Arts Partners:

We have audited the accompanying combined balance sheets of Connecticut
Performing Arts, Inc. and Connecticut Performing Arts Partners (collectively,
the Company) as of December 31, 1995 and 1996, and the related combined
statements of operations, shareholders' and partners' equity (deficit) and cash
flows for the years then ended. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

ARTHUR ANDERSEN LLP

Hartford, Connecticut
March 21, 1997

F-42

CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS

COMBINED BALANCE SHEETS

AS OF DECEMBER 31,
---------------------------------
1995 1996
--------------- ---------------

ASSETS:
Current assets:
Cash ................................................................ $ 63,061 $ 6,778
Accounts receivable ................................................. 192,382 152,205
Accounts receivable -- related party ................................ 124,700 226,265
Prepaid interest .................................................... 54,982 54,279
Prepaid insurance ................................................... 69,797 87,869
Other current assets ................................................ 21,156 60,784
Deposit ............................................................. -- 110,000
Subscription receivable ............................................. 100 100
----------- ------------
Total current assets ............................................. 526,178 698,280
----------- ------------
Plant and equipment:
Building and building improvements .................................. 14,127,632 14,208,153
Furniture, fixtures and equipment ................................... 1,899,041 1,973,911
Leasehold improvements .............................................. 1,221,069 1,224,071
----------- ------------
17,247,742 17,406,135
Less: Accumulated depreciation and amortization ..................... (408,897) (1,620,297)
----------- ------------
16,838,845 15,785,838
----------- ------------
Other assets:
Deferred costs, net of accumulated amortization of $165,300 and
$503,766 in 1995 and 1996, respectively ............................ 2,453,553 2,115,087
Deposit ............................................................. 110,000 --
Other ............................................................... -- 2,332
----------- ------------
Total other assets ............................................... 2,563,553 2,117,419
----------- ------------
$19,928,576 $ 18,601,537
=========== ============
LIABILITIES AND SHAREHOLDERS' AND PARTNERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable .................................................... $ 915,280 $ 908,986
Accrued expenses .................................................... 1,356,132 655,207
Deferred income ..................................................... 679,476 737,440
Notes payable ....................................................... 1,100,000 1,450,000
Current portion of long-term debt and capital lease obligations ..... 493,362 824,800
----------- ------------
Total current liabilities ........................................ 4,544,250 4,576,433
----------- ------------
Long-term debt and capital lease obligations,
less current portion ............................................... 13,398,700 13,982,196
----------- ------------
COMMITMENTS AND CONTINGENCIES
(Notes 2, 4, 5, 6, 9 and 10)
Shareholders' and Partners' Equity (Deficit):
Shareholders' equity--
Common stock ....................................................... 1,000 1,000
Series A Preferred Stock ........................................... 1,346,341 1,372,174
Series B Preferred Stock ........................................... 1,250,000 1,250,000
Accumulated deficit ................................................ (273,114) (1,999,823)
Partners' equity (deficit) .......................................... (338,601) (580,443)
----------- ------------
Total shareholders' and partners' equity (deficit) ............... 1,985,626 42,908
----------- ------------
$19,928,576 $ 18,601,537
=========== ============

The accompanying notes are an integral part of these combined financial
statements.

F-43

CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS

COMBINED STATEMENTS OF OPERATIONS

YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1996
---------------- ----------------

Operating revenues:
Concert revenue ....................... $ 6,830,681 $ 8,122,797
Cost of concerts ...................... (5,524,043) (6,191,777)
------------ ------------
1,306,638 1,931,020
Ancillary income ...................... 1,431,577 2,052,592
------------ ------------
2,738,215 3,983,612
------------ ------------
Operating expenses:
General and administrative ............ 3,068,162 3,080,914
Depreciation and amortization ......... 574,197 1,549,894
Other ................................. 20,046 33,577
------------ ------------
3,662,405 4,664,385
------------ ------------
Loss from operations ............... (924,190) (680,773)
Other income (expense):
Interest income ....................... 428,869 30,015
Interest expense ...................... (509,225) (1,274,660)
------------ ------------
Loss before income taxes ........... (1,004,546) (1,925,418)
Provision for income taxes ............ 10,796 17,300
------------ ------------
Net loss ........................... $ (1,015,342) $ (1,942,718)
============ ============

The accompanying notes are an integral part of these combined financial
statements.

F-44

CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS

COMBINED STATEMENTS OF SHAREHOLDERS'
AND PARTNERS' EQUITY (DEFICIT)

SHAREHOLDERS' EQUITY (DEFICIT)
------------------------------------------- PARTNERS'
COMMON PREFERRED ACCUMULATED EQUITY
STOCK STOCK DEFICIT (DEFICIT)
--------- ------------- --------------- -------------

Balance, December 31, 1994 .................... $1,000 $2,500,000 $ (32) $ 500,000
Accretion of Series A Preferred Stock ......... -- 96,341 (96,341) --
Net loss ...................................... -- -- (176,741) (838,601)
------ ---------- ------------ ----------
Balance, December 31, 1995 .................... 1,000 2,596,341 (273,114) (338,601)
Accretion of Series A Preferred Stock ......... -- 25,833 (25,833) --
Net loss ...................................... -- -- (1,700,876) (241,842)
------ ---------- ------------ ----------
Balance, December 31, 1996 .................... $1,000 $2,622,174 $ (1,999,823) $ (580,443)
====== ========== ============ ==========

The accompanying notes are an integral part of these combined financial
statements.

F-45

CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS

COMBINED STATEMENTS OF CASH FLOWS

YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1996
----------------- -----------------

Cash flows from operating activities:
Net loss ....................................................... $ (1,015,342) $ (1,942,718)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization ................................. 574,197 1,549,894
Loss on disposal of equipment ................................. -- 1,031
Changes in operating assets and liabilities:
Accounts receivable ........................................... (192,382) 40,177
Accounts receivable -- related party .......................... -- (101,565)
Prepaid expenses and other assets ............................. (143,703) (59,329)
Accounts payable .............................................. -- (6,294)
Accrued expenses .............................................. 505,199 150,008
Deferred income ............................................... 679,476 57,964
------------- -------------
Net cash provided by (used in) operating activities ......... 407,445 (310,832)
------------- -------------
Cash flows from investing activities:
Purchases of plant and equipment .............................. (23,242,858) (159,452)
Grant proceeds ................................................ 7,680,161 --
Deferred start-up costs ....................................... (264,975) --
Accounts receivable -- related party .......................... 827,170 --
Accounts payable .............................................. (438,350) --
------------- -------------
Net cash used in investing activities ...................... (15,438,852) (159,452)
------------- -------------
Cash flows from financing activities:
Proceeds from borrowings on notes payable and long-term
debt ........................................................ 13,943,316 1,278,068
Repayments of notes payable, long-term debt and capital
lease obligations ........................................... (176,917) (864,067)
Proceeds from sales of common and preferred stock ............. 900 --
------------- -------------
Net cash provided by financing activities ................... 13,767,299 414,001
------------- -------------
Net decrease in cash ........................................... (1,264,108) (56,283)
Cash, beginning of year ........................................ 1,327,169 63,061
------------- -------------
Cash, end of year .............................................. $ 63,061 $ 6,778
============= =============
Supplemental Disclosures:
Cash Paid For--
Interest ...................................................... $ 554,342 $ 1,108,291
============= =============
Income taxes .................................................. $ 10,796 $ 17,300
============= =============
Noncash Transactions--
Capital lease obligations ..................................... $ 59,479 $ --
============= =============
Series A Preferred Stock accretion ............................ $ 96,341 $ 25,833
============= =============
Conversion of accrued expense for equipment purchase to
note payable ................................................ $ -- $ 850,933
============= =============

The accompanying notes are an integral part of these combined financial
statements.

F-46

CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS

NOTES TO COMBINED FINANCIAL STATEMENTS

1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Operations --

Connecticut Performing Arts, Inc. (the Company) and Connecticut Performing
Arts Partners (the Partnership) were incorporated and formed, respectively, in
1993 pursuant to the laws of the State of Connecticut. The Company's
shareholders and the Partnership's partners are Nederlander of Connecticut,
Inc. and Connecticut Amphitheater Development Corporation. The Company's
shareholders and the Partnership's partners changed in March 1997 (see Note
10). The Company and Partnership are engaged in the ownership and operation of
an amphitheater in Hartford, Connecticut. The construction of the amphitheater
commenced in December 1994 and amphitheater operations commenced in July 1995.

Principles of combination --

The combined financial statements include the accounts of the Company and
the Partnership after elimination of intercompany accounts and transactions.

Use of estimates in the preparation of financial statements --

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

Plant and equipment --

Plant and equipment is carried at cost. Major additions and betterments
are capitalized, while replacements, maintenance and repairs which do not
extend the lives of the assets are charged to operations as incurred. Upon the
disposition of plant and equipment, any resulting gain or loss is recognized in
the statement of operations as a component of income.

The Company received grant funds from the City of Hartford and Connecticut
Development Authority related to the construction of the amphitheater (see Note
4). Such amounts have been accounted for as a reduction in the cost of the
amphitheater.

Depreciation of plant and equipment is provided for, commencing when such
assets become operational, using straight-line and accelerated methods over the
following estimated useful lives:

USEFUL LIVES
-------------------

Building and building improvements .......... 39 years
Furniture, fixtures and equipment ........... 4-7 years
Leasehold improvements ...................... Shorter of asset
life or lease term

Effective January 1, 1996, the Company and Partnership adopted Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" which had no
effect upon adoption. This statement requires that long-lived assets and
certain identifiable intangible assets to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.

F-47

CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

Deferred costs --

Deferred costs consist of start-up costs being amortized over a period of
5 years and deferred financing costs being amortized over the term of the
related debt (24 years and 4 months). As of December 31, 1995 and 1996 deferred
costs were as follows:

1995 1996
------------- -------------

Deferred start-up ....................... $1,452,669 $1,452,669
Deferred financing ...................... 1,166,184 1,166,184
---------- ----------
2,618,853 2,618,853
Less: Accumulated amortization .......... (165,300) (503,766)
---------- ----------
$2,453,553 $2,115,087
========== ==========

Deposit --

The deposit represents a deposit held by the City of Hartford related to
an employment agreement between the Partnership and the City of Hartford for
priority hiring of Hartford residents and utilization of minority business
enterprise or women business enterprise contractors and vendors in the future
operation of the amphitheater. The deposit will be returned to the Partnership
in December 1997 if the Partnership is in compliance with the employment
agreement. As of December 31, 1996, the Partnership has compensated the City of
Hartford for noncompliance with the terms of the agreement in connection with
the construction of the facility and the hiring of contractors and the City of
Hartford has agreed to make no additional claims with respect to this matter.

Income taxes --

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". This
statement requires a company to recognize deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized in
a company's financial statements or tax returns. Under this method, deferred
tax assets and liabilities are determined based on the difference between the
financial statement carrying amounts and the tax bases of assets and
liabilities and net operating loss carryforwards available for tax reporting
purposes, using the applicable tax rates for the years in which the differences
are expected to reverse. A valuation allowance is recorded on deferred tax
assets unless realization is more likely than not.

The income tax effects of the operations of the Partnership accrue to the
partners in accordance with the terms of the Partnership agreement and are not
reflected in the accompanying combined financial statements.

Revenue recognition --

Revenue from ticket sales is recognized upon occurrence of the event.
Advance ticket sales are recorded as deferred income until the event occurs.
Ticket revenue is recorded net of payments in lieu of taxes under the terms of
the City of Hartford lease (see Note 6) and admission taxes.

Advertising --

The Company expenses the cost of advertising when the specific event takes
place. Advertising expense was $639,424 and $689,160 for the years ended
December 31, 1996 and 1995, respectively.

F-48

CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

2. SHAREHOLDERS' EQUITY:

Common stock --

The Company is authorized to issue 5,000 shares of common stock with no
par value. The subscription receivable of $100 as of December 31, 1996
represents the amount due from shareholders for 100 shares of common stock at
$10 per share, of which $900 was received in February 1995.

Preferred stock --

The Company is authorized to issue 295,000 shares of preferred stock at no
par value. As of December 31, 1996 and 1995, 125,000 of such shares have been
designated as Series A Preferred Stock and 125,000 of such shares have been
designated as Series B Preferred Stock. Series A and Series B Preferred Stock
are not entitled to dividends and have liquidation rights of $10 per share.

Series A Preferred Stock is mandatorily redeemable at the rate of 20,835
shares commencing December 31, 1995 (the Initial Redemption Date) and an
aggregate of 20,833 shares on each six month anniversary of the Initial
Redemption Date until all 125,000 shares of the Series A Preferred Stock have
been redeemed, at $11.445 per share. As of December 31, 1996, no shares of
Series A Preferred Stock had been redeemed. The Company is accreting the
difference between the redemption price and the proceeds per share over the
period from the issuance date to the respective scheduled redemption dates.

Series B Preferred Stock is mandatorily redeemable at a per share price of
$10 in whole or in part at the option of the Company at any such time as
legally available funds, as defined in the resolution establishing and
designating the preferred stock, are available. On the tenth anniversary of the
completion date of the amphitheater any Series B Preferred Stock outstanding
shall be redeemed by the Company at a per share price of $10.

The Series A and Series B Preferred Stock will not be redeemed if such
redemption would result in a violation of the provisions of the Connecticut
Development Authority assistance agreement (see Note 4) or the mortgage loan
agreement (see Note 5).

3. PARTNERS' EQUITY:

In 1993, Nederlander of Connecticut, Inc. and Connecticut Amphitheater
Development Corporation each made an initial capital contribution of $250,000.

4. GRANT FUNDS:

Connecticut Development Authority (CDA) Assistance Agreement --

On September 12, 1994, the CDA entered into a non-recourse assistance
agreement with the Company whereby the CDA provided grant funds for the
construction and development of an amphitheater in the City of Hartford (the
Project) through the issuance of State of Connecticut General Fund Obligation
Bonds (GFO Bonds). The Company received bond proceeds of $8,863,000, which
amount is net of CDA bond issuance costs of $593,000 and withholdings of
$429,000 by the CDA to cover the expected operating shortfall, as discussed
below, through December 31, 1995. Commencing January 1, 1996, the annual tax
revenues derived from the operation of the amphitheater are utilized to satisfy
the annual debt service requirements under the GFO Bonds. In the event that
annual tax revenues derived from the operation of the amphitheater do not equal
annual debt service requirements under the GFO Bonds, the Company must deposit
the lesser of the operating shortfall, as defined, or 10% of the annual debt
service under the GFO Bonds. An operating shortfall did not exist for the year
ended December 31, 1996. The GFO Bonds mature on October 15, 2024 and have an
average coupon rate of 6.33%. Annual debt service requirements on the GFO Bonds
for each of the next five years and thereafter are as follows:

F-49

CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

4. GRANT FUNDS: (CONTINUED)

YEAR AMOUNT
- ----------------------- -------------

1997 ............... $ 740,556
1998 ............... 738,906
1999 ............... 736,656
2000 ............... 738,856
2001 ............... 740,293
Thereafter ......... 17,140,363
-----------
$20,835,630
===========

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

City of Hartford Grant Funds --

On February 15, 1995 the Company entered into an agreement with the City
of Hartford whereby the City of Hartford provided grant funds of $2,050,000 for
the remediation and closure of a solid waste disposal area near the
amphitheater. As of December 31, 1995 all funds had been received by the
Company.

5. NOTES PAYABLE AND LONG-TERM DEBT:

Notes payable --

In October 1995, the Company entered into two notes payable with related
parties for an aggregate of $2,000,000. As of December 31, 1996 and 1995,
$1,450,000 and $1,100,000, respectively was outstanding on these notes. The
notes bear interest at 6.6% per annum and are payable upon demand.

CDA mortgage loan --

On September 12, 1994, CDA entered into a construction mortgage loan
agreement for $7,685,000 with the Company. The purpose of the loan was to
finance a portion of the construction and development of the amphitheater. The
loan agreement contains substantially the same covenants as the CDA assistance
agreement (see Note 4). As of December 31, 1995, proceeds of $6,519,000, which
amount is net of deferred financing costs of approximately $1,166,000, had been
received by the Company.

F-50

CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

5. NOTES PAYABLE AND LONG-TERM DEBT: (CONTINUED)

The mortgage loan bears interest at 8.73% and is payable in monthly
installments of principal and interest. The mortgage loan matures on October
15, 2019. As of December 31, 1996, future principal payments are as follows:

YEAR AMOUNT
- ------------------------ -------------

1997 ................ $ 111,667
1998 ................ 121,667
1999 ................ 131,667
2000 ................ 141,667
2001 ................ 152,500
Thereafter .......... 6,854,498
----------
$7,513,666
==========

The loan is guaranteed by the Company's shareholders and is collateralized
by a lien on the Company's assets. As of December 31, 1996, the loan was
secured by an irrevocable standby letter of credit issued by a shareholder of
the Company in the amount of $785,000. The letter of credit was replaced in
March 1997 by a letter of credit issued by a new shareholder (see Note 10).

Ogden Entertainment, Inc. (OE) Concession Agreement --

In October 1994, the Partnership entered into a concession agreement with
OE which provides for the payment of concession commissions to the Partnership.
In connection with the concession agreement, OE loaned the Partnership
$4,500,000 in 1995 to facilitate the construction of the amphitheater. On
December 30, 1996, the concession agreement was amended and restated
retroactively to October 18, 1994. In accordance with the terms of the amended
agreement, which expires on July 7, 2025, interest only, at the 6-month LIBOR
rate, through July 7, 1995 and principal and interest, at the rate of 7.5% per
annum, were due on the note payable via withholdings of the first $41,716 from
each monthly commission payment commencing July 20, 1995 through December 20,
1995. Effective January 2, 1996, and through the term of the amended concession
agreement, principal and interest, at the rate of 7.5% per annum on the note is
payable via withholdings of the first $31,299 from each monthly commission
payment.

OE loaned the Partnership an additional $1,000,000 during 1995. This loan
bears interest at a rate of 9.75% per annum and is payable via withholdings of
an additional $11,900 of principal, plus interest, from each monthly commission
payment through December 20, 2002. As of December 31, 1996, aggregate future
principal payments to OE are as follows:

YEAR AMOUNT
- ------------------------ -------------

1997 ................ $ 190,722
1998 ................ 194,442
1999 ................ 198,451
2000 ................ 202,772
2001 ................ 207,427
Thereafter .......... 4,218,234
----------
$5,212,048
==========

The concession agreement provided for the Partnership to supply certain
equipment to OE at the Partnership's expense. This equipment was installed
prior to the opening of the amphitheater (the

F-51

CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

5. NOTES PAYABLE AND LONG-TERM DEBT: (CONTINUED)

Initial Equipment). The Initial Equipment was purchased by OE at a cost of
$850,933 and the Partnership was obligated to reimburse OE for the cost of the
equipment. Accordingly, this amount was reflected as an accrued expense in the
accompanying combined balance sheet as of December 31, 1995. In 1996, in
connection with the amended concession agreement, the $850,933, and an
additional $33,067 related to 1996 equipment purchases, was converted to a note
payable for $884,000. The note bears interest at the rate of 9.25% per annum
and provides for monthly principal and interest payments of $10,185 to OE,
however, the Partnership is not required to make any principal or interest
payments to the extent that 5% of receipts, as defined, in any month are less
than the amount of the payment due. As of December 31, 1996, future principal
payments to OE by the Partnership are as follows:

YEAR AMOUNT
- ------------------------ ----------

1997 ................ $ 42,210
1998 ................ 46,284
1999 ................ 50,751
2000 ................ 55,650
2001 ................ 61,022
Thereafter .......... 628,083
--------
$884,000
========

Conn Ticketing Company (CTC) Promissory Note Payable --

On April 1, 1995, CTC (a company related to the Company and the
Partnership via common ownership) entered into a promissory note agreement with
ProTix Connecticut General Partnership (PTCGP). Under the terms of the
agreement, CTC borrowed $825,000 at 9.375% per annum from PTCGP. Principal and
interest are repayable by CTC in nine annual installments of $139,714 which
commenced March 31, 1996. In May 1995, CTC loaned $824,500 to the Company which
is also repayable in nine annual installments of principal and interest of
$139,714. The PTCGP loan to CTC is secured by CTC's receivable from the
Company. As of December 31, 1996, future principal payments to CTC by the
Company are as follows:

YEAR AMOUNT
- ------------------------ ----------

1997 ................ $ 68,217
1998 ................ 74,613
1999 ................ 81,608
2000 ................ 89,259
2001 ................ 97,627
Thereafter .......... 351,306
--------
$762,630
========

In January 1995, the Partnership entered into a ticket and sales agreement
with PTCGP through December 31, 2004. Under the terms of the agreement, PTCGP
pays the Partnership an annual fee of $140,000 commencing in March 1996.
Proceeds from the annual fee for the first nine years will be used by the
Partnership to make the annual principal and interest payment to CTC.

Line of credit --

The Partnership has a line of credit in the amount of $2,000,000, which
bears interest at 8.25% per annum, with a bank. As of December 31, 1996,
$395,000 was outstanding on the line of credit.

F-52

CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

5. NOTES PAYABLE AND LONG-TERM DEBT: (CONTINUED)

Capital lease obligations --

The Partnership entered into capital leases for certain office equipment.
The leases expire in 1998 and 2000. As of December 31, 1996 future principal
payments are as follows:

YEAR AMOUNT
- ------------------ ----------

1997 .......... $16,984
1998 .......... 13,905
1999 .......... 4,550
2000 .......... 4,213
-------
$39,652
=======

6. LAND AND BUILDING LEASES:

Land lease agreement between the City of Hartford and the Partnership --

The Partnership entered into a 40 year lease agreement for certain land
with the City of Hartford, Connecticut on September 14, 1994. The lease
agreement provides for two successive options to extend the term of the lease
for a period of ten years each. The Partnership pays an annual basic rent of
$50,000 commencing July 1, 1995; and additional rent payments in lieu of real
estate taxes (PILOT) in an amount equal to 2% of all admission receipts, food
and beverage revenue, merchandise revenue and parking receipts that exceed 10%
of the total admission receipts, which amount is to be net of any surcharges
and sales or like taxes levied by governmental authorities on the price of such
items.

Assignment of lease by the Partnership to the Company --

The above lease was subsequently assigned by the Partnership to the
Company on September 22, 1994 for consideration of $1.

Lease and sublease agreement between the Company and the Partnership --

On October 19, 1994, the Company subleased the land and buildings and
improvements thereon to the Partnership for a period of 40 years commencing
upon substantial completion of the amphitheater. The sublease agreement
provides for two successive options to extend the term of the lease for a
period of ten years each. The sublease agreement provides for the Partnership
to pay rent to the Company in amounts ranging from $804,000 to $831,100 per
annum for the first 25 years and $100,000 per annum thereafter including the
option periods. Additional rent of six semi-annual installments of $238,452 is
also payable by the Partnership commencing six months after the start of
operations. Subsequent to the six semi-annual installments an aggregate of
$1,250,000 will be payable in semi-annual installments based on available cash
flow of the Partnership, as defined. Additionally, the Partnership is also
required to pay the annual basic rent ($50,000) and any additional payments in
lieu of taxes under the terms of the lease agreement between the City of
Hartford and the Partnership described above. The Partnership will also pay
additional rent equal to principal and interest payable by the Company to the
concession company for a previously arranged concessionaire arrangement (see
Note 5). The accompanying combined statement of operations for the year ended
December 31, 1996 includes rent expense of $50,000 which represents the
aggregate amount due to the City of Hartford under the terms of the above
agreements.

7. INCOME TAXES:

The provision for income taxes for the year ended December 31, 1996
represents minimum state income taxes for the Company. As of December 31, 1996,
the Company has a net deferred tax asset of

F-53

CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

7. INCOME TAXES: (CONTINUED)

approximately $750,000 primarily as a result of aggregate net operating losses
since inception. Usage of the net operating loss carryforwards is restricted in
the event of certain ownership changes. A valuation allowance has been recorded
for the same amount due to the uncertainty related to the realization of this
asset.

8. RELATED PARTY TRANSACTIONS:

Accounts receivable -- related party as of December 31, 1996, includes net
amounts due from a shareholder of $121,265 and receivables from another related
party of $105,000.

9. CONTINGENCIES:

The Company and the Partnership are party to certain litigation arising in
the normal course of business. Management, after consultation with legal
counsel, believes the disposition of these matters will not have a material
adverse effect on the combined results of operations or financial condition.

10. SUBSEQUENT EVENTS:

Effective March 5, 1997, the Partnership and Company entered into a
$1,500,000 loan agreement with the CDA of which $1 million was funded in March
1997. Principal payments of $150,000 are due on July 1 and October 1 of each
year commencing July 1, 1997 through October 1, 2001. The note bears interest
at the rate of 8.9% per annum through February 1, 1998, and thereafter at the
index rate, as defined, plus 2.5%. In addition, the Partnership and Company are
required to make principal payments in an amount equal to 10% of the annual
gross revenue, as defined, in excess of $13 million on or before March 1 of
each calendar year commencing March 1, 1998.

In March 1997, three subsidiaries of SFX Broadcasting, Inc.
(Broadcasting), which were created for such purpose, were merged into
Nederlander of Connecticut, Inc., Connecticut Amphitheater Development
Corporation and QN Corp., a newly formed entity. In connection with the merger,
the name of Nederlander of Connecticut, Inc., was changed to NOC, Inc. (NOC)
and the directors of NOC, Inc., Connecticut Amphitheater Development
Corporation (CADCO) and QN Corp. (QN) were replaced with directors of the
Broadcasting acquisition subsidiaries. Each outstanding share of stock of NOC,
CADCO and QN was canceled and exchanged for an aggregate of $1 million cash and
shares of Broadcasting Class A Common Stock valued at $9 million, subject to
certain adjustments. The shares are subject to a put provision between the
second and seventh anniversary of the closing whereby the holder can put each
share back to Broadcasting for the per share value of Broadcasting stock as of
the merger closing date, as defined, less 10%. Additionally, the shares may be
called by Broadcasting during the same period for an amount equal to the per
share value of the Broadcasting stock as of the merger closing date, as
defined, plus 10%. As consideration for approval of the transaction, the CDA
received shares of Broadcasting stock valued at approximately $361,000.

F-54

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders
of SFX Broadcasting, Inc.:

We have audited the accompanying combined balance sheets of DEER CREEK
PARTNERS, L.P. (formerly Sand Creek Partners, L.P.) and MURAT CENTRE, L.P., as
of December 31, 1996 and 1995, and the related combined statements of
operations and partners' equity (deficit) and cash flows for the years ended
December 31, 1996 and 1995. These financial statements are the responsibility
of the Partnerships' management. Our responsibility is to express an opinion on
these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Deer Creek
Partners, L.P. and Murat Centre, L.P. as of December 31, 1996 and 1995, and the
combined results of their operations and their cash flows for the years ended
December 31, 1996 and 1995 in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Indianapolis, Indiana
September 29, 1997.

F-55

DEER CREEK PARTNERS, L.P. AND MURAT CENTRE, L.P.

COMBINED BALANCE SHEETS

DECEMBER 31, MARCH 31,
----------------------------- --------------
1995 1996 1997
------------- ------------- --------------
(UNAUDITED)

ASSETS
Current Assets:
Cash and cash equivalents ........................... $ 1,894,533 $ 876,776 $ 1,704,847
Accounts receivable ................................. 138,548 155,929 345,891
Prepaid show expense ................................ -- 42,114 95,918
Prepaid expenses .................................... 91,919 118,152 169,771
----------- ----------- -----------
Total current assets ............................. 2,125,000 1,192,971 2,316,427
----------- ----------- -----------
Property and equipment:
Land ................................................ 2,428,770 2,428,770 2,428,771
Buildings ........................................... 6,155,979 6,155,979 6,155,979
Site improvements ................................... 2,328,369 2,230,594 2,238,898
Leasehold improvements .............................. 5,270,038 9,663,357 9,663,357
Furniture and equipment ............................. 1,070,547 1,722,874 1,731,720
----------- ----------- -----------
17,253,703 22,201,574 22,218,725
Less: Accumulated depreciation ...................... 2,167,567 2,850,077 3,039,185
----------- ----------- -----------
Total property and equipment ..................... 15,086,136 19,351,497 19,179,540
----------- ----------- -----------
Other Assets:
Cash surrender value--life insurance policy ......... 62,819 71,815 71,814
Unamortized loan acquisition costs .................. 93,439 350,055 343,841
----------- ----------- -----------
Total other assets ............................... 156,258 421,870 415,655
----------- ----------- -----------
TOTAL ASSETS ..................................... $17,367,394 $20,966,338 $21,911,622
=========== =========== ===========

The accompanying notes are an integral part of these statements.

F-56

DEER CREEK PARTNERS, L.P. AND MURAT CENTRE, L.P.

COMBINED BALANCE SHEETS

DECEMBER 31, MARCH 31,
--------------------------------- ---------------
1995 1996 1997
--------------- --------------- ---------------
(UNAUDITED)

LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
Current portion of notes and capital lease obligation..... $ 796,391 $ 611,127 $ 595,503
Current portion of deferred ticket revenue ............... 542,420 841,476 2,854,155
Accounts payable ......................................... 472,365 520,663 1,228,317
Accrued interest ......................................... 663,391 299,600 389,600
Accrued property taxes ................................... 125,524 280,734 361,983
Current portion of loan payable .......................... -- 34,200 --
Construction payable and other accrued liabilities ....... 3,341,284 50,641 --
------------ ------------ ------------
Total current liabilities ............................. 5,941,375 2,638,441 5,429,558
------------ ------------ ------------
Long-term Liabilities:
Notes payable and capital lease obligation,
net of current portion .................................. 12,998,738 17,266,768 17,160,968
Loan, net of current portion (Note 5) .................... -- 99,200 99,200
Deferred ticket revenue, net of current portion .......... -- 168,833 168,833
------------ ------------ ------------
Total long-term liabilities ........................... 12,998,738 17,534,801 17,429,001
------------ ------------ ------------
Partners' equity (deficit):
Contributed capital ...................................... -- 2,200,000 2,200,000
Undistributed earnings (loss) ............................ (1,572,719) (1,406,904) (3,146,937)
------------ ------------ ------------
(1,572,719) 793,096 (946,937)
------------ ------------ ------------
TOTAL LIABILITIES AND PARTNERS'
EQUITY ............................................... $ 17,367,394 $ 20,966,338 $ 21,911,622
============ ============ ============

The accompanying notes are an integral part of these statements.

F-57

DEER CREEK PARTNERS, L.P. AND MURAT CENTRE, L.P.

COMBINED STATEMENTS OF OPERATIONS AND PARTNERS' EQUITY (DEFICIT)

THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31
--------------------------------- ------------------------------
1995 1996 1996 1997
--------------- ---------------- ---------------- -------------
(UNAUDITED)

Operating revenues:
Concert revenue ......................................... $11,073,491 $14,194,502 $ 1,338,260 $1,670,645
Cost of concerts ........................................ 8,939,022 10,724,059 1,206,013 1,328,882
----------- ----------- ----------- ----------
2,134,469 3,470,443 132,247 341,763
Ancillary income:
Royalty commissions ..................................... 1,706,458 1,799,950 48,840 109,840
Corporate sponsorships .................................. 959,518 1,056,161 -- 14,784
Other ancillary income .................................. 789,433 1,375,528 71,025 195,771
----------- ----------- ----------- ----------
5,589,878 7,702,082 119,865 320,395
Operating expenses:
General & administrative ................................ 2,419,679 3,452,990 580,897 872,445
Depreciation & amortization ............................. 343,567 783,167 108,373 195,320
Other operating expenses ................................ 249,812 471,126 -- --
----------- ----------- ----------- ----------
3,013,058 4,707,283 689,270 1,067,765
Income from operations .................................. 2,576,820 2,994,799 (437,158) (405,607)
Other income (expense):
Interest and other income ............................... 86,034 84,123 16,246 25,639
Interest expense ........................................ (2,203,690) (1,549,579) (273,335) (400,469)
----------- ----------- ----------- ----------
Net Income (Loss) .................................... $ 459,164 $ 1,529,343 $ (694,247) $(780,437)
Partners' Equity (Deficit) at beginning of year ......... $(1,857,603) $(1,572,719) $(1,572,719) $(793,096)
Contributions ........................................... -- 2,200,000 2,200,000 --
Distributions ........................................... (174,280) (1,363,528) (563,529) (959,596)
----------- ----------- ----------- ----------
Partners' Equity (Deficit) at end of year ............... $(1,572,719) $ 793,096 $ (630,495) $(946,937)
=========== =========== =========== ==========

The accompanying notes are an integral part of these statements.

F-58

DEER CREEK PARTNERS, L.P. AND MURAT CENTRE, L.P.

COMBINED STATEMENTS OF CASH FLOWS

YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31
--------------------------------- -----------------------------
1995 1996 1996 1997
--------------- --------------- -------------- --------------
(UNAUDITED)

Operating Activities:
Net income ........................................... $ 459,164 $1,529,343 $ (694,249) $ (780,436)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ....................... 461,678 783,167 108,373 195,320
Decrease (increase) in certain assets:
Accounts receivable ................................. (45,317) (17,381) (219,190) (189,962)
Prepaid show expenses ............................... -- (42,114) (88,012) (53,804)
Prepaid expenses and other .......................... 746,307 (33,381) (77,135) (51,619)
Increase (decrease) in certain liabilities:
Accounts payable, construction payable and
other accrued liabilities ......................... 3,424,461 (3,087,135) (2,568,202) 738,263
Deferred ticket revenue ............................. (1,266,654) 467,889 2,205,631 2,012,679
Accrued interest .................................... 389,251 (363,791) (663,391) 90,000
Other ............................................... (75,407) 44,852 -- --
---------- ---------- ---------- ----------
Net cash provided by (used in) operating
activities ....................................... 4,093,483 (718,551) (1,996,175) 1,960,441
---------- ---------- ---------- ----------
Investing Activities:
Capital expenditures ................................ (6,713,889) (5,197,260) (3,738,002) (17,151)
---------- ---------- ---------- ----------
Net cash used by investing activities ............... (6,713,889) (5,197,260) (3,738,002) (17,151)
---------- ---------- ---------- ----------
Financing Activities:
Net proceeds from borrowings ........................ 3,060,087 5,057,249 3,600,229 --
Capital contributions ............................... -- 2,200,000 2,200,000 --
Department of Metropolitan Development
Grant ............................................. 761,014 338,986 338,986 --
Principal payments on notes and loan payable
and capital leases ................................ (20,308) (1,334,653) (47,167) (155,623)
Distributions to partners ........................... (174,280) (1,363,528) (563,529) (959,596)
---------- ---------- ---------- ----------
Net cash provided by financing activities ......... 3,626,513 4,898,054 5,528,519 (1,115,219)
---------- ---------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents ......................................... 1,006,107 (1,017,757) (205,658) 828,071
Cash and cash equivalents:
Beginning of period ................................. 888,426 1,894,533 1,894,533 876,776
---------- ---------- ---------- ----------
End of period ....................................... $1,894,533 $ 876,776 $1,688,875 $1,704,847
========== ========== ========== ==========
Supplemental disclosures:
Cash paid for interest .............................. $1,148,049 $1,912,494 $ 936,726 $ 310,469
Equipment acquired under capital leases ............. -- 139,000 137,033 $ --
========== ========== ========== ==========

The accompanying notes are an integral part of these statements.

F-59

DEER CREEK PARTNERS, L.P. AND MURAT CENTRE, L.P.

NOTES TO COMBINED FINANCIAL STATEMENTS

(INFORMATION AS TO MARCH 31, 1997 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Organization

Prior to 1997 (See Note 10) Deer Creek Partners, L.P. (the Deer Creek
Partnership) owned and operated Deer Creek Music Center (Deer Creek), a concert
amphitheater located in Hamilton County, near Indianapolis, Indiana which
commenced operations in 1989. Sand Creek Partners, L.P. (the general partner)
was a 50% general partner and is responsible for the management of the Deer
Creek Partnership. Conseco, Inc. (Conseco) was a 50% limited partner of the
Deer Creek Partnership. All distributable cash, as defined by the Deer Creek
partnership agreement, is to be distributed equally between the Partners.

The Deer Creek Partnership was formed on January 5, 1996 as a result of
Conseco exercising its option to become a 50% owner of Deer Creek. Deer Creek
was previously 100% owned by Sand Creek Partners, L.P. This change in ownership
has been accounted for as a reorganization, and thus the carrying value of the
assets and liabilities related to Deer Creek remain unchanged as a result of
the reorganization.

Murat Centre, L.P. (Murat Partnership), formed on August 1, 1995, leases
and operates the Murat Theatre (Theatre), a renovated concert and entertainment
venue located in downtown Indianapolis, Indiana. The Theatre's grand reopening
was in March, 1996. The Theatre is currently owned by and was previously
operated by the Murat Temple Association, Inc. Murat Centre, Inc. is the
general partner and is responsible for management of the Theatre. Profits and
losses of the Murat Partnership are allocated 1% to the general partner and 99%
to the limited partners. Distributions to partners are generally limited to the
income taxes payable by the partners as a result of taxable income generated by
the Murat Partnership. To the extent that cash flow for the applicable year
exceeds all payment requirements as discussed in Note 3, the excess shall be
distributed to the partners.

In connection with reopening the Theatre, the Murat Partnership expended
approximately $11.7 million for renovations which began in 1995. Start-up and
organizational costs of approximately $85,000 in 1995 and $90,000 in 1996 were
expensed as incurred and have been included in general and administrative
expenses in the combined statement of operations for the years ended December
31, 1996 and 1995. The building is leased under a 50 year operating lease with
options for 5 additional consecutive 10 year periods under the same terms and
conditions as the initial 50 year lease.

b. Basis of Accounting

The financial statements have been prepared in accordance with generally
accepted accounting principles. Such principles require management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities and disclosures of contingent assets and liabilities at the date of
financial statements and the amounts of income and expenses during the
reporting period. Actual results could differ from those estimated.

c. Property and Equipment

Property and equipment are carried at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets. Buildings are depreciated over forty years,
leasehold improvements over thirty years, site improvements over twenty years,
and furniture and equipment over five to seven years.

F-60

DEER CREEK PARTNERS, L.P. AND MURAT CENTRE, L.P.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION AS TO MARCH 31, 1997 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)

d. Loan Acquisition Costs

Loan acquisition costs represent agency and commitment fees paid to the
lenders, closing costs and legal fees incurred in connection with the notes
payable (see Note 2). These fees are being amortized on a straight-line basis
over a fifteen year period, which represented the approximate term of the
related debt.

e. Deferred Revenue

Deferred revenue includes individual show ticket revenue, season ticket
revenue, and corporate box seat revenue received in advance of events or the
next concert season and will be recognized over the period in which the shows
are held. A portion of the deferred revenue was derived from the bartering of
tickets for goods and services related to the Murat renovation. Barter
transactions are recorded at the estimated fair value of the materials or
service received.

f. Income Taxes

No provision for Federal or state income taxes is required because the
partners are taxed directly on their distributable shares of the Partnerships'
income or loss.

g. Cash Equivalents

The Partnerships consider all highly liquid investments with an original
maturity of three months or less to be cash equivalents.

h. Advertising and Promotion

Advertising and promotion costs are expensed at the time the related
promotional event is held. The costs were approximately $930,000 in 1996 and
$595,000 in 1995. For the three month periods ended March 31, 1997 and 1996
these costs were approximately $70,000 and $172,000, respectively.

i. Interim Financial Statements

The unaudited interim information as of March 31, 1997 and for the three
months ended March 31, 1996 and 1997 has been prepared on the same basis as the
annual financial statements and, in the opinion of the Company's management,
reflects normal recurring adjustments necessary for a fair presentation of the
information for the periods presented. Interim results are not necessarily
indicative of results for a full year. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.

2. NOTES PAYABLE

Notes payable and capital lease obligations as of December 31, 1995 and
1996 consisted of the following:

DECEMBER 31, DECEMBER 31,
1995 1996
-------------- -------------

MURAT PARTNERSHIP
Note payable to bank with 9.25% interest rate subject to
adjustment in 2001 and 2006; payable in monthly installments
of $30,876, including interest, in addition to annual contingent
principal payments based upon remaining net cash flow as
defined in Note 3; secured by assets of the Murat Partnership
and guaranteed by two of the limited partners for $375,000
each; balance due no later than April 1, 2011. ................. $ -- $2,928,053

F-61

DEER CREEK PARTNERS, L.P. AND MURAT CENTRE, L.P.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION AS TO MARCH 31, 1997 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)

DECEMBER 31, DECEMBER 31,
1995 1996
-------------- -------------

Note payable with 9% non-compounding interest rate through
November 14, 1996, 12% non-compounding interest rate from
November 15, 1996 through November 14, 1998, 18%
non-compounding interest rate thereafter; all interest is
cumulative; principal and interest payments are based upon
remaining net cash flow as defined in Note 3; subordinate to
above bank note payable. ........................................... $ 2,647,165 $ 3,000,000
Note payable with 0% interest rate; principal payments the lesser
of $.15 per ticket sold during fiscal year or remaining net cash
flow as defined in Note 3; subordinate to above bank note
payable. ........................................................... -- 800,000
Note payable with interest calculated annually and is equal to the
lesser of (1) $.10 per ticket sold during fiscal year, (2) prime
plus 1% or (3) remaining net cash flow as defined in Note 3;
interest and principal is paid at the lesser of $.10 per ticket sold
during fiscal year or remaining net cash flow as defined in Note
3; principal is also required to be paid down upon sale of
certain Partnership assets or the refinancing of certain
Partnership loans; subordinate to above bank note payable .......... -- 1,000,000
Other .............................................................. 90,940 --
DEER CREEK PARTNERSHIP
Note payable with interest calculated annually at 9.5%; payable in
quarterly installments of approximately $353,000, including
interest, through the year 2010; secured by substantially all of
the assets of the partnership and is guaranteed up to 50%,
jointly and severally, by two officers of Sunshine Promotions,
Inc. (Sunshine), and by Sunshine (See Note 6.) ..................... -- 10,019,361
Note payable with interest at 11.18% payable in monthly
installments and contingent interest based upon net cash flow;
secured by substantially all of the assets of the Partnership;
principal due 1999 with the option for the holder to accelerate
the maturity date to 1996. ......................................... 11,041,024 --
Capital leases ...................................................... 16,000 130,481
----------- -----------
Total notes payable and capital lease obligations ................. 13,795,129 17,877,894
Less -- Current portion ........................................... 796,391 611,127
----------- -----------
$12,998,738 $17,266,768
=========== ===========

Principal payments made on the Murat Partnership bank term note during
1996 totaled $71,947. The Murat Partnership's 1996 net cash flow (see Note 3)
did not require additional principal payments to be made on its notes payable.
The bank term note contains cash flow and leverage ratio covenants. The Murat
Partnership was not in compliance with the cash flow covenant as of December
31, 1996, but received a waiver dated March 31, 1997 for the December 31, 1996
calculation. Provisions of the $800,000 note payable require the Murat
Partnership to continue making payments after the principal has been paid down
equal to the lesser of $.15 per ticket sold during the fiscal year or remaining
cash flow, as defined in Note 3. These payments are to be made to a
not-for-profit foundation and will be designated for remodeling and upkeep of
the Theatre.

Under the terms of the note payable in 1995, the Deer Creek Partnership
incurred contingent interest, which was based on cash flow, of $885,000. During
1995, Deer Creek Partnership's current

F-62

DEER CREEK PARTNERS, L.P. AND MURAT CENTRE, L.P.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION AS TO MARCH 31, 1997 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)

lender (a related party) purchased the note payable and entered into an amended
and restated loan agreement with the partnership on January 5, 1996. For each
year until the Deer Creek loan is repaid, net cash flow (as defined) in excess
of $400,000 shall be paid as a principal payment on the loan, not to exceed
$400,000. In 1995 and 1996, the Deer Creek Partnership's net cash flow was such
that the maximum principal payment of $400,000 was required for each year. In
addition, the promotional management fee paid to Sunshine (see Note 6) is
subordinate to the quarterly loan payments.

Principal maturities of notes payable for the next 5 years, excluding
principal paydowns resulting from excess cash flow:

1997 .............. $578,895
1998 .............. 635,682
1999 .............. 698,041
2000 .............. 766,518
2001 .............. 841,712

Future capital lease payments of principal and interest are as follows:

1997 .............. $50,800
1998 .............. 46,250
1999 .............. 37,000
2000 .............. 36,000
2001 .............. 4,000

3. MURAT CASH FLOW PAYMENTS

Each of the Murat Partnership's debt agreements require certain principal
and interest to be paid in April of each year based upon the Murat
Partnership's net cash flow for the preceding year. The Murat Partnership's
building lease agreement provides for lease payments to be made based upon the
same net cash flow calculation. Net cash flow, as defined in each agreement,
approximates net income, plus depreciation and amortization, less capital
expenditures and partnership distributions necessary to pay applicable income
taxes. Net cash flow in each year will be used by the Murat Partnership to pay
principal, interest and lease payments in the following order of priority:

1. Payment of interest on $1,000,000 note equal to the lesser of (a) $.10 per
ticket sold, (b) prime plus 1% or (c) remaining net cash flow;

2. Additional principal payments on bank note so that the total principal paid
each month (including mandatory term payments discussed in Note 2) equals
up to, but not exceeding, $16,667. If cash flow in any fiscal year is not
sufficient to meet these additional principal payments, the obligation
carries forward to the subsequent year;

3. For 1997 and beyond, building operating lease payments not to exceed
$50,000 per year, non-cumulative;

4. Interest related to the $3 million note (including previous years'
cumulative amounts not paid);

5. Principal payment on the $3 million note until paid in full;

6. Principal payment on $800,000 note equal to lesser of $.15 per ticket sold
during fiscal year or remaining net cash flow;

F-63

DEER CREEK PARTNERS, L.P. AND MURAT CENTRE, L.P.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION AS TO MARCH 31, 1997 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)

If cash flow is such that only a portion is paid on the obligation in 2.
above, Sunshine, Inc.'s management fee (see Note 6.) could be reduced by the
amount paid in 1. in order to maximize the amount available to fully pay the
obligation in 2.

4. DMD GRANT

As part of the original financing for renovation of the Theatre, the
Department of Metropolitan Development (DMD) contributed approximately $760,000
in 1995 and $340,000 in 1996 to the Murat Partnership. The DMD stipulated that
the grant was to be used for leasehold improvements on the Theatre. As such,
the grant has been recorded on the balance sheet as a reduction of leasehold
improvements and is being amortized over 30 years.

5. AGREEMENTS WITH OUTSIDE VENDORS

Effective February 1996, the Murat Partnership entered into a ten year
agreement with a caterer to provide exclusive catering services at the Theatre.
The Murat Partnership is entitled to a commission based upon a percentage of
the caterer's net sales. As part of the agreement the caterer loaned the Murat
Partnership $165,000, at a nominal interest rate, for leasehold improvements
necessary to provide catering services. In February 1996 the Murat Partnership
began repaying the loan ratably over 5 years.

Effective February 1996, the Murat Partnership entered into a ten year
agreement with a concessionaire for the exclusive license to sell concession
food and beverages at Theatre events. The Murat Partnership is entitled to
royalty commissions based upon a percentage of the concessionaire's gross
receipts. The concessionaire has paid the Murat Partnership $50,000 to be used
for leasehold improvements (which are being depreciated over 30 years) which
will be used by the concessionaire. This payment has been recorded as deferred
income and is being amortized over the term of the agreement. On March 28, 1997
the rights to the concession agreement were acquired by the caterer under the
same terms as the original concession agreement.

Effective March 1996, the Murat Partnership entered into a five year
agreement with a stagehand union allowing the union to provide services at all
ticketed shows held in the main theater other than the broadway series. The
agreement, among other items, sets minimum hours per show and hourly wages to
be paid to union members. It also sets forth duties which must be performed
solely by union members. A separate agreement between the stagehand union and
Pace Theatrical Group, Inc. (see Note 7) governs the use of union stagehands
for the broadway series.

Effective February 1996, the Murat Partnership entered into a one year
agreement granting another party the right to manage and operate the Theatre
parking lot.

In July 1988, the Deer Creek Partnership entered into a ten-year agreement
with a concessionaire for the exclusive license to sell food and beverages at
Deer Creek events. The Deer Creek Partnership is entitled to royalty
commissions based upon a percentage of the concessionaire's gross receipts.

The Deer Creek Partnership has an agreement with another concessionaire
for an exclusive license to sell consigned nonconsumable novelties and programs
at Deer Creek events. The agreement expires on October 31, 2001. The Deer Creek
Partnership is entitled to royalty commissions based on the concessionaire's
gross receipts.

Total revenues related to the Deer Creek and Murat Center Partnership's
vendor agreements were approximately $1.8 million and $1.7 million in 1996 and
1995, respectively. For the three month periods ended March 31, 1997 and 1996,
there was no revenue related to these agreements.

F-64

DEER CREEK PARTNERS, L.P. AND MURAT CENTRE, L.P.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION AS TO MARCH 31, 1997 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)

6. MANAGEMENT AGREEMENTS

The Deer Creek Partnership and Murat Partnership have entered into
agreements which expire in 2009 and 2015, respectively, with Sunshine whose
stockholders are also the limited partners of the general partner. Sunshine
provides the overall promotional management and booking of the entertainment
events held at respective venues, along with other general management
responsibilities. As compensation for Sunshine's services, the Deer Creek
Partnership pays Sunshine 4 percent of gross ticket sales, royalty income and
various other revenues. Total fees to Sunshine for these services were
approximately $581,000 in 1995 and $560,000 in 1996. The Murat pays Sunshine an
annual management fee of $300,000, adjusted annually each January 1 by the
greater of 4% or the annual increase in the consumer price index. In 1996 no
such fee was recognized by the Murat Partnership as Sunshine permanently waived
the $300,000 management fee due for 1996.

In June 1988, the Deer Creek Partnership entered into a ten-year agreement
with an unrelated management company to provide the on-site operations
management for Deer Creek. At the end of 1995, this agreement was terminated by
mutual consent of both parties. The Deer Creek Partnership entered into a new
agreement with the former management company whereby it agreed to pay $75,000
in 1996, 1997 and 1998 and also to provide to the former management company
selected season tickets at Deer Creek in 1997 and 1998. In return, for 1996,
1997 and 1998, the Deer Creek Partnership is to receive advertising and
promotion.

7. BROADWAY SERIES PARTNERSHIP

In 1996 the Murat Partnership entered into a 5 year partnership agreement
with Pace Theatrical Group, Inc. (Pace) and Broadway Series Management (BSMG)
to co-present a subscription series of touring Broadway type shows in
Indianapolis. This agreement calls for net profits and losses derived from the
series to be split, after the allocation of certain revenues to the Murat
Partnership and Pace, as follows: 45% Murat Partnership, 45% Pace, and 10%
BSMG. No capital was invested by any of the parties and all income has been
distributed to the parties. The Murat Partnership is responsible for the local
marketing and management of the series, while Pace is responsible for booking,
series management, and season ticket sales for the series. The Murat
Partnership recognized earnings related to this partnership of $270,000 in
1996.

8. RELATED PARTIES

In addition to the management agreement with Sunshine discussed in Note 6,
the Deer Creek Partnership and Murat Partnership have conducted business with
certain related parties in which the limited partners of the general partner
have significant interests. Fees paid to all other related parties for
catering, uniforms and marketing services totaled $249,000 in 1995 and $65,000
in 1996 from the Deer Creek Partnership and $46,000 in 1996 from the Murat
Partnership.

9. SALE OF MURAT PARTNERSHIP AND DEER CREEK PARTNERSHIP

In June 1997, the partners of the Murat Partnership and the Deer Creek
Partnership agreed to sell all of the assets of the Murat Partnership and Deer
Creek Partnership to SFX Broadcasting, Inc. (Broadcasting). The total sales
price to Broadcasting of the combined partnership assets was approximately $33
million. As a part of the sale, Broadcasting assumed or retired virtually all
liabilities and acquired all assets of the Murat Partnership and the Deer Creek
Partnership.

F-65

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To PACE Entertainment Corporation:

We have audited the accompanying consolidated balance sheet of PACE
Entertainment Corporation (a Texas Corporation) and subsidiaries as of
September 30, 1997, and the related consolidated statements of operations,
shareholders' equity and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of PACE Entertainment
Corporation and subsidiaries as of September 30, 1997, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
December 15, 1997 (except with respect
to the matters discussed in
Note 12, as to which the date
is December 22, 1997)

F-66

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Shareholders
PACE Entertainment Corporation and Subsidiaries

We have audited the accompanying consolidated balance sheet of PACE
Entertainment Corporation and subsidiaries as of September 30, 1996, and the
related consolidated statements of operations, cash flows, and shareholders'
equity for each of the two years in the period ended September 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of PACE
Entertainment Corporation and subsidiaries at September 30, 1996, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended September 30, 1996, in conformity with generally
accepted accounting principles.

ERNST & YOUNG LLP

Houston, Texas
December 13, 1996

F-67

PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

SEPTEMBER 30 DECEMBER 31
--------------------- ------------
1996 1997 1997
---------- ---------- ------------
(UNAUDITED)

ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................... $23,165 $23,784 $27,702
Trade receivables, net ...................................... 4,097 4,562 6,741
Accounts receivable, related parties ........................ 1,010 1,007 1,096
Notes receivable ............................................ 3,040 386 81
Prepaid expenses ............................................ 6,106 9,967 10,586
Investments in theatrical productions ....................... 2,489 4,402 3,958
Deferred tax asset .......................................... 1,872 979 943
------- ------- -------
Total current assets ...................................... 41,779 45,087 51,107
INVESTMENTS IN UNCONSOLIDATED PARTNERSHIPS ................... 8,816 13,899 15,613
NOTES RECEIVABLE, related parties ............................ 6,958 8,024 7,766
INTANGIBLE ASSETS, net ....................................... 17,244 17,894 17,633
OTHER ASSETS, net ............................................ 4,484 4,933 6,047
------- ------- -------
Total assets .............................................. $79,281 $89,837 $98,166
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities .................... $10,285 $11,078 9,277
Deferred revenue ............................................ 26,909 32,093 33,208
Current maturities of long-term debt ........................ 2,576 2,394 2,688
------- ------- -------
Total current liabilities ................................. 39,770 45,565 45,173
LONG-TERM DEBT ............................................... 21,863 23,129 31,543
OTHER NONCURRENT LIABILITIES ................................. 2,496 1,607 2,080
REDEEMABLE COMMON STOCK ...................................... 3,264 2,456 2,983
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $1 par value; 500,000 shares authorized,
2,579 shares issued as of September 30, 1996 and 1997 ..... 3 3 3
Additional paid-in capital .................................. 1,910 1,942 2,097
Retained earnings ........................................... 10,115 15,275 14,427
Treasury stock, at cost, 544 shares ......................... (140) (140) (140)
------- ------- -------
Total shareholders' equity ................................ 11,888 17,080 16,387
------- ------- -------
Total liabilities and shareholders' equity ................ $79,281 $89,837 $98,166
======= ======= =======

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

F-68

PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)

THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30 DECEMBER 31
------------------------------------------- ----------------------------
1995 1996 1997 1996 1997
------------- ------------- ------------- -------------- ------------
(UNAUDITED)

GROSS REVENUES ........................... $ 150,385 $ 156,325 $ 176,046 $ 38,430 $ 38,552
COST OF SALES ............................ (131,364) (135,925) (148,503) (34,221) (33,687)
EQUITY IN EARNINGS (LOSS) OF
UNCONSOLIDATED PARTNERSHIPS
AND THEATRICAL PRODUCTIONS .............. 2,183 3,048 6,838 (111) 1,185
---------- ---------- ---------- -------- ---------
Gross profit ........................... 21,204 23,448 34,381 4,098 6,050
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES ................. (13,351) (15,951) (21,260) (4,072) (5,018)
STOCK COMPENSATION ....................... (25) (3,675) (456) (6) (683)
LITIGATION SETTLEMENT .................... -- (3,657) -- -- --
DEPRECIATION AND AMORTIZATION ............ (1,223) (1,737) (1,896) (434) (523)
---------- ---------- ---------- ---------- ---------
Operating profit (loss) ................ 6,605 (1,572) 10,769 (414) (174)
INTEREST INCOME, related parties ......... 305 329 403 75 178
INTEREST INCOME, other ................... 147 176 60 35 6
INTEREST EXPENSE ......................... (655) (1,206) (1,997) (480) (867)
---------- ---------- ---------- ---------- ---------
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST ................... 6,402 (2,273) 9,235 (784) (857)
INCOME TAX (PROVISION) BENEFIT ........... (2,575) 714 (3,529) 222 182
MINORITY INTEREST ........................ (485) (446) (546) (130) (173)
---------- ---------- ---------- ---------- ---------
NET INCOME (LOSS) ........................ $ 3,342 $ (2,005) $ 5,160 $ (692) $ (848)
========== ========== ========== ========== =========

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

F-69

PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)

ADDITIONAL TOTAL
COMMON PAID-IN RETAINED TREASURY SHAREHOLDERS'
STOCK CAPITAL EARNINGS STOCK EQUITY
-------- ------------ ---------- ---------- --------------

BALANCE AT SEPTEMBER 30, 1994 ................ $ 3 $1,465 $ 8,778 $ (140) $ 10,106
Amortization of deferred stock compensation -- 25 -- -- 25
Net income .................................. -- -- 3,342 -- 3,342
--- ------ -------- ------ --------
BALANCE AT SEPTEMBER 30, 1995 ................ 3 1,490 12,120 (140) 13,473
Issuance of restricted stock and amortization
of deferred stock compensation ............ -- 420 -- -- 420
Net loss .................................... -- -- (2,005) -- (2,005)
--- ------ -------- ------ --------
BALANCE AT SEPTEMBER 30, 1996 ................ 3 1,910 10,115 (140) 11,888
Issuance of restricted stock and amortization
of deferred stock compensation ............ -- 32 -- -- 32
Net income .................................. -- -- 5,160 -- 5,160
--- ------ -------- ------ --------
BALANCE AT SEPTEMBER 30, 1997 ................ 3 1,942 15,275 (140) 17,080
Issuance of restricted stock and amortization
of deferred stock compensation
(unaudited) ............................... -- 155 -- -- 155
Net loss (unaudited) ........................ -- -- (848) -- (848)
--- ------ -------- ------ --------
BALANCE AT DECEMBER 31, 1997
(unaudited) ................................. $ 3 $2,097 $ 14,427 $ (140) $ 16,387
=== ====== ======== ====== ========

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

F-70

PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30 DECEMBER 31
-------------------------------------- ---------------------
1995 1996 1997 1996 1997
------------- ------------ ----------- ---------- ----------
(UNAUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ........................................ $ 3,342 $ (2,005) $ 5,160 $ (692) $ (848)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities-
Depreciation and amortization .......................... 1,223 1,737 1,896 434 522
Equity in (earnings) loss of unconsolidated
partnerships .......................................... (1,624) (486) (4,912) 607 (1,150)
Distributions from unconsolidated partnerships ......... 1,297 1,090 2,354 1,073 411
Restricted stock compensation .......................... 25 3,675 456 6 683
Deferred income tax expense (benefit) .................. 848 (4,541) 2,037 36 (574)
Changes in operating assets and liabilities- ...........
Trade receivables ..................................... 447 (826) (465) 383 (2,179)
Notes receivable ...................................... (1,813) (1,227) 2,654 1,140 305
Prepaid expenses ...................................... (221) 1,466 (3,861) (2,099) (619)
Investments in theatrical productions ................. 305 (335) (1,913) (1,658) 444
Other assets .......................................... (37) (1,130) (421) (39) (469)
Accounts payable and accrued liabilities .............. 947 (1,142) (920) (264) (2,626)
Deferred revenue ...................................... (1,082) (1,008) 5,184 (7,004) 1,115
Other liabilities ..................................... 171 1,601 (34) 130 3,083
-------- --------- --------- -------- --------
Net cash provided by (used in) operating
activities ......................................... 3,828 (3,131) 7,215 (7,947) (1,902)
-------- --------- --------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired ....................... -- (13,233) (2,215) -- (178)
Capital expenditures ..................................... (728) (827) (1,008) (407) (900)
Loans and advances to related parties .................... (2,301) (535) (2,295) 2 169
Contributions to unconsolidated partnerships ............. (1,212) (1,806) (2,162) (618) (1,980)
-------- --------- --------- -------- --------
Net cash used in investing activities ............... (4,241) (16,401) (7,680) (1,023) (2,889)
-------- --------- --------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt additions ............................. 8,927 24,043 24,287 557 14,593
Payments on debt ......................................... (8,928) (6,512) (23,203) (873) (5,884)
-------- --------- --------- -------- --------
Net cash provided by (used in) financing
activities ......................................... (1) 17,531 1,084 (316) 8,709
---------- --------- --------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ......................................... (414) (2,001) 619 (9,286) 3,918
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR ......................................... 25,580 25,166 23,165 23,165 23,784
--------- --------- --------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF
YEAR ..................................................... $25,166 $ 23,165 $ 23,784 $ 13,879 $ 27,702
========= ========= ========= ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest paid ............................................ $ 620 $ 1,117 $ 1,900 $ 180 $ 644
Income taxes paid ........................................ 2,276 2,804 2,103 565 93

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

F-71

PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION:

Description of Business

PACE Entertainment Corporation (referred to herein as PACE or the
Company), a Texas corporation, is a diversified live entertainment company
operating principally in the United States. The Company presents and produces
theatrical shows, musical concerts and specialized motor sports events. Through
certain unconsolidated partnerships, the Company also owns interests in and
operates amphitheaters, which are used primarily for the presentation of live
performances by musical artists.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
PACE and its majority-owned subsidiaries. The Company accounts for its
investments in 50 percent or less owned entities, including theatrical
production partnerships, using the equity method. Intercompany balances are
eliminated.

The Company has various agreements related to the presentation of events
with other live entertainment organizations whereby the Company retains 50
percent to 80 percent of the profits from such events. The Company consolidates
the revenues and related costs from these events and records the amounts paid
to the other parties in cost of sales.

Cash Equivalents

The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. At September 30,
1997, the Company had restricted cash and cash equivalents of $2,950,000, which
secured letters of credit totaling $3,750,000.

Trade Receivables

Trade receivables are shown net of allowance for doubtful accounts of
$120,000 and $134,000 at September 30, 1996 and 1997, respectively.

Prepaid Expenses

Prepaid expenses include show advances and deposits, event advertising
costs and other costs directly related to future events. Such costs are charged
to operations upon completion of the related events.

As of September 30, 1996 and 1997, prepaid expenses included event
advertising costs of $1,337,000 and $1,498,000, respectively. The Company
recognized event advertising expenses of $13,818,000, $14,861,000 and
$13,802,000 in cost of sales for the years ended September 30, 1995, 1996 and
1997, respectively.

Investments in Theatrical Productions

Theatrical production partnerships are typically formed to invest in a
single theatrical production and, therefore, have limited lives which are
generally less than one year. Accordingly, the Company's investments in such
partnerships are generally shown as current assets. The partnerships amortize
production costs over the estimated life of each production based on the
percentage of revenues earned in relation to projected total revenues.

F-72

PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Intangible Assets

Intangible assets consisted of the following (in thousands):

SEPTEMBER 30
-----------------------
1996 1997
---------- ----------

Goodwill ............................................ $ 16,599 $ 17,851
Noncompete agreements and other intangibles ......... 3,940 3,857
-------- --------
20,539 21,708
Accumulated amortization ............................ (3,295) (3,814)
-------- --------
$ 17,244 $ 17,894
======== ========

Goodwill, which represents the excess of costs of business acquisitions
over the fair value of net assets acquired, is being amortized on a
straight-line basis over periods not exceeding 40 years. The noncompete
agreements and other intangibles are being amortized on a straight-line basis
over periods generally not exceeding five years. The Company evaluates on an
ongoing basis whether events and circumstances indicate that the amortization
periods of intangibles warrant revision. Additionally, the Company periodically
assesses whether the carrying amounts of intangibles exceed their expected
future benefits and value, in which case an impairment loss would be
recognized. Such assessments are based on various analyses, including cash flow
and profitability projections.

Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consisted of the following (in
thousands):

SEPTEMBER 30
---------------------
1996 1997
--------- ---------

Accounts payable .................. $ 1,192 $ 1,866
Accrued payroll ................... 2,384 2,936
Other accrued liabilities ......... 6,709 6,276
------- -------
$10,285 $11,078
======= =======

Revenue Recognition

Revenues from the presentation and production of an event, including
interest on advance ticket sales, are recognized upon completion of the event.
Deferred revenue relates primarily to advance ticket sales.

The Company barters event tickets and sponsorship rights for products and
services, including event advertising. These barter transactions are not
recognized in the accompanying consolidated financial statements and are not
material to the Company's financial position or results of operations.

Stock-Based Compensation

The Company adopted Statement of Financial Accounting Standards (SFAS) No.
123, "Accounting for Stock-Based Compensation," during the year ended September
30, 1997, and implemented its disclosure provisions. While SFAS No. 123
encourages companies to recognize expense for stock options at estimated fair
value based on an option-pricing model, the Company has elected to continue to
follow Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations in accounting for its
employee stock options.

F-73

PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Financial Instruments

The carrying amounts of cash equivalents approximate fair value because of
the short maturities of these investments. The carrying amount of long-term
debt approximates fair value as borrowings bear interest at current market
rates.

Use of Estimates

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

Reclassifications

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

Interim Financial Information

The interim financial data as of December 31, 1997 and for the three-month
periods ended December 31, 1996 and 1997 is unaudited and certain information
and disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted.
However, in the opinion of management, the interim data includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the results for the interim periods. The results of
operations for the interim periods are not necessarily indicative of the
results to be expected for the entire year.

2. ACQUISITIONS:

On March 13, 1996, the Company acquired substantially all the assets of
SRO Motorsports (SRO), a division of Madison Square Garden, L.P., under an
asset purchase agreement for an aggregate initial purchase price of
approximately $13,300,000 in cash and $3,800,000 in assumed liabilities. The
agreement also provides for a contingent deferred purchase price not to exceed
$1,000,000, payable if annual earnings before interest, taxes, depreciation and
amortization of the Company's motor sports operations, as defined, exceed
$8,000,000 for any fiscal year through September 30, 2001. No deferred purchase
price costs had been incurred through September 30, 1997.

The acquisition of SRO was accounted for under the purchase method and the
assets acquired and liabilities assumed were recorded at fair value, resulting
in the recognition of $14,250,000 of goodwill and $400,000 of other
intangibles. The results of operations of SRO since March 13, 1996, have been
included in the accompanying consolidated financial statements.

