================================================================================

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

DECEMBER 2, 1997
-----------------------
(Date of earliest event reported)

SINCLAIR BROADCAST GROUP, INC.
(Exact name of Registrant as specified in its charter)

MARYLAND 33-69482 52-1494660
(State of incorporation) (Commission File Number) (IRS Employer
Identification Number)

2000 W. 41st Street, Baltimore, Maryland 21211-1420
-------------------------------------------------------------------
(Address of principal executive offices) (Zip code)

Registrant's telephone number, including area code: (410) 467-5005
--------------

================================================================================

ITEM 5. OTHER EVENTS

As previously reported, Sinclair Broadcast Group, Inc. (the "Company")
entered into acquisition agreements on July 16, 1997 (the "Heritage Acquisition
Agreements") with The News Corporation Limited, Heritage Media Group, Inc. and
certain subsidiaries of Heritage Media Corporation (collectively "Heritage")
pursuant to which the Company has acquired or will acquire the assets of, or the
right to program pursuant to Local Marketing Agreements ("LMAs"), six television
stations in three markets and the assets of 24 radio stations in seven markets
(the "Heritage Acquisition"). On December 3, 1997, the Company entered into an
agreement to acquire, directly or indirectly, all of the equity interests of Max
Media Properties LLC ("Max Media"), pursuant to which the Company will acquire,
or acquire the right to program pursuant to LMA's, nine television stations and
eight radio stations in eight markets (the "Max Media Acquisition"). On February
23, 1998 the Company entered into an agreement to acquire 100% of the stock of
Sullivan Broadcast Holdings, Inc. and Subsidiaries ("Sullivan"), pursuant to
which the Company will acquire or provide programming services to 13 television
stations in 11 separate markets (the "Sullivan Acquisition"). The Company is
filing with this Current Report on Form 8-K pro forma financial information for
the Company showing the effect of the Heritage Acquisition, the Max Media
Acquisition and the Sullivan Acquisition. The Company is filing with this report
on Form 8-K the audited financial statements of Heritage Media Services, Inc. --
Broadcasting Segment ("HMSI"), Max Media Properties LLC, Sullivan Broadcasting
Company, Inc. and Subsidiaries (Formerly Act III Broadcasting, Inc. as successor
by merger with A-3 Acquisition, Inc.) and Sullivan Broadcast Holdings, Inc. and
Subsidiaries, which includes all of the assets to be acquired by the Company
pursuant to the Heritage Acquisition, the Max Media Acquisition and the Sullivan
Acquisition.

ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS AND EXHIBITS

(A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED

The financial statements required by this item are submitted in a separate
section of this report.

HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT

Report of Independent Public Accountants
Consolidated Balance Sheet as of December 31, 1997 and 1996
Consolidated Statements of Operations for the Four Months Ended December 31,
1997, the Eight Months Ended August 31, 1997 and for the year Ended December
31, 1996
Consolidated Statements of Stockholders' Equity for the Four Months Ended Decem-
ber 31, 1997, the Eight Months Ended August 31, 1997 and for the Year Ended
December 31, 1996
Consolidated Statements of Cash Flows for the Four Months Ended December 31,
1997, the Eight Months Ended August 31, 1997 and for the Year Ended December
31, 1996
Notes to Consolidated Financial Statements

MAX MEDIA PROPERTIES LLC

Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Operations for the Years Ended December 31, 1997 and
1996
Consolidated Statements of Members' Capital for the Years Ended December 31,
1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997 and
1996
Notes to Consolidated Financial Statements

SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES

Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1997
Consolidated Statement of Operations for the Period from Inception (June 2,
1995) through December 31, 1995, and for the years Ended December 31, 1996 and
1997
Consolidated Statement of Cash Flows for the Period from Inception (June 2,
1995) through December 31, 1995, and for the Years Ended December 31, 1996 and
1997
Consolidated Statement of Changes in Shareholders' Equity for the Period from
Inception (June 2, 1995) through December 31, 1995 and for the Years Ended
December 31, 1996 and 1997
Notes to Consolidated Financial Statements

SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES -- (FORMERLY ACT III
BROADCASTING, INC. AS SUCCESSOR BY MERGER WITH A-3 ACQUISITION, INC.)

Report of Independent Accountants
Consolidated Statement of Operations for the year ended December 31, 1995
Consolidated Statement of Cash Flows for the year ended December 31, 1995
Consolidated Statement of Changes in Shareholders' Deficit Notes to Consolidated
Financial Statements

(B) PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF SINCLAIR

The following Pro Forma Consolidated Financial Data include the unaudited
pro forma consolidated balance sheet as of December 31, 1997 (the "Pro Forma
Consolidated Balance Sheet") and the unaudited pro forma consolidated statement
of operations for the year ended December 31, 1997 (the "Pro Forma Consolidated
Statement of Operations"). The unaudited Pro Forma Consolidated Balance Sheet is
adjusted to give effect to the Heritage Acquisition, the Max Media Acquisition
and the Sullivan Acquisition, (collectively the "Significant Acquisitions"). The
unaudited Pro Forma Consolidated Statement of Operations for the year ended
December 31, 1997 is adjusted to give effect to the issuance of $200,000,000
liquidation amount 11 5/8% High Yield Trust Offered Preferred Securities (the
"HYTOPS") issued on March 14, 1997 (the "HYTOPS Issuance"), the issuance by the
Company of $200,000,000 principal amount 9% Senior Subordinated Notes due 2007
(the " July Debt Issuance") issued on July 2, 1997, the September 23, 1997
public offering by the Company of 4,345,000 shares of Class A Common Stock (the
"1997 Common Stock Offering"), the September 23, 1997 public offering by the
Company of $172.5 million aggregate liquidation value Series D Convertible
Exchangeable Preferred Stock (the "Preferred Stock Offering"), and the
completion by the Company of the Tender Offer for $98.1 million aggregate
principal of the Company's 10% Notes due 2003 (the "1993 Notes") on December 9,
1997 (the "Tender Offer" and together with the HYTOPS Issuance, the July Debt
Issuance, the 1997 Common Stock Offering, the 1997 Preferred Stock Offering, by
the Company and) the issuance by the Company of $250 million principal amount 8
3/4 Senior Subordinated Notes due 2007 (the "December Debt Issuance"), (the
"1997 Financings.") The Pro forma Consolidated Financial Information included
herein reflects the application of the net proceeds from the December Debt
Issuance utilized to pay the consideration payable in connection with, and
expenses of, the Tender Offer and the Heritage Acquisition, as if such
transactions occurred at the beginning of such periods. The Max Media
Acquisition and the Sullivan Acquisition (net of $100,000 of Class A Common
Stock, par value $0.01 per share issued at the option of the Company pursuant to
the Sullivan Acquisition Agreement) will be completed utilizing available
indebtedness under the Company's Bank Credit Agreement. The pro forma
adjustments are based upon available information and certain assumptions that
the Company believes are reasonable. The Pro Forma Consolidated Financial
Information included herein should be read in conjunction with the Company's
Consolidated Financial Statements as of and for the year ended December 31, 1997
and related notes thereto, and the historical financial data of Heritage Media
Services, Inc. -- Broadcasting Segment, Max Media Properties LLC, Sullivan
Broadcast Company, Inc., and subsidiaries (Formerly Act III Broadcastiing, Inc.
as successor by merger with A-3 Acquisition, Inc. and Sullivan Broadcast

Holdings, Inc. and Subsidiaries, all of which have been filed with the
Securities and Exchange Commission as part of either (i) the Company's Annual
Report on Form 10-K for the year ended December 31, 1997 together with the
report of Arthur Andersen LLP, independent certified public accountants; or (ii)
the Current Report on Form 8-K filed March 17, 1998. The unaudited Pro Forma
Consolidated Financial Data do not purport to represent what the Company's
results of operations or financial position would have been had any of the above
events occurred on the dates specified or to project the Company's results of
operations or financial position for or at any future period or date.

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

23.1 Consent of Arthur Andersen LLP
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of Price Waterhouse LLP
23.4 Consent of Price Waterhouse LLP

SINCLAIR BROADCAST GROUP, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)

CONSOLIDATED
HISTORICAL
--------------

ASSETS
CURRENT ASSETS:
Cash, including cash equivalents ................................ $ 139,327
Accounts receivable, net of allowance for doubtful accounts ..... 123,018
Current portion of program contract costs ....................... 46,876
Prepaid expenses and other current assets ....................... 4,673
Deferred barter costs ........................................... 3,727
Refundable income taxes ......................................... 10,581
Deferred tax asset .............................................. 2,550
----------
Total current assets .......................................... 330,752
PROGRAM CONTRACT COSTS, less current portion ..................... 40,609
LOANS TO OFFICERS AND AFFILIATES ................................. 11,088
PROPERTY AND EQUIPMENT, net ...................................... 161,714
NON-COMPETE AND CONSULTING AGREEMENTS, net........................ 200
OTHER ASSETS ..................................................... 167,895
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net...................... 1,321,976
----------
Total Assets .................................................. $2,034,234
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................ $ 5,207
Accrued liabilities ............................................. 40,532
Current portion of long-term liabilities-
Notes payable and commercial bank financing .................... 35,215
Notes and capital leases payable to affiliation ................ 3,073
Program contracts payable ...................................... 66,404
Deferred barter revenues ........................................ 4,273
----------
Total current liabilities ..................................... 154,704
LONG-TERM LIABILITIES:
Notes payable and commercial bank financing .................... 1,022,934
Notes and capital leases payable to affiliates ................. 19,500
Program contracts payable ...................................... 62,408
Deferred tax liability ......................................... 24,092
Other long-term liabilities .................................... 3,611
----------
Total liabilities ............................................. 1,287,249
----------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 3,697
----------
COMMITMENTS AND CONTINGENCIES
COMPANY OBLIGATED MANDATORILY REDEEM-
ABLE SECURITY OF SUBSIDIARY TRUST HOLDING
SOLELY KDSM SENIOR DEBENTURES ................................... 200,000
----------
STOCKHOLDERS' EQUITY:
Series B Preferred Stock, $.01 par value, 10,000,000 shares
authorized and 1,071,381 shares issued and outstanding ........ 10
Series D Preferred Stock, $.01 par value, 3,450,000 shares
authorized 3,450,000 shares issued and outstanding ............ 35
Class A Common Stock, $.01 par value, 100,000,000 shares
authorized and 13,733,430 and 15,487,816 shares issued
and outstanding respectively .................................. 137
Class B Common Stock, $.01 par value, 35,000,000 shares
authorized and 25,436,432 shares issued and outstanding ....... 255
Additional paid-in capital ..................................... 552,949
Additional paid-in capital - equity put options ................ 23,117
Additional paid-in capital - deferred compensation ............. (954)
Accumulated deficit ............................................ (32,261)
----------
Total stockholders' equity .................................... 543,288
----------
Total Liabilities and Stockholders' Equity .................... $2,034,234
==========

SIGNIFICANT ACQUISITIONS
-------------------------------------------------------
SULLIVAN
HERITAGE(A) MAX MEDIA(B) BROADCASTING(C)
------------------ ------------------ -----------------