The following unaudited pro forma information assumes that the Company had
acquired SRO as of October 1, 1994. The pro forma information includes
adjustments for interest expense that would have been incurred to finance the
acquisition, amortization of goodwill and other intangibles, the income tax
effects of the operations of SRO, and the elimination of certain intercompany
balances. The unaudited pro forma information, which is not necessarily
indicative of what actual results would have been, is as follows (in
thousands):

YEAR ENDED
SEPTEMBER 30
-------------------------
1995 1996
----------- -----------
(UNAUDITED)

Gross revenues ............ $167,422 $172,952
Net income (loss) ......... 3,742 (257)

F-74

PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. INVESTMENTS IN UNCONSOLIDATED PARTNERSHIPS AND THEATRICAL
PRODUCTIONS:

Investments in unconsolidated partnerships and theatrical productions
consisted of the following (in thousands):

SEPTEMBER 30
---------------------
1996 1997
--------- ---------

Investment in--
Pavilion Partners ................................. $ 3,131 $ 4,810
Universal/PACE Amphitheaters Group, L.P. .......... 3,380 3,991
Other ............................................. 2,305 5,098
------- -------
Investments in unconsolidated partnerships ......... 8,816 13,899
Investments in theatrical productions .............. 2,489 4,402
------- -------
$11,305 $18,301
======= =======

The Company's share of earnings and the distributions received from these
investments were as follows (in thousands):

YEAR ENDED SEPTEMBER 30
---------------------------------
1995 1996 1997
--------- --------- ---------

Equity in earnings (losses) of--
Pavilion Partners ................. $1,872 $ 103 $2,803
Universal/PACE Amphitheaters
Group, L.P. ............................. 551 871 645
Other ............................. (799) (488) 1,464
------ ------ ------
Equity in earnings of unconsolidated
partnerships ...................... 1,624 486 4,912
Equity in earnings of theatrical
productions ....................... 559 2,562 1,926
------ ------ ------
$2,183 $3,048 $6,838
====== ====== ======
Distributions received from--
Pavilion Partners ................. $ 992 $1,002 $1,124
Universal/PACE Amphitheaters
Group, L.P. ............................. 166 78 34
Other ............................. 139 10 1,196
------ ------ ------
Distributions from unconsolidated
partnerships ...................... 1,297 1,090 2,354
Distributions from theatrical
productions ....................... 4,240 5,836 6,803
------ ------ ------
$5,537 $6,926 $9,157
====== ====== ======

F-75

PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Pavilion Partners

Pavilion Partners is a Delaware general partnership between the Company
and Amphitheater Entertainment Partnership (AEP). AEP is a partnership between
Sony Music Entertainment Inc. (Sony) and Blockbuster Entertainment Corporation
(Blockbuster). Pavilion Partners owns and operates amphitheaters, which are
used primarily for the presentation of live performances by musical artists.
Pavilion Partners had interests in 10 and 11 amphitheaters at September 30,
1996 and 1997, respectively. The Company owns a 33-1/3 percent interest in, and
is the managing partner of, Pavilion Partners.

In general, all of Pavilion Partners' income is allocated to the partners
in proportion to their respective ownership interests. The partnership
agreement generally restricts cash distributions to 35 percent of cash flow
after scheduled debt service. Additionally, PACE has been entitled to certain
priority allocations of net income based, in part, on the cash flow from one of
the amphitheaters it contributed to Pavilion Partners. During the periods ended
September 30, 1995, 1996 and 1997, the priority allocations of net income
included in the Company's equity in earnings of Pavilion Partners were
$771,000, $725,000 and $119,000, respectively. The cumulative amount of the
priority allocations of net income was limited; PACE is not entitled to any
future priority allocations. AEP is entitled to receive priority allocations of
net income once a loan related to an amphitheater contributed by Blockbuster is
repaid. The cumulative priority allocations of net income to AEP is limited to
$7,000,000. The loan is scheduled to mature in 2004 and no such allocation has
yet been made.

PACE also received booking fees of $323,000, $235,000 and $395,000 from
Pavilion Partners for the years ended September 30, 1995, 1996 and 1997,
respectively. In addition, the Company is reimbursed for certain costs of
providing management services to Pavilion Partners. These reimbursements
totaled $1,629,000, $1,824,000 and $1,968,000 during the periods ended
September 30, 1995, 1996 and 1997, respectively, and offset general and
administrative expenses.

Summarized financial information as of and for the years ended September
30, 1995, 1996 and 1997, for Pavilion Partners follows (in thousands):

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

Current assets ................................ $15,787 $20,700 $ 30,178
Noncurrent assets ............................. 64,619 72,793 72,598
------- ------- --------
Total assets ................................. $80,406 $93,493 $102,776
======= ======= ========
Current liabilities ........................... $ 9,467 $17,194 $ 19,748
Noncurrent liabilities ........................ 51,578 58,695 59,166
Partners' capital ............................. 19,361 17,604 23,862
------- ------- --------
Total liabilities and partners' capital ...... $80,406 $93,493 $102,776
======= ======= ========
Gross revenues ................................ $69,372 $89,223 $100,209
======= ======= ========
Gross profit .................................. $19,440 $27,993 $ 36,157
======= ======= ========
Net income (loss) ............................. $ 3,104 $ (839) $ 6,986
======= ======= ========

F-76

PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Universal/PACE

The Company owns a 32.5 percent interest in Universal/PACE Amphitheaters
Group, L.P. (Universal/PACE), a limited partnership between the Company and
Universal Concerts, Inc., which controls two amphitheaters. PACE earned
management fees of $167,000, $79,000 and $34,000 from Universal/PACE for the
years ended September 30, 1995, 1996 and 1997, respectively. Summarized
financial information as of and for the years ended September 30, 1995, 1996
and 1997, for Universal/PACE follows (in thousands):

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

Current assets ................................ $ 4,085 $ 3,420 $ 6,659
Noncurrent assets ............................. 14,654 14,185 14,156
------- ------- -------
Total assets ................................. $18,739 $17,605 $20,815
======= ======= =======
Current liabilities ........................... $ 6,599 $ 3,876 $10,221
Noncurrent liabilities ........................ 6,467 5,618 602
Partners' capital ............................. 5,673 8,111 9,992
------- ------- -------
Total liabilities and partners' capital ...... $18,739 $17,605 $20,815
======= ======= =======
Gross revenues ................................ $24,070 $20,336 $25,299
======= ======= =======
Gross profit .................................. $ 5,968 $ 6,361 $ 5,817
======= ======= =======
Net income .................................... $ 1,183 $ 2,438 $ 1,880
======= ======= =======

Other

The Company also has investments in numerous theatrical production and
other unconsolidated partnerships. Summarized financial information as of and
for the years ended September 30, 1995, 1996 and 1997, for these partnerships,
excluding Pavilion Partners and Universal/PACE, follows (in thousands):

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

Current assets ................................ $ 10,410 $ 12,433 $ 35,743
Noncurrent assets ............................. 5,668 7,267 14,050
-------- -------- --------
Total assets ................................. $ 16,078 $ 19,700 $ 49,793
======== ======== ========
Current liabilities ........................... $ 7,539 $ 6,566 $ 19,134
Noncurrent liabilities ........................ 2,315 2,250 2,957
Partners' capital ............................. 6,224 10,884 27,702
-------- -------- --------
Total liabilities and partners' capital ...... $ 16,078 $ 19,700 $ 49,793
======== ======== ========
Gross revenues ................................ $113,854 $111,715 $249,707
======== ======== ========
Gross profit .................................. $ 221 $ 10,440 $ 34,454
======== ======== ========
Net income (loss) ............................. $ (1,863) $ 9,823 $ 32,164
======== ======== ========

F-77

PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. LONG-TERM DEBT:

Long-term debt consisted of the following (in thousands):

SEPTEMBER 30
-----------------------
1996 1997
---------- ----------

Term loan ........................ $ 14,464 $ 12,322
Revolving line of credit ......... 9,250 12,950
Other notes payable .............. 725 251
-------- --------
24,439 25,523
Less- Current portion ............ (2,576) (2,394)
-------- --------
$ 21,863 $ 23,129
======== ========

In March 1996, the Company entered into a new credit agreement with
certain financial institutions. The credit agreement provides for a term loan
and a revolving line of credit, both of which bear interest at either LIBOR
plus 2 percent or prime, at the option of the Company. At September 30, 1997,
the weighted average interest rate was 7.8 percent. The term loan is scheduled
to mature in March 2001 and is payable in quarterly installments of $536,000
plus interest, with a balloon payment at maturity. The Company may borrow
$27,000,000 under the revolving line of credit until February 1998;
subsequently, borrowings are limited to $13,000,000 until March 2001, when the
revolving line of credit expires. The Company must pay a quarterly commitment
fee equal to 0.375 percent per annum on the average daily unused portion of the
revolving line of credit. The term loan and the revolving line of credit are
secured by substantially all of the Company's assets, including pledges of the
capital stock of its subsidiaries. The credit agreement contains various
restrictions and requirements relating to, among other things, mergers, sales
of assets, investments and maintenance of certain financial ratios.

At September 30, 1997, scheduled maturities of long-term debt were as
follows (in thousands):

For the year ending September 30--
1998 ............................ $ 2,394
1999 ............................ 2,143
2000 ............................ 2,143
2001 ............................ 18,843
-------
$25,523
=======

F-78

PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. INCOME TAXES:

Deferred taxes reflect the tax effects of temporary differences between
the financial statement carrying amounts and the tax bases of assets and
liabilities. Significant components of the Company's deferred tax assets and
liabilities were as follows (in thousands):

SEPTEMBER 30
---------------------
1996 1997
-------- ----------

Deferred tax assets--
Investments in unconsolidated partnerships and
theatrical productions ......................... $ 286 $ 237
Accounts payable and accrued liabilities ......... 1,014 1,480
Restricted stock compensation .................... 1,387 409
Other noncurrent liabilities ..................... 1,717 --
Other ............................................ 107 281
------ ------
Total deferred tax assets ...................... 4,511 2,407
------ ------
Deferred tax liabilities--
Investments in unconsolidated partnerships and
theatrical productions ......................... 1,522 1,099
Prepaid expenses ................................. 907 1,237
Intangibles ...................................... 646 672
------ ------
Total deferred tax liabilities ................. 3,075 3,008
------ ------
$1,436 $ (601)
====== ======

Deferred taxes are included in the consolidated balance sheets as follows
(in thousands):

SEPTEMBER 30
-----------------------
1996 1997
--------- -----------

Current deferred tax assets .......... $1,872 $ 979
Other noncurrent liabilities ......... (436) (1,580)
------ --------
$1,436 $ (601)
====== ========

The income tax (provision) benefit consisted of the following (in
thousands):

YEAR ENDED SEPTEMBER 30
------------------------------------------
1995 1996 1997
------------ ------------ ------------

Current--
Federal .............................. $ (1,251) $ (2,817) $ (1,319)
State ................................ (476) (1,010) (173)
Deferred--
Federal .............................. (692) 3,705 (1,777)
State ................................ (156) 836 (260)
-------- -------- --------
Total tax (provision) benefit ......... $ (2,575) $ 714 $ (3,529)
======== ======== ========
Effective tax rate .................... 44% 26% 41%
======== ======== ========

F-79

PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The reconciliation of income tax computed at the U.S. federal statutory
rates to the income tax (provision) benefit is as follows (in thousands):

YEAR ENDED SEPTEMBER 30
---------------------------------------
1995 1996 1997
------------ --------- ------------

Tax at the federal statutory rate ......... $ (2,012) $ 924 $ (2,954)
Increases resulting from--
State income taxes, net of federal tax
effect ................................. (417) (112) (286)
Nondeductible expenses ................... (60) (98) (185)
Other .................................... (86) -- (104)
-------- ------ --------
Total income tax (provision) benefit ..... $ (2,575) $ 714 $ (3,529)
======== ====== ========

6. REDEEMABLE COMMON STOCK:

At September 30, 1997, the Company had outstanding 155 shares of common
stock that are redeemable under conditions that are not solely within the
control of the Company. The Company granted this redeemable stock to certain
executives during the years ended September 30, 1996 and 1997. To the extent
that the grants related to prior service, the Company recognized compensation
costs on the grant date. Additionally, the Company recognizes compensation
costs for the change in value of certain shares that, as discussed below, the
Company may be required to purchase from the executives at fair market value.
Restricted stock compensation related to these grants totaled $3,260,000 and
$425,000 during the years ended September 30, 1996 and 1997, respectively. The
Company has the right of first refusal to purchase the redeemable common stock
at fair market value.

Agreements with one executive who received 140 shares of redeemable stock
provide that the Company will have call options to purchase these shares from
the executive for a total of $3,420,000. These agreements also provide that the
executive will have put options to sell such shares to the Company for
$3,420,000. The put and call options are only exercisable if the executive's
employment is terminated before an initial public offering of the Company's
common stock.

Of the redeemable stock granted to this executive, 123 shares were granted
during the year ended September 30, 1996, and vested during the year ended
September 30, 1997. Since the grant related to prior service, the Company
recognized compensation costs on the grant date. During the year ended
September 30, 1997, the Company executed a promissory note in the amount of
$1,232,000 with this executive. This note bears interest at 5.45 percent, is
secured by 140 shares of the Company's common stock, and is scheduled to mature
in October 2001. The proceeds of the note were used to pay the executive's tax
liability related to the 123 shares that vested during the year ended September
30, 1997. Accordingly, the value of redeemable stock outstanding has been
reduced by this note receivable.

The remaining 17 shares of redeemable stock received by this executive
were granted during the year ended September 30, 1997, and vest ratably during
the years ending September 30, 1999 and 2000. To fund the executive's tax
liability related to these 17 shares, the Company may be required to purchase
up to 41 percent of the shares at fair market value when the shares vest. The
Company has similar agreements with the other executives who received the
remaining 15 shares of redeemable stock, which were granted during the year
ended September 30, 1996. In order to fund the executives' tax liabilities
related to these grants and related restricted common stock grants, these 15
shares of redeemable stock must be purchased at fair market value when the
shares vest during the years ended September 30, 1998 and 1999. Although all 32
shares that the Company may be required to purchase in order to satisfy
executives' tax liabilities have future vesting requirements, the Company
recognized

F-80

PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

compensation costs on the grant dates to the extent the grants related to prior
service. The difference between such expense recognition and recognition over
the vesting periods is not material to the Company's results of operations and
financial position.

7. SHAREHOLDER'S EQUITY:

The Company granted 23 shares of restricted common stock to certain
executives during the year ended September 30, 1996. These shares vest ratably
during the years ended September 30, 1998 and 1999. Although the shares have
future vesting requirements, the Company recognized compensation costs on the
grant dates to the extent the grants related to prior service. The difference
between such expense recognition, which totaled $390,000 and $6,000 during the
years ended September 30, 1996 and 1997, respectively, and recognition over the
vesting periods is not material to the Company's results of operations and
financial position. The Company has the right of first refusal to purchase at
fair market value all of the shares granted during the year ended September 30,
1996. Additionally, if the executives' employment is terminated before an
initial public offering of the Company's common stock, the Company has a call
option to purchase the vested shares at fair market value.

Effective October 15, 1993, the Company and one of its officers entered
into an employment agreement which provided for the granting of 45 shares of
the Company's common stock. The shares vested over a five-year period and the
Company recorded related compensation expense of $25,000 for each of the years
ended September 30, 1995, 1996 and 1997.

8. STOCK OPTIONS:

The Company adopted the 1996 Stock Incentive Compensation Plan during the
year ended September 30, 1996. Under the plan, the Company may grant awards
based on its common stock to employees and directors. Such awards may include,
but are not limited to, restricted stock, stock options, stock appreciation
rights and convertible debentures. Up to 325 shares of common stock may be
issued under the plan. During the year ended September 30, 1996, the Company
granted options to purchase 117 shares of common stock at a weighted average
exercise price of $18,989 per share, which approximated fair value on the date
of grant. Such options vest and are generally exercisable ratably over a
four-year period. The options expire in 10 years.

An option to purchase 22 shares of common stock at $10,000 per share was
granted to an executive during the year ended September 30, 1994. This option
was canceled subsequent to September 30, 1997.

Because the exercise prices of the Company's employee stock options
equaled the fair market value of the underlying stock on the date of grant, no
compensation expense was recognized in accordance with APB Opinion No. 25. Had
compensation cost for the options been determined based on the fair value at
the grant date pursuant to SFAS No. 123, the Company's net income would have
decreased by $49,000 and $148,000 for the years ended September 30, 1996 and
1997, respectively. For this purpose, the fair value of the options was
estimated using the minimum value method assuming that the risk-free interest
rate was 6.7 percent and that no dividends will be paid.

9. RELATED-PARTY TRANSACTIONS:

The Company contracts with certain theatrical partnerships of which it is
a minority partner to obtain the rights to present theatrical productions in
the Company's markets. Approximately $20,000,000, $33,400,000 and $31,200,000
of expenses were incurred for such rights and included in cost of sales during
the years ended September 30, 1995, 1996 and 1997, respectively.

The Company contracts with certain unconsolidated partnerships to sell the
rights to present musical concerts. Approximately $2,446,000 of revenues was
earned from the sale of such rights during the year ended September 30, 1997.
No such rights were sold during the years ended September 30, 1995 and 1996.

F-81

PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

As of September 30, 1997, notes receivable, related parties included
$6,453,000 due from executives and $1,571,000 due from other related parties.
Two of the notes receivable from executives are promissory notes from the
Company's principal shareholder. As of September 30, 1997, these two notes
totaled $5,961,000, including accrued interest of $550,000. One note, in the
original principal amount of $2,911,000, bears interest at 5.83 percent, is
secured by 254 shares of PACE common stock and matures on March 28, 1999. The
other note is for $2,500,000, bears interest at 6.34 percent, is secured by 246
shares of PACE common stock and was scheduled to mature on November 3, 1997.
This note has been extended to mature on November 4, 2000. Interest income on
these two notes was approximately $300,000 for each of the years ended
September 30, 1995, 1996 and 1997. At September 30, 1997, the Company also had
a $583,000 receivable from its principal shareholder. The principal shareholder
has represented his intention to pay the outstanding loans and receivable
balance from personal assets or if necessary, the liquidation of certain
ownership interests in the Company.

At September 30, 1997, notes receivable from other related parties
included $945,000 due from a joint venture partner. The terms of the related
joint venture agreement provide for the Company to loan to the joint venture
partner any required capital contributions, to be repaid on a priority basis
from the profits allocated to the joint venture partner. The advances accrue
interest at the prime rate plus 4 percent (12.5 percent at September 30, 1997)
and are secured by the joint venture partner's 50 percent interest in the joint
venture.

10. LITIGATION SETTLEMENT:

The Company was previously named as a defendant in a case filed in Wake
County, North Carolina (Promotion Litigation). There were several other
defendants named in the litigation, including Pavilion Partners, with various
causes of action asserted against one or more of each of the defendants,
including (a) breach of alleged contract, partnership, joint venture and
fiduciary duties between certain of the defendants and Pro Motion Concerts, (b)
constructive fraud, (c) interference with prospective advantage, (d) unfair
trade practices, (e) constructive trust and (f) unjust enrichment. The essence
of the plaintiffs' claims was that certain of the defendants agreed to enter
into a partnership with plaintiffs for the development and operation of an
amphitheater.

On May 1, 1997, the Promotion Litigation was settled. All defendants were
fully and finally released with prejudice from any and all claims and causes of
action. The defendants did not acknowledge or admit any liability. The
settlement called for payments from defendants totaling $4,500,000. The Company
was obligated to pay $1,500,000 immediately after the settlement and is
obligated to pay an additional $2,000,000 on or before May 1, 1998. To
guarantee payment of this $2,000,000 obligation, the Company had a standby
letter of credit outstanding at September 30, 1997. The remaining $1,000,000 of
the settlement was paid by Pavilion Partners during the year ended September
30, 1997. This expense and related legal expenses were charged to operations
for the year ended September 30, 1996.

F-82

PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. COMMITMENTS AND CONTINGENCIES:

Leases

The Company leases office facilities under noncancelable operating leases
with future minimum rent payments as follows (in thousands):

For the year ending September 30--
1998 ............................ $1,006
1999 ............................ 417
2000 ............................ 215
2001 ............................ 193
2002 ............................ 195
Thereafter ....................... 33
------
Total ........................... $2,059
======

Rent expense was $676,000, $765,000 and $1,084,000 for the years ended
September 30, 1995, 1996 and 1997, respectively.

Change in Control Provisions

The Company and its unconsolidated partnerships, including Pavilion
Partners, have entered into numerous leases and other contracts in the ordinary
course of business. Certain of these agreements either contain restrictions on
their assignability or would require third-party approval of a change in
control of the Company.

Employment Agreements

The Company has employment agreements with certain key employees. Such
agreements generally provide for minimum salary levels, guaranteed bonuses and
incentive bonuses which are payable if specified financial goals are attained.
As of September 30, 1997, the Company's minimum commitment under these
agreements were as follows (in thousands):

For the year ending September 30--
1998 ............................ $4,463
1999 ............................ 3,825
2000 ............................ 2,789
2001 ............................ 1,430
2002 ............................ 743

The Company is currently negotiating certain other employment agreements
that may result in additional future commitments.

Insurance

The Company carries a broad range of insurance coverage, including general
liability, workers' compensation, stop-loss coverage for its employee health
plan and umbrella policies. The Company carries deductibles of up to $10,000
per occurrence for general liability claims and is self-insured for annual
healthcare costs of up to $25,000 per covered employee and family. The Company
has accrued for estimated potential claim costs in satisfying the deductible
and self-insurance provisions of the insurance policies for claims occurring
through September 30, 1997. The accrual is based on known facts and historical
trends, and management believes such accrual to be adequate.

F-83

PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Legal Proceedings

Various legal actions and claims are pending against the Company, most of
which are covered by insurance. In the opinion of management, the ultimate
liability, if any, which may result from these actions and claims will not
materially affect the financial position or results of operations of the
Company.

Guarantees

The Company has guaranteed a $2,438,000 debt of a partnership in which
Pavilion Partners holds a 50 percent interest. PACE has agreements with its
partners whereby they would assume approximately 50 percent of any liability
arising from this guarantee. The debt matures June 1, 2003. Management does not
believe that the guarantee will result in a material liability to the Company.

Income Taxes

The Internal Revenue Service is examining several years of returns of a
majority-owned subsidiary. Management is currently discussing a possible
settlement of approximately $600,000, which has been accrued in the Company's
financial statements.

Subscription Agreement

During April 1995, the Company acquired an interest in a company
incorporated in the United Kingdom. Pursuant to a subscription agreement, the
Company made payments totaling $1,355,000 prior to September 30, 1997. The
Company has agreed to pay an additional (pounds sterling)239,000 in April
1998.

Construction Commitments

An unconsolidated partnership has committed to certain renovation work at
its amphitheater. The Company may be obligated to fund up to approximately $7.3
million of these renovations. Through its investment in another unconsolidated
partnership, the Company has an interest in a performance hall being
constructed for musical and theatrical presentations. The Company had funded
$0.4 million of the performance hall construction costs through September 30,
1997; the Company's estimated additional funding commitments are approximately
$2.0 million. In addition, the Company and several third parties are currently
negotiating definitive agreements to develop a theatrical venue. The Company
may be obligated to fund approximately $3.0 million of the costs of this
development over an undetermined period of time.

Put Option Agreement

The Company has entered into put option agreements with two banks whereby
the Company may be required to repurchase a total of 1,000 shares of the
Company's common stock held by an affiliate that collateralizes the personal
loans of the Company's principal shareholder at a per share price of $1,500.
The put options are effective only in the event of a loan default of the
shareholder prior to July 31, 1999. At September 30, 1997, the loans were not
in default.

12. SUBSEQUENT EVENTS:

Subsequent to September 30, 1997, the Company entered into certain
agreements with an executive who previously had been granted an option to
purchase 22 shares of common stock at $10,000 per share. Pursuant to the new
agreements, the option was canceled and the executive was granted 22 shares of
restricted common stock.

In December 1997, the Company and its shareholders entered into an
agreement with SFX Entertainment, Inc. (SFX), whereby the shareholders would
sell their interests in the Company to SFX (SFX Transaction). The purchase
price of $109 million in cash and 1,500,000 shares of SFX

F-84

PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Class A Common Stock is subject to adjustment prior to closing. Closing is
subject to certain conditions, including approval of certain third parties.
Concurrent with closing, the agreement requires, among other things, the
repayment of all outstanding loans and receivables due from the Company's
principal shareholder (see Note 9) and the repayment of the promissory note
received from an executive in connection with a stock grant (see Note 6).
Additionally, the agreement provides for the settlement of all restricted and
redeemable stock, as well as all outstanding stock options. This settlement is
expected to result in a one-time charge by the Company of approximately $4.7
million, net of related tax effects. The agreement also requires SFX to provide
the Company with a $25 million line of credit (Acquisition Facility) to be used
for certain acquisitions being contemplated by the Company. If the acquisition
of the Company is not consummated, this line of credit will be converted to a
term loan in the amount of advances then outstanding or, under certain
circumstances, will become immediately due and payable. This bridge financing
is secured by the assets acquired and an option to purchase the Company's
interest in Pavilion Partners.

In December 1997, the Company entered into agreements to effectively
purchase substantially all of the assets of United Sports of America (USA
Transaction), a producer and presenter of demolition derbies, thrill shows, air
shows, monster truck shows, tractor pull events, motorcycle racing and bull
riding in the United States and Canada. Pursuant to the agreements, the total
purchase price is $6,000,000 in cash of which an option amount of $500,000 was
paid upon the execution of the agreement and closing is subject to the
satisfactory completion of due diligence by the Company. Management does not
expect this transaction to close until May 1998. In the event the transaction
does not close, the option amount will be forfeited if certain conditions are
not met.

In December 1997, the Company entered into an agreement to purchase
Blockbuster's 33 1/3 percent interest in Pavilion Partners (Blockbuster
Transaction) for $4,171,000 in cash, $2,940,000 in assumed liabilities and the
assumption of certain indemnification obligations of Blockbuster under the
Pavilion Partners Partnership Agreement. In addition, the Company has agreed to
purchase a note with a balance of $9,507,000, including accrued interest of
$1,601,000, at September 30, 1997. The transaction is contingent on, among
other things, obtaining acceptable financing including the release of
Blockbuster from certain debt obligations and the approval of Sony. (Note 3)

On December 22, 1997, the Company entered into an agreement to purchase
Sony's 33 1/3 percent interest in Pavilion Partners (Sony Transaction) for
$27,500,000 in cash. The transaction is contingent on, among other things,
government approval and obtaining acceptable financing including the release of
Sony from certain debt obligations. (see Note 3)

13. EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED)

Effective February 25, 1998, the SFX Transaction, Blockbuster Transaction
and Sony Transaction closed. In conjunction with the closing, SFX retired the
Company's outstanding term loan and revolving line of credit and purchased or
retired a substantial portion of the indebtedness of Pavilion Partners,
including debt which was previously guaranteed by PACE. No borrowings had been
made under the Acquisition Facility, which expired with the closing of the SFX
Transaction. Additionally, all put option agreements related to the Company's
common stock were terminated.

During February 1998, the Company granted 40 shares of restricted common
stock to an executive. This grant combined with the settlement of all
restricted and redeemable stock, all outstanding stock options and certain
bonuses paid in conjunction with the SFX Transaction resulted in a one-time
charge during February 1998 of approximately $6.4 million, net of related tax
effects.

The USA Transaction closed on March 25, 1998. To effect the USA
Transaction, PACE contributed $4,000,000 to a newly formed partnership and that
partnership acquired a 67% interest in certain assets and liabilities of United
Sports of America from third parties. The remaining 33% interest in those
assets and liabilities was contributed to the partnership by a subsidiary of
SFX.

F-85

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of Pavilion Partners:

We have audited the accompanying consolidated balance sheet of Pavilion
Partners, a Delaware general partnership, as of September 30, 1997, and the
related consolidated statements of income, partners' capital and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the partnership's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Pavilion Partners
as of September 30, 1997, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Houston, Texas
December 15, 1997 (except with
respect to the matters discussed
in Note 11, as to which the date
is December 22, 1997)

F-86

REPORT OF INDEPENDENT ACCOUNTANTS

To the Partners of Pavilion Partners

In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of income, of partners' capital and of cash
flows present fairly, in all material respects, the financial position of
Pavilion Partners and its subsidiaries (the Partnership) at September 30, 1996
and the results of their operations and their cash flows for the year ended
October 31, 1995 and the eleven months ended September 30, 1996, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Partnership's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP

Houston, Texas
December 12, 1996

F-87

PAVILION PARTNERS

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

SEPTEMBER 30
---------------------- DECEMBER 31
1996 1997 1997
--------- ---------- (UNAUDITED)

ASSETS
CURRENT ASSETS:
Cash and cash equivalents .............................. $ 8,554 $ 17,898 $15,464
Accounts receivable .................................... 7,842 6,167 2,067
Accounts receivable, related parties ................... 1,878 3,878 1,687
Notes receivable, related parties ...................... 1,218 1,218 1,218
Prepaid expenses and other current assets .............. 1,208 1,017 622
------- -------- -------
Total current assets .............................. 20,700 30,178 21,058
Prepaid rent ........................................... 7,075 6,938 6,898
Property and equipment, net ............................ 61,292 59,938 59,291
Other assets ........................................... 4,426 5,722 5,777
------- -------- -------
Total assets ...................................... $93,493 $102,776 $93,024
======= ======== =======
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable ....................................... $ 1,404 $ 1,193 $ 260
Accounts payable, related parties ...................... 1,866 3,948 2,193
Accrued liabilities .................................... 8,112 7,032 5,614
Deferred revenue ....................................... 3,602 5,081 3,067
Current portion of notes payable and capital lease
obligation ........................................... 1,573 1,614 1,639
Current portion of note payable, related party ......... 637 880 945
------- -------- -------
Total current liabilities ......................... 17,194 19,748 13,718
Notes payable .......................................... 43,680 42,192 41,879
Note payable, related party ............................ 7,268 7,025 6,961
Capital lease obligation ............................... 6,130 5,989 5,952
Other liabilities and minority interests in consolidated
subsidiaries ......................................... 1,617 3,960 2,911
------- -------- -------
Total liabilities ................................. 75,889 78,914 71,421
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL ....................................... 17,604 23,862 21,603
------- -------- -------
Total liabilities and partners' capital ........... $93,493 $102,776 $93,024
======= ======== =======

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

F-88

PAVILION PARTNERS

CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)

ELEVEN MONTHS THREE MONTHS ENDED
YEAR ENDED ENDED YEAR ENDED DECEMBER 31,
OCTOBER 31, SEPTEMBER 30, SEPTEMBER 30, -------------------------
1995 1996 1997 1996 1997
------------- --------------- -------------- ----------- -----------
(UNAUDITED)

TICKET REVENUES .................... $43,266 $50,151 $ 58,479 $ 4,186 $ 4,554
OTHER OPERATING REVENUES 28,109 33,942 41,730 3,254 3,141
------- ------- -------- -------- --------
Total revenues .................. 71,375 84,093 100,209 7,440 7,695
COST OF SALES ...................... 49,226 57,723 64,052 4,862 5,229
------- ------- -------- -------- --------
Gross profit .................... 22,149 26,370 36,157 2,578 2,466
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 8,329 9,774 10,858 2,299 1,987
DEPRECIATION AND
AMORTIZATION ...................... 2,461 3,346 3,975 961 1,031
OTHER OPERATING COSTS .............. 5,345 7,390 8,531 961 723
LITIGATION EXPENSES AND
SETTLEMENT ........................ -- 2,380 -- -- --
------- ------- -------- -------- --------
Operating profit (loss) ......... 6,014 3,480 12,793 (1,643) (1,275)
INTEREST INCOME .................... 504 391 532 74 167
INTEREST EXPENSE ................... 2,793 3,855 4,413 1,127 1,102
------- ------- -------- -------- --------
INCOME (LOSS) BEFORE
MINORITY INTEREST ................. 3,725 16 8,912 (2,696) (2,210)
MINORITY INTEREST .................. 276 308 1,926 (63) (59)
------- ------- -------- -------- --------
NET INCOME (LOSS) .................. $ 3,449 $ (292) $ 6,986 $ (2,633) $ (2,151)
======= ======= ======== ======== ========

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

F-89

PAVILION PARTNERS

CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS)

AMPHITHEATER
ENTERTAINMENT
PARTNERSHIP SM/PACE, INC. TOTAL
-------------- --------------- ----------

BALANCE, October 31, 1994 ...................... $ 13,108 $2,805 $ 15,913
Net income .................................... 1,788 1,661 3,449
Distributions ................................. -- (699) (699)
-------- ------ --------
BALANCE, October 31, 1995 ...................... 14,896 3,767 18,663
Net income (loss) ............................. (330) 38 (292)
Distributions ................................. -- (767) (767)
-------- ------ --------
BALANCE, September 30, 1996 .................... 14,566 3,038 17,604
Net income .................................... 4,578 2,408 6,986
Distributions ................................. -- (728) (728)
-------- ------ --------
BALANCE, September 30, 1997 .................... $ 19,144 $4,718 $ 23,862
Net loss (unaudited) .......................... (1,435) (716) (2,151)
Distributions (unaudited) ..................... -- (108) (108)
-------- ------ --------
BALANCE, December 31, 1997 (unaudited) ......... $ 17,709 $3,894 $ 21,603
======== ====== ========

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

F-90

PAVILION PARTNERS

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

FOR THE
FOR THE ELEVEN MONTHS FOR THE THREE MONTHS ENDED
YEAR ENDED ENDED YEAR ENDED DECEMBER 31,
OCTOBER 31, SEPTEMBER 30, SEPTEMBER 30, ---------------------------
1995 1996 1997 1996 1997
------------- --------------- -------------- ------------ ------------
(UNAUDITED)

CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss) ....................... $ 3,449 $ (292) $ 6,986 $ (2,633) $ (2,151)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities--
Depreciation and amortization ......... 2,461 3,346 3,975 961 1,031
Minority interest ..................... 276 308 1,926 (63) (59)
Changes in assets and
liabilities--
Accounts receivable .................. (1,455) (3,647) 1,669 5,124 4,100
Accounts receivable and
payable, related parties ........... 32 (756) 82 (299) 436
Prepaid expenses and other
current assets ..................... 191 (296) 266 774 435
Accounts payable and accrued
liabilities ........................ (512) 1,695 (2,184) (1,925) (2,350)
Deferred revenue and other
liabilities ........................ 1,304 2,110 2,284 (2,082) (2,092)
Other, net ........................... (785) (1,259) (1,548) (141) (1,210)
--------- -------- -------- -------- --------
Net cash provided by (used
in) operating activities .......... 4,961 1,209 13,456 (284) (1,860)
--------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Payments of preoperating costs .......... (1,318) (1,114) (59) (271) --
Capital expenditures .................... (25,856) (7,483) (1,879) (15) (178)
--------- -------- -------- -------- --------
Net cash used in investing
activities ........................ (27,174) (8,597) (1,938) (286) (178)
--------- -------- -------- -------- --------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Funding of capital commitments by
partners .............................. 4,046 -- -- -- --
Distributions to partner ................ (699) (767) (728) (728) (108)
Proceeds from borrowings ................ 24,322 8,323 -- -- --
Repayments of borrowings ................ (639) (1,072) (1,446) (375) (288)
--------- -------- -------- -------- --------
Net cash provided by (used
in) financing activities .......... 27,030 6,484 (2,174) (1,103) (396)
--------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS ............................. 4,817 (904) 9,344 (1,673) (2,434)
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF PERIOD ..................... 4,641 9,458 8,554 8,554 17,898
--------- -------- -------- -------- --------
CASH AND CASH
EQUIVALENTS AT END OF
PERIOD .................................. $ 9,458 $ 8,554 $ 17,898 $ 6,881 $ 15,464
========= ======== ======== ======== ========

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

F-91

PAVILION PARTNERS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION:

Pavilion Partners (the Partnership) is a Delaware general partnership
between SM/PACE, Inc. (PACE), which is a wholly owned subsidiary of PACE
Entertainment Corporation, and Amphitheater Entertainment Partnership (AEP).
AEP is a partnership between a wholly owned subsidiary of Sony Music
Entertainment Inc. (Sony) and two wholly owned subsidiaries of Blockbuster
Entertainment Corporation (Blockbuster). PACE is the managing partner of the
Partnership. AEP owns a 66 2/3 percent interest in the Partnership, and PACE
owns a 33 1/3 percent interest in the Partnership.

In April 1990, Sony and PACE formed YM/PACE Partnership which changed its
name to the Sony Music/PACE Partnership. Effective April 1, 1994, the partners
entered into an agreement whereby Blockbuster obtained an indirect 33 1/3
percent interest in Sony Music/PACE Partnership, which was renamed Pavilion
Partners. In accordance with the agreement, Sony contributed an
interest-bearing note in the amount of $4,250,000 and its existing interest in
Sony Music/PACE Partnership to AEP. Concurrently, Blockbuster contributed an
interest-bearing note in the amount of $4,250,000 and its interest in three
existing amphitheaters to AEP. AEP in turn contributed these assets to the
Partnership. At the same time, PACE Entertainment Corporation contributed its
interest in two existing amphitheaters to the Partnership. Upon completion of
these contributions to the Partnership, AEP owned a 66 2/3 percent interest in
the Partnership and PACE owned a 33 1/3 percent interest in the Partnership.

The Partnership owns and operates amphitheaters, which are primarily used
for the presentation of live performances by musical artists. As of September
30, 1997, the Partnership owned interests in or leased 10 amphitheaters and had
a long-term management contract to operate an additional amphitheater. All of
the amphitheaters owned or operated by the Partnership are located in the
United States.

In April 1997, the Partnership entered into a new partnership agreement
with a third party to be known as Western Amphitheater Partners (WAP). The
Partnership contributed or licensed the assets and liabilities of the Glen
Helen Amphitheatre, and the other partner contributed or licensed the assets
and liabilities of the Irvine Meadows Amphitheatre. Each partner has a 50
percent interest in WAP. Under the terms of the Partnership agreement, the
partners are required to make an additional capital contribution of
approximately $850,000 each in WAP which was accrued by the Partnership at
September 30, 1997. The fiscal year-end for the WAP partnership will be
December 31.

During 1996, the Partnership changed its fiscal year-end from October 31
to September 30.

2. SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation

The consolidated financial statements of the Partnership include all of
its wholly owned subsidiaries and other partnerships in which Pavilion Partners
holds a controlling interest. All partnerships in which Pavilion Partners holds
less than a controlling interest are reported on the equity method of
accounting. All significant intercompany transactions have been eliminated in
consolidation.

Basis of Contributed Assets

All assets contributed to the Partnership by the partners were recorded at
the carrying values of the contributing entities.

Revenue Recognition

The Partnership records revenues from the presentation of events at the
completion of the related event. Advance ticket sales are classified as
deferred revenue until the event has occurred. Sponsorship and other revenues
that are not related to any single event are classified as deferred revenue and
amortized over each of the amphitheaters' various shows during the operating
season.

F-92

PAVILION PARTNERS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Partnership barters event tickets and sponsorship rights for products
and services, including event advertising. These barter transactions are not
recognized in the accompanying consolidated financial statements and are not
material to the Partnership's financial position or results of operations.

Income Taxes

No provision for federal or state income taxes is necessary in the
financial statements of the Partnership because, as a partnership, it is not
subject to federal or state income taxes and the tax effect of its activities
accrues to the partners.

Prepaid Expenses

As of September 30, 1996 and 1997, prepaid expenses included event
advertising costs of $160,000 and $137,000, respectively. The Partnership
recognized event advertising expenses of $5,815,000, $6,439,000 and $6,569,000
in cost of sales for the year ended October 31, 1995, the eleven months ended
September 30, 1996, and the year ended September 30, 1997, respectively.

Other Assets

The Partnership incurs certain costs in identifying and selecting
potential sites for amphitheater development. All costs incurred by the
Partnership during the initial site selection phase are expensed as incurred.
Certain incremental start-up costs that are incurred after a decision has been
made to develop a site are capitalized as preoperating costs. After an
amphitheater is fully developed, these preoperating costs are amortized on a
straight-line basis over a five-year period.

Contract acquisition costs include fees associated with securing a
contract with a booking agent for one of the Partnership's amphitheaters. These
costs are amortized on a straight-line basis over the life of the contract
which is 10 years.

Property and Equipment

Property and equipment is stated at cost. Repair and maintenance costs are
expensed as incurred. Interest incurred in connection with the construction of
an amphitheater is capitalized as part of the cost of the amphitheater. During
1995 and 1996, the Partnership capitalized interest in connection with the
construction of amphitheaters of $645,000 and $161,000, respectively. No
interest was capitalized in 1997.

Leasehold improvements are amortized on a straight-line basis over the
shorter of their estimated useful lives or the term of the lease. Other
property and equipment is depreciated on a straight-line basis over the
estimated useful lives of the assets. A summary of the principal ranges of
useful lives used in computing the annual provision for depreciation and
amortization is as follows:

RANGE OF YEARS
---------------

Buildings ....................... 27-31.5
Leasehold improvements .......... 5-31.5
Equipment ....................... 3-7
Furniture and fixtures .......... 5-10

The Partnership evaluates on an ongoing basis whether events and
circumstances indicate that the estimated useful lives of property and
equipment warrant revision. The Partnership adopted Statement

F-93

PAVILION PARTNERS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

of Financial Accounting Standard (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," in 1997. The
adoption of SFAS No. 121 did not have a material effect on the Partnership's
financial position or results of operations.

Fair Value of Financial Instruments

The carrying amounts of the Partnership's financial instruments
approximate their fair value at September 30, 1996 and 1997.

Statement of Cash Flows

The Partnership considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Interest paid was
$2,319,000, $3,652,000 and $3,917,000 for 1995, 1996 and 1997, respectively.
During the year ended October 31, 1995, the Partnership issued a note payable
with a fair value of $1,300,000 to a vendor in exchange for certain equipment
with a fair value which approximated the amount of the note. During 1997, the
Partnership contributed or licensed the assets and liabilities of the Glen
Helen Amphitheatre into the new WAP Partnership in which it holds a 50 percent
interest. The net book value of the investment made in the WAP Partnership was
$54,000.

Use of Estimates

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

Reclassifications

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

Interim Financial Information

3. PARTNERSHIP AGREEMENT:

The Partnership agreement provides, among other things, for the following:

Contributions and Project Loans

In addition to the initial contributions as discussed in Note 1, the
partners are obligated to contribute, in proportion to their respective
Partnership interests, any deficiency in the funding for the construction of
each approved amphitheater development or any operational shortfall, as defined
in the Partnership agreement. No such funding was required in 1995, 1996 or
1997.

In addition, AEP is responsible for providing project financing, as
defined, for each approved amphitheater development. To the extent AEP does not
fulfill this responsibility, AEP must indemnify, defend and hold harmless the
Partnership from all claims, demands, liabilities or other losses (including
the loss of any earnest money deposits and any reasonable attorneys' fees)
which might result from AEP's failure to provide such project loan.

F-94

PAVILION PARTNERS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Income Allocation

In general, all of the Partnership's income is allocated to the partners
in proportion to their respective Partnership interests. However, PACE receives
a priority allocation of net income, as defined in the Partnership agreement,
until the cumulative amount of such allocations is equal to $2,000,000
increased by 7 percent of the unpaid allocation on the last day of each fiscal
year. Any such allocation of net income to PACE is distributed in the following
year. The priority allocation of net income to PACE for 1995, 1996 and 1997 was
approximately $767,000, $716,000 and $119,000, respectively. This allocation
obligation was fully satisfied with the distribution of the fiscal 1997 income
allocation amount during October 1997.

AEP is entitled to receive a priority allocation of net income once a loan
related to an amphitheater contributed by Blockbuster is repaid. At September
30, 1997, the loan balance is $7,905,000 and is payable in quarterly
installments with a balloon payment due at its maturity on April 1, 2004. The
priority allocation of net income is equal to 65 percent of the cash flow
attributable to the amphitheater, as defined in the Partnership agreement. The
cumulative priority allocation of net income to AEP is limited to $7,000,000.
No such allocation was made in 1995, 1996 or 1997.

On November 1 of each calendar year, the executive committee of the
Partnership determines if any excess cash exists in the Partnership's accounts
above what is necessary to fund future operations and obligations. Any such
excess cash may be distributed to the partners in proportion to their
respective interests in the Partnership. No distributions of excess cash flow
have been made.

4. PROPERTY AND EQUIPMENT:

The components of the Partnership's property and equipment are as follows
(in thousands):

SEPTEMBER 30
-------------------
1996 1997
--------- ---------

Property ................................................ $ 695 $ 695
Buildings ............................................... 10,817 10,817
Leasehold improvements .................................. 53,148 53,826
Equipment ............................................... 5,007 4,488
Furniture and fixtures .................................. 705 722
Construction in progress ................................ -- 786
------- -------
70,372 71,334
Less--Accumulated depreciation and amortization ......... 9,080 11,396
------- -------
$61,292 $59,938
======= =======

Depreciation and amortization expense associated with property and
equipment for 1995, 1996 and 1997 was $1,905,000, $2,693,000 and $3,179,000,
respectively.

Assets under capital lease included above are as follows (in thousands):

SEPTEMBER 30
--------------------
1996 1997
--------- ---------

Building ............................... $5,333 $5,333
Furniture and equipment ................ 841 841
------ ------
6,174 6,174
Less--Accumulated depreciation ......... 2,068 2,237
------ ------
$4,106 $3,937
====== ======

F-95

PAVILION PARTNERS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Amortization expense associated with assets under capital lease for 1995,
1996 and 1997 was $169,000, $156,000 and $169,000, respectively.

5. OTHER ASSETS:

Other assets consist of the following (in thousands):

SEPTEMBER 30
--------------------
1996 1997
--------- ---------

Preoperating costs, net of accumulated amortization of $2,092,000 and
$1,094,000, respectively.................................................. $2,153 $1,709
Investment in unconsolidated partnerships .................................. 1,302 2,797
Contract acquisition costs, net of accumulated amortization of $45,000 and
$129,000, respectively ................................................... 624 815
Other ...................................................................... 347 402
------ ------
$4,426 $5,723
====== ======

During 1995, 1996 and 1997, the Partnership recognized equity in earnings
of unconsolidated partnerships of $263,000, $129,000 and $1,592,000,
respectively, which is included in other operating revenues.

6. ACCRUED LIABILITIES:

Accrued liabilities consist of the following (in thousands):

SEPTEMBER 30
--------------------
1996 1997
-------- ---------

Interest ................................... $ 544 $ 522
Rent ....................................... 638 580
Taxes ...................................... 748 613
Litigation expenses and settlement ......... 1,873 --
Insurance .................................. 1,216 1,656
Other ...................................... 3,093 3,660
------ ------
$8,112 $7,031
====== ======

Accrued liabilities do not include accrued interest on the notes payable
to Blockbuster (see Note 7). Such accrued interest, which is included in
accounts payable, related parties, was $1,082,000 and $1,601,000 as of
September 30, 1996 and 1997, respectively.

F-96

PAVILION PARTNERS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. NOTES PAYABLE:

Notes payable to third parties consist of the following (in thousands):

SEPTEMBER 30
-----------------------
1996 1997
---------- ----------

Note payable to a bank, interest at LIBOR plus 0.18% (6% at
September 30, 1996 and 1997), payments due semiannually
with a balloon payment due on maturity in July 2005,
guaranteed by Sony ........................................... $13,122 $12,573
Note payable to a bank, interest at 8.35% through July 2002 and
LIBOR plus 0.18% thereafter, due in July 2005, guaranteed by
Sony ......................................................... 10,000 10,000
Note payable to a bank, interest at LIBOR plus 0.85% (6.78% at
September 30, 1996 and 1997), payments due annually with a
balloon payment due on maturity in December 2005,
guaranteed by Blockbuster and Sony ........................... 7,732 7,575
Note payable to a bank, interest at prime minus 105 basis points
(7.2% and 7.45% at September 30, 1996 and 1997,
respectively), payments due quarterly with a balloon payment
due on maturity in April 2000, guaranteed by Sony ............ 6,449 6,356
Note payable to a bank, interest at 9.46%, payments due
quarterly with a balloon payment due on maturity in
December 1999, guaranteed by Sony ............................ 3,958 3,914
Note payable to a vendor, interest imputed at 8.98%, payments
due weekly through May 2005 .................................. 1,826 1,671
Other notes payable to vendors, interest at fixed rates ranging
from 8.2% to 10.72%, due in equal installments with final
maturities ranging from December 1996 through
February 2006 ................................................ 2,040 1,591
------- -------
Total ........................................................ 45,127 43,680
Less--Current maturities ....................................... 1,447 1,488
------- -------
Noncurrent portion ........................................... $43,680 $42,192
======= =======
Note payable to a related party consist of the following (in
thousands):
SEPTEMBER 30
--------------------------
1996 1997
-------- --------
Note payable to Blockbuster, interest at 7%, payments due
quarterly with a balloon payment due on maturity in
April 2004, secured by property and equipment with a net
book value of $6,212 ......................................... $ 7,905 $ 7,905
Less--Current maturities ....................................... 637 880
-------- --------
Noncurrent portion ........................................... $ 7,268 $ 7,025
======== ========

The terms of contracts with concessionaires such as food and beverage
vendors generally require the vendors to make a significant initial payment to
the Partnership at the time of the construction of an amphitheater. These
advances are repayable in periodic installments from amounts otherwise due to
the Partnership under the concession contracts. As of September 30, 1997, the
notes payable to

F-97

PAVILION PARTNERS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

vendors under such arrangements had a weighted-average effective interest rate
of 9.15 percent. The Partnership's weighted-average interest rate on notes
payable to banks was 7.3 percent on September 30, 1997.

Interest expense on the note payable to a related party was $547,000,
$489,000 and $519,000 for 1995, 1996 and 1997, respectively. Principal and
interest on the note payable to a related party have not been paid as accounts
receivable, related parties from Blockbuster remain outstanding.

As of September 30, 1997, scheduled maturities of notes payable were as
follows:

1998 ............... $ 2,368
1999 ............... 1,841
2000 ............... 11,560
2001 ............... 1,751
2002 ............... 1,811
Thereafter ......... 32,254
-------
$51,585
=======

8. LEASE COMMITMENTS:

The Partnership leases various amphitheaters under operating and capital
leases. Initial lease terms are 25 to 60 years with varying renewal periods at
the Partnership's option on most leases. A number of the amphitheater leases
provide for escalating rent over the lease term. Rental expense on operating
leases is recognized on a straight-line basis over the life of such leases. The
majority of the amphitheater leases provide for contingent rentals, generally
based upon a percentage of gross revenues, as defined in the respective lease
agreements. Minimum rental expense associated with operating leases for 1995,
1996 and 1997 was $648,000, $2,353,000 and $2,612,000, respectively. Contingent
rental expense associated with operating leases for 1995, 1996 and 1997 was
$2,407,000, $2,515,000 and $2,571,000, respectively. Contingent rental expense
associated with capital leases for 1995, 1996 and 1997 was $144,000, $155,000
and $149,000, respectively.

Minimum rental commitments on long-term capital and operating leases at
September 30, 1997, were as follows (in thousands):

CAPITAL OPERATING
LEASES LEASES
--------- ----------

Year ending September 30--
1998 ............................................ $ 757 $ 2,902
1999 ............................................ 757 3,056
2000 ............................................ 756 3,148
2001 ............................................ 757 3,248
2002 ............................................ 757 3,297
Thereafter ...................................... 9,714 54,693
------- -------
13,498 $70,344
=======
Less--Amount representing interest ............... 7,383
-------
Present value of minimum rental payments ......... 6,115
Less--Current portion ............................ 126
-------
Noncurrent portion ............................... $ 5,989
=======

9. RELATED PARTIES:

The responsibility for the day-to-day business and affairs of the
Partnership has been delegated by the partners to a managing director and
support staff employed by PACE Entertainment

F-98

PAVILION PARTNERS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Corporation and its subsidiaries. PACE Entertainment Corporation and its
subsidiaries provide the Partnership with management and consulting services in
connection with the development, construction, maintenance and operation of
amphitheaters owned or leased by the Partnership. The Partnership paid
$1,650,000, $1,687,000 and $1,968,000 during 1995, 1996 and 1997, respectively,
to PACE Entertainment Corporation as reimbursement for the costs of these
services.

The Partnership paid PACE Music Group (PMG), a subsidiary of PACE
Entertainment Corporation, $289,000, $225,000 and $395,000 during 1995, 1996
and 1997, respectively, for services provided by PMG as a local presenter at
one of the Partnership's amphitheaters.

Accounts receivable from and accounts payable to related parties at
September 30, 1997, of $3,878,000 and $3,948,000, respectively, relate to
amounts owed to and due from the partners arising from the formation of the
Partnership and general and administrative expenses paid by or on behalf of the
Partnership.

Notes receivable, related parties consist of two notes due from AEP which
bear interest at 5.62 percent per annum and matured April 1, 1997. Principal
payments on the notes are due upon request by the Partnership in order to fund
the construction of proposed amphitheaters. Interest on the partners' notes
amounted to $192,000, $63,000 and $68,000 for 1995, 1996 and 1997,
respectively.

10. COMMITMENTS AND CONTINGENCIES:

Commitments

The Partnership guarantees 50 percent of a $2,305,000 promissory note
issued by its 50 percent equity partner in the Starwood Amphitheater. The note
matures on June 1, 2003.

The Partnership has committed to fund certain renovation work at one of
its amphitheaters in proportion to its 66 2/3 percent partnership interest in
that amphitheater. The renovations are to include increasing seating capacity
and upgrading the amphitheater's concession plazas and parking facilities. The
total budget for these renovations is approximately $11.0 million of which $5.0
million will be funded by the minority partner and a note payable to vendor,
therefore the Partnership's funding commitment is approximately $6.0 million.

The Partnership maintains cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Partnership has not experienced any
losses in such accounts. Management performs periodic evaluations of the
relative credit standards of the financial institutions with which it deals.
Additionally, the Partnership's cash management and investment policies
restrict investments to low-risk, highly liquid securities. Accordingly,
management does not believe that the Partnership is currently exposed to any
significant credit risk on cash and cash equivalents.

The Partnership is subject to other claims and litigation arising in the
normal course of its business. The Partnership does not believe that any of
these proceedings will have a material adverse effect on its financial position
or results of operations.

The Partnership was previously named as a defendant in a case filed in
Wake County, North Carolina (Promotion Litigation). There were several
defendants named in the litigation with various causes of action asserted
against one or more of each of the defendants, including (a) breach of alleged
contract, partnership, joint venture and fiduciary duties between certain of
the defendants and Pro Motion Concerts, (b) constructive fraud, (c)
interference with prospective advantage, (d) unfair trade practices, (e)
constructive trust and (f) unjust enrichment. The essence of the plaintiff's
claims was that certain of the defendants agreed to enter into a partnership
with the plaintiffs for the development and operation of an amphitheater. On
May 1, 1997, the Promotion Litigation was settled. All defendants were fully
and finally released with prejudice from any and all claims and causes of
action. Although the defendants believe that they would have prevailed at a
trial of the Promotion

F-99

PAVILION PARTNERS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Litigation, the defendants chose to settle rather than risk the uncertainties
of a trial. The defendants did not acknowledge or admit any liability. The
settlement called for payments to plaintiffs totaling $4.5 million, of which
$1.0 million was paid by the Partnership. The Partnership recorded litigation
settlement expense of $1.0 million at September 30, 1996. The settlement was
paid during May 1997.

Change in Control Provisions

The Partnership has entered into numerous leases and other contracts in
the ordinary course of business. Certain of these agreements either contain
restrictions on their assignability or would require third-party approval of a
change in control of the Partnership.

Employment Agreements

The Partnership has employment agreements with certain key employees. Such
agreements generally provide for minimum salary levels, guaranteed bonuses and
incentive bonuses which are payable if specified financial goals are attained.
As of September 30, 1997, the Company's minimum commitment under these
agreements were as follows (in thousands):

For the year ending September 30--
1998 ............................. $335
1999 ............................. 177

Insurance

The Partnership carries a broad range of insurance coverage, including
general liability, workers' compensation, employee health coverage and umbrella
policies. The Partnership carries deductibles of up to $10,000 per occurrence
for general liability claims. The Partnership has accrued for estimated
potential claim costs in satisfying the deductible provisions of the insurance
policies for claims occurring through September 30, 1997. The accrual is based
on known facts and historical trends, and management believes such accrual to
be adequate.

11. SUBSEQUENT EVENTS:

In December 1997, the managing partner and its shareholders entered into
an agreement whereby the shareholders would sell their interests in PACE
Entertainment Corporation to SFX Entertainment, Inc. (SFX Transaction). Closing
is subject to certain conditions, including the approval of third parties.

On December 19, 1997, the PACE Entertainment Corporation entered into an
agreement to purchase Blockbuster's 33 1/3 percent interest in the Partnership
(Blockbuster Transaction) for $4,171,000 in cash, $2,940,000 in assumed
liabilities and the assumption of certain indemnification obligations of
Blockbuster under the Partnership agreement. In addition, PACE Entertainment
Corporation has agreed to purchase the note payable to Blockbuster with a
balance of $9,507,000, including accrued interest of $1,601,000, at September
30, 1997. The transaction is contingent on, among other things, obtaining
acceptable financing including the release of Blockbuster from certain debt
obligations and the approval of Sony.

On December 22, 1997, PACE Entertainment Corporation entered into an
agreement to purchase Sony's 33 1/3 percent interest in the Partnership (Sony
Transaction) for $27,500,000 in cash. The transaction is contingent on, among
other things, government approval and obtaining acceptable financing including
the release of Sony from certain debt obligations (see Note 7).

12. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED)

Effective February 25, 1998, the SFX Transaction, Blockbuster Transaction
and Sony Transaction closed. In conjunction with the closing, SFX purchased or
retired approximately $38 million of the Partnership's outstanding notes
payable.

F-100

REPORT OF INDEPENDENT AUDITORS

The Boards of Directors
Contemporary Group

We have audited the accompanying combined balance sheets of Contemporary
Group as of December 31, 1997 and 1996 and the related combined statements of
operations, cash flows and stockholders' equity for each of the three years in
the period ended December 31, 1997. These financial statements are the
responsibility of management. Our responsibility is to express an opinion on
these financial statements based on our audits.

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

In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the combined financial position of
Contemporary Group at December 31, 1997 and 1996 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.

Ernst & Young LLP

New York, New York
May 22, 1998

F-101

CONTEMPORARY GROUP

COMBINED BALANCE SHEETS

DECEMBER 31
--------------------------------
1996 1997
--------------- --------------

ASSETS
Current assets:
Cash .............................................................. $ 2,972,409 $10,427,805
Accounts receivable ............................................... 4,067,444 7,672,187
Notes receivable - related party .................................. -- 1,000,000
Prepaid expenses and other current assets ......................... 272,105 210,640
------------ -----------
Total current assets ............................................... 7,311,958 19,310,632
Property and equipment, at cost, less accumulated depreciation and
amortization of $2,723,986 in 1996 and $3,264,972 in 1997 ......... 2,438,210 2,813,902
Reimbursable event costs ........................................... 474,469 152,617
Deferred event expenses ............................................ 250,973 402,460
Investment in Riverport ............................................ 4,934,513 5,436,717
Other assets ....................................................... 120,256 199,518
------------ -----------
Total assets ....................................................... $ 15,530,379 $28,315,846
============ ===========
LIABILITIES AND COMBINED STOCKHOLDERS' EQUITY
Current liabilities:
Accrued compensation and bonuses .................................. $ 2,906,153 $ 6,721,459
Accrued expenses and other current liabilities .................... 1,994,036 6,169,861
Accounts payable .................................................. 1,733,676 1,347,539
Current portion of note payable ................................... 667,138 1,075,000
------------ -----------
Total current liabilities .......................................... 7,301,003 15,313,859
Deferred revenue and other liabilities ............................. 2,586,880 5,570,295
Note payable, less current portion ................................. 1,659,723 739,424
Combined stockholders' equity ...................................... 3,982,773 6,692,268
------------ -----------
Total liabilities and combined stockholders' equity ................ $ 15,530,379 $28,315,846
============ ===========

See accompanying notes.

F-102

CONTEMPORARY GROUP

COMBINED STATEMENTS OF OPERATIONS

YEAR ENDED DECEMBER 31
--------------------------------------------------
1995 1996 1997
-------------- -------------- ----------------

Operating revenues:
Event promotion revenue ..................... $39,159,137 $38,023,454 $ 48,057,060
Marketing revenue ........................... 7,670,138 12,969,621 30,195,359
Other event revenue ......................... 8,813,999 8,859,218 10,800,118
----------- ----------- ------------
55,643,274 59,852,293 89,052,537
Cost of revenue .............................. 44,240,953 46,410,935 66,940,088
----------- ----------- ------------
11,402,321 13,441,358 22,112,449
Operating expenses:
Salary and bonus expense .................... 5,944,644 8,010,991 18,992,476
Depreciation and amortization ............... 559,980 566,573 540,986
General and administrative expenses ......... 3,468,742 3,767,111 4,887,615
----------- ----------- ------------
9,973,366 12,344,675 24,421,077
Income (loss) from operations ................ 1,428,955 1,096,683 (2,308,628)
Other income (expense):
Interest income ............................. 226,024 158,512 201,310
Interest expense ............................ (140,773) (213,658) (192,130)
Loss on asset disposal ...................... -- -- (84,261)
Equity in income of Riverport ............... 1,332,898 822,716 1,002,204
----------- ----------- ------------
1,418,149 767,570 927,123
----------- ----------- ------------
Income before income taxes ................... 2,847,104 1,864,253 (1,381,505)
Federal and state taxes ...................... 20,677 35,367 --
----------- ----------- ------------
Net income (loss) ............................ $ 2,826,427 $ 1,828,886 $ (1,381,505)
=========== =========== ============

See accompanying notes.

F-103

CONTEMPORARY GROUP

COMBINED STATEMENTS OF CASH FLOWS

YEAR ENDED DECEMBER 31
----------------------------------------------------
1995 1996 1997
--------------- --------------- ----------------

OPERATING ACTIVITIES
Net income .................................................. $ 2,826,427 $ 1,828,886 $ (1,381,505)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .............................. 559,980 566,573 540,986
Loss on asset disposal ..................................... -- -- 84,261
Non cash interest expense .................................. 142,068 148,113 154,701
Equity in income of Riverport, net of distributions
received ................................................. (82,897) (222,716) (502,204)
Changes in operating assets and liabilities:
Accounts receivable ...................................... (1,451,090) (659,486) (3,604,743)
Prepaid expenses and other current assets ................ (331,184) 225,754 61,465
Reimbursable event costs ................................. (75,913) (361,599) 321,852
Deferred event expenses .................................. (15,608) (45,150) (151,487)
Other assets ............................................. (1,575) (29,923) (79,262)
Accounts payable ......................................... 398,369 970,553 (386,137)
Accrued compensation and bonuses ......................... 665,488 954,175 3,815,306
Accrued expenses and other current liabilities ........... 907,053 301,652 4,175,825
Deferred revenue ......................................... (1,569,486) 245,216 3,227,827
Other liabilities ........................................ -- 162,860 (244,412)
------------ ------------ ------------
Net cash provided by operating activities ................... 1,971,632 4,084,908 6,032,473
INVESTING ACTIVITIES
Loan to related party ....................................... -- -- (1,000,000)
Purchase of property and equipment .......................... (281,306) (1,159,382) (1,063,848)
Proceeds from sale of property and equipment ................ -- -- 62,909
------------ ------------ ------------
Net cash used in investing activities ....................... (281,306) (1,159,382) (2,000,939)
FINANCING ACTIVITIES
Borrowings .................................................. 226,970 626,970 --
Payments of notes payable ................................... (75,000) (336,802) (667,138)
Proceeds received from capital contributions ................ -- -- 5,000,000
Distributions paid .......................................... (2,578,000) (2,993,000) (909,000)
------------ ------------ ------------
Net cash provided by (used in) financing activities ......... (2,426,030) (2,702,832) 3,423,862
------------ ------------ ------------
Net increase in cash ........................................ (735,704) 222,694 7,455,396
Cash at beginning of period ................................. 3,485,419 2,749,715 2,972,409
------------ ------------ ------------
Cash at end of period ....................................... $ 2,749,715 $ 2,972,409 $ 10,427,805
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest ...................................... $ 24,000 $ 143,271 $ 37,421
============ ============ ============
Cash paid for income taxes .................................. $ 45,805 $ 34,550 $ 27,077
============ ============ ============

See accompanying notes.

F-104

CONTEMPORARY GROUP

COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

Balance, January 1, 1995 ................................. $ 4,898,460
Distributions to stockholders ........................... (2,578,000)
Net income for the year ended December 31, 1995 ......... 2,826,427
------------
Balance, December 31, 1995 ............................... 5,146,887
Distributions to stockholders ........................... (2,993,000)
Net income for the year ended December 31, 1996 ......... 1,828,886
------------
Balance, December 31, 1996 ............................... 3,982,773
Distributions to stockholders ........................... (909,000)
Capital contributions ................................... 5,000,000
Net loss for the year ended December 31, 1997 ........... (1,381,505)
------------
Balance, December 31, 1997 ............................... $ 6,692,268
============

See accompanying notes.

F-105

CONTEMPORARY GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Combination

The accompanying combined financial statements include the accounts of
Contemporary International Productions Corporation, Contemporary Productions
Incorporated, Contemporary Marketing, Inc. ("CMI"), Contemporary Sports
Incorporated, Innovative Training and Education Concepts Corporation, n/k/a
Contemporary Group, Inc., Contemporary Investments Corporation ("CIC"),
Contemporary Investments of Kansas, Inc., Continental Entertainment Associates,
Inc., Dialtix, Inc., and Capital Tickets L.P. (collectively, the "Contemporary
Group" or the "Companies"). Intercompany transactions and balances among these
companies have been eliminated in combination. The Companies are subject to
common ownership and to the transaction described in Note 8.

The Contemporary Group is a live entertainment and special events
producer, venue operator and consumer marketer. Income from operations
originates from the operation of the concert division which earns promotion
income in two ways: either a fixed fee for organizing and promoting an event or
an arrangement that entitles it to a profit percentage based on a predetermined
formula. The Companies recognize revenue from the promotion of events when
earned, which is generally upon exhibition. The Companies record commissions on
booking acts as well as sponsorship and concession income as other event
revenues.

CIC is a 50% partner in Riverport Performing Arts Centre Joint Venture
("Riverport"), a Missouri general partnership which operates a 20,000 seat
outdoor amphitheater located in St. Louis, Missouri. The investment in
Riverport is recorded under the equity method of accounting.

Income Taxes

As of December 31, 1997, all of the entities combined are either "S
Corporations" or partnerships and therefore no tax provision has been provided.
In 1996 and 1995, certain of the entities were "C Corporations" for which a tax
provision has been provided.

For the year ended December 31, 1996 and 1995, with respect to the "C
Corporations," the total provision for income taxes is $35,367 and $20,677
respectively.

Certain of the "C Corporations" filed elections to be treated as "S
Corporations" beginning January 1, 1997. Therefore, with respect to such
corporations, no provision for income taxes has been provided for the year
ended December 31, 1997. These Companies have subsequently revoked the election
to be taxed as "S Corporations", effective January 1, 1998.

Accounts Receivable

Accounts receivable consist of amounts due from ticket vendors, venue box
offices and customers of marketing services. Management considers these
accounts receivable as of December 31, 1997, 1996 and 1995 to be collectible;
accordingly, no allowance for doubtful accounts is recorded.

Revenue Recognition

Deferred revenue relates primarily to an advance on future concession
revenues which is evidenced by a noninterest bearing note payable and advances
on marketing services. Payments collected in advance are recognized as income
as events occur or services are provided. Reimbursable event costs represent
amounts paid by the Companies on behalf of co-promoters and other parties with
interests in the events which will be reimbursed by such parties.

Sales under long-term contracts for the Company's marketing division are
recorded under the percentage-of-completion method, wherein revenues and
estimated costs are recorded as the work is performed.

F-106

CONTEMPORARY GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

Significant Customer

CMI's most significant customer is AT&T, which provided approximately 23%
and 12% of the Companies' combined revenues for the years ended December 31,
1997 and 1996, respectively. In March 1998, AT&T has indicated that it will no
longer be using the services of CMI.

Advertising Costs

Advertising costs are expensed as incurred. For the year ended December
31, 1997, 1996 and 1995, advertising costs were $115,634 and $71,879 and
$44,226, respectively.

Property and Equipment

Property and equipment is recorded at cost. Depreciation is computed on
either the straight-line method or accelerated methods over the estimated
useful lives of the assets or the term of the related lease as follows:

Furniture, fixtures and equipment ......... 5-7 years
Land improvements ......................... 15 years
Leasehold improvements .................... 10 years

Risks and Uncertainties

Reclassification

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

2. INVESTMENTS

The following is a summary of the financial position and results of
operations of Riverport as of and for the year ended December 31, 1995, 1996
and 1997:

YEAR ENDED DECEMBER 31
---------------------------------------------
1995 1996 1997
------------- ------------- -------------

Current assets .................................. $ 350,532 $ 473,275 $ 284,424
Property and equipment .......................... 12,388,989 11,815,552 11,188,826
Other assets .................................... 27,573 16,553 --
----------- ----------- -----------
Total assets .................................... $12,767,094 $12,305,380 $11,473,250
=========== =========== ===========
Current liabilities ............................. $ 1,524,364 $ 1,993,981 $ 318,028
Other liabilities ............................... 1,819,136 442,374 281,789
Partners' capital ............................... 9,423,594 9,869,025 10,873,433
----------- ----------- -----------
Total liabilities and partners' capital ......... $12,767,094 $12,305,380 $11,473,250
=========== =========== ===========
Revenue ......................................... $15,256,314 $11,693,138 $14,247,109
Net operating income ............................ $ 3,200,738 $ 1,970,887 $ 2,616,839
Net income ...................................... $ 2,665,796 $ 1,645,431 $ 2,004,408

F-107

CONTEMPORARY GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

During the years ended December 31, 1997, 1996 and 1995, CIC received a
cash distribution of $500,000, $600,000 and $1,250,000, respectively, from
Riverport.

3. NOTES PAYABLE

In November 1995, the Company obtained a $750,000 unsecured line of credit
with a bank which matured in May 1996. The note bore a rate of interest based
on the prime lending rate (8.75% in 1995). At December 31, 1995, $226,970 was
outstanding under this line of credit.

At December 31, 1997, 1996 and 1995, CIC held a $2,322,500 non
interest-bearing note payable to its partner in Riverport. The carrying value
of the note was $1,814,424, $1,734,723 and $1,661,610 at December 31, 1997,
1996 and 1995, respectively, which includes imputed interest at a rate of
approximately 9%. The note, which was payable in installments through December
1, 2000 and was secured by CIC's investment in Riverport, was repaid in 1998 in
connection with the transaction described in Note 8.

At December 31, 1996, the Companies had a $592,138 bank note payable which
bore interest based on the prime lending rate (8.25% in 1996, 8.5% in 1997) and
was repaid in full during 1997.

4. COMMON STOCK

The Companies' stock and tax status for 1997 are as follows:

TAX SHARES SHARES PAR
STATUS AUTHORIZED ISSUED VALUE
------------- ------------ ---------- ------

Contemporary International Productions
Corporation ................................. S-Corp. 30,000 10 $ 1
Contemporary Productions Incorporated ......... S-Corp. 30,000 100 $ 1
Contemporary Marketing, Inc. .................. S-Corp. 30,000 100 $ 1
Contemporary Sports, Incorporated ............. S-Corp. 30,000 100 $ 1
Innovative Training and Education
Concepts Corporation n/k/a
Contemporary Group, Inc. .................... S-Corp. 30,000 100 $ 1
Contemporary Investments Corporation .......... S-Corp. 30,000 200 $ 1
Contemporary Investments of Kansas, Inc. S-Corp. 30,000 30,000 $ 1
Continental Entertainment Associates, Inc. C-Corp. 300 6 $100
Dialtix, Inc. ................................. S-Corp. 300 6 $100
Capital Tickets L.P. .......................... Partnership N/A N/A N/A

5. COMMITMENTS AND CONTINGENCIES

Leases

The Companies lease office facilities and concert venues under
noncancellable leases which expire at various dates through 2004. Such leases
contain various operating escalations and renewal options.

Total rent expense for the years ended December 31, 1997, 1996 and 1995
was $705,489, $818,123 and $734,785, respectively.

F-108

CONTEMPORARY GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

Future minimum lease payments under noncancellable operating leases as of
December 31, 1997 are as follows:

1998 ......................... $ 858,757
1999 ......................... 863,757
2000 ......................... 440,050
2001 ......................... 264,000
Thereafter ................... 317,000
----------
$2,743,564
==========

Compensation

During 1996, CMI entered into an employment agreement with one of its
employees which provided her rights to future cash payments based on the fair
value of CMI, as defined. These rights would vest on January 1, 2002 or upon
the occurrence of certain transactions, including a change of control. On
December 31, 1997, in connection with an amendment to her employment agreement,
the rights became fully vested and CMI paid this employee $1,329,284. In
addition, she is entitled to receive as a bonus $2,854,899 under the amendment,
which will be paid in 1998 and is accrued at December 31, 1997.

Litigation

The Companies are party to various legal proceedings generally incidental
to their businesses. Although the ultimate disposition of these proceedings is
not presently determinable, management, after discussions with counsel, does
not expect the outcome of these proceedings to have a material adverse effect
on the financial condition of the Companies.

6. EMPLOYEE RETIREMENT PLAN

In January 1992, the Companies began a retirement plan for their employees
under Section 401(k) of the Internal Revenue Code. All employees are eligible
to participate once they obtain the minimum age requirement of 21 years and
have satisfied the service requirement of one year with the Companies.
Participant contributions are subject to the limitations of Section 402(g) of
the Internal Revenue Code. The Companies contribute to participant employees'
accounts at the rate of 25% of the first 5% of the participating employees'
contributions. During the years ended December 31, 1997, 1996 and 1995, the
Companies contributions totaled approximately $37,769, $25,600 and $18,887,
respectively.

7. RELATED PARTY TRANSACTIONS

During 1997, the Company loaned $1,000,000 to its co-presidents. The loans
which bore a rate of interest of approximately 5.8% were repaid in full in
early 1998.

8. SUBSEQUENT EVENTS

In February 1998, the owners of the Companies sold 100% of the capital
stock of Contemporary International Productions Corporation and the assets of
the remaining companies comprising the Contemporary Group, excluding cash and
1997 receivables, to SFX Entertainment, Inc. for an aggregate consideration of
$62,300,000 in cash and the issuance of preferred stock which was converted
into 1,402,850 shares of SFX Entertainment Class A Common Stock. In connection
with this transaction, SFX Entertainment and its affiliates also acquired the
50% interest of Riverport not owned by CIC for $12,585,000.

F-109

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of
Riverport Performing Arts Centre, Joint Venture:

We have audited the accompanying balance sheets of Riverport Performing
Arts Centre, Joint Venture (a Missouri General Partnership) as of December 31,
1997 and 1996, and the related statements of income and changes in partners'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Joint Venture's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Riverport Performing Arts
Centre, Joint Venture as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.

ARTHUR ANDERSEN LLP

St. Louis, Missouri,
February 27, 1998

F-110

RIVERPORT PERFORMING ARTS CENTRE, JOINT VENTURE

BALANCE SHEETS -- AS OF DECEMBER 31, 1997 AND 1996

1997 1996
--------------- ---------------

ASSETS
CURRENT ASSETS:
Cash and cash equivalents ......................... $ 202,251 $ 76,231
Accounts receivable ............................... -- 324,275
Prepaid expenses and other current assets ......... 82,173 72,769
------------ ------------
Total current assets ............................... 284,424 473,275
------------ ------------
FACILITY:
Land and leasehold interest ....................... 5,156,342 5,156,342
Buildings and improvements ........................ 8,516,251 8,449,225
Furniture, fixtures and equipment ................. 2,293,356 2,218,987
Less- Allowance for depreciation .................. (4,777,123) (4,009,002)
------------ ------------
11,188,826 11,815,552
------------ ------------
OTHER ASSETS--Deferred financing fees, net ......... -- 16,553
------------ ------------
$ 11,473,250 $ 12,305,380
============ ============
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt .............. $ 160,585 $ 1,376,762
Accounts payable and accrued expenses ............. 120,043 453,804
Deferred income ................................... 37,400 163,415
------------ ------------
Total current liabilities .......................... 318,028 1,993,981
LONG-TERM DEBT ..................................... 281,789 442,374
------------ ------------
599,817 2,436,355
PARTNERS' EQUITY ................................... 10,873,433 9,869,025
------------ ------------
$ 11,473,250 $ 12,305,380
============ ============

The accompanying notes are an integral part of these balance sheets.

F-111

RIVERPORT PERFORMING ARTS CENTRE, JOINT VENTURE

STATEMENTS OF INCOME AND CHANGES IN PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996

1997 1996
--------------- ---------------

REVENUES:
Show admission ..................................... $ 9,901,214 $ 8,053,939
Sponsorships and promotions ........................ 1,113,100 914,690
Concession rental .................................. 1,970,742 1,724,060
Parking ............................................ 1,122,979 843,283
Other .............................................. 139,074 157,166
------------ ------------
Operating revenues ............................... 14,247,109 11,693,138
------------ ------------
EXPENSES:
Talent ............................................. 5,825,962 4,382,735
Other show expenses ................................ 1,866,910 1,706,317
Advertising and marketing .......................... 1,037,048 887,673
Producer fees and commissions ...................... 1,187,253 1,071,946
General and administrative ......................... 1,713,097 1,673,580
------------ ------------
Operating expenses ............................... 11,630,270 9,722,251
------------ ------------
Net operating income ............................. 2,616,839 1,970,887
------------ ------------
OTHER EXPENSES (INCOME):
Depreciation and amortization ...................... 779,278 767,258
Interest, net ...................................... 13,167 112,947
Other income ....................................... (180,014) (554,749)
------------ ------------
Other expenses, net .............................. 612,431 325,456
------------ ------------
Net income ....................................... 2,004,408 1,645,431
PARTNERS' EQUITY AT THE BEGINNING OF PERIOD ......... 9,869,025 9,423,594
DISTRIBUTION TO PARTNERS ............................ (1,000,000) (1,200,000)
------------ ------------
PARTNERS' EQUITY AT THE END OF THE PERIOD ........... $ 10,873,433 $ 9,869,025
============ ============

The accompanying notes are an integral part of these statements.

F-112

RIVERPORT PERFORMING ARTS CENTRE, JOINT VENTURE

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996

1997 1996
--------------- ---------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................... $ 2,004,408 $ 1,645,431
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization ............................... 779,278 767,258
Change in accounts receivable ............................... 324,275 (215,712)
Change in prepaid expenses and other current assets ......... (4,008) (3,606)
Change in accounts payable and accrued expenses ............. (333,761) 284,945
Change in deferred income ................................... (126,015) (31,505)
------------ ------------
Net cash provided by operating activities .................. 2,644,177 2,446,811
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Facility additions ............................................ (141,395) (182,801)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt ............................................. (1,376,762) (1,160,585)
Distribution to Partners ...................................... (1,000,000) (1,200,000)
------------ ------------
Net cash used in financing activities ...................... (2,376,762) (2,360,585)
------------ ------------
Change in cash and cash equivalents ........................ 126,020 (96,575)
CASH AND CASH EQUIVALENTS, beginning of year ................... 76,231 172,806
------------ ------------
CASH AND CASH EQUIVALENTS, end of year ......................... $ 202,251 $ 76,231
============ ============

The accompanying notes are an integral part of these statements.

F-113

RIVERPORT PERFORMING ARTS CENTRE, JOINT VENTURE

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996

1. SIGNIFICANT ACCOUNTING POLICIES:

Organization

The Riverport Performing Arts Centre, Joint Venture (the Joint Venture) is
a Missouri General Partnership between Contemporary Investments Corporation
(Contemporary) and Sverdrup/BRC Joint Venture (formerly Sverdrup/MDRC Joint
Venture). The partners each hold a 50% interest in the equity and operations of
the Joint Venture. The term of the Joint Venture continues until
December 31, 2045. The Joint Venture is the developer, owner and operator of a
20,000 seat outdoor amphitheater located in St. Louis, Missouri. The Joint
Venture contracts with popular musical performing artists for the entertainment
of its guests. Entertainment is provided during the months of April through
October to guests primarily from the St. Louis metropolitan area.

Cash and Cash Equivalents

Cash equivalents consist of investments with a maturity of three months or
less when purchased. Cash equivalents are carried at cost, which approximates
market. Interest income of $61,199 and $56,708 for 1997 and 1996, respectively,
is netted against interest expense in the accompanying statements of income.

Depreciation and Amortization

Depreciation is provided using the straight-line method over estimated
useful lives of 5 to 20 years. Deferred financing fees are amortized over the
life of the related debt.

Leasehold Interest

The facility was constructed on land obtained through a leasehold interest
that expires on
April 25, 2011. The Sverdrup/BRC Joint Venture sold to Contemporary an
undivided 50% interest in the leasehold interest. Concurrently, both
Sverdrup/BRC Joint Venture and Contemporary contributed their undivided 50%
interests in the leasehold interest into the Joint Venture. Ground rent is $1
per year under the lease with the Joint Venture assigned as landlord.

Deferred Income

Deferred income reflects advance sales of season tickets for the
subsequent operating season and is amortized into show admission revenues as
the subsequent operating season progresses.

Income Taxes

Income taxes have not been provided for in the financial statements since
the Joint Venture is organized as a partnership, and each partner is liable for
its own tax payments.

F-114

RIVERPORT PERFORMING ARTS CENTRE, JOINT VENTURE

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. LONG-TERM DEBT

Notes payable outstanding at December 31 are as follows:

1997 1996
---------- -------------

Mortgage note due in installments through 1997, bearing
interest at prime plus 1/2% which averaged 8.875% during
1997 and 1996 .............................................. $ -- $1,216,178
Noninterest-bearing note due in installments through 2000..... 442,374 602,958
-------- ----------
442,374 1,819,136
Less-Current maturities ...................................... 160,585 1,376,762
-------- ----------
$281,789 $ 442,374
======== ==========

The mortgage note contains covenants that require the Joint Venture to
maintain certain financial ratios and also prohibit certain transactions. The
mortgage note is secured by buildings, improvements, furniture, fixtures and
equipment, limited to the remaining term of the leasehold interest expiring
April 25, 2011. The mortgage note was paid off on September 25, 1997. The
noninterest-bearing note is secured by all concession equipment. Cash paid for
interest totaled $79,391 and $173,172 for 1997 and 1996, respectively.

Maturities of long-term debt are as follows:

1998 ......... $160,585
1999 ......... 160,585
2000 ......... 121,204
--------
$442,374
========

3. CONCESSION RENTAL:

The Joint Venture rents certain premises at its location for the sale of
concessions under a lease that expires in 2000. Rental income is based on a
percentage of gross receipts for some products sold and gross margin for other
products sold.

4. RELATED-PARTY TRANSACTIONS

Contempro Group, Inc., an affiliate of Contemporary, provides various
services to the Joint Venture. These services include marketing, media
placement, sales and show production. Approximately $2,235,000 and $1,766,000
was paid for these services in 1997 and 1996, respectively.

In addition to the payments described above, the Joint Venture also
compensates Contempro Group, Inc. as an agent for the procurement of these
services.

Sverdrup Investments, Inc., an affiliate of Sverdrup/BRC Joint Venture,
was paid $36,000 for accounting services in 1997 and $147,000 for accounting
and landscaping services in 1996.

Riverport Trust, an affiliate of Sverdrup/BRC Joint Venture, provides
ground maintenance to the tenants of the Riverport complex. The fees charged
for these services is based on the total space occupied by the tenant. The
Joint Venture paid approximately $62,000 and $73,000 for these services in 1997
and 1996, respectively.

The Joint Venture had liabilities for related-party transactions and
pass-through costs to affiliates of Contemporary totaling approximately $56,000
and $416,000 as of December 31, 1997 and 1996, respectively. The Joint Venture
also had receivables for income collected by Contemporary totaling
approximately $273,000 as of December 31, 1996.

F-115

RIVERPORT PERFORMING ARTS CENTRE, JOINT VENTURE

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. CONTINGENCIES:

From time to time, the Joint Venture is a party to certain lawsuits and
other claims related to the normal conduct of its business. Management believes
that liabilities, if any, resulting from the resolution of pending or
threatened proceedings would not materially affect the financial condition
or results of operations of the Joint Venture.

6. SUBSEQUENT EVENT:

On February 27, 1998, Sverdrup/BRC Joint Venture and Contemporary sold
their 50% interests in the equity and operations of the Joint Venture to SFX
Entertainment, Inc. and Contemporary Acquisition Corporation, respectively.

F-116

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
The Album Network, Inc.

We have audited the accompanying combined balance sheets of The Album
Network, Inc. and Affiliated Companies as of September 30, 1997 and 1996, and
the related combined statements of operations and stockholders' deficit and
cash flows for the years then ended. These financial statements are the
responsibility of management. Our responsibility is to express an opinion on
these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of The Album Network,
Inc. and Affiliated Companies at September 30, 1997 and 1996, and the combined
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

November 20, 1997
New York, New York

F-117

THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES

COMBINED BALANCE SHEET

SEPTEMBER 30,
--------------------------------
1996 1997
-------------- ---------------

ASSETS
Current assets:
Cash and cash equivalents .......................................... $ 160,453 $ 272,423
Accounts receivable, less allowance for doubtful
accounts of $153,728 in 1997and $95,450 in 1996 ................... 2,148,159 2,229,237
Officers' loans receivable ......................................... 423,447 390,794
Prepaid expenses and other current assets .......................... 125,558 234,914
------------ ------------
Total current assets ................................................ 2,857,617 3,127,368
Property, plant and equipment, at cost, less accumulated depreciation
of $1,056,689 in 1997 and $ 914,513 in 1996 ........................ 278,898 303,614
Deferred software costs, less accumulated amortization of $106,639 in
1997 and $45,768 in 1996 ........................................... 172,302 262,061
Other noncurrent assets ............................................. 39,477 37,033
------------ ------------
Total assets ........................................................ $ 3,348,294 $ 3,730,076
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accrued officers' bonuses .......................................... $ 1,200,000 $ 1,251,000
Accounts payable and other accrued expenses ........................ 1,081,469 1,208,424
Officers' loans payable ............................................ 650,000 489,085
Unearned subscription income ....................................... 530,255 406,529
Taxes payable and other current liabilities ........................ 339,551 224,011
Current portion of long-term debt .................................. 636,723 506,228
------------ ------------
Total current liabilities ........................................... 4,437,998 4,085,277
Long-term debt ...................................................... 1,294,133 1,051,881
Deferred income taxes ............................................... 279,434 114,178
Combined stockholders' deficit ...................................... (2,663,271) (1,521,260)
------------ ------------
Total liabilities and stockholders' deficit ......................... $ 3,348,294 $ 3,730,076
============ ============

See accompanying notes.

F-118

THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES

COMBINED BALANCE SHEET
DECEMBER 31, 1997
(UNAUDITED)

ASSETS
Current assets:
Cash and cash equivalents ............................................... $ 169,498
Accounts receivable, less allowance for doubtful
accounts of $157,682 ................................................... 2,268,205
Officers' loans receivable .............................................. 406,421
Prepaid expenses and other current assets ............................... 133,293
------------
Total current assets ..................................................... 2,977,417
Property, plant and equipment, at cost, less accumulated depreciation
of $1,098,747 ........................................................... 307,096
Deferred software costs, less accumulated amortization of $127,116 ....... 282,453
Other noncurrent assets .................................................. 9,525
------------
Total assets ............................................................. $ 3,576,491
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and other accrued expenses ............................. $ 1,346,095
Officers' loans payable ................................................. 717,336
Unearned subscription income ............................................ 558,358
Taxes payable and other current liabilities ............................. 749,108
Current portion of long-term debt ....................................... 635,464
------------
Total current liabilities ................................................ 4,006,361
Long-term debt ........................................................... 939,200
Deferred income taxes .................................................... 53,575
Combined stockholders' deficit ........................................... (1,422,645)
------------
Total liabilities and stockholders' deficit .............................. $ 3,576,491
============

See accompanying notes.

F-119

THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES

COMBINED STATEMENTS OF OPERATIONS AND
STOCKHOLDERS' DEFICIT

YEAR ENDED SEPTEMBER 30,
-----------------------------------
1996 1997
---------------- ----------------

OPERATING REVENUES
Advertising revenue ......................................... $ 7,040,465 $ 7,619,751
Research services revenue ................................... 2,453,026 2,441,703
Direct mail & subscription revenue .......................... 1,791,887 1,837,248
Broadcast revenue ........................................... 2,085,714 2,235,788
Consulting revenue .......................................... 720,000 470,000
Other revenue ............................................... 675,790 1,152,448
------------ ------------
14,766,882 15,756,938
Direct costs of revenue ..................................... 4,408,997 4,107,328
------------ ------------
10,357,885 11,649,610
OPERATING EXPENSES
Officers' salary expense .................................... 3,384,870 3,662,427
Other salary expense ........................................ 3,956,910 3,949,715
Depreciation and amortization ............................... 183,976 203,047
General and administrative expenses ......................... 2,524,704 2,483,197
------------ ------------
10,050,460 10,298,386
------------ ------------
Income from operations ...................................... 307,425 1,351,224
OTHER INCOME (EXPENSE)
Interest income--officers' loans ............................ 35,000 41,600
Interest income--third party ................................ 6,961 1,295
Interest expense--officers' loans ........................... (35,000) (55,940)
Interest expense--third party ............................... (256,164) (175,490)
------------ ------------
Income before income taxes .................................. 58,222 1,162,689
INCOME TAXES
Provision for income taxes .................................. 211,832 20,678
------------ ------------
Net income (loss) ........................................... (153,610) 1,142,011
Combined stockholders' deficit at beginning of year ......... (2,509,661) (2,663,271)
------------ ------------
Combined stockholders' deficit at end of year ............... $ (2,663,271) $ (1,521,260)
============ ============

See accompanying notes.

F-120

THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES

COMBINED STATEMENT OF OPERATIONS AND
STOCKHOLDERS' DEFICIT
THREE MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)

OPERATING REVENUES
Advertising revenue ........................................... $ 1,605,422
Research services revenue ..................................... 604,961
Direct mail & subscription revenue ............................ 521,851
Broadcast revenue ............................................. 825,686
Other revenue ................................................. 97,437
------------
3,655,357
Direct costs of revenue ....................................... 1,056,785
------------
2,598,572
OPERATING EXPENSES
Officers' salary expense ...................................... 209,424
Other salary expense .......................................... 1,090,662
Depreciation and amortization ................................. 62,535
General and administrative expenses ........................... 1,034,159
------------
2,396,780
------------
Income from operations ........................................ 201,792
OTHER INCOME (EXPENSE)
Interest income--officers' loans .............................. 4,171
Interest income--third party .................................. 169
Interest expense--officers' loans ............................. (15,596)
Interest expense--third party ................................. (26,921)
------------
Income before income taxes .................................... 163,615
INCOME TAXES
Provision for income taxes .................................... 65,000
------------
Net income (loss) ............................................. 98,615
Combined stockholders' deficit at beginning of period ......... (1,521,260)
------------
Combined stockholders' deficit at end of period ............... $ (1,422,645)
============

See accompanying notes.

F-121

THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES

COMBINED STATEMENTS OF CASH FLOWS

YEAR ENDED SEPTEMBER 30,
------------------------------
1996 1997
-------------- -------------

OPERATING ACTIVITIES
Net income ......................................................... $ (153,610) $1,142,011
Adjustment to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization .................................... 183,976 203,047
Provision for doubtful accounts .................................. 13,584 58,278
Changes in operating assets and liabilities:
Accounts receivable ............................................. (246,873) (139,356)
Prepaid expenses and other current assets ....................... 154,120 (109,356)
Other non current assets ........................................ (3,378) 2,444
Accounts payable and accrued expenses ........................... 69,816 126,955
Unearned subscription income .................................... 101,623 (123,726)
Accrued officers' bonus ......................................... 639,000 51,000
Deferred income taxes ........................................... 39,268 (165,256)
Taxes payable and other current liabilities ..................... 143,423 (115,540)
---------- ----------
Net cash provided by operating activities .......................... 940,949 930,501
---------- ----------
INVESTING ACTIVITIES
Purchase of property and equipment ................................. (65,731) (166,892)
Deferred software costs ............................................ (97,463) (150,630)
---------- ----------
Net cash used in investing activities .............................. (163,194) (317,522)
---------- ----------
FINANCING ACTIVITIES
Payments on long term debt ......................................... (860,236) (527,747)
Proceeds from additional debt borrowings ........................... 52,500 155,000
Proceeds from (repayments of) officers' loans, net ................. 61,355 (128,262)
---------- ----------
Net cash used in financing activities .............................. (746,381) (501,009)
---------- ----------
Net increase in cash and cash equivalents .......................... 31,374 111,970
Cash and cash equivalents at beginning of year ..................... 129,079 160,453
---------- ----------
Cash and cash equivalents at end of year ........................... $ 160,453 $ 272,423
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest ............................................. $ 304,726 $ 190,168
========== ==========
Cash paid for income taxes ......................................... $ 21,375 $ 26,316
========== ==========

See accompanying notes.

F-122

THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES

COMBINED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)

OPERATING ACTIVITIES
Net income ......................................................... $ 98,615
Adjustment to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization .................................... 62,535
Provision for doubtful accounts .................................. 3,954
Changes in operating assets and liabilities:
Accounts receivable ............................................. (42,922)
Prepaid expenses and other current assets ....................... 101,621
Other non current assets ........................................ 27,508
Accounts payable and accrued expenses ........................... 137,671
Unearned subscription income .................................... 151,829
Accrued officers' bonus ......................................... (1,251,000)
Deferred income taxes ........................................... (60,603)
Taxes payable and other current liabilities ..................... 525,097
------------
Net cash used in operating activities .............................. (245,695)
INVESTING ACTIVITIES
Purchase of property and equipment ................................. (45,540)
Deferred software costs ............................................ (40,869)
------------
Net cash used in investing activities .............................. (86,409)
FINANCING ACTIVITIES
Payments on long term debt ......................................... (112,681)
Proceeds from additional debt borrowings ........................... 129,236
Proceeds from officers' loans, net ................................. 212,624
------------
Net cash provided by financing activities .......................... 229,179
------------
Net decrease in cash and cash equivalents .......................... (102,925)
Cash and cash equivalents at beginning of year ..................... 272,423
------------
Cash and cash equivalents at end of year ........................... $ 169,498
============

See accompanying notes.

F-123

THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

Principles of Combination

The accompanying combined financial statements include the accounts of The
Album Network, Inc., The Network 40, Inc., The Urban Network, Inc. and
In-the-Studio (collectively, the "Companies"). Intercompany transactions and
balances among the Companies have been eliminated in combination.

On August 27, 1997, the board of directors and shareholders of the
Companies approved a plan of agreement and merger which provided that The Urban
Network, Inc. merge into The Album Network, Inc. (the "Company") effective
September 24, 1997. The Companies accounted for the transaction as a merger of
companies under common control.

The Companies publish six music trade magazines, produce rock, urban and
top 40 programming specials and manufacture compact disc samplers. They also
serve as product marketing advisors to contemporary music talent and their
managers in providing creative content and innovative marketing campaigns. In
addition, the Companies provide research services for radio station program
directors and record label executives. The Companies publishes five print
periodicals for rock and top 40 music broadcasters, retailers and music
industry executives. The weekly publications are the "Album Network" and the
"Network 40". The monthly publications are the "Virtually Alternative" and
"Totally Adult" and the quarterly publication is titled "AggroActive."
Additionally, "The Urban Network" trade magazine is published each week.

Revenue Recognition

The Companies' magazines generate revenue from advertising sales,
complemented by subscription sales and incremental direct mail revenue.

Unearned subscription income represents revenues on subscriptions for
which publications have not been delivered to customers as of the balance sheet
date. Unearned subscription income at September 30, 1996 also includes unearned
income on certain advertising and direct mail packages.

Revenue from research services is recognized straight-line over the
license term or upon the sale of computer software developed for licensees and
other customers. Advertising and broadcast revenues are recognized when
advertisements are run or aired.

Furniture and Equipment

Furniture and equipment are valued at cost less accumulated depreciation.
Depreciation is provided on the straight-line and declining balance methods
over the estimated useful lives of the assets, as follows:

Computer hardware ............... 5 years
Software ........................ 5 years
Furniture and equipment ......... 5-7 years
Leasehold improvements .......... 5 years

Deferred Software Costs

Costs incurred to produce software masters and subsequent enhancements to
such software are capitalized and amortized over the remaining economic life of
the master (generally, five years). Costs of maintenance and customer support
are charged to expense when incurred.

Cash and Cash Equivalents

The Companies consider all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.

F-124

THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

Income Taxes

Each of the affiliated Companies file a separate tax return. The Album
Network, Inc. and the Urban Network, Inc. are "C Corporations." The Network 40,
Inc. has elected to be taxed as an "S Corporation". The "S Corporation"
election is effective for both federal and state tax purposes. Accordingly all
items of income, loss, deduction or credit are reported by the shareholders on
their respective personal income tax returns. The corporate tax rate for S
Corporations in California is one and one-half percent (1.5%).

Risks and Uncertainties

Concentration of Credit Risk

The Company maintains bank balances with City National Bank in excess of
the federally insured limit of $100,000.

Reclassification

Certain amounts in the financial statements have been reclassified to
conform with the current presentations.

Interim Financial Information

Financial information as of December 31, 1997 and for the three months
ended December 31, 1997 is unaudited. In the opinion of management, all
adjustments necessary for a fair presentation of the results for such period
have been included, all adjustments are of a normal and recurring nature.
Interim results are not necessarily indicative of results for a full year.

2. RELATED PARTY TRANSACTIONS

Officers' Loans

The Companies have several loan agreements outstanding with its officers
in order to satisfy the cash flow needs of operations. The interest rates on
the loans to and from the officers range from approximately 10% to 12%.

At October 1, 1995, the officers owed the Companies $471,918 and the
Companies owed the officers $637,116. During the year ended September 30, 1996,
the officers repaid $48,471 and loaned the Companies an additional $12,884.

At October 1, 1996, the officers owed the Companies $423,447 and the
Companies owed the officers $650,000. During the year ended September 30, 1997,
the officers repaid $32,653 to the Companies and the Companies repaid $160,915
to the officers.

F-125

THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

3. LONG-TERM DEBT

A summary of long-term debt as of September 30, 1997 and 1996 is as
follows:

SEPTEMBER 30
-----------------------------
1996 1997
------------- -------------

Note payable to City National Bank, collateralized by certain
equipment and personally guaranteed by the stockholders; payable
in monthly installments of $2,917 plus interest at 10.5%; due
May 1999 .......................................................... $ 96,994 $ 62,740
Note payable to City National Bank, personally guaranteed by the
stockholders; payable in monthly installments of $41,233 plus
interest at 8.75% through January 22, 1997 and at 8.25% thereafter;
due December 2000.(A) ............................................. 1,821,862 1,415,369
Other .............................................................. 12,000 80,000
---------- ----------
1,930,856 1,558,109
Less current portion ............................................... 636,723 506,228
---------- ----------
Long-term debt ..................................................... $1,294,133 $1,051,881
========== ==========

- ----------
(A) In September 1995 The Album Network, Inc., The Network 40, Inc. and The
Urban Network, Inc. entered into a loan agreement with City National Bank
for $2,330,000 in connection with a redemption of common stock. Interest
was set at 8.75% per year and principal and interest were payable in
monthly installments of $57,846 through September 1999. In January 1997,
the loan agreement was revised. Interest was reset at 8.25% and monthly
payments of $41,233 were extended through December 2000. The principal
balance at the date of revision was $1,687,560.

4. COMMON STOCK

The Companies' stock and tax status at September 30, 1997 are as follows:

SHARES
ISSUED
TAX SHARES AND
STATUS AUTHORIZED OUTSTANDING
------------- ------------ ------------

The Album Network, Inc. ......... C-Corp. 1,000,000 220
The Network 40, Inc. ............ S-Corp. 100,000 825
The Urban Network, Inc. ......... C-Corp. 100,000 825
In-the-Studio ................... Partnership n/a n/a

5. COMMITMENTS AND CONTINGENCIES

Leases

The Companies lease an office facility under noncancellable leases which
expire in February 1998.

Total rent expense for the years ended September 30, 1997 and 1996 under
operating leases was $262,812 and $256,026, respectively.

Future minimum lease payments under noncancellable operating leases as of
September 30, 1997 total $121,155, all of which is payable in 1998.

Other Matters

As of September 30, 1997, approximately $80,000 was drawn on lines of
credit with City National Bank. There were no amounts drawn as of September 30,
1996.

F-126

THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

6. INCOME TAXES

The Album Network has received a Statutory Notice of Deficiency from the
Internal Revenue Service ("IRS") for the years ended September 30, 1994, 1995
and 1996 asserting tax deficiencies resulting primarily from an IRS position
that compensation paid to officers was unreasonable and excessive. In total,
approximately $3.5 million of adjustments increasing taxable income have been
proposed. The total additional tax, penalties and interest through September
30, 1997 related to these adjustments would be approximately $1.8 million. The
company has analyzed these matters with tax counsel and believes it has
meritorious defenses to the deficiencies asserted by the IRS. The company has
filed a petition with the United States Tax Court contesting the asserted
liability. While the company believes that a successful defense of this case
may be made, in light of the economic burdens of the defense, the company may
entertain a settlement for up to $291,000. Accordingly, the company has
recorded reserves in such amount, including $23,000, $115,000 and $153,000 for
the years ended September 30, 1997, 1996 and prior periods, respectively.

For the years ended September 30, 1996 and 1997 the provision for income
taxes is as follows:

1996 1997
----------- -------------

Current:
Federal ................ $129,911 $ 143,056
State .................. 17,710 42,878
-------- ----------
Total ................. 147,621 185,934
-------- ----------
Deferred:
Federal ................ 49,764 (150,383)
State .................. 14,447 (14,873)
-------- ----------
Total ................. 64,211 (165,256)
-------- ----------
Total ................... $211,832 $ 20,678
======== ==========

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the Companies' deferred tax assets and liabilities as of
September 30, 1996 and 1997 are as follows:

1996 1997
----------- ----------

Deferred tax assets:
Contributions carryforward ............. $ 8,194 $ 10,078
Deferred tax liabilities:
Fixed assets ........................... 12,280 11,830
Intangible assets ...................... 275,346 112,424
-------- --------
Total deferred tax liabilities ......... 287,628 124,254
-------- --------
Net deferred tax liabilities ............ $279,434 $114,176
======== ========

F-127

THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

7. EMPLOYEE RETIREMENT PLAN

In January 1997, the Companies began a retirement plan for their employees
under Section 401(k) of the Internal Revenue Code. All employees are eligible
to participate once they obtain the minimum age requirement of 21 years, and
have satisfied the service requirement of one year with the Companies.
Participant contributions are subject to the limitations of Section 402 (g) of
the Internal Revenue Code. The Companies contribute monthly to participating
employees accounts at the rate of 10% of the participating employees
contributions. During the year ended September 30, 1997, the Companies
contributions totaled approximately $14,000.

8. SUBSEQUENT EVENTS (UNAUDITED)

On February 27, 1998, the Company was acquired by SFX Entertainment Inc.

F-128

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
BG Presents, Inc.

We have audited the accompanying consolidated balance sheets of BG
Presents, Inc. and Subsidiaries as of January 31, 1997 and 1998, and the
related consolidated statements of income, cash flows and stockholders' equity
for each of the three years in the period ended January 31, 1998. These
financial statements are the responsibility of management. Our responsibility
is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of BG Presents,
Inc. and subsidiaries at January 31, 1997 and 1998, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended January 31, 1998, in conformity with generally accepted
accounting principles.

Ernst & Young LLP

New York, New York
March 20, 1998

F-129

BG PRESENTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

JANUARY 31
------------------------------
1997 1998
-------------- -------------

ASSETS
Current assets:
Cash and cash equivalents .......................................... $11,819,831 $ 5,380,984
Accounts receivable--trade ......................................... 3,164,543 5,460,915
Accounts receivable--related parties ............................... 1,347,150 776,174
Investments ........................................................ 370,000 --
Inventories ........................................................ 236,078 227,766
Prepaid assets ..................................................... 450,883 3,001,450
Income tax receivable .............................................. 418,528 --
Deferred income taxes .............................................. 94,000 --
Other current assets ............................................... -- 118,455
----------- -----------
Total current assets ................................................ 17,901,013 14,965,744
Property and equipment, net ......................................... 9,661,910 8,904,509
Goodwill, net of accumulated amortization of $238,400 and
$357,600 at January 31, 1997 and 1998, respectively................. 1,549,600 1,430,400
Other assets (Note 6) ............................................... 167 4,100,011
----------- -----------
Total assets ........................................................ $29,112,690 $29,400,664
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable--current portion ..................................... $ 722,966 $ 879,040
Lease commitment--current portion .................................. 35,676 --
Accounts payable ................................................... 3,229,054 1,816,959
Deferred revenue ................................................... 1,362,533 1,480,145
Accrued liabilities and other current liabilities .................. 3,721,749 3,753,613
----------- -----------
Total current liabilities ........................................... 9,071,978 7,929,757
Lease commitment, less current portion .............................. 6,704,719 --
Notes payable, less current portion ................................. 5,233,709 11,134,834
Deferred income taxes ............................................... 2,617,000 2,617,000
Stockholders' equity:
Common stock, no par value; 10,000,000 shares authorized;
1,000,000 shares issued and outstanding in 1997 and 1998 ......... 1,198,947 1,198,947
Retained earnings .................................................. 4,286,337 6,520,126
----------- -----------
Total stockholders' equity .......................................... 5,485,284 7,719,073
----------- -----------
Total liabilities and stockholders' equity .......................... $29,112,690 $29,400,664
=========== ===========

See accompanying notes.

F-130

BG PRESENTS, INC. AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS

YEAR ENDED JANUARY 31
-------------------------------------------------
1996 1997 1998
-------------- -------------- ---------------

REVENUES
Concert revenues ................................. $ 62,996,606 $ 74,981,534 $ 75,898,464
Contract management .............................. 7,844,248 10,255,060 23,632,596
Concessions/merchandise .......................... 5,536,287 7,094,593 6,021,845
------------ ------------ ------------
76,377,141 92,331,187 105,552,905
Cost of revenues ................................. 54,383,763 69,916,840 81,092,377
------------ ------------ ------------
21,993,378 22,414,347 24,460,528
EXPENSES
General and administrative ....................... 17,614,296 17,602,501 18,866,259
Depreciation and amortization .................... 1,441,439 1,474,414 1,026,684
------------ ------------ ------------
Income from operations ........................... 2,937,643 3,337,432 4,567,585
OTHER INCOME (EXPENSE)
Interest expense ................................. (1,324,219) (1,257,758) (916,723)
Interest income .................................. 307,756 295,057 294,888
Miscellaneous .................................... 535,191 289,222 (24,300)
------------ ------------ ------------
Income before provision for income taxes ......... 2,456,371 2,663,953 3,921,450
Provision for income taxes ....................... 1,160,718 1,272,190 1,687,661
------------ ------------ ------------
Net income ....................................... $ 1,295,653 $ 1,391,763 $ 2,233,789
============ ============ ============

See accompanying notes.

F-131

BG PRESENTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEAR ENDED JANUARY 31
---------------------------------------------------
1996 1997 1998
--------------- --------------- ---------------

OPERATING ACTIVITIES
Net income ................................................... $ 1,295,653 $ 1,391,763 $ 2,233,789
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property and
equipment ................................................. 1,322,239 1,355,214 907,484
Amortization of goodwill .................................... 119,200 119,200 119,200
Loss on sale of property and equipment ...................... 13,603 -- --
Changes in operating assets and liabilities:
Accounts receivable--trade ................................ 524,566 (1,356,263) (2,296,372)
Accounts receivable--related parties ...................... (496,971) (821) 570,976
Inventories ............................................... (228,294) (7,784) 8,312
Prepaid assets and other .................................. (322,524) 478,391 (2,550,567)
Income tax receivable ..................................... (50,888) (328,390) 300,073
Accounts payable and accrued expenses ..................... (491,982) 3,128,476 (1,380,231)
Deferred income taxes ..................................... 1,139,000 45,000 94,000
Deferred revenue .......................................... (67,859) 379,748 117,612
Other ..................................................... 288,367 160 74,347
------------ ------------ ------------
Net cash provided by (used in) operating activities .......... 3,044,110 5,204,694 (1,801,377)
INVESTING ACTIVITIES
Purchase of SAP limited partnership interest ................. (4,250,000) -- --
Proceeds from sale of equipment .............................. 13,150 -- --
Capital expenditures, including White River
Amphitheatre ................................................ (469,447) (367,678) (4,247,528)
Other ........................................................ (644,496) (247,000) 293,254
------------ ------------ ------------
Net cash used in investing activities ........................ (5,350,793) (614,678) (3,954,274)
FINANCING ACTIVITIES
Payments of notes payable .................................... (444,985) (775,756) --
Borrowings on notes payable .................................. -- 1,000,000 6,057,199
Payments of lease commitments ................................ (395,330) (405,275) (6,740,395)
Retirement of stock .......................................... -- (21,053) --
------------ ------------ ------------
Net cash used in financing activities ........................ (840,315) (202,084) (683,196)
Net increase (decrease) in cash and cash equivalents ......... (3,146,998) 4,387,932 (6,438,847)
Cash and cash equivalents at beginning of year ............... 10,578,897 7,431,899 11,819,831
------------ ------------ ------------
Cash and cash equivalents at end of year ..................... $ 7,431,899 $ 11,819,831 $ 5,380,984
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest ....................................... $ 1,324,219 $ 1,257,664 $ 1,092,356
Cash paid for income taxes ................................... 888,738 1,280,000 1,325,000

See accompanying notes.

F-132

BG PRESENTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996

Balance--January 31, 1995 .............................. $2,818,921
Net income for the year ended January 31, 1996 ......... 1,295,653
----------
Balance--January 31, 1996 .............................. 4,114,574
Net income for the year ended January 31, 1997 ......... 1,391,763
Repurchase and retirement of stock ..................... (21,053)
----------
Balance--January 31, 1997 .............................. 5,485,284
Net income for the year ended January 31, 1998 ......... 2,233,789
----------
Balance--January 31, 1998 .............................. $7,719,073
==========

See accompanying notes.

F-133

BG PRESENTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

Business and Principles of Consolidation

BG Presents, Inc. ("BGP" or the "Company") is a holding company for
various operating subsidiaries which principally promote and manage musical and
special events in the San Francisco Bay Area. In addition, the Company owns the
Shoreline Amphitheatre in Mountain View, California. Bill Graham Enterprises,
Inc. ("BGE"), Bill Graham Presents, Inc. ("BGPI"), Bill Graham Management, Inc.
("BGM"), AKG, Inc. ("AKG"), Shoreline Amphitheatre, Ltd. ("SAL"), Fillmore
Fingers, Inc. ("FF"), and Shoreline Amphitheatre Partners ("SAP" and,
collectively, the "Companies") are wholly-owned subsidiaries of the Company.
The accompanying consolidated financial statements include the accounts of the
Company and all of its wholly-owned subsidiaries. Intercompany transactions and
balances have been eliminated in consolidation.

BGE and BGPI earn promotion income in two ways: either a fixed fee for
organizing and promoting an event, or an arrangement that entitles them to a
profit percentage based on a predetermined formula. In addition, the Companies
earn revenue from merchandise and concessions sold during events which they
promote. BGM manages the careers of various artists and records a percentage of
the artists' gross sales from publishing rights, record sales, and tours as
contract management revenue.

AKG operates the Fillmore, Warfield, and Punchline theatres located in San
Francisco, which generate revenue from food and beverage sales, sponsorships,
and ticket sales. Bill Graham Special Events, a division of AKG, records
management/contract fees from organizing corporate and other parties at various
venues in the San Francisco Bay Area. FF provides table service (food and
beverage) for two theatres located in Los Angeles owned by third parties.

Revenue Recognition

Revenue from talent management and the sales of tickets is recognized when
earned. Cash received from the sale of tickets for events not yet performed is
deferred. Revenue from the direct sale of compact discs is recognized upon the
date of sale. The Company's revenue included $305,017, $14,562,000 and
$13,483,683 during the fiscal years ended January 31, 1996, 1997 and 1998,
respectively, from various gymnastics tours, ice skating tours and television
specials.

Cash and Cash Equivalents

The Company considers all investments purchased with an original maturity
date of three months or less to be cash equivalents. At January 31, 1996, 1997
and 1998, the Companies had cash balances in excess of the federally insured
limits of $100,000 per institution.

Use of Estimates

Generally accepted accounting principles require management to make
assumptions in estimates that affect the amount reported in the financial
statements for assets, liabilities, revenues, and expenses. In addition,
assumptions and estimates are used to determine disclosure for contingencies,
commitments, and other matters discussed in the notes to the financial
statements. Actual results could differ from those estimates.

Accounts Receivable

The Company's accounts receivable are principally due from ticket service
and merchandising companies in the San Francisco Bay Area. In addition, related
party receivables include amounts due from owners of the Company and from
affiliated companies. Management believes that all accounts receivable as of
January 31, 1996, 1997 and 1998 were fully collectible; therefore, no allowance
for doubtful accounts was recorded.

F-134

BG PRESENTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
(CONTINUED)

Property and Equipment

Property and equipment are recorded at cost and depreciated over their
estimated useful lives, which range from 3 to 40 years. Leasehold improvements
are amortized on the straight-line basis over the shorter of the lease term or
estimated useful lives of the assets. Maintenance and repairs are charged to
expense as incurred.

Goodwill

The Company amortizes goodwill over a 15 year period.

Income Taxes

The Companies account for income taxes under the liability method, whereby
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using enacted tax rates and laws that will be in effect when the differences
are expected to reverse.

Inventories

Inventories, which consist principally of compact discs and beverage
items, are stated at first-in, first-out (FIFO) cost, which is not in excess of
market.

Advertising and Promotion Costs

The Company expenses all advertising and promotion costs as incurred,
except in instances where management believes these costs generate a direct
response from customers. Advertising expenses were $3,408,322, $4,319,291 and
$4,519,049 for the fiscal years ended January 31, 1996, 1997 and 1998,
respectively.

2. INCOME TAXES

The provision for income taxes for the fiscal years ended January 31, 1997
and 1998 is summarized as follows:

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

Current:
Federal ................... $ 984,500 $1,304,837
State ..................... 285,800 378,824
---------- ----------
1,270,300 1,683,661
Deferred:
Federal ................... 1,500 3,100
State ..................... 400 900
---------- ----------
1,900 4,000
---------- ----------
$1,272,200 $1,687,661
========== ==========

Deferred income taxes reflect the tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company's net
deferred tax liabilities as of January 31, 1997 and 1998 are primarily the
result of the difference between the book basis of depreciable assets and the
related tax basis.

The difference between the tax provision at Federal statutory rates and
the effective rate is due to state taxes, amortization of goodwill and other
nondeductible items.

F-135

BG PRESENTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. PROPERTY AND EQUIPMENT

Property and equipment as of January 31, 1997 and 1998 consists of the
following:

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

Buildings ....................... $ 8,234,231 $ 8,251,729
Leasehold improvements .......... 10,326,553 10,403,033
Equipment ....................... 2,166,037 2,184,855
Office furniture ................ 693,068 711,235
Computer equipment .............. 330,367 343,493
Vehicle ......................... 61,211 67,205
------------- -------------
21,811,467 21,961,550
Accumulated depreciation and
amortization ........................... (12,783,510) (13,528,140)
------------- -------------
9,027,957 8,443,410
Land ............................ 633,953 633,953
------------- -------------
$ 9,661,910 $ 9,067,363
============= =============

4. PENSION PLAN

The Company sponsors a 401(k) Tax Advantage Savings Plan that covers
employees who have one year of service, have worked at least 1,000 hours, are
21 years of age or older, and are not covered by a union contract. At its
discretion, the Company may contribute a percentage of gross pay to the plan,
up to a maximum gross pay of $150,000 per participant. In addition, the Company
makes a matching contribution of 25% of each participant's account up to $400
of their salary deferral each year, for a maximum company matching contribution
of $100. Total contributions to the plan were approximately $182,000, $186,000
and $213,049 for the years ended January 31, 1996, 1997 and 1998, respectively.

F-136

BG PRESENTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. NOTES PAYABLE

Notes payable as of January 31, 1997 and 1998 consists of the following:

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

Note payable to Midland Loan Services LP; monthly
payments of $16,574, including interest at the bank's
index rate plus 3.5% (8.4% and 8.375% at January 31,
1997 and 1998, respectively; matures May 1, 2004;
secured by deed .......................................... $2,215,001 $ 2,193,732
Note payable to Sanwa Bank; quarterly payments range
from $75,000 to $200,000, interest accrued monthly at
the bank's prime rate plus 0.5% (8.75% and 8.75% at
January 31, 1997 and 1998, respectively); matures
January 31, 2001 ......................................... 2,925,000 2,425,000
Note payable to Sanwa Bank; monthly payments of
$16,666, including interest at a rate of London Inter-
Bank Offered Rate (LIBOR) plus 2.5%; matures
January 31, 2002; secured by assets of the Company
(excluding the office building) .......................... 816,674 616,682
Note payable to Sanwa Bank; monthly payments range
from $12,000 to $25,000, interest accrued monthly at the
bank's index rate plus 2.375%; matures March 1, 2007;
secured by deed .......................................... -- 6,778,460
---------- -----------
5,956,675 12,013,874
Less current portion ....................................... (722,966) (879,040)
---------- -----------
$5,233,709 $11,134,834
========== ===========

The first note payable with Sanwa Bank also provided for a line-of-credit
of up to $1,000,000 that expired on April 30, 1997. At January 31, 1998, there
were no borrowings outstanding against this credit line.

F-137

BG PRESENTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. NOTES PAYABLE (CONTINUED)

At January 31, 1998, the Company has a $3,000,000 unused line-of-credit
with a bank to be drawn upon as needed, with interest at the bank's prime rate
plus 0.5%. In addition, the Company may use up to $1,500,000 of the line for
letters-of-credit. This line-of-credit is secured by the assets of the Company.

Maturities of long-term debt are approximately as follows:

Year ended January 31:
1999 ........................... $ 879,040
2000 ........................... 893,998
2001 ........................... 1,851,908
2002 ........................... 227,764
2003 ........................... 246,791
Thereafter ..................... 7,914,373
-----------
$12,013,874
===========

6. COMMITMENTS AND CONTINGENCIES

Leases

The Company leases nightclubs, theaters and storage space pursuant to
noncancellable operating leases. Certain leases require contingent rentals to
be paid based on a percentage of gross sales of tickets, merchandise, and food
and beverage. These leases expire on various dates through June 2021.

At January 31, 1998, the future minimum operating lease payments under
noncancelable operating leases are as follows:

Year ended January 31:
1999 ........................... $ 543,354
2000 ........................... 547,211
2001 ........................... 485,961
2002 ........................... 451,694
2003 ........................... 425,633
Thereafter ..................... 2,367,353
----------
$4,821,206
==========

Total minimum rental expense included in operating expenses for the years
ended January 31, 1996, 1997 and 1998 was $810,956, $438,500 and $706,219,
respectively, and the contingent rental expense was $541,334, $627,222 and
$725,787, respectively. Included in cost of revenues is $6,145,944, $6,392,616
and $7,265,769 of contingent rentals paid based on gross sales for the years
ended January 31, 1996, 1997 and 1998, respectively.

Shoreline Amphitheater Lease and Agreement

The Shoreline Amphitheater Lease and Agreement, as amended, provides for,
among other things, that the City of Mountain View, California (the "City")
owns certain real property (the "Site") which it has leased to the Company for
the purpose of constructing and operating the amphitheater. The lease
terminates after 35 years on November 30, 2021, and the Company has the option
to extend for three additional five-year periods.

F-138

BG PRESENTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company is obligated to pay as rent to the City a certain percentage
of "gross receipts" received annually by the Company and additional rent based
on the "net available cash" of the Company, as such terms are defined in the
agreement.

6. COMMITMENTS AND CONTINGENCIES (CONTINUED)

Rent expense charged to operations for the years ended January 31, 1996,
1997 and 1998 amounted to $594,002, $396,789 and $613,933, respectively.

As of the year ended January 31, 1997, the Company was obligated to pay
the City $93,200 monthly, which related to $9,500,000 of funds provided the
Company by the City pursuant to the lease. Prior to the refinancing of this
arrangement as a $6.9 million note payable to Sanwa Bank (see Note 5), the
Company had accounted for this obligation as a long-term liability amortizable
on a monthly basis over the 20-year period commencing August 1, 1986. The
principal and interest (10.24%) on this liability were being amortized monthly.
At January 31, 1997, the outstanding balance amounted to $6,740,395, of which
$35,676 was current.

Seattle White River Amphitheatre

The Company has committed payments for the construction of an amphitheatre
in the Seattle, Washington market totaling $10 million. Through January 31,
1998, the Company has paid $3,921,812 toward this project. This amount is
included in other assets on the balance sheet. The Company has also capitalized
interest pertaining to the capital expenditures for the amphitheatre of
$175,633 at January 31, 1998, which is also included in other assets on the
balance sheet.

Employment Contracts

The Company has entered into employment contracts with certain key
employees which amount to $2,300,000 per year. These contracts are in effect
until the first note payable to Sanwa Bank (see Note 5) is paid in full or six
years, whichever comes first. According to these agreements, compensation and
other benefits will cease if discharged with just cause, death or disability,
and resignation of employment. Benefits do not cease if discharged without just
cause.

Contingencies

The Company is involved in various legal and other matters arising in the
normal course of business. Based upon information available to management, its
review of these matters to date and consultation with counsel, management
believes that any liability relating to these matters would not have a material
effect on the Company's financial position and results of operations.

7. SUBSEQUENT EVENTS

Acquisition of Companies by SFX Entertainment, Inc.

On February 24, 1998, the stockholders of the Company sold all of the
outstanding capital stock of the Companies to SFX Entertainment, Inc. for cash
consideration of $60.8 million (including the repayment of $12 million in the
Companies' debt and the issuance of 562,640 shares of common stock of SFX
Entertainment, Inc.). The Company has agreed to have net working capital, as
defined, at the closing at least equal to the Company's debt.

F-139

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Concert/Southern Promotions

We have audited the accompanying combined balance sheet of
Concert/Southern Promotions and Affiliated Companies as of December 31, 1997,
and the related combined statements of operations, cash flows and stockholders'
equity for the year then ended. These financial statements are the
responsibility of management. Our responsibility is to express an opinion on
these financial statements based on our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Concert/Southern
Promotions and Affiliated Companies at December 31, 1997, and the combined
results of their operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

New York, New York
March 13, 1998

F-140

CONCERT/SOUTHERN PROMOTIONS AND AFFILIATED COMPANIES

COMBINED BALANCE SHEET
DECEMBER 31, 1997

ASSETS
Current assets:
Cash and cash equivalents .................................. $ 612,967
Accounts receivable ........................................ 185,437
Due from owners (Note 3) ................................... 332,754
Prepaid expenses and other current assets .................. 115,844
----------
Total current assets ........................................ 1,247,002
Investments in equity investees (Note 2) .................... 895,790
Property and equipment:
Land ....................................................... 19,638
Leasehold improvements ..................................... 286,998
Furniture and equipment .................................... 496,265
----------
802,901
Accumulated depreciation and amortization .................. 460,483
----------
342,418
----------
Total assets ................................................ $2,485,210
==========
LIABILITIES AND COMBINED STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ...................... $ 229,558
Deferred income ............................................ 368,150
----------
Total current liabilities ................................... 597,708
Combined stockholders' equity (Note 4) ...................... 1,887,502
----------
Total liabilities and combined stockholders' equity ......... $2,485,210
==========

See accompanying notes.

F-141

CONCERT/SOUTHERN PROMOTIONS AND AFFILIATED COMPANIES

COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997

Operating revenues:
Concert revenue ............................. $14,796,977
Cost of concerts ............................ 9,877,586
-----------
4,919,391
Operating expenses:
Salaries--officers .......................... 364,000
Bonuses--officers ........................... 564,767
Salaries--other ............................. 367,356
Rent expense ................................ 207,220
Legal and accounting fees ................... 201,435
Depreciation and amortization ............... 78,682
General and administrative expenses ......... 1,367,304
-----------
3,150,764
-----------
Income from operations ....................... 1,768,627
Other income:
Interest income ............................. 59,624
Losses from equity investees ................ (79,629)
-----------
Net income ................................... $ 1,748,622
===========

See accompanying notes.

F-142

CONCERT/SOUTHERN PROMOTIONS AND AFFILIATED COMPANIES

COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997

OPERATING ACTIVITIES
Net income ...................................................................... $ 1,748,622
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ................................................ 78,682
Losses from equity investees ................................................. 79,629
Changes in operating assets and liabilities:
Accounts receivable ......................................................... 1,000,781
Prepaid expenses and other current assets ................................... 69,896
Accounts payable and accrued expenses ....................................... (452,361)
Deferred income ............................................................. 368,150
Net cash provided by operating activities ....................................... 2,893,399
FINANCING ACTIVITIES
Due to/from owner ............................................................... (398,080)
Distributions paid to stockholder ............................................... (2,722,827)
------------
Net cash used in financing activities ........................................... (3,120,907)
------------
Net decrease in cash and cash equivalents ....................................... (227,508)
Cash and cash equivalents at beginning of year .................................. 840,475
------------
Cash and cash equivalents at end of year ........................................ $ 612,967
============

See accompanying notes.

F-143

CONCERT/SOUTHERN PROMOTIONS AND AFFILIATED COMPANIES

COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1997

Balance, January 1, 1997 ............. $ 2,861,707
Distributions to stockholder ......... (2,722,827)
Net income ........................... 1,748,622
------------
Balance, December 31, 1997 ........... $ 1,887,502
============

See accompanying notes.

F-144

CONCERT/SOUTHERN PROMOTIONS AND AFFILIATED COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

Principles of Combination

The accompanying combined financial statements include the accounts of
Southern Promotions, Inc., High Cotton, Inc., Buckhead Promotions, Inc.,
Northern Exposure, Inc., Pure Cotton, Inc., Cooley and Conlon Management, Inc.
("CCMI") and Interfest, Inc. and their wholly-owned subsidiaries:
Concert/Southern Chastain Promotions ("Concert/Southern"), Roxy Ventures,
Cotton Club and Midtown Music Festival (collectively, the "Companies").
Intercompany transactions and balances among these companies have been
eliminated in combination. The Companies are presented on a combined basis to
reflect common ownership by Alex Cooley, Peter Conlon and Stephen Selig III.

Concert/Southern is the predominant musical event promoter in the Atlanta,
Georgia region, and through Chastain Joint Ventures ("Chastain Ventures") is
the operator, pursuant to a long-term lease with the City of Atlanta, of the
Chastain Park Amphitheater. Chastain Ventures is owned equally by
Concert/Southern and the Atlanta Symphony Orchestra, and is accounted for by
Concert/Southern on the equity method. Buckhead Promotions and Northern
Exposure equally own Roxy Ventures which holds a long-term lease for the Roxy
Theatre, and Pure Cotton holds a long-term lease for the Cotton Club.
Interfest, Inc. promoted the three-day Midtown Music Festival held in downtown
Atlanta during 1997. In addition, High Cotton owns 52.6% of HC Properties,
Inc., a real estate investment company which is accounted for on the equity
method.

The Companies record revenue when earned. Concert revenue includes
ticketing, concession, and sponsorship revenue. Deferred income relates
primarily to deposits received in advance of the concert season.

Property and Equipment

Land, leasehold improvements, and furniture and equipment are stated at
cost. Depreciation of furniture and equipment is provided primarily by the
straight-line method over the estimated useful lives of the respective classes
of assets. Leasehold improvements are amortized over the life of the lease or
of the improvement, whichever is shorter.

Income Taxes

The Companies have been organized as either partnerships or corporations
which have elected to be taxed as "S Corporations." The "S Corporation"
elections are effective for both federal and state tax purposes. Accordingly,
all items of income, loss, deduction or credit are reported by the partners or
shareholders on their respective personal income tax returns and, therefore, no
current or deferred federal or state taxes have been provided in the
accompanying combined financial statements.

The difference between the tax basis and the reported amounts of the
Companies' assets and liabilities was $16,576 at December 31, 1997.

Risks and Uncertainties

Accounts receivable are due from ticket vendors and venue box offices.
These amounts are typically collected within 20 days of a performance.
Management considers accounts receivable to be fully collectible; accordingly,
no allowance for doubtful accounts is required.

Use of Estimates

F-145

CONCERT/SOUTHERN PROMOTIONS AND AFFILIATED COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

2. INVESTMENTS IN EQUITY INVESTEES

The following is a summary of the financial position and results of
operations of the Companies' equity investees as of and for the period ended
December 31, 1997:

CHASTAIN
PARK AMPHITHEATER HC PROPERTIES
------------------- --------------
(50% OWNED) (52.6% OWNED)

Current assets ......................... $ 322,527 $ 51,820
Property and equipment ................. 468,145 810,480
Other assets ........................... -- 415,145
--------- ----------
Total assets ........................... $ 790,672 $1,277,445
========= ==========
Current liabilities .................... $ 129,953 $ 1,927
Partners' capital ...................... 660,719 1,275,518
--------- ----------
Total liabilities and partners' capital $ 790,672 $1,277,445
========= ==========
Revenue ................................ $ 653,251 $ 87,407
Expenses ............................... 747,055 165,328
--------- ----------
Net income (loss) ...................... $ (93,804) $ (77,921)
========= ==========

3. RELATED PARTY TRANSACTIONS

The Companies have an arrangement with Stephen Selig III whereby the cash
receipts of Concert/Southern, Buckhead Promotions and Roxy Ventures are
transferred to the Selig Enterprises, Inc. Master Cash Account (the "Master
Account"). All subsequent payments made by the Companies are funded by the
Master Account. Accordingly, the Companies' cash held by the Master Account of
$281,058 is recorded as due from owner.

In addition, CCMI has recorded a receivable from its stockholders of
$51,696.

4. STOCKHOLDERS' EQUITY

The Companies' stocks are as follows:

SHARES SHARES PAR
AUTHORIZED ISSUED VALUE
------------ -------- ------

Southern Promotions ......... 1,000,000 5,000 $1
High Cotton ................. 10,000 550 1
Buckhead Promotions ......... 1,000,000 500 1
Northern Exposure ........... 1,000,000 1,000 1
Pure Cotton ................. 100,000 500 1
CCMI ........................ 10,000 1,000 1
Interfest ................... 100,000 500 1
-----
9,050
=====

F-146

CONCERT/SOUTHERN PROMOTIONS AND AFFILIATED COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

5. COMMITMENTS AND CONTINGENCIES

Leases

The following is a schedule of future minimum rental payments under
operating leases (principally office and venue facilities) that have initial or
remaining lease terms in excess of one year as
of December 31, 1997:

Year ended December 31:
1998 ................ $ 222,539
1999 ................ 183,198
2000 ................ 188,991
2001 ................ 133,350
2002 ................ 136,350
Thereafter .......... 174,375
----------
Total ............... $1,038,803
==========

Certain office facilities have renewal and escalation clauses.

Legal Matters

On October 10, 1997, Concert/Southern settled a lawsuit agreeing to pay
$100,000. Such amount has been provided for in the accompanying combined
statement of operations.

The Companies have also been named in various other lawsuits arising in
the normal course of business. It is not possible at this time to assess the
probability of any liability against the Companies as a result of these
lawsuits. Management has stated that all cases will be vigorously defended.

6. SUBSEQUENT EVENTS

On March 4, 1998, SFX Entertainment Inc. acquired the Companies for a
total cash purchase price of $16,900,000 (including a working capital payment
of $300,000).

Prior to the sale of the Companies to SFX, the sole shareholder of High
Cotton received a distribution of High Cotton's interest in HC Properties, Inc.

F-147

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Falk Associates Management Enterprises, Inc.

We have audited the accompanying combined balance sheets of Falk
Associates Management Enterprises, Inc. as of December 31, 1996 and 1997, and
the related combined statements of operations and stockholders' equity
(deficit) and cash flows for the years then ended. These financial statements
are the responsibility of management. Our responsibility is to express an
opinion on these financial statements based on our audits.

In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the combined financial position of
Falk Associates Management Enterprises, Inc. at December 31, 1996 and 1997, and
the combined results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

New York, New York
April 10, 1998

F-148

FALK ASSOCIATES MANAGEMENT ENTERPRISES, INC.

COMBINED BALANCE SHEETS

DECEMBER 31
------------------------------- MARCH 31
1996 1997 1998
------------- --------------- ---------------
(UNAUDITED)

ASSETS
Current assets:
Cash ..................................................... $ 964,265 $ 34,586 $ 691,718
Cash surrender value of officers' life insurance ......... 73,336 115,436 125,436
Accounts receivable ...................................... 641,204 614,051 663,484
Current portion of stockholder loan receivable ........... 92,669 116,524 237,528
Other current assets ..................................... 13,428 33,456 24,904
---------- ------------ ------------
1,784,902 914,053 1,743,070
---------- ------------ ------------
Fixed assets, net of accumulated depreciation and
amortization ............................................. 85,200 63,714 62,377
Certificate of deposit, noncurrent ........................ 200,906 211,331 202,044
Accounts receivable ....................................... 514,051 -- --
Stockholder loan receivable ............................... 506,400 389,873 136,542
Other ..................................................... 58,900 7,119 7,119
---------- ------------ ------------
Total assets .............................................. $3,150,359 $ 1,586,090 $ 2,151,152
========== ============ ============
LIABILITIES AND COMBINED STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses .................... $ 221,952 $ 165,504 $ 898,054
Payroll taxes payable .................................... 907,446 -- --
Stockholder loan payable ................................. 95,000 95,000 95,000
Current portion of settlement agreement .................. 134,552 145,652 149,253
Current portion of deferred revenue ...................... 673,744 1,358,149 1,263,080
Current portion of long-term debt ........................ 309,313 310,162 310,472
---------- ------------ ------------
2,342,007 2,074,467 2,715,859
---------- ------------ ------------
Settlement agreement, less current portion ................ 658,756 513,103 473,103
Deferred revenue, less current portion .................... -- 1,031,250 937,500
Long-term debt, less current portion ...................... 46,548 36,200 33,428
Combined stockholders' equity (deficit) ................... 103,048 (2,068,930) (2,008,738)
---------- ------------ ------------
Total liabilities and combined stockholders' equity
(deficit) ................................................ $3,150,359 $ 1,586,090 $ 2,151,152
========== ============ ============

See accompanying notes.

F-149

FALK ASSOCIATES MANAGEMENT ENTERPRISES, INC.