ASSETS
CURRENT ASSETS:
Cash, including cash equivalents ................................ $ (139,327)
Accounts receivable, net of allowance for doubtful accounts .....
Current portion of program contract costs ....................... 1,462 $ 2,325 $ 22,850
Prepaid expenses and other current assets .......................
Deferred barter costs ........................................... 578 640
Refundable income taxes .........................................
Deferred tax asset ..............................................
----------- ----------- ------------
Total current assets .......................................... (137,287) 2,965 22,850
PROGRAM CONTRACT COSTS, less current portion ..................... 1,179 2,182 23,432
LOANS TO OFFICERS AND AFFILIATES .................................
PROPERTY AND EQUIPMENT, net ...................................... 32,859 25,556 39,723
NON-COMPETE AND CONSULTING AGREEMENTS, net........................
OTHER ASSETS ..................................................... (65,500) (12,817)
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net. 368,336 229,490 1,135,309
----------- ----------- ------------
Total Assets .................................................. $ 199,587 $ 247,376 $ 1,221,314
=========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................
Accrued liabilities .............................................
Current portion of long-term liabilities-
Notes payable and commercial bank financing ....................
Notes and capital leases payable to affiliation ................
Program contracts payable ...................................... $ 1,788 $ 2,431 $ 24,944
Deferred barter revenues ........................................ 350 1,026
----------- ----------- ------------
Total current liabilities ..................................... 2,138 3,457 24,944
LONG-TERM LIABILITIES:
Notes payable and commercial bank financing .................... 196,673 (d) 242,183 (e) 900,000 (f)
Notes and capital leases payable to affiliates .................
Program contracts payable ...................................... 776 1,736 22,710
Deferred tax liability ......................................... 173,660
Other long-term liabilities ....................................
Total liabilities ............................................. 199,587 247,376 1,121,314
----------- ----------- ------------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES -- -- --
----------- ----------- ------------
COMMITMENTS AND CONTINGENCIES
COMPANY OBLIGATED MANDATORILY REDEEM-
ABLE SECURITY OF SUBSIDIARY TRUST HOLDING
SOLELY KDSM SENIOR DEBENTURES ................................... -- -- --
----------- ----------- ------------
STOCKHOLDERS' EQUITY:
Series B Preferred Stock, $.01 par value, 10,000,000 shares
authorized and 1,071,381 shares issued and outstanding ........
Series D Preferred Stock, $.01 par value, 3,450,000 shares
authorized 3,450,000 shares issued and outstanding ............
Class A Common Stock, $.01 par value, 100,000,000 shares
authorized and 13,733,430 and 15,487,816 shares issued
and outstanding respectively .................................. 18
Class B Common Stock, $.01 par value, 35,000,000 shares
authorized and 25,436,432 shares issued and outstanding .......
Additional paid-in capital ..................................... 99,982
Additional paid-in capital - equity put options ................
Additional paid-in capital - deferred compensation .............
Accumulated deficit ............................................
----------- ----------- ------------
Total stockholders' equity .................................... -- -- 100,000
----------- ----------- ------------
Total Liabilities and Stockholders' Equity .................... $ 199,587 $ 247,376 $ 1,221,314
=========== =========== ============

CONSOLIDATED
HISTORICAL
AND SIGNIFICANT
ACQUISITIONS
----------------

ASSETS
CURRENT ASSETS:
Cash, including cash equivalents ................................ $ --
Accounts receivable, net of allowance for doubtful accounts ..... 123,018
Current portion of program contract costs ....................... 73,513
Prepaid expenses and other current assets ....................... 4,673
Deferred barter costs ........................................... 4,945
Refundable income taxes ......................................... 10,581
Deferred tax asset .............................................. 2,550
----------
Total current assets .......................................... 219,280
PROGRAM CONTRACT COSTS, less current portion ..................... 67,402
LOANS TO OFFICERS AND AFFILIATES ................................. 11,088
PROPERTY AND EQUIPMENT, net ...................................... 259,852
NON-COMPETE AND CONSULTING AGREEMENTS, net........................ 200
OTHER ASSETS ..................................................... 89,578
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net. 3,055,111
----------
Total Assets .................................................. $3,702,511
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................ $ 5,207
Accrued liabilities ............................................. 40,532
Current portion of long-term liabilities-
Notes payable and commercial bank financing .................... 35,215
Notes and capital leases payable to affiliation ................ 3,073
Program contracts payable ...................................... 95,567
Deferred barter revenues ........................................ 5,649
----------
Total current liabilities ..................................... 185,243
LONG-TERM LIABILITIES:
Notes payable and commercial bank financing .................... 2,361,790
Notes and capital leases payable to affiliates ................. 19,500
Program contracts payable ...................................... 87,630
Deferred tax liability ......................................... 197,752
Other long-term liabilities .................................... 3,611
----------
Total liabilities ............................................. 2,855,526
----------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 3,697
----------
COMMITMENTS AND CONTINGENCIES
COMPANY OBLIGATED MANDATORILY REDEEM-
ABLE SECURITY OF SUBSIDIARY TRUST HOLDING
SOLELY KDSM SENIOR DEBENTURES ................................... 200,000
----------
STOCKHOLDERS' EQUITY:
Series B Preferred Stock, $.01 par value, 10,000,000 shares
authorized and 1,071,381 shares issued and outstanding ........ 10
Series D Preferred Stock, $.01 par value, 3,450,000 shares
authorized 3,450,000 shares issued and outstanding ............ 35
Class A Common Stock, $.01 par value, 100,000,000 shares
authorized and 13,733,430 and 15,487,816 shares issued
and outstanding respectively .................................. 155
Class B Common Stock, $.01 par value, 35,000,000 shares
authorized and 25,436,432 shares issued and outstanding ....... 255
Additional paid-in capital ..................................... 652,931
Additional paid-in capital - equity put options ................ 23,117
Additional paid-in capital - deferred compensation ............. (954)
Accumulated deficit ............................................ (32,261)
----------
Total stockholders' equity .................................... 643,288
----------
Total Liabilities and Stockholders' Equity .................... $3,702,511
==========

NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)

(a) The Heritage Acquisition column reflects the assets and liabilities acquired
in connection with the $630,000 purchase of Heritage. The Heritage
Acquisition column gives effect for the Company's definitive agreements to
sell radio stations KKSN-AM, KKSN-FM, and KKRH-FM serving the Portland,
Oregon market, radio stations, WBBF-AM, WBEE-FM, WKLX-FM, and WQRV-FM
serving the Rochester, New York market and television stations WPTZ-TV,
WNNE-TV and WFFF-TV serving the Burlington, Vermont and Plattsburgh, New
York markets (the "Dispositions"). Total acquired intangibles are calculated
as follows:

HERITAGE
HERITAGE DISPOSITIONS ACQUISITION
------------ -------------- ------------

Purchase Price ............................................ $ 630,000
Add:
Liabilities acquired--
Current portion of program contracts payable ........... $ 2,194 $ (406) 1,788
Deferred barter revenues ............................... 676 (326) 350
Long-term portion of program contracts payable ......... 857 (81) 776
Less:
Assets acquired--
Current portion of program contract costs .............. (1,704) 242 (1,462)
Deferred barter costs .................................. (880) 302 (578)
Program contract costs, less current portion ........... (1,323) 144 (1,179)
Property and equipment ................................. (45,840) 12,981 (32,859)
Proceeds from sale of stations ......................... (228,500)
----------
Acquired intangibles ................................... $ 368,336
==========

(b) The Max Media Acquisition column reflects the assets and liabilities
acquired in connection with the $255,000 purchase of Max Media. The Max
Media Acquisition is subject to a number of conditions customary for
acquisitions of broadcasting properties. Total acquired intangibles are
calculated as follows:

MAX MEDIA
------------

Purchase Price ............................................. $ 255,000
Add:
Liabilities acquired--
Current portion of program contracts payable ............ 2,431
Deferred barter revenues ................................ 1,026
Long-term portion of program contracts payable .......... 1,736
Less:
Assets acquired--
Current portion of program contract costs ............... (2,325)
Deferred barter costs ................................... (640)
Program contract costs, less current portion ............ (2,182)
Property and equipment .................................. (25,556)
---------
Acquired intangibles .................................... $ 229,490
=========

(c) The Sullivan Broadcasting Acquisition column reflects the assets and
liabilities acquired in connection with the $1,000,000 purchase of 100% of
the outstanding capital stock of Sullivan Broadcast Holdings, Inc. and
subsidiaries. Included in the total purchase price is $100,000 of Class A
Common Stock, which may be issued at the option of the Company pursuant to
the Sullivan Acquisition Agreement. The Sullivan Acquisition is subject to a
number of conditions customary for acquisitions of broadcasting properties.
Total acquired intangibles are calculated as follows:

SULLIVAN
-------------

Purchase Price ........................................... $1,000,000
Add:
Liabilities acquired--
Current portion of program contracts costs ............ 24,944
Long-term portion of program contract costs ........... 22,710
Deferred tax liability ................................ 173,660
Less:
Assets acquired--
Current portion of program contracts .................. (22,850)
Program contract costs, less current portion .......... (23,432)
Property and equipment ................................ (39,723)
----------
Acquired intangibles .................................. $1,135,309
==========

(d) To reflect indebtedness of $196,673 incurred in connection with the Heritage
Acquisition as follows:

Purchase Price ....................... $ 630,000
Less:
Proceeds from dispositions ......... (228,500)
Deposits ........................... (65,500)
Cash utilized ...................... (139,327)
----------
Indebtedness Incurred .............. $ 196,673
==========

(e) To reflect indebtedness of $242,183 incurred (net of a $12,817 deposit for
the broadcast assets) for the broadcast assets under the Company's bank
credit facility under the Bank Credit Agreement in connection with the Max
Media Acquisition. The Company will need to obtain an amendment or
refinancing of the Bank Credit Agreement in order to complete all pending
acquisitions.

(f) To reflect indebtedness incurred of $900,000 (net of $100,000 of Class A
Common Stock, par value $0.01 per share which may be issued at the option of
the Company pursuant to the Sullivan Acquisition Agreement). The Company
will need to obtain an amendment to or refinancing of the Company's bank
credit facility under the Bank Credit Agreement in order to complete the
Significant Acquisitions and all other pending acquisitions. See "Prospectus
Supplement Summary -- Recent Developments."

SINCLAIR BROADCAST GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

1997 FINANCINGS
---------------------------------------------------------
JULY 1997 1997 COMMON
CONSOLIDATED HYTOPS DEBT AND PREFERRED
HISTORICAL ISSUANCE ISSUANCE STOCK ISSUANCES
-------------- ------------------- ------------------- -----------------

REVENUES:
Station broadcast revenues, net of agency commissions $ 471,228
Revenues realized from station barter arrangements....... 45,207 -- -- --
--------- ----------- ----------- ---------
Total revenues ........................................ 516,435 -- -- --
--------- ----------- ----------- ---------
OPERATING EXPENSES:
Program and production .................................. 92,178
Selling, general and administrative ..................... 106,084
Expenses realized from barter arrangements .............. 38,114
Amortization of program contract costs and net realiz-
able value adjustments .................................. 66,290
Amortization of deferred compensation ................... 1,636
Depreciation and amortization of property and equip-
ment .................................................... 18,040
Amortization of acquired intangible assets, non-
compete, consult and other .............................. 67,840 $ 133 (f) $ 249 (g)
--------- ----------- ----------- ---------
Total operating expenses .............................. 390,182 133 249 --
--------- ----------- ----------- ---------
Broadcast operating income (loss) ...................... 126,253 (133) (249) --
--------- ----------- ----------- ---------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense ...... (98,393) 1,852 (i) (1,734) (j) $ 16,857 (k)
Subsidiary trust minority interest expense .............. (18,600) (4,650)(n)
Interest income ......................................... 2,174
Other income ............................................ 54
--------- ----------- ----------- ---------
Income (loss) before provision (benefit) for in-
come taxes ............................................ 11,488 (2,931) (1,983) 16,857
PROVISION (BENEFIT) FOR INCOME TAXES ..................... 15,984 (1,172) (p) (793) (p) 6,743 (p)
--------- ----------- ----------- ---------
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM .............. (4,496)
EXTRAORDINARY ITEM ....................................... (6,070) (1,759) (1,190) 10,114
--------- ----------- ----------- ---------
NET INCOME (LOSS) ........................................ $ (10,566) $ (1,759) $ (1,190) $ 10,114
========= =========== =========== =========
NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS ............................................ $ (13,329)
=========
BASIC EARNINGS PER SHARE:
Income (loss) per share before extraordinary item........ $ (0.13)
=========
Net income (loss) per share ............................. $ (0.37)
=========
Average shares outstanding .............................. 35,951
=========
DILUTED EARNINGS PER SHARE:
Income (loss) per share before extraordinary item ....... $ (0.11)
=========
Net income (loss) per share ............................. $ (0.33)
=========
Average shares outstanding .............................. 40,078
=========

1997 FINANCINGS
----------------
TENDER OFFER AND CONSOLIDATED
DECEMBER 1997 HISTORICAL AND
DEBT ISSUANCE 1997 FINANCINGS HERITAGE(a) MAX MEDIA(b)
---------------- --------------- ----------- ------------

REVENUES:
Station broadcast revenues, net of agency commissions $ 471,228 $ 72,383 $ 51,351
Revenues realized from station barter arrangements...... 45,207 3,996 5,362
--------- ---------- --------- ---------
Total revenues ....................................... -- 516,435 76,379 56,713
--------- ---------- --------- ---------
OPERATING EXPENSES:
Program and production ................................. 92,178 27,645 10,662
Selling, general and administrative .................... 106,084 17,010 24,148
Expenses realized from barter arrangements ............. 38,114 3,474 2,334
Amortization of program contract costs and net realiz-
able value adjustments ................................. 66,290 1,974 5,546
Amortization of deferred compensation .................. 1,636
Depreciation and amortization of property and equip-
ment ................................................... 18,040 4,246 4,713
Amortization of acquired intangible assets, non-
compete, consult and other ............................. 68,222 15,083 8,028
--------- ---------- --------- ---------
Total operating expenses ............................. -- 390,564 69,432 55,431
--------- ---------- --------- ---------
Broadcast operating income (loss) ..................... -- 125,871 6,947 2,282
--------- ---------- --------- ---------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense ..... $ (2,010)(l) (83,428) (5,940) (6,078)
Subsidiary trust minority interest expense ............. (23,250)
Interest income ........................................ 2,174
Other income ........................................... 54 8,636 8,795
--------- ---------- --------- ---------
Income (loss) before provision (benefit) for in-
come taxes ........................................... (2,010) 21,421 9,643 3,999
PROVISION (BENEFIT) FOR INCOME TAXES .................... (804)(p) 19,958 (p) 7,583
--------- ---------- --------- ---------
NET INCOME (LOSS) BEFORE EXTRAORDI-
NARY ITEM .............................................. (1,206) 1,463 2,000 3,999
EXTRAORDINARY ITEM ...................................... (69)(q) (6,139)
--------- ---------- --------- ---------
NET INCOME (LOSS) ....................................... $ (1,275) $ (4,676) $ 2,060 $ 3,999
========= ========== ========= =========
NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS ........................................... $ (15,026)
==========
BASIC EARNINGS PER SHARE:
Income (loss) per share before extraordinary item....... $ 0.04
==========
Net income (loss) per share ............................ $ (0.38)
==========
Average shares outstanding ............................. 39,112
==========
DILUTED EARNINGS PER SHARE:
Income (loss) per share before extraordinary item ...... $ 0.03
==========
Net income (loss) per share ............................ $ (0.35)
==========
Average shares outstanding ............................. 42,583 (r)
==========

SIGNIFICANT
ACQUISITIONS HISTORICAL,
----------------- 1997 FINANCINGS
SULLIVAN ACQUISITION AND SIGNIFICANT
BROADCASTING(C) ADJUSTMENTS ACQUISITIONS
----------------- ------------------ ----------------

REVENUES:
Station broadcast revenues, net of agency commissions $ 120,124 $ 715,086
Revenues realized from station barter arrangements....... 17,650 72,215
---------- ---------
Total revenues ........................................ 137,774 -- 787,301
---------- -- ---------
OPERATING EXPENSES:
Program and production .................................. 17,301 147,786
Selling, general and administrative ..................... 28,319 $ (9,401)(d) 166,160
Expenses realized from barter arrangements .............. 16,999 60,921
Amortization of program contract costs and net realiz-
able value adjustments .................................. 13,198 87,008
Amortization of deferred compensation ................... 1,636
Depreciation and amortization of property and equip-
ment .................................................... 9,464 (1,473)(e) 34,990
Amortization of acquired intangible assets, non-
compete, consult and other .............................. 32,756 17,098 (h) 141,187
---------- ---------- ---------
Total operating expenses .............................. 118,037 6,224 639,688
---------- ---------- ---------
Broadcast operating income (loss) ...................... 19,737 (6,224) 147,613
---------- ---------- ---------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense ...... (40,711) (59,477)(m) (195,634)
Subsidiary trust minority interest expense .............. (23,250)
Interest income ......................................... (280)(o) 1,894
Other income ............................................ 12 17,497
---------- ---------
Income (loss) before provision (benefit) for in-
come taxes ............................................ (20,962) (65,981) (51,880)
PROVISION (BENEFIT) FOR INCOME TAXES ..................... (5,488) (26,392)(p) (4,339)
---------- ---------- ---------
NET INCOME (LOSS) BEFORE EXTRAORDI-
NARY ITEM ............................................... (15,474) (39,589) (47,541)
EXTRAORDINARY ITEM ....................................... (6,139)
---------
NET INCOME (LOSS) ........................................ $ (15,474) $ (39,589) $ (53,680)
========== ========== =========
NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS ............................................ $ (64,030)
=========
BASIC EARNINGS PER SHARE:
Income (loss) per share before extraordinary item........ $ (1.16)
=========
Net income (loss) per share ............................. $ (1.57)
=========
Average shares outstanding .............................. 40,866
=========
DILUTED EARNINGS PER SHARE:
Income (loss) per share before extraordinary item ....... $ (1.07)
=========
Net income (loss) per share ............................. $ (1.44)
=========
Average shares outstanding .............................. 44,337 (s)
=========

SINCLAIR BROADCAST GROUP, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)

(a) The Heritage column reflects the results of operations for Heritage
for the period from January 1, 1997 to December 31, 1997, less
television and radio stations the Company has definitive agreements
to sell. These dispositions include the Portland, Oregon and
Rochester, New York radio stations and the Burlington, Vermont and
Plattsburgh, New York television stations.

(b) The Max Media column reflects the results of operations for Max Media
for the period from January 1, 1997 to December 31, 1997. Included
within other income is a one time gain on station sales of
approximately $8,500.

(c) The Sullivan Broadcasting column reflects the results of operations
for Sullivan Broadcasting for the period from January 1, 1997 to
December 31, 1997.

(d) To adjust operating expenses for corporate overhead (net of
integration costs the Company anticipates incurring as a result of
the Significant Acquisitions) which the Company does not expect to
incur upon consummation of the Heritage Acquisition, Max Media
Acquisition and the Sullivan Acquisition on a going-forward basis.

(e) To record depreciation expense related to acquired tangible assets
and eliminate depreciation expense recorded by Heritage, Max Media,
and Sullivan from January 1, 1997 to December 31, 1997. Tangible
assets are to be depreciated over lives ranging from three to 20
years, calculated as follows:

YEAR ENDED
DECEMBER 31, 1997
------------------------------------------------
HERITAGE MAX MEDIA SULLIVAN TOTAL
---------- ----------- ------------ ------------

Depreciation expense on acquired tangible assets ....................... $ 5,231 $ 4,637 $ 7,082 $ 16,950
Less: Depreciation expense recorded by Heritage, Max Media and Sullivan (4,246) (4,713) (9,464) (18,423)
-------- -------- -------- ---------
Pro forma adjustment ................................................... $ 985 $ (76) $ (2,382) $ (1,473)
======== ======== ======== =========

(f) To record amortization expense on other assets that relate to the
HYTOPS Issuance for one year ($7,677 over 12 years).

Amortization expense on other assets .................. $ 640
Amortization expense recorded by the Company .......... (507)
------
Pro Forma adjustment .................................. $ 133
======

(g) To record amortization expense on other assets that relate to the
July 1997 Debt Issuance for one year ($4,766 over 10 years).

Amortization expense on other assets .................. $ 477
Amortization expense recorded by the Company .......... (228)
------
Pro Forma adjustment .................................. $ 249
======

(h) To record amortization expense related to acquired intangible assets
and deferred financing costs and eliminate amortization expense
recorded by Heritage, Max Media and Sullivan from January 1, 1997 to
December 31, 1997. Intangible assets are to be amortized over lives
ranging from one to 40 years, calculated as follows:

YEAR ENDED
DECEMBER 31, 1997
--------------------------------------------------
HERITAGE MAX MEDIA SULLIVAN TOTAL
------------ ----------- ------------ ------------

Amortization expense on acquired intangible assets ..................... $ 20,974 $ 12,357 $ 39,634 $ 72,965
Less: Amortization expense recorded by Heritage, Max Media and Sullivan (15,083) (8,028) (32,756) (55,867)
--------- -------- --------- ---------
Pro forma adjustment ................................................... $ 5,891 $ 4,329 $ 6,878 $ 17,098
========= ======== ========= =========

(i) To record the net interest expense reduction for the year ended
December 31, 1997 related to the application of the HYTOPS Issuance
proceeds to the outstanding balance under the revolving credit
facility under the Bank Credit Agreement offset by an increase in
commitment fees for the available but unused portion of the
revolving credit facility.

Interest on adjusted borrowings on the revolving credit facility for the period from
January 1, 1997 to March 5, 1997 ................................................... $ 2,865
Commitment fee on available but unused borrowings of $250,000 for five months
and $675,000 for seven months of revolving credit facility at 1/2 of 1%............. (2,490)
Commitment fee on available borrowings recorded by the Company ...................... 1,477
--------
Pro forma adjustment ................................................................ $ 1,852
========

(j) To record the net interest expense reduction related to the
application of the net proceeds of the July 1997 Debt Issuance to
repay borrowings under the Bank Credit Agreement for the period from
January 1, 1997 to June 27, 1997 offset by an increase in interest
expense for the July 1997 Debt Issuance ($200,000 at 9%) net of
interest recorded by the Company.

(k) To record the interest expense reduction of $16,857 related to the
application of the net proceeds of the 1997 Common Stock Issuance and
the 1997 Preferred Stock Issuance to repay borrowings under the Bank
Credit Agreement for the period from January 1, 1997 to September 17,
1997.

(l) To record adjustments related to the December 1997 Debt Issuance
($250,000 at 8.75%) and the Debt Repurchase as follows:

Interest Adjustments:
Interest on December Debt Issuance for one year .................................... $ 21,875
Interest recorded in the 1993 Notes ................................................ (9,646)
Interest recorded on the December Debt Issuance .................................... (911)
Interest expense reduction related to the application of the net proceeds from the
December Debt Issuance ............................................................ (9,688)
--------
1,630
--------
Amortization Adjustments:
Amortization of deferred financing costs and debt discount ......................... 678
Amortization recorded by the Company ............................................... (298)
--------
380
--------
Pro forma adjustment ............................................................... $ 2,010
========

(m) To record interest expense for the year ended December 31, 1997 on
acquisition financing relating to Heritage, Max Media and Sullivan of
$401,500, $242,183 and $900,000 (under the Company's Bank Credit
Agreement at 7.43%), and eliminate interest expense recorded.

YEAR ENDED
DECEMBER 31, 1997
-----------------------------
HERITAGE MAX MEDIA
-------------- --------------

Interest expense adjustment as noted above ......................... $ (28,956) $ (17,288)
Less: Interest expense recorded by Heritage, Max Media and Sullivan 5,940 6,078
---------- ----------
Pro forma adjustment ............................................... $ (23,016) $ (11,210)
========== ==========

YEAR ENDED
DECEMBER 31, 1997
------------------------------
SULLIVAN TOTAL
-------------- ---------------

Interest expense adjustment as noted above ......................... $ (65,962) $ (112,206)
Less: Interest expense recorded by Heritage, Max Media and Sullivan 40,711 52,729
---------- -----------
Pro forma adjustment ............................................... $ (25,251) $ (59,477)
========== ===========

(n) To record subsidiary trust minority interest expense for the year
ended December 31, 1997 ($200,000 aggregate liquidation value of
HYTOPS at 11.625%).

Subsidiary trust minority interest expense ........................ $ 23,250
Subsidiary trust minority interest expense recorded by the Company (18,600)
---------
Pro Forma adjustment .............................................. $ 4,650
=========

(o) To eliminate interest income for the year ended December 31, 1997 on
proceeds from the sale of the December Debt Issuance due to assumed
utilization of excess cash for the Significant Acquisitions.

(p) To record tax provision (benefit) at the applicable tax rates.

(q) To record an increase in the extraordinary loss, net of the tax
effect related to the Debt Repurchase and the write-off of the
deferred financing costs related to the 1993 Notes.

(r) Weighted average shares outstanding on a pro forma basis assumes that
the 4,345,000 shares of Class A Common Stock issued in the 1997
Common Stock Issuance were outstanding as of the beginning of the
period.