COMBINED STATEMENTS OF OPERATIONS AND STOCKHOLDERS' EQUITY (DEFICIT)

YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31
-------------------------------- -------------------------------
1996 1997 1997 1998
------------- ---------------- ------------- ---------------
(UNAUDITED)

REVENUES
Agent fees .................................... $6,364,503 $ 10,881,588 $1,219,282 $ 1,812,804
EXPENSES
Stockholders' salary expense .................. 4,732,430 10,594,773 1,173,341 1,289,251
Other salary expense .......................... 969,293 1,177,197 130,372 143,250
Depreciation and amortization ................. 113,486 115,309 29,897 14,053
Travel and entertainment ...................... 503,475 552,951 118,418 140,141
General and administrative expenses ........... 627,174 677,453 137,664 169,452
---------- ------------ ---------- ------------
6,945,858 13,117,683 1,589,692 1,756,147
---------- ------------ ---------- ------------
(Loss) income from operations ................. (581,355) (2,236,095) (370,410) 56,657
OTHER INCOME (EXPENSE)
Interest income -- stockholders' loan ......... 32,305 27,237 6,810 9,288
Interest income -- third party ................ 142,917 115,714 28,148 15,171
Interest expense -- third party ............... (91,996) (78,834) (21,414) (20,924)
Other income .................................. 2,200 -- -- --
---------- ------------ ---------- ------------
85,426 64,117 13,544 3,535
Net (loss) income ............................. (495,929) (2,171,978) (356,866) 60,192
Combined stockholders' equity at
beginning of year ............................ 598,977 103,048 103,048 (2,068,930)
---------- ------------ ---------- ------------
Combined stockholders' equity (deficit)
at end of year ............................... $ 103,048 $ (2,068,930) $ (253,818) $ (2,008,738)
========== ============ ========== ============

See accompanying notes.

F-150

FALK ASSOCIATES MANAGEMENT ENTERPRISES, INC.

COMBINED STATEMENTS OF CASH FLOWS

YEAR ENDED THREE MONTHS
DECEMBER 31 ENDED MARCH 31
---------------------------------- -----------------------------
1996 1997 1997 1998
-------------- ----------------- -------------- ------------
(UNAUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income ............................. $ (495,929) $ (2,171,978) $ (356,866) $ 60,192
Adjustments to reconcile net (loss)
income to net cash provided by
(used in) operating activities:
Depreciation and amortization .............. 113,486 115,309 29,897 14,053
Non-cash interest expense .................. 75,702 65,447 16,399 13,601
Non-cash interest income ................... (32,188) (37,753) (9,402) 4,041
Changes in operating assets and
liabilities:
Decrease (increase) in accounts
receivable ................................ 17,538 541,204 47,786 (49,433)
Decrease (increase) in other
current assets ............................ 559 (20,028) (7,736) 8,552
Increase (decrease) in accounts
payable and accrued expenses .............. 71,526 (56,448) 325,813 732,550
Increase (decrease) in payroll taxes
payable ................................... 461,584 (907,446) (907,446) --
Increase (decrease) in deferred
revenue ................................... 479,319 1,715,655 229,918 (188,819)
---------- ------------- ---------- ----------
Net cash provided by (used in)
operating activities ......................... 691,597 (756,038) (631,637) 594,737
---------- ------------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets ...................... (70,467) (42,042) (20,441) (12,716)
Increase in cash surrender value of
officers' life insurance ..................... (31,336) (42,100) (10,000) (10,000)
---------- ------------- ---------- ----------
Net cash used in investing activities ......... (101,803) (84,142) (30,441) (22,716)
---------- ------------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of long-term debt .................... (300,000) (309,499) (102,432) (2,462)
Proceeds from long-term debt
borrowings ................................... 355,861 300,000 -- --
Proceeds from stockholder loan
receivable ................................... -- 120,000 120,000 137,573
Payment on settlement agreement ............... (200,000) (200,000) (50,000) (50,00)
---------- ------------- ---------- ----------
Net cash (used in) provided by financing
activities ................................... (144,139) (89,499) (32,432) 85,111
---------- ------------- ---------- ----------
Net increase (decrease) in cash ............... 445,655 (929,679) (694,510) 657,132
Cash at beginning of period ................... 518,610 964,265 964,265 34,586
---------- ------------- ---------- ----------
Cash at end of period ......................... $ 964,265 $ 34,586 $ 269,755 $ 691,718
========== ============= ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid for interest ........................ $ 16,294 $ 13,386 $ 5,014 $ 7,324
========== ============= ========== ==========

See accompanying notes.

F-151

FALK ASSOCIATES MANAGEMENT ENTERPRISES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Combination

The accompanying combined financial statements include the accounts of
Falk Associates Management Enterprises, Inc. ("FAME") and Financial Advisory
Management Enterprises, Inc. ("FINAD") (collectively, the "Companies").
Transactions and balances among the Companies have been eliminated in
combination. The Companies are subject to common ownership.

In exchange for a percentage fee or commission, FAME provides
representation services regarding the negotiation of professional sporting
contracts and marketing and endorsement contracts. FINAD provides financial
management services including, but not limited to, the implementation of
financial planning to meet clients' savings and financial goals, the receipt
and deposit of funds, cash flow budgeting and analysis, preparation of
financial statements and tax return services, in exchange for an annual fixed
fee and an additional percentage fee based on the dollar value of assets
managed and monitored.

Revenue Recognition

The Companies revenues arise primarily from percentage fees or commissions
received for the negotiation of professional sporting contracts and marketing
and endorsement contracts. The Companies recognize revenue ratably over the
period of the associated contract. Deferred revenue is recorded on the
accompanying combined balance sheets when funds are received in advance of the
performance period and is recognized over the period of performance.

Accounts Receivable

Accounts receivable consist of amounts due from professional athletes for
services rendered or for fees due related to prior performance that has been
contractually deferred to a later date. Management considers these accounts
receivable as of December 31, 1996 and 1997 to be collectible; accordingly, no
allowance for doubtful accounts is recorded.

Fixed Assets

Fixed assets are stated at cost. Depreciation and amortization of fixed
assets is provided on the straight-line method over the estimated useful lives
of the assets including 5 years for technical equipment, 7 years for furniture
and office equipment and 10 years for leasehold improvements.

Income Taxes

The Companies are cash-basis taxpayers and have elected to be taxed as S
Corporations for federal and state income tax purposes. All items of income,
loss and credits are reported by the Companies stockholders on their respective
personal income tax returns. Accordingly, no current and deferred federal
corporate income taxes have been provided in the accompanying combined
financial statements. However, since the Companies operate in the District of
Columbia ("D.C.") they are subject to D.C. income tax. No D.C. income tax
benefits have been provided on the Companies' D.C. net operating loss
carryforwards and other deductible temporary differences due to the uncertainty
of recognizing future tax benefits for these items.

Risks and Uncertainties

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

F-152

FALK ASSOCIATES MANAGEMENT ENTERPRISES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

The Companies derive substantially all of its agent fees from the
representation services they provide regarding the negotiation of professional
sporting contracts and marketing and endorsement contracts for professional
athletes in the National Basketball Association ("NBA"). In March 1998, the NBA
Board of Governors voted to exercise the league's right to re-open its
Collective Bargaining Agreement (the "Agreement") with the National Basketball
Players Association. As a result, the Agreement will expire as of June 30,
1998. As a matter of Collective Bargaining, the Agreement, when it expires,
continues in place until it is replaced by a successor agreement, or until some
other labor remedies are utilized by one party or the other, meaning a strike
or a lockout or a moratorium collectively. Should there be a work stoppage due
to either a lockout or strike and NBA games are not played, it would be likely
that the Companies agent fees would be negatively impacted.

Significant Customer

The Companies three most significant sources of revenue provided a
majority of the Companies combined agent fees for the year ended December 31,
1996 and 1997, respectively.

Interim Financial Information

The interim financial data as of March 31, 1998 and for three-month
periods ended March 31, 1997 and 1998 is unaudited and certain information and
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted. However, in
the opinion of Management, the interim data includes all adjustments,
consisting only of normal recurring adjustments necessary for a fair statement
of the results for the interim periods. The results of operations for the
interim periods are not necessarily indicative of the results to be expected
for the entire year.

2. FIXED ASSETS

Fixed assets consisted of the following:

DECEMBER 31
-----------------------------
1996 1997
------------- -------------

Furniture and office equipment ......................... $ 150,739 $ 159,467
Technical equipment .................................... 169,112 200,300
Leasehold improvements ................................. 4,841 6,967
---------- ----------
324,692 366,734
Less accumulated depreciation and amortization ......... (239,492) (303,020)
---------- ----------
$ 85,200 $ 63,714
========== ==========

3. LONG-TERM DEBT

Long-term debt consisted of the following:

DECEMBER 31
-----------------------------
1996 1997
------------- -------------

Time note (A) ................... $ 200,000 $ 200,000
Line of credit (B) .............. 100,000 100,000
Note payable (C) ................ 55,861 46,362
---------- ----------
Long term debt .................. 355,861 346,362
Less current maturities ......... (309,313) (310,162)
---------- ----------
Total long-term debt ............ $ 46,548 $ 36,200
========== ==========

- ----------
(A) On December 31, 1996 and 1997, respectively, the Companies had
outstanding a six-month $200,000 time note (the "Time Note") with a
bank (the "Bank"). Interest was set at the prime rate which
approximated 8.25% at both December 31, 1996 and 1997, respectively.
Interest is payable monthly in arrears. The Companies may repay the
principal at any time during the

F-153

FALK ASSOCIATES MANAGEMENT ENTERPRISES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

six-month period ended June 30, 1998, with all remaining principal
and outstanding interest in full on June 30, 1998. The time note
contains covenants which, among other things, restrict the pledging
of assets without prior written approval of the Bank.
(B) On December 31, 1996 and 1997, respectively, the Companies had
outstanding a $100,000 one-year line of credit with the Bank which
was fully drawn as of those dates. Interest was set at the prime
rate which approximated 8.25% at both December 31, 1996 and 1997,
respectively. Interest is payable monthly in arrears. Principal and
any outstanding interest is payable in full at December 31, 1998.
The line of credit contains covenants which are similar to those in
the Time Note.

(C) In December 1996, the Companies entered into a five year $55,861
note payable with the Bank. Interest was fixed at 8.75%. Commencing
January 1997, the note became payable in 59 monthly installments
consisting of principal and interest with the final payment equal to
any remaining principal and interest due. The note is secured by
specific computer hardware and software which was purchased with the
proceeds of the note payable.

At December 31, 1997, the aggregate amounts of long-term debt due during
the next four years are as follows:

YEAR ENDING DECEMBER 31 AMOUNT
- ------------------------- -----------

1998 ............... $310,162
1999 ............... 11,088
2000 ............... 12,098
2001 ............... 13,014
--------
$346,362
========

4. COMMITMENTS AND CONTINGENCIES

The Companies are obligated under certain noncancellable operating leases.
Rent expense, principally for office space, amounted to approximately $149,400
and $167,300 for the years ended December 31, 1996 and 1997, respectively. In
March 1998, the Companies entered into a sublease for additional office space.

Future minimum rental payments under noncancellable operating leases are
as follows:

YEAR ENDING DECEMBER 31 OPERATING LEASES
- ------------------------- -----------------

1998 ............... $ 214,000
1999 ............... 244,000
2000 ............... 247,000
2001 ............... 250,000
2002 ............... 184,000
----------
$1,139,000
==========

Settlement Agreement

In 1994, the Companies were party to a $1.9 million legal settlement
arising from a civil suit wherein they were jointly and severally liable to
make settlement payments over a seven year period. The carrying value of the
settlement agreement was approximately $793,300 and $658,800 at December 31,
1997 and 1996, respectively, discounted at a 8.25% interest rate.

Agreement and Memorandum of Understanding

In January 1992, an Agreement and Memorandum of Understanding (the
"Agreement") was executed between the Companies' principal stockholder and a
third party which formerly employed the principal stockholder. Under the terms
of the Agreement, the Companies are obligated to remit to the third party a
percentage of the Companies fees as received for the representation services
provided regarding the negotiation of professional sporting contracts and
marketing and endorsement

F-154

FALK ASSOCIATES MANAGEMENT ENTERPRISES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

contracts. Agreement terms are limited to those professional athletes who
became clients of the Companies at the time of the Companies formation and
generally does not give the third party any right to fees related to contract
renewals.

Stock Appreciation Rights

In December 1996, the Companies issued stock appreciation rights ("SARs")
to a stockholder and executive vice president of the Companies. The SARs are
exercisable only upon the occurrence of defined terms and conditions, including
the sale or merger of the Companies to a third party or upon termination of
employment. Accordingly, upon the exercise of the SAR's, the Companies will
record expense in the combined statement of operations equal to the fair value
of the SARs.

5. RELATED PARTY TRANSACTIONS

Stockholder Loan Receivable

In January 1993, the Companies entered into two eight-year promissory loan
notes with a stockholder of the Companies for face amounts of $384,000 and
$96,000. The loans accrue interest at a fixed rate of 5.7% with monthly
payments of principal and accrued interest commencing January 1, 1997.

Stockholder Loan Payable

In January 1993, the principle stockholder of the Companies made a $95,000
non-interest bearing advance to the Companies in connection with its formation.
This advance is due on demand and has been classified as a current liability in
the accompanying combined balance sheets.

Stockholders' Life Insurance

The Companies are the owners and beneficiaries of key-man life insurance
policies carried on the lives of its stockholders' with cash surrender values
totaling approximately $73,300 and $115,400 as of December 31, 1996 and 1997,
respectively. No loans are outstanding against the policies, but there is no
restriction in the policy regarding loans.

The life insurance contracts are accompanied by mandatory stock purchase
agreements relating to the amount of the proceeds of the life insurance. Upon
death, the insured's estate will be obligated to sell, and the Companies will
be obligated to purchase the insured's stock up to the value of the stock or
the proceeds of insurance, whichever is lesser. The purpose is to protect the
Companies against an abrupt change in ownership.

6. EMPLOYEE BENEFIT PLAN

During 1997, the Companies began sponsoring a deferred contribution plan
(the "Plan"). The Plan enables all full time employees who have completed one
year of service with the Companies to make voluntary contributions to the Plan
not to exceed the dollar limits as prescribed by the Internal Revenue Service.
Under the Plan, the Companies matches an employee's contribution up to a
maximum of 3% of their salary. The Companies contribution for the year ended
December 31, 1997 was approximately $40,800.

7. STOCKHOLDERS AGREEMENT

The stockholders of the Companies currently maintain a Stockholders
Agreement (the "Agreement") which place restrictions on the transfer (as
defined in the Agreement) of their stock.

8. SUBSEQUENT EVENT

On June 4, 1998 the stockholders of the Companies completed the sale of
the Companies to a subsidiary of SFX Entertainment, Inc. ("SFX") whereby SFX
acquired all of the outstanding capital

F-155

FALK ASSOCIATES MANAGEMENT ENTERPRISES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

stock of the Companies for a total purchase price of approximately $82.2
million (including approximately $7.9 million which the Companies received for
the reimbursement of certain taxes incurred and excluding $4.7 million of taxes
paid on behalf of the Companies which will be refunded to SFX in 1999) and the
issuance of 1.0 million shares of SFX's Class A Common Stock. The sale
agreement also provides for payments by SFX to the Companies for additional
amounts up to an aggregate of $15.0 million in equal annual installments over
five years contingent on the achievement of certain EBITDA (as defined) targets
and for additional payments by SFX if the companies EBITDA performance exceeds
the targets by certain amounts.

F-156

REPORT OF INDEPENDENT AUDITORS

To the Members
Blackstone Entertainment LLC

We have audited the accompanying combined balance sheets of Blackstone
Entertainment LLC as of December 31, 1996 and 1997, and the related combined
statements of income, members' equity and cash flows for the years then ended.
These financial statements are the responsibility of management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the combined financial position of
Blackstone Entertainment LLC at December 31, 1996 and 1997, and the combined
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.

May 1, 1998 ERNST & YOUNG LLP
New York, New York

F-157

BLACKSTONE ENTERTAINMENT LLC

COMBINED BALANCE SHEETS

DECEMBER 31 JUNE 30
----------------------------- --------------
1996 1997 1998
------------- ------------- --------------
(UNAUDITED)

ASSETS
Current assets:
Cash and cash equivalents, including $50,000 and $55,000
of restricted cash at December 31, 1996 and 1997,
respectively ......................................... $ 2,025,731 $ 3,529,135 $16,664,490
Accounts receivable .................................... 551,776 275,820 1,154,574
Due from related parties ............................... 60,751 310,874 --
Due from members ....................................... 234,822 165,117 --
Other current assets ................................... 151,872 219,789 1,440,463
----------- ----------- -----------
Total current assets .................................... 3,024,952 4,500,735 19,259,527
Fixed assets, net ....................................... 14,680,344 13,394,676 12,856,629
Intangible assets, net .................................. 212,682 177,823 149,302
----------- ----------- -----------
Total assets ............................................ $17,917,978 $18,073,234 $32,265,458
=========== =========== ===========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses .................. $ 819,690 $ 1,675,061 $ 1,859,872
Notes payable, current portion ......................... 1,427,172 1,388,806 8,940,357
Capital leases payable, current portion ................ 344,038 487,334 496,655
Deferred income ........................................ 545,537 547,270 14,601,337
Due to related parties ................................. 241,677 -- --
Loans payable to members ............................... 1,500,000 2,461,239 --
----------- ----------- -----------
Total current liabilities .............................. 4,878,114 6,559,710 25,898,221
Notes payable, net of current portion ................... 8,564,888 6,816,668 --
Capital leases payable, net of current portion .......... 1,080,959 693,061 405,813
Other ................................................... 50,825 -- --
----------- ----------- -----------
Total liabilities ....................................... 14,574,786 14,069,439 26,304,034
Members' equity ......................................... 3,343,192 4,003,795 5,961,424
----------- ----------- -----------
Total liabilities and members' equity ................... $17,917,978 $18,073,234 $32,265,458
=========== =========== ===========

See accompanying notes.

F-158

BLACKSTONE ENTERTAINMENT LLC

COMBINED STATEMENTS OF INCOME

YEAR ENDED DECEMBER 31 SIX MONTHS ENDED JUNE 30,
------------------------------- -------------------------------
1996 1997 1997 1998
-------------- -------------- -------------- --------------
(UNAUDITED)

Gross revenues ............................. $ 48,824,066 $ 50,587,721 $21,451,061 $21,443,331
Operating costs and expenses:
Operating costs ........................... 35,631,428 35,806,833 13,640,379 15,192,627
Promotion expenses ........................ 2,596,861 2,837,208 1,863,062 947,315
General and administrative
expenses ................................ 4,634,399 5,756,993 2,179,883 2,437,189
Depreciation and amortization ............. 2,026,637 2,033,245 571,555 689,842
------------ ------------ ----------- -----------
Total operating costs and expenses ......... 44,889,325 46,434,279 18,254,879 19,266,973
Operating income (loss) .................... 3,934,741 4,153,442 3,196,182 2,176,358
Investment income .......................... 189,970 329,696 119,125 165,504
Interest expense ........................... (1,132,556) (1,071,731) (487,080) (384,233)
------------ ------------ ----------- -----------
Net income (loss) .......................... $ 2,992,155 $ 3,411,407 $ 2,848,227 $ 1,957,629
============ ============ =========== ===========

See accompanying notes.

F-159

BLACKSTONE ENTERTAINMENT LLC

COMBINED STATEMENTS OF CASH FLOWS

YEAR ENDED DECEMBER 31 SIX MONTHS ENDED JUNE 30,
--------------------------------- --------------------------------
1996 1997 1997 1998
--------------- --------------- -------------- ---------------
(UNAUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ................................. $ 2,992,155 $ 3,411,407 $ 2,848,000 $ 1,957,629
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .................. 2,226,637 2,033,245 572,000 689,842
Other .......................................... 543 --
(Increase) decrease in assets:
Accounts receivable .............................. (180,773) 275,956 (975,000) (402,763)
Other current assets ............................. 284,240 (67,917) (133,000) (1,220,674)
Increase (decrease) in liabilities:
Deferred income ............................... (149,523) 1,733 11,901,000 14,054,067
Accounts payable and accrued
expenses .................................... (34,164) 855,371 676,000 184,811
Due to/from related parties and
members ..................................... (68,475) (422,095) (68,000) --
Other ......................................... (11,461) (50,825) (462,000) --
------------ ------------ ------------ ------------
Net cash provided by operating activities ......... 5,059,179 6,036,875 14,359,000 15,262,912
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of fixed assets ....................... (1,678,666) (386,983) (15,000) (123,274)
------------ ------------ ------------ ------------
Net cash used in investing activities ............. (1,678,666) (386,983) (15,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable and consulting
agreement ........................................ (1,227,498) (1,986,586) (695,000) (765,117)
Payments on to capital leases ..................... (17,182) (370,337) (3,000) (277,927)
Changes in loans payable to members ............... (119,189) -- (11,000) (967,239)
Distributions to members .......................... (1,720,546) (1,789,565) (300,000) --
------------ ------------ ------------ ------------
Net cash used in financing activities ............. (3,084,415) (4,146,488) (1,009,000) (2,004,283)
------------ ------------ ------------ ------------
Net increase in cash and cash equivalents ......... 296,098 1,503,404 13,335,000 13,135,355
Cash and cash equivalents, beginning of
period ........................................... 1,729,633 2,025,731 1,925,000 3,529,135
------------ ------------ ------------ ------------
Cash and cash equivalents, end of period .......... $ 2,025,731 $ 3,529,135 $ 15,260,000 $ 16,664,490
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Capital lease additions ........................... $ 125,735 $ 538,526 $ -- $ --
Cash paid during the year for interest ............ $ 1,301,210 $ 1,017,371 $ 431,778 $ 384,233

See accompanying notes.

F-160

BLACKSTONE ENTERTAINMENT LLC

COMBINED STATEMENT OF MEMBERS' EQUITY

MEMBERS'
EQUITY
---------------

Balance, January 1, 1996 ................... $ 2,071,583
Net income ................................. 2,992,155
Distributions to members ................... (1,770,546)
Capital contributions ...................... 50,000
------------
Balance, December 31, 1996 ................. 3,343,192
Net income .................................
Distributions to members ................... (2,750,804)
------------
Balance, December 31, 1997 ................. 4,003,795
Net loss ................................... 1,957,629
------------
Balance, June 30, 1998 (unaudited) ......... $ 5,961,424
============

See accompanying notes.

F-161

BLACKSTONE ENTERTAINMENT LLC

NOTES TO COMBINED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

Blackstone Entertainment LLC ("the Company") was organized on October 1,
1997 as a Massachusetts Limited Liability Company. On that date, the net assets
of the following companies (collectively, "Don Law and Affiliates"), which had
been commonly controlled and functionally related, and a related parcel of land
located in Mansfield, Massachusetts were contributed in formation of the
Company:

o Great Woods, Inc.

o Time Trust Associates Joint Venture

o Harborlights Pavilion, Inc.

o NEXT, Inc.

o Don Law Company, Inc.

o Orpheum Management Corporation

o Black and Copper, Ltd.

o Andrew Trust LLC

These financial statements reflect the businesses subject to the
transaction described in Note 10 and accordingly, represent the combined
results of Blackstone Entertainment LLC and Don Law and Affiliates as a
predecessor. The net assets transferred to the Company have been recorded at
their historical book values.

Nature of Business

Great Woods, Inc., a Massachusetts corporation, managed and operated the
Great Woods Center for the Performing Arts in Mansfield, Massachusetts. Time
Trust Associates Joint Venture, a Massachusetts general partnership, held title
to the real estate on which the facility is situated.

Harborlights Pavilion, Inc., a Massachusetts corporation, managed and
operated the Harborlights Pavilion in Boston, Massachusetts.

NEXT, Inc., a Massachusetts corporation, operated a computerized ticketing
system for entertainment facilities and theaters throughout the New England
area.

Don Law Company, Inc., a Massachusetts corporation, promoted concerts and
other entertainment events throughout the New England area.

Orpheum Management Corporation, a Massachusetts corporation, managed the
Orpheum Theatre in Boston, Massachusetts.

Black and Copper, Ltd., a Massachusetts corporation, provided graphic
design, advertising, marketing and promotional services principally to its
related entities.

Andrew Trust LLC owned additional parcels of land surrounding the Great
Woods Center for the Performing Arts in Mansfield, Massachusetts.

Limited Liability Company

The Company's operating agreement provides that liability of its members
is limited to their capital invested in the Company. The Company's operating
agreement does not limit its term
of existence, and provides for dissolution upon the occurrence of certain
events, one of which is the acquisition by one member of all of the outstanding
ownership interest.

F-162

BLACKSTONE ENTERTAINMENT LLC

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

Member Classes and Priorities

The Company's operating agreement provides for one of its members to
receive a priority distribution of current year earnings and liquidation
proceeds to $2,250,000. The remaining members receive a matching distribution
subsequent to the priority distribution of $2,250,000. All additional proceeds
are then divided evenly among the members. The operating agreement provides for
both priorities to disappear upon the Company's attainment of certain
distribution levels.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash, time deposits, commercial paper
and money market mutual funds. The Company invests its excess cash in highly
rated companies and financial institutions. These deposits have original
maturities that do not exceed three months. During the course of the year, the
Company maintained balances in financial institutions in excess of FDIC insured
limits. Included in cash and cash equivalents at December 31, 1996 and 1997 is
approximately $50,000 and $55,000, respectively, of restricted cash to be used
for future Orpheum Theatre renovations and improvements.

Fixed Assets

Fixed assets are stated at cost. Depreciation is computed over estimated
useful lives ranging from three to thirty-nine years utilizing straight-line
and accelerated methods. Depreciation expense charged to operations was
$1,992,321 and $1,798,386 during the years ended December 31, 1996 and 1997,
respectively.

Intangible Assets, Net

Intangible assets consisting of goodwill which is being amortized over
fifteen years using the straight-line method and organization costs incurred
when Harborlights Pavilion, Inc. and NEXT, Inc. were established are being
amortized over five years using the straight-line method. These assets are
shown on the combined balance sheets net of accumulated amortization of
$125,665 and $360,524 as of December 31, 1996 and 1997. Total amortization
expense charged to operations was $34,316 and $234,859 during the years ended
December 31, 1996 and 1997.

Revenue Recognition

All divisions, except for NEXT, recognize event-related revenue upon
completion of each performance. Advance ticket receipts for performances are
recorded as deferred revenue. Costs incurred which relate to future
performances are recorded as prepaid expenses. The NEXT division recognizes
revenues as tickets are sold and services are performed.

Income Taxes

The Company is treated as a partnership for federal and state income tax
purposes. The Company's earnings and losses are included in the members' income
tax returns in relation to their respective ownership interests; accordingly,
no provision is required for federal and state income taxes.

Advertising Expense

The Company expenses advertising costs as incurred. Advertising expense
amounted to approximately $1,849,000 and $2,061,000 during the years ended
December 31, 1996 and 1997, respectively.

F-163

BLACKSTONE ENTERTAINMENT LLC

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.

Year 2000 (unaudited)

The Company has addressed the risks associated with year 2000 compliance
with respect to its ticketing system based on consultation with its vendors.
Future costs associated with such compliance are not expected to be
significant.

Interim Financial Information

The interim financial data as of June 30, 1998 and for the six-month
periods ending June 30, 1997 and 1998 is unaudited and certain information and
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted. However, in
the opinion of Management, the interim data includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair statement
of the results for the interim period. The results of operations for the
interim periods are not necessarily indicative of the results to be expected
for the entire year.

2. FIXED ASSETS, NET

Fixed assets, net consists of the following:

DECEMBER 31
----------------------------------
1996 1997
--------------- ----------------

Performing art facilities .............. $ 21,454,305 $ 21,496,711
Land and site improvements ............. 2,133,905 2,327,127
Equipment under capital leases ......... 1,426,874 1,567,690
Machinery and equipment ................ 1,484,682 1,628,996
Furniture and fixtures ................. 494,480 522,372
Leasehold improvements ................. 243,982 244,982
Motor vehicles ......................... 156,135 189,663
------------- -------------
27,394,363 27,977,541
Less accumulated depreciation .......... (12,714,019) (14,582,865)
------------- -------------
$ 14,680,344 $ 13,394,676
============= =============

F-164

BLACKSTONE ENTERTAINMENT LLC

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

3. NOTES PAYABLE

Notes payable consist of the following:

DECEMBER 31
-----------------------------
1996 1997
------------- -------------

1. The Company is obligated under a note payable to the FDIC
dated May 11, 1988 in the original amount of $10,600,000. On
May 9, 1995, the note was modified and extended to mature
February 15, 2005. At such time, a balloon payment of
approximately $3,500,000 will be required. The note is
payable in monthly principal installments of $44,167 plus
interest at 8.98% per annum. The note is collateralized by
substantially all assets of the Great Woods Inc. and Time
Trust Join Venture, including a mortgage on the real estate
and facility, and a security interest in all operating permits
and licenses, programming and concession contracts, and
insurance policies on the lives of two members. ........................ $7,752,942 $7,222,942
2. The Company is obligated to a concessionaire under an
unsecured five-year installment note in the original amount of
$1,600,000 which matures on June 30, 1998. The note is
payable in annual principal installments of $320,000 with
interest payable quarterly at 1.5% over the prime rate. ................ 640,000 320,000
3. The Company is obligated under a five-year installment note
dated May 18, 1994 payable to a bank in the original amount
of $1,600,000. The note is payable in monthly installments of
$33,136 including interest at 8.9% per annum and is
collateralized by all assets of the Harborlights Pavilion Inc. ......... 829,118 492,532
4. The Company is obligated to a concessionaire under an
unsecured installment note dated August 19, 1994 in the
original amount of $350,000 bearing interest at 1% over the
prime rate. The remaining outstanding principal balance and
any accrued interest is due November 1, 1998. The note is
personally guaranteed by the members of the Company. ................... 210,000 140,000
5. The Company is obligated to a concessionaire under an
unsecured and noninterest bearing note dated July 11, 1994 in
the original amount of $150,000. The note is due in annual
installments of $30,000 with the final installment due
October 15, 1998. ...................................................... 60,000 30,000
6. The Company is obligated under a note payable from
Andrew Trust LLC to a bank dated December 12, 1996 in
the original amount of $500,000. Interest is payable monthly
at 0.75% over the prime rate and the principal reaches
maturity on December 12, 1999. ......................................... 500,000 --
---------- ----------
9,992,060 8,205,474
Current maturities ..................................................... 1,427,172 1,388,806
---------- ----------
Long-term debt ......................................................... $8,564,888 $6,816,668
========== ==========

F-165

BLACKSTONE ENTERTAINMENT LLC

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

Maturities of long-term debt are as follows:
December 31:

1999 ................ $ 653,726
2000 ................ 530,000
2001 ................ 530,000
2002 ................ 530,000
2003 ................ 530,000
Thereafter .......... 4,042,942
----------
$6,816,668
==========

The Company has an unsecured demand line of credit with a bank of
$2,000,000 which expires April 30, 1998. Interest is payable monthly at 1% over
the prime rate. The Company had no amounts outstanding under this line of
credit as of December 31, 1996 and 1997.

The bank note payable collaterialized by the assets of Harborlights
Pavilion, Inc. and the demand line of credit are subject to several financial
covenants which the company is currently in the process of renegotiating. For
the years ended December 31, 1996 and 1997, Harborlights Pavilion, Inc. failed
at least one of these financial covenants. Management anticipates that based
upon discussions with the bank, the loan will not be called.

4. CAPITAL LEASE OBLIGATIONS

The Company is obligated under capital lease agreements for certain
business equipment. The leases have been capitalized at the fair value of the
leased equipment with a corresponding liability recorded. Each payment is
allocated between a reduction of the liability and interest expense to yield a
constant periodic rate of interest on the remaining balance of the obligation.

At December 31, 1997, future minimum payments due on the lease agreements
are as follows:
Year ended December 31:

1998 ................................................ $ 564,474
1999 ................................................ 564,625
2000 ................................................ 155,095
2001 ................................................ 15,961
---------
1,300,155
Amount representing interest ........................ 119,760
---------
Present value of net minimum lease payments ......... 1,180,395
Current portion ..................................... 487,334
---------
Long-term portion ................................... $ 693,061
=========

5. LOANS PAYABLE TO MEMBERS

The Company is obligated to members in the amount of $961,239 which
represents the balance of advances made by them in conjunction with the
transfer of assets on October 1, 1997. The loans are unsecured and noninterest
bearing, and are expected to be repaid during 1998.

The Company is obligated to two members for loans totaling $1,500,000 at
both December 31, 1996 and 1997. The loans are unsecured, bear interest at 6.5%
per annum, and have no formal repayment terms.

F-166

BLACKSTONE ENTERTAINMENT LLC

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

6. COMMITMENTS AND RELATED PARTY TRANSACTIONS

Lease Commitments and Rent Expense

Total rent expense amounted to approximately $487,000 and $577,000 for the
years ended December 31, 1996 and 1997, respectively, of which $92,700 was paid
to an affiliate during 1996 and 1997. At December 31, 1997, the Company is
committed under the following noncancellable operating leases:

1) The Company is obligated under a five-year license agreement dated
March 31, 1994 for the lease of a parcel of real estate located on Fan Pier in
Boston, Massachusetts. The agreement provides for a minimum annual rent of
$250,000 through 1998. Additional rent is required based on the number of
tickets sold annually in excess of a 100,000 ticket base. The landlord has the
right to terminate the license agreement upon giving written notice by November
of each year, for termination in the following calendar year.

2) Under an agreement with the owner of the Orpheum Theatre, the Company
has exclusive booking and scheduling rights for the Theatre and sole
responsibility for granting concessions for the sale of food and refreshments
at the Theatre. Under the terms of the agreement, the Company is required to
pay a hall rental charge of $4,750 per performance for the period January 1998
through December 2000, plus additional amounts for artist rehearsals. The
Company is reimbursed for the hall rental charges by the shows' promoters and
earns commissions from the Theatre's owner based on the annual volume of rental
fees paid.

3) The company is obligated under three leases with an affiliate. During
1996 and 1997, the combined rent for these three leases was $92,700 each year.

4) The company is obligated under a one year lease for the NEXT, Inc.
premises for rent payments of $53,750 through December 31, 1998.

Other Commitments

The Company is obligated under a ten-year consulting agreement with the
former owner of a concert promotion business which was acquired in 1992. The
consulting agreement requires scheduled annual payments totaling of $828,000
over the next four years.

The Company is obligated under a consulting agreement with a member
requiring annual payments of $100,000 renewable annually.

7. PROFIT SHARING PLANS

The Company maintains 401(k) profit sharing plans covering eligible
employees who meet certain age and length of service requirements. Employees
may elect voluntary salary reductions; company contributions are made at the
discretion of the managing member. The Company did not make any matching
contributions during the years ended December 31, 1996 and 1997.

8. LITIGATION

Great Woods, Inc. is a defendant in several lawsuits that management
believes are without merit. In the event of an adverse judgment, management
believes its insurance coverage is sufficient to cover any potential losses.

9. EMPLOYMENT AGREEMENTS

Two employees have employment agreements pursuant to which they may
received contingent consideration upon the occurrence of specified events. One
of the employees is entitled to 0.6% of the

F-167

BLACKSTONE ENTERTAINMENT LLC

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

net proceeds from the sale, refinancing or other disposition of the Company or
its ownership interests. The other is entitled to 5% of the defined after tax
proceeds from the sale of Great Woods , Inc. less certain defined contingent
consideration paid prior to the date of sale. The Company is obligated under an
informal employment arrangement with the General Manager of the NEXT, Inc.
which provides for a base salary of $150,000 in addition to a bonus based on
performance. The arrangement is renewable annually.

In connection with employment agreements, certain employees were paid
$610,000 in 1997 in connection with the sale of membership interests by the
principal owner to the Company. Such amount was recorded as a charge to
earnings in 1997.

10. SUBSEQUENT EVENT

On July 2, 1998, SFX Entertainment, Inc. acquired the Company for
aggregate consideration of approximately $92.2 million, including the repayment
of approximately $7.0 million in debt.

F-168

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Stockholders of Magicworks Entertainment Incorporated:

We have audited the accompanying balance sheets of Magicworks Entertainment
Incorporated (a Delaware corporation) and subsidiaries as of December 31, 1997
and 1996, and the related statements of income, stockholders' equity and cash
flows for each of the two years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Magicworks Entertainment
Incorporated and subsidiaries as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the two years in the
period ended December 31, 1997 in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Miami, Florida,
February 23, 1998.

F-169

MAGICWORKS ENTERTAINMENT INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31,
JUNE 30, ---------------------------
1998 1997 1996
-------------- ------------- -------------
(UNAUDITED)

ASSETS
CURRENT ASSETS
Cash and cash equivalents .......................... $ 6,383,715 $ 5,410,837 $ 5,936,611
Accounts and notes receivable, net ................. 2,614,418 1,802,623 1,288,558
Inventories ........................................ 715,443 486,954 268,959
Advances and temporary deposits .................... 233,158 582,809 121,196
Due from affiliates ................................ -- -- 39,170
Prepaid show expenses .............................. 8,532,595 929,566 117,363
Other current assets ............................... 462,275 409,503 397,170
----------- ----------- -----------
TOTAL CURRENT ASSETS ............................. 18,941,604 9,622,292 8,169,027
PROPERTY AND EQUIPMENT, NET ......................... 2,104,950 2,098,785 2,048,255
INVESTMENTS IN PARTNERSHIPS ......................... 3,855,219 4,273,973 1,907,678
DEFERRED COSTS, NET ................................. 1,703,050 983,679 1,105,114
INTANGIBLE ASSETS, NET .............................. 374,167 399,167 325,745
OTHER ASSETS ........................................ 117,500 67,500 --
----------- ----------- -----------
TOTAL ASSETS ....................................... $27,096,490 $17,445,396 $13,555,819
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Borrowings under credit agreement .................. $ 3,100,000 $ -- $ --
Current portion of long-term debt .................. 306,635 299,557 302,956
Accounts payable ................................... 1,077,712 1,252,517 983,691
Accrued liabilities ................................ 530,108 532,648 228,808
Advance ticket sales ............................... -- 3,479,469 844,373
Deferred income taxes .............................. 9,770,271 -- 137,131
Due to affiliates .................................. 30,198 357,451 --
----------- ----------- -----------
TOTAL CURRENT LIABILITIES ........................ 14,814,924 5,921,642 2,496,959
DEFERRED INCOME TAXES ............................... -- -- 274,263
LONG-TERM DEBT, NET OF CURRENT PORTION .............. 5,810,422 6,047,163 6,177,492
----------- ----------- -----------
TOTAL LIABILITIES .................................. 20,625,346 11,968,805 8,948,714
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 9)
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value; 5,000,000 shares
authorized; none issued .......................... -- -- --
Common stock, $.001 par value; 50,000,000 shares
authorized; 24,404,300 and 24,394,300 issued and
outstanding in 1997 and 1996, respectively ....... 24,427 24,404 24,394
Additional paid-in capital ......................... 4,160,326 4,078,618 4,151,026
Retained earnings .................................. 2,286,391 1,373,569 431,685
----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY ....................... 6,471,144 5,476,591 4,607,105
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY .......................................... $27,096,490 $17,445,396 $13,555,819
=========== =========== ===========

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

F-170

MAGICWORKS ENTERTAINMENT INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31,
--------------------------- -----------------------------
1998 1997 1997 1996
------------- ------------- ------------- ---------------
(UNAUDITED)

REVENUES
Production ............................ $2,630,405 $3,134,762 $5,334,130 $ 4,649,009
Promotion ............................. 25,376,916 5,413,958 26,762,607 35,510,618
Merchandising ......................... 7,718,846 2,477,829 4,881,577 2,603,691
Other ................................. 1,145,778 951,159 1,984,589 3,629,858
----------- ----------- ----------- ------------
TOTAL REVENUES ...................... 36,871,945 11,977,708 38,962,903 46,393,176
----------- ----------- ----------- ------------
OPERATING EXPENSES
Production ............................ 2,187,153 47,658 1,533,922 4,046,160
Promotion ............................. 22,226,188 4,793,391 23,667,541 30,290,201
Salaries, wages, and benefits ......... 2,456,860 1,551,572 3,617,180 3,416,590
Merchandising ......................... 6,326,419 1,733,984 3,596,529 1,933,983
General and administrative ............ 2,030,748 2,803,211 4,673,482 3,373,100
----------- ----------- ----------- ------------
TOTAL OPERATING EXPENSES ............ 35,227,368 10,929,816 37,088,654 43,060,034
----------- ----------- ----------- ------------
INCOME FROM OPERATIONS ................. 1,644,577 1,047,892 1,874,249 3,333,142
OTHER INCOME (EXPENSE)
Interest income ....................... 74,473 89,768 135,372 280,708
Interest expense ...................... (610,537) (403,845) (686,275) (491,630)
----------- ----------- ----------- ------------
INCOME BEFORE PROVISION FOR
INCOME TAXES, PRO FORMA INCOME
TAXES AND INCOME FROM
INVESTMENTS IN UNCONSOLIDATED
PARTNERSHIPS ....................... 1,108,513 733,815 1,323,346 3,122,220
PROVISION FOR INCOME TAXES ............. (458,566) (600,616) (747,324) (597,216)
----------- ----------- ----------- ------------
INCOME BEFORE PRO FORMA INCOME
TAXES FOR PERIODS PRIOR TO JULY
29, 1996 AND INCOME FROM
INVESTMENTS IN UNCONSOLIDATED
PARTNERSHIPS ....................... 649,947 133,199 576,022 2,525,004
----------- ----------- ----------- ------------
PRO FORMA INCOME TAXES ................. -- -- -- (1,161,758)
----------- ----------- ----------- ------------
INCOME AND PRO FORMA INCOME
BEFORE INCOME FROM INVESTMENTS
IN UNCONSOLIDATED PARTNERSHIPS ..... 649,947 133,199 576,022 1,363,246
INCOME FROM INVESTMENTS IN
UNCONSOLIDATED PARTNERSHIPS ........... 262,875 806,225 540,977 40,759
----------- ----------- ----------- ------------
NET INCOME AND PRO FORMA NET INCOME $ 912,822 $ 939,424 $1,116,999 $ 1,404,005
=========== =========== =========== ============
NET INCOME AND PRO FORMA NET INCOME
PER SHARE, BASIC AND DILUTED .......... $ 0.04 $ 0.04 $ 0.05 $ 0.06
=========== =========== =========== ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
BASIC ................................. 24,417,467 24,394,299 24,398,546 22,907,463
=========== =========== =========== ============
DILUTED ............................... 24,739,388 24,475,876 24,434,440 22,989,112
=========== =========== =========== ============

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

F-171

MAGICWORKS ENTERTAINMENT INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

COMMON ADDITIONAL RETAINED
STOCK PAID-IN EARNINGS TOTAL
---------- -------------- --------------- ---------------

BALANCE AT DECEMBER 31, 1995 ............... $21,831 $ 129,507 $ 2,077,894 $ 2,229,232
Issuance of common stock, net of cost of
$1,255,668............................... 2,563 3,927,519 -- 3,930,082
Stock options granted to non-employees..... -- 94,000 -- 94,000
Distributions ............................. -- -- (4,211,972) (4,211,972)
Net income ................................ -- -- 2,565,763 2,565,763
------- ---------- ------------ ------------
BALANCE AT DECEMBER 31, 1996 ............... 24,394 4,151,026 431,685 4,607,105
Stock registration costs .................. -- (91,148) -- (91,148)
Stock issued to an employee ............... 10 18,740 -- 18,750
Distributions ............................. -- -- (175,115) (175,115)
Net income ................................ -- -- 1,116,999 1,116,999
------- ---------- ------------ ------------
BALANCE AT DECEMBER 31, 1997 ............... $24,404 $4,078,618 $ 1,373,569 $ 5,476,591
======= ========== ============ ============

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

F-172

MAGICWORKS ENTERTAINMENT INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31,
------------------------------- -------------------------------
1998 1997 1997 1996
--------------- --------------- --------------- ---------------
(UNAUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES
Net income .................................................. $ 912,822 $ 939,424 $ 1,116,999 $ 2,565,763
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING
ACTIVITIES
Depreciation and amortization .............................. 188,285 145,361 578,553 388,607
Bad debt expense ........................................... -- -- 1,143,499 --
Write-down of investments in partnerships .................. -- -- 58,226 269,519
Deferred income tax (benefit) provision .................... -- (205,697) (631,362) 411,394
Income from investments in partnerships .................... (262,875) (806,225) (540,977) (40,759)
Stock issued to an employee ................................ -- -- 18,750 --
Stock options granted to non employees ..................... -- -- -- 94,000
Gain (loss) on sale of property and equipment .............. -- (24,685) (62,327) 27,734
CHANGES IN OPERATING ASSETS AND
LIABILITIES
Accounts and notes receivable ............................. (879,295) 265,346 (1,657,564) (520,522)
Inventories ............................................... (228,489) 42,749 (217,995) (108,029)
Advances and temporary deposits ........................... 349,651 91,479 (461,613) 75,478
Prepaid show expenses ..................................... (7,603,029) (1,173,833) (812,203) (117,363)
Other current assets ...................................... 14,728 76,007 207,635 (158,312)
Other assets .............................................. (50,000) -- (67,500) --
Deferred costs ............................................ (719,371) 47,614 (44,604) 182,929
Accounts payable .......................................... (174,805) 226,942 268,826 72,290
Accrued liabilities ....................................... (809) 384,943 303,840 134,428
Advance ticket sales ...................................... -- -- 2,635,096 (2,767,831)
Deferred Income ........................................... 6,290,802 1,212,027 -- --
------------ ------------ ------------ ------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES ............................................. (2,162,385) 1,221,452 1,835,279 509,326
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment .......................... (169,450) (15,151) (480,639) (925,875)
Proceeds from sale of assets ................................ -- 143,500 206,500 --
Investments in partnerships ................................. 681,629 (4,033,595) (1,883,544) (873,720)
Payments from (advances to) affiliates ...................... (327,253) 39,170 396,621 (189,198)
Intangible assets ........................................... -- 34,592 (200,000) 4,952
------------ ------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES .................... 184,926 (3,831,484) (1,961,062) (1,983,841)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt .......................................... 3,100,000 375,000 8,243,700 1,914,057
Repayment of debt ........................................... (149,663) (290,755) (8,377,428) (3,070,417)
Net proceeds from (cash used for) private placement ......... -- -- -- 9,115,832
Distributions ............................................... -- (175,115) (175,115) (4,211,972)
Deferred debt issuance costs ................................ -- -- -- (792,577)
Stock registration costs .................................... -- (91,148) (91,148) --
------------ ------------ ------------ ------------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES ................................... 2,950,337 (182,018) (399,991) 2,954,923
------------ ------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS ....................................... 972,878 (2,792,050) (525,774) 1,480,408
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR ....................................................... 5,410,837 5,936,611 5,936,611 4,456,203
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR ...................... $ 6,383,715 $ 3,144,561 $ 5,410,837 $ 5,936,611
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest .................................................. $ 343,506 $ 311,145 $ 681,996 $ 490,628
============ ============ ============ ============
Income taxes .............................................. $ 457,388 $ 997,105 $ 1,264,475 $ 250,000
============ ============ ============ ============
SUPPLEMENTAL INFORMATION ON NONCASH
INVESTING AND FINANCING ACTIVITIES:
Conversion of notes to common stock ....................... $ 81,736 $ -- $ -- $ --
------------ ------------ ------------ ------------
Distribution of notes receivable to affiliates ............ $ -- $ -- $ -- $ --
============ ============ ============ ============

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

F-173

MAGICWORKS ENTERTAINMENT INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

Magicworks Entertainment Incorporated (the "Company"), through its
subsidiaries and partnerships, acquires domestic and international stage and
ancillary rights to theatrical productions, produces and promotes live
entertainment, manages and books performances and shows, and provides ancillary
services including transportation and merchandising of a broad range of
products associated with its productions and performers.

MERGERS, ACQUISITIONS AND BUSINESS COMBINATIONS

On July 29, 1996, the Company consummated a simultaneous merger (the
"Merger") with certain other affiliated businesses. On the same date and on
September 27, 1996, the Company issued and sold 400.06 and 14.8 Units,
respectively, in a private placement (see Note 4). Upon completion of the
private placement, the Company merged with and into Shadow Wood Corporation
("Shadow Wood"), a publicly-traded Delaware corporation. In accordance with the
terms of the Merger, each share of the Company's common stock issued and
outstanding was converted into one share of Shadow Wood's common stock. Shadow
Wood was the surviving corporation and investors in the private placement
became security holders of Shadow Wood. Shadow Wood changed its name to
Magicworks Entertainment Incorporated.

On August 28, 1996, the Company acquired all of the outstanding capital
stock of MovieTime Entertainment, Inc. ("MovieTime") in exchange for 1,199,999
shares of the Company's common stock. MovieTime was formed in May 1995. The
principals of MovieTime are the same as the principals and management of the
Company. Accordingly, the acquisition was accounted for on a historical cost
basis in a manner similar to a pooling of interests. The consolidated financial
statements presented for periods prior to the acquisition date have been
restated to reflect the accounts of MovieTime since inception. Revenues and
loss generated by MovieTime since inception and included in the accompanying
consolidated statements of income are as follows:

1996
--------------

Revenues .................................... $ 81,077
----------
Loss before pro forma income taxes .......... $ (674,703)
==========

Revenues and loss generated by MovieTime prior to the date of acquisition
and included in the accompanying consolidated statements of income for the year
ended December 31, 1996 were $59,546 and ($449,161), respectively. Effective
April 30, 1997, the Company dissolved MovieTime and ceased its operations.

F-174

MAGICWORKS ENTERTAINMENT INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

On December 31, 1996, the Company acquired all of the outstanding capital
stock of Space Agency, Inc. ("Space"), now known as Magicworks West, Inc. (see
Name changes section of Note 1), in exchange for 1,320,001 shares of the
Company's common stock. The acquisition has been accounted for using the
pooling of interests method of accounting. Accordingly, the consolidated
financial statements presented for periods prior to the acquisition date have
been restated to reflect the accounts of Space since inception. Revenues,
income and distributions to stockholders generated by Space since inception and
included in the accompanying consolidated statements of income are as follows:

1996
--------------

Revenues ...................................... $24,740,750
===========
Income before pro forma income taxes .......... $ 1,149,712
===========
Distributions to stockholders ................. $ 1,606,331
===========

A final S-Corporation distribution of $175,115 was made to the Space
stockholders during 1997.

BASIS OF PRESENTATION

The accompanying consolidated financial statements include the accounts of
Magicworks Entertainment Incorporated, all its subsidiaries and certain
partnerships involved in theatrical productions. All significant intercompany
balances and transactions have been eliminated.

For periods prior to July 29, 1996, the accompanying financial statements
present the combined results of Magic Promotion, Inc., Magic Promotions, Inc.,
Touring Artists Group, Inc., Performing Arts Management of North Miami, Inc.,
Diamond Bullet Merchandising, Inc., MovieTime Entertainment, Inc. and Space
Agency, Inc.

NAME CHANGES

The Company has effectuated corporate name changes for the following
subsidiaries:

FORMER NAME NEW NAME
- ------------------------------------ ---------------------------------------------

Magic Promotion, Inc. Magicworks Entertainment International, Inc.
Magic Promotions, Inc. Magicworks Theatricals, Inc. ("MTI")
Diamond Bullet Merchandising, Inc. Magicworks Merchandising, Inc. ("MMI")
MagicSpace, Inc. (1) Magicworks West, Inc. ("MWI")
Magic Concert Promotions, Inc. Magicworks Concerts, Inc. ("MCI")

- ----------
(1) Space, which was acquired by the Company on December 31, 1996, was
subsequently merged into MagicSpace, Inc.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash and investments in short-term
highly liquid financial instruments, primarily time deposits and money market
accounts, with original maturities of three months or less. Due to the short
maturity period of the cash equivalents, the carrying amount of these
instruments approximates their fair values. Included in cash and cash
equivalents are interest-bearing deposits of $3,752,423 and $3,886,969 at
December 31, 1997 and 1996, respectively.

F-175

MAGICWORKS ENTERTAINMENT INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INVENTORIES

Inventories are valued at the lower of cost, determined on a first-in
first-out basis, or net realizable value.

PREPAID SHOW EXPENSES

Prepaid show costs consist of all costs relating to promoting a show
including artist advances and advertising. These costs are expensed over the
term of the related show for a period not to exceed six months.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, less accumulated depreciation
and amortization. Assets are depreciated using the straight-line method over
the estimated useful lives of the assets, or the lease terms if shorter, as
follows:

Leasehold improvements .......... Lease term
Furniture and equipment ......... 3 to 7 years
Vehicles ........................ 10 to 15 years

Repairs of property and equipment and minor replacements and renewals are
charged to maintenance expense, which is included in general and administrative
expenses, as incurred.

INVESTMENTS IN PARTNERSHIPS

The Company has partnership interests, ranging from 1% to 20%, in various
theatrical productions. Because the Company does not exercise significant
influence over the operating and financial policies of these productions, these
investments are carried at cost, $1,069,716 and $397,331 at December 31, 1997
and 1996, respectively, and income is only recognized when received in the form
of distributions. The Company recognized no income from these partnerships in
1997 and 1996.

The Company has eleven joint venture interests ranging from 21% to 50%, in
various seasonal productions. Because the Company exercises influence over the
operating and financial policies of these productions, these investments are
accounted for under the equity method. The carrying value of such investments
was $3,204,257 and $1,510,347 at December 31, 1997 and 1996, respectively. The
Company recognized income from investments in partnerships of $540,977 and
$40,759 in 1997 and 1996, respectively.

DEFERRED COSTS

Deferred costs include pre-opening legal and professional fees incurred in
connection with the North Miami Performing Arts Center (The "Arts Center")
amounting to $373,532 which will be amortized over a maximum period of three
years once operations commence (see Note 9).

Additionally, deferred debt costs of approximately $836,000 were incurred
in connection with the private placement of debt (see Note 4), and are being
amortized over the 5-year term of the debt. Amortization of deferred debt costs
amounted to $166,039 and $68,566 in 1997 and 1996, respectively.

F-176

MAGICWORKS ENTERTAINMENT INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INTANGIBLE ASSETS

Intangible assets consists of the following at December 31:

1997 1996
------------- -------------

Booking agreement (1) ........................ $ -- $ 341,595
Management operating agreements (2) .......... 300,000 466,962
Trademark (3) ................................ 200,000 --
---------- ----------
500,000 808,557
Less accumulated amortization ................ (100,833) (482,812)
---------- ----------
Intangible assets, net ....................... $ 399,167 $ 325,745
========== ==========

- ----------
(1) The booking agreement resulted from the acquisition of the National
Artists Management Company, Inc. in 1992. The agreement was amortized
over a period of five years and was fully amortized at December 31, 1997.

(2) Management operating agreements consist of various agreements being
amortized over periods from five to thirty years. As of December 31, 1997
agreements amounting to $166,962 have been fully amortized and only one
agreement remains in effect, the management operating agreement relating
to the proposed Arts Center (see Note 9). That agreement is being
amortized over a thirty-year period, the term of the agreement which
began in 1993.

(3) The trademark was acquired when the Company entered into a limited
liability company agreement to form The Booking Group, LLC, and will be
amortized over a five-year period beginning in 1997.

Amortization expense incurred associated with intangible assets amounted
to $126,579 and $123,745 for 1997 and 1996, respectively.

In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," the Company reviews long-lived assets and intangible
assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of such assets may not be fully recoverable. If this review
indicates the asset will not be recoverable, as generally determined based on
estimated undiscounted cash flows over the remaining amortization period, the
carrying amount of the asset would be adjusted to fair value.

REVENUES

Revenues are recognized when earned, which is generally at the time of the
theatrical performance or entertainment event. Production revenues represent
the Company's share of performance revenues earned for events where the Company
functions as the event's producer. Producer activities include acquisition of
theatrical stage rights and all activities necessary to mount the production.
Such activities include, but are not limited to, engaging a director, set
construction, costume preparation, arrangements of lighting and sound
equipment, staging rehearsals and theater bookings. Cash received in advance of
a performance is reflected as advance ticket sales in the accompanying
consolidated balance sheets. Promotion revenues represent the Company's share
of performance operating results where the Company serves as promoter. The
promotion of an event involves the presentation of such event at particular
venues. The promoter is responsible for ticket sales, advertising and marketing
of the event. In certain cases, the Company may function as both the producer
and promoter of an event. With respect to the Company's share of production and
promotion receipts, when the Company holds an interest in a show of less than
51%, the Company records its share of the net profits, but does not record the
corresponding revenues or expenses.

F-177

MAGICWORKS ENTERTAINMENT INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

RECEIVABLES

Receivables include amounts due from shows which the Company acts as the
promoter, advances to shows for start-up costs which will be repaid from profit
distributions, and amounts due from theaters for ticket sales. The Company
provides an allowance for losses on accounts receivable based on a monthly
review of the outstanding receivables and evaluation of their collectibility.
In 1997, the Company generated significant production and promotion revenues by
its new concert and international divisions. As a result of these new ventures,
the timing in which these receivables are expected to be collected requires the
Company to set up a provision for potential uncollectible accounts. Changes in
the allowance for losses on accounts receivable for the year ended December 31,
1997 are as follows:

Balance, beginning of the year ......... $ --
Provision for uncollectibles ........... 1,143,499
Write-offs ............................. (471,428)
---------
Balance, end of the year ............... $672,071
=========

A substantial portion of the Company's revenues are derived from the
production and promotion of live entertainment acts and events throughout the
United States, Canada and South America. Changes in the entertainment
preferences of the general populations could affect the Company's future
revenues.

CONCENTRATIONS OF CREDIT RISK

The Company has no significant off balance sheet concentration of credit
risk. The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and cash equivalents.

INCOME TAXES

As a result of the Merger, the Company and its subsidiaries, previously
S-Corporations, became subject to U.S. corporate income tax. Prior to July 30,
1996, the stockholders included their proportionate share of the Company's
income in their respective tax returns.

The accompanying consolidated statements of income include pro forma
income taxes due for periods prior to the Merger as if the Company had been
subject to federal and state corporate income taxes, based on the tax laws in
effect during those periods and statutory rates applied to pre-tax accounting
income.

The Company follows the SFAS No. 109, "Accounting for Income Taxes," which
requires, among other things, recognition of future tax benefits measured at
enacted rates attributable to deductible temporary differences between
financial statement and income tax bases of assets and liabilities and to tax
net operating loss carryforwards to the extent that realization of said
benefits is more likely than not.

USE OF ESTIMATES

FAIR VALUE OF FINANCIAL INSTRUMENTS

As of December 31, 1997 and 1996, the carrying amount of cash and cash
equivalents, accounts and notes receivable and accounts payable approximates
fair value due to the short-term nature of these accounts.

F-178

MAGICWORKS ENTERTAINMENT INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NET INCOME AND PRO FORMA NET INCOME PER COMMON SHARE

In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share." SFAS No. 128 simplifies the current
standards for computing earnings per share ("EPS") under Accounting Principles
Board Opinion ("APB") 15, "Earnings per Share," by replacing the existing
calculation of primary EPS with a basic EPS calculation. It requires a dual
presentation, for complex capital structures, of basic and diluted EPS on the
face of the income statement and requires a reconciliation of basic EPS factors
to diluted EPS factors. The impact of adopting SFAS 128 in 1997 was immaterial.

Basic net income and pro forma net income per common share is computed by
dividing net income or pro forma net income by the weighted average number of
common shares outstanding. Diluted net income and pro forma net income per
common share assumes the maximum dilutive effect from stock options and
warrants, and conversion of the Company's convertible notes (see Note 4). For
all periods presented, basic and diluted net income per share are the same.

The following is the reconciliation of the numerators and denominators of
the basic and dilutive earnings per share calculation:

1997 1996
------------ -------------

Weighted average number of common shares ......................... 24,398,546 22,907,463
Impact of dilutive warrants and options (1) ...................... 35,894 81,649
---------- ----------
Weighted average number of shares of common stock and common
stock equivalents for fully diluted earnings per share .......... 24,434,440 22,989,112
========== ==========

- ----------
(1) Unsecured senior convertible notes are anti-dilutive.

STOCK-BASED COMPENSATION

In accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation", which applies to transactions with non-employees, the Company
has recognized expense for stock options issued to consultants in fiscal 1996,
as more fully described in Note 10. The Company intends to continue applying
the provisions of APB 25, "Accounting for Stock Issued to Employees" for
transactions with employees, as permitted by SFAS 123.

NEW ACCOUNTING PRONOUNCEMENTS

In February 1997, the FASB issued SFAS No. 129, "Disclosures of
Information about Capital Structure" which is effective for fiscal years ending
after December 15, 1997. SFAS No. 129 requires disclosing information about an
entity's capital structure. The impact of adopting SFAS No. 129 in fiscal 1997
was immaterial.

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" which is required to be adopted in fiscal 1998. This statement
establishes standards to reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. This
statement requires that an enterprise (a) classify items of other comprehensive
income by their nature in financial statements and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of statements of financial
position. Comprehensive income is defined as the change in equity during the
financial reporting period of a business enterprise resulting from non-owner
sources. The Company currently does not have other comprehensive income and
therefore does not believe the adoption of SFAS No. 130 will have a significant
impact on its financial statement presentation.

F-179

MAGICWORKS ENTERTAINMENT INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which is required to be adopted in
fiscal 1998. This statement requires that a public business enterprise report
financial and descriptive information about its reportable operating segments
including, among other things, a measure of segment profit or loss, certain
specific revenue and expense items, and segment assets. The Company currently
has one reporting segment and therefore does not believe the adoption of SFAS
No. 131 will have a significant impact on its financial statement presentation.

RECLASSIFICATIONS

Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform to the current fiscal year's presentation.

2. PROPERTY AND EQUIPMENT

Property and equipment consists of the following at December 31:

1997 1996
------------- -------------

Leasehold improvements ............... $ 134,100 $ 121,001
Furniture and equipment .............. 665,534 587,781
Vehicles ............................. 1,834,200 2,085,022
---------- ----------
2,633,834 2,793,804
---------- ----------
Less accumulated depreciation and
amortization ........................ (535,049) (745,549)
---------- ----------
Property and equipment, net .......... $2,098,785 $2,048,255
========== ==========

3. ACCRUED LIABILITIES

Accrued liabilities consist of the following at December 31:

1997 1996
----------- ----------

Payroll-related accruals .......... $130,249 $ 90,996
Accrued show expenses ............. 240,582 --
Other ............................. 161,817 137,812
-------- --------
$532,648 $228,808
======== ========

4. PRIVATE PLACEMENT

On July 29, 1996, the Company issued and sold 400.06 Units for which it
received net proceeds of $8,782,832. On September 27, 1996, the Company sold an
additional 14.8 Units pursuant to the private placement for which it received
additional net proceeds of $333,000. Each unit consists of an unsecured senior
convertible note (the "Notes") in the principal amount of $12,500 bearing
interest at a rate of 10% per annum, and 5,000 shares of common stock. The
value attributable to the common shares was $2.50 per share. As a placement
fee, the placement agent received 488,820 shares of the Company's common stock.

The Notes require interest payments semi-annually on June 30 and December
31. The Notes contain mandatory sinking fund requirements which are calculated
to retire 75% of the face amount of the Notes after payment of seven
consecutive equal quarterly contributions, the first such contribution to occur
on October 1, 1999 and every ninety days thereafter.

The principal amount and accrued and unpaid interest on each Note is
convertible (in whole but not in part), at any time prior to July 30, 2001, at
a conversion price of $3.50 per share (subject to adjustment in certain
circumstances). The Notes may be prepaid by the Company at its option, at the
principal amount plus accrued but unpaid interest.

F-180

MAGICWORKS ENTERTAINMENT INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In addition to the placement fee described above, the Company issued the
placement agent 500,000 warrants at an exercise price of $3.00 per share,
(subject to adjustment in certain circumstances), and has authorized up to
1,481,643 redeemable warrants that may be issued in connection with the
prepayment of the Notes in certain circumstances at $3.50 per share.

5. LONG-TERM DEBT

Long-term debt consists of the following at December 31:

1997 1996
------------- -------------

Various notes payable with interest ranging from 9.75% to
10.9%, principal due monthly through February 2004,
collateralized by vehicles. ................................... $1,160,970 $1,276,348
Convertible notes (see Note 4) ................................. 5,185,750 5,185,750
Capital lease obligation payable in monthly installments through
September 1997 including interest imputed at a rate of 10%,
collateralized by a vehicle. .................................. -- 18,350
---------- ----------
6,346,720 6,480,448
Less current portion ........................................... (299,557) (302,956)
---------- ----------
$6,047,163 $6,177,492
========== ==========

Scheduled maturities of long-term debt are as follows:

1998 ................... $ 299,557
1999 ................... 869,330
2000 ................... 2,480,791
2001 ................... 2,511,529
2002 ................... 185,513
----------
$6,346,720
==========

The Company has a committed line of credit agreement expiring in May 1998
with a bank that provides for short-term borrowings of up to $5.0 million by
the Company. Borrowings under this agreement bear interest at the London
Interbank Offered Rate (LIBOR) plus 250 basis points. This agreement is
collateralized by substantially all the Company's assets. At December 31, 1997,
the full amount of the line of credit was available for borrowing.

6. EMPLOYEE BENEFIT PLANS

Effective January 1, 1988, the Company initiated a Money Purchase Plan and
Trust (the "Plan") for all full-time employees of MTI who have completed one
year of service and are at least 21 years of age. The Company contributes an
amount not to exceed 10% of the participating employee's compensation or
$16,000. In addition, the Plan permits the Company to make additional
discretionary contributions to the Plan. Total contributions to the Plan were
$85,000 and $55,792 in 1997 and 1996, respectively. Employees vest in the
Company's discretionary contributions at the rate of 20% per year upon
completion of two years of service.

MWI has a qualified profit sharing plan for the employees. Contributions
to the plan are determined by the Board of Directors each year, and are limited
to an amount not to exceed 15% of eligible compensation paid to participants
for the year. Employees are eligible to participate in the plan after one year
if they are over 21 and work at least 1,000 hours each year. MWI made
contributions to the plan of $23,500 and $59,222 in 1997 and 1996,
respectively.

F-181

MAGICWORKS ENTERTAINMENT INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Effective fiscal 1998, the Company plans to adopt a resolution to submit a
proposal to the Internal Revenue Service ("IRS") to freeze, distribute and
terminate both of the aforementioned plans, with the assets not to be
distributed until a final determination letter is received by the IRS. Through
a professional employer organization, effective January 1998, the Company has
implemented a 401(k) Profit Sharing Plan and Trust, (the "401(k) Plan"). With
the exception of individuals employed by the Company as of the initial plan
year effective date, who will be immediately eligible to participate in the
plan, employees will become eligible to participate after completing one year
of service provided the employee is over the age 21. Participants may elect to
contribute from 1% to 15% of their annual compensation into the 401(k) Plan.
The Company will make matching contributions in an amount equal to 25% of the
participant's contribution. Participants shall become vested in the employer
contribution portion of their account as follows:

YEARS OF VESTING SERVICE VESTING %
- -------------------------------- ----------

1 ............................ 0%
2 ............................ 20%
3 ............................ 40%
4 ............................ 60%
5 ............................ 80%
6 or more .................... 100%

The 401(k) Plan will be administered by, and offer the funds and
investment options of, a national asset management company.