(s) Weighted average shares outstanding on a pro forma basis assumes that
1,754,386 shares of Class A Common Stock issuable at the option of
the Company pursuant to the Sullivan Acquisition Agreement (assuming
an average closing price of $57 per share at time of issuance) were
outstanding as of the beginning of the period.

INDEX TO FINANCIAL STATEMENTS

CONTENTS

PAGE
-----

HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
Report of Independent Public Accountants ................................................ F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996 ............................ F-3
Consolidated Statements of Operations for the Four Months Ended December 31, 1997, the
Eight Months Ended August 31, 1997 and for the Year Ended December 31, 1996 ............ F-4
Consolidated Statements of Stockholders' Equity for the Four Months Ended December 31,
1997, the Eight Months Ended August 31, 1997 and for the Year Ended December 31, 1996 .. F-5
Consolidated Statements of Cash Flows for the Four Months Ended December 31, 1997, the
Eight Months Ended August 31, 1997 and for the Year Ended December 31, 1996 ............ F-6
Notes to Consolidated Financial Statements .............................................. F-7

MAX MEDIA PROPERTIES LLC
Independent Auditors' Report ............................................................ F-15
Consolidated Balance Sheets as of December 31, 1997 and 1996 ............................ F-16
Consolidated Statements of Operations for the Years Ended December 31, 1997 and 1996 .... F-17
Consolidated Statements of Members' Capital for the Years Ended December 31, 1997 and
1996 ................................................................................... F-18
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997 and 1996 .... F-19
Notes to Consolidated Financial Statements .............................................. F-20

SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
Report of Independent Accountants ....................................................... F-32
Consolidated Balance Sheet as of December 31, 1996 and 1997 ............................. F-33
Consolidated Statement of Operations for the Period from Inception (June 2, 1995) through
December 31, 1995 and for the Years Ended December 31, 1996 and 1997 ................... F-34
Consolidated Statement of Cash Flows for the Period from Inception (June 2, 1995) through
December 31, 1995 and for the Years Ended December 31, 1996 and 1997 ................... F-35
Consolidated Statement of Changes in Shareholders' Equity for the Period from Inception
(June 2, 1995) through December 31, 1995 and for the Years Ended December 31, 1996
and 1997 ............................................................................... F-36
Notes to Consolidated Financial Statements .............................................. F-37

SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES -- (FORMERLY
ACT III BROADCASTING, INC. AS SUCCESSOR BY MERGER WITH A-3 ACQUISITION, INC.)
Report of Independent Accountants ....................................................... F-48
Consolidated Statement of Operations for the Year Ended December 31, 1995 ............... F-49
Consolidated Statement of Cash Flows for the Year Ended December 31, 1995 ............... F-50
Consolidated Statement of Changes in Shareholders' Deficit .............................. F-51
Notes to Consolidated Financial Statements .............................................. F-52

F-1

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of
Sinclair Broadcast Group, Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheets of Heritage
Media Services, Inc. -- Broadcasting Segment (the Company) as of December 31,
1997, and Heritage Media Services, Inc. - Broadcasting Segment (the Predecessor)
as of December 31, 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows of the Company for the four months ended
December 31, 1997, and of the Predecessor for the eight months ended August 31,
1997, and the year ended December 31, 1996. These financial statements are the
responsibility of the Company's and the Predecessor'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 financial position of the Company
as of December 31, 1997, and the Predecessor as of December 31, 1996, and the
results of operations and cash flows of the Company for the four months ended
December 31, 1997, and of the Predecessor for the eight months ended August 31,
1997, and for the year ended December 31, 1996, in conformity with generally
accepted accounting principles.

/s/ Arthur Andersen LLP

Baltimore, Maryland,
February 17, 1998

F-2

HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)

COMPANY PREDECESSOR
1997 1996
----------- ------------

ASSETS
CURRENT ASSETS:
Cash ...................................................................... $ 2,520 $ 2,151
Accounts receivable, net of allowance for doubtful accounts of $1,450 and
$1,348, respectively .................................................... 20,869 20,036
Current portion of program contract costs ................................. 1,704 1,006
Prepaid expenses and other current assets ................................. 998 138
Deferred barter costs ..................................................... 880 1,911
Deferred tax asset ........................................................ 279 215
-------- ---------
Total current assets .................................................... 27,250 25,457
PROGRAM CONTRACT COSTS, less current portion .............................. 1,323 1,498
PROPERTY, PLANT AND EQUIPMENT, net ........................................ 45,840 30,005
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net .............................. 564,157 163,626
OTHER ASSETS .............................................................. 19 821
-------- ---------
Total Assets ............................................................ $638,589 $ 221,407
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses ..................................... $ 5,876 $ 5,399
Deferred revenue .......................................................... 587 428
Deferred barter revenue ................................................... 676 1,746
Current portion of program contracts payable .............................. 2,194 2,079
-------- ---------
Total current liabilities ............................................... 9,333 9,652
PROGRAM CONTRACTS PAYABLE, less current portion ............................ 857 1,165
DUE TO AFFILIATE ........................................................... -- 178,393
DEFERRED TAX LIABILITY ..................................................... 609 563
OTHER LONG-TERM LIABILITIES ................................................ 910 152
-------- ---------
Total Liabilities ....................................................... 11,709 189,925
-------- ---------
COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value, 3,576,000 shares authorized, and 2,591,586
shares issued and outstanding ........................................... 2,592 2,592
Additional paid-in capital ................................................ 630,333 66,174
Accumulated deficit ....................................................... (6,045) (37,284)
-------- ---------
Total Stockholders' Equity .............................................. 626,880 31,482
-------- ---------
Total Liabilities and Stockholders' Equity .............................. $638,589 $ 221,407
======== =========

The accompanying notes are an integral part of
these consolidated balance sheets.

F-3

HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)

COMPANY PREDECESSOR
-------------- ---------------------------
FOUR MONTHS EIGHT MONTHS
ENDED ENDED YEAR ENDED
DECEMBER 31, AUGUST 31, DECEMBER 31,
1997 1997 1996
-------------- ------------- -------------

NET REVENUES:
Station broadcasting revenues, net of agency commissions of
$7,303, $10,820 and $16,727,respectively....................... $ 36,906 $ 62,180 $ 95,302
Revenues realized from station barter arrangements .............. 2,029 3,610 4,292
-------- -------- ---------
Total net revenues ............................................ 38,935 65,790 99,594
-------- -------- ---------
OPERATING EXPENSES:
Programming and production ...................................... 13,437 22,515 20,089
Selling, general and administrative ............................. 8,569 15,477 31,916
Expenses realized from station barter arrangements .............. 1,912 3,035 3,478
Amortization of program contract costs and net realizable value
adjustments ................................................... 870 1,879 3,165
Depreciation of property and equipment .......................... 2,286 3,790 5,472
Amortization of acquired intangible broadcasting assets and
other assets .................................................. 12,867 7,127 8,460
-------- -------- ---------
Total operating expenses ...................................... 39,941 53,823 72,580
-------- -------- ---------
Broadcast operating income (loss) ............................. (1,006) 11,967 27,014
-------- -------- ---------
OTHER INCOME (EXPENSE):
Interest expense ................................................ (2,026) (6,499) (17,949)
Gain on sale of assets .......................................... -- 9,401 6,031
Other expense, net .............................................. (588) (177) (203)
-------- -------- ---------
Income (loss) before provision for income taxes ............... (3,620) 14,692 14,893
PROVISION FOR INCOME TAXES ....................................... (2,425) (7,605) (7,853)
-------- -------- ---------
Net income (loss) ............................................. $ (6,045) $ 7,087 $ 7,040
======== ======== =========

The accompanying notes are an integral part of these consolidated statements.

F-4

HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

COMMON STOCK ADDITIONAL
--------------------- PAID-IN ACCUMULATED STOCKHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT EQUITY
-------- ---------- ----------- ------------- --------------

PREDECESSOR:
BALANCE, December 31, 1995 .................. 2,592 $ 2,592 $ 14,368 $ (13,804) $ 3,156
HMC capital contributions ................. -- -- 43,024 -- 43,024
HMC noncash capital contributions ......... -- -- 8,782 -- 8,782
Dividends to HMC .......................... -- -- -- (30,520) (30,520)
Net income ................................ -- -- -- 7,040 7,040
----- ------- -------- --------- ---------
BALANCE, December 31, 1996 .................. 2,592 2,592 66,174 (37,284) 31,482
HMC noncash capital contributions ......... -- -- 7,109 -- 7,109
Net income ................................ -- -- -- 7,087 7,087
----- ------- -------- --------- ---------
BALANCE, August 31, 1997 .................... 2,592 $ 2,592 $ 73,283 $ (30,197) $ 45,678
===== ======= ======== ========= =========
COMPANY:
Impact of acquisition by News Corporation
and related push down accounting ......... 2,592 $ 2,592 $627,408 -- $ 630,000
News Corporation noncash capital contribu-
tions .................................... -- -- 2,925 -- 2,925
Net loss .................................. -- -- -- (6,045) (6,045)
----- ------- -------- --------- ---------
BALANCE, December 31, 1997 .................. 2,592 $ 2,592 $630,333 $ (6,045) $ 626,880
===== ======= ======== ========= =========

The accompanying notes are an integral part of these consolidated statements.

F-5

HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................................... $ (6,045) $ 7,087 $ 7,040
Adjustments to reconcile net income (loss) to net cash flows from
operating activities-
Depreciation of property and equipment ............................ 2,286 3,790 5,472
Amortization-
Acquired intangible broadcasting assets and other assets ......... 12,867 7,127 8,460
Program contract costs and net realizable value adjustments . 870 1,879 3,165
Gain on sale of assets ............................................ -- (9,401) (6,031)
Amortization of deferred compensation ............................. -- -- 135
Deferred tax provision (benefit) .................................. 40 (57) (101)
Changes in assets and liabilities, net of effects of acquisitions-
(Increase) decrease in accounts receivable, net ................... (1,329) 496 (1,681)
Net effect of change in deferred barter revenue and deferred
barter costs ..................................................... 2,471 (2,507) (53)
Increase in other assets .......................................... (108) (1,309) (147)
Decrease (increase) in prepaid expenses and other current as-
sets ............................................................. 401 (1,261) 810
(Decrease) increase in accounts payable and accrued expenses . (1,036) 1,705 (3,486)
Increase in deferred revenue ...................................... 93 66 151
Increase (decrease) in other liabilities .......................... 498 260 (44)
Payments on program contracts payable ............................... (941) (1,882) (2,565)
-------- --------- ---------
Net cash flows from operating activities ....................... 10,067 5,993 11,125
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment ............................... (317) (4,118) (6,938)
Proceeds from sale of station ....................................... -- -- 13,759
Receipts (payments) from exchange of stations ....................... -- 11,240 (9,384)
-------- --------- ---------
Net cash flows from investing activities ....................... (317) 7,122 (2,563)
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends to Parent ................................................. -- -- (30,520)
Decrease in due to affiliates ....................................... (9,293) (13,203) (20,714)
Capital contributions made by Parent ................................ -- -- 43,024
-------- --------- ---------
Net cash flows from financing activities ....................... (9,293) (13,203) (8,210)
-------- --------- ---------
NET INCREASE (DECREASE) IN CASH ...................................... 457 (88) 352
CASH, beginning of period ............................................ 2,063 2,151 1,799
-------- --------- ---------
CASH, end of period .................................................. $ 2,520 $ 2,063 $ 2,151
======== ========= =========
SUPPLEMENTAL DISCLOSURE:
Program rights acquired ............................................. $ 2,152 $ 693 $ 3,674
======== ========= =========

The accompanying notes are an integral part of these consolidated statements.

F-6

HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Presentation

Heritage Media Services, Inc. ("HMSI") operates in two segments - Marketing
Services and Broadcasting. The parent company of HMSI is Heritage Media
Corporation ("HMC"). The accompanying consolidated financial statements include
the accounts of the television and radio operations, which are collectively
referred to hereafter as "the Company, the Companies or the Broadcasting
Segment." The Broadcasting Segment was wholly-owned and operated by HMSI, which
was owned by HMC through August 31, 1997 (the Predecessor). In July 1997, HMC
entered into an asset sale agreement with Sinclair Broadcast Group, Inc. ("SBG")
whereby SBG would acquire 100% of the Broadcast Segment for $630 million in
cash. The sale to SBG is expected to close during the first quarter of 1998.