7. RELATED PARTY TRANSACTIONS

In the normal course of its business, the Company conducts business with
certain stockholders and their respective affiliates. In the opinion of
management, the transactions with related parties are equivalent to terms from
unrelated parties.

Fees paid by the Company for accounting, general management, office and
other administrative services to entities controlled by certain principal
stockholders were $0 and $25,750 in 1997 and 1996, respectively, and are
reflected in general and administrative expenses in the accompanying
consolidated statements of income for the applicable periods.

The Company entered into three non-cancelable operating leases for office
space with related entities. As of December 31, 1997, one of the above
mentioned non-cancelable operating leases has expired and the Company continues
to occupy the premises on a month to month rental basis. The Company is
required to pay taxes, maintenance, insurance and utility costs. Payments under
these leases and rental arrangements totaled $106,832 and $80,504 in 1997 and
1996, respectively. See Note 9 for a summary of future minimum commitments
under the non-cancelable operating leases.

8. INCOME TAXES

The provision for income taxes consists of the following:

1997 1996
------------- -----------

Current .................. $1,378,686 $185,822
Deferred ................. (631,362) 411,394
---------- --------
$ 747,324 $597,216
========== ========
Federal .................. $ 653,436 $514,028
State .................... 93,888 83,188
---------- --------
$ 747,324 $597,216
========== ========

F-182

MAGICWORKS ENTERTAINMENT INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Prior to July 29, 1996, the stockholders included their proportionate
share of the Company's income in their respective tax returns. Pro forma income
taxes represent the estimated tax provision, at 39%, which would have been
recorded had the Company been a taxable entity in 1996.

A reconciliation of the difference between the expected provision for
income taxes using the statutory federal tax rate and the Company's actual
provision is as follows:

1997 1996
----------- ---------------

Provision using statutory rate of 34% ................... $633,870 $ 1,071,424
State income taxes ...................................... 61,522 50,745
Income earned in period prior to July 29, 1996 .......... -- (1,161,758)
Deferred income taxes recorded at July 29,
1996 ................................................... -- 548,525
Other ................................................... 51,932 88,280
-------- ------------
$747,324 $ 597,216
======== ============

Deferred taxes are due to timing differences in reporting of certain
income and expense items for book purposes and income tax purposes. Deferred
taxes at December 31, 1996 consist primarily of the impact, prior to July 29,
1996, of the Company reporting its income on a cash basis.

9. COMMITMENTS AND CONTINGENCIES

LITIGATION

An arbitration proceeding had been instituted by MMI, a subsidiary of the
Company, against Robert L. Ferman ("Ferman"), a former financial advisor to
certain of the Company's predecessors. MMI's claim had been for rescission,
fraud and breach of fiduciary duty in connection with a consulting agreement
under which MMI agreed to pay Ferman a monthly retainer fee of $2,500 and an
equity position in MMI in the event that Ferman was successful in locating an
acceptable underwriter for a proposed initial public offering of the securities
of the Company or its affiliates. In March 1997, the Company and Ferman settled
the proceeding. The parties are in the process of revising the definitive
agreement for execution and expect the matter to be resolved in the near future
at a cost of approximately $60,000 to the Company.

In October 1994, a former independent contractor filed a complaint against
the partnership that produced "Jesus Christ Superstar" in the Common Pleas
Court of Philadelphia County seeking consequential damages of $5,000,000
arising from the termination of an employment contract by such partnership. A
trial date has been set for June 1, 1998. Management believes, based on the
advice of counsel, that the lawsuit is without merit, and that the outcome of
this suit will not have a material adverse effect on its financial condition or
results of operations.

Performing Arts Management of North Miami, Inc., a wholly-owned subsidiary
of the Company ("PAM"), commenced an action against the City of North Miami
(the "City") for failure to perform under the operating management agreement
between PAM and the City relating to PAM's management of the Arts Center (see
Note 1). The City filed a counterclaim alleging that the Company had breached
the management contract. The dispute stems from the City's inability to deliver
a permit to the Company to build the Arts Center as required under the
operating agreement and the City's assertion that PAM breached the agreement by
failing to make certain payments alleged to be required thereunder. The Company
has incurred expenditures related to its PAM contract totaling $626,032 at
December 31, 1997, which were capitalized and are included in deferred costs
and intangible assets in the accompanying consolidated balance sheets. In
August 1998, the Company determined that the assets capitalized were no longer
realizable and wrote off all related assets.

F-183

MAGICWORKS ENTERTAINMENT INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In July 1997, Spinnaker III filed suit against MCI, U.S. Tobacco and Club
LaVela, alleging (among other things not related to Magic) that Magic breached
its contract with Spinnaker to host the ROAR Tour performance. The case is in
the discovery phase with no trial date yet set. Management believes, based on
the advice of counsel, that Spinnaker's claims are without merit, and that the
outcome of this suit will not have a material adverse effect on its financial
condition or results of operations.

MANAGEMENT AGREEMENTS

The Company entered into management agreements with Niko Associates
("Niko") to manage the daily general operations during the entire periods of
production of Dolliko, Judas and Impossible. Management fees are calculated
based on fixed weekly fees ranging from $2,000 to $5,000 per performance week
plus reimbursement of certain overhead related costs. Management fees paid by
the Company to Niko amounted to $405,000 and $635,000 in 1997 and 1996,
respectively, and are reflected in production expenses in the accompanying
consolidated statements of income.

OPERATING LEASES

The Company leases office space from affiliated (see Note 7) and
unaffiliated entities under operating lease agreements that extend through June
2001. The following is a schedule of approximate future minimum lease payments
required under such non-cancelable operating leases at December 31, 1997:

YEAR ENDED DECEMBER 31, AFFILIATED UNAFFILIATED TOTAL
- ------------------------- ------------ -------------- -----------

1998 .................... $ 77,800 $ 58,300 $136,100
1999 .................... 80,200 67,450 147,650
2000 .................... 82,600 5,650 88,250
2001 .................... 28,000 -- 28,000
-------- -------- --------
$268,600 $131,400 $400,000
======== ======== ========

The Company also has month-to-month leases with affiliated (see Note 7)
and unaffiliated entities. Rent expense amounted to $200,023 and $161,140, for
the years ended December 31, 1997 and 1996, respectively, and is included in
general and administrative expenses in the accompanying consolidated statements
of income.

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with key personnel that
require future minimum payments as follows:

YEAR ENDED DECEMBER 31,
- -------------------------

1998 .................. $1,631,000
1999 .................. 1,484,583
2000 .................. 1,191,250
2001 .................. 700,000
----------
$5,006,833
==========

F-184

MAGICWORKS ENTERTAINMENT INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. STOCK OPTIONS

At the discretion of management, the Company may grant options to purchase
the Company's stock to employees, directors, consultants, and other unrelated
parties. The Company granted options to purchase an aggregate of 637,750 and
216,500 shares in 1997 and 1996, respectively as follows:

EXERCISE
OPTIONS PRICE
--------- --------------

Balance at December 31, 1995 ......... --
Grants .............................. 216,500 $2.50 - $3.50
Exercises ........................... --
Canceled ............................ --
-------
Balance at December 31, 1996 ......... 216,500 $2.50 - $3.50
Grants .............................. 637,750 $1.75 - $3.56
Exercises ........................... --
Canceled ............................ --
-------
Balance at December 31, 1997 ......... 854,250 $1.75 - $3.56
=======

Options exercisable December 31, 1997 and 1996 were 259,250 and 166,500,
respectively.

The Company applies APB 25 and its related interpretations in accounting
for options granted to employees. Accordingly, no compensation cost has been
recognized related to such grants. Had compensation cost for the Company's
stock options been based on fair value at the grant dates for awards granted,
consistent with the provisions of SFAS 123, the Company's 1997 net income and
net income per share, and the 1996 pro forma net income and pro forma income
per share would have been reduced to the amounts indicated below:

1997 1996
------------- -------------

Net income and pro forma net income ..........
As reported .................................. $1,116,999 $1,404,005
Pro forma for the impact of SFAS 123 ......... $1,011,728 $1,384,146
Net income per share and pro forma income per
share, basic and diluted
As reported .................................. $ .05 $ .06
Pro forma for the impact of SFAS 123 ......... $ .04 $ .06

The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:
expected volatility of 25.0%, risk-free interest rate of 6.5%, expected
dividends of $0 and expected terms of 3 years.

In 1996, the Company recorded expense of $94,000 related to 200,000 stock
options granted to non-employees of the Company. In determining the expense to
be recorded, the Company applied the Black-Scholes model using the same
assumptions described above.

11. SUBSEQUENT EVENTS

On September 11, 1998 the Company was acquired by SFX Entertainment Inc.

F-185

THE MARQUEE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

SEPTEMBER 30, DECEMBER 31,
1998 1997
--------------- -------------
(UNAUDITED) (NOTE 1)

ASSETS
Current assets
Cash and cash equivalents ................................................... $ 4,500 $ 8,944
Cash escrow ................................................................. 746 704
Accounts receivable, net .................................................... 14,791 6,930
Prepaid production costs .................................................... 1,193 553
Prepaid expenses and other current assets ................................... 595 436
-------- --------
Total current assets ...................................................... 21,825 17,567
Property and equipment, net .................................................. 2,895 2,040
Receivables--non current ..................................................... 1,365 668
Notes receivable ............................................................. 2,135 1,887
Deposits and deferred expenses ............................................... 2,314 677
Intangible assets--net ....................................................... 59,648 23,951
-------- --------
$ 90,182 $ 46,790
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses ....................................... $ 8,728 $ 4,592
Acquisition indebtedness--current portion ................................... 1,515 775
Escrow payable .............................................................. 685 527
Deferred revenues ........................................................... 523 626
-------- --------
Total current liabilities ................................................. 11,451 6,520
Notes payable--bank .......................................................... 33,140
Acquisition indebtedness--non-current ........................................ 3,777 2,144
Deferred rent ................................................................ 651 696
Deferred income taxes ........................................................ 964 960
Common stock (545 shares) subject to put options ............................. 3,420 3,184
Stockholders' equity
Preferred stock, $.01 par value; 5,000 shares authorized, no shares issued
Common stock, $.01 par value; 25,000 shares authorized, 18,086
(September 30, 1998) and 17,913 (December 31, 1997) shares issued
and outstanding ............................................................. 175 174
Additional paid-in capital .................................................. 39,593 36,885
Accumulated deficit ......................................................... (3,003) (3,781)
Cumulative translation adjustment ........................................... 14 8
-------- --------
Total stockholders' equity ................................................ 36,779 33,286
-------- --------
$ 90,182 $ 46,790
======== ========

Note: The condensed consolidated balance sheet at December 31, 1997 has been
derived from the audited financial statements at that date but does not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements.

See accompanying notes to condensed consolidated financial statements.

F-186

THE MARQUEE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---------- --------- ---------- ------------

Revenues ............................................ $14,199 $5,817 $35,470 $ 11,991
Operating expenses .................................. 8,739 3,716 23,726 7,664
General and administrative expenses ................. 2,865 1,500 8,239 4,502
Non cash compensation ............................... (157) 81 367 165
Depreciation and amortization ....................... 660 72 1,463 91
------- ------ ------- --------
Income/(loss) from operations ....................... 2,092 448 1,675 (431)
Interest expense, net ............................... 227 222 120 224
Financing expense ................................... -- 756 -- 756
------- ------ ------- --------
Income/(loss) before income taxes ................... 1,865 (530) 1,555 (1,411)
Income taxes ........................................ 423 77 541 77
------- ------ ------- --------
Net income/(loss) ................................... 1,442 (607) 1,014 (1,448)
Accretion of obligation related to the put option
issued in connection with the ProServ
acquisition ........................................ 79 -- 236 --
------- ------ ------- --------
Net income/(loss) applicable to common
stockholders ....................................... $ 1,363 $ (607) $ 778 $ (1,488)
======= ====== ======= ========
Net income/(loss) per share--basic and dilutive ..... $ .08 $ (.08) $ .05 $ (.20)
======= ====== ======= ========

See accompanying notes to condensed consolidated financial statements.

F-187

THE MARQUEE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
------------ ------------

NET CASH USED IN OPERATING ACTIVITIES ................................ $ (3,547) $ (2,184)
INVESTING ACTIVITIES
Recent Acquisitions, net of cash acquired ........................... (30,736) --
Purchase of equipment and leasehold improvements, net of landlord
contribution ...................................................... (702) (1,240)
Employee loan ....................................................... -- (424)
Deposits and deferred expenses ...................................... (970) (2,200)
Increase in other assets ............................................ (568)
--------
Net cash used in investing activities ............................. (32,408) (4,432)
--------- --------
FINANCING ACTIVITIES
Proceeds under Credit Agreement ..................................... 33,140 --
Proceeds from Bridge Financing ...................................... -- 10,500
Costs related to stock offerings .................................... (187) (131)
Costs related to Credit Agreement ................................... (667) --
Costs related to Tender Offer ....................................... -- (9,580)
Payment of acquisition indebtedness ................................. (775) (500)
--------- --------
Net cash provided by financing activities ......................... 31,511 289
--------- --------
NET DECREASE/INCREASE IN CASH ........................................ (4,444) (6,327)
CASH AT BEGINNING OF PERIOD .......................................... 8,944 7,231
--------- --------
CASH AT END OF PERIOD ................................................ $ 4,500 $ 904
========= ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
Issuance of common stock to an employee ............................. $ 100 --
========= ========
In connection with Recent Acquisitions
Issuance of common stock .......................................... $ 2,616 --
========= ========
Notes payable ..................................................... $ 2,594 --
========= ========
Obligation to issue common stock in future ........................ $ 416 --
========= ========
Note received in connection with sale of an interest in an associated
company ........................................................... $ 300 --
========= ========
Issuance of options to purchase 105 shares of Common stock in
connection with Bridge Financing for the Tender Offer ............. $ 394
========

See accompanying notes to condensed consolidated financial statements.

F-188

THE MARQUEE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(IN THOUSANDS)

ADDITIONAL CUMULATIVE TOTAL
NUMBER OF COMMON PAID-IN ACCUMULATED TRANSLATION STOCKHOLDERS'
SHARES STOCK CAPITAL DEFICIT ADJUSTMENT EQUITY
----------- -------- ------------ ------------- ------------- --------------

Balance--December 31, 1997 ..... 17,913 $174 $36,885 $ (3,781) 8 $33,286
Issuance of common stock:
In connection with
acquisitions ................ 549 5 2,611 2,616
To an employee ................ 16 100 100
Cancellation of IPO Escrow
Shares ........................ (392) (4) 4 --
QBQ Escrow Shares .............. 180 180
Secondary Offering costs ....... (187) (187)
Foreign currency translation
adjustment .................... 6 6
Net income for period .......... 778 778
-------- -------
Balance--September 30, 1998
(unaudited) ................... 18,086 $175 $39,593 $ (3,003) $14 $36,779
====== ==== ======= ======== === =======

See accompanying notes to condensed consolidated financial statements.

F-189

THE MARQUEE GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1 -- MERGER WITH SFX ENTERTAINMENT

On July 23, 1998, The Marquee Group, Inc. (the "Company") entered into an
Agreement and Plan of Merger, as amended (the "Merger Agreement"), with SFX
Entertainment, Inc. ("Parent") and SFX Acquisition Corp., a wholly-owned
subsidiary of Parent ("Sub"), pursuant to which Sub will merge with and into
the Company (the "Merger") and the Company will continue as the surviving
corporation of the Merger. Pursuant to the Merger Agreement, upon the
consummation of the Merger, each outstanding share of common stock, $.01 par
value, of the Company will be converted into the right to receive from Parent
0.1111 shares of Class A Common Stock, $.01 par value, of Parent (the "SFX
Class A Common Stock")(the "Exchange Ratio"). If the SFX Class A Common Stock
Price (as defined below) is greater than $42.75, then the Exchange Ratio shall
be the quotient obtained by dividing $4.75 by the SFX Class A Common Stock
Price. The term "SFX Class A Common Stock Price" means the average of the last
reported sale price for the fifteen consecutive trading days ending on the
fifth trading day prior to the effective time of the Merger on the primary
exchange on which the SFX Class A Common Stock is traded (the NASDAQ National
Market).

Additionally, the Merger Agreement places certain restrictions on the
conduct of business by the Company, including a restriction on the incurrence
of indebtedness and the making of capital expenditures.

The consummation of the Merger is subject to the satisfaction of a number
of conditions set forth in the Merger Agreement, including approval by the
Company's stockholders. Certain of these conditions have been satisfied as of
November 12, 1998, including the expiration of the applicable waiting period
for the merger under the Hart-Scott-Rodino Antitrust Improvement Act of 1976,
as amended. The Merger is expected to be consummated in the first quarter of
1999.

NOTE 2 -- BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Item 310(b) of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for an interim period
are not necessarily indicative of the results that may be expected for a full
year. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form 10-K for
the year ended December 31, 1997.

The Company was formed in July 1995 for the purpose of providing
integrated event management, television programming and production, marketing,
talent representation and consulting services in the sports, news and
entertainment industries. In furtherance of its business strategy, the Company
acquired by merger on December 12, 1996, concurrently with the closing of its
initial public offering ("IPO"), Sports Marketing & Television International,
Inc. ("SMTI"), which provides production and marketing services to sporting
events, sports television shows, and professional and collegiate leagues and
organizations, and Athletes and Artists, Inc. ("A&A"), a sports and media
representation firm. The acquisitions of SMTI and A&A are referred to as the
"1996 Acquisitions". In October 1997, the Company acquired ProServ, Inc. and
ProServ Television, Inc. (collectively, "ProServ") (the "ProServ Acquisition")
and QBQ Entertainment, Inc. ("QBQ") (the "QBQ Acquisition") (collectively, the
"1997 Acquisitions"). The Company also completed the secondary offering (the
"Second Offering") of 8,500,000 shares of its common stock at $5.00 per share
in the

F-190

fourth quarter of 1997. In August and September 1998, the Company acquired
Alphabet City Industries, Inc. and Alphabet City Sports Records, Inc.,
Cambridge Holding Corporation, Park Associates Limited, Tony Stephens
Associates Limited, and Tollin/Robbins Productions (collectively, the "Recent
Acquisitions"). Accordingly, the accompanying condensed consolidated financial
statements include the accounts of the Company, the 1997 Acquisitions and the
Recent Acquisitions from their respective dates of acquisition. All significant
intercompany transactions and accounts have been eliminated.

NOTE 3 -- EARNINGS PER COMMON SHARE

Basic earnings per share applicable to common stockholders is based upon
the net loss after reduction of amounts, if any, for accretion of the
obligation related to the put option issued in connection with the ProServ
Acquisition divided by the weighted average number of shares of common stock
outstanding during the year. Shares of common stock placed in escrow upon
completion of the Company's initial public offering have been excluded from the
calculation of basic earnings per share. The Company's outstanding options,
warrants and contingently issuable shares are not included for diluted earnings
per share because the effect would be anti-dilutive for 1997. The following
table sets forth the computation of the adjusted weighted average number of
common stock outstanding:

SEPTEMBER 30, 1998
---------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------- ------------------
(IN THOUSANDS) (IN THOUSANDS)

Denominator for basic earnings per share--weighted
average shares .............................................. 16,859 16,660
Effect of dilutive securities--Employee stock options ......... 177 141
------ ------
Denominator for dilutive earnings per share--adjusted
weighted average shares ..................................... 17,036 16,801
====== ======

NOTE 4 -- NON-CASH COMPENSATION CHARGE

In connection with the acquisition of QBQ in October 1997, the Company
placed in escrow 78,702 shares of its common stock issued to the seller as a
portion of the purchase price. As of March 31, 1998, the Company has determined
that it is probable that the financial thresholds required to be met for the
release of these escrowed shares will be achieved in 1998, and, accordingly has
recorded a charge of $180,000 for the nine months ended September 30, 1998 as
non-cash compensation in the accompanying condensed consolidated statements of
operations. This compensation charge will be adjusted based upon the changes in
the fair market value of the shares subject to the escrow arrangement through
the actual release date.

NOTE 5 -- BANK CREDIT AGREEMENT

On July 31, 1998, the Company and its subsidiaries entered into a Credit
Agreement, as amended, (the "Credit Agreement") with BankBoston, NA, which
provides for a revolving line of credit for loans and letters of credit
(subject to a $2 million sublimit) of up to $35 million in the aggregate. The
revolving credit facility under the Credit Agreement may be used to finance
acquisitions and to fund working capital needs. Loans under the Credit
Agreement bear interest at a floating rate equal to a base rate which
approximates prime plus an applicable margin, or a Eurocurrency rate plus an
applicable margin. The applicable margin is dependent on the Company achieving
certain leverage ratios. In August and September 1998, the Company borrowed a
total of approximately $33.1 million under the revolving credit facility in
connection with the Recent Acquisitions, with the interest rate associated with
such borrowings of approximately 8.3% for domestic borrowings and 10.5% for
British (pounds sterling) borrowings (at September 30, 1998). The obligations
of

F-191

the Company under the Credit Agreement are secured by a first priority security
interest in all existing and future acquired property of the Company, including
the capital stock of its subsidiaries. The Company's obligations under the
Credit Agreement are also guaranteed by the Company's present and future
subsidiaries and secured by a first priority security interest in all existing
and future property of these subsidiaries. The Credit Agreement also contains
financial leverage and coverage ratios, which may inhibit the Company's ability
to incur other indebtedness, and restrictions on capital expenditures,
distributions and other payments. However, the Company will be permitted to
incur additional indebtedness outside of the Credit Agreement to acquire
businesses secured solely by the assets of such acquired businesses, as long as
the Company is in compliance with the financial covenants of the Credit
Agreement exclusive of such indebtedness and the related borrowing base
applicable to the businesses acquired. The term of the Credit Agreement is
three years with borrowing availability reduced periodically commencing January
1, 2000. See "Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" for
additional information.

NOTE 6 -- RECENT ACQUISITIONS

On August 3, 1998, the Company consummated its acquisition of
substantially all of the assets of Alphabet City Industries, Inc. and all of
the outstanding stock of Alphabet City Sports Records, Inc., both of which are
sports and music marketing companies which develop strategic alliances among
sports leagues, music companies and corporate sponsors (collectively, the
"Alphabet City Acquisition"). The aggregate purchase price for the Alphabet
City Acquisition was approximately $4.0 million consisting of $3.4 million in
cash (excluding assumed liabilities) and 200,000 shares of the Company's common
stock. In addition, the Company may be obligated to make significant additional
payments (up to $9 million) based upon the financial performance of the
acquired businesses.

On August 6, 1998, the Company consummated its acquisition of all of the
outstanding stock of Cambridge Holding Corporation ("Cambridge"), a golf
representation company, whose client roster includes a mix of established PGA
Tour winners and many prospects on the Nike Tour (the "Cambridge Acquisition").
The aggregate purchase price for Cambridge was approximately $3.9 million
consisting of $3.5 million in cash and 89,536 shares of the Company's common
stock. In addition, the Company may be obligated to make additional payments
aggregating approximately $2.0 million based upon the future financial
performance of Cambridge.

On August 13, 1998, the Company acquired Park Associates Limited ("PAL"),
a sports and media talent representation firm in the United Kingdom. (the "PAL
Acquisition"). The initial consideration for the PAL Acquisition was
approximately (pounds sterling)2.6 million (approximately $3.2 million)
consisting of (pounds sterling)1.6 million (approximately $2.6 million) in
cash and 117,440 shares of the Company's common stock. In addition, the Company
will pay an additional (pounds sterling)800,000 (approximately $1.3 million)
in cash and (pounds sterling)200,000 (approximately $330,000) in common stock
(based on the closing price of such stock as reported in The Wall Street
Journal during the twenty days prior to the date of each payment) in five equal
annual installments.

On September 2, 1998, the Company consummated its acquisition of Tony
Stephens Associates Limited ("TSA"), a major soccer talent representation firm
in the United Kingdom (the "TSA Acquisition"). The initial consideration for
the TSA Acquisition was approximately consisting of (pounds sterling)1.8
million (approximately $3.0 million), of which (pounds sterling)1.4 million
(approximately $2.3 million) was paid in cash and 142,291 shares of the
Company's common stock were issued. In addition, the Company will pay an
additional (pounds sterling)200,000 (approximately $330,000) in cash and
(pounds sterling)50,000 (approximately $83,000) in the form of shares of the
Company's common stock.

On September 18, 1998, the Company consummated its acquisition of all the
issued and outstanding equity interests in Halcyon Days, Productions, Inc.,
Robbins Entertainment Group, Inc. and Tollin/Robbins Management, LLC
(collectively, "Tollin/Robbins") (the "Tollin/Robbins Acquisition").
Tollin/Robbins is an award-winning independent film and television production

F-192

company. The initial consideration for the Tollin/Robbins Acquisition was $20.5
million in cash. In addition, the two sellers will each receive $800,000 in
cash, payable in four equal annual installments beginning September 1, 1999 and
will receive additional consideration based on the EBITDA (as defined in the
acquisition agreement) of the acquired entities through 2003, payable in shares
of the Company's common stock and cash.

The funds used to consummate each of the Recent Acquisitions were
principally obtained from borrowings under the Credit Agreement.

F-193

REPORT OF INDEPENDENT AUDITORS

To the Stockholders of
The Marquee Group, Inc.

We have audited the accompanying consolidated balance sheet of The Marquee
Group, Inc. and Subsidiaries (the "Company") as of December 31, 1997 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the two years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly in
all material respects, the consolidated financial position of the Company at
December 31, 1997, and the consolidated results of its operations and its cash
flows for the two years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.

Ernst & Young LLP

New York, New York
March 5, 1998

F-194

THE MARQUEE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS)

DECEMBER 31,
1997
-------------

ASSETS
Current assets:
Cash and cash equivalents ................................................ $ 8,944
Cash escrow .............................................................. 704
Accounts receivable -- net ............................................... 6,930
Television and event costs ............................................... 553
Prepaid expenses and other current assets ................................ 436
--------
Total current assets .................................................. 17,567
Property and equipment, net ............................................... 2,040
Noncurrent receivables .................................................... 668
Notes receivable .......................................................... 1,887
Deposits .................................................................. 677
Intangible assets -- net .................................................. 23,951
--------
$ 46,790
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ................................. $ 4,592
Acquisition indebtedness -- current portion .............................. 775
Escrow payable ........................................................... 527
Deferred revenues ........................................................ 626
--------
Total current liabilities ............................................. 6,520
Acquisition indebtedness -- non-current ................................... 2,144
Deferred rent ............................................................. 696
Deferred income taxes ..................................................... 960
Common stock (545 shares) subject to put options .......................... 3,184
Stockholders' equity
Preferred stock, $.01 par value, 5,000 shares authorized, no shares issued
Common stock, $.01 par value; 25,000 shares authorized, 8,769 and
17,913 shares issued and outstanding ................................... 174
Additional paid-in capital ............................................... 36,885
Accumulated deficit ...................................................... (3,781)
Cumulative translation adjustment ........................................ 8
--------
Total stockholders' equity ............................................ 33,286
--------
$ 46,790
========

See accompanying notes.

F-195

THE MARQUEE GROUP, INC. AND SUBSIDIARIES

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

YEAR ENDED
DECEMBER 31,
--------------------------
1997 1996
------------ -----------

Revenues .................................................................. $ 21,268 $ 2,869
Operating expenses ........................................................ 14,459 2,563
General and administrative expenses ....................................... 6,316 2,199
Loss on abandonment of lease .............................................. 466 --
Deferred compensation ..................................................... 145 56
Depreciation and amortization ............................................. 371 5
-------- --------
Loss from operations ...................................................... (489) (1,954)
Interest expense, net ..................................................... 22 283
Financing expense ......................................................... 756 193
-------- --------
Loss before income taxes .................................................. (1,267) (2,430)
Income tax benefit (provision) ............................................ (45) 20
-------- --------
Net loss .................................................................. (1,312) (2,410)
Accretion of obligation related to the put option issued in connection with
the ProServ acquisition .................................................. 59 --
-------- --------
Net loss applicable to common stockholders ................................ $ (1,371) $ (2,410)
======== ========
Net loss per share applicable to common stockholders-basic and dilutive ... $ (0.15) $ (1.03)
======== ========
Weighted number of shares outstanding ..................................... 9,377 2,347
======== ========

See accompanying notes.

F-196

THE MARQUEE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

NUMBER OF COMMON ADDITIONAL
SHARES STOCK PAID-IN CAPITAL
----------- -------- -----------------

Balance -- December 31, 1995 .......... 1,938 $ 19 $ --
Issuance of common stock:
Issuance to employee ................. 50 -- 119
Conversion of Debentures ............. 667 7 1,993
Initial public offering, net of
offering costs ..................... 3,852 39 15,547
Acquisitions ......................... 2,262 23 1,488
Distribution to acquired companies'
former stockholders .................. -- -- (10,970)
"S" Corporation dividend .............. -- -- (382)
Amortization of deferred
compensation ......................... -- -- --
Net loss for the year ended
December 31, 1996 .................... -- -- --
----- ---- ----------
Balance -- December 31, 1996 .......... 8,769 88 7,795
Initial public offering costs ......... -- -- (131)
Issuance of common stock:
Second offering, net of offering
costs .............................. 8,500 85 38,470
Acquisitions ......................... 644 1 624
Tender Offer .......................... -- -- (10,280)
Issuance of options:
In connection with financing of
Tender Offer ....................... -- -- 394
In connection with acquisitions ...... -- -- 13
Amortization of deferred
compensation ......................... -- -- --
Foreign currency translation
adjustment ........................... -- -- --
Net loss for the year ended
December 31, 1997 .................... -- -- --
----- ---- ----------
17,913 $174 $ 36,885
====== ==== ==========

CUMULATIVE
DEFERRED ACCUMULATED TRANSLATION
COMPENSATION DEFICIT ADJUSTMENT TOTAL
-------------- ------------- ------------ ------------

Balance -- December 31, 1995 .......... $ -- $ -- -- $ 19
Issuance of common stock:
Issuance to employee ................. (119) -- -- --
Conversion of Debentures ............. -- -- -- 2,000
Initial public offering, net of
offering costs ..................... -- -- -- 15,586
Acquisitions ......................... -- -- -- 1,511
Distribution to acquired companies'
former stockholders .................. -- -- -- (10,970)
"S" Corporation dividend .............. -- -- -- (382)
Amortization of deferred
compensation ......................... 56 -- -- 56
Net loss for the year ended
December 31, 1996 .................... -- (2,410) -- (2,410)
------- -------- -- ----------
Balance -- December 31, 1996 .......... (63) (2,410) -- 5,410
Initial public offering costs ......... -- -- -- (131)
Issuance of common stock:
Second offering, net of offering
costs .............................. -- -- -- 38,555
Acquisitions ......................... -- -- -- 625
Tender Offer .......................... -- -- -- (10,280)
Issuance of options:
In connection with financing of
Tender Offer ....................... -- -- -- 394
In connection with acquisitions ...... -- -- -- 13
Amortization of deferred
compensation ......................... 63 -- -- 63
Foreign currency translation
adjustment ........................... -- -- 8 8
Net loss for the year ended
December 31, 1997 .................... -- (1,371) -- (1,371)
------- -------- -- ----------
$ -- $ (3,781) $ 8 $ 33,286
======= ======== === ==========

See accompanying notes.

F-197

THE MARQUEE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

YEAR ENDED
DECEMBER 31,
---------------------------
1997 1996
------------ ------------

Operating activities
Net loss ......................................................................... $ (1,371) $ (2,410)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ................................................... 385 5
Deferred compensation ........................................................... 145 56
Deferred income taxes ........................................................... -- (40)
Noncash financing expense ....................................................... 394 --
Accretion of put option and imputed interest .................................... 189 --
Loss on abandonment of lease .................................................... 335 --
Changes in operating assets and liabilities:
Cash escrow ................................................................... (461) --
Accounts receivable ........................................................... (2,297) 906
Television and event costs .................................................... (553) --
Prepaid expenses .............................................................. 100 (178)
Accounts payable and accrued liabilities ...................................... (1,551) (173)
Escrow payable ................................................................ 323 --
Deferred revenues ............................................................. 573 --
--------- --------
Net cash used in operating activities ............................................ (3,789) (1,834)
--------- --------
Investing activities
Acquisitions, net of cash acquired ........................................... (15,223) --
Loan to seller of business acquired .......................................... (1,500) --
Payment of acquired indebtedness ............................................. (2,469) --
Distribution to subsidiaries' former stockholders ............................ -- (9,000)
Cash acquired through acquisition of subsidiaries ............................ -- 504
Purchase of equipment and leasehold improvements, net of landlord contribution (1,473) (122)
Employee loan ................................................................ (446) --
Security deposits ............................................................ (527) (45)
--------- --------
Net cash used in investing activities ............................................ (21,638) (8,663)
--------- --------
Financing activities
Proceeds from loans payable -- related parties ............................... -- 767
Repayments of loans payable to related parties ............................... (122) (200)
Proceeds of private placement ................................................ -- 1,555
Proceeds from IPO, net of offering costs ..................................... (131) 15,586
Proceeds from bridge financing ............................................... 10,500 --
Costs related to Tender Offer ................................................ (10,280) --
Proceeds from second offering, net of offering costs ......................... 38,555 --
Payment of acquisition indebtedness .......................................... (882) --
Repayment of bridge financing ................................................ (10,500) --
--------- --------
Net cash provided by financing activities ........................................ 27,140 17,708
--------- --------
Increase in cash and cash equivalents ............................................ 1,713 7,211
Cash at beginning of period ...................................................... 7,231 20
--------- --------
Cash at end of period ............................................................ $ 8,944 $ 7,231
--------- --------
Supplemental disclosure of non-cash financing activities:
Exchange of loans payable to related parties for Debentures ...................... -- $ 445
========= ========
Conversion of debentures to common stock ......................................... -- $ 2,000
========= ========
Issuance of acquisition indebtedness ............................................. $ 1,319 $ 1,970
========= ========
S Corporation dividend payable ................................................... -- $ 382
========
Issuance of common stock in connection with acquisitions ......................... $ 3,750 --
=========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes .................................................................... $ 313 $ --
========= ========
Interest ........................................................................ $ 285 $ 254
========= ========

See accompanying notes.

F-198

THE MARQUEE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS AND ORGANIZATION

The Marquee Group, Inc. (the "Company"), which began operations in 1996,
provides integrated event management, television programming and production,
marketing, talent representation and consulting services in the sports, news
and other entertainment industries.

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries after elimination of all intercompany accounts
and transactions.

REVENUE RECOGNITION

The primary sources of the Company's revenues are fees from providing
event management, television programming and production, sports marketing and
consulting services and commissions from representation of sports, news and
entertainment personalities. Revenues from events are recognized when the
events are held. Revenues from television programming and production services
are recognized when the programs are available for broadcast. Marketing
revenues are recognized for guaranteed amounts when contractual obligations are
met (subsequent royalties are recorded when received). Revenues from
advertising services are recognized in the month the advertisement is broadcast
or printed. Commissions based on profit or gross receipt participations are
recorded upon the determination of such amounts. Consulting revenue is
recognized as services are provided. Commissions from the Company's talent
representation services are recognized as revenue when they become payable to
the Company under the terms of the Company's agreements with its clients.
Generally, such commissions are payable by clients upon their receipt of
payments for performance of services.

CASH EQUIVALENTS

The Company considers all highly liquid financial instruments with a
maturity of three months or less when purchased to be cash equivalents.

TELEVISION AND EVENT COSTS

Television and event costs are recorded as incurred and are expensed when
the programs are available for use or when the event is held.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost and are depreciated on a
straight-line basis over their estimated useful lives ranging from five to
seven years. Leasehold improvements are amortized over the shorter of their
estimated useful lives or the remaining lease term.

INTANGIBLES

Intangibles represent the excess of the purchase price of acquisitions
over the tangible net assets acquired and are amortized over twenty years using
the straight-line method. The Company periodically reviews the recoverability
of the carrying value of these assets and the period of amortization based on
the current and expected future non-discounted income from operations of the
entities giving rise to these intangibles to determine whether events and
circumstances warrant revised estimates of carrying value or useful lives.

F-199

THE MARQUEE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DEFERRED RENT

The Company leases premises under leases which provide for periodic
increases over the lease term. Pursuant to Statement of Financial Accounting
Standards No. 13, "Accounting for Leases," the Company records rent expense on
a straight-line basis. The effect of these differences is recorded as deferred
rent.

INCOME TAXES

The Company accounts for income taxes under the liability method as
required by Statement of Financial Accounting Standards Board Statement No. 109
("FAS 109"), "Accounting for Income Taxes." FAS 109 requires an asset and
liability approach to financial accounting and reporting for income taxes.
Under this approach, differences between financial statement and tax bases of
assets and liabilities are determined, and deferred income tax assets and
liabilities are recorded for those differences that have future tax
consequences. Valuation allowances are established, if necessary, to reduce any
deferred tax asset recorded to an amount that will more likely than not be
realized in future periods. Income tax expense is composed of the current tax
payable or refundable for the period plus or minus the net change in deferred
tax assets and liabilities.

EARNINGS PER SHARE

In 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share. Statement No. 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings, basic earnings per share excludes any dilutive effects
of options, warrants and convertible securities. Diluted earnings per share is
very similar to the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods have been presented in conformity
with the Statement No. 128 requirements.

Basic earnings per share applicable to common stockholders is based upon
net loss after reduction of amounts, if any, for accretion of the obligation
related to the put option issued in connection with the ProServ Acquisition
(see Note 3) divided by the weighted average number of shares of common stock
outstanding during the year. Shares of common stock placed in escrow upon
completion of the Initial Public Offering ("IPO") described in Note 2 and in
connection with the QBQ Acquisition described in Note 3 have been excluded from
the calculation of basic earnings per share. The shares of common stock issued
upon the automatic conversion of the debentures (see Note 5) are considered
outstanding for all periods presented.

USE OF ESTIMATES

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash investments and trade
accounts receivable.

At December 31, 1997 and 1996, approximately 90% of the Company's cash and
cash equivalents was invested with one financial institution.

F-200

THE MARQUEE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

For the year ended December 31, 1997, one client represented approximately
28% of reported revenues.

Concentrations of credit risk with respect to accounts receivable are
limited due to the large number of entities comprising the Company's client
base.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company estimates that the carrying amounts of its financial
instruments, principally noncurrent receivables and liabilities, approximates
the fair value.

RECLASSIFICATIONS

Certain reclassifications have been made in the 1996 financial statements
to conform to the 1997 presentation.

2. PUBLIC OFFERINGS AND TENDER OFFER

In December 1996, the Company closed its initial public offering ("IPO")
of 3,852,500 units (the "Units"), each unit consisting of one share of common
stock and one redeemable warrant, at a price of $5.00 per Unit. Each warrant
entitles the holder to purchase one share of common stock at an exercise price
of $7.50, subject to adjustment, at any time until December 4, 2001. The
warrants are redeemable by the Company under certain circumstances at a
redemption price of $.05 per warrant. (See below.)

The Company also granted to the underwriters, or their designees, options
(the "IPO Options") to purchase up to 335,000 Units. The Units purchasable upon
exercise of the IPO Options are identical to the Units described above, except
that the underlying warrants are redeemable only by the Company under limited
circumstances. The IPO Options are exercisable during a three-year period
commencing December 12, 1998 at an exercise price of $8.25, subject to
adjustment in certain events.

Certain of the Company's officer/stockholders have placed an aggregate of
1,275,000 of their shares of common stock in escrow. These shares will not be
assignable or transferable (but may be voted) until such time as they are
released from escrow based upon the Company meeting certain annual earnings
levels or the common stock attaining certain price levels. All reserved shares
remaining in escrow on March 31, 2000 will be forfeited and contributed to the
Company's capital. In the event the Company attains any of the earnings
thresholds or stock prices providing for the release of the escrow shares to
the stockholders, the Company will recognize compensation expense at such time
based on the then fair market value of the shares.

In September 1997, the Company purchased in a tender offer approximately 4
million of the 4.5 million outstanding warrants at a cash purchase price of
$2.40 per warrant. In order to consummate its purchase of the Warrants, the
Company borrowed $10.5 million pursuant to a loan agreement (the "Bridge
Facility"). The Company repaid such borrowing with a portion of the net
proceeds of its second public offering described below. In connection with the
Bridge Facility, the Company paid the lender fees and expenses of $362,000 and
issued to the lender immediately exercisable options to acquire an aggregate of
105,000 shares of common stock, at an exercise price of $2.25, subject to
adjustment in certain circumstances. The options will expire in 2007. As a
result of the issuance of the options, the Company recorded financing expense
of $394,000 in 1997.

On October 14, 1997 and November 12, 1997, the Company consummated a
second public offering (the "Second Offering") of 8.5 million shares (including
the Underwriters' overallotment) of the Company's common stock at $5.00 per
share. The proceeds to the Company after deducting the underwriting discount
and commissions and other expenses was approximately $39 million.

F-201

THE MARQUEE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

3. ACQUISITIONS

1996 ACQUISITIONS

On December 12, 1996, the Company acquired by merger, concurrently with
the closing of its IPO, Sports Marketing & Television International, Inc.
("SMTI") which provides production and marketing services to sporting events,
sports television shows and professional and collegiate leagues and
organizations and, Athletes and Artists, Inc. ("A&A"), a sports and media
talent representation firm, collectively the "1996 Acquisitions". The SMTI
stockholders received cash of $6,500,000 from the proceeds of the IPO, an
additional $1,500,000 payable in five equal installments over five years and
1,292,307 shares of the Company's common stock. The A&A stockholders received
cash of $2,500,000 from the proceeds of the IPO, miscellaneous reimbursements
of $80,000, an additional $1,000,000 payable in five equal installments over
five years and 969,231 shares of the Company's common stock.

The 1996 Acquisitions were accounted for as a consolidation at historical
cost due to the significance of the equity interests in the Company held by the
former stockholders of SMTI and A&A following completion of the acquisitions.
Accordingly, the acquired assets and liabilities were recorded at their
historical amounts. The capital stock of SMTI and A&A was included in
additional paid-in capital. In addition, the cash paid to the former
stockholders of SMTI and A&A was recorded as a dividend charged to additional
paid-in capital.

SMTI was an S Corporation prior to the merger. The SMTI stockholders
received a distribution of approximately $350,000 during 1997, which represents
40% of the taxable earnings of SMTI prior to the merger.

The accompanying consolidated financial statements include the accounts of
SMTI and A&A from December 12, 1996.

ACQUISITION OF PROSERV

On October 14, 1997, the Company acquired all of the outstanding stock of
ProServ, Inc. and ProServ Television, Inc. (collectively, "ProServ"), an
established provider of international sports event management, television
production, marketing, talent representation and consulting. The aggregate
purchase price for ProServ was approximately $10.8 million in cash and 250,000
shares of the Company's common stock. The Company may be obligated to make
additional earn-out payments over the next four years of up to $2.5 million
based upon ProServ achieving, during this period, certain levels of revenues
and earnings before interest, taxes, depreciation and amortization. The Company
also repaid approximately $2.5 million of ProServ's outstanding indebtedness at
the acquisition date. The Company used a portion of the proceeds of the Second
Offering to finance the acquisition and the repayment of the outstanding
indebtedness. Under certain circumstances, the Company may be required to
repurchase up to all of the 250,000 shares of the common stock issued in
connection with the acquisition for an aggregate purchase price of up to $1.9
million.

The acquisition was accounted for using the purchase method, with the
aggregate puchase price allocated to the tangible net assets based upon
estimated fair market values. The total purchase price of $13.4 million, which
includes costs incurred in connection with the acquisition, exceeded the
tangible net asset deficiency acquired by approximately $17 million, which has
been recorded as an intangible. ProServ's results of operations for the period
from the October 14, 1997 have been included in the accompanying consolidated
financial statements. The potential earn-out will be recorded as additional
purchase price when earned.

ACQUISITION OF QBQ

On October 14, 1997, the Company acquired substantially all of the assets
of QBQ Entertainment, Inc. ("QBQ"), a company that books tours and appearances
for a variety of

F-202

THE MARQUEE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

entertainers. The aggregate purchase price for QBQ was approximately $3.1
million in cash, $1.6 million payable in annual installments payable over eight
years and 393,514 shares of common stock, including 78,702 shares held in
escrow and subject to forfeiture if certain financial performance tests are not
met. In connection with an employment agreement with the chief executive
officer and sole stockholder of QBQ, the Company granted a five-year,
non-recourse loan of $1.5 million, secured by the common stock issued in
connection with the QBQ acquisition. The Company used a portion of the proceeds
of the Second Offering to finance the acquisition and the loan. Under certain
circumstances, the Company may be required to repurchase up to 295,135 shares
of common stock issued in connection with the acquisition for an aggregate
purchase price of up to $1.9 million.

The QBQ acquisition was accounted for using the purchase method of
accounting and the results of its operations have been included in the
accompanying financial statements from October 14, 1997. The total purchase
price of approximately $7.2 million, which includes costs incurred in
connection with the acquisition, exceeded the tangible net assets acquired by
approximately the same amount and has been recorded as intangibles.

The following unaudited pro forma information is presented as if the
Company had completed the acquisition of ProServ, QBQ, SMTI and A&A and the
Secondary Offering at the beginning of the respective periods and gives effect
to the related contractually required reductions in personnel, officers'
salaries and employee benefits:

YEAR ENDED DECEMBER 31,
-----------------------
1997 1996
---------- ------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)

Pro forma revenues ................................... $34,953 $ 29,932
Pro forma net loss applicable to common stockholders . $ (521) $ (2,814)
Pro forma net loss per share applicable to common
stockholders--basic and dilutive ................... $ (.03) $ (.17)
Pro forma weighted average shares .................... 16,559 16,559

Aggregate maturities for the indebtedness related to the Company's
acquisitions, exclusive of the put options, as of December 31, 1997 is as
follows:

(IN THOUSANDS)
---------------

1998 ............................................. $ 775
1999 ............................................. 775
2000 ............................................. 730
2001 ............................................. 730
2002 ............................................. 230
Thereafter ....................................... 375
------
3,615
Less: amounts representing interest .............. 696
------
Total, including current portion of $775.......... $2,919
------

F-203

THE MARQUEE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

4. PROPERTY AND EQUIPMENT

At December 31, 1997, property and equipment consists of the following:

(IN THOUSANDS)
---------------

Furniture and fixtures ............................. $ 952
Leasehold improvements ............................. 1,190
Vehicles ........................................... 27
------
2,169
Accumulated depreciation and amortization .......... 129
------
$2,040
======

5. PRIVATE PLACEMENT

In August 1996, the Company issued debentures (the "Debentures"), in the
aggregate principal amount of $2 million, each Debenture consisted of $50,000
principal amount of 10% Convertible Debentures. Interest on the Debentures of
$254,000 was calculated for the period from the final closing of the Private
Placement to a date one year from the effective date of the Company's IPO. The
Debentures were automatically converted into units (see Note 2) identical in
all respects to those offered in the IPO at a rate of one unit for each $3.00
principal amount of Debentures.

Stockholders of the Company and stockholders of SMTI and A&A purchased an
aggregate of $750,000 principal amount of Debentures, of which $445,103 was in
exchange for existing indebtedness of the Company to the stockholders. In
addition, the Company repaid $125,000 to one of the officer/stockholders from
the proceeds of the private placement.

6. INCOME TAXES

The income tax expense (benefit) consists of:

YEAR ENDED
DECEMBER
31,
-----------------
1997 1996
------ --------
(IN THOUSANDS)

Current:
Federal ................. $-- $ --
State and local ......... 45 (20)
--- -----
45 (20)
--- -----
Deferred:
Federal ................. -- 30
State and local ......... -- 10
--- -----
-- 40
--- -----
$45 $ 20
=== =====

F-204

THE MARQUEE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

A reconciliation of the federal statutory tax rate to the actual effective
rate is as follows:

DECEMBER 31,
--------------------------
1997 1996
----------- ------------

Statutory rate ............................................... (34.0)% (34.0)%
State and local income taxes, net of federal benefit ......... 2.3 .4
Valuation allowance .......................................... 26.3 31.8
Permanent differences ........................................ 8.9 1.0
----- -----
Effective rate ............................................... 3.5% (.8)%
===== =====

The deferred tax assets and liabilities is comprised of the following:

DECEMBER, 31,
-----------------------
1997 1996
---------- ----------
(IN THOUSANDS)

Cumulative effect of change in tax accounting basis ......... $ (228) $ (343)
Deferred compensation expense ............................... (67) (29)
Deferred rent ............................................... (48) --
Net operating losses ........................................ 1,494 1,051
ProServ tax audits .......................................... (617) --
Valuation allowance ......................................... (1,494) (1,022)
-------- --------
Net deferred tax liabilities ................................ $ (960) $ (343)
======== ========

At December 31, 1997, the Company had net operating loss carryforwards of
approximately $3.3 million which will begin to expire in 2011. ProServ had net
operating losses of approximately $2.6 million at the time of the acquisition.
These losses are subject to limitations under the Internal Revenue Code and
will begin to expire in 2010.

In connection with examinations of the consolidated federal tax returns of
ProServ for years 1993 through 1995, the Internal Revenue Service has
challenged the tax treatment of certain significant transactions. The French
taxing authorities are conducting an audit of ProServ's former subsidiary,
located in France, for the same period. Although ProServ's management believes
that there are valid defenses to defeat any tax assessment, the Company has
provided for these contingencies. Such amounts have been included in deferred
tax liabilities at December 31, 1997.

The Company recorded an increase in the valuation allowance of $472,000
for the year ended December 31, 1997.

7. STOCKHOLDERS' EQUITY

On July 17, 1996, the Board of Directors and stockholders of the Company
approved an increase in the authorized capitalization of the Company to 25
million shares of common stock, par value $.01 per share, and 5 million shares
of preferred stock, par value $.01 per share. In addition, in August 1996 the
Board of Directors and the stockholders of the Company approved a stock split
whereby 999 shares of the 1,000 shares of common stock outstanding at that time
were split on the basis of approximately 1,940-for-1 and the remaining one
share of common stock outstanding at that time was split on the basis of
50,000-for-1. All share information in the financial statements reflect the
stock split.

COMMON STOCK RESERVED FOR ISSUANCE

As of December 31, 1997, the Company has 1,197,503 shares of common stock
reserved for issuance upon the exercise of the warrants and the IPO Options
(see Note 2), 800,000 shares of

F-205

THE MARQUEE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

common stock reserved for issuance upon exercise of options pursuant to the
1996 and 1997 Stock Option Plans and 315,000 shares reserved for issuance under
other options and warrants of the Company.

8. STOCK OPTION PLAN

The Company's Board of Directors has adopted and the stockholders have
approved the Company's 1996 and 1997 Stock Option Plans (the "Plan"). The Plan
provides for the grant, at the discretion of the Board of Directors, of (i)
options that are intended to qualify as incentive stock options within the
meaning of Section 422A of the Internal Revenue Code to certain employees and
consultants and (ii) options not intended to so qualify. The aggregate number
of shares of common stock for which options may be granted under the Plan is
800,000 shares.

The Plan is administered by a Stock Option Committee (the "Committee")
which is appointed by the Board of Directors. The Committee determines who
among those eligible will be granted options, the time or times at which
options will be granted, the terms of the options, including the exercise
price, the number of shares subject to the options and the terms and conditions
of exercise.

A summary of the activity in the Plan is as follows:

NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
----------- -----------------

Granted--1996 ............................ 230,000 $5.71
Granted--1997 ............................ 7,500 $5.875
Forfeited--1997 .......................... (4,000) $5.00
------- ------
Outstanding at December 31, 1997 ......... 233,500 $5.72
======= ======
Exercisable at December 31, 1996 ......... -- --
======= ======
Exercisable at December 31, 1997 ......... 23,575 $5.69
======= ======

Options outstanding as of December 31, 1997 have exercise prices ranging
from $5 to $6.25 per share. The options vest in annual installments over the
three to five year period commencing one year from the date of grant.

The Company has elected to follow Accounting Principles Board opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," requires use of
options valuation models that were not developed for use in valuing employee
stock options. The exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant and,
therefore, no compensation expense is recognized.

F-206

THE MARQUEE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its stock options under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1997 and 1996:

ASSUMPTION 1997 1996
- -------------------------------------------------------- --------- ---------------

Risk-free rate ...................................... 5.47% 5.45% to 6.18%
Dividend yield ...................................... 0% 0%
Volatility factor of the expected market price of the
Company's common stock ............................ .54 .72
Average life ........................................ 3 years 4 years

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows:

YEAR ENDED DECEMBER 31,
---------------------------
1996 1997
------------ ------------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)

Pro forma net loss applicable to common stockholders ......... $ (2,454) $ (1,547)
Pro forma net loss per share applicable to common
stockholders--basic and dilutive ........................... $ (1.05) $ (0.16)

The weighted average fair value of options granted during the years ended
December 31, 1997 and 1996 was $2.43 and $2.57, respectively. The weighted
average remaining contractual life of options outstanding at December 31, 1997
is 4.8 years.

9. RELATED PARTY TRANSACTIONS

In December 1997, the Company repaid an officer/stockholder the $121,615
outstanding at December 31, 1996. Interest on the loan accrued at 12%.

The Company provided services as a subcontractor for SMTI aggregating
$724,000, for the period from January 1, 1996 to December 12, 1996 (see Note
3), which are included in 1996 revenues in the accompanying consolidated
statement of operations.

During August 1996, the Company entered into a six-year consulting
agreement with Sillerman Communications Management Corporation ("SCMC"), which
is controlled by Robert F.X. Sillerman, the Chairman of the Company and the
controlling stockholder of The Sillerman Companies, Inc. ("TSC"), a principal
stockholder of the Company, that provides for a monthly fee of $30,000
commencing in September 1997. In March 1997, SCMC assigned its rights,
obligations, and duties under the consulting agreement to The Sillerman
Companies, Inc. In October 1997, TSC waived its right to future monthly
payments under the consulting agreement.

F-207

THE MARQUEE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In February 1997, the Company paid $400,000 to SCMC as an advance against
special advisory services to be provided. In connection with the ProServ
Acquisition and the QBQ Acquisition, TSC received Special Advisory Fees of
$450,000 (of which $400,000 was offset against the amounts previously
advanced), and, in connection with the Tender Offer, an immediately exercisable
option to purchase 200,000 shares of common stock at $7.00 per share. In
addition, the Company paid $75,000 to TSC for expenses.

In consideration for Mr. Sillerman's guarantee of a portion of the $1.5
million letter of credit issued to replace the escrow in connection with the
ProServ Acquisition, the Company, in November 1997, granted Mr. Sillerman an
immediately exercisable, five-year option to purchase 10,000 shares of common
stock at an exercise price per share of $5.00 and paid Mr. Sillerman $75,000,
including $25,000 for his related legal fees and expenses.

In April 1997, in connection with the employment of an officer of the
Company, the Company loaned the officer $446,000 which loan by its terms may be
forgiven. In addition, the officer will over a three year period beginning with
his date of employment receive $100,000 payable in shares of Common Stock.

10. INVESTMENT IN JOINT VENTURE

SMTI and NBC formed a limited liability corporation, Celebrity Golf
Championship, LLC ("CGC") to conduct the annual golfing tournament known as The
Celebrity Golf Championship. Earnings are allocated 75% to NBC and 25% to SMTI
in accordance with the LLC agreement. All profits from CGC are distributed
annually.

Condensed financial information for CGC is as follows:

DECEMBER 31,
1997
---------------
(IN THOUSANDS)

Cash ....................... $ 232
======
Due to SMTI ................ $ 232
======

YEAR ENDED DECEMBER 31,
---------------------------
1997 1996
----------- ------
(IN THOUSANDS)
Revenues ................... $3,529 $2,743
Operating expenses ......... 2,699 2,067
----------- -------
Net income ................. $ 830 $ 676
=========== =======

11. COMMITMENTS AND CONTINGENCIES

The Company leases office space under operating leases that expire through
2008. These operating leases provide for basic annual rents plus escalation
charges. The aggregate future minimum lease payments (including the deferred
rent liability of $696,000) required under these leases, net of noncancelable
sublease income of $2,370,000 as of December 31, 1997 are as follows:

(IN THOUSANDS)
---------------

1998 ................ $1,223
1999 ................ 1,124
2000 ................ 1,173
2001 ................ 1,078
2002 ................ 999
Thereafter .......... 3,862
------
$9,459
======

F-208

THE MARQUEE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company also rents office space on a month-to-month basis. Rent
expense amounted to $45,000 and $303,000, respectively, for the years ended
December 31, 1996 and 1997.

The Company has notified the landlord for space previously occupied by one
of the Company's subsidiaries that the space has been abandoned. The Company
has recorded a loss of $466,000 for the year ended December 31, 1997 related to
the settlement with the landlord and to write-off the related abandoned fixed
assets.

The Company has entered into employment agreements with key executives for
periods ranging from three to five years.

The Company is subject to certain legal proceedings and claims, which have
arisen, in the ordinary course of its business. In the opinion of management,
settlement of these actions, when ultimately concluded, will not have a
material adverse effect on the Company's financial condition, results of
operations and liquidation.

12. SUBSEQUENT EVENT

In March 1998, the Company entered into a non-binding letter of intent to
acquire Alphabet City Industries and Alphabet City Sports Records, Inc.
(collectively, the "Pending Acquisition"), both of which are sports and music
marketing companies which develop strategic alliances among sports leagues,
music companies and corporate sponsors. The aggregate purchase price for the
Pending Acquisition will be approximately $4.0 million consisting of $3.0
million in cash and 1.0 million in shares of Common Stock. In addition, the
Company may be obligated to make additional payments based upon the financial
performance of the acquired businesses. In connection with entering into the
letter of intent, the Company advanced Alphabet City Industries $350,000.

F-209

REPORT OF INDEPENDENT AUDITORS

To the Stockholders
Alphabet City Sports Records, Inc. and
Alphabet City Industries, Inc.

We have audited the accompanying combined balance sheet of Alphabet City
Sports Records, Inc. and Alphabet City Industries, Inc. as of December 31,
1997, and the related combined statements of income and cash flows for the year
ended December 31, 1997 and for the period from April 11, 1996 (inception) to
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 audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Alphabet City
Sports Records, Inc. and Alphabet City Industries, Inc. at December 31, 1997
and the combined results of their operations and their cash flows for the year
ended December 31, 1997 and for the period from April 11, 1996 (inception) to
December 31, 1996 in conformity with generally accepted accounting principles.

Ernst & Young LLP

New York, New York
May 21, 1998

F-210

ALPHABET CITY SPORTS RECORDS, INC.
ALPHABET CITY INDUSTRIES, INC.

COMBINED BALANCE SHEETS

DECEMBER 31, JUNE 30,
1997 1998
-------------- ------------
(UNAUDITED)

ASSETS
Current assets:
Cash .............................................. $ 651 $ 56,643
Accounts receivable ............................... 527,207 902,561
Prepaid expenses and other current assets ......... 444,684 627,992
---------- ----------
Total current assets ............................... 972,542 1,587,196
Property and equipment, net ........................ 31,340 31,920
Other assets ....................................... 10,669 17,191
---------- ----------
Total assets ....................................... $1,014,551 $1,636,307
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loan payable ...................................... $ -- $ 350,000
Accounts payable .................................. 836,247 990,898
Accrued liabilities ............................... 56,627 254,217
---------- ----------
Total current liabilities .......................... 892,874 1,595,115
Stockholders' equity ............................... 121,677 41,192
---------- ----------
Total liabilities and stockholders' equity ......... $1,014,551 $1,636,307
========== ==========

See accompanying notes.

F-211

ALPHABET CITY SPORTS RECORDS, INC.
ALPHABET CITY INDUSTRIES, INC.

COMBINED STATEMENTS OF INCOME

PERIOD FROM
APRIL 11, 1996 SIX MONTHS ENDED
YEAR ENDED (INCEPTION) TO JUNE 30,
DECEMBER 31, DECEMBER 31, -----------------------------
1997 1996 1998 1997
-------------- --------------- ------------- -------------
(UNAUDITED)

Revenues ..................................... $2,976,331 $1,316,763 $1,476,069 $1,930,736
Cost of revenues ............................. 1,796,194 1,003,949 968,846 1,192,385
---------- ---------- ---------- ----------
Gross profit ................................. 1,180,137 312,814 507,223 738,351
Operating expenses:
Selling expenses ............................ 424,109 196,984 217,700 199,258
General and administrative expenses ......... 663,836 59,919 350,008 294,701
---------- ---------- ---------- ----------
Total operating expenses .................. 1,087,945 256,903 567,708 493,959
---------- ---------- ---------- ----------
Income from operations ....................... 92,192 55,911 (60,485) 244,392
Other income/(expenses) ...................... 10,944 -- -- (12,676)
---------- ---------- ---------- ----------
Income before income taxes ................... 103,136 55,911 (60,485) 231,716
Provision for income taxes ................... 23,000 14,370 20,000 14,789
---------- ---------- ---------- ----------
Net income ................................... $ 80,136 $ 41,541 $ (80,485) $ 216,927
========== ========== ========== ==========

See accompanying notes.

F-212

ALPHABET CITY SPORTS RECORDS, INC.
ALPHABET CITY INDUSTRIES, INC.

COMBINED STATEMENTS OF CASH FLOWS

OPERATING ACTIVITIES
Net income ........................................ $ 80,136 $ 41,541 $ (80,485) $ 216,927
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization .................. 3,527 983 4,123 2,068
Changes in operating assets and liabilities:
Accounts receivable ........................... (256,870) (270,337) (375,354) (112,324)
Other current assets .......................... (414,684) (30,000) (183,308) (29,949)
Other assets .................................. (5,081) -- (6,522) (1,775)
Accounts payable .............................. 595,330 240,917 154,651 136,649
Accrued liabilities ........................... 2,472 54,155 197,590 57,256
---------- ---------- ---------- ----------
Net cash provided by (used in) operating
activities ....................................... 4,830 37,259 (289,305) 268,852
---------- ---------- ---------- ----------
INVESTING ACTIVITIES
Purchases of fixed assets ......................... (30,617) (5,233) (4,703) (27,352)
Payment of security deposit ....................... (5,588) -- -- (5,588)
---------- ---------- ---------- ----------
Net cash used in investing activities ............. (36,205) (5,233) (4,703) (32,940)
---------- ---------- ---------- ----------
FINANCING ACTIVITIES
Proceeds from loan ................................ -- -- 350,000 --
---------- ---------- ---------- ----------
Net cash provided by financing activities ......... -- -- 350,000 --
---------- ---------- ---------- ----------
Net (decrease) increase in cash ................... (31,375) 32,026 55,992 235,912
Cash at beginning of year ......................... 32,026 -- 651 32,026
---------- ---------- ---------- ----------
Cash at end of year ............................... $ 651 $ 32,026 $ 56,643 $ 267,938
========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Income taxes paid ................................. $ 53,740 $ -- $ 15,133 $ --
========== ========== ========== ==========
Interest paid ..................................... $ -- $ -- $ -- $ --
========== ========== ========== ==========

See accompanying notes.

F-213

ALPHABET CITY SPORTS RECORDS, INC.
ALPHABET CITY INDUSTRIES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS

(INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS AND ORGANIZATION

Alphabet City Sports Records, Inc. and Alphabet City Industries, Inc.
(collectively, the "Company") were organized in New York on April, 11, 1996 and
May 14, 1997, respectively. The Company's main purpose is creating, licensing,
marketing and distributing recorded music through non-music retail outlets in
association with a broad spectrum of professional and college sports teams and
leagues. The Company also provides non-traditional marketing and media services
to various corporations.

PRINCIPLES OF COMBINATION

The accompanying combined financial statements include the accounts of
Alphabet City Sports Records, Inc. and Alphabet City Industries, Inc. The
companies are under common ownership. All significant intercompany transactions
have been eliminated in combination.

REVENUE RECOGNITION

Revenues from the sale of music CDs and cassettes are recognized upon
shipment to the customers. Marketing and media revenues are recognized as
services are provided or upon the delivery to the client of the materials
created for them by the Company.

ADVANCES AND RECOUPABLE COSTS

In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 50, Financial Reporting in the Record and Music Industry, advances to
artists and producers are capitalized as an asset when the current popularity
and past performance of the artist or producer provides a sound basis for
estimating the probable future recoupment of such advances from sales. Any
portion of such advances not deemed to be recoupable from future sales is
reserved at the balance sheet date. All other advances which do not meet the
above criteria are expensed when incurred.

LICENSE AGREEMENTS

Certain of the Company's compilation products are master recordings under
license from various sports teams and organizations for the right to use the
names, logos and other material directly related to the team or organization.
Typically, minimum guarantees or non-returnable advances are required to obtain
the licenses and are realized through future sales of the product. The amounts
paid for minimum guarantees or non-returnable advances are charged to expense
over the license term. When anticipated sales appear to be insufficient to
fully recover the minimum guarantees or non-returnable advances, a provision
against current operations is made for anticipated losses.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost and are depreciated on a
straight-line basis over their estimated useful lives ranging from three to
seven years.

USE OF ESTIMATES

F-214

ALPHABET CITY SPORTS RECORDS, INC.
ALPHABET CITY INDUSTRIES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED)

INTERIM FINANCIAL STATEMENTS

The unaudited interim information as of June 30, 1998 and for the six
months ended June 30, 1997 and 1998 has been prepared on the same basis as the
annual financial statements and, in the opinion of the Company's management,
reflects normal recurring adjustments necessary for a fair presentation of the
information for the periods presented. Interim results are not necessarily
indicative of results for a full year. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.

INCOME TAXES

Income taxes are provided on the liability method as required by Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes.
Deferred income taxes (which are not material) reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.

The shareholders of Alphabet City Industries, Inc. have elected under
Subchapter S of the Internal Revenue Code to include the Company's income in
their own income for Federal income tax purposes. Alphabet City Sports Records,
Inc. was incorporated as a "C Corporation."

2. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

DECEMBER 31, JUNE 30,
1997 1998
-------------- -----------

Furniture and equipment ............... $ 35,850 $ 40,553
Less accumulated depreciation ......... (4,510) (8,633)
-------- --------
$ 31,340 $ 31,920
======== ========

3. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following:

DECEMBER 31, JUNE 30,
1997 1998
-------------- -----------

Project costs ................ $352,397 $441,322
Inventory .................... 33,161 50,161
Prepaid expenses ............. 34,076 40,881
Other current assets ......... 25,050 95,628
-------- --------
$444,684 $627,992
======== ========

4. COMMITMENTS AND CONTINGENCIES

The Company leases its office space. The lease provides for escalations of
rent based upon the increase in certain operating expenses.

F-215

ALPHABET CITY SPORTS RECORDS, INC.
ALPHABET CITY INDUSTRIES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED)

Future minimum payments under operating leases consist of the following:

Year ending December 31:
1998 ........................ $51,200
1999 ........................ 9,200
-------
$60,400
=======

There was no rent expense in 1996; rent expense was $36,084, $15,055 and
$21,197 for the year ended December 31, 1997 and for the six months ended June
30, 1997 and 1998, respectively.