Effective September 1, 1997, The News Corporation Limited ("News Corporation")
acquired all of the outstanding stock of HMC. Due to certain regulatory
requirements, News Corporation has established a trust to hold all of the
license and nonlicense assets of the Broadcasting Segment until the sale to SBG
has closed. The acquisition of the Broadcasting Segment was accounted for
utilizing push down accounting whereby the purchase price was allocated to
property and programming assets and acquired intangible broadcasting assets of
$51.4 million and $578.6 million, based upon an independent appraisal.

As a result of the News Corporation acquisition, the accompanying December 31,
1997, balance sheet and related statements of operations and cash flows for the
four-month period ended December 31, 1997, are presented on a new basis of
accounting. The accompanying financial statements for the eight-month period
ended August 31, 1997, and for the year ended December 31, 1996, are presented
as "Predecessor" financial statements.

The Company owns and operates television and radio stations throughout the
United States. Also included in the accompanying consolidated financial
statements are the results of operations of WFGX-TV Channel 35 in Ft. Walton
Beach, Florida, and WFFF in Burlington, Vermont, pursuant to a local marketing
agreement (LMA).

Disclosure of Certain Significant 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 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.

In the opinion of management, credit risk with respect to trade receivables is
limited due to the large number of diversified customers and the geographic
diversification of the Company's customer base. The Company performs ongoing
credit evaluations of its customers and believes that adequate allowances for
any uncollectable trade receivables are maintained. At December 31, 1997 and
1996, no receivable from any customer exceeded 5% of stockholders' equity, and
no customer accounted for more than 10% of net revenues in 1997 and 1996.

Acquired Intangible Broadcasting Assets

Acquired intangible broadcasting assets are being amortized over periods of four
to 40 years. These amounts result from the acquisition of certain television and
radio station license and nonlicense assets. The Company monitors the individual
financial performance of each of the stations and continually evaluates the
realizability of intangible and tangible assets and the existence of any
impairment to its recoverability based on the projected undiscounted cash flows
of the respective stations.

F-7

HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996 - (CONTINUED)

Intangible assets consist of the following as of December 31, 1997 and 1996 (in
thousands):

AMORTIZATION COMPANY PREDECESSOR
PERIOD 1997 1996
---------------- ----------- ------------

Goodwill ............................... 40 years $ 298,466 $ 63,979
FCC licenses ........................... 15 -- 25 years 275,391 147,040
Other .................................. 4 - 25 years 912 1,319
--------- ---------
574,769 212,338

Less: Accumulated amortization ......... (10,612) (48,712)
--------- ---------

$ 564,157 $ 163,626
========= =========

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation.
Depreciation is recorded on the straight-line basis over the estimated useful
lives of the assets. Property and equipment at December 31, 1997 and 1996, are
summarized as follows (in thousands):

COMPANY PREDECESSOR
USEFUL LIFE 1997 1996
------------- ----------- ------------

Land ................................... -- $ 3,101 $ 2,685
Broadcasting equipment ................. 5-25 years 35,548 41,268
Buildings and improvements ............. 12-30 years 10,417 7,369
Other equipment ........................ 4-8 years 2,350 9,904
-------- ---------
51,416 61,226
Less: Accumulated depreciation ......... (5,576) (31,221)
-------- ---------
$ 45,840 $ 30,005
======== =========

Programming

The Company has agreements with distributors for the rights to television
programming over contract periods which generally run from one to seven years.
Contract payments are made in installments over terms that are generally shorter
than the contract period. Each contract is recorded as an asset and a liability
when the license period begins and the program is available for its first
showing. The portion of the program contracts payable within one year is
reflected as a current liability in the accompanying consolidated balance
sheets.

The rights to program materials are reflected in the accompanying consolidated
balance sheets at the lower of unamortized cost or estimated net realizable
value. Estimated net realizable values are based upon management's expectation
of future advertising revenues, net of sales commissions to be generated by the
program material. Amortization of program contract costs is charged to
operations by the straight-line method over the contract period or based on
usage, whichever yields the greater amortization for each program. Program
contract costs estimated by management to be amortized in the succeeding year
are classified as current assets. Payments of program contract liabilities are
typically paid on a scheduled basis and are not affected by adjustments for
amortization or estimated net realizable value.

F-8

HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996 - (CONTINUED)

Barter Transactions

Certain program contracts provide for the exchange of advertising air time in
lieu of cash payments for the rights to such programming. These contracts are
recorded as the programs are aired at the estimated fair value of the
advertising air time given in exchange for the program rights. Network
programming is excluded from these calculations.

The Company broadcasts certain customers' advertising in exchange for equipment,
merchandise and services. The estimated fair value of the equipment, merchandise
or services received is recorded as deferred barter costs and the corresponding
obligation to broadcast advertising is recorded as deferred barter revenues. The
deferred barter costs are expensed or capitalized as they are used, consumed or
received. Deferred barter revenues are recognized as the related advertising is
aired.

Other Assets

Debt issuance costs are amortized to interest expense using the effective
interest method over the period of the related debt agreement.

Revenues

Broadcast revenues are derived primarily from local, regional and national
advertising and network compensation. Advertising revenues are recognized upon
the airing of commercials, while network revenues are recognized monthly as
earned. Revenues are presented net of advertising agency and national sales
representative commissions.

Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of

The Company adopted the provisions of 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" on January 1, 1996. These
statements require that long-lived assets and certain identifiable intangibles
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is the
amount by which the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. Initial adoption of these statements,
as of January 1, 1996, did not have a material impact on the Company's financial
position or results of operations.

Local Marketing Agreements

The Company generally enters into LMA's and similar arrangements with stations
located in markets in which the Company already owns and operates a station, and
in connection with acquisitions pending regulatory approval of transfer of
license assets. Under the terms of these agreements, the Company makes specified
periodic payments to the owner-operator in exchange for the grant to the Company
of the right to program and sell advertising on a specified portion of the
station's inventory of broadcast time. Nevertheless, as the holder of the
Federal Communication Commission (FCC) license, the owner-operator retains full
control and responsibility for the operation of the station, including control
over all programming broadcast on the station.

Reclassifications

Certain reclassifications have been made to the prior year financial statements
to conform with the current year presentation.

F-9

HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996 - (CONTINUED)

2. ACCRUED EXPENSES:

Accrued expenses consist of the following at December 31, 1997 and 1996, (in
thousands):

COMPANY PREDECESSOR
1997 1996
--------- ------------

Commissions ........................... $3,429 $1,449
Payroll and employee benefits ......... 702 960
Other ................................. 1,740 2,842
------ ------
$5,871 $5,251
====== ======

3. DUE TO AFFILIATE:

The Predecessor had an arrangement with HMSI whereby HMSI would provide certain
management and other services to the Predecessor. The services provided included
consultation and direct management assistance with respect to operations and
strategic planning. The Predecessor was allocated approximately $4.7 million and
$2.0 million of corporate overhead expenses for these services for the eight
months ended August 31, 1997, and for the year ended December 31, 1996,
respectively.

In order to fund acquisitions and provide operating funds, HMSI entered into a
Bank Credit Agreement. The debt was used to finance acquisitions and fund daily
operations of the Predecessor and was recorded by the Predecessor as due to
affiliate in the accompanying consolidated balance sheets as of December 31,
1996. HMSI allocated interest at a rate of approximately 10.0%, which
approximated the average rate paid on the borrowings. Associated with the HMSI
debt, the Predecessor was allocated approximately $0.6 million of deferred
financing costs in 1996. The deferred financing costs were fully amortized in
conjunction with the acquisition by News Corporation on September 1, 1997.

4. PROGRAM CONTRACTS PAYABLE:

Future payments required under program contracts payable as of December 31,
1997, are as follows (in thousands):

1998 ................................................... $ 2,194
1999 ................................................... 666
2000 ................................................... 175
2001 ................................................... 16
--------
3,051
Less: Current portion .................................. (2,194)
--------
Long-term portion of program contracts payable ......... $ 857
========

The Company has estimated the fair value of its program contract payables and
noncancelable commitments at approximately $2.5 million and $0.4 million,
respectively, at December 31, 1997 and $2.6 million and $0.4 million,
respectively, at December 31, 1996, based on future cash flows discounted at the
Company's current borrowing rate.

Broadcast Program Rights

The Company has entered into contracts for broadcast program rights that expire
at various dates during the next four years. Contracts totaling approximately
$0.5 million relate to programs which are not currently available for use and,
therefore, are not reflected as assets or liabilities in the accompanying
consolidated balance sheets at December 31, 1997 and 1996.

F-10

HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996 - (CONTINUED)

5. INCOME TAXES:

The Parent files a consolidated federal tax return and separate state tax
returns for each of its subsidiaries in certain filing jurisdictions. It is the
Parent's policy to pay the federal income tax provision of the Company. The
accompanying financial statements have been prepared in accordance with the
separate return method of FASB 109, whereby the allocation of the federal tax
provision due to the Parent is based on what the Company's current and deferred
federal tax provision would have been had the Company filed a federal income tax
return outside of its consolidated group. The Company is not required to
reimburse the Parent for its federal tax provision. Accordingly, this amount is
recorded as a capital contribution in the accompanying consolidated financial
statements. No federal deferred tax assets or liabilities are recorded because
those amounts are considered currently paid to or received by the Parent. The
federal and state tax provision was calculated based on pretax income, plus or
minus permanent book-to-tax differences, times the statutory tax rate of 40%.
The Company had no alternative minimum tax credit carryforwards as of December
31, 1997 and 1996.

The provision (benefit) for income taxes consists of the following (in
thousands):

COMPANY PREDECESSOR
------------------- ---------------------------------------
FOUR MONTHS ENDED EIGHT MONTHS ENDED YEAR ENDED
DECEMBER 31, 1997 AUGUST 31, 1997 DECEMBER 31, 1996
------------------- -------------------- ------------------

Current:
Federal ............................ $2,241 $7,202 $7,477
State .............................. 144 460 477
------ ------ ------
2,385 7,662 7,954
------ ------ ------
Deferred:
Federal ............................ -- -- --
State .............................. 40 (57) (101)
------ ------ ------
40 (57) (101)
------ ------ ------
Provision for income taxes ......... $2,425 $7,605 $7,853
====== ====== ======

The following is a reconciliation of federal income taxes at the applicable
statutory rate to the recorded provision (in thousands):

Statutory federal income taxes ................. $ (1,231) $4,995 $5,064
Adjustments:
State income taxes, net of federal effect..... (143) 582 590
Non-deductible goodwill amortization ......... 3,789 1,725 1,659
Non-deductible expense items ................. -- 20 38
Other ........................................ 10 283 502
-------- ------ ------

Provision for income taxes ..................... $ 2,425 $7,605 $7,853
======== ====== ======

The following table summarizes the state tax effects of the significant types of
temporary differences between financial reporting basis and tax basis which were
generated during the years ended December 31, 1997 and 1996 (in thousands):

F-11

HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996 - (CONTINUED)

COMPANY PREDECESSOR
1997 1996
-------- -------------

Deferred Tax Assets:
Bad debt reserve .......... $ 87 $ 80
Accruals .................. 172 135
Other intangibles ......... 20 --
---- ----
$279 $215
==== ====
Deferred Tax Liability:
Depreciation .............. $609 $563
==== ====

6. EMPLOYEE BENEFIT PLAN:

Company employees were covered by HMC's Retirement Savings Plan (the Plan)
through December 31, 1997, whereby participants contributed portions of their
annual compensation to the Plan and certain contributions were made at the
discretion of the Company based on criteria set forth in the Plan Agreement.
Participants are generally 100% vested in Company contributions after five years
of employment with the Company. Company expenses under the Plan were not
material for the year ended December 31, 1997.

7. RELATED PARTY TRANSACTIONS:

The Company received certain advances from HMC during the eight months ended
August 31, 1997, which were evidenced by a subordination agreement. All advances
from HMC were repaid on August 31, 1997.