5. STOCKHOLDERS' EQUITY

Stockholders' equity consists of the following:

COMMON RETAINED DUE FROM
TOTAL STOCK EARNINGS STOCKHOLDERS
------------ ---------- ------------ -------------

Alphabet City Sports Records, Inc.:
Issuance of common stock--1996 ......... $ -- $ 1,000 $ -- $ (1,000)
Net income ............................. 41,541 -- 41,541 --
--------- ------- --------- ---------
Balance at December 31, 1996 ............ 41,541 1,000 41,541 (1,000)
Net income ............................. 40,781 -- 40,781 --
--------- ------- --------- ---------
Balance at December 31, 1997 ............ 82,322 1,000 82,322 (1,000)
--------- ------- --------- ---------
Alphabet City Industries, Inc.:
Issuance of common stock--1997 ......... -- 1,000 -- (1,000)
Net income ............................. 39,355 -- 39,355 --
--------- ------- --------- ---------
Balance at December 31, 1997 ............ 39,355 1,000 39,355 (1,000)
--------- ------- --------- ---------
Combined stockholders' equity at
December 31, 1997 ...................... $ 121,677 $ 2,000 $ 121,677 $ (2,000)
========= ======= ========= =========

Alphabet City Sports Records, Inc. has 200 shares of no par value common
stock authorized and 20 shares are issued and outstanding. Alphabet City
Industries, Inc. has 200 shares of no par value common stock authorized and 20
shares are issued and outstanding.

6. MAJOR CUSTOMERS/SUPPLIER

For the period from April 11, 1996 to December 31, 1996, approximately 92%
of combined revenues were derived from one customer. For the year ended
December 31, 1997, three customers accounted for approximately 22%, 17%, and
13% of combined revenues, respectively. For the six months ended June 30, 1998
two customers accounted for approximately 52% and 19% of combined revenues,
respectively. For the six months ended June 30, 1997, three customers accounted
for approximately 26%, 23% and 21% of combined revenues respectively.

For the period from April 11, 1996 to December 31, 1996, 100% of the CDs
produced were manufactured by one vendor. For the year ended December 31, 1997,
86% of the CDs produced were manufactured by one vendor. For the six months
ended June 30, 1998, two vendors manufactured 53% and 32%, respectively, of the
CD's produced.

F-216

ALPHABET CITY SPORTS RECORDS, INC.
ALPHABET CITY INDUSTRIES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED)

7. IMPACT OF YEAR 2000 (UNAUDITED)

The Company has conducted a review of its computer systems to identify the
systems that could be affected by the "Year 2000" issue and has developed an
implementation plan to resolve the issue. The Company presently believes that,
with modifications to existing software, the cost of which is not material to
the results of operations or financial condition of the Company, the Year 2000
problem will not pose significant operational problems for the Company's
computer systems.

8. SUBSEQUENT EVENT

On August 3, 1998, The Marquee Group, Inc. consummated its acquisition of
substantially all of the assets of Alphabet City Industries, Inc. and all of
the outstanding stock of Alphabet City Sports Records, Inc. (collectively, the
"Alphabet City Acquisition"). The aggregate purchase price for the Alphabet
City Acquisition was approximately $3.4 million in cash (excluding assumed
liabilities) and 200,000 shares of The Marquee Group, Inc. common stock.

F-217

REPORT OF INDEPENDENT AUDITORS

To the Stockholders
Cambridge Holding Corporation, Inc.

We have audited the accompanying consolidated balance sheet of Cambridge
Holding Corporation, Inc. and Subsidiary (the "Company") 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.

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

Ernst & Young LLP

New York, New York
June 3, 1998

F-218

CAMBRIDGE HOLDING CORPORATION, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, JUNE 30,
1997 1998
-------------- --------------
(UNAUDITED)

ASSETS
Current assets:
Cash ........................................................ $ 162,781 $ 241,425
Accounts receivable ......................................... 767,204 773,613
Other current assets ........................................ 24,345 13,330
---------- ----------
Total current assets ......................................... 954,330 1,028,368
Property and equipment, net .................................. 4,537 2,186
Other assets ................................................. 62,878 62,878
---------- ----------
Total assets ................................................. $1,021,745 $1,093,432
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................ $ 883,411 $ 723,279
Accrued liabilities ......................................... 25,938 112,153
---------- ----------
Total current liabilities .................................... 909,349 835,432
---------- ----------
Stockholders' equity:
Common stock, $1 par; authorized 25,000 shares; 10,000 shares
issued .................................................... 10,000 10,000
Retained earnings ........................................... 123,552 269,156
---------- ----------
133,552 279,156
Less 6,666 shares held in treasury, at cost ................. (21,156) (21,156)
---------- ----------
Total stockholders' equity ................................... 112,396 258,000
---------- ----------
Total liabilities and stockholders' equity ................... $1,021,745 $1,093,432
========== ==========

See accompanying notes.

F-219

CAMBRIDGE HOLDING CORPORATION, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, -------------------------
1997 1998 1997
------------- ----------- -----------
(UNAUDITED)

Revenue ...................................... $1,318,763 $691,276 $874,692
Expenses:
Stockholders' salary expense ................ 487,974 182,576 173,880
Other salary expense ........................ 153,536 48,935 58,619
Travel and entertainment .................... 127,458 71,886 65,316
General and administrative expenses ......... 581,520 158,135 273,488
---------- -------- --------
Total expenses ............................... 1,350,488 461,532 571,303
(Loss) income from operations ................ (31,725) 229,744 303,389
Other income:
Interest income ............................. 12,746 860 1,656
Other income ................................ 2,000 -- --
---------- -------- --------
14,746 860 1,656
---------- -------- --------
(Loss) income before income taxes ............ (16,979) 230,604 305,045
Income tax provision ......................... -- 85,000 113,000
---------- -------- --------
Net loss ..................................... $ (16,979) $145,604 $192,045
========== ======== ========

See accompanying notes.

F-220

CAMBRIDGE HOLDING CORPORATION, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED
JUNE 30,
DECEMBER 31, -------------------------
1997 1998 1997
------------- ----------- -----------
(UNAUDITED)

OPERATING ACTIVITIES
Net loss ............................................ $ (16,979) $ 145,604 $ 192,045
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation ....................................... 9,405 2,351 4,702
Changes in operating assets and liabilities:
Accounts receivable .............................. (476,866) (6,409) 210,630
Other current assets ............................. (4,800) 11,015 8,615
Other assets ..................................... (2,444) -- --
Accounts payable and accrued liabilities ......... 616,394 (73,917) (11,847)
---------- --------- ---------
Net cash provided by operating activities ........... 124,710 78,644 404,145
---------- --------- ---------
INVESTING ACTIVITIES
Purchase of fixed assets ............................ (2,773) -- (2,773)
---------- --------- ---------
Net cash used in investing activities ............... (2,773) -- (2,773)
---------- --------- ---------
Net increase in cash ................................ 121,937 78,644 401,372
Cash at beginning of year ........................... 40,844 162,781 40,844
---------- --------- ---------
Cash at end of year ................................. $ 162,781 $ 241,425 $ 442,216
========== ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Income taxes paid ................................... $ 9,222 $ 8,219 $ --
========== ========= =========
Interest paid ....................................... $ -- $ -- $ --
========== ========= =========

See accompanying notes.

F-221

CAMBRIDGE HOLDING CORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS AND BASIS OF PRESENTATION

The Company is a full service sports management and marketing firm,
specializing in both the representation of professional athletes and corporate
consulting. The accompanying consolidated financial statements include the
accounts of Cambridge Holding Corporation, Inc. and its wholly owned
subsidiary, Cambridge Sports International, Inc. All significant intercompany
accounts and transactions have been eliminated in consolidation.

REVENUE RECOGNITION

The Company's revenues arise primarily from percentage fees or commissions
received for the negotiation of professional sporting contracts and marketing
and endorsement contracts. The Company recognizes revenue ratably over the
performance period of the associated contract.

ACCOUNTS RECEIVABLE

Accounts receivable at December 31, 1997 and June 30, 1998 include
approximately $731,000 and $582,000, respectively, which represents amounts
billed on behalf of professional athletes relating to sporting contracts and
marketing and endorsement contracts. Such amounts are to be paid, net of the
Company's commission, to the professional athletes upon collection.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost and are depreciated on a
straight-line basis over their estimated useful lives ranging from five to
seven years.

USE OF ESTIMATES

INTERIM FINANCIAL STATEMENTS

INCOME TAXES

Income taxes are provided on the liability method as required by Statement
of Financial Accounting Standard Statement No. 109, "Accounting for Income
Taxes." Deferred income taxes (which are not material), reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income
tax purposes.

F-222

CAMBRIDGE HOLDING CORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED)

2. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

DECEMBER 31, JUNE 30,
1997 1998
-------------- ------------

Furniture and equipment ............... $ 13,734 $ 13,734
Computer equipment .................... 27,333 27,333
--------- ---------
41,067 41,067
Less accumulated depreciation ......... (36,530) (38,881)
--------- ---------
$ 4,537 $ 2,186
========= =========

3. COMMITMENTS AND CONTINGENCIES

The Company leases its office space. The lease provides for escalations of
rent based upon the increase in certain operating expenses.

Future minimum payments under noncancelable operating leases is as
follows:

Years ending December 31:
1998 .................. $25,000
1999 .................. 4,200
-------
$29,200
=======

Rent expense was $32,878, $16,309, and $14,242 for the year ended December
31, 1997 and for the six months ended June 30, 1997 and 1998, respectively.

4. SIGNIFICANT CLIENTS

For the year ended December 31, 1997, three professional athletes
accounted for approximately 32%, 18% and 11% of consolidated revenue,
respectively.

For the six months ended June 30, 1998 and 1997, two professional athletes
accounted for approximately 12% and 12% and 34% and 6% of consolidated revenue,
respectively.

5. IMPACT OF YEAR 2000 (UNAUDITED)

The Company has conducted a review of its computer systems to identify the
systems that could be effected by the "Year 2000" issue and has developed an
implementation plan to resolve the issue. The Company presently believes that,
with modifications to existing software, the cost of which is not material to
the results of operations or financial condition of the Company, the Year 2000
problem will not pose significant operational problems for the Company's
computer systems.

6. SUBSEQUENT EVENT

On August 6, 1998, The Marquee Group, Inc. consummated its acquisition of
all of the outstanding stock of Cambridge Sports International, Inc. The
aggregate purchase price was approximately $3.5 million in cash and 89,536
shares of The Marquee Group, Inc.'s common stock.

F-223

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and the Shareholders of Park Associates Limited.

We have audited the accompanying balance sheet of Park Associates Limited
("the Company") as of December 31, 1997 and the related statements of profit
and loss account and cash flows for the year ended December 31, 1997 all
expressed in pounds sterling, (together, "the financial statements") which, as
described in the financial statements (pages F-225 to F-235), have been
prepared on the basis of accounting principles generally accepted in the United
Kingdom. These financial statements are the responsibility of the Directors of
the Company. 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 in the United Kingdom, which are substantially the same as auditing
standards generally accepted in the United States. These 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 financial statements referred to above present fairly,
in all material respects, the financial position of Park Associates Limited as
of December 31, 1997, and the results of its operations and its cash flows for
the year ended December 31, 1997, in conformity with accounting principles
generally accepted in the United Kingdom.

United Kingdom accounting principles vary in certain material respects
from accounting principles generally accepted in the United States. The
application of the latter would have affected the determination of
shareholders' equity and financial position as of December 31, 1997, and the
determination of net profit for year ended December 31, 1997 to the extent
summarized in Note 22 to the financial statements.

Grant Thornton
Chartered Accountants
Nottingham
England
May 28, 1998 except for the information presented in the Cash Flow Statement,
notes 13, 14, 15 and 22 for which the date is September 22, 1998.

F-224

PARK ASSOCIATES LIMITED

BALANCE SHEET
AT DECEMBER 31, 1997

1997
NOTE (pounds sterling)
------ -------------------

Fixed assets:
Tangible assets ........................................ 7 331,588
Investments ............................................ 8 194
-------
331,782
Current assets:
Debtors ................................................ 9 216,862
Cash at bank and in hand ............................... 87,806
-------
304,668
Creditors: amounts falling due within one year ......... 10 (323,189)
--------
Net current liabilities ................................ (18,521)
--------
Net assets ............................................. 313,261
========
Capital and reserves:
Called up share capital ................................ 11 10,000
Profit and loss account ................................ 12 303,261
--------
Shareholders' fund ..................................... 13 313,261
========

The accompanying accounting policies and notes form an integral part of this
financial statement.

F-225

PARK ASSOCIATES LIMITED

PROFIT AND LOSS ACCOUNT
YEAR ENDED DECEMBER 31, 1997

1997
NOTE (pounds sterling)
------ -------------------

Commission and fees receivable ........................ 2,971,136
Commission and fees payable ........................... (2,294,181)
----------
676,955
Administrative expenses ............................... (523,039)
Other operating income ................................ 15,400
----------
Operating profit ...................................... 169,316
Net interest .......................................... 3 4,702
----------
Profit on ordinary activities before taxation ......... 174,018
Tax on profit on ordinary activities .................. 5 (44,706)
----------
Profit for the financial year ......................... 13 129,312
Dividends ............................................. 6 (60,000)
----------
Profit transferred to reserves ........................ 12 69,312
==========

There were no recognized gains or losses other than the profit for the year.

The accompanying accounting policies and notes form an integral part of this
financial statement.

F-226

PARK ASSOCIATES LIMITED

CASH FLOW STATEMENT
YEAR ENDED DECEMBER 31, 1997

1997
NOTE (pounds sterling)
------ -------------------

Net cash inflow from operating activities .............................. 14 249,887
Returns on investments and servicing of finance:
Interest received ...................................................... 4,702
-------
Net cash inflow from returns on investments and servicing of finance ... 4,702
-------
Taxation ............................................................... (47,370)
-------
Capital expenditure and financial investment:
Purchase of tangible fixed assets ...................................... (54,995)
Sale of tangible fixed assets .......................................... 13,700
-------
Net cash outflow from capital expenditure and financial investment ..... (41,295)
-------
Acquisitions and disposals:
Purchase of investments ................................................ (194)
-------
Net cash outflow from acquisitions and disposals ....................... (194)
-------
Equity dividends paid .................................................. (104,000)
--------
Increase in cash ....................................................... 15 61,730
========

The accompanying accounting policies and notes form an integral part of this
financial statement.

F-227

PARK ASSOCIATES LIMITED

NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997

1. PRINCIPAL ACCOUNTING POLICIES

BASIS OF PREPARATION

The financial statements have been prepared under the historical cost
convention.

The principal accounting policies of the company have remained unchanged
from the previous year and are set out below.

TURNOVER

Turnover is the gross amount receivable by the company, invoiced on behalf
of the clients when the company acts as agents and for other services provided,
excluding VAT and trade discounts.

INCOME FROM INVESTMENTS

Investment income comprises interest receivable on bank deposits.

DEPRECIATION

Depreciation is calculated to write down the cost less estimated residual
value of all tangible fixed assets other than freehold land and buildings by
the reducing balance method. The rates generally applicable are:

Motor vehicles ................ 25%
Fixtures and fittings ......... 10%
Computer equipment ............ 33%

No depreciation is provided on freehold land and buildings as it is the
company's policy to maintain these assets in a continual state of sound repair.
The useful lives of these assets are thus so long and residual values so high
that any depreciation would not be material. Residual values are based on
prices prevailing at the date of acquisition or subsequent valuation. Provision
is made in the profit and loss account for any permanent diminution in value.

INVESTMENTS

Investments are included at cost less amounts written off. Profits or
losses arising from disposals of fixed asset investments are treated as part of
the result from ordinary activities.

DEFERRED TAXATION

Deferred tax is provided using the tax rates estimated to arise when the
timing differences reverse and is accounted for to the extent that it is
probable that a liability or asset will crystallize. Unprovided deferred tax is
disclosed as a contingent liability.

Debit balances arising in respect of advance corporation tax on dividends
payable or proposed are carried forward to the extent that they are expected to
be recoverable.

FOREIGN CURRENCIES

Transactions in foreign currencies are translated at the exchange rate
ruling at the date of the transaction. Monetary assets and liabilities in
foreign currencies are translated at the rates of exchange

F-228

PARK ASSOCIATES LIMITED

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997

ruling at the balance sheet date. Where exchange differences result from the
translation of foreign currency borrowings raised to acquire foreign assets
they are taken to reserves and offset against the differences arising from the
translation of those assets. All other exchange differences are dealt with
through the profit and loss account.

CONTRIBUTIONS TO PENSION FUNDS

DEFINED CONTRIBUTION SCHEME

The pension costs charged against profits represent the amount of the
contributions payable to the scheme in respect of the accounting period.

LEASED ASSETS

All other leases are regarded as operating leases and the payments made
under them are charged to the profit and loss account on a straight-line basis
over the lease term.

2. TURNOVER AND PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION

1997
(pounds sterling)
-------------------

The profit on ordinary activities is stated after:
Auditors' remuneration ......................................... 2,000
Depreciation and amortization:
Tangible fixed assets, owned ................................... 13,990
Other operating lease rentals .................................. 3,000
Rent receivable in respect of:
Operating leases including rents of land and buildings ......... 15,400

3. NET INTEREST

1997
(pounds sterling)
-------------------

Other interest receivable and similar income ......... 4,702
=====

4. DIRECTORS AND EMPLOYEES

1997
(pounds sterling)
-------------------

Staff costs during the year were as follows:
Wages and salaries ......................... 253,818
Social security costs ...................... 26,317
Other pension costs ........................ 76,791
-------
356,926
=======

F-229

PARK ASSOCIATES LIMITED

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997

The average number of employees of the company during the year was nine.

1997
(pounds sterling)
-------------------

Emoluments ...................................................... 112,760
Pension contributions to money purchase pension schemes ......... 57,765
-------
170,525
=======

During the year two directors participated in money purchase pension schemes.

5. TAX ON PROFIT ON ORDINARY ACTIVITIES

1997
(pounds sterling)
-------------------

UK Corporation tax at 21.75% ......... 44,706
======

6. DIVIDENDS

1997
(pounds sterling)
-------------------

Ordinary shares -- first interim dividend of (pounds sterling)6 per share .. 60,000
======

7. TANGIBLE FIXED ASSETS

FREEHOLD
LAND AND MOTOR
BUILDINGS VEHICLES
(pounds sterling) (pounds sterling)
-------------------- --------------------

Cost:
At January 1, 1997 ........................... 261,382 22,375
Additions .................................... -- 42,250
Disposals .................................... -- (22,375)
------- -------
At December 31, 1997 ......................... 261,382 42,250
Depreciation:
At January 1, 1997 ........................... -- 9,778
Provided in the year ......................... -- 8,787
Eliminated on disposals ...................... -- (10,604)
------- -------
At December 31, 1997 ......................... -- 7,961
------- -------
Net book amount at December 31, 1998 ......... 261,382 34,289
======= =======

FIXTURES
AND COMPUTER
FITTINGS EQUIPMENT TOTAL
(pounds sterling) (pounds sterling) (pounds sterling)
-------------------- -------------------- -------------------

Cost:
At January 1, 1997 ........................... 34,343 8,146 326,246
Additions .................................... 9,367 3,378 54,995
Disposals .................................... -- -- (22,375)
------ ----- -------
At December 31, 1997 ......................... 43,710 11,524 358,866
Depreciation:
At January 1, 1997 ........................... 12,106 2,008 23,892
Provided in the year ......................... 2,565 2,638 13,990
Eliminated on disposals ...................... -- -- (10,604)
------ ------ -------
At December 31, 1997 ......................... 14,671 4,646 27,278
------ ------ -------
Net book amount at December 31, 1998 ......... 29,039 6,878 331,588
====== ====== =======

8. FIXED ASSETS INVESTMENTS

1997
(pounds sterling)
-------------------

Cost:
Additions .................................... 194
---
Net book amount at December 31, 1997 ......... 194
===

F-230

PARK ASSOCIATES LIMITED

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997

9. DEBTORS

1997
(pounds sterling)
-------------------

Trade debtors .......................... 199,783
Other debtors .......................... 13,871
Prepayments and accrued income ......... 3,208
-------
216,862
=======

10. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR

1997
(pounds sterling)
-------------------

Trade creditors ......................... 196,000
Advance corporation tax ................. 15,000
Corporation tax ......................... 17,036
Social security and other taxes ......... 34,106
Other creditors ......................... 22,606
Loans from directors .................... 25,435
Accruals and deferred income ............ 13,006
-------
323,189
=======

11. SHARE CAPITAL

1997
(pounds sterling)
-------------------

Authorized:
10,000 ordinary shares of (pounds sterling)1 each ......... 10,000
======
Allotted, called up and fully paid:
10,000 ordinary shares of (pounds sterling)1 each ......... 10,000
======

Allotments during the year:

On July 31, 1997, the company by passing Resolutions at an Extraordinary
General Meeting increased its authorized share capital to (pounds
sterling)10,000 ordinary shares of (pounds sterling)1 each. The company
capitalized (pounds sterling)9,900 standing to the credit of accumulated
reserves and applied these funds to take up the allotment of 9,900 (pounds
sterling)1 ordinary shares at par to its existing shareholders.

12. RESERVES

PROFIT AND
LOSS ACCOUNT
(pounds sterling)
-------------------

At January 1, 1997 ................... 243,849
Retained profit for the year ......... 69,312
Bonus issue of shares ................ (9,900)
-------
At December 31, 1997 ................. 303,261
=======

F-231

PARK ASSOCIATES LIMITED

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997

13. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

1997
(pounds sterling)
-------------------

Profit for the financial year .................... 129,312
Dividends ........................................ (60,000)
-------
Net increase in shareholders' funds .............. 69,312
Shareholders' funds at January 1, 1997 ........... 243,949
-------
Shareholders' funds at December 31, 1997 ......... 313,261
=======

14. NET CASH INFLOW FROM OPERATING ACTIVITIES

1997
(pounds sterling)
-------------------

Operating profit ............................................. 169,316
Depreciation ................................................. 13,990
Profit on sale of tangible fixed assets- ..................... (1,929)
Increase in debtors .......................................... (84,759)
Increase in creditors ........................................ 153,269
-------
Net cash inflow from continuing operating activities ......... 249,887
=======

15. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT

1997
(pounds sterling)
-------------------

Increase in cash in the year ............. 61,730
------
Movement in net debt in the year ......... 61,730
Net funds at January 1, 1997 ............. 26,076
------
Net funds at December 31, 1997 ........... 87,806
======

16. ANALYSIS OF CHANGES IN NET DEBT

AT AT
JANUARY 1 DECEMBER 31
1997 CASH FLOW 1997
(pounds sterling) (pounds sterling) (pounds sterling)
-------------------- -------------------- -------------------

Cash in hand, at bank ......... 26,076 61,730 87,806
====== ====== ======

17. CAPITAL COMMITMENTS

The company had no capital commitments at December 31, 1997.

18. CONTINGENT LIABILITIES

There were no contingent liabilities at December 31, 1997.

F-232

PARK ASSOCIATES LIMITED

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997

19. PENSIONS

Defined Contribution Scheme

The company operates a defined contribution pension scheme for the benefit
of the directors and senior employees. The assets of the scheme are
administered by trustees in a fund independent from those of the company.

20. LEASING COMMITMENTS

Operating lease payments amounting to (pounds sterling)7,750 are due
within one year. The leases to which these amounts relate expire as follows:

1997
LAND AND
BUILDINGS
(pounds sterling)
-------------------

Between one and five years ......... 7,750
=====

21. TRANSACTIONS WITH DIRECTORS AND RELATED PARTIES

(a) Transactions with directors

Amounts due in respect of loans, quasi-loans and credit transactions by
directors were as follows:

AMOUNT MAXIMUM
OUTSTANDING LIABILITY
1997 DURING YEAR
(pounds sterling) (pounds sterling)
-------------------- -------------------

J R Holmes ......... -- 496
P McGarvey ......... -- 69

(b) Transactions with other related parties were as follows:

J R Holmes and P McGarvey are partners in Benson McGarvey Henderson and
the inter business transactions in the year were rent receivable and management
charges amounting to (pounds sterling)15,400 and (pounds sterling)8,709.

J R Holmes is a director of both Gary Lineker Promotions Limited and David
Gower Promotions Limited. Park Associates Limited was involved in normal
trading activities with both companies during the year. Commission and fees
receivable in respect of Gary Lineker Promotions Limited being (pounds
sterling)128,175 and David Gower Promotions Limited (pounds sterling)31,222
with debtors due at the period end of (pounds sterling)8,842 and (pounds
sterling)2,181.

22. RECONCILIATION TO US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US
GAAP)

The accompanying financial statements have been prepared in accordance
with accounting principles generally accepted in the United Kingdom ("UK
GAAP"), which differ in certain material respects from generally accepted
accounting principles in the United States ("US GAAP"). Such differences
involve methods for measuring the amounts shown in the financial statements, as
well as additional disclosures required by US GAAP.

F-233

PARK ASSOCIATES LIMITED

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997

The following is a summary of the material adjustment to profit on
ordinary activities and shareholders' equity which would have been required in
applying the significant differences between UK and US GAAP.

(a) Reconciliation of profit and loss accounts:

1997
(pounds sterling)
-------------------

Profit for financial year reported under:
UK GAAP ........................................................... 69,312
Depreciation expense .............................................. (5,420)
------
Net income in accordance with US GAAP ............................. 63,892
======
Earnings per share -- basic and dilutive .......................... 15.12
======
Weighted average shares outstanding -- basic and dilutive ......... 4,225
======
(b) Reconciliation of shareholders' equity
Shareholders' equity per GAAP ..................................... 313,261
Depreciation expense .............................................. (42,005)
=======
Shareholders' equity in accordance with US GAAP ................... 271,256
=======
(c) Changes in shareholders' equity on a US GAAP basis
Shareholders' equity at beginning of year ......................... 207,364
Net income ........................................................ 63,892
=======
Shareholders' equity at end of year ............................... 271,256
=======

In preparing the summary of differences between UK and US GAAP, management
is required to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and liabilities,
and the estimates of revenue and expenses. Accounting estimates have been
employed in these financial statements to determine reported amounts, including
realizability, useful lives of tangible assets, income taxes and other areas.
Actual results could differ from those estimates.

The following is a description of the US GAAP reconciling item:

Under UK GAAP no depreciation has been provided on freehold buildings as
it is the company's policy to maintain these assets in a continual state of
sound repair. The useful lives of these assets are thus so long and residual
values so high that any depreciation would not be material. Residual value is
based on prices prevailing at the date of acquisition or subsequent valuation.

For US GAAP purposes the acquisition cost of the freehold buildings is
depreciated over 39 years from the original date of purchase.

CASH FLOW INFORMATION

Under UK GAAP, the Cash Flow Statement is presented in accordance with UK
Financial Reporting Standard No. 1, as revised ("FRS 1"). The Statement
prepared under FRS 1 presents substantially the same information as that
required under US GAAP as interpreted by Statement of Financial Accounting
Standard No. 95.

Under UK GAAP, cash flows are presented for operating activities; returns
on investments and servicing of finance; taxation; capital expenditure and
financial investment acquisitions and disposals and equity dividends paid. US
GAAP requires the classification of cash flows as resulting from operating,
investing and financing activities.

F-234

PARK ASSOCIATES LIMITED

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997

Cash flows under UK GAAP in respect of interest received and taxation
would be included within the operating activities. Capital expenditure and
financial investment and cash flows from acquisitions and disposals would be
included within investing activities under US GAAP. Equity dividends paid would
be included within financing activities under US GAAP.

F-235

PARK ASSOCIATES LIMITED

UNAUDITED INTERIM BALANCE SHEET

AT JUNE 30,
------------------------------------------
1998 1997
NOTE (pounds sterling) (pounds sterling)
------ -------------------- -------------------

Fixed assets:
Tangible assets ........................................ 2 23,994 330,622
Investments ............................................ -- 194
------ -------
23,994 330,816
------ -------
Current assets:
Debtors ................................................ 274,167 202,572
Cash at bank and in hand ............................... 104,354 98,686
------- -------
378,521 301,258
------- -------
Creditors: amounts falling due within one year ......... (306,437) (305,303)
-------- --------
Net current assets/(liabilities) ....................... 72,084 (4,045)
-------- --------
Total assets less current liabilities .................. 96,078 326,771
Provisions for liabilities and charges ................. (2,437) --
-------- --------
93,641 326,771
======== ========
Capital and reserves:
Called up share capital ................................ 10,000 100
Profit and loss account ................................ 83,641 326,671
-------- --------
Shareholders' funds .................................... 3 93,641 326,771
======== ========

The accompanying notes form an integral part of these financial statements.

F-236

PARK ASSOCIATES LIMITED

UNAUDITED INTERIM PROFIT AND LOSS ACCOUNT

SIX MONTHS ENDED
JUNE 30,
------------------------------------------
1998 1997
NOTE (pounds sterling) (pounds sterling)
------ -------------------- -------------------

Commission and fees receivable ............................... 1,558,380 1,348,246
Commission and fees payable .................................. (1,189,489) (1,069,103)
---------- ----------
368,891 279,143
---------- ----------
Administrative expenses ...................................... 2 (554,533) (179,863)
Other operating income ....................................... 7,260 8,140
---------- ----------
Operating (loss)/profit ...................................... (178,382) 107,420
Net interest ................................................. 4,691 1,856
---------- ----------
(Loss)/profit on ordinary activities before taxation ......... (173,691) 109,276
Tax on (loss)/profit on ordinary activities .................. 18,071 (26,454)
---------- ----------
(Loss)/profit for the financial period ....................... 3 (155,620) 82,822
Dividends .................................................... 3 (64,000) --
---------- ----------
(Loss)/profit transferred to reserves ........................ (219,620) 82,822
========== ==========

There were no recognized gains or losses other than the (loss)/profit for the
financial periods.

The accompanying notes form an integral part of these financial statements.

F-237

PARK ASSOCIATES LIMITED

UNAUDITED INTERIM CASH FLOW STATEMENT

SIX MONTHS ENDED
JUNE 30,
------------------------------------------
1998 1997
NOTE (pounds sterling) (pounds sterling)
------ -------------------- -------------------

Net cash inflow from operating activities ......................... 4 78,625 158,118
Return on investments and servicing of finance:
Interest received ................................................. 4,691 1,856
------ -------
Net cash inflow from returns on investments and servicing of
finance .......................................................... 4,691 1,856
------ -------
Taxation .......................................................... (31,000) (11,000)
------- -------
Capital expenditure and financial investment:
Purchase of tangible fixed assets ................................. (487) (45,870)
Sale of tangible fixed assets ..................................... 28,525 13,700
------- -------
Net cash inflow/(outflow) from capital expenditure and
financial investment ............................................. 28,038 (32,170)
------- -------
Acquisition and disposals:
Purchase of investments ........................................... -- (194)
Sale of investments ............................................... 194 --
------- -------
Net cash inflow/(outflow) from acquisitions and disposals ......... 194 (194)
------- -------
Equity dividends paid ............................................. (64,000) (44,000)
------- -------
Increase in cash .................................................. 5 16,548 72,610
======= =======

The accompanying notes form an integral part of these financial statements.

F-238

PARK ASSOCIATES LIMITED

NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS

FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1998 AND JUNE 30 1997

1. BASIS OF ACCOUNTING

The interim financial statements for the six months to June 30, 1998 and
1997 are unaudited and have been prepared in accordance with the accounting
policies adopted in the financial statements for the year ended December 31,
1997.

2. STAFF COSTS AND DISPOSAL OF FREEHOLD PROPERTY

(a) On June 17, 1998 the company voted to directors, J R Holmes and P
McGarvey, bonuses in equal share by way of transfer of the freehold property at
open market value at that date.

The following amounts are included in Administrative expenses in respect
of the above transaction:

(pounds sterling)
------------------

Directors' bonuses ............................. 200,000
Loss on disposal of freehold property .......... 61,382

The net book value of tangible fixed assets at June 30, 1998 has been
reduced by (pounds sterling)261,382 as a result of the above disposal.

(b) Additional costs relating to other staff in respect of bonuses,
pension contributions and redundancy amounting to (pounds sterling)77,365 were
paid in the six months ended June 30, 1998 for which there were no equivalent
costs in the six-month period to June 30, 1997.

3. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

1998 1997
(pounds sterling) (pounds sterling)
-------------------- -------------------

(Loss)/profit for the financial period ................. (155,620) 82,822
Dividends .............................................. (64,000) --
-------- ------
Net (decrease)/increase in shareholders' funds ......... (219,620) 82,822
Shareholders' funds at January 1 ....................... 313,261 243,949
-------- -------
Shareholders' funds at June 30 ......................... 93,641 326,771
======== =======

4. NET CASH INFLOW FROM OPERATING ACTIVITIES

1998 1997
(pounds sterling) (pounds sterling)
-------------------- -------------------

Operating (loss)/profit ...................................... (178,382) 107,420
Depreciation ................................................. 6,428 5,831
Directors' bonuses by transfer of property ................... 200,000 --
Loss/(profit) on sale of tangible fixed assets ............... 73,128 (1,929)
Increase in debtors .......................................... (22,395) (70,469)
(Decrease)/increase in creditors ............................. (154) 117,265
-------- -------
Net cash inflow from continuing operating activities ......... 78,625 158,118
======== =======

F-239

PARK ASSOCIATES LIMITED

NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1998 AND JUNE 30 1997

5. ANALYSIS OF CHANGES IN NET DEBT

AT AT
JANUARY 1 JUNE 30
1998 CASH FLOW 1998
(pounds sterling) (pounds sterling) (pounds sterling)
-------------------- -------------------- -------------------

Cash in hand, at bank ......... 87,806 16,548 104,354
====== ====== =======

AT AT
JANUARY 1 JUNE 30
1997 CASH FLOW 1998
(pounds sterling) (pounds sterling) (pounds sterling)
-------------------- -------------------- -------------------

Cash in hand, at bank ......... 26,076 72,610 98,686
====== ====== ======

6. RECONCILIATION TO US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(US GAAP)

The US GAAP reconciliations of net profit/(loss) and shareholders' equity
included herein is unaudited. Certain information and disclosures, normally
included in financial statements prepared in accordance with US GAAP, have been
omitted as permitted by such requirements. However, the company believes that
the disclosures made are adequate to make the information presented not
misleading.

SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES ("GAAP")

The accompanying financial statements have been prepared in accordance
with accounting principles generally accepted in the United Kingdom ("UK
GAAP"), which differ in certain material respects from generally accepted
accounting principle in the United States ("US GAAP"). Such differences involve
methods for measuring the amounts shown in the financial statements, as well as
additional disclosures required by US GAAP.

The following is a summary of the material adjustments to profit/(loss) on
ordinary activities and shareholders' equity which would have been required in
applying the significant differences between UK and US GAAP.

(a) Reconciliation of profit and loss accounts for the six months ended
June 30, 1998 and 1997:

1998 1997
(pounds sterling) (pounds sterling)
-------------------- -------------------

Net (loss)/profit per UK GAAP ..................................... (219,620) 82,822
Depreciation expense .............................................. (2,258) (2,710)
Difference in loss on disposal .................................... 44,263 --
-------- ------
Net (loss)/income in accordance with US GAAP ...................... (177,615) 80,112
======== ======
(Loss)/earnings per share --basic and dilutive .................... (17.76) 801.12
======== ======
Weighted average shares outstanding -- basic and dilutive ......... 10,000 100
======== ======

F-240

PARK ASSOCIATES LIMITED

NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1998 AND JUNE 30 1997

6. RECONCILIATION TO US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(US GAAP) (CONTINUED)

(b) Reconciliation of shareholders' equity at June 30, 1998 and 1997:

1998 1997
(pounds sterling) (pounds sterling)
-------------------- -------------------

Shareholders' equity per UK GAAP ........................ 93,641 326,771
Depreciation expense .................................... (44,263) (39,295)
Difference in loss on disposal .......................... 44,263 --
------- -------
Shareholders' equity in accordance with US GAAP ......... 93,641 287,476
======= =======

1998 1997
(pounds sterling) (pounds sterling)
-------------------- -------------------

Shareholders' equity at beginning of period ......... 271,256 207,364
Net (loss)/profit ................................... (177,615) 80,112
-------- -------
Shareholders' equity at end of period ............... 93,641 287,476
======== =======

The following is a description of the US GAAP reconciling item:

For US GAAP purposes the acquisition cost of the freehold buildings is
depreciated over 39 years from the original date of purchase.

CASH FLOW INFORMATION

F-241

REPORT OF INDEPENDENT AUDITORS

Board of Directors
The Marquee Group, Inc.

We have audited the accompanying combined balance sheets of Tollin-Robbins
Entertainment as of December 31, 1997 and 1996, and the related combined
statements of operations and comprehensive income, stockholders' equity
(deficit), and cash flows for the years 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 audits.

In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the financial position of
Tollin-Robbins Entertainment at December 31, 1997 and 1996, and the results of
its operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.

Ernst & Young LLP

Los Angeles, California
July 6, 1998

F-242

TOLLIN-ROBBINS ENTERTAINMENT

COMBINED BALANCE SHEETS
(000'S OMITTED)

DECEMBER 31
----------------------- JUNE 30
1997 1996 1998
--------- ----------- ------------
(Unaudited)

ASSETS
Current assets:
Cash and cash equivalents ................................... $ 102 $ 712 $ 2,243
Marketable securities ....................................... -- -- 723
Producer fee receivable ..................................... -- -- 130
Management fee receivable ................................... 60 -- --
Advances to stockholders .................................... -- -- 132
Deferred income tax ......................................... -- 80 --
Other ....................................................... 8 -- 59
------ ------- -------
Total current assets ......................................... 170 792 3,287
Property and equipment, net .................................. 310 321 298
------ ------- -------
Total assets ................................................. $ 480 $ 1,113 $ 3,585
====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses ....................... $ 73 $ 68 $ 99
Payable to stockholders ..................................... 388 840 1,536
Deferred revenue ............................................ 152 762 77
------ ------- -------
Total current liabilities .................................... 613 1,670 1,712
Stockholders' equity (deficit):
Capital stock ............................................... 4 4 4
Accumulated equity (deficit) ................................ (137) (561) 1,880
Accumulated other comprehensive income (loss) ............... -- -- (11)
------ ------- -------
Total stockholders' equity (deficit) ......................... (133) (557) 1,873
------ ------- -------
Total liabilities and stockholders' equity (deficit) ......... $ 480 $ 1,113 $ 3,585
====== ======= =======

See accompanying notes.

F-243

TOLLIN-ROBBINS ENTERTAINMENT

COMBINED STATEMENTS OF OPERATIONS
(000'S OMITTED)

YEAR ENDED DECEMBER SIX MONTHS ENDED
31 JUNE 30
--------------------- ---------------------
1997 1996 1998 1997
--------- --------- --------- ---------
(Unaudited)

Revenues:
Producer fees .......................... $4,284 $3,133 $3,955 $2,270
Post-production revenue ................ 595 490 247 268
Management services .................... 60 -- 40 --
Other .................................. 134 52 50 15
------ ------ ------ ------
Total revenues .......................... 5,073 3,675 4,292 2,553
Operating expenses:
Compensation to stockholders and related
benefits ............................. 3,223 3,551 1,600 1,612
Post-production expenses ............... 374 274 111 166
General and administrative ............. 846 482 529 363
Depreciation expense ................... 75 50 35 35
Other expenses ......................... 51 60 -- --
------ ------ ------ ------
Total operating expenses ................ 4,569 4,417 2,275 2,176
Income (loss) before income tax provision
(benefit) .............................. 504 (742) 2,017 377
Income tax provision (benefit) .......... 80 (80) -- 52
------ ------ ------ ------
Net income (loss) ....................... $ 424 $ (662) $2,017 $ 325
====== ====== ====== ======

See accompanying notes.

F-244

TOLLIN-ROBBINS ENTERTAINMENT

COMBINED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

ACCUMULATED
RETAINED OTHER
COMMON EARNINGS COMPREHENSIVE
STOCK (DEFICIT) INCOME TOTAL
-------- ----------- -------------- -----------

Balance at January 1, 1996 ................... $ 4 $ 101 $ -- $ 105
Net loss .................................... -- (662) (662)
--- ------- -------
Balance at December 31, 1996 ................. 4 (561) -- (557)
Net income .................................. -- 424 -- 424
--- ------- ------ -------
Balance at December 31, 1997 ................. 4 (137) -- (133)
Net income (unaudited) ...................... -- 2,017 -- 2,006
Other comprehensive income (loss)
(unaudited) ............................... -- -- (11) (11)
--- ------- ------ -------
Balance at June 30, 1998 (unaudited) ......... $ 4 $ 1,880 $ (11) $ 1,873
=== ======= ====== =======

See accompanying notes.

F-245

TOLLIN-ROBBINS ENTERTAINMENT

COMBINED STATEMENTS OF CASH FLOWS
(000'S OMITTED)

SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
----------------------- -------------------------
1997 1996 1998 1997
---------- ---------- ----------- -----------
(Unaudited)

OPERATING ACTIVITIES
Net income (loss) .................................. $ 424 $ (662) $ 2,017 $ 325
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization ..................... 75 50 35 35
Loss on disposal of fixed assets .................. 51 60 -- --
Deferred income tax ............................... 80 (80) -- 52
Changes in operating assets and liabilities:
Producer fee receivable ......................... -- -- (130) --
Management fee receivable ....................... (60) -- 60 --
Advances to stockholders ........................ -- -- (132) (330)
Other assets .................................... (8) 4 (51) --
Accounts payable and accrued expenses ........... 5 (104) 26 23
Payable to stockholders ......................... (452) 681 1,148 772
Deferred revenue ................................ (610) 903 (75) (469)
------- ------ ------- -------
Net cash provided by (used in) operating
activities ........................................ (495) 852 2,898 (392)
INVESTING ACTIVITIES
Purchases of marketable securities ................. -- -- (734) --
Purchases of equipment ............................. (115) (336) (23) (101)
------- ------ ------- -------
Net cash used in investing activities .............. (115) (336) (757) (101)
------- ------ ------- -------
Increase (decrease) in cash ........................ (610) 516 2,141 307
Cash and cash equivalents at beginning of
period ............................................ 712 196 102 712
------- ------ ------- -------
Cash and cash equivalents at end of period ......... $ 102 $ 712 $ 2,243 $ 1,019
======= ====== ======= =======

See accompanying notes.

F-246

TOLLIN-ROBBINS ENTERTAINMENT

NOTES TO COMBINED FINANCIAL STATEMENTS

(INFORMATION FOR THE PERIOD ENDED JUNE 30, 1997
AND SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRESENTATION AND BUSINESS ACTIVITIES

The combined financial statements of Tollin-Robbins Entertainment are
comprised of the following entities: Tollin-Robbins Productions; Halcyon Days
Productions, Inc. (Halcyon); Robbins Entertainment Group, Inc. (Robbins); and
Tollin-Robbins Management (TRM) (collectively referred to herein as the
Company). All significant intercompany accounts and transactions have been
eliminated.

Tollin-Robbins Productions, a California General Partnership (the
Partnership), was formed in November 1993. Halcyon and Robbins are the equal
partners of the Partnership. Profit and losses are allocated equally to each
partner. The Partnership is engaged in the business of providing executive
producer, director, writer, post-production, and other creative services to
owners and distributors of entertainment programming.

Halcyon was incorporated in California in November 1990, and is an S
Corporation under the Internal Revenue Code; Mr. Tollin is the sole stockholder
of this entity. Robbins was initially incorporated in California in May 1991 as
a C Corporation and elected, effective January 1, 1998, an S Corporation status
under the Internal Revenue Code. Mr. Robbins is the sole stockholder of this
entity. These two entities each receive their 50% share of the results of
operations generated by the Partnership.

TRM, a California limited liability company which was formed in April
1997, is engaged in the business of providing management services to artists.
Messrs. Tollin and Robbins are the sole members of TRM. TRM typically receives
a percentage of the compensation paid to the artists it represents.

UNAUDITED INTERIM FINANCIAL STATEMENTS

The accompanying unaudited combined financial statements at June 30, 1998
and for the six month periods ended June 30, 1998 and 1997 have been prepared
on the same basis as the audited combined financial statements and, in the
opinion of management, include all adjustments (consisting only of normal and
recurring accruals) necessary to present fairly the combined financial
information set forth therein, in accordance with generally accepted accounting
principles. The results of operations for the six month period ended June 30,
1998 are not necessarily indicative of the results to be expected for the
entire fiscal year.

SIGNIFICANT CUSTOMER

Approximately 79% in 1997 and 87% in 1996 of the Company's total producer
fees and post-production revenues shown in the accompanying combined statement
of operations was received from Nickelodeon/MTV Networks and affiliated
companies.

REVENUE RECOGNITION

Executive producer and other creative services revenue is recognized as
the related production services are rendered. Pursuant to a two-year production
services agreement with Nickelodeon/MTV Networks (Agreement) which commenced as
of February 1, 1996, the Partnership will receive $1,750,000 per year in
guaranteed payments (payable in equal bi-monthly installments over the term).
Such revenue is recognized ratably over the Agreement's term. In addition to
the guaranteed

F-247

TOLLIN-ROBBINS ENTERTAINMENT

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION FOR THE PERIOD ENDED JUNE 30, 1997
AND SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)

payments, the Partnership received a signing bonus of $500,000, which is being
recognized ratably over the original two year term. Both parties to the
Agreement have agreed to extend the term to a third year (February 1, 1998 --
January 31, 1999). The Partnership will receive a guaranteed minimum payment of
$2,500,000 for its services over the third year.

Management fee commissions are recognized as services are rendered by the
related artists who are represented by TRM.

CASH EQUIVALENTS

The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less and investments in money market
accounts to be cash equivalents.

MARKETABLE SECURITIES

Marketable securities are accounted for using Statement of Financial
Account Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." At June 30, 1998, the Company's marketable securities,
all of which are classified as available-for sale as defined by SFAS 115,
consist primarily of municipal securities. Pursuant to SFAS 115, such
investments are stated at market value, and unrealized gains and losses on such
securities are reflected, net of tax, in other comprehensive income or loss.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost and depreciated over their
estimated useful lives using the straight-line method, generally ranging from
seven to ten years.

INCOME TAXES

Income taxes are accounted for using Statement of Financial Account
Standards No. 109, "Accounting for Income Taxes." Under this method, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.

COMPREHENSIVE INCOME

Effective January 1, 1998 the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS 130
established new rules for the reporting and display of comprehensive income and
its components; however, the adoption of this Statement had no impact on the
Company's net income or shareholders' equity. SFAS 130 requires unrealized
gains and losses on the Company's available-for-sale securities to be included
in other comprehensive income.

For the six month period ended June 30, 1998, the Company's comprehensive
income was $2,006,000. The comprehensive income differs from the net income in
the first six months of 1998 due to the inclusion of the Company's unrealized
loss on marketable securities in its comprehensive income.

F-248

TOLLIN-ROBBINS ENTERTAINMENT

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION FOR THE PERIOD ENDED JUNE 30, 1997
AND SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)

USE OF ESTIMATES

2. MARKETABLE SECURITIES (UNAUDITED)

At June 30, 1998, the Company has classified all investments as
available-for-sale.

The amortized cost, gross unrealized loss and fair value of the marketable
securities are as follows (in 000's):

GROSS
AMORTIZED UNREALIZED FAIR
COST LOSS VALUE
----------- ------------ ------

Municipal obligations ......... $734 $ (11) $723

Contractual maturities of marketable debt securities at June 30, 1998 are
as follows (in 000's):

AMORTIZED FAIR
COST VALUE
----------- ------

Due in one year or less ....................... $102 $100
Due after one year through five years ......... 160 156
Due after 10 years ............................ 472 467
---- ----
Total debt securities ......................... $734 $723
==== ====

3. PROPERTY AND EQUIPMENT

Property and equipment is comprised of the following (in 000's):

DECEMBER 31, JUNE 30,
1997 1996 1998
--------- --------- ------------
(Unaudited)

Equipment ............................. $ 185 $ 167 $ 208
Furniture and fixtures ................ 306 279 306
------ ------ ------
491 446 514
Less accumulated depreciation ......... (181) (125) (216)
------ ------ ------
$ 310 $ 321 $ 298
====== ====== ======

4. STOCKHOLDERS' EQUITY (DEFICIT)

The Company's capital stock consists of the common stock of Halcyon and
Robbins. The partners' equity of the Partnership has been eliminated.

At December 31, 1997 and 1996, there were 1,000 shares of common stock
authorized, issued and outstanding of Halcyon, and 3,000 shares of common stock
authorized, issued and outstanding of Robbins. All shares of common stock were
issued at $1 per share.

F-249

TOLLIN-ROBBINS ENTERTAINMENT

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION FOR THE PERIOD ENDED JUNE 30, 1997
AND SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)

5. INCOME TAXES

Partnerships and limited liability companies are not subject to federal or
state income taxes and, accordingly, no provision for income taxes has been
provided for the Partnership and TRM. The partners of the Partnership and
members of TRM are required to report their proportional share of gains,
losses, credits and deductions on their respective income tax returns.

Halcyon is an S Corporation under Section 1361 of the Internal Revenue
Code. Under the provisions of the Internal Revenue Code, federal and state
taxes based on income for S Corporations are generally the direct liability of
the stockholders. Therefore, no federal and state tax provision has been
provided on S Corporation earnings other than certain state minimum taxes based
on income.

Robbins was a C Corporation as of December 31, 1997 and 1996 and,
accordingly, was subject to federal and state taxes. Robbins elected S
Corporation status effective January 1, 1998; accordingly, no federal and state
tax provision has been provided for the three months ended June 30, 1998 other
than certain state minimum taxes based on income.

The Company's provision for income taxes (benefit) consists of the
applicable amounts based on Robbins' result of operations and was as follows
(in 000's):

YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED
------------------ JUNE 30,
1997 1996 1997
------ --------- ------------
(Unaudited)

Deferred ..........
Federal ............ $50 $ (50) $33
State .............. 30 (30) 19
--- ----- ---
$80 $ (80) $52
=== ===== ===

A reconciliation from the provision for income taxes based on the federal
statutory rate of 15% to the actual rate follows:

YEAR ENDED
DECEMBER 31, SIX MONTHS
---------------------- ENDED
1997 1996 JUNE 30, 1997
---------- --------- --------------
(Unaudited)

Statutory rate applied to income before income taxes...... 15.0% 15.0% 15.0%
State income taxes, net of federal income tax benefit..... 7.5 7.5 7.5
Income from non-taxable entities ......................... (12.6) (8.4) (11.9)
Other non-deductible expenses ............................ 0.5 0.5 0.4
Other, net ............................................... 5.5 (3.8) 2.8
----- ---- -----
15.9% 10.8% 13.8%
===== ==== =====

The Company's deferred tax assets as of December 31, 1996 was principally
comprised of deferred revenue.

6. DEFERRED REVENUE

Deferred revenue consists of advances from television networks and
production companies for services not yet rendered.

F-250

TOLLIN-ROBBINS ENTERTAINMENT

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION FOR THE PERIOD ENDED JUNE 30, 1997
AND SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)

7. COMMITMENT AND CONTINGENCIES

The Company rents its office facilities on a month-to-month basis from an
entity controlled by Messrs. Tollin and Robbins, the owners of the building.
The monthly rent is $3,750.

8. YEAR 2000 (UNAUDITED)

Until recently, computer programs were written to store only two digits of
date-related information in order to more efficiently handle and store data.
Such programs are unable to properly distinguish between the year 1900 and the
year 2000. This situation is frequently referred to as the "Year 2000 problem."
The Company believes that all of its own computer software is year 2000
compliant and that it will not need to make significant modifications or
replacements to its software so that its computer systems will function
properly with respect to dates in the year 2000 and beyond.

F-251

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and the shareholders of Tony Stephens Associates
Limited

We have audited the accompanying balance sheet of Tony Stephens Associates
Limited ("the Company") as of April 30, 1998 and the related statements of
profit and loss account and cash flows for the year ended April 30, 1998 all
expressed in pounds sterling, (together, "the financial statements") which, as
described in the financial statements (pages F-252 to F-257), have been
prepared on the basis of accounting principles generally accepted in the United
Kingdom. These financial statements are the responsibility of the Directors of
the Company. 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 in the
United Kingdom, which are substantially the same as auditing standards
generally accepted in the United States. These 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 financial statements referred to above present fairly,
in all material respects, the financial position of Tony Stephens Associates
Limited as of April 30, 1998, and the results of its operations and its cash
flows for the year ended April 30, 1998, in conformity with accounting
principles generally accepted in the United Kingdom.

United Kingdom accounting principles vary in certain respects from
accounting principles generally accepted in the United States. The application
of the latter would have affected the determination of shareholders' equity and
financial position as of April 30, 1998 and the determination of net profit for
year ended April 30, 1998 to the extent summarised in Note 11 to the financial
statements.

Richard E Woodhall
Chartered Accountants and Registered Auditors
Birmingham
England

July 14, 1998 except for information presented in the Cash Flow Statement, and
notes 10 and 11 which the date is October 2, 1998.

F-252

TONY STEPHENS ASSOCIATES LIMITED

ABBREVIATED BALANCE SHEET
AT 30 APRIL 1998

1998
NOTES (pounds sterling)000
------- ----------------------

FIXED ASSETS ...........................................
Tangible assets ........................................ 4 31
--
CURRENT ASSETS
Debtors ................................................ 235
Cash at bank ........................................... 97
---
332
CREDITORS: amounts falling due within one year ......... 5 (326)
----
NET CURRENT ASSETS ..................................... 6
----
TOTAL ASSETS LESS CURRENT LIABILITIES .................. 37
====
CAPITAL AND RESERVES
Called up share capital ................................ 6 1
Profit and loss account ................................ 7 36
----
8 37
====

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

F-253

TONY STEPHENS ASSOCIATES LIMITED

PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 30 APRIL 1998

1998
NOTES (pounds sterling)000
------- ----------------------

TURNOVER .............................................. 3,106
Cost of sales ......................................... (2,646)
------
GROSS PROFIT .......................................... 460
Administrative expenses ............................... (206)
------
OPERATING PROFIT ...................................... 2 254
Interest received ..................................... 9
------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION ......... 263
Taxation .............................................. 3 (70)
------
PROFIT FOR THE FINANCIAL YEAR AFTER TAXATION .......... 193
Retained profit brought forward ....................... 7 33
------
226
Dividends paid ........................................ (190)
------
RETAINED PROFIT CARRIED FORWARD ....................... 7 36
======

There were no recognised gains or losses other than the profit for the
financial period.

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

F-254

TONY STEPHENS ASSOCIATES LIMITED

STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 APRIL 1998

1998
NOTES (pounds sterling)000
----------- ------------------------

NET CASH INFLOW FROM OPERATING ACTIVITIES 10(a) 261
---
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received ................................. 9
---
TAXATION
Corporation tax paid .............................. (76)
---
CAPITAL EXPENDITURE
Payments to acquire tangible fixed assets ......... (17)
---
EQUITY DIVIDENDS PAID
(190)
----
DECREASE IN CASH .................................. 10(b) (13)
====
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
1998
(pounds sterling)000
------------------------
Decrease in cash in the year ...................... 10(b) (13)
------
MOVEMENT IN NET FUNDS IN THE YEAR ................. (13)
NET FUNDS AT 1 MAY 1997 ........................... 110
------
NET FUNDS AT 30 APRIL 1998 ........................ 97
======

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

F-255

TONY STEPHENS ASSOCIATES LIMITED

NOTES TO THE ACCOUNTS
AT 30 APRIL 1998

1. ACCOUNTING POLICIES

ACCOUNTING CONVENTION

The accounts have been prepared under the historical cost convention and
in accordance with the Financial Reporting Standard for Small Entities.

TURNOVER

Turnover represents net invoiced services, excluding VAT.

DEPRECIATION

Depreciation is provided on all tangible fixed assets, at rates calculated
to write off the cost evenly over a period which does not exceed anticipated
useful life.

Equipment and vehicles -- over 4 years.

PENSION COSTS

The Company operates a money purchase pension scheme and contributions are
charged to the profit and loss account in the year in which they are paid.

OPERATING LEASES

Rentals applicable to operating leases where substantially all of the
benefits and risks of ownership remain with the lessor are charged to profit
and loss account as incurred.

2. OPERATING PROFIT

This is stated after charging:

1998
(pounds sterling)000
----------------------

Depreciation of tangible fixed assets ......... 13
Auditors' remuneration ........................ 2
Directors' remuneration ....................... 109
Operating lease rentals ....................... 8
Pension costs ................................. 40
===

During the year retirement benefits were accruing to 2 directors (1997 --
2) in respect of money purchase pension schemes.

3. TAX ON PROFIT ON ORDINARY ACTIVITIES

1998
(pounds sterling)000
----------------------

UK corporation tax ......... 70
==

F-256

TONY STEPHENS ASSOCIATES LIMITED

NOTES TO THE ACCOUNTS
AT 30 APRIL 1998

4. TANGIBLE FIXED ASSETS

VEHICLES AND
EQUIPMENT
(pounds sterling)000
----------------------

Cost:
At 1 May 1997 ........................... 43
Additions ............................... 17
--
At 30 April 1998 ........................ 60
--
Depreciation:
At 1 May 1997 ........................... 16
Provided in the year .................... 13
--
At 30 April 1998 ........................ 29
--
Net book value at 30 April 1998 ......... 31
==

5. CREDITORS: amounts falling due within one year

1998
(pounds sterling)000
----------------------

Trade creditors .................... 272
Corporation tax .................... 24
Tax and National Insurance ......... 30
---
326
===

6. SHARE CAPITAL

1998 1998
NO. (pounds sterling)000
------- ----------------------

Authorised ordinary shares of (pounds sterling)1 each ......... 1,000 1,000
===== =====

1998 1998
NO. (pounds sterling)
------ -------------------

Allotted, called up and fully paid ordinary shares of (pounds sterling)1 each .. 500 500
=== ===

7. RESERVES

PROFIT AND
LOSS ACCOUNT
(pounds sterling)000
----------------------

At 1 May 1997 ........................ 33
Retained profit for the year ......... 3
--
At 30 April 1998 ..................... 36
==

F-257

TONY STEPHENS ASSOCIATES LIMITED

NOTES TO THE ACCOUNTS
AT 30 APRIL 1998

8. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

1998
(pounds sterling)000
----------------------

Profit for the year .......................... 193
Dividends .................................... (190)
----
Net increase in shareholders' funds .......... 3
Shareholders' funds at 1 May 1997 ............ 34
----
Shareholders' funds at 30 April 1998 ......... 37
====

9. LEASING COMMITMENTS

As at 30 April 1998 the company had annual commitments of (pounds
sterling)8,319 and on a non con-cancellable operating lease which expires in
January 2000.

10. NOTES TO THE STATEMENT OF CASH FLOWS

a) Reconciliation of operating profit to net cash inflow from operating
activities

1998
(pounds sterling)000
----------------------

Operating profit .................................. 254
Depreciation of tangible fixed assets ............. 13
Increase in debtors ............................... (210)
Increase in creditors ............................. 204
----
Net cash inflow from operating activities ......... 261
====

b) Analysis of changes in net funds

AT 1 MAY AT 30 APRIL
1997 CASH FLOW 1998
(pounds sterling)000 (pounds sterling)000 (pounds sterling)000
----------------------- ----------------------- ----------------------

Cash at bank and in hand ......... 110 (13) 97
=== === ==

11. RECONCILIATION TO US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP)

The accompanying financial statements have been prepared in accordance
with accounting principles generally accepted in the United Kingdom ("UK
GAAP"), which differ in certain respects from generally accepted accounting
principles in the United States ("US GAAP"). Such differences involve methods
for measuring the amounts shown in the financial statements as well as
additional disclosures required by US GAAP.

There are no material adjustments to profit for the year, cash flows and
shareholders' equity in applying the significant differences between UK and US
GAAP.

F-258

TONY STEPHENS ASSOCIATES LIMITED

UNAUDITED INTERIM BALANCE SHEETS

JUNE 30,
------------------------------------------------
1998 1997
NOTES (pounds sterling)000 (pounds sterling)000
------- ----------------------- ----------------------

FIXED ASSETS
Tangible assets ........................................ 6 32 25
-- --
CURRENT ASSETS
Debtors ................................................ 7 334 84
Cash at bank and in hand ............................... 28 263
--- ---
362 347
CREDITORS: amounts falling due within one year ......... 8 (308) (331)
---- ----
NET CURRENT ASSETS ..................................... 54 16
---- ----
TOTAL ASSETS LESS CURRENT LIABILITIES .................. 86 41
==== ====
CAPITAL AND RESERVES
Called up share capital ................................ 9 1 1
Profit and loss account ................................ 10 85 40
---- ----
SHAREHOLDERS' FUNDS .................................... 11 86 41
==== ====

The accompanying notes form an integral part of these financial statements.

F-259

TONY STEPHENS ASSOCIATES LIMITED

UNAUDITED INTERIM PROFIT AND LOSS ACCOUNTS

JUNE 30,
------------------------------------------------
1998 1997
NOTES (pounds sterling)000 (pounds sterling)000
------- ----------------------- ----------------------

COMMISSIONS AND FEES RECEIVABLE .............. 1,891 1,118
Commissions and fees payable ................. (1,612) (881)
------ -----
279 237
Administrative expenses ...................... (102) (89)
------ -----
OPERATING PROFIT ............................. 2 177 148
Bank interest receivable ..................... 5 3
------ -----
PROFIT ON ORDINARY ACTIVITIES BEFORE
TAXATION .................................... 182 151
Tax on profit on ordinary activities ......... 5 (52) (38)
------ -----
PROFIT FOR THE PERIOD ........................ 130 113
Dividends .................................... (64) (83)
------ -----
PROFIT RETAINED FOR THE PERIOD ............... 66 30
====== =====

There were no recognised gains or losses other than the profit for the
financial period.

The accompanying notes form an integral part of these financial statements.

F-260

TONY STEPHENS ASSOCIATES LIMITED

UNAUDITED INTERIM STATEMENT OF CASH FLOWS

JUNE 30,
----------------------------------------------------
1998 1997
NOTES (pounds sterling)000 (pounds sterling)000
----------- ----------------------- --------------------------

NET CASH INFLOW FROM OPERATING ACTIVITIES ............ 14(a) 86 110
---- ----
RETURNS ON INVESTMENTS AND SERVICING OF
FINANCE
Interest received .................................... 5 3
---- ----
TAXATION
Corporation tax paid ................................. (54) (46)
---- ----
CAPITAL EXPENDITURE
Payments to acquire tangible fixed assets ............ (18) (6)
Receipts from sales of tangible fixed assets ......... -- 19
---- ----
(18) 13
---- ----
EQUITY DIVIDENDS PAID ................................ (120) (120)
---- ----
DECREASE IN CASH ..................................... 14(b) (101) (40)
==== ====
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS

1998 1997
(pounds sterling)000 (pounds sterling)000
----------------------- --------------------------
Decrease in cash in period ........................... 14(b) (101) (40)
---- ----
MOVEMENTS IN NET FUNDS IN THE YEAR ................... (101) (40)
NET FUNDS AT 1 JANUARY ............................... 129 303
---- ----
NET FUNDS AT 30 JUNE ................................. 28 263
==== ====

The accompanying notes form an integral part of these financial statements.

F-261

TONY STEPHENS ASSOCIATES LIMITED

NOTES TO THE UNAUDITED INTERIM ACCOUNTS
AT 30 JUNE 1998

1. ACCOUNTING POLICIES

BASIS FOR PREPARATION

The financial statements have been prepared under the historical cost
convention.

The principal accounting policies of the company are set out below.

TURNOVER

Turnover is gross amount receivable by the company, invoiced on behalf of
clients when the company acts as agents and for other services provided,
excluding VAT and trade discounts.

DEPRECIATION

Depreciation is provided on all tangible fixed assets, at rates calculated
to write off the cost, less estimated residual value based on prices prevailing
at the date of acquisition, of each asset evenly over its expected useful life,
as follows:

Equipment and vehicles - over 4 years

DEFERRED TAXATION

Deferred taxation is provided using the liability method on all timing
differences which are expected to reverse in the future without being replaced,
calculated at the rate at which it is anticipated the timing differences will
reverse. Advance corporation tax which is expected to be recoverable in the
future is deducted from the deferred taxation balance.

Deferred tax assets are only recognised if recovery without replacement by
equivalent debit balances is reasonably certain.

CONTRIBUTIONS TO PENSION FUNDS

The pension costs for the money purchase scheme charged against profits
represent the amount of the contributions payable to the scheme in respect of
the accounting period.

LEASED ASSETS

All other leases are regarded as operating leases and the payments made
under them are charged to the profit and loss account on a straight-line basis
over the lease term.

2. OPERATING PROFIT

This is stated after charging:

1998 1997
(pounds sterling)000 (pounds sterling)000
----------------------- ----------------------

Auditors' remuneration ..................... 1 1
Depreciation of owned fixed assets ......... 7 5
Other operating lease rentals .............. 4 4
======================= ======================

F-262

TONY STEPHENS ASSOCIATES LIMITED

NOTES TO THE UNAUDITED INTERIM ACCOUNTS (CONTINUED)
AT 30 JUNE 1998

3. STAFF COSTS

1998 1997
(pounds sterling)000 (pounds sterling)000
----------------------- ----------------------

Wages and salaries ............ 49 31
Social security costs ......... 6 3
Other pension costs ........... 15 25
-- --
70 59
== ==

The average number of employees of the company during the period was 5
(1997 - 4).

4. DIRECTORS' REMUNERATION

1998 1997
(pounds sterling)000 (pounds sterling)000
-------------------- --------------------

Emoluments ...................................................... 35 27
Pension contributions to money purchase pension schemes ......... 14 24
-- --
49 51
== ==

During the period 2 directors (1997 -2 directors) participated in money
purchase pension schemes.