8. CONTINGENCIES AND OTHER COMMITMENTS:

Leases and Contracts

The Company and its subsidiaries lease certain real property and transportation
and other equipment under noncancelable operating leases expiring at various
dates through 2010. The Company also has long-term contractual obligations with
two major broadcast ratings firms that provide monthly ratings services and
guaranteed store contracts. Rent expense under these leases for the four months
ended December 31, 1997, the eight months ended August 31, 1997, and the year
ended December 31, 1996, was approximately $.6 million, $.9 million and $1.6
million, respectively.

Future minimum payments under the leases are as follows (in thousands):

1998 ........................ $ 997
1999 ........................ 950
2000 ........................ 921
2001 ........................ 901
2002 ........................ 920
2003 and thereafter ......... 2,428
------
$7,117
======

Litigation

Lawsuits and claims are filed against the Company from time to time in the
ordinary course of business which are generally incidental to its business.
Management of the Company does not believe the resolution of such matters will
have a significant effect on its liquidity, financial position or results of
operations.

F-12

HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996 - (CONTINUED)

9. ACQUISITIONS AND EXCHANGES:

On January 7, 1997, the Company acquired all of the license and nonlicense
assets of radio station WHRR (FM), serving the Rochester, New York, market for
approximately $2.0 million. The acquisition was accounted for under the purchase
method of accounting whereby the purchase price was allocated to property and
programming assets and acquired intangible broadcasting assets of $.1 million
and $1.9 million, respectively.

On January 20, 1997, the Company entered into a like-kind exchange with Journal
Broadcast Group ("JBG") whereby the Company transferred radio stations WMYU (FM)
and WWST (FM) in exchange for radio station KQRC (FM). The assets exchanged were
used in the same line of business, no monetary consideration was received and
the fair value of the assets exchanged were greater than their carrying cost
and, as such, no gain was recognized in the accompanying statement of
operations.

On January 24, 1997, the Company acquired all of the license and nonlicense
assets of radio stations KXTR (FM) and KCAZ (FM), serving the Kansas City,
Missouri, market for approximately $10.5 million. The acquisition was accounted
for under the purchase method of accounting whereby the purchase price was
allocated to property and programming assets and acquired intangible
broadcasting assets of $.9 million and $9.6 million, respectively.

On February 17, 1997, the Company entered into a like-kind exchange with
Susquehanna Radio Corporation ("SRC") whereby the Company transferred radio
station WVAE (FM) to SRC and received radio stations WGH (AM), WGH (FM) and WVCL
(FM), along with $5.0 million in cash. In connection with the exchange, a gain
of approximately $4.6 million was recorded in the accompanying statement of
operations.

On April 11, 1997, the Company entered into a like-kind exchange with American
Radio System Corporation ("ARSC") whereby the Company transferred radio stations
KCIN (FM) and KRPM (AM) to ARSC and received radio stations WRNO (FM), WEZB (FM)
and WBYU (AM), along with approximately $6.2 million in cash. In connection with
the exchange, a gain of approximately $4.8 million was recorded in the
accompanying statement of operations.

10. FINANCIAL INFORMATION BY SEGMENT:

In June 1997, the Financial Accounting Standards Board (FASB) released SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." SFAS
131 establishes standards for reporting information about operating segments in
annual financial statements and requires selected information about operating
segments in interim financial statements. SFAS 131 supercedes SFAS 14,
"Financial Reporting for Segments of a Business Enterprise" and is effective for
financial statements for periods beginning after December 15, 1997.

The Company operates in two principal business segments -- television
broadcasting and radio broadcasting. At December 31, 1997 and 1996, the
television segment included five television stations for which the Company is
the licensee and two stations which are operated under a local marketing
agreement. These seven stations operate in seven different markets in the
continental United States.

The radio group currently operates 23 radio stations in seven of the top 50
largest markets by population. The holdings include at least three stations (and
two FM stations) in every market.

F-13

HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996 - (CONTINUED)

COMPANY PREDECESSOR
-------------- -----------------------------
FOUR MONTHS EIGHT MONTHS
ENDED ENDED YEAR ENDED
DECEMBER 31, AUGUST 31, DECEMBER 31,
1997 1997 1996
-------------- ------------- -------------

TELEVISION
Total revenues .................................... $ 16,213 $ 28,360 $ 46,316
Station operating expenses ........................ 8,265 14,862 19,365
Depreciation and program amortization ............. 2,101 4,402 6,707
Amortization of goodwill and other assets ......... 5,769 4,136 4,910
-------- -------- --------
Station broadcast operating income ................ $ 78 $ 4,960 $ 15,334
======== ======== ========
Total assets ...................................... $313,235 $134,071 $ 83,479
======== ======== ========
Capital expenditures .............................. $ -- $ 3,265 $ 5,791
======== ======== ========
RADIO
Total revenues .................................... $ 22,722 $ 37,430 $ 53,278
Station operating expenses ........................ 15,653 26,165 36,118
Depreciation ...................................... 1,055 1,267 1,930
Amortization of goodwill and other assets ......... 7,098 2,991 3,550
-------- -------- --------
Station broadcast operating income ................ $ (1,084) $ 7,007 $ 11,680
======== ======== ========
Total assets ...................................... $329,169 $ 93,201 $137,928
======== ======== ========
Capital expenditures .............................. $ 317 $ 853 $ 1,147
======== ======== ========
CONSOLIDATED
Total revenues .................................... $ 38,935 $ 65,790 $ 99,594
Station operating expenses ........................ 23,918 41,027 55,483
Depreciation and program amortization ............. 3,156 5,669 8,637
Amortization of goodwill and other assets ......... 12,867 7,127 8,460
-------- -------- --------
Station broadcast operating income ................ $ (1,006) $ 11,967 $ 27,014
======== ======== ========
Total assets ...................................... $642,404 $227,272 $221,407
======== ======== ========
Capital expenditures .............................. $ 317 $ 4,118 $ 6,938
======== ======== ========

11. SUBSEQUENT EVENTS:

In January 1998, the Company closed on the sale to SBG of television stations
serving the Charleston/ Huntington market, the Mobile/Pensacola market and the
Oklahoma City market for an aggregate purchase price of $215 million.

F-14

INDEPENDENT AUDITORS' REPORT

The Board of Managers and Members
Max Media Properties LLC:

We have audited the accompanying consolidated balance sheets of Max Media
Properties LLC and its limited partnerships as of December 31, 1997 and 1996 and
the related consolidated statements of operations, members' capital and cash
flows for the years 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 audits.

As discussed in note 3 to the consolidated financial statements, on
December 2, 1997 the Company and its members entered into agreements that will
result in the sale of all of the membership interests of the Company to an
unrelated party.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Max Media
Properties LLC and its limited partnerships as of December 31, 1997 and 1996 and
the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.

/s/ KPMG Peat Marwick LLP

Norfolk, Virginia
February 18, 1998

F-15

MAX MEDIA PROPERTIES LLC
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996

1997 1996
---------------- ----------------

ASSETS (NOTE 9)
CURRENT ASSETS:
Cash and cash equivalents ...................................... $ 1,789,194 $ 1,175,542
Restricted cash (note 4) ....................................... 512,856 --
Accounts receivable, net (note 6) .............................. 11,484,849 9,655,084
Program contract rights, current portion ....................... 2,325,431 1,960,224
Deferred charges, primarily barter agreements (note 5) ......... 640,145 679,776
Prepaid expenses and other current assets ...................... 851,502 672,926
------------- -------------
Total current assets ......................................... 17,603,977 14,143,552
Property and equipment, net (note 7) ............................ 25,709,048 18,412,542
Program contract rights, long-term portion ...................... 2,182,349 2,506,632
Intangible assets, net (note 8) ................................. 82,137,183 63,606,370
Due from related party (note 13) ................................ 1,800,370 1,531,530
Notes receivable (note 14) ...................................... 457,445 107,168
Deposits on pending acquisitions ................................ -- 2,383,056
Other assets .................................................... 92,667 113,103
------------- -------------
$ 129,983,039 $ 102,803,953
============= =============
LIABILITIES AND MEMBERS' CAPITAL
CURRENT LIABILITIES:
Current portion of long-term debt (note 9) ..................... $ 4,751,520 $ 3,064,076
Program contract rights payable, current portion (note 14) 2,430,572 2,211,002
Accounts payable ............................................... 717,748 1,406,923
Accrued compensation and benefits (note 11) .................... 2,043,859 881,924
Other accrued expenses ......................................... 979,409 1,112,412
Deferred revenue, primarily barter agreements (note 5) ......... 1,026,238 866,365
------------- -------------
Total current liabilities .................................... 11,949,346 9,542,702

Long-term debt, excluding current portion (note 9) .............. 68,927,774 56,172,774
Program contract rights payable, long-term portion (note 14) 1,736,102 2,042,981
------------- -------------
Total liabilities ............................................ 82,613,222 67,758,457
Members' capital (notes 2, 9 and 10):
Class A -- 3,069,000 member units at December 31, 1997
and 1996 ..................................................... 21,346,430 21,346,430
Class B -- 5,140,500 and 6,831,000 member units at De-
cember 31, 1997 and 1996, respectively ....................... 6,738,406 19,211,365
Class C -- 3,421,931 and 100,000 member units at Decem-
ber 31, 1997 and 1996, respectively .......................... 21,893,829 695,550
Accumulated deficit ............................................ (2,608,848) (6,207,849)
------------- -------------
Total members' capital ....................................... 47,369,817 35,045,496
------------- -------------
$ 129,983,039 $ 102,803,953
============= =============
Commitments and contingencies (notes 9 and 14)

See accompanying notes to consolidated financial statements.

F-16

MAX MEDIA PROPERTIES LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996

1997 1996
--------------- -----------------

Gross revenues .................................................... $ 64,281,296 $ 50,298,698
Less agency commissions ........................................... 7,567,894 6,042,708
------------ -------------
Net revenues ................................................... 56,713,402 44,255,990
------------ -------------
Operating expenses:
General and administrative ....................................... 11,812,056 9,393,933
Sales ............................................................ 11,443,544 8,040,303
News ............................................................. 2,845,499 1,922,426
Programming and production:
Program amortization ........................................... 5,545,904 4,881,056
Operations ..................................................... 4,768,127 4,727,219
Promotions ....................................................... 3,066,572 2,806,561
Engineering ...................................................... 3,223,911 2,255,699
Depreciation and amortization of property and equipment .......... 4,713,124 3,120,049
Amortization of intangible assets ................................ 8,028,187 6,696,048
------------ -------------
Total operating expenses ....................................... 55,446,924 43,843,294
------------ -------------
Income from operations ............................................ 1,266,478 412,696
------------ -------------
Other income (expenses):
Interest expense ................................................. (6,078,296) (4,139,088)
Gain on station sales, net (note 4) .............................. 8,452,216 --
Other income, net ................................................ 358,777 95,782
------------ -------------
Total other income (expenses), net ............................. 2,732,697 (4,043,306)
------------ -------------
Income (loss) .................................................... $ 3,999,175 $ (3,630,610)
============ =============
Pro forma income data:
Income (loss) .................................................... $ 3,999,175 $ (3,630,610)
Pro forma income tax expense (benefit) (unaudited) (note 12) ..... 1,559,678 (1,415,938)
------------ -------------
Pro forma net income (loss) (unaudited) .......................... $ 2,439,497 $ (2,214,672)
============ =============

See accompanying notes to consolidated financial statements.

F-17

MAX MEDIA PROPERTIES LLC
CONSOLIDATED STATEMENTS OF MEMBERS' CAPITAL
YEARS ENDED DECEMBER 31, 1997 AND 1996

MEMBERSHIP INTERESTS
------------------------------------------------ ACCUMULATED
CLASS A CLASS B CLASS C DEFICIT
--------------- ---------------- --------------- -----------------

Membership interests issued at formation
(note 2) .................................. $ 21,346,430 $ 19,211,365 $ 695,550 $ --
Member distributions ....................... -- -- -- (2,577,239)
Loss ....................................... -- -- -- (3,630,610)
------------ -------------- ------------ -------------
Balances at December 31, 1996 .............. $ 21,346,430 19,211,365 695,550 (6,207,849)
------------ -------------- ------------ -------------
Cancellation of Class B member units (note
10) ....................................... -- (12,472,959) -- --
Issuance of Class C member units, net of
transactions costs of $1,721 (note 10)..... -- -- 21,198,279 --
Member distributions ....................... -- -- -- (400,174)
Income ..................................... -- -- -- 3,999,175
------------ -------------- ------------ -------------
Balances at December 31, 1997 .............. $ 21,346,430 $ 6,738,406 $ 21,893,829 $ (2,608,848)
============ ============== ============ =============

TOTAL MEMBERSHIP UNITS
MEMBERS' ------------------------------
CAPITAL CLASS A CLASS B CLASS C TOTAL
--------------- -------------- --------------- ------------ ---------------

Membership interests issued at formation
(note 2) .................................. $ 41,253,345 $ 3,069,000 6,831,000 100,000 10,000,000
Member distributions ....................... (2,577,239) -- -- -- --
Loss ....................................... (3,630,610) -- -- -- --
------------- ----------- --------- ------- ----------
Balances at December 31, 1996 .............. 35,045,496 3,069,000 6,831,000 100,000 10,000,000
------------- ----------- --------- ------- ----------
Cancellation of Class B member units (note
10) ....................................... (12,472,959) -- (1,690,500) -- (1,690,500)
Issuance of Class C member units, net of
transactions costs of $1,721 (note 10)..... 21,198,279 -- -- 3,321,931 3,321,931
Member distributions ....................... (400,174) -- -- -- --
Income ..................................... 3,999,175 -- -- -- --
------------- ----------- ---------- --------- ----------
Balances at December 31, 1997 .............. $ 47,369,817 3,069,000 5,140,500 3,421,931 11,631,431
============= =========== ========== ========= ==========

See accompanying notes to consolidated financial statements.

F-18

MAX MEDIA PROPERTIES LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996

1997 1996
---------------- -----------------

Cash flows from operating activities:
Income (loss) ........................................................................... $ 3,999,175 $ (3,630,610)
Reconciliation of income (loss) to net cash provided by operating activities:
Depreciation and amortization of property and equipment ................................ 4,713,124 3,120,049
Amortization of intangible assets ...................................................... 8,028,187 6,696,048
Amortization of program contract rights ................................................ 2,475,600 2,683,563
Barter program amortization ............................................................ 3,070,304 2,197,493
Barter program revenue ................................................................. (3,070,304) (2,197,493)
Gain on station sales, net ............................................................. (8,452,216) --
Loss on disposal of equipment .......................................................... 62,396 32,762
Changes in assets and liabilities, net of effect of station acquisitions:
Accounts receivable, net .............................................................. (1,829,765) (788,868)
Deferred charges, primarily barter agreements ......................................... (14,896) (257,504)
Prepaid expenses and other current assets ............................................. (178,576) (80,949)
Accounts payable ...................................................................... (689,175) 651,095
Accrued compensation and benefits ..................................................... 1,161,935 210,192
Other accrued expenses ................................................................ (133,003) (94,621)
Deferred revenue, primarily barter agreements ......................................... 259,009 236,416
------------- -------------
Net cash provided by operating activities ........................................... 9,401,795 8,777,573
------------- -------------
Cash flows from investing activities:
Acquisition of stations, net of cash deposits ........................................... (34,309,611) (10,400,000)
Deposits on pending acquisitions ........................................................ -- (2,383,056)
Payments for program contract rights .................................................... (2,376,966) (1,944,977)
Purchases of property and equipment ..................................................... (6,305,013) (4,370,388)
Payment of organizational and start-up costs ............................................ (613,552) (931,829)
Restricted cash deposited in escrow ..................................................... (512,856) --
Issuance of notes receivable ............................................................ (365,500) --
Proceeds from sale of stations, net ..................................................... 12,564,111 --
Proceeds from sale of property and equipment ............................................ 510,000 --
Other ................................................................................... (124,629) (158,787)
------------- -------------
Net cash used in investing activities ............................................... (31,534,016) (20,189,037)
------------- -------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt ................................................ $ 39,100,000 $ 22,000,000
Proceeds from issuance of Class C member units, net of expenses ......................... 21,198,279 --
Payment to cancel Class B member units .................................................. (11,200,000) --
Repayment of long-term debt:
Credit Facility ........................................................................ (25,150,000) (7,425,000)
Other .................................................................................. (336,627) (149,321)
Payments of loan, financing and equity issuance costs ................................... (465,605) (882,408)
Member distributions .................................................................... (400,174) (2,577,239)
Cash contributed at inception (note 2) .................................................. -- 1,620,974
------------- -------------
Net cash provided by financing activities ........................................... 22,745,873 12,587,006
------------- -------------
Net increase in cash and cash equivalents ............................................... 613,652 1,175,542
Cash and cash equivalents at beginning of year .......................................... 1,175,542 --
------------- -------------
Cash and cash equivalents at end of year ................................................ $ 1,789,194 $ 1,175,542
============= =============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest .................................................. $ 6,169,698 $ 4,174,128
============= =============
Supplemental disclosure of noncash investing and financing activities:
Noncash additions to program contract rights and program contract rights payable ........ $ 1,778,868 $ 1,390,596
============= =============
Noncash additions to long-term debt obligations (note 10) ............................... $ 817,811 $ 1,064,758
============= =============
The Company assumed liabilities in 1997 and 1996 in connection with station
acquisitions as more fully described in note 4.

See accompanying notes to consolidated financial statements.

F-19

MAX MEDIA PROPERTIES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Operations and Basis of Presentation

Max Media Properties LLC, a Virginia limited liability company (the "Company"),
owns and operates radio and television broadcasting stations. At December 31,
1997, the Company owned or operated under time brokerage agreements ("TBA"s) the
following stations:

RADIO MARKET STATION FORMAT OWNERSHIP
- ------------------------- --------- -------------------- ----------

Norfolk, VA ............. WWDE-FM Adult Contemporary Owned

WNVZ-FM Contemporary Hits Owned

WFOG-FM Adult Contemporary Owned

WPTE-FM Alternative Rock Owned

Greensboro, NC .......... WMQX-FM Oldies Owned

WJMH-FM Urban Owned

WQMG-AM Religious Owned

WQMG-FM Urban Owned

TELEVISION MARKET STATION AFFILIATION OWNERSHIP
- -------------------- --------- ------------- ----------

Dayton, OH WKEF-TV NBC Owned

Syracuse, NY WSYT-TV Fox Owned

WNYS-TV UPN TBA

Cape Girardeau, MO KBSI-TV Fox Owned

Paducah, KY WDKA-TV UPN TBA

Tri-Cities, TN WEMT-TV Fox Owned

Charleston, SC WMMP-TV UPN Owned

Tyler, TX KETK-TV NBC Owned

Nacogdoches, TX KLSB-TV NBC TBA

At December 31, 1996, the Company owned and operated KKLZ-FM, Las Vegas, Nevada,
which was sold in January 1997 (note 4).

(b) Principles of Consolidation

The consolidated financial statements include the financial statements of the
Company and seven limited partnerships. All significant intercompany balances
and transactions have been eliminated in consolidation.

The Company recognizes revenue on the sale of advertising air time when the
related advertising is broadcast.

F-20

MAX MEDIA PROPERTIES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996 - (CONTINUED)

(d) Cash and Cash Equivalents

Cash equivalents consist of overnight repurchase agreements and certificates of
deposit with an initial term of less than three months.

(e) Program Contract Rights

The Company has entered into agreements with program distributors granting it
the right to broadcast programs over contract periods which generally run from
one to seven years. The total cost of each contract is recorded as an asset and
liability when the license period begins and the program is available for its
first showing. The Company amortizes program contract rights using the
straight-line method based on program usage. Program contract rights are stated
at the lower of unamortized cost or net realizable value as estimated
periodically by management. Contract payments are generally made in installments
over a term somewhat shorter than the contract period.

Program contract rights expected to be amortized in the succeeding year and
program contract rights payable due within one year are classified as current
assets and current liabilities, respectively.

(f) Barter Agreements

Certain program contract rights provide for the exchange of advertising air time
in lieu of cash payments for the programming. As the program is aired, equal
amounts of revenue and program amortization expense are recorded, at estimated
fair market value, in results of operations.

In addition, the Company provides advertising air time to certain customers in
exchange for equipment, merchandise or services. The estimated fair value of the
equipment, merchandise or services to be received is recorded as an asset and
the corresponding obligation to broadcast advertising is recorded as deferred
revenue. Property and equipment acquired through barter agreements are
depreciated over their estimated useful lives. Services and other assets are
charged to expense as they are used or consumed. Deferred revenue is recognized
in operations as the related advertising is broadcast.

(g) Property and Equipment

Property and equipment are stated at cost. Depreciation is calculated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are amortized using the straight-line method over the shorter of
the lease term and the estimated useful lives of the assets.

(h) Intangible Assets

Intangible assets include Federal Communications Commission ("FCC") licenses,
advertiser base, network affiliation agreements, goodwill and favorable
contractual agreements resulting from acquisitions. These assets are recorded at
their fair value as of the date of acquisition as determined by independent
appraisals and are amortized using the straight-line method over their estimated
useful lives. Intangible assets also include loan costs which are recorded at
cost and amortized using the straight-line method over the term of the credit
facility.

(i) Income Taxes

The Company operates as a partnership for income tax purposes. As a result, the
Company is generally not subject to federal and state income taxes. Such income
taxes are the obligation of the members of the Company. The Company distributes
to its members amounts sufficient to pay income and franchise taxes on the
income of the Company allocated to these members.

F-21

MAX MEDIA PROPERTIES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996 - (CONTINUED)

(j) Use of Estimates

(k) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed

The Company reviews long-lived assets and certain identifiable intangible assets
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets
held and used is measured by a comparison of the carrying amount of the assets
to future undiscounted net cash flows expected to be generated by the assets. If
such assets are considered impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the assets exceeds the fair value.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.

(l) Value Appreciation Rights

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 value appreciation rights, as opposed to
the fair value accounting provided for under Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("FASB 123"). There
is no difference in the accounting for value appreciation rights under APB 25 or
FASB 123. The required accounting is to treat the future compensation (value
above awarded rights) as a liability. The liability is measured each period
based on the current valuation, as required under FASB Interpretation No. 28,
"Accounting for Stock Appreciation Rights and Other Variable Stock Option or
Award Plans."

(m) Reclassifications

Certain reclassifications have been made in the 1996 financial statements to
conform with the 1997 financial statement presentation.

(n) Time Brokerage Agreements

The Company operates certain stations pursuant to TBAs under which the Company
purchases from the broadcast station licensee substantially all of the broadcast
time on the station and provides programming to and sells advertising on the
station during the purchased time. The Company receives all the revenue derived
from the advertising sold during the purchased time, pays substantially all
operating expenses of the station and performs other functions. The broadcast
station licensee retains responsibility for ultimate control of the station in
accordance with FCC policies. Net revenues of $3,888,339 and $2,739,168 and
operating losses of $260,238 and $691,698 resulting from stations operated under
TBAs during 1997 and 1996, respectively, are included in the accompanying
consolidated financial statements.

2. FORMATION OF THE COMPANY

Effective January 1, 1996, Max Television Company ("Max TV"), Max Radio Inc.
("Max Radio") and MTR Holding Corp. ("MTR") each contributed substantially all
their assets to the Company and the Company assumed all their liabilities,
including, all liabilities under program license agreements, barter agreements,
operating leases and bank loans. In exchange, the Company issued 6,831,000 Class
B member units to Max TV, 3,069,000 Class A member units to Max Radio and
100,000 Class C member units to MTR.