5. TAX ON PROFIT ON ORDINARY ACTIVITIES

1998 1997
(pounds sterling)000 (pounds sterling)000
-------------------- --------------------

UK corporation tax ......... 52 38
== ==

6. TANGIBLE FIXED ASSETS

MOTOR
VEHICLES
(pounds sterling)000
-----------------------

Cost
At 1 January 1998 ....................... 16
Additions ............................... 18
--
At 30 June 1998 ......................... 34
--
Depreciation
At 1 January 1998 ....................... 10
Provided in the period .................. 4
--
At 30 June 1998 ......................... 14
--
Net book amount at 30 June 1998 ......... 20
==
Net book amount at 30 June 1997 ......... 7
==

FIXTURES
AND COMPUTER
FITTINGS EQUIPMENT TOTAL
(pounds sterling)000 (pounds sterling)000 (pounds sterling)000
----------------------- ----------------------- ----------------------

Cost
At 1 January 1998 ....................... 10 17 43
Additions ............................... -- -- 18
-- -- --
At 30 June 1998 ......................... 10 17 61
-- -- --
Depreciation
At 1 January 1998 ....................... 4 8 22
Provided in the period .................. 1 2 7
-- -- --
At 30 June 1998 ......................... 5 10 29
-- -- --
Net book amount at 30 June 1998 ......... 5 7 32
== == ==
Net book amount at 30 June 1997 ......... 7 11 25
== == ==

F-263

TONY STEPHENS ASSOCIATES LIMITED

NOTES TO THE UNAUDITED INTERIM ACCOUNTS (CONTINUED)
AT 30 JUNE 1998

7. DEBTORS

1998 1997
(pounds sterling)000 (pounds sterling)000
-------------------- --------------------

Trade debtors .......................... 234 74
Loans to directors ..................... 100 --
Prepayments and accrued income ......... -- 10
--- --
334 84
=== ==

8. CREDITORS: amounts falling due within one year

1998 1997
(pounds sterling)000 (pounds sterling)000
----------------------- ----------------------

Trade creditors ......................... 221 254
Corporation tax ......................... 39 29
Social security and other taxes ......... 45 32
Other creditors ......................... 3 --
Dividend payable ........................ -- 16
--- ---
308 331
=== ===

9. SHARE CAPITAL

1998 1997
NO. NO.
------- ------

Authorised ordinary shares of (pounds sterling)1 each ......... 1,000 1,000
===== =====

1998 1997
NO. NO.
------ ------

Allotted, called up and full paid ordinary shares of (pounds sterling)1
each ................................................................. 500 500
=== ===

1998 1997
(pounds sterling) (pounds sterling)
----------------- -----------------

Allotted, called up and full paid ordinary shares of (pounds sterling)1
each ................................................................. 500 500
=== ===

10. RESERVES

PROFIT AND
LOSS ACCOUNT
(pounds sterling)000
----------------------

At 1 January 1998 ...................... 19
Retained profit for the period ......... 66
--
At 30 June 1998 ........................ 85
==

11. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

1998 1997
(pounds sterling)000 (pounds sterling)000
----------------------- ----------------------

Profit for the period ....................... 130 113
Dividends ................................... (64) (83)
--- ---
Net increase in shareholders' funds ......... 66 30
Shareholders' funds at 1 January ............ 20 11
--- ---
Shareholders' funds at 30 June .............. 86 41
=== ===

F-264

TONY STEPHENS ASSOCIATES LIMITED

NOTES TO THE UNAUDITED INTERIM ACCOUNTS (CONTINUED)
AT 30 JUNE 1998

12. LEASING COMMITMENTS

Operating lease payments amounting to (pounds sterling)8,319 (1997 -
(pounds sterling)8,719) are due within one year. The leases to which these
amounts relate expire as follows:

1998 1997
(pounds sterling)000 (pounds sterling)000
----------------------- ----------------------

Between one and five years ......... 8 8
======================= ======================

13. PENSIONS

Money Purchase Scheme

The company operates a money purchase pension scheme for the benefit of
the directors and senior employees. The assets of the scheme are administered
by trustees in a fund independent from those of the company.

14. NOTES TO THE STATEMENT OF CASH FLOWS

a) Reconciliation of operating profit to net cash inflow from operating
activities

1998 1997
(pounds sterling)000 (pounds sterling)000
----------------------- ----------------------

Operating profit ................................................. 177 148
Depreciation of tangible fixed assets ............................ 7 5
Profit on sale of tangible fixed assets .......................... (2) --
(Increase)/decrease in operating debtors and prepayments ......... (93) (23)
Increase/(decrease) in operating creditors and accruals .......... (3) (20)
----- ---
Net cash inflow from operating activities ........................ 86 110
===== ===

b) Reconciliation of operating profit to net cash inflow from operating
activities

AT AT
1 JANUARY 30 JUNE
1998 CASH FLOW 1998
(pounds sterling)000 (pounds sterling)000 (pounds sterling)000
----------------------- ----------------------- ----------------------

Cash at bank and in hand ......... 129 (101) 28
=== ==== ==

15. RECONCILIATION TO US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(US GAAP)

The accompanying financial statements have been prepared in accordance
with accounting principles generally accepted in the United Kingdom ("UK
GAAP"), which differ in certain respects from generally accepted accounting
principles in the United States ("US GAAP"). Such differences involve methods
for measuring the amounts shown in the financial statements as well as
additional disclosures required by US GAAP.

There are no material adjustments to profit for the year, cash flows and
shareholders' equity in applying the significant differences between UK and US
GAAP.

F-265

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders of
ProServ, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheet of ProServ,
Inc. and Subsidiaries as of December 31, 1996 and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for the
years ended December 31, 1996 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

COOPERS & LYBRAND L.L.P.

Washington, D.C.
June 25, 1997

F-266

PROSERV, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, JUNE 30, 1997
-------------- --------------
1996 (UNAUDITED)
-------------- --------------

ASSETS
Current assets:
Cash and cash equivalents .................................... $ 168,295 $ 1,181,889
Restricted cash .............................................. -- 254,401
Accounts receivable, net ..................................... 3,241,184 4,099,189
Prepaid expenses and other current assets .................... 158,364 259,944
------------ ------------
Total current assets .......................................... 3,567,843 5,795,423
Property and equipment, net ................................... 468,444 450,949
Noncurrent accounts receivable ................................ 1,228,206 1,158,819
Other assets .................................................. 76,426 49,019
------------ ------------
Total assets .................................................. $ 5,340,919 $ 7,454,210
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of notes payable ............................. $ 900,000 $ 2,175,000
Accounts payable ............................................. 1,104,623 2,330,864
Accrued expenses ............................................. 1,003,968 554,250
Income tax payable ........................................... 48,290 156,207
Production rights payable .................................... 42,741 370,588
Accounts payable--clients .................................... -- 254,401
Deferred revenue ............................................. 659,386 1,098,213
Deferred income taxes ........................................ 259,000 259,000
------------ ------------
Total current liabilities ..................................... 4,018,008 7,198,523
Notes payable ................................................. 650,000 --
Deferred rent ................................................. 875,778 776,726
Minority interest ............................................. -- 24,683
------------ ------------
Total liabilities ............................................. 5,543,786 7,999,932
------------ ------------
Commitments and contingencies
Stockholders' deficit:
Class A preferred stock, $1,000 par value--2,000 shares
authorized; 600 shares issued and outstanding .............. 600,000 600,000
Common stock, $1.00 par value--20,000 shares authorized; 1,250
shares issued and outstanding .............................. 1,250 1,250
Additional paid-in capital ................................... 3,571,692 3,571,692
Unearned compensation ........................................ (341,369) (258,475)
Accumulated deficit .......................................... (4,232,051) (4,659,107)
Cumulative translation adjustment ............................ 197,611 198,918
------------ ------------
Total stockholders' deficit ................................... (202,867) (545,722)
------------ ------------
Total liabilities and stockholders' deficit ................... $ 5,340,919 $ 7,454,210
============ ============

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

F-267

PROSERV, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------------- -------------------------------
1996 1995 1997 1996
---------------- ---------------- ------------- ---------------
(UNAUDITED)

Operating revenue .............................. $ 13,387,810 $ 17,792,247 $6,438,343 $ 5,253,016
Operating expenses ............................. 10,130,353 11,926,379 4,739,531 4,872,175
General and administrative expenses ............ 5,000,927 6,581,388 1,921,300 2,481,005
Restructuring costs ............................ 565,000 -- -- --
Legal settlement ............................... -- 300,000 -- --
Loss on sublease ............................... -- 293,832 -- --
------------ ------------ ---------- ------------
Loss from operations ........................... (2,308,470) (1,309,352) (222,488) (2,100,164)
Interest expense, net .......................... 208,691 190,967 71,368 124,438
Equity in loss of joint venture ................ -- (6,927) -- --
Gain on sale of joint venture interest ......... -- 67,763 -- --
Minority interest .............................. -- -- 24,683 --
------------ ------------ ---------- ------------
Loss before income taxes ....................... (2,517,161) (1,439,483) (318,539) (2,224,602)
Provision (benefit) for income taxes ........... 239,824 (1,126) 108,517 2,003
------------ ------------ ---------- ------------
Net loss ....................................... $ (2,756,985) $ (1,438,357) $ (427,056) $ (2,226,605)
============ ============ ========== ============

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

F-268

PROSERV, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

ADDITIONAL
PREFERRED COMMON PAID-IN TREASURY
STOCK STOCK CAPITAL STOCK
----------- -------- ------------ --------------

Balance, January 1, 1995 ........ $600,000 $1,000 $ 248,041 $ (218,020)
Net loss ........................ -- -- -- --
Treasury stock reissued
under restricted
purchase ....................... -- -- -- 218,020
Amortization of unearned
compensation ................... -- -- -- --
Foreign currency
translation adjustment ......... -- -- -- --
-------- ------ ---------- ----------
Balance, December 31,
1995 ........................... 600,000 1,000 248,041 --
Net loss ........................ -- -- -- --
Issuance of stock options ....... -- -- 323,901 --
Issuance of common stock -- 250 2,999,750 --
Amortization of unearned
compensation ................... -- -- -- --
Foreign currency
translation adjustment ......... -- -- -- --
-------- ------ ---------- ----------
Balance, December 31,
1996 ........................... 600,000 1,250 3,571,692 --
Net loss (unaudited) ............ -- -- -- --
Amortization of unearned
compensation
(unaudited) .................... -- -- -- --
Foreign currency
translation adjustment
(unaudited) .................... -- -- -- --
-------- ------ ---------- ----------
Balance, June 30, 1997
(unaudited) .................... $600,000 $1,250 $3,571,692 $ --
======== ====== ========== ==========

CUMULATIVE
UNEARNED ACCUMULATED TRANSLATION
COMPENSATION DEFICIT ADJUSTMENT TOTAL
-------------- --------------- ------------ ---------------

Balance, January 1, 1995 ........ $ (59,778) $ (36,709) $ 141,468 $ 676,002
Net loss ........................ -- (1,438,357) -- (1,438,357)
Treasury stock reissued
under restricted
purchase ....................... (218,020) -- -- --
Amortization of unearned
compensation ................... 164,937 -- -- 164,937
Foreign currency
translation adjustment ......... -- -- 107,332 107,332
---------- ------------ --------- -------------
Balance, December 31,
1995 ........................... (112,861) (1,475,066) 248,800 (490,086)
Net loss ........................ -- (2,756,985) -- (2,756,985)
Issuance of stock options ....... (323,901) -- -- --
Issuance of common stock -- -- -- 3,000,000
Amortization of unearned
compensation ................... 95,393 -- -- 95,393
Foreign currency
translation adjustment ......... -- -- (51,189) (51,189)
---------- ------------ --------- -------------
Balance, December 31,
1996 ........................... (341,369) (4,232,051) 197,611 (202,867)
Net loss (unaudited) ............ -- (427,056) -- (427,056)
Amortization of unearned
compensation
(unaudited) .................... 82,894 -- -- 82,894
Foreign currency
translation adjustment
(unaudited) .................... -- -- 1,307 1,307
---------- ------------ --------- -------------
Balance, June 30, 1997
(unaudited) .................... $ (258,475) $ (4,659,107) $ 198,918 $ (545,722)
========== ============ ========= =============

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

F-269

PROSERV, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED
DECEMBER 31,
---------------------------------
1996 1995
---------------- ----------------

Cash flows from operating activities:
Net loss ............................................................ $ (2,756,985) $ (1,438,357)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation ...................................................... 181,048 152,349
Deferred income taxes ............................................. 77,000 (288,119)
Provision for bad debts ........................................... 537,820 385,616
Amortization of unearned compensation ............................. 95,393 164,937
Equity in loss of investee ........................................ -- 6,927
Gain on distribution from joint venture ........................... -- (67,763)
Realized gain on sale of marketable securities .................... -- (4,511)
Minority interest ................................................. -- --
Changes in assets and liabilities:
Restricted cash .................................................. (332,999) (31,886)
Accounts receivable .............................................. (256,278) 466,686
Income tax receivable ............................................ 83,175 143,959
Prepaid expenses and other current assets ........................ 233,664 (74,220)
Noncurrent accounts receivable ................................... 410,016 445,949
Other assets ..................................................... (6,202) 37,275
Accounts payable ................................................. (702,583) 212,128
Accrued expenses ................................................. 21,551 35,000
Income tax payable ............................................... (47,869) 96,159
Production rights payable ........................................ (12,573) (522,327)
Deferred revenue ................................................. (211,276) (1,109,279)
Deferred rent .................................................... (172,879) 263,036
Accounts payable-clients ......................................... 332,999 31,886
------------ ------------
Net cash (used in) provided by operating activities ............. (2,526,978) (1,094,555)
------------ ------------
Cash flows from investing activities:
Proceeds from sale of marketable securities ......................... -- 216,590
Purchases of property and equipment ................................. (74,297) (142,609)
Investment in joint venture ......................................... (10,836) (89,164)
------------ ------------
Net cash used in investing activities ........................... (85,133) (15,183)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of capital stock ............................. 3,000,000 --
Proceeds from notes payable ......................................... 1,250,000 2,460,000
Payments on notes payable ........................................... (1,800,000) (1,822,500)
------------ ------------
Net cash provided by financing activities ....................... 2,450,000 637,500
------------ ------------
Effect of exchange rate changes on cash and cash equivalents ......... 47,626 30,090
------------ ------------
Increase (decrease) in cash and cash equivalents ..................... (114,485) (442,148)
Cash and cash equivalents, beginning of period ....................... 282,780 724,928
------------ ------------
Cash and cash equivalents, end of period ............................. $ 168,295 $ 282,780
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for income taxes, net of refunds .......... $ 127,518 $ 61,930
============ ============
Cash paid during the year for interest .............................. $ 224,461 $ 181,106
============ ============
Noncash investing and financing activities:
Issuance of treasury stock for restricted stock award ............... $ -- $ 218,020
============ ============

SIX MONTHS ENDED JUNE 30,
-------------------------------
1997 1996
-------------- ----------------
(UNAUDITED)

Cash flows from operating activities:
Net loss ............................................................ $ (427,056) $ (2,226,605)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation ...................................................... 51,408 60,111
Deferred income taxes ............................................. -- --
Provision for bad debts ........................................... -- --
Amortization of unearned compensation ............................. 82,894 35,000
Equity in loss of investee ........................................ -- 10,836
Gain on distribution from joint venture ........................... -- --
Realized gain on sale of marketable securities .................... -- --
Minority interest ................................................. 24,683 --
Changes in assets and liabilities:
Restricted cash .................................................. (260,238) (303,193)
Accounts receivable .............................................. (964,658) (862,833)
Income tax receivable ............................................ -- 83,175
Prepaid expenses and other current assets ........................ (112,525) (63,933)
Noncurrent accounts receivable ................................... 69,387 --
Other assets ..................................................... (37,195) 13,791
Accounts payable ................................................. 1,466,375 1,798,750
Accrued expenses ................................................. (315,592) (278,124)
Income tax payable ............................................... 107,917 (16,754)
Production rights payable ........................................ 327,847 540,732
Deferred revenue ................................................. 442,410 840,737
Deferred rent .................................................... (99,052) (339,969)
Accounts payable-clients ......................................... 260,238 303,193
---------- ------------
Net cash (used in) provided by operating activities ............. 616,843 (405,086)
---------- ------------
Cash flows from investing activities:
Proceeds from sale of marketable securities ......................... -- --
Purchases of property and equipment ................................. (5,001) (14,770)
Investment in joint venture ......................................... -- (10,836)
---------- ------------
Net cash used in investing activities ........................... (5,001) (25,606)
---------- ------------
Cash flows from financing activities:
Proceeds from issuance of capital stock ............................. -- --
Proceeds from notes payable ......................................... 425,000 957,500
Payments on notes payable ........................................... -- --
---------- ------------
Net cash provided by financing activities ....................... 425,000 957,500
---------- ------------
Effect of exchange rate changes on cash and cash equivalents ......... (23,248) 1,194
---------- ------------
Increase (decrease) in cash and cash equivalents ..................... 1,013,594 528,002
Cash and cash equivalents, beginning of period ....................... 168,295 282,780
---------- ------------
Cash and cash equivalents, end of period ............................. $1,181,889 $ 810,782
========== ============
Supplemental disclosure of cash flow information:
Cash paid during the year for income taxes, net of refunds .......... $ -- $ --
========== ============
Cash paid during the year for interest .............................. $ 71,368 $ 124,438
========== ============
Noncash investing and financing activities:
Issuance of treasury stock for restricted stock award ............... $ -- $ --
========== ============

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

F-270

PROSERV, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996 IS UNAUDITED)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

ProServ, Inc. and Subsidiaries (the Company) is an international
corporation operating as one segment in the business of sports marketing. The
Company provides career management and advisory services to professional
athletes and also engages in sports event management and promotion, production
and distribution of television sports broadcasting, and corporate sports
consulting. The Company conducts its business principally in North America and
Europe.

The Company experienced negative cash flow from operations during the
years ended December 31, 1996 and 1995, and the Company has been reliant on
financing activities to fund its operations. As further described in Note 4,
the Company has certain lines of credit available to fund working capital
through May 31, 1998. In management's opinion, the Company has sufficient
financing available to meet its current obligations as they come due.

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of the
Company's wholly-owned subsidiaries and a partially owned subsidiary in which
the Company has a controlling financial interest through its direct and
indirect ownership. The following entities are included in the consolidated
financial statements:

o ProServ, Inc.

o ProServ Europe

o ProServ, U.K.

o ProServ Financial Services, Inc.

o ProServ Television, Inc.

The above subsidiaries are wholly-owned except for ProServ Television,
Inc. (ProServ TV), which is 49% owned by the Company and 51% owned by an
officer/majority shareholder of the Company. The 51% ownership is accounted for
as a minority interest in the accompanying consolidated financial statements.
As of December 31, 1996, there was no minority interest liability. All
significant intercompany balances and transactions have been eliminated in
consolidation.

INVESTMENT IN JOINT VENTURE

The Company accounts for its investment in joint venture (see Note 10)
under the equity method. Under this method, the original investment is recorded
at cost and adjusted by the Company's share of undistributed earnings of the
joint venture. The investment balance is further adjusted for additional
investments in and cash distributions from the joint venture.

USE OF ESTIMATES

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

F-271

PROSERV, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996 IS UNAUDITED)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)

REVENUE RECOGNITION

The Company's revenues arise primarily from a percentage fee or
commissions received for performing services. The Company recognizes revenue
when services have been performed. Fees or commissions collected in advance for
services to be performed in subsequent years are recorded on the accompanying
consolidated balance sheets as deferred revenue. Deferred revenue is recognized
when the event is held or the Company's client performs under the related
contract. Revenue associated with television event production is recorded net
of fees payable to the related events. All recognized but unpaid fees are
included in the accompanying consolidated balance sheets as production rights
payable. The Company manages or represents various sporting events and has an
ownership interest in certain of these events. Revenues and expenses from these
events are recognized on the accrual basis.

CASH EQUIVALENTS

Short-term investments with an original maturity of three months or less
are considered to be cash equivalents.

RESTRICTED CASH

The Company collects endorsement fees, special appearance fees, and
tournament earnings on behalf of its clients. These funds are held in separate
bank accounts pending disbursement to the individual clients. These cash
balances are reflected separately on the accompanying consolidated balance
sheets as restricted cash with a corresponding accounts payable to clients.

ACCOUNTS RECEIVABLE

Accounts receivable are recorded net of an allowance for doubtful accounts
of $577,650 and $569,559 at December 31, 1996 and June 30, 1997, respectively.

CONCENTRATION OF CREDIT RISK

Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of cash and cash equivalents
and accounts receivable. The Company deposits its cash and cash equivalents in
two financial institutions which are insured by the Federal Depository
Insurance Corporation (FDIC). The Company has not experienced any losses on
these balances to date. In addition, the Company maintains a repurchase
agreement with one of the financial institutions, in which excess funds are
deposited by the financial institution in an overnight investment account. The
Company establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific clients, historical trends and other
information.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of financial instruments including cash and cash
equivalents, restricted cash, accounts receivable, notes payable and accounts
payable approximate fair value as of December 31, 1996 because of the
relatively short maturity of these instruments. The carrying value of
noncurrent receivables approximates fair value as of December 31, 1996 based on
discounted future cash flows using a discount rate that approximates the
current interest rate available from the Company's financial institutions.

F-272

PROSERV, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996 IS UNAUDITED)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the related assets,
ranging from five to fifteen years. Leasehold improvements are amortized over
the remaining lease term using the straight-line method. Upon retirement or
disposition of property and equipment, the cost and accumulated depreciation
are removed from the accounts and any resulting gain or loss is reflected in
operations.

INCOME TAXES

ProServ, Inc. and ProServ Financial Services, Inc. file a consolidated
Federal income tax return. ProServ TV files separate Federal and state returns
and ProServ Europe and ProServ U.K. file separate tax returns in their
respective tax jurisdictions. The Company accounts for income taxes utilizing
the liability method. Deferred income taxes are recognized for the tax
consequences in future years for differences between the tax bases of assets
and liabilities and their financial reporting amounts at each year end, based
on enacted tax laws and statutory tax rates applicable to the periods in which
the differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized. The provision for income taxes is the current tax
expense for the period plus the change during the period in deferred tax assets
and liabilities.

STOCK OPTIONS

In October 1995, the Financial Accounting Standards Board issued SFAS 123,
"Accounting for Stock-Based Compensation." SFAS 123 is effective for the year
ended December 31, 1996. SFAS 123 permits companies to account for stock based
compensation based on the provisions prescribed in SFAS 123 or based on the
authoritative guidance in Accounting Principles Board Opinion No. 25 ("APB
25"), "Accounting for Stock Issued to Employees." The Company has elected to
continue to account for its stock based compensation in accordance with APB 25,
however, as required by SFAS 123, the Company has disclosed the pro forma
impact on the financial statements assuming the recognition provisions of SFAS
No. 123 had been adopted.

CURRENCY TRANSLATION

The assets and liabilities of the Company's foreign subsidiaries are
translated at the exchange rates in effect on the reporting date and revenues
and expenses are translated at the weighted average exchange rate in effect
during the period. Adjustments resulting from these translations are included
as a separate component of stockholders' equity.

UNAUDITED INTERIM FINANCIAL INFORMATION

The interim financial information as of June 30, 1997 and for the six
months ended June 30, 1997 and 1996 is unaudited. The unaudited interim
financial statements reflect, in the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to fairly present
the results of operations, changes in cash flows and financial position as of
and for the periods presented. The unaudited interim financial information
should be read in conjunction with the audited financial statements and related
notes thereto. The results for the interim periods presented are not
necessarily indicative of results to be expected for the full year.

F-273

PROSERV, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996 IS UNAUDITED)

2. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

DECEMBER 31, JUNE 30,
1996 1997
-------------- ---------------
(UNAUDITED)

Office equipment ........................................ $ 1,651,915 $ 1,570,645
Leasehold improvements .................................. 264,639 225,351
Tape library ............................................ 229,813 229,813
------------ ------------
2,146,367 2,025,809
Less: accumulated depreciation and amortization ......... (1,677,923) (1,574,860)
------------ ------------
$ 468,444 $ 450,949
============ ============

Depreciation and amortization expense was $181,048 and $152,349 for the
years ended December 31, 1996 and 1995, respectively and $51,408 and $60,111
for the six months ended June 30, 1997 and 1996, respectively.

3. NONCURRENT ACCOUNTS RECEIVABLE

Noncurrent accounts receivable include certain contractually earned
amounts for which there is no future performance required by the Company and
outstanding loans that will not be collected within one year from the balance
sheet date. Amounts to be collected during the twelve months subsequent to
December 31, 1996 are included in accounts receivable. The noncurrent accounts
receivable are reflected at the present value of future receipts based on the
discount rate prevailing on the date upon which the earnings process is
complete and are recorded net of an unamortized discount of approximately
$872,000 and $837,000 as of December 31, 1996 and June 30, 1997, respectively.
Interest resulting from the amortization of the discount, which is included in
operating revenues, was approximately $80,000 and $129,000 for the years ended
December 31, 1996 and 1995, respectively and approximately $35,000 and $50,000
for the six months ended June 30, 1997 and 1996, respectively. Based on the
present value at December 31, 1996 of future cash receipts, the noncurrent
accounts receivable will be realized over the next five years and thereafter as
follows as of
December 31, 1996 and June 30, 1997:

DECEMBER 31, JUNE 30,
1996 1997
-------------- --------------
(UNAUDITED)

1997 .......................... $ 482,559 $ 482,559
1998 .......................... 534,836 465,449
1999 .......................... 52,695 52,695
2000 .......................... 11,724 11,724
2001 .......................... 12,566 12,566
Thereafter .................... 616,385 616,385
---------- ----------
1,710,765 1,641,378
Less: current portion ......... (482,559) (482,559)
---------- ----------
Total ........................ $1,228,206 $1,158,819
========== ==========

F-274

PROSERV, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996 IS UNAUDITED)

4. NOTES PAYABLE

Notes payable consist of the following:

DECEMBER 31, JUNE 30,
1996 1997
-------------- ---------------
(UNAUDITED)

Lines of credit ............... $1,450,000 $ 2,150,000
Term notes payable ............ 100,000 25,000
---------- ------------
Total notes payable .......... 1,550,000 2,175,000
Less: current portion ......... (900,000) (2,175,000)
---------- ------------
Noncurrent portion ........... $ 650,000 $ --
========== ============

LINES OF CREDIT

The Company maintains three lines of credit providing an aggregate working
capital facility of $1,850,000 and $2,100,000 at December 31, 1996 and June 30,
1997, respectively, of which $1,450,000 and $1,950,000 was outstanding as of
December 31, 1996 and June 30, 1997, respectively. Specific descriptions of
these lines of credit are set forth below.

The Company maintains two of its lines of credit with one financial
institution for an aggregate working capital facility of up to $1,100,000.
Total amounts outstanding under these lines of credit were $700,000 and
$1,100,000 at December 31, 1996 and June 30, 1997, respectively. Interest
payments are due monthly on these facilities at the bank's prime rate (8.25% at
December 31, 1996 and 8.5% at June 30, 1997). These lines of credit are
collateralized by substantially all of the Company's assets and certain future
contract rights and are guaranteed by a shareholder of the Company. One of the
lines maintained by ProServ TV is also guaranteed by ProServ, Inc. The line of
credit agreements contain certain restrictive covenants, including a minimum
cash flow coverage requirement, a minimum net worth requirement and
restrictions on incurring additional indebtedness and issuing shares of common
stock. As of December 31, 1996, the Company was not in compliance with these
covenants but received a waiver from the bank related to each covenant
violation. These facilities expired on May 31, 1997. On June 17, 1997, the
Company renegotiated these lines of credit. The lines were combined into one
$1,100,000 line of credit with a maturity date of May 31, 1998. The revised
line of credit agreement requires a principal payment of $550,000 on the
earlier of October 15, 1997 or the closing of a definitive purchase and sale
agreement (the Agreement) between the majority shareholder of the Company and
The Marquee Group (see Note 10) and a principal payment on the earlier of
October 30, 1997 or 15 days after the closing of the Agreement. All other terms
of the previous lines of credit remain the same.

The Company has an additional line of credit at another bank that provides
for a working capital facility of up to $750,000 and $1,000,000 at December 31,
1996 and June 30, 1997, respectively, of which $750,000 and $850,000 was
outstanding as of December 31, 1996 and June 30, 1997, respectively. Interest
payments were due monthly on this facility at the prime rate as published in
the Wall Street Journal (8.25% at December 31, 1996 and 9.5% at June 30, 1997).
This line of credit expired on December 31, 1996. The Company subsequently
renegotiated this line of credit, and the resulting new terms include a
scheduled principal payment of $150,000 on or before September 30, 1997 with
the remaining outstanding balance due May 31, 1998. The terms of the
renegotiated line of credit terms included an increase in the maximum principal
available on the line of credit to $1,000,000 and an increased interest rate of
prime (as published in the Wall Street Journal) plus 1%. This line is
collateralized by the rights to the Company's earnings generated by an
agreement related to a specific Company sponsored event, earnings generated
from certain ongoing management contracts, the rights to certain cash flow
generated from the Company's team sports operations and certain royalties

F-275

PROSERV, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996 IS UNAUDITED)

4. NOTES PAYABLE (CONTINUED)

received by the Company pursuant to a specific contract. The line is also
guaranteed by a shareholder of the Company. The line contains certain
restrictive covenants, including a requirement that the Company maintain thirty
consecutive days with a zero balance on this line. The Company was not in
compliance with this covenant as of December 31, 1996, but received a waiver
from the bank related to this covenant violation.

During 1996, the Company borrowed an additional $482,500 from this
financial institution. Interest payments were due monthly on this facility at
the prime rate (as published in the Wall Street Journal) plus 2%. This loan was
repaid in full during July 1996.

The majority shareholder of the Company also entered into a line of credit
agreement with a third financial institution during 1996. This line provides
the Company with up to $600,000 in borrowings, none of which was outstanding at
December 31, 1996 and $200,000 of which was outstanding at June 30, 1997.
Interest payments are due monthly at the bank's prime rate (8.50% at December
31, 1996 and 9% at June 30, 1997) plus .50%, and this line expired July 31,
1997. This line is collateralized by the majority shareholder's primary
residence. The line was subsequently renewed through December 31, 1997 with all
of the terms remaining the same.

The weighted average interest rate on short term borrowings was
approximately 8.75% and
9.25% for the years ended December 31, 1996 and 1995, respectively and
approximately 9% and 8.5% for the six months ended June 30, 1997 and 1996,
respectively.

TERM NOTES PAYABLE

The Company maintains a term note payable with a financial institution
with quarterly principal payments and monthly interest payments at the bank's
prime rate (8.25% at December 31, 1996). The note is collateralized by
substantially all of the Company's assets as well as certain future contract
rights and is guaranteed by a shareholder of the Company. This note expired on
July 31, 1997 and was repaid in full at that time. The term notes payable
agreement contained certain restrictive covenants including a minimum cash flow
coverage requirement, a minimum net worth requirement, and restrictions on
incurring additional indebtedness and issuing common stock. As of December 31,
1996, the Company was not in compliance with these covenants but received a
waiver from the bank related to each covenant violation.

5. INCOME TAXES

The components of the provision (benefit) for income taxes were as
follows:

SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- ----------------------
1996 1995 1997 1996
----------- ------------- ---------- ---------
(UNAUDITED)

Current:
Federal ......... $123,116 $ 220,340 $ 74,117 $1,903
State ........... 39,708 41,313 13,100 100
Foreign ......... -- 25,340 21,300 --
-------- ---------- -------- ------
162,824 286,993 108,517 2,003
-------- ---------- -------- ------
Deferred
Federal ......... -- (276,119) -- --
State ........... -- (12,000) -- --
Foreign ......... 77,000 -- -- --
-------- ---------- -------- ------
77,000 (288,119) -- --
-------- ---------- -------- ------
Total .......... $239,824 $ (1,126) $108,517 $2,003
======== ========== ======== ======

F-276

PROSERV, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996 IS UNAUDITED)

5. INCOME TAXES (CONTINUED)

Although the Company has a loss before income taxes on a consolidated
basis for the years ended December 31, 1996 and 1995, ProServ TV has generated
taxable income for both of those years, giving rise to the current provision.
The Company's consolidated provision (benefit) for income taxes differs from
the provision (benefit) that would have resulted from applying the federal
statutory rates to net income before taxes. The reasons for these differences
are as follows:

SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- ------------------------------
1996 1995 1997 1996
-------------- -------------- ------------- --------------
(UNAUDITED)

(Benefit) provision based upon Federal
statutory rate of 34% ................. $ (855,835) $ (489,424) $ (99,911) $ (756,365)
State tax provision--ProServ TV ......... 20,000 28,432 13,000 --
IRS contingency (see Note 7) ............ -- 57,000 -- --
Increase in deferred tax asset valuation
allowance ............................. 1,054,000 312,000 220,000 746,868
French tax audit (see Note 7) ........... 77,000 -- -- --
Other ................................... (55,341) 90,866 24,572 11,500
---------- ---------- --------- ----------
$ 239,824 $ (1,126) $ 108,517 $ 2,003
========== ========== ========= ==========

The sources and tax effects of temporary differences which give rise to
deferred tax assets (liabilities) are summarized as follows:

DECEMBER 31, JUNE 30,
1996 1997
-------------- ---------------
(UNAUDITED)

Deferred tax assets:
Net operating loss carryforwards ......... $ 1,244,000 $ 1,464,000
AMT credit carryforwards ................. 109,000 109,000
Deferred rent ............................ 333,000 310,000
Accrued liabilities ...................... 302,000 300,000
Foreign tax credit carryforwards ......... 360,000 360,000
------------ ------------
2,348,000 2,543,000
Less: valuation allowance ................ (1,726,000) (1,946,000)
------------ ------------
Total deferred tax assets ................ 622,000 597,000
------------ ------------
Deferred tax liabilities:
Property and equipment ................... (80,000) (80,000)
Accounts receivable ...................... (535,000) (510,000)
IRS contingency .......................... (182,000) (182,000)
French Tax Audit ......................... (77,000) (77,000)
Other .................................... (7,000) (7,000)
------------ ------------
Total deferred tax liabilities ........... (881,000) (856,000)
------------ ------------
Net deferred tax liability ............... $ (259,000) $ (259,000)
============ ============

As of December 31, 1996 and June 30, 1997, the Company had foreign tax
credit carryforwards (FTC's) of $360,000 expiring in 1997. Utilization of the
FTC's is subject to certain limitations, including the generation of future
foreign source taxable income, the effective tax rate on such income and the
amount of future U.S. taxable income. Based on the expiration of the FTC's in
1997, their recoverability is doubtful; therefore, a valuation allowance has
been established for the full amount of these FTC's at December 31, 1996 and
June 30, 1997. The $1,054,000 and $320,000 increases in the valuation allowance
at December 31, 1996 and June 30, 1997, respectively, relate primarily to the
Company's net operating loss carryforwards generated during 1996 and 1997.

F-277

PROSERV, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996 IS UNAUDITED)

5. INCOME TAXES (CONTINUED)

The Company has approximately $3,054,000 in domestic net operating loss
carryforwards and approximately $220,000 in foreign net operating loss
carryforwards. The realizability of the deferred tax asset generated from these
operating loss carryforwards is dependent upon future taxable income generated
by the entity to which the operating loss carryforwards relate. The Company's
net operating loss carryforwards expire as follows:

2010 ................ $1,324,000
2011 ................ 1,950,000
----------
$3,274,000
==========

6. RESTRUCTURING COSTS

During 1996, the Company incurred $565,000 in restructuring costs related
to closing down the Paris office of ProServ Europe. Included in these costs
were approximately $432,000 in severance, resulting from the termination of 16
employees and $133,000 in other miscellaneous costs. There were no significant
accrued expenses resulting from this restructuring included in the consolidated
balance sheet as of December 31, 1996.

7. COMMITMENTS AND CONTINGENCIES

LEASE COMMITMENTS

The Company rents all of its space under operating leases, primarily a
twelve-year lease that expires in May 2001. The terms of this lease included a
waiver of rental payments for the first year of the lease term and scheduled
rent increases at specified intervals during the twelve year term of the lease.
The Company is recognizing rent expense on a straight-line basis over the life
of the lease, giving rise to deferred rent. The rental payments prescribed in
the lease are also subject to changes resulting from changes in the consumer
price index. During 1995, the Company entered into an agreement with the lessor
resulting in a reduction of the space under lease and a corresponding reduction
in annual rental payments. In connection with this agreement and in connection
with a sublease entered into during 1995, the Company recorded a non-cash loss
of $293,832 in the consolidated statement of operations for the year ended
December 31, 1995. The loss reflects the Company's future lease commitments for
space for which no future benefit to the Company is anticipated. Aggregate
future minimum rental payments, net of noncancelable subleases, greater than
one year as of December 31, 1996, are as follows:

RENTAL SUBLEASE
PAYMENTS INCOME NET
------------- ----------- -------------

1997 ......... $ 825,501 $169,057 $ 656,444
1998 ......... 838,869 182,511 656,358
1999 ......... 847,086 186,161 660,925
2000 ......... 844,548 189,884 654,664
2001 ......... 351,895 80,166 271,729
---------- -------- ----------
$3,707,899 $807,779 $2,900,120
========== ======== ==========

Rent expense, net of sublease income of $160,902 and $11,572, was $740,444
and $1,321,612 for the years ended December 31, 1996 and 1995, respectively.
Rent expense, net of sublease income of $81,612 and $74,870, was $244,553 and
$305,305 for the six months ended June 30, 1997 and 1996, respectively.

F-278

PROSERV, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996 IS UNAUDITED)

7. COMMITMENTS AND CONTINGENCIES (CONTINUED)

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with certain key
officers of the Company. These employment agreements set forth salary terms and
provide for the issuance of restricted common stock of the Company that will be
released to the officers at specified dates if the officers remain with the
Company. Unearned compensation, representing the difference between the price
of the restricted stock issued to the officers and the estimated fair value of
the stock on the effective date of the agreements, is amortized over the stated
period of performance. Amortization of unearned compensation, which represents
a non-cash charge, was $95,393 and $164,937 for the years ended December 31,
1996 and 1995, respectively, and $82,894 and $35,000 for the six months ended
June 30, 1997 and 1996, respectively.

During 1996, one of the employment agreements with an officer of the
Company was revised. The terms of this revised agreement include a reduction in
the period of performance associated with the restricted common stock mentioned
above and certain cash bonus provisions based on the achievement of specific
criteria set forth in the agreement. Additionally, the officer was granted
options to purchase 50 shares of the Company's common stock at an exercise
price of $2,585 per share. Twenty-five of these options will vest on December
31, 1997 and the remaining 25 options will vest on December 31, 1998. All 50
options were outstanding and there were none exercisable as of December 31,
1996. The fair value of these options, which was determined using the
Black-Scholes Valuation method, was $10,042 per share on the date of grant, and
the assumptions used to estimate the fair value were as follows: risk-free
interest rate 5.71%; expected term of 5 years; expected volatility of 0%; and
dividend yield of 0%. The remaining contractual life of these options was 4.8
years as of December 31, 1996. Had the recognition provisions of SFAS 123 been
implemented and this compensation cost recorded based on the fair value of the
stock options at the date of grant, the Company's net loss would have been
$2,771,000 for the year ended December 31, 1996.

Subsequent to December 31, 1996, an employment agreement with a second key
officer was revised. This revised employment agreement included the grant of
new options to purchase 30 shares of the Company's common stock that will vest
at specified dates in 1997 and 1998 based on the achievement of certain
performance criteria.

OTHER

In the normal course of business, the Company enters into certain
contracts in which specified revenue levels are guaranteed to its clients. Any
material known future losses related to these guarantees are recorded in the
period in which the losses are determined.

CONTINGENCIES

The Company was a party to a suit filed by a former client alleging legal
and investment advisory wrongdoing on the part of the Company and several other
named parties. Pursuant to an agreement dated May 28, 1996, the Company and the
other named parties reached a settlement with the former client. Under the
terms of the agreement, the Company is required to pay $300,000 in aggregate
from March 1997 through March 1999 in three annual installments. Additionally,
the Company could be liable for recapture taxes due by the former client on any
passive income to be generated by certain of the investments in question. The
Company's potential liability related to these recapture taxes is not presently
estimable. The Company's payments related to this settlement agreement are
guaranteed by a shareholder of the Company. As a result of the settlement
agreement, the Company recorded a one-time expense of $300,000 in the
consolidated statement of operations for the year ended December 31, 1995. The
related liability is recorded in accrued expenses as of December 31, 1996 and
June 30, 1997.

F-279

PROSERV, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996 IS UNAUDITED)

7. COMMITMENTS AND CONTINGENCIES (CONTINUED)

The Company, a former employee (current business associate) and a former
client have been named as defendants in a lawsuit, in which the plaintiff
alleges that the Company's former client breached a contract to act in a motion
picture and that the Company and the former employee tortiously interfered with
the former client's contractual relations to the plaintiff. The Company, the
former employee and its former client have each filed motions for summary
judgment, requesting the dismissal of the complaint. The Company is not
presently able to determine the likelihood of any exposure resulting from this
lawsuit.

The Company, a former employee (current business associate) and a client
are defendants in a lawsuit. The plaintiff alleges that the Company's client
breached a contract to act in a motion picture and the former employee (current
business associate) and the Company tortiously interfered with the client's
contractual relations with the plaintiff. The plaintiff seeks unspecified
damages. The parties are engaging in discovery. The Company is not presently
able to determine the likelihood of any exposure resulting from this lawsuit.

In connection with examinations of the consolidated federal tax returns of
ProServ, Inc. and ProServ Financial Services, Inc. for the years 1990 through
1993, the Internal Revenue Service (IRS) has raised questions regarding the tax
treatment of certain significant transactions. Although the Company believes it
has valid defenses to defeat any tax assessment, the Company has accrued
$182,000, reflected in deferred income taxes (see Note 5), for this
contingency, representing the best estimate of the exposure to the Company as
of December 31, 1996 and June 30, 1997.

The French taxing authorities are conducting an audit of ProServ Europe's
tax returns for the years 1993 through 1995. The Company has accrued $77,000,
reflected in deferred income taxes (see Note 5), for this contingency,
representing the best estimate of the exposure to the Company as of December
31, 1996 and June 30, 1997.

In the normal course of business, the Company is involved in various
lawsuits. Management is of the opinion that any liability or loss resulting
from such litigation will not have a material adverse effect on the
consolidated financial statements.

8. EMPLOYEE BENEFIT PLAN

The Company sponsors a qualified defined contribution plan under section
401(k) of the Internal Revenue Code. The defined contribution plan enables all
full time employees who have completed one year of service with the Company to
make voluntary contributions to the plan of up to 15% of their compensation not
to exceed the dollar limits prescribed by the IRS. Additional contributions to
be made by the Company are prescribed in the Plan, subject to certain
limitations. The Company's expense related to the plan totaled approximately
$35,000 and $45,000 for the years ended December 31, 1996 and 1995,
respectively.

9. AGREEMENT AND MEMORANDUM OF UNDERSTANDING

In January 1992, an Agreement and Memorandum of Understanding was executed
with a former officer of the Company under which the former officer represents,
through a separate company, certain former clients of the Company. Under the
terms of the agreements, the revenue on certain playing and endorsement
contracts was divided between the companies based on varying percentages and
terms, including dates of execution, renegotiations and renewals of such
playing and endorsement contracts. Net revenue recognized under this agreement
was approximately $694,000 and $1,228,000 for the years ended December 31, 1996
and 1995, respectively and $81,000 and $184,000 for the six months ended June
30, 1997 and 1996, respectively.

F-280

PROSERV, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996 IS UNAUDITED)

10. INVESTMENT IN JOINT VENTURE

On March 30, 1995, the Company and a former executive of the Company
formed a corporate joint venture to produce sports and entertainment events for
television. Under the terms of the original joint venture agreement, the
Company invested $48,000 in cash, certain contracts and events with a fair
value of $400,000, and $52,000 in professional service, valued at cost, to be
contributed over a one year period, collectively representing a 50% interest in
the joint venture. The fair value of the contracts and events was agreed upon
by both original shareholders of the joint venture. As of December 31, 1996 and
1995, the Company had incurred $52,000 and $41,000, respectively, of the
professional services as part of the Company's investment in the joint venture.

In December 1995, the joint venture entered into an agreement with a third
investor for the purchase of a 20% ownership interest in the joint venture for
$550,000 in cash. The agreement stipulated that each previously existing
shareholder in the joint venture would receive a $150,000 payment as a result
of this cash infusion. Upon completion of this transaction, the Company's
interest in the joint venture was reduced to 40%

The Company's basis in the contracts and events that were contributed to
the joint venture was $0 upon the initial contribution. The Company is
amortizing the resulting basis difference over the seven year estimated life of
the related contracts and events.

The joint venture allocates and distributes income and losses in
proportion to each shareholders' percentage ownership. The following represents
a rollforward of the investment in joint venture for the years ending December
31, 1996 and 1995:

Balance, January 1, 1995 ..................... $ --
Cash investment .............................. 48,000
Professional services ........................ 41,164
Equity in loss of investee:
Share of investee net loss .................. (52,165)
Amortization of basis difference ............ 45,238
-------
(6,927)
Reduction of investment based on sale of joint
venture interest ............................ (82,237)
---------
Balance, December 31, 1995 ................... --
Professional services ........................ 10,836
Equity in loss of investee:
Amortization of basis difference ............ 57,142
Share of investee net loss .................. (67,978)
-------
(10,836)
---------
Balance December 31, 1996 .................... $ --
=========

The Company's proportionate share of the joint venture's net loss for the
year ended December 31, 1996 and the six month period ended June 30, 1997 was
approximately $72,000 and $89,000, respectively; however, since the investment
in joint venture balance is $0, these losses were only recognized to the extent
of the amortization of the basis difference in the contracts and events and the
professional services contributed to the joint venture.

F-281

PROSERV, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996 IS UNAUDITED)

10. INVESTMENT IN JOINT VENTURE (CONTINUED)

Summarized unaudited financial information of the joint venture are as
follows:

YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------------- ---------------------------------
1996 1995 1997 1996
--------------- --------------- --------------- ---------------
(UNAUDITED)

STATEMENTS OF OPERATIONS
Operating revenues ........... $ 910,000 $ 505,000 $ 828,000 $ 713,000
Operating expenses ........... (1,090,000) (609,000) (1,051,000) (1,039,000)
------------ ----------- ------------ ------------
Net loss ..................... $ (180,000) $ (104,000) $ (223,000) $ (326,000)
============ =========== ============ ============
BALANCE SHEET
Total assets ................. $ 1,266,000 $ 904,000
Total liabilities ............ (301,000) (132,000)
------------ ------------
Shareholders' equity ......... $ 965,000 $ 772,000
============ ============

11. FINANCIAL INFORMATION BY GEOGRAPHIC AREA

Operating revenue, (loss) income from operations and identifiable assets
for the Company's North America and European operations are as follows:

YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------------------------- --------------------------------
1996 1995 1997 1996
---------------- ---------------- ------------- ----------------
(UNAUDITED)

Operating revenue
North America .............. $ 10,910,000 $ 14,551,000 $5,472,071 $ 4,369,182
Europe ..................... 2,478,000 3,241,000 966,272 883,834
------------ ------------ ---------- ------------
Total .................... $ 13,388,000 $ 17,792,000 $6,438,343 $ 5,253,016
============ ============ ========== ============
(Loss) income from operations
North America .............. $ (1,465,000) $ (1,421,000) $ (257,554) $ (1,337,216)
Europe ..................... (843,000) 112,000 35,066 (762,948)
------------ ------------ ---------- ------------
Total .................... $ (2,308,000) $ (1,309,000) $ (222,488) $ (2,100,164)
============ ============ ========== ============
Identifiable assets
North America .............. $ 4,786,000 $ 5,384,000 $5,598,000
Europe ..................... 555,000 1,604,000 1,856,000
------------ ------------ ----------
Total .................... $ 5,341,000 $ 6,988,000 $7,454,000
============ ============ ==========

12. SUBSEQUENT EVENTS (UNAUDITED)

The majority shareholder of the Company has entered into a Purchase and
Sale Agreement dated as of June 25, 1997 with The Marquee Group, Inc.
("Marquee"), pursuant to which he has agreed to sell 70.4% of the outstanding
common stock and 100% of the outstanding preferred stock of ProServ, Inc. and
51% of the outstanding capital stock of ProServ TV, the remainder of which is
owned by ProServ, Inc. Pursuant to the agreement, the aggregate purchase price
is $6.5 million, subject to certain adjustments, and 250,000 shares of common
stock of Marquee. The majority shareholder of the Company has the option to
receive the $6.5 million in cash or $3.5 million in cash and a $3.0 million
promissory note payable on January 2, 1998. In June 1997, Marquee deposited
$1.5 million, in escrow,

F-282

PROSERV, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996 IS UNAUDITED)

12. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)

as a down payment of the purchase price to secure its obligations under the
purchase agreement. In August 1997, the agreement was amended to permit Marquee
to replace its down payment with a $1.5 million letter of credit delivered to
the majority shareholder of the Company.

Marquee has also entered into a Stock Purchase Agreement dated as of July
2, 1997 (the "Non-Employee Stock Purchase Agreement") with the holder of 250
shares of the Company's common stock, pursuant to which Marquee has agreed to
purchase the shares held for an aggregate purchase price of $3.0 million. The
consummation of the purchase will take place concurrently with the consummation
of the purchase of the majority shareholders' shares.

Marquee has also entered into agreements with William J. Allard, the
president and chief operating officer of the Company, and two other officers of
the Company, pursuant to which Marquee has agreed to purchase an aggregate of
120 shares of the Company's Common Stock and options to purchase an aggregate
of 70 shares of the Company's Common Stock for an aggregate purchase price of
$1.3 million.

F-283

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholder
of QBQ Entertainment, Inc.

We have audited the accompanying balance sheet of QBQ Entertainment, Inc.
as of December 31, 1996, and the related statements of operations,
stockholder's equity (deficiency) 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of QBQ Entertainment, Inc. as
of December 31, 1996, and the results of its operations and its cash flows for
each of the two years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.

As discussed in Note 3 to the financial statements, the Company changed
its method of computing rent expense and depreciation and amortization of
property and equipment in 1995.

David Berdon & Co. LLP

New York, New York
June 13, 1997

F-284

QBQ ENTERTAINMENT, INC.

BALANCE SHEETS

DECEMBER 31, 1996 JUNE 30, 1997
------------------- --------------
(UNAUDITED)

ASSETS
CURRENT ASSETS
Cash and cash equivalents ................................... $ 323,237 $1,243,145
Accounts receivable ......................................... 27,634 39,880
Prepaid expenses ............................................ 6,070 5,189
Loan receivable--stockholder ................................ 60,936 33,820
--------- ----------
TOTAL CURRENT ASSETS ...................................... 417,877 1,322,034
PROPERTY AND EQUIPMENT--NET .................................. 82,235 69,391
CASH--RESTRICTED ............................................. 17,554 16,287
--------- ----------
$ 517,666 $1,407,712
========= ==========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Accrued expenses and other liabilities ...................... $ 130,005 $ 84,774
Loan payable--bank .......................................... 170,000 --
Clients' deposits payable ................................... 266,610 1,049,651
--------- ----------
TOTAL CURRENT LIABILITIES ................................. 566,615 1,134,425
--------- ----------
DEFERRED LEASE OBLIGATION .................................... 10,736 6,709
--------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY (DEFICIENCY)
Common stock--no par value; 100 shares authorized, issued and
outstanding ............................................... 100 100
Additional paid-in capital .................................. 900 900
Accumulated earnings (losses) ............................... (60,685) 265,578
--------- ----------
TOTAL STOCKHOLDER'S EQUITY (DEFICIENCY) ................... (59,685) 266,578
--------- ----------
$ 517,666 $1,407,712
========= ==========

The accompanying notes to financial statements are an integral part of these
statements.

F-285

QBQ ENTERTAINMENT, INC.

STATEMENTS OF OPERATIONS

YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------------------- ------------------------------
1996 1995 1997 1996
------------- ------------- ------------- --------------
(UNAUDITED)

REVENUE
Commissions ............................ $1,358,922 $1,495,245 $1,013,115 $ 468,137
---------- ---------- ---------- ----------
EXPENSES
Operating .............................. 274,224 299,484 126,963 122,671
General and administrative ............. 930,815 1,071,657 457,246 437,433
Depreciation and amortization .......... 38,043 49,398 12,844 28,212
---------- ---------- ---------- ----------
TOTAL EXPENSES ....................... 1,243,082 1,420,539 597,053 588,316
---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS ........... 115,840 74,706 416,062 (120,179)
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE)
Interest income ........................ 12,329 13,764 7,863 4,901
Interest expense ....................... (24,329) (1,797) (5,404) (19,663)
Gain on sale of automobile ............. -- -- 25,000 --
---------- ---------- ---------- ----------
TOTAL OTHER INCOME (EXPENSE) ......... (12,000) 11,967 27,459 (14,762)
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME
TAXES .................................. 103,840 86,673 443,521 (134,941)
PROVISION FOR STATE AND
LOCAL INCOME TAXES ..................... 12,521 15,140 41,680 120
---------- ---------- ---------- ----------
NET INCOME (LOSS) ....................... $ 91,319 $ 71,533 $ 401,841 $ (135,061)
========== ========== ========== ==========

The accompanying notes to financial statements are an integral part of these
statements.

F-286

QBQ ENTERTAINMENT, INC.

STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIENCY)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE SIX MONTHS ENDED JUNE 30, 1997

COMMON STOCK
---------------------- ADDITIONAL ACCUMULATED
NUMBER OF PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (LOSSES) TOTAL
----------- -------- ------------ ------------ -------------

BALANCE--JANUARY 1, 1995 as
previously reported ................... 100 $100 $900 $ 193,484 $ 194,484
Prior period adjustments ............... -- -- -- (41.410) (41,410)
--- ---- ---- ---------- ----------
BALANCE--JANUARY 1, 1995 as
restated .............................. 100 100 900 152,074 153,074
Net income for the year ended
December 31, 1995 ..................... -- -- -- 71,533 71,533
Distribution to stockholder ............ -- -- -- (282,033) (282,033)
--- ---- ---- ---------- ----------
BALANCE--DECEMBER 31, 1995 ............. 100 100 900 (58,426) (57,426)
Net income for the year ended
December 31, 1996 ..................... -- -- -- 91,319 91,319
Distribution to stockholder ............ -- -- -- (93,578) (93,578)
--- ---- ---- ---------- ----------
BALANCE--DECEMBER 31, 1996 ............. 100 100 900 (60,685) (59,685)
Net income for the six months ended June
30, 1997 .............................. -- -- -- 401,841 401,841
Distribution to stockholder ............ -- -- -- (75,578) (75,578)
--- ---- ---- ---------- ----------
BALANCE--JUNE 30, 1997
(Unaudited) ........................... 100 $100 $900 $ 265,578 $ 266,578
=== ==== ==== ========== ==========

The accompanying notes to financial statements are an integral part of these
statements.

F-287

QBQ ENTERTAINMENT, INC.

STATEMENTS OF CASH FLOWS

YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------- ----------------------------
1996 1995 1997 1996
------------ ------------ ------------- --------------
(UNAUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................... $ 91,319 $ 71,533 $ 401,841 $ (135,061)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization .................... 38,043 49,398 12,844 28,212
(Gain) on sale of automobile ..................... -- -- (25,000) --
Decrease (increase) in:
Accounts receivable ............................. 1,639 19,879 (12,246) 16,138
Prepaid expenses ................................ 8,936 (9,556) 881 (3,626)
Increase (decrease) in:
Accrued expenses and other liabilities .......... 37,185 (40,650) (45,231) (21,619)
Clients' deposits payable ....................... 222,035 (21,400) 783,041 1,591,665
Deferred lease obligation ....................... (6,385) (3,052) (4,027) (2,359)
---------- ---------- ---------- ----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES ......................................... 392,772 66,152 1,112,103 1,473,350
---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ................. (34,440) (21,682) -- (19,288)
Proceeds from sale of automobile .................... -- -- 25,000 --
(Increase) decrease in loans to stockholder ......... (5,034) (55,902) 27,116 143,029
---------- ---------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES ............................... (39,474) (77,584) 52,116 123,741
---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of loan payable--bank .................... (300,000) -- (170,000) --
(Increase) decrease in restricted cash .............. (898) (864) 1,267 (461)
Distributions to stockholder ........................ (93,578) (282,033) (75,578) --
Proceeds from loan payable--bank .................... 170,000 300,000 -- --
---------- ---------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES ............................... (224,476) 17,103 (244,311) (461)
---------- ---------- ---------- ----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS ........................................ 128,822 5,671 919,908 1,596,630
CASH AND CASH EQUIVALENTS--
BEGINNING OF PERIOD ................................ 194,415 188,744 323,237 194,415
---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS--
END OF PERIOD ...................................... $ 323,237 $ 194,415 $1,243,145 $1,791,045
========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for:
Interest ......................................... $ 23,479 $ 379 $ 6,253 $ 10,596
========== ========== ========== ==========
Income taxes ..................................... $ 558 $ 64,307 $ 4,104 $ 565
========== ========== ========== ==========

The accompanying notes to financial statements are an integral part of these
statements.

F-288

QBQ ENTERTAINMENT, INC.

NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1997 AND 1996 IS UNAUDITED)

NOTE 1 -- ORGANIZATION

QBQ Entertainment, Inc. (the "Company") was incorporated and commenced
operations in April 1986 as a booking agent in the music and entertainment
industry.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Revenue Recognition

The Company receives advance deposits, on behalf of its clients, in the
ordinary course of business, to book an artist/entertainer for a future event
(i.e., concert). Commission income is recognized when the event takes place.
The funds held on behalf of the Company's clients are held in a separate bank
account.

(b) Concentration of Credit Risk

Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and cash equivalents,
and accounts receivable. The Company places its cash and cash equivalents,
which at times exceed federally insured amounts, with a major financial
institution.

Commissions earned during 1996 includes approximately $521,000 from two
clients, which represents approximately 38% of revenue earned during the year
ended December 31, 1996. Commissions earned during 1995 includes approximately
$875,000 from three clients, which represents approximately 58% of revenue
earned during the year ended December 31, 1995.

Commissions earned during the six months (unaudited) ended June 30, 1997
includes approximately $534,000 from one client and accounts for approximately
53% of the commissions earned. Commissions earned during the six months
(unaudited) ended June 30, 1996 includes approximately $369,000 from five
clients and account for approximately 79% of the commissions earned.

The Company has elected "S" corporation status under the applicable
provisions of the Internal Revenue Code and New York State tax law. The Company
will be treated for federal and New York State income tax purposes
substantially as if it were a partnership while a valid election is in effect,
and the stockholder's respective share in the net income (loss) of the Company
will be reportable on his individual returns. The Company remains liable for
New York City general corporation tax and certain New York State corporate
income taxes.

(d) Property and Equipment

Property and equipment are stated at cost and are being depreciated under
the straight-line method over the estimated useful lives of the related assets,
which range from 31/2 to 7 years.

(e) Use of Estimates in Financial Statement Presentation

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at December 31, 1996 and June
30, 1997, and the reported amounts of revenues and expenses during the two
years ended December 31, 1996, and the six months ended June 30, 1997 and 1996.
Actual results could differ from those estimates.

F-289

QBQ ENTERTAINMENT, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1997 AND 1996 IS UNAUDITED)

(f) Statements of Cash Flows

For purposes of the statements of cash flows, the Company considers as
cash equivalents all highly liquid investments with a maturity of three months
or less when purchased.

(g) Accounts Receivable

The Company has deemed all receivables collectible at December 31, 1996
and June 30, 1997 (unaudited) and does not anticipate any additional probable
material losses as at those dates.

NOTE 3 -- PRIOR PERIOD ADJUSTMENTS

The Company has changed its method of accounting in computing rent expense
and depreciation and amortization of property and equipment in 1995 as a result
of the misapplication of accounting principles prior to the year ended December
31, 1995. Accordingly, accumulated earnings has been reduced by $41,410 as of
January 1, 1995 for the cumulative effect of these prior period adjustments.
The Company has not determined the effect of these changes on income as
previously reported for the year ended December 31, 1994.

NOTE 4 -- LOAN RECEIVABLE -- STOCKHOLDER

At December 31, 1996 and June 30, 1997 (unaudited), $60,936 and $33,820,
respectively, were due from the Company's sole stockholder. These amounts
represent noninterest-bearing demand loans made to the stockholder.

NOTE 5 -- PROPERTY AND EQUIPMENT

Property and equipment -- net consists of the following at December 31,
1996 and June 30, 1997:

DECEMBER 31, JUNE 30,
1996 1997
-------------- ------------
(UNAUDITED)

Furniture and fixtures .................................. $ 70,770 $ 70,770
Equipment ............................................... 170,053 170,053
Automobiles ............................................. 108,235 --
Leasehold improvements .................................. 6,138 6,138
-------- --------
355,196 246,961
Less, accumulated depreciation and amortization ......... 272,961 177,570
-------- --------
$ 82,235 $ 69,391
======== ========

NOTE 6 -- LOAN PAYABLE -- BANK

Loan payable -- bank at December 31, 1996, amounting to $170,000,
represents borrowings by the Company under a $300,000 unsecured grid demand
promissory loan agreement ("grid loan"). These borrowings were repaid by the
Company during the six months ended June 30, 1997.

Interest charged under the grid loan is payable monthly at the rate of 1%
above the bank's reference rate. Interest expense on the grid loan amounted to
$24,329 and $1,797 for the years ended December 31, 1996 and 1995,
respectively, and $5,404 and $19,663 for the six months (unaudited) ended June
30, 1997 and 1996, respectively.

All borrowings under the grid loan are guaranteed by the Company's
stockholder.

F-290

QBQ ENTERTAINMENT, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1997 AND 1996 IS UNAUDITED)

NOTE 7 -- LEASE COMMITMENT

The Company occupies premises for its office facilities under a
noncancelable operating lease agreement which commenced on May 15, 1993 and
expires on May 14, 1998. Minimum lease payments required under the terms of
such lease agreement at December 31, 1996 are as follows:

1997 .......... $65,625
1998 .......... 21,875
-------
Total ......... $87,500
=======

The lease also requires payment of additional sums under escalation
clauses. Rent expense, which is reflected on a straight-line basis over the
term of the lease, amounted to $51,948 for the years ended December 31, 1996
and 1995, and $25,956 for the six months (unaudited) ended June 30, 1997 and
1996. Obligations of $10,736 and $6,709, representing pro-rata future payments,
are reflected in the accompanying December 31, 1996 and June 30, 1997
(unaudited) balance sheets, respectively.

The Company is contingently liable for a standby letter of credit, in the
sum of $15,156, given to its landlord in lieu of a security deposit. This
letter of credit is secured by a certificate of deposit that matures on April
14, 1998.

NOTE 8 -- RETIREMENT PLANS

The Company has two defined contribution plans, a profit sharing plan and
a money purchase plan, both of which cover all eligible employees.
Contributions to the profit-sharing plan are based on 0% to 15% of eligible
employees' annual salaries. Contributions to the money purchase plans are based
on 5% of eligible employees' annual salaries. Costs of the plans charged to
operations for the years ended December 31, 1996 and 1995 amounted to $74,951
and $67,165, respectively, and $37,476 and $33,582 for the six months
(unaudited) ended June 30, 1997 and 1996, respectively.

NOTE 9 -- SUBSEQUENT EVENTS

(a) On July 3, 1997, the Company received approximately $2,959,000 from a
promoter on behalf of one of the Company's clients as an advance deposit for a
series of concerts beginning in March 1998. The Company has placed this deposit
into an interest-bearing escrow account, in which the promoter is entitled to
the interest earned.

(b) In July 1997, the Company entered into an agreement with The Marquee
Group, Inc. and Subsidiaries ("Purchaser") to sell substantially all its assets
for an aggregate purchase price of $7.2 million, of which $3.1 million is
payable at closing, $1.6 million is payable over eight years and $2.5 million
is payable in shares of common stock of the Purchaser.

F-291

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

WE HAVE NOT AUTHORIZED ANY PERSON TO GIVE YOU ANY INFORMATION OR
REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT RELY ON
UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL OR BUY ANY
SECURITIES IN ANY JURISDICTION WHERE IT IS UNLAWFUL. THE INFORMATION IN THIS
PROSPECTUS IS CURRENT AS OF FEBRUARY , 1999. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE AS OF ANY OTHER DATE.

-----------------------------------
TABLE OF CONTENTS

PAGE
----------

Prospectus Summary ....................... 1
Risk Factors ............................. 12
The Exchange Offer ....................... 20
Use of Proceeds .......................... 32
Capitalization ........................... 33
SFX Unaudited Pro Forma Condensed
Combined Financial Statements ......... 35
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................ 64
Overview of the Live Entertainment
Industry .............................. 89
Business ................................. 92
Agreements Related to the Pending
Acquisitions .......................... 115
Management ............................... 119
Principal Stockholders ................... 131
Certain Relationships and Related
Transactions .......................... 134
Description of Indebtedness .............. 139
Description of the Old Notes ............. 144
Description of the New Notes ............. 145
United States Federal Tax Considerations 185
Plan of Distribution ..................... 188
Legal Matters ............................ 189
Experts .................................. 190
Where You Can Find More Information ...... 192
Safe Harbor for Forward-Looking
Statements ............................ 193
Index to Financial Statements ............ F-1

[SFX ENTERTAINMENT LOGO]

OFFER TO EXCHANGE ALL

OUTSTANDING 9 1/8% SENIOR
SUBORDINATED NOTES
DUE 2008
($200,000,000 PRINCIPAL AMOUNT)

FOR

REGISTERED 9 1/8% SENIOR
SUBORDINATED NOTES
DUE 2008
($200,000,000 PRINCIPAL AMOUNT)

The Information Agent for the Offer is:
[GEORGESON & COMPANY LOGO]

Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect: (212) 440-9800
ALL OTHERS CALL TOLL FREE: 1-800-223-2064

FEBRUARY , 1999

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

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of Delaware Law empowers a Delaware corporation to indemnify
any person who is, or is threatened to be made, a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal
administrative or investigative, other than an action by or in the right of the
corporation, by reason of the fact that the person is or was an officer or
director of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
enterprise. The indemnity may include expenses, including attorney's fees,
judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with the action, suit or proceeding,
provided that he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interest of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. Where an officer or director is successful on the merits
or otherwise in the defense of any action referred to above, the corporation
must indemnify him against the expenses which he actually and reasonably
incurred in connection therewith.

The SFX Certificate of Incorporation provides that no director of SFX will
be personally liable to SFX or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability:

o for any breach of the director's duty of loyalty to SFX or its
stockholders;

o for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;

o under Section 174 of Delaware Law; or

o for any transaction from which the director derived an improper
personal benefit.

In addition to the circumstances in which a director of SFX is not
personally liable as set forth above, no director will be liable to SFX or its
stockholders to such further extent as permitted by any law enacted after the
date of the SFX Certificate of Incorporation, including any amendment to
Delaware Law.

The SFX Certificate of Incorporation requires SFX to indemnify any person
who was, is, or is threatened to be made a party to any action, suit or
proceeding, by reason of the fact that he (1) is or was a director or officer
of SFX or (2) is or was serving at the request of SFX as a director, officer,
partner, venturer, proprietor, trustee, employee, agent, or similar functionary
of another corporation, partnership, joint venture, sole proprietorship, trust,
employee benefit plan, or other enterprise. This indemnification is to be to
the fullest extent permitted by Delaware Law. The right to indemnification will
be a contract right and, as such, will run to the benefit of any director or
officer who is elected and accepts the position of director or officer of SFX
or elects to continue to serve as a director or officer of SFX while this
provision of the SFX Certificate of Incorporation is in effect. The right to
indemnification includes the right to be paid by SFX for expenses incurred in
defending any such action, suit or proceeding in advance of its final
disposition to the maximum extent permitted under Delaware Law. If a claim for
indemnification or advancement of expenses is not paid in full by SFX within 60
days after a written claim has been received by SFX, the claimant may, at any
time thereafter, bring suit against SFX to recover the unpaid amount of the
claim and, if successful in whole or in part, expenses of prosecuting his
claim. It will be a

II-1

defense to any such action that the requested indemnification or advancement of
costs of defense are not permitted under Delaware Law, but the burden of
proving this defense will be on SFX.

The rights described above do not exclude any other right that any person
may have or acquire under any statute, by-law, resolution of stockholders or
directors, agreement or otherwise.

The SFX Bylaws require SFX to indemnify its officers, directors, employees
and agents to the full extent permitted by Delaware Law. The SFX Bylaws also
require SFX to pay expenses incurred by a director in defending a civil or
criminal action, suit or proceeding by reason of the fact that he is/was a
director--or was serving at SFX's request as a director or officer of another
corporation--in advance of the final disposition of the action, suit or
proceeding, upon receipt of an undertaking by or on behalf of the director to
repay the advance if it ultimately is determined that the director is not
entitled to be indemnified by SFX as authorized by relevant sections of
Delaware Law. The indemnification and advancement of expenses provided in the
SFX Bylaws are not to be deemed exclusive of any other rights provided by any
agreement, vote of stockholders or disinterested directors or otherwise.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits:

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

2.1 Distribution Agreement between SFX Entertainment, SFX Broadcasting and SFX Buyer
(incorporated by reference to Amendment No. 1 to Form S-1 (File No. 333-50079) filed with
the SEC on May 5, 1998)
2.2 Amended and Restated Tax Sharing Agreement between SFX Entertainment, SFX
Broadcasting and SBI Holding Corporation (incorporated by reference to Amendment No. 1
to Exhibit 1.1 to Current Report on Form 8-K (File No. 000-24017) filed with the SEC on
June 3, 1998)
2.3 Employee Benefits Agreement between SFX Entertainment and SFX Broadcasting
(incorporated by reference to Amendment No. 1 to Form S-1 (File No. 333-50079) filed with
the SEC on May 5, 1998)
2.4 Amendment No. 1 to Distribution Agreement among SFX Entertainment, Inc., SFX
Broadcasting, Inc. and SBI Holding Corporation (incorporated by reference to Exhibit 2.1 to
Form 8-K (File No. 000-24017) filed with the SEC on June 3, 1998)
3.1 Amended and Restated Certificate of Incorporation of SFX Entertainment, Inc. (incorporated
by reference to Amendment No. 1 to Form S-1 (File No. 333-50079) filed with the SEC on
May 5, 1998)
3.2 Bylaws of SFX Entertainment, Inc. (incorporated by reference to Amendment No. 2 to Form
S-1 (File No. 333-43287) filed with the SEC on February 2, 1998)
3.3 Restated Articles of Incorporation of AKG, Inc. (incorporated by reference to Registration
Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.4 Bylaws of AKG, Inc. (incorporated by reference to Registration Statement on Form S-4 (File
No. 333-50331) filed with the SEC on April 16, 1998)
3.5+ Articles of Organization of American Artists, Inc.
3.6+ Bylaws of American Artists, Inc.

II-2

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

3.7+ Articles of Organization of American Artists Limited, Inc.
3.8+ Bylaws of American Artists Limited, Inc.
3.9 Articles of Incorporation of American Broadway, Inc. (incorporated by reference to
Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with the
SEC on May 27, 1998)
3.10 Bylaws of American Broadway, Inc. (incorporated by reference to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.11+ Second Amended Restated Partnership Agreement of Amphitheater Entertainment
Partnership
3.12+ Certificate of Incorporation of Ant Theatrical Productions, Inc.
3.13+ Bylaws of Ant Theatrical Productions, Inc.
3.14 Certificate of Incorporation of Ardee Festivals N.J., Inc. (incorporated by reference to
Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with the
SEC on May 27, 1998)
3.15 Bylaws of Ardee Festivals N.J., Inc. (incorporated by reference to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.16 Certificate of Incorporation of Atlanta Concerts, Inc. (incorporated by reference to
Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with the
SEC on May 27, 1998)
3.17 Bylaws of Atlanta Concerts, Inc. (incorporated by reference to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.18+ Articles of Incorporation of Audrey & Jane, Inc.
3.19+ Certificate of Amendment of Articles of Incorporation of Audrey & Jane, Inc.
3.20+ Bylaws of Audrey & Jane, Inc.
3.21+ Certificate of Incorporation of Avalon Acquisition Corp.
3.22+ Bylaws of Avalon Acquisition Corp.
3.23 Certificate of Incorporation of Beach Concerts, Inc. (incorporated by reference to
Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with the
SEC on May 27, 1998)
3.24 Bylaws of Beach Concerts, Inc. (incorporated by reference to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.25 Certificate of Formation of BGP Acquisition, LLC (incorporated by reference to Amendment
No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on
May 27, 1998)
3.26 Articles of Incorporation of Bill Graham Enterprises, Inc. (incorporated by reference to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.27 Bylaws of Bill Graham Enterprises, Inc. (incorporated by reference to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.28 Articles of Incorporation of Bill Graham Management, Inc. (incorporated by reference to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.29 Bylaws of Bill Graham Management, Inc. (incorporated by reference to Registration
Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)

II-3

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

3.30 Articles of Incorporation of Bill Graham Presents, Inc. (incorporated by reference to Registration
Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.31 Amended and Restated Bylaws of Bill Graham Presents, Inc. (incorporated by reference to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.32 Articles of Incorporation of BG Presents, Inc. (incorporated by reference to Registration
Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.33 Bylaws of BG Presents, Inc. (incorporated by reference to Registration Statement on Form
S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.34+ Articles of Organization of Boston Playhouse Realty, Inc.
3.35+ Bylaws of Boston Playhouse Realty, Inc.
3.36+ Certificate of Incorporation of BGP Denver, Inc.
3.37+ By-laws of BGP Denver, Inc.
3.38+ Articles of Organization of Boylston Street Theatre Corp.
3.39+ Bylaws of Boylston Street Theatre Corp.
3.40 Certificate of Incorporation of Broadway Concerts, Inc. (incorporated by reference to
Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with the
SEC on May 27, 1998)
3.41 Bylaws of Broadway Concerts, Inc. (incorporated by reference to Registration Statement on
Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.42+ Articles of Incorporation of Broadway Series Associates, Inc.
3.43+ Regulations of Broadway Series Associates, Inc.
3.44+ Articles of Incorporation of Broadway Series Management Group, Inc.
3.45+ Regulations of Broadway Series Management Group, Inc.
3.46+ Articles of Incorporation of Camarillo Amphitheater Managing Partners, Inc.
3.47+ Bylaws of Camarillo Amphitheater Managing Partners, Inc.
3.48+ Joint Venture Agreement of Cheva Touring Company
3.49* Memorandum of Association of Concert Productions International B.V.
3.50* Certificate of Incorporation of Concert Productions (UK) Limited
3.51 Articles of Incorporation of Cooley and Conlon Management Co. (incorporated by reference to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.52 Bylaws of Cooley and Conlon Management Co. (incorporated by reference to Registration
Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.53 Articles of Incorporation of Concerts, Inc. (incorporated by reference to Registration
Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.54 Bylaws of Concerts, Inc. (incorporated by reference to Registration Statement on Form S-4
(File No. 333-50331) filed with the SEC on April 16, 1998)
3.55 Certificate of Incorporation of Connecticut Amphitheater Development Corporation
(incorporated by reference to Registration Statement on Form S-4 (File No. 333-50331) filed
with the SEC on April 16, 1998)
3.56 Bylaws of Connecticut Amphitheater Development Corporation (incorporated by reference to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)

II-4

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

3.57 Certificate of Incorporation of Connecticut Concerts Incorporated (incorporated by reference to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.58 Bylaws of Connecticut Concerts Incorporated (incorporated by reference to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.59 Certificate of Incorporation of Connecticut Performing Arts, Inc. (incorporated by reference
to Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with
the SEC on May 27, 1998)
3.60 Bylaws of Connecticut Performing Arts, Inc. (incorporated by reference to Registration
Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.61+ Joint Venture Agreement of Connecticut Performing Arts Partners
3.62+ General Partnership Agreement of Conn Ticketing Company
3.63 Certificate of Incorporation of Contemporary Group Acquisition Corp. (incorporated by
reference to Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on
April 16, 1998)
3.64 Bylaws of Contemporary Group Acquisition Corp. (incorporated by reference to Amendment
No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on
May 27, 1998)
3.65 Articles of Incorporation of Contemporary Group, Inc. (incorporated by reference to Registration
Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.66 Bylaws of Contemporary Group, Inc. (incorporated by reference to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.67 Certificate of Incorporation of Contemporary Marketing, Inc. (incorporated by reference to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.68 Bylaws of Contemporary Marketing, Inc. (incorporated by reference to Registration
Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.69 Certificate of Incorporation of Contemporary Productions Incorporated (incorporated by
reference to Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on
April 16, 1998)
3.70 Bylaws of Contemporary Productions Incorporated (incorporated by reference to Registration
Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.71 Certificate of Incorporation of Contemporary Sports Incorporated (incorporated by reference to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.72 Bylaws of Contemporary Sports Incorporated (incorporated by reference to Registration
Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.73 Certificate of Incorporation of Deer Creek Amphitheater Concerts, Inc. (incorporated by
reference to Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on
April 16, 1998)
3.74 Bylaws of Deer Creek Amphitheater Concerts, Inc. (incorporated by reference to Registration
Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.75 Certificate of Limited Partnership of Deer Creek Amphitheater Concerts, LP. (incorporated
by reference to Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC
on April 16, 1998)
3.76 Certificate of Incorporation of Delsener/Slater Enterprises, Ltd. (incorporated by reference to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)

II-5

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

3.77 Bylaws of Delsener/Slater Enterprises, Ltd. (incorporated by reference to Registration
Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.78+ Certificate of Incorporation of DiCesare-Engler, Inc.
3.79+ Certificate of Amendment of the Certificate of Incorporation of DiCesare-Engler, Inc.
3.80+ Bylaws of DiCesare-Engler, Inc.
3.81+ Articles of Incorporation of DiCesare-Engler Promotions, Inc.
3.82+ Bylaws of DiCesare-Engler Promotions, Inc.
3.83+ Certificate of Incorporation of DLC Corp.
3.84+ Certificate of Amendment of Certificate of Incorporation of DLC Corp.
3.85+ Bylaws of DLC Corp.
3.86+ Certificate of Incorporation of DLC Funding Corp.
3.87+ Bylaws of DLC Funding Corp.
3.88 Certificate of Incorporation of Dumb Deal, Inc. (incorporated by reference to Registration
Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.89 Bylaws of Dumb Deal, Inc. (incorporated by reference to Registration Statement on Form S-4
(File No. 333-50331) filed with the SEC on April 16, 1998)
3.90+ Articles of Amalgamation of Eagle Eye Entertainment Inc.
3.91+ Bylaw No. 1 of Eagle Eye Entertainment Inc.
3.92+ Certificate of Incorporation of Eagle Eye Entertainment USA Inc.
3.93+ Bylaws of Eagle Eye Entertainment USA Inc.
3.94+ Certificate of Incorporation of EMI Acquisition Sub, Inc.
3.95+ Bylaws of EMI Acquisition Sub, Inc.
3.96 Articles of Incorporation of Entertainment Performing Arts, Inc. (incorporated by reference to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.97 Bylaws of Entertainment Performing Arts, Inc. (incorporated by reference to Registration
Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.98+ Articles of Incorporation of Event Merchandising, Inc.
3.99+ Certificate of Amendment of Articles of Incorporation of Event Merchandising, Inc.
3.100+ Bylaws of Event Merchandising, Inc.
3.101 Certificate of Incorporation of Exit 116 Revisited, Inc. (incorporated by reference to Registration
Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.102 Bylaws of Exit 116 Revisited, Inc. (incorporated by reference to Registration Statement on
Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.103+ Certificate of Incorporation of Falk Associates Management Enterprises, Inc.
3.104+ Bylaws of Falk Associates Management Enterprises, Inc.
3.105 Articles of Incorporation of Festival Productions, Inc. (incorporated by reference to
Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with the
SEC on May 27, 1998)
3.106 Bylaws of Festival Productions, Inc. (incorporated by reference to Amendment No. 2 to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on June 9, 1998)

II-6

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

3.107 Restated Certificate of Incorporation of Fillmore Corporation (incorporated by reference to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.108 Bylaws of Fillmore Corporation (incorporated by reference to Registration Statement on
Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.109 Restated Articles of Incorporation of Fillmore Fingers, Inc. (incorporated by reference to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.110 Bylaws of Fillmore Fingers, Inc. (incorporated by reference to Registration Statement on
Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.111+ Certificate of Incorporation of Financial Advisory Management Enterprises, Inc.
3.112+ Bylaws of Financial Advisory Management Enterprises, Inc.
3.113+ Joint Venture Agreement of Gershwins' Fascinating Rhythm
3.114+ Articles of Incorporation of Grand Slam Sports Marketing, Inc.
3.115+ Bylaws of Grand Slam Sports Marketing, Inc.
3.116+ Partnership Agreement of GSAC Partners
3.117 Articles of Incorporation of High Cotton, Inc. (incorporated by reference to Registration
Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.118 Bylaws of High Cotton, Inc. (incorporated by reference to Registration Statement on Form
S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.119 Certificate of Incorporation of In House Tickets, Inc. (incorporated by reference to Registration
Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.120 Bylaws of In House Tickets, Inc. (incorporated by reference to Registration Statement on
Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.121* Articles of Incorporation and Memorandum of Association of International Music (Canada) Inc.
3.122* Certificate of Incorporation of International Music (USA) Inc.
3.123* Bylaws of International Music (USA) Inc.
3.124* Certificate of Incorporation and Memorandum of Association of International Music Ltd.
3.125* Certificate of Incorporation and Memorandum of Association of International Music Tour I Ltd.
3.126* Certificate of Incorporation and Memorandum of Association of International Music Tour II Ltd.
3.127* Certificate of Incorporation of International Music Tour I (USA) Inc.
3.128* Bylaws of International Music Tour I (USA) Inc.
3.129* Certificate of Incorporation of International Music Tour II (USA) Inc.
3.130* Bylaws of International Music Tour II (USA) Inc.
3.131+ Second Amended and Completely Restated Agreement of General Partnership of Irvine
Meadows Amphitheater
3.132 Certificate of Incorporation of Irving Plaza Concerts, Inc. (incorporated by reference to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.133 Bylaws of Irving Plaza Concerts, Inc. (incorporated by reference to Registration Statement on
Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.134+ Joint Venture Agreement of Jefko Touring Company
3.135+ Articles of Incorporation of Magicsports-Grand Slam Management, Inc.

II-7

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

3.136+ Bylaws of Magicsports--Grand Slam Management, Inc.
3.137+ Articles of Incorporation of Magicworks Concerts, Inc.
3.138+ Articles of Amendment of Magicworks Concerts, Inc.
3.139+ Bylaws of Magicworks Concerts, Inc.
3.140+ Memorandum and Articles of Association of Magicworks Entertainment Asia Limited
3.141+ Certificate of Incorporation of Magicworks Entertainment Incorporated
3.142+ Certificate of Amendment to Certificate of Incorporation of Magicworks Entertainment
Incorporated
3.143+ Certificate of Ownership and Merger of MWE Acquisition Corp. into Magicworks
Entertainment Incorporated
3.144+ Certificate and Articles of Merger of Magicworks Entertainment Incorporated into Shadow
Wood Corporation
3.145+ Certificate of Amendment to Certificate of Incorporation of Magicworks Entertainment
Incorporated
3.146+ Amended and Restated Bylaws of Magicworks Entertainment Incorporated
3.147+ Articles of Incorporation of Magicworks Entertainment International, Inc.
3.148+ Articles of Amendment to Articles of Incorporation of Magicworks Entertainment
International, Inc.
3.149+ Bylaws of Magicworks Entertainment International, Inc.
3.150+ Joint Venture Agreement of Magicworks Exhibitions Joint Venture
3.151+ Articles of Incorporation of Magicworks Exhibitions, Inc.
3.152+ Bylaws of Magicworks Exhibitions, Inc.
3.153+ Articles of Incorporation of Magicworks Fashion Management, Inc.
3.154+ Bylaws of Magicworks Fashion Management, Inc.
3.155+ Articles of Incorporation Magicworks Merchandising, Inc.
3.156+ Articles of Amendment of the Articles of Incorporation of Magicworks Merchandising, Inc.
3.157+ Bylaws of Magicworks Merchandising, Inc.
3.158+ Articles of Incorporation of Magicworks Sports Management, Inc.
3.159+ Bylaws of Magicworks Sports Management, Inc.
3.160+ Articles of Incorporation of Magicworks Theatricals, Inc.
3.161+ Certificate of Amendment by Shareholders to the Articles of Incorporation of Magicworks
Theatricals, Inc.
3.162+ Bylaws of Magicworks Theatricals, Inc.
3.163+ Articles of Incorporation of Magicworks Transportation, Inc.
3.164+ Bylaws of Magicworks Transportation, Inc.
3.165+ Articles of Incorporation of Magicworks West, Inc.
3.166+ Articles of Merger of Space Agency, Inc. into Magicspace Corporation
3.167+ Articles of Amendment of the Articles of Incorporation of Magicworks West, Inc.
3.168+ Bylaws of Magicworks West, Inc.

II-8

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

3.169+ Articles of Incorporation of Marco Entertainment, Inc.
3.170+ Articles of Merger of Marco Entertainment, Inc. and Magicsports -- Marco Management, Inc.
3.171+ Articles of Amendment to the Articles of Incorporation of Marco Entertainment, Inc.
3.172+ Articles of Amendment to the Articles of Incorporation of Marco Entertainment, Inc.
3.173+ Bylaws of Marco Entertainment, Inc.
3.174+ Articles of Incorporation of Melody Tent and Amphitheater, Inc.
3.175+ Articles of Amendment of Melody Tent and Amphitheater, Inc.
3.176+ Bylaws of Melody Tent and Amphitheater, Inc.
3.177 Certificate of Incorporation of Murat Center Concerts, Inc. (incorporated by reference to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.178 Bylaws of Murat Center Concerts, Inc. (incorporated by reference to Registration Statement
on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.179 Certificate of Limited Partnership of Murat Center Concerts, LP. (incorporated by reference to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.180+ Articles of Incorporation of New Avalon, Inc.
3.181+ Certificate of Amendment of Articles of Incorporation of New Avalon, Inc.
3.182+ Bylaws of New Avalon, Inc.
3.183 Certificate of Incorporation of NOC, Inc. (incorporated by reference to Registration
Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.184 Bylaws of NOC, Inc. (incorporated by reference to Registration Statement on Form S-4 (File
No. 333-50331) filed with the SEC on April 16, 1998)
3.185 Certificate of Incorporation of Northeast Ticketing Company (incorporated by reference to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.186 Bylaws of Northeast Ticketing Company (incorporated by reference to Registration Statement
on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.187+ Certificate of Incorporation of Oakdale Theater Concerts, Inc.
3.188+ Bylaws of Oakdale Theater Concerts, Inc.
3.189 Articles of Incorporation of Old PCI, Inc. (incorporated by reference to Registration
Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.190 Bylaws of Old PCI, Inc. (incorporated by reference to Amendment No. 1 to Registration
Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.191 Articles of Incorporation of PACE AEP Acquisition, Inc. (incorporated by reference to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.192 Bylaws of PACE AEP Acquisition, Inc. (incorporated by reference to Registration Statement
on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.193 Articles of Incorporation of PACE Amphitheatres, Inc. (incorporated by reference to Registration
Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.194 Bylaws of PACE Amphitheatres, Inc. (incorporated by reference to Registration Statement on
Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.195 Articles of Incorporation of PACE Amphitheater Management, Inc. (incorporated by
reference to Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on
April 16, 1998)

II-9

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

3.196 Bylaws of PACE Amphitheater Management, Inc. (incorporated by reference to Registration
Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.197 Articles of Incorporation of PACE Bayou Place, Inc. (incorporated by reference to Registration
Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.198 Bylaws of PACE Bayou Place, Inc. (incorporated by reference to Registration Statement on
Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.199 Articles of Incorporation of PACE Communications, Inc. (incorporated by reference to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.200 Bylaws of PACE Communications, Inc. (incorporated by reference to Registration Statement
on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.201 Articles of Incorporation of PACE Concerts GP, Inc. (incorporated by reference to Registration
Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.202 Bylaws of PACE Concerts GP, Inc. (incorporated by reference to Registration Statement on
Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.203 Certificate of Limited Partnership for PACE Concerts, Ltd. (incorporated by reference to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on April 16, 1998)
3.204 Articles of Incorporation of PACE Entertainment Corporation (incorporated by reference to
Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with the
SEC on May 27, 1998)
3.205 Bylaws of PACE Entertainment Corporation (incorporated by reference to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.206 Articles of Incorporation of PACE Entertainment GP Corp. (incorporated by reference to
Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with the
SEC on May 27, 1998)
3.207 Bylaws of PACE Entertainment GP Corp. (incorporated by reference to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.208 Certificate of Limited Partnership for PACE Entertainment Group, Ltd. (incorporated by
reference to Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-50331)
filed with the SEC on May 27, 1998)
3.209 Articles of Incorporation of PACE Milton Keynes, Inc. (incorporated by reference to
Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with the
SEC on May 27, 1998)
3.210 Bylaws of PACE Milton Keynes, Inc. (incorporated by reference to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.211 Articles of Incorporation of PACE Motor Sports, Inc. (incorporated by reference to
Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with the
SEC on May 27, 1998)
3.212 Bylaws of PACE Motor Sports, Inc. (incorporated by reference to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.213 Articles of Incorporation of PACE Music Group, Inc. (incorporated by reference to
Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with the
SEC on May 27, 1998)
3.214 Bylaws of PACE Music Group, Inc. (incorporated by reference to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)

II-10

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

3.215 Articles of Incorporation of PACE Productions, Inc. (incorporated by reference to
Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with the
SEC on May 27, 1998)
3.216 Bylaws of PACE Productions, Inc. (incorporated by reference to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.217 Articles of Incorporation of PACE Theatrical Group, Inc. (incorporated by reference to
Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with the
SEC on May 27, 1998)
3.218 Bylaws of PACE Theatrical Group, Inc. (incorporated by reference to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.219 Articles of Incorporation of PACE Touring, Inc. (incorporated by reference to Amendment
No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on
May 27, 1998)
3.220 Bylaws of PACE Touring, Inc. (incorporated by reference to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.221 Articles of Incorporation of PACE Variety Entertainment, Inc. (incorporated by reference to
Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with the
SEC on May 27, 1998)
3.222 Bylaws of PACE Variety Entertainment, Inc. (incorporated by reference to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.223+ Memorandum and Articles of Association of PACE (UK)
3.224 Articles of Incorporation of PACE U.K. Holding Corporation (incorporated by reference to
Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with the
SEC on May 27, 1998)
3.225 Bylaws of PACE U.K. Holding Corporation (incorporated by reference to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.226 Certificate of Limited Partnership of Pavilion Partners (incorporated by reference to
Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with the
SEC on May 27, 1998)
3.227 Certificate of Incorporation of PEC, Inc. (incorporated by reference to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.228 Bylaws of PEC, Inc. (incorporated by reference to Amendment No. 1 to Registration
Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.229+ Articles of Incorporation of Performing Arts Management of North Miami, Inc.
3.230+ Bylaws of Performing Arts Management of North Miami, Inc.
3.231 Certificate of Incorporation of Polaris Amphitheater Concerts, Inc. (incorporated by reference
to Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with
the SEC on May 27, 1998)
3.232 Bylaws of Polaris Amphitheater Concerts, Inc. (incorporated by reference to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.233 Articles of Incorporation of PTG-Florida, Inc. (incorporated by reference to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.234 Bylaws of PTG-Florida, Inc. (incorporated by reference to Amendment No. 1 to Registration
Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)

II-11

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

3.235 Certificate of Incorporation of QN Corp. (incorporated by reference to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.236 Bylaws of QN Corp. (incorporated by reference to Amendment No. 1 to Registration
Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.237+ Certificate of Formation of a Limited Partnership of Rugrats American Tour, Ltd.
3.238+ Certificate of Incorporation of SFX Acquisition Corp.
3.239+ Bylaws of SFX Acquisition Corp.
3.240 Certificate of Incorporation of SFX Broadcasting of the Midwest, Inc. (incorporated by
reference to Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-50331)
filed with the SEC on May 27, 1998)
3.241+ Certificate of Amendment of the Certificate of Incorporation of SFX Broadcasting of the
Midwest, Inc.
3.242 Bylaws of SFX Broadcasting of the Midwest, Inc. (incorporated by reference to Amendment
No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on
May 27, 1998)
3.243 Certificate of Incorporation of SFX Concerts, Inc. (incorporated by reference to Amendment
No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on
May 27, 1998)
3.244 Bylaws of SFX Concerts, Inc. (incorporated by reference to Amendment No. 1 to Registration
Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.245 Certificate of Incorporation of SFX Delaware, Inc. (incorporated by reference to Amendment
No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on
May 27, 1998)
3.246 Bylaws of SFX Delaware, Inc. (incorporated by reference to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.247 Certificate of Formation of SFX Network Group, L.L.C. (incorporated by reference to
Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with the
SEC on May 27, 1998)
3.248+ Certificate of Incorporation of SFX Sports Group, Inc.
3.249+ Bylaws of SFX Sports Group, Inc.
3.250+ Certificate of Incorporation of SFX Touring, Inc.
3.251+ Bylaws of SFX Touring, Inc.
3.252+ Articles of Incorporation of Shelli Meadows, Inc.
3.253+ Bylaws of Shelli Meadows, Inc.
3.254 Articles of Incorporation of Shoreline Amphitheatre, Ltd. (incorporated by reference to
Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with the
SEC on May 27, 1998)
3.255 Bylaws of Shoreline Amphitheatre, Ltd. (incorporated by reference to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.256 Certificate of Limited Partnership of Shoreline Amphitheatre Partners (incorporated by
reference to Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-50331)
filed with the SEC on May 27, 1998)

II-12

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

3.257 Articles of Incorporation of SFX Radio Network, Inc. (incorporated by reference to
Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with the
SEC on May 27, 1998)
3.258+ Articles of Amendment of SFX Radio Network, Inc.
3.259 Bylaws of SFX Radio Network, Inc. (incorporated by reference to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.260 Articles of Incorporation of SM/PACE, Inc. (incorporated by reference to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.261 Bylaws of SM/PACE, Inc. (incorporated by reference to Amendment No. 1 to Registration
Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.262 Certificate of Incorporation of Southeast Ticketing Company (incorporated by reference to
Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with the
SEC on May 27, 1998)
3.263 Bylaws of Southeast Ticketing Company (incorporated by reference to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.264 Articles of Incorporation of Southern Promotions, Inc. (incorporated by reference to
Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with the
SEC on May 27, 1998)
3.265 Bylaws of Southern Promotions, Inc. (incorporated by reference to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.266+ Articles of Association of STEP Entertainment Services, Inc.
3.267 Certificate of Formation of Sunshine Concerts, L.L.C. (incorporated by reference to
Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with the
SEC on May 27, 1998)
3.268 Certificate of Incorporation of Sunshine Designs, Inc. (incorporated by reference to
Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with the
SEC on May 27, 1998)
3.269 Bylaws of Sunshine Designs, Inc. (incorporated by reference to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.270 Certificate of Limited Partnership of Sunshine Design, LP (incorporated by reference to
Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with the
SEC on May 27, 1998)
3.271 Certificate of Incorporation of Suntex Acquisition, Inc. (incorporated by reference to
Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with the
SEC on May 27, 1998)
3.272 Bylaws of Suntex Acquisition, Inc. (incorporated by reference to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.273 Certificate of Limited Partnership of Suntex Acquisition, L.P. (incorporated by reference to
Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with the
SEC on May 27, 1998)
3.274+ Articles of Organization of TAP Productions, Inc.
3.275+ Bylaws of TAP Productions, Inc.
3.276+ Articles of Incorporation of TBA Media, Inc.
3.277+ Bylaws of TBA Media, Inc.

II-13

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

3.278 Articles of Incorporation of The Album Network, Inc. (incorporated by reference to
Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with the
SEC on May 27, 1998)
3.279 Bylaws of The Album Network Inc. (incorporated by reference to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.280+ Articles of Incorporation of Tennis Events, Inc.
3.281+ Bylaws of Tennis Events, Inc.
3.282+ Joint Venture Agreement of The Gin Touring Company
3.283+ Joint Venture Agreement of The Wedding Tour Company
3.284+ Articles of Incorporation of Ticket Service, Inc.
3.285+ Bylaws of Ticket Service, Inc.
3.286+ Articles of Incorporation of Touring Artists Group, Inc.
3.287+ Bylaws of Touring Artists Group, Inc.
3.288+ Articles of Incorporation of Touring Artists Group, Inc.
3.289+ Regulations of Touring Artists Group, Inc.
3.290 Articles of Incorporation of Touring Productions, Inc. (incorporated by reference to
Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with the
SEC on May 27, 1998)
3.291 Bylaws of Touring Productions, Inc. (incorporated by reference to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.292+ Articles of Organization of Tremont Street Theatre Corporation II, Inc.
3.293+ Articles of Amendment of Tremont Street Theater Corporation II, Inc.
3.294+ Bylaws of Tremont Street Theatre Corporation II, Inc.
3.295 Articles of Incorporation of Tuneful Company, Inc. (incorporated by reference to Amendment
No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on
May 27, 1998)
3.296 Bylaws of Tuneful Company, Inc. (incorporated by reference to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.297+ Articles of Organization of Warrenton Street Theatre Corp.
3.298+ Articles of Amendment of Warrenton Street Theater Corp.
3.299+ Bylaws of Warrenton Street Theatre Corp.
3.300+ Articles of Incorporation of West Coast Amphitheater Corp.
3.301+ Bylaws of West Coast Amphitheater Corp.
3.302 Certificate of Formation of Westbury Music Fair, L.L.C. (incorporated by reference to
Amendment No. 1 to Registration Statement on Form S-4 (File No. 333-50331) filed with the
SEC on May 27, 1998)
3.303+ Partnership Agreement of Western Amphitheater Partners
3.304 Articles of Incorporation of Wolfgang Records (incorporated by reference to Amendment No. 1
to Registration Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)
3.305 Bylaws of Wolfgang Records (incorporated by reference to Amendment No. 1 to Registration
Statement on Form S-4 (File No. 333-50331) filed with the SEC on May 27, 1998)

II-14

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

4.1 Indenture, dated February 11, 1998, by and among SFX Entertainment, Inc., certain of its
subsidiaries and the Chase Manhattan Bank (incorporated by reference to Current Report on
Form 8-K of SFX Broadcasting, Inc. (File No. 000-22486) filed with the SEC on February 18,
1998)
4.2 Indenture, dated November 25, 1998, by and among SFX Entertainment, Inc., certain of its
subsidiaries and Chase Manhattan Bank (incorporated by reference to Registration Statement
on Form S-4 (File No. 333-71195) filed with the SEC on January 26, 1999)
4.3 Registration Rights Agreement, dated as of November 25, 1998, relating to the 9 1/8% Senior
Subordinated Notes due December 1, 2008 (incorporated by reference to Registration
Statement on Form S-4 (File No. 333-71195) filed with the SEC on January 26, 1999)
5.1* Opinion of Baker & McKenzie
8.1* Opinion of Baker & McKenzie regarding certain tax matters
10.1 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 (incorporated by reference to Registration
Statement on Form S-1 (File No. 333-43287) filed with the SEC)
10.2 Stock Purchase Agreement, dated as of December 11, 1997, among each of the shareholders
of BGP Presents, Inc. and BGP Acquisitions, LLC (incorporated by reference to Registration
Statement on Form S-1 (File No. 333-43287) filed with the SEC)
10.3 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. (incorporated by reference to Registration Statement on Form S-1 (File No.
333-43287) filed with the SEC).
10.4 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. (incorporated by reference to Registration Statement on
Form S-1 (File No. 333-43287) filed with the SEC).
10.5 Stock Purchase Agreement, dated as of December 12, 1997 by and between PACE
Entertainment Corporation and SFX Entertainment, Inc. (incorporated by reference to
Registration Statement on Form S-1 (File No. 333-43287) filed with the SEC)
10.6 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 Broadcasting, Inc. (composite version)
(incorporated by reference to Annex A of SFX Broadcasting, Inc.'s Definitive Proxy
Statement (File No. 000-22486) filed with the SEC on February 17, 1998)
10.7 Partnership Formation Agreement, dated as of January 22, 1988, by and among MCA
Concerts II, Inc. and PACE Entertainment Group, Inc. (incorporated by reference to
Amendment No. 1 to Form S-1 (File No. 333-43287) filed with the SEC on January 22, 1998)

II-15

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

10.8 Lease and Use Agreement, dated as of December 9, 1987, by and between City of Dallas and
PACE Entertainment Group, Inc. (incorporated by reference to Amendment No. 1 to Form S-1
(File No. 333-43287) filed with the SEC on January 22, 1998)
10.9 Agreement, dated as of October 10, 1988, by and between the City of Atlanta and MCA
Concerts, Inc. (incorporated by reference to Amendment No. 1 to Form S-1 (File No.
333-43287) filed with the SEC on January 22, 1998)
10.10 Amended Indenture of Lease, February 2, 1984, by and between the City of Atlanta and
Filmworks U.S.A., Inc. (incorporated by reference to Amendment No. 1 to Form S-1 (File
No. 333-43287) filed with the SEC on January 22, 1998)
10.11 Amendment to Lease Agreement, dated as of October 10, 1988, between the City of Atlanta,
Georgia and Filmworks U.S.A., Inc. (incorporated by reference to Amendment No. 1 to Form
S-1 (File No. 333-43287) filed with the SEC on January 22, 1998)
10.12 Agreement Regarding Sublease, dated as of January 20, 1988, by and between Filmworks
U.S.A., Inc. and MCA Concerts, Inc. (incorporated by reference to Amendment No. 1 to
Form S-1 (File No. 333-43287) filed with the SEC on January 22, 1998)
10.13 First Amendment to Sublease, dated as of January 21, 1988, between Filmworks U.S.A., Inc.
and MCA Concerts, Inc. (incorporated by reference to Amendment No. 1 to Form S-1 (File
No. 333-43287) filed with the SEC on January 22, 1998)
10.14 Second Amendment to Sublease, dated as of April 19, 1988, between Filmworks U.S.A., Inc.
and MCA Concerts, Inc. (incorporated by reference to Amendment No. 1 to Form S-1 (File
No. 333-43287) filed with the SEC on January 22, 1998)
10.15 Third Amendment to Sublease, dated as of September 15, 1988, between Filmworks U.S.A.,
Inc. and MCA Concerts, Inc. (incorporated by reference to Amendment No. 1 to Form S-1
(File No. 333-43287) filed with the SEC on January 22, 1998)
10.16 Memorandum of Agreement, dated as of October 10, 1988, by and between the City of
Atlanta and MCA Concerts, Inc. (incorporated by reference to Amendment No. 1 to Form
S-1 (File No. 333-43287) filed with the SEC on January 22, 1998)
10.17 Assignment of Sublease, dated as of June 15, 1989, by Filmworks U.S.A., Inc. and MCA
Concerts, Inc. (incorporated by reference to Amendment No. 1 to Form S-1 (File No.
333-43287) filed with the SEC on January 22, 1998)
10.18 Assignment of Sublease, dated as of June 23, 1989, by Filmworks U.S.A., Inc. and MCA
Concerts, Inc. (incorporated by reference to Amendment No. 1 to Form S-1 (File No.
333-43287) filed with the SEC on January 22, 1998)
10.19 Assignment of Agreement, dated as of June 15, 1989, by the City of Atlanta and MCA
Concerts, Inc. (incorporated by reference to Amendment No. 1 to Form S-1 (File No.
333-43287) filed with the SEC on January 22, 1998)
10.20 Assignment of Agreement, dated as of June 23, 1989, by the City of Atlanta and MCA
Concerts, Inc. (incorporated by reference to Amendment No. 1 to Form S-1 (File No.
333-43287) filed with the SEC on January 22, 1998)
10.21 1998 Stock Option and Restricted Stock Plan of the Company (incorporated by reference to
Form S-8 filed with the SEC)

II-16

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

10.22 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 Partners, L.P., as co-documentation agent, Lehman Commercial Paper, Inc., as
co-documentation agent and the Bank of New York, as administrative agent (incorporated by
reference to Exhibit 10.2 to Current Report on Form 8-K (File No. 333-43287) filed with the
SEC on March 10, 1998)
10.23 Increase Supplement to the Credit and Guarantee Agreement, dated as of September 10,
1998, by and among SFX Entertainment, Inc., the Subsidiary Guarantors party thereto, the
Lenders party thereto, Goldman Sachs Partners, L.P., as co-documentation agent, Lehman
Commercial Paper, Inc., as co-documentation agent and The Bank of New York, as
administrative agent (incorporated by reference to Exhibit 10.1 to Form 8-K filed with the
SEC on September 22, 1998)
10.24 Amendment to the Credit and Guarantee Agreement, dated as of November 20, 1998, by and
among SFX Entertainment, Inc., the Subsidiary Guarantors party thereto, the Lenders party
thereto, Goldman Sachs Partners, L.P., as co-documentation agent, Lehman Commercial
Paper, Inc., as co-documentation agent and The Bank of New York, as administrative agent
(incorporated by reference to Registration Statement on Form S-4 (File No. 333-71195) filed
with the SEC on January 26, 1999)
10.25 Purchase Agreement, dated November 25, 1998, relating to the 9 1/8% Senior Subordinated
Notes due December 1, 2008 of SFX Entertainment, Inc., by and among SFX Entertainment,
Inc., Morgan Stanley & Co. Incorporated, Lehman Brothers Inc., BancBoston Robertson
Stephens Inc. and BNY Capital Markets, Inc. (incorporated by reference to Registration
Statement on Form S-4 (File No. 333-71195) filed with the SEC on January 26, 1999)
10.26 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
(incorporated by reference to Annual Report on Form 10-K (File No. 333-43287) filed with
the SEC on March 18, 1998)
10.27 Stock Purchase Agreement, dated as of April 29, 1998, among SFX Sports Group, Inc., SFX
Entertainment, Inc. and David Falk, Curtis Polk and G. Michael Higgins (incorporated by
reference to Amendment No. 1 to Form S-1 (File No. 333-50079) filed with the SEC on
May 5, 1998)
10.28 Asset Purchase Agreement, dated April 29, 1998, by and among Blackstone Entertainment
LLC, its members, DLC Acquisition Corp., and SFX Entertainment, Inc. (incorporated by
reference to Amendment No. 1 to Form S-1 (File No. 333-50079) filed with the SEC on
May 5, 1998)
10.29 Purchase and Sale Agreement, dated April 22, 1998, by and among Oakdale Concerts, LLC,
Oakdale Development Limited Partnership and Oakdale Theater Concerts, Inc. (incorporated
by reference to Amendment No. 1 to Form S-1 (File No. 333-50079) filed with the SEC on
May 5, 1998)
10.30 Amended and Restated Employment Agreement, dated as of December 12, 1997, by and
between SFX Entertainment, Inc. and Brian E. Becker (incorporated by reference to
Amendment No. 1 to Form S-1 (File No. 333-43287) filed with the SEC on January 22, 1998)
10.31 Employment Agreement between SFX Entertainment, Inc. and David Falk, dated as of
April 29, 1998 (incorporated by reference to Amendment No. 2 to Form S-1 (File No.
333-50079) filed with the SEC on May 19, 1998)
10.32 Employment Agreement between SFX Entertainment, Inc. and Robert F.X. Sillerman, dated
as of May 28, 1998 (incorporated by reference to Amendment No. 2 to Form S-4 (File No.
333-50331) filed with the SEC on June 9, 1998)

II-17

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

10.33 Employment Agreement between SFX Entertainment, Inc. and Michael G. Ferrel, dated as of
May 28, 1998 (incorporated by reference to Amendment No. 2 to Form S-4 (File No.
333-50331) filed with the SEC on June 9, 1998)
10.34 Employment Agreement between SFX Entertainment, Inc. and Thomas P. Benson, dated as
of May 28, 1998 (incorporated by reference to Amendment No. 2 to Form S-4 (File No.
333-50331) filed with the SEC on June 9, 1998)
10.35 Employment Agreement between SFX Entertainment, Inc. and Howard J. Tytel, dated as of
May 28, 1998 (incorporated by reference to Amendment No. 2 to Form S-4 (File No.
333-50331) filed with the SEC on June 9, 1998)
10.36 Agreement and Plan of Merger, dated as of August 6, 1998, among SFX Entertainment, Inc.,
MWE Acquisition Corp. and Magicworks Entertainment Incorporated (incorporated by
reference to Exhibit 99(c)(1) to the Company's Schedule 14D-1 filed with the SEC on
August 13, 1998)
10.37 Agreement and Plan of Merger, as amended, among SFX Entertainment, Inc., SFX
Acquisition Corp. and The Marquee Group, Inc. (incorporated by reference to Registration
Statement on Form S-4 (File No. 333-71195) filed with the SEC on January 26, 1999)
10.38 Director Deferred Stock Ownership Plan of the Company (incorporated by reference to
Registration Statement on Form S-4 (File No. 333-71195) filed with the SEC on January 26, 1999)
10.39 Stock Purchase Agreement, dated January 25, 1999, by and among SFX Entertainment, Inc.
and the sellers party thereto (incorporated by reference to Amendment No. 1 to Form S-4
(File No. 333-71195) filed with the SEC on February 5, 1999).
10.40 Purchase Agreement, dated February 1, 1999, by and among SFX Entertainment, Inc.,
Concert Acquisition Sub, Inc., Nederlander of New Mexico LLC, Nederlander Festivals, Inc
and the other sellers party thereto (incorporated by reference to Amendment No. 1 to Form
S-4 (File No. 333-71195) filed with the SEC on February 5, 1999).
10.41 Asset Purchase Agreement, dated February 1, 1999, by and among SFX Entertainment, Inc.,
Concert Acquisition Sub, Inc. and Nederlander of Ohio, Inc. (incorporated by reference to
Amendment No. 1 to Form S-4 (File No. 333-71195) filed with the SEC on February 5, 1999)
10.42 Membership Interest Purchase Agreement, dated February 1, 1999, by and among SFX
Entertainment, Inc., Concert Acquisition Sub, Inc., Nederlander Arena Management, LLC,
Nederlander Cincinnati, LLC, Nederlander Club Management LLC and the other sellers party
thereto (incorporated by reference to Amendment No. 1 to Form S-4 (File No. 333-71195)
filed with the SEC on February 5, 1999).
10.43 Stock Purchase Agreement, dated February 1, 1999, by and among SFX Entertainment, Inc.,
Concert Acquisition Sub, Inc., Greater Detroit Theatres, Inc. and the other sellers party
thereto (incorporated by reference to Amendment No. 1 to Form S-4 (File No. 333-71195)
filed with the SEC on February 5, 1999).
12.1+ SFX Entertainment, Inc. Ratio of Earnings To Fixed Charges.
21.1 Subsidiaries of SFX Entertainment, Inc. (incorporated by reference to Registration Statement
on Form S-4 (File No. 333-71195) filed with the SEC on January 26, 1999)
23.1* Consent of Baker & McKenzie (included in Exhibits 5.1 and 8.1)
23.2+ Consent of Ernst & Young LLP
23.3+ Consents of Arthur Andersen LLP
23.4+ Consents of PricewaterhouseCoopers LLP
23.5+ Consent of Grant Thornton
23.6+ Consent of Richard E. Woodhall

II-18

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

23.7+ Consent of David Berdon & Co., LLP
24.1+ Power of Attorney for Ronald D. Andrew
24.2+ Power of Attorney for D. Geoffrey Armstrong
24.3+ Power of Attorney for William O.S. Ballard
24.4+ Power of Attorney for Allen J. Becker
24.5+ Power of Attorney for Brian Becker
24.6+ Power of Attorney for Gary Becker
24.7+ Power of Attorney for Thomas P. Benson
24.8+ Power of Attorney for Bill Brusca
24.9+ Power of Attorney for Robert Brian Cayne, Jr.
24.10+ Power of Attorney for Nicholas P. Clainos
24.11+ Power of Attorney for Michael Cohl
24.12+ Power of Attorney for Peter Conlon
24.13+ Power of Attorney for Ron Delsener
24.14+ Power of Attorney for Edward F. Dugan
24.15+ Power of Attorney for David B. Falk
24.16+ Power of Attorney for Michael G. Ferrel
24.17+ Power of Attorney for Kraig Fox
24.18+ Power of Attorney for Greg Gamble
24.19+ Power of Attorney for G. Michael Higgins
24.20+ Power of Attorney for Jonathan Hochwald
24.21+ Power of Attorney for Paul Kramer
24.22+ Power of Attorney for Richard A. Liese
24.23+ Power of Attorney for Joe Marsh
24.24+ Power of Attorney for Nina Mitchell
24.25+ Power of Attorney for Terence Moloney
24.26+ Power of Attorney for James F. O'Grady, Jr.
24.27+ Power of Attorney for Gregg W. Perloff
24.28+ Power of Attorney for Robert F.X. Sillerman
24.29+ Power of Attorney for Mitch Slater
24.30+ Power of Attorney for Peter Strauss
24.31+ Power of Attorney for Stephen Welkom
24.32+ Power of Attorney for Miles C. Wilkin
25.1+ Statement of Eligibility and Qualification on Form T-1 of Trustee
99.1+ Form of Letter of Transmittal
99.2+ Form of Notice of Guaranteed Delivery
99.3+ Form of Letter to Clients
99.4+ Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other
Nominees

- ----------
+ Filed herewith.

* To be filed by amendment

II-19

(b) Financial Schedules.

None.

ITEM 22. UNDERTAKINGS

(a) The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

(b) (1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.

(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

(c) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.

II-20

(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.

(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

II-21

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of New York, State of New
York, on February 12, 1999.

SFX ENTERTAINMENT, INC.

By: /s/ Howard J. Tytel
------------------------------------

Howard J. Tytel

Executive Vice President, General
Counsel, Member of the Office of
the
Chairman and Secretary

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant, its general partner or managing member, as the case may be, and
in the capacities and on the dates indicated.

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

* Executive Chairman, Member February 12, 1999
-----------------------
of the Office of the Chairman
Robert F.X. Sillerman
and Director (principal
executive officer)
* President, Chief Executive February 12, 1999
-----------------------
Officer, Member of the Office
Michael G. Ferrel
of the Chairman and Director
* Director, Executive Vice February 12, 1999
-----------------------
President and Member of the
Brian Becker
Office of the Chairman
* Member of the Office of the February 12, 1999
-----------------------
Chairman and Director
David Falk
/s/ Howard J. Tytel Executive Vice President, February 12, 1999
-----------------------
General Counsel, Secretary,
Howard J. Tytel
Member of the Office of the
Chairman and Director
* Chief Financial Officer, Vice February 12, 1999
-----------------------
President and Director
Thomas P. Benson
(principal financial and
accounting officer)
* Director, Senior Vice President February 12, 1999
-----------------------
and Associate Counsel
Richard A. Liese

II-22

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

* Director February 12, 1999
-----------------------
D. Geoffrey Armstrong
* Director February 12, 1999
-----------------------
James F. O'Grady, Jr.
* Director February 12, 1999
-----------------------
Paul Kramer
* Director February 12, 1999
-----------------------
Edward F. Dugan

II-23

SIGNATURES

AKG, Inc.

By: /s/ Howard J. Tytel
------------------------------------

Howard J. Tytel,

Executive Vice President

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

* Director February 12, 1999
- -----------------------------
Robert F.X. Sillerman

* Director February 12, 1999
- -----------------------------
Gregg W. Perloff

* Director February 12, 1999
- -----------------------------
Stephen Welkom

* Director February 12, 1999
- -----------------------------
Nicholas P. Clainos

* Vice President February 12, 1999
- -----------------------------
Thomas P. Benson (principal financial and accounting
officer)

/s/ Howard J. Tytel Executive Vice President and Director February 12, 1999
- ----------------------------- (principal executive officer)
Howard J. Tytel

*By: /s/ Howard J. Tytel
-------------------------
Howard J. Tytel
Attorney-in-fact

II-24

SIGNATURES

American Artists, Inc.

By: /s/ Howard J. Tytel
------------------------------------

Howard J. Tytel,

Executive Vice President

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

* Director February 12, 1999
- -----------------------------
Robert F.X. Sillerman

* Director February 12, 1999
- -----------------------------
Michael G. Ferrel

* Vice President February 12, 1999
- -----------------------------
(principal financial officer)
Thomas P. Benson

/s/ Howard J. Tytel Executive Vice President and Director February 12, 1999
- ----------------------------- (principal executive officer)
Howard J. Tytel

* Director February 12, 1999
- -----------------------------
Allen J. Becker

* Director February 12, 1999
- -----------------------------
Brian Becker

* Treasurer February 12, 1999
- ----------------------------- (principal accounting officer)
Greg Gamble

*By: /s/ Howard J. Tytel February 12, 1999
-------------------------
Howard J. Tytel
Attorney-in-fact

II-25

SIGNATURES

American Artists Limited, Inc.

By: /s/ Howard J. Tytel
------------------------------------

Howard J. Tytel,

Executive Vice President

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

* Director February 12, 1999
- -----------------------------
Robert F.X. Sillerman
* Director February 12, 1999
- -----------------------------
Michael G. Ferrel
* Vice President February 12, 1999
- ----------------------------- (principal financial officer)
Thomas P. Benson
/s/ Howard J. Tytel Executive Vice President and Director February 12, 1999
- ----------------------------- (principal executive officer)
Howard J. Tytel
* Director February 12, 1999
- -----------------------------
Allen J. Becker
* Director February 12, 1999
- -----------------------------
Brian Becker
* Treasurer February 12, 1999
- -----------------------------
(principal accounting officer)
Greg Gamble
*By: /s/ Howard J. Tytel February 12, 1999
-------------------------
Howard J. Tytel
Attorney-in-fact

II-26

SIGNATURES

American Broadway, Inc.

By: /s/ Howard J. Tytel
------------------------------------

Howard J. Tytel,

Attorney-in-Fact for Gary Becker,
President and Director

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

* President and Director February 12, 1999
- -----------------------------
(principal executive officer)
Gary Becker
* Director February 12, 1999
- -----------------------------
Kraig G. Fox
* Director February 12, 1999
- -----------------------------
Peter Strauss
* Treasurer February 12, 1999
- ----------------------------- (principal financial officer and
Terence Moloney principal accounting officer)

*By: /s/ Howard J. Tytel
-------------------------
Howard J. Tytel
Attorney-in-fact

II-27

SIGNATURES

Amphitheater Entertainment Partnership
By: SM/PACE, Inc., as general partner

By: /s/ Howard J. Tytel
------------------------------------

Howard J. Tytel,

Executive Vice President

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

* Director February 12, 1999
- -----------------------------
Robert F.X. Sillerman
* Director February 12, 1999
- -----------------------------
Michael G. Ferrel
* Vice President February 12, 1999
- ----------------------------- (principal financial officer and
Thomas P. Benson
principal accounting officer)
/s/ Howard J. Tytel Executive Vice President and Director February 12, 1999
- -----------------------------
(principal executive officer)
Howard J. Tytel
* Director February 12, 1999
- -----------------------------
Brian Becker
* Director February 12, 1999
- -----------------------------
Allen J. Becker
*By: /s/ Howard J. Tytel
-------------------------
Howard J. Tytel
Attorney-in-fact

II-28

SIGNATURES

Ant Theatrical Productions, Inc.

By: /s/ Howard J. Tytel
------------------------------------

Howard J. Tytel,

Executive Vice President and
Secretary

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

* Executive Chairman and Director February 12, 1999
- ----------------------------- (principal executive officer)
Robert F.X. Sillerman
* Chief Executive Officer and Director February 12, 1999
- -----------------------------
Michael G. Ferrel
* Vice President of Finance and February 12, 1999
- ----------------------------- Treasurer (principal financial officer
Thomas P. Benson
and principal accounting officer)
/s/ Howard J. Tytel Director February 12, 1999
- -----------------------------
Howard J. Tytel
*By: /s/ Howard J. Tytel
-------------------------
Howard J. Tytel
Attorney-in-fact

II-29

SIGNATURES

Ardee Festivals N.J., Inc.

By: /s/ Howard J. Tytel
------------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary

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

* Executive Chairman and Director February 12, 1999
- ----------------------------- (principal executive officer)
Robert F.X. Sillerman
* Director February 12, 1999
- -----------------------------
Michael G. Ferrel
/s/ Howard J. Tytel Director February 12, 1999
- -----------------------------
Howard J. Tytel
* Director February 12, 1999
- -----------------------------
Ron Delsener
* Director February 12, 1999
- -----------------------------
Mitch Slater
* Chief Financial Officer and Treasurer February 12, 1999
- ----------------------------- (principal financial officer and
Thomas P. Benson principal accounting officer)
*By: /s/ Howard J. Tytel
-------------------------
Howard J. Tytel
Attorney-in-fact

II-30

SIGNATURES

Atlanta Concerts, Inc.

By: /s/ Howard J. Tytel
------------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary

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

* Executive Chairman and Director February 12, 1999
- ----------------------------- (principal executive officer)
Robert F.X. Sillerman
* Chief Financial Officer and Treasurer February 12, 1999
- ----------------------------- (principal financial officer and
Thomas P. Benson
principal accounting officer)
* Director February 12, 1999
- -----------------------------
Peter Conlon
*By: /s/ Howard J. Tytel
-------------------------
Howard J. Tytel
Attorney-in-fact

II-31

SIGNATURES

Audrey & Jane, Inc.

By: /s/ Howard J. Tytel
------------------------------------

Howard J. Tytel,

Executive Vice President and
Secretary

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

* Executive Chairman and Director February 12, 1999
- ----------------------------- (principal executive officer)
Robert F.X. Sillerman
* Director February 12, 1999
- -----------------------------
Michael G. Ferrel
* Chief Financial Officer and Treasurer February 12, 1999
- ----------------------------- (principal financial officer and
Thomas P. Benson
principal accounting officer)
/s/ Howard J. Tytel Director February 12, 1999
- -----------------------------
Howard J. Tytel
*By: /s/ Howard J. Tytel
-------------------------
Howard J. Tytel
Attorney-in-fact

II-32

SIGNATURES

Avalon Acquisition Corp.

By: /s/ Howard J. Tytel
------------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary

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

* Chairman and Director February 12, 1999
- ----------------------------- (principal executive officer)
Robert F.X. Sillerman
* Director February 12, 1999
- -----------------------------
Michael G. Ferrel
* Treasurer February 12, 1999
- ----------------------------- (principal financial officer and
Thomas P. Benson
principal accounting officer)
/s/ Howard J. Tytel Director February 12, 1999
- -----------------------------
Howard J. Tytel
*By: /s/ Howard J. Tytel
-------------------------
Howard J. Tytel
Attorney-in-fact

II-33

SIGNATURES

Beach Concerts, Inc.

By: /s/ Howard J. Tytel
------------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary

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

* Executive Chairman and Director February 12, 1999
- ----------------------------- (principal executive officer)
Robert F.X. Sillerman
* Director February 12, 1999
- -----------------------------
Michael G. Ferrel
/s/ Howard J. Tytel Director February 12, 1999
- -----------------------------
Howard J. Tytel
* Director February 12, 1999
- -----------------------------
Ron Delsener
* Director February 12, 1999
- -----------------------------
Mitch Slater
* Chief Financial Officer and Treasurer February 12, 1999
- ----------------------------- (principal financial officer and
Thomas P. Benson
principal accounting officer)
*By: /s/ Howard J. Tytel
-------------------------
Howard J. Tytel
Attorney-in-fact

II-34

SIGNATURES

BGP Acquisition, L.L.C. By: SFX
Entertainment, Inc., its managing
member

By: /s/ Howard J. Tytel
------------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary

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

* Executive Chairman, Member of the February 12, 1999
- ----------------------------- Office of the Chairman and Director
Robert F.X. Sillerman
(principal executive officer)
* Director February 12, 1999
- -----------------------------
Michael G. Ferrel
* Director February 12, 1999
- -----------------------------
D. Geoffrey Armstrong
* Chief Financial Officer, Vice President February 12, 1999
- ----------------------------- and Director (principal financial officer
Thomas P. Benson and principal accounting officer)

/s/ Howard J. Tytel Director February 12, 1999
- -----------------------------
Howard J. Tytel
* Director February 12, 1999
- -----------------------------
Richard A. Liese
* Director February 12, 1999
- -----------------------------
James F. O'Grady, Jr.
* Director February 12, 1999
- -----------------------------
Paul Kramer
* Director February 12, 1999
- -----------------------------
Edward F. Dugan
* Director February 12, 1999
- -----------------------------
Brian Becker
*By: /s/ Howard J. Tytel
-------------------------
Howard J. Tytel
Attorney-in-fact

II-35

SIGNATURES

BGP Denver, Inc.

By: /s/ Howard J. Tytel
------------------------------------
Howard J. Tytel,
Executive Vice President

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

* Director February 12, 1999
- -----------------------------
Robert F.X. Sillerman
* Vice President February 12, 1999
- ----------------------------- (principal financial officer and
Thomas P. Benson principal accounting officer)
* Director February 12, 1999
- -----------------------------
Gregg W. Perloff
* Director February 12, 1999
- -----------------------------
Nicholas P. Clainos
* Director February 12, 1999
- -----------------------------
Stephen Welkom
/s/ Howard J. Tytel Executive Vice President and Director February 12, 1999
- ----------------------------- (principal executive officer)
Howard J. Tytel

*By: /s/ Howard J. Tytel
-------------------------
Howard J. Tytel
Attorney-in-fact

II-36

SIGNATURES

BG Presents, Inc.

By: /s/ Howard J. Tytel
------------------------------------
Howard J. Tytel,
Executive Vice President

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

* Director February 12, 1999
- -----------------------------
Robert F.X. Sillerman
* Director February 12, 1999
- -----------------------------
Gregg W. Perloff
* Director February 12, 1999
- -----------------------------
Stephen Welkom
* Director February 12, 1999
- -----------------------------
Nicholas P. Clainos
* Vice President (principal financial February 12, 1999
- ----------------------------- officer and principal accounting
Thomas P. Benson officer)

/s/ Howard J. Tytel Executive Vice President and Director February 12, 1999
- -----------------------------
Howard J. Tytel

*By: /s/ Howard J. Tytel
-------------------------
Howard J. Tytel
Attorney-in-fact

II-37

SIGNATURES

Bill Graham Enterprises, Inc.

By: /s/ Howard J. Tytel
------------------------------------
Howard J. Tytel,
Executive Vice President

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

* Director February 12, 1999
- -----------------------------
Robert F.X. Sillerman
* Director February 12, 1999
- -----------------------------
Nicholas P. Clainos
* Director February 12, 1999
- -----------------------------
Gregg W. Perloff
* Director February 12, 1999
- -----------------------------
Stephen Welkom
* Vice President February 12, 1999
- ----------------------------- (principal financial officer and
Thomas P. Benson principal accounting officer)

/s/ Howard J. Tytel Executive Vice President and Director February 12, 1999
- ----------------------------- (principal executive officer)
Howard J. Tytel

*By: /s/ Howard J. Tytel
-------------------------
Howard J. Tytel
Attorney-in-fact

II-38

SIGNATURES

Bill Graham Management, Inc.

By: /s/ Howard J. Tytel
------------------------------------
Howard J. Tytel,
Executive Vice President

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

* Director February 12, 1999
- -----------------------------
Robert F.X. Sillerman
* Director February 12, 1999
- -----------------------------
Nicholas P. Clainos
* Director February 12, 1999
- -----------------------------
Gregg W. Perloff
* Director February 12, 1999
- -----------------------------
Stephen Welkom
* Vice President (principal financial February 12, 1999
- ----------------------------- officer and principal accounting
Thomas P. Benson officer)

/s/ Howard J. Tytel Executive Vice President and Director February 12, 1999
- ----------------------------- (principal executive officer)
Howard J. Tytel

*By: /s/ Howard J. Tytel
-------------------------
Howard J. Tytel
Attorney-in-fact

II-39

SIGNATURES

Bill Graham Presents, Inc.

By: /s/ Howard J. Tytel
------------------------------------
Howard J. Tytel,
Executive Vice President

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

/s/ Howard J. Tytel Executive Vice President and Director February 12, 1999
- ----------------------------- (principal executive officer)
Howard J. Tytel

*By: /s/ Howard J. Tytel
-------------------------
Howard J. Tytel
Attorney-in-fact

II-40

SIGNATURES

Boston Playhouse Realty, Inc.

By: /s/ Howard J. Tytel
------------------------------------
Howard J. Tytel,
Executive Vice President

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

* Director February 12, 1999
- -----------------------------
Robert F.X. Sillerman
* Director February 12, 1999
- -----------------------------
Michael G. Ferrel
* Vice President February 12, 1999
- -----------------------------
(principal financial officer)
Thomas P. Benson
/s/ Howard J. Tytel Executive Vice President and Director February 12, 1999
- -----------------------------
(principal executive officer)
Howard J. Tytel
* Director February 12, 1999
- -----------------------------
Allen J. Becker
* Director February 12, 1999
- -----------------------------
Brian Becker
* Treasurer February 12, 1999
- -----------------------------
(principal accounting officer)
Greg Gamble
*By: /s/ Howard J. Tytel February 12, 1999
-------------------------
Howard J. Tytel
Attorney-in-fact

II-41

SIGNATURES

Boylston Street Theatre Corp.

By: /s/ Howard J. Tytel
------------------------------------
Howard J. Tytel,
Executive Vice President

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

II-42

SIGNATURES

Broadway Concerts, Inc.

By: /s/ Howard J. Tytel
------------------------------------
Howard J. Tytel,
Executive Vice President and
Secretary

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

*By: /s/ Howard J. Tytel
-------------------------
Howard J. Tytel
Attorney-in-fact

II-43

SIGNATURES

Broadway Series Associates, Inc.

By: /s/ Howard J. Tytel
------------------------------------
Howard J. Tytel,
Executive Vice President

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

* Director February 12, 1999
- -----------------------------
Robert F.X. Sillerman
* Director February 12, 1999
- -----------------------------
Michael G. Ferrel
* Vice President February 12, 1999
- ----------------------------- (principal financial officer and
Thomas P. Benson
principal accounting officer)
/s/ Howard J. Tytel Executive Vice President and Director February 12, 1999
- ----------------------------- (principal executive officer)
Howard J. Tytel
* Director February 12, 1999
- -----------------------------
Brian Becker
* Director February 12, 1999
- -----------------------------
Allen J. Becker
*By: /s/ Howard J. Tytel
-------------------------
Howard J. Tytel
Attorney-in-fact

II-44

SIGNATURES

Broadway Series Management Group, Inc.

By: /s/ Howard J. Tytel
------------------------------------
Howard J. Tytel,
Executive Vice President

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

* Director February 12, 1999
- -----------------------------
Robert F.X. Sillerman

* Director February 12, 1999
- -----------------------------
Michael G. Ferrel

* Vice President February 12, 1999
- ----------------------------- (principal financial officer and
Thomas P. Benson principal accounting officer)

/s/ Howard J. Tytel Executive Vice President and Director February 12, 1999
- ----------------------------- (principal executive officer)
Howard J. Tytel

* Director February 12, 1999
- -----------------------------
Brian Becker

* Director February 12, 1999
- -----------------------------
Allen J. Becker

*By: /s/ Howard J. Tytel
-------------------------
Howard J. Tytel
Attorney-in-fact

II-45

SIGNATURES

Camarillo Amphitheater Managing
Partners, Inc.

By: /s/ Howard J. Tytel
------------------------------------
Howard J. Tytel,
Executive Vice President and Secretary

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

* Executive Chairman and Director February 12, 1999
- ----------------------------- (principal executive officer)
Robert F.X. Sillerman

* Director February 12, 1999
- -----------------------------
Michael G. Ferrel

* Chief Financial Officer and Treasurer February 12, 1999
- ----------------------------- (principal financial officer and
Thomas P. Benson principal accounting officer)

/s/ Howard J. Tytel Director February 12, 1999
- -----------------------------
Howard J. Tytel

*By: /s/ Howard J. Tytel
-------------------------
Howard J. Tytel
Attorney-in-fact

II-46

SIGNATURES

Cheva Touring Company
By: Magicworks Entertainment
Incorporated,
as a majority holder

By: /s/ Howard J. Tytel
------------------------------------
Howard J. Tytel,
Executive Vice President and Secretary

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

* Executive Chairman and Director February 12, 1999
- ----------------------------- (principal executive officer)
Robert F.X. Sillerman

* Director February 12, 1999
- -----------------------------
Michael G. Ferrel

* Chief Financial Officer and Treasurer February 12, 1999
- ----------------------------- (principal financial officer and
Thomas P. Benson principal accounting officer)

/s/ Howard J. Tytel Director February 12, 1999
- -----------------------------
Howard J. Tytel
* Director February 12, 1999
- -----------------------------
Joe Marsh
* Director February 12, 1999
- -----------------------------
Brian Becker

*By: /s/ Howard J. Tytel
-------------------------
Howard J. Tytel
Attorney-in-fact

II-47

SIGNATURES

Concert Productions International B.V.

By: /s/ Howard J. Tytel
------------------------------------
Howard J. Tytel,
Executive Vice President and Secretary

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

* Director February 12, 1999
- -----------------------------
Robert F.X. Sillerman

* Managing Director February 12, 1999
- ----------------------------- (principal executive officer)
Michael G. Ferrel

* Attorney-in-fact February 12, 1999
- ----------------------------- (principal financial officer and
Thomas P. Benson principal accounting officer)

/s/ Howard J. Tytel Managing Director February 12, 1999
- -----------------------------
Howard J. Tytel

*By: /s/ Howard J. Tytel February 12, 1999
-------------------------
Howard J. Tytel
Attorney-in-fact

II-48

SIGNATURES

Concert Productions (UK) Limited

By: /s/ Howard J. Tytel
------------------------------------
Howard J. Tytel,
Executive Vice President and Secretary

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

* Executive Chairman and Director February 12, 1999
- ----------------------------- (principal executive officer)
Robert F.X. Sillerman

* Director February 12, 1999
- -----------------------------
Michael G. Ferrel

* Chief Financial Officer and Treasurer February 12, 1999
- ----------------------------- (principal financial officer and
Thomas P. Benson principal accounting officer)

/s/ Howard J. Tytel Director February 12, 1999
- -----------------------------
Howard J. Tytel

*By: /s/ Howard J. Tytel
-------------------------
Howard J. Tytel
Attorney-in-fact

II-49

SIGNATURES

Concerts, Inc.

By: /s/ Howard J. Tytel
------------------------------------
Howard J. Tytel,
Executive Vice President

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

* Director February 12, 1999
- ----------------------------- (principal executive officer)
Robert F.X. Sillerman

* Director February 12, 1999
- -----------------------------
Michael G. Ferrel

* Vice President February 12, 1999
- ----------------------------- (principal financial officer and
Thomas P. Benson principal accounting officer)

/s/ Howard J. Tytel Director February 12, 1999
- -----------------------------
Howard J. Tytel

* President, Chief Executive Officer and February 12, 1999
- ----------------------------- Director (principal executive officer)
Brian Becker

* Director February 12, 1999
- -----------------------------
Allen J. Becker

*By: /s/ Howard J. Tytel
-------------------------
Howard J. Tytel
Attorney-in-fact

II-50

SIGNATURES

Conn Ticketing Company
By: Northeast Ticketing Company,
a general partner

By: /s/ Howard J. Tytel
------------------------------------
Howard J. Tytel,
Executive Vice President and Secretary

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

* Executive Chairman and Director February 12, 1999
- ----------------------------- (principal executive officer)
Robert F.X. Sillerman

* Director February 12, 1999
- -----------------------------
Michael G. Ferrel

/s/ Howard J. Tytel Director February 12, 1999
- -----------------------------
Howard J. Tytel

* Director February 12, 1999
- -----------------------------
Ron Delsener

* Director February 12, 1999
- -----------------------------
Mitch Slater

* Vice President and Chief Financial February 12, 1999
- ----------------------------- Officer (principal financial officer and
Thomas P. Benson principal accounting officer)

*By: /s/ Howard J. Tytel
-------------------------
Howard J. Tytel
Attorney-in-fact

II-51

SIGNATURES

Connecticut Amphitheater Development
Corporation