F-22

MAX MEDIA PROPERTIES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996 - (CONTINUED)

The assets contributed and liabilities assumed are as follows:

MAX
MAX TV RADIO MTR TOTAL
--------------- --------------- ------------ --------------

Cash .................................... $ 263,351 $ 662,073 $ 695,550 $ 1,620,974
Accounts receivable ..................... 5,943,235 2,672,543 -- 8,615,778
Deferred charges ........................ 260,350 157,355 -- 417,705
Program contract rights ................. 5,759,823 -- -- 5,759,823
Property and equipment .................. 10,099,872 4,373,153 -- 14,473,025
Intangible assets ....................... 38,112,329 21,612,173 -- 59,724,502
Other assets ............................ 2,061,532 310,800 -- 2,372,332
------------ ------------ --------- ------------
Total assets contributed ............... 62,500,492 29,788,097 695,550 92,984,139
------------ ------------ --------- ------------
Long-term debt .......................... 36,062,933 7,683,480 -- 43,746,413
Program contract rights payable ......... 4,808,160 -- -- 4,808,160
Accounts payable ........................ 572,265 95,507 -- 667,772
Deferred revenue ........................ 436,746 192,939 -- 629,685
Other liabilities ....................... 1,409,023 469,741 -- 1,878,764
------------ ------------ --------- ------------
Total liabilities assumed .............. 43,289,127 8,441,667 -- 51,730,794
------------ ------------ --------- ------------
Net contribution ....................... $ 19,211,365 $ 21,346,430 $ 695,550 $ 41,253,345
============ ============ ========= ============

The Company and Max TV are under common control, therefore, in accordance with
Accounting Principles Board Opinion No. 16 and the Securities and Exchange
Commission's Staff Accounting Bulletin No. 97, the Company recorded the Max TV
contribution at book value. The Company accounted for the Max Radio and MTR
contributions as a purchase, therefore, their assets and liabilities were
recorded at fair market value as of the date of inception.

3. SALE OF THE COMPANY

On December 2, 1997, the Class A member and one of the Class C members entered
into agreements to sell all the issued and outstanding shares of each member to
one buyer. Simultaneously, the Class B member and one of the other Class C
members entered into agreements to sell their respective member units, equity
interests in other members and limited partnership interests to this buyer. The
Company is also a party to each of these purchase agreements. The aggregate
purchase price is $255,000,000 plus the assumption of certain liabilities
consisting primarily of program contract rights payable. A portion of this
purchase price will be used to repay all long-term debt and make certain
payments contingent on the closing of the transaction (note 14). Cash, accounts
receivable, notes receivable and certain other immaterial assets are excluded
from this transaction. The transaction is subject to certain regulatory
approvals and is expected to close in the second quarter of 1998.

4. ACQUISITIONS AND DISPOSITIONS

(a) Acquisitions

On January 3, 1997, the Company completed the acquisition of WMMP-TV,
Charleston, South Carolina for approximately $3.4 million plus the assumption of
approximately $612,000 of liabilities and paid $850,000 for a three-year
agreement not to compete. In May 1996, the Company entered into a TBA with the
seller to operate the station pending closing of the acquisition. On the
commencement date of the TBA, the Company assumed certain obligations of the
seller and the seller assigned all accounts receivable to the Company. During
1996, the Company made payments under the TBA to the seller of $200,000 which
were applied against the purchase price. In conjunction with this acquisition,
the TBA was terminated.

F-23

MAX MEDIA PROPERTIES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996 - (CONTINUED)

On January 31, 1997, the Company completed the acquisition of WFOG AM/FM and
WPTE-FM, Norfolk, Virginia for approximately $15.2 million. In July 1996, the
Company entered into a TBA with the seller to operate the stations pending
closing of the acquisition. During 1997 and 1996, the Company made payments
under the TBA to the seller of $75,000 and $375,000, respectively, which have
been included in operating expenses in the accompanying consolidated financial
statements. In conjunction with this acquisition, the TBA was terminated.

On March 14, 1997, the Company acquired the assets of KETK-TV, Tyler, Texas and
substantially all the assets of KLSB-TV, Nacogdoches, Texas (other than FCC
licenses and certain related assets) for approximately $16.9 million plus the
assumption of certain immaterial liabilities. Simultaneously, the Company
entered into a 10-year TBA to operate KLSB-TV.

On June 5, 1997, the Company commenced commercial broadcast operations of
WDKA-TV, Paducah, Kentucky. The Company invested approximately $2.0 million for
the construction of studio, transmission and office facilities. The Company had
previously entered into a 10-year TBA to build and operate this station.

On July 1, 1996, the Company acquired certain assets of WNYS-TV, Syracuse, New
York, for $3,650,000 and paid $100,000 for a one-year agreement not to compete.
Simultaneously, the Company entered into a 10-year TBA to operate the station.
Additionally, the Company invested approximately $1.6 million for the
construction of a new studio, transmission and office facilities.

On August 26, 1996, the Company acquired the assets of WQMG AM/FM, Greensboro,
North Carolina, for approximately $6,650,000 cash and entered into a three-year
agreement not to compete for $214,758.

Each of these acquisitions was accounted for by the Company as a purchase. The
results of operations of the acquired stations are included in the accompanying
consolidated financial statements at the earlier of the commencement of the TBA
or the date of acquisition.

The following is a summary of the assets acquired, liabilities assumed and
consideration given for the above-stated acquisitions:

1997 1996
--------------- ---------------

Accounts receivable ............................................ $ -- $ 250,444
Deferred charges, primarily barter agreements .................. 225,177 --
Program contract rights ........................................ 737,652 13,850
Property and equipment ......................................... 7,023,608 1,646,991
FCC licenses ................................................... 20,105,728 3,353,000
Goodwill ....................................................... 249,553 229,857
Other intangible assets ........................................ 9,119,698 5,197,801
------------ ------------
Total assets acquired ......................................... 37,461,416 10,691,943
------------ ------------
Less:
Seller financing ............................................... -- 214,758
Deferred revenue assumed, primarily barter agreements .......... 225,177 --
Program contract rights payable assumed ........................ 510,858 13,850
Other liabilities assumed ...................................... 32,714 385,346
------------ ------------
Cash paid for acquisitions ..................................... $ 36,692,667 $ 10,077,989
============ ============

The Company allocated the aggregate consideration to the tangible and intangible
assets based on their respective fair values. Goodwill was recorded as the
excess of the purchase price over the assets acquired.

F-24

MAX MEDIA PROPERTIES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996 - (CONTINUED)

The following unaudited pro forma summary combines the results of operations of
the Company and the acquired stations as if the acquisitions occurred at the
beginning of 1996, after giving effect to certain adjustments, including the
depreciation and amortization of assets based on their fair values and increased
interest expense resulting from the additional borrowings to finance the
acquisitions. The unaudited pro forma information does not purport to represent
what the results of operations of the Company would have been if such
acquisitions had in fact occurred on such date or to project the Company's
results of operations as of any future date or for any future period.

PRO FORMA
YEARS ENDED DECEMBER 31
-----------------------------------
1997 1996
--------------- -----------------
(UNAUDITED)

Net revenues ........................................ $ 58,274,280 $ 55,991,292
============ =============
Income (loss) from operations ....................... $ 2,290,632 $ (1,125,087)
============ =============
Income (loss) before pro forma income taxes ......... $ 4,945,258 $ (6,711,206)
============ =============

(b) Dispositions

On January 28, 1997, the Company sold the assets of KKLZ-FM, Las Vegas, Nevada
for approximately $12.5 million, net of commissions and other selling expenses,
including a two-year agreement not to compete, which resulted in a gain of
approximately $8.5 million. The Company agreed to indemnify and hold harmless
the purchaser from certain losses, liabilities, damages, costs and expenses. The
Company placed $500,000 in escrow for a period of one year to serve as security
for the performance of the Company's indemnification obligations. The escrow
fund is included in restricted cash in the accompanying consolidated financial
statements. The station had net revenues of $144,361 and operating losses of
$94,665 in 1997 and net revenues of $3,207,168 and operating income of $8,361 in
1996, which are included in the accompanying consolidated financial statements.

On August 12, 1997, the Company sold the assets of WFOG-AM, Norfolk, Virginia
for approximately $107,000, net of selling expenses.

These sales resulted in the disposition of FCC licenses and other intangible
assets, net of accumulated amortization, aggregating $3,451,837 as of the date
of the disposition.

5. BARTER AGREEMENTS

The Company's liability to broadcast commercial spots in fulfillment of barter
contracts is recorded as deferred revenue. Future amounts to be recognized on
receipt of assets, goods or services on barter agreements are recorded as
deferred charges.

Barter agreements (excluding barter program agreements of $3,070,304 and
$2,197,493 in 1997 and 1996, respectively) resulted in $2,291,420 and $1,647,754
in net barter revenue, $2,333,436 and $1,635,875 in operating expenses for
merchandise and services received and $193,409 and $23,000 in property and
equipment additions during 1997 and 1996, respectively.

F-25

MAX MEDIA PROPERTIES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996 - (CONTINUED)

6. ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE

Activity in the allowance for doubtful accounts receivable was as follows in
1997 and 1996:

1997 1996
------------ ------------

Balance, beginning of year .......... $ 518,512 $ 421,924
Amounts charged to expense .......... 526,487 323,257
Deductions .......................... 456,957 398,389
Acquisitions ........................ -- 171,720
--------- ---------
Balance, end of year ................ $ 588,042 $ 518,512
========= =========

7. PROPERTY AND EQUIPMENT

Property and equipment consist of the following at December 31, 1997 and 1996:

USEFUL
LIVES
(IN YEARS) 1997 1996
------------ --------------- ---------------

Land ................................................... $ 895,875 $ 614,807
Buildings and real estate improvements ................. 15-39 5,973,366 3,279,959
Broadcasting equipment, furniture and fixtures ......... 3-7 27,745,616 17,678,119
Vehicles ............................................... 3 921,109 563,066
Leasehold improvements ................................. 2-15 506,999 865,266
Construction in progress ............................... 26,595 1,577,495
------------ ------------
36,069,560 24,578,712
Less accumulated depreciation and amortization ......... 10,360,512 6,166,170
------------ ------------
$ 25,709,048 $ 18,412,542
============ ============

8. INTANGIBLE ASSETS

Intangible assets consist of the following at December 31, 1997 and 1996:

PERIOD OF
AMORTIZATION
(IN YEARS) 1997 1996
------------- --------------- ---------------

FCC licenses ............................................. 10-15 $ 47,910,031 $ 31,478,717
Advertiser base .......................................... 15 15,223,747 15,968,506
Network affiliation agreements ........................... 15 19,082,142 12,335,307
Time brokerage agreement ................................. 10 3,650,000 3,650,000
Loan costs ............................................... 8 3,385,234 3,374,776
Other intangibles including organizational costs ......... 1-15 7,398,324 4,619,611
------------ ------------
96,649,478 71,426,917
Less accumulated amortization ............................ 14,512,295 7,820,547
------------ ------------
$ 82,137,183 $ 63,606,370
============ ============

F-26

MAX MEDIA PROPERTIES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996 - (CONTINUED)

9. LONG-TERM DEBT

Long-term debt consists of the following at December 31, 1997 and 1996:

1997 1996
--------------- ---------------

Credit Facility:
Term A facility .................................. $ 32,610,000 $ 36,000,000
Term B facility .................................. 10,640,000 --
Reducing revolving credit facility ............... 28,700,000 22,000,000
Other ............................................. 1,729,294 1,236,850
------------ ------------
Total long-term debt ............................. 73,679,294 59,236,850
Less current portion .............................. 4,751,520 3,064,076
------------ ------------
Long term debt, excluding current portion ......... $ 68,927,774 $ 56,172,774
============ ============

In January 1996, the Company entered into a $50 million Credit Facility (the
"Credit Facility") by amending and restating the Max TV credit facility to
reflect the formation of the Company (note 2). The bank loan assumed from Max
Radio was repaid in full with proceeds of borrowings under the Credit Facility.
In August 1996, the Credit Facility was amended, among other things, to increase
total availability to $100 million.

In February 1997, the Credit Facility was further amended, among other things,
to create an $11.2 million term facility, reduce the availability under the
reducing revolving credit facility by $11.2 million and allow the Company to
make a distribution to Max TV in conjunction with the cancellation of Class B
membership units (note 10). As amended, the Credit Facility consists of a $36
million term facility, an $11.2 million term facility, a $47.8 million reducing
revolving credit facility and a $5 million non-reducing revolving credit
facility. Amounts outstanding under the $11.2 million term facility are
guaranteed by the Class B member.

The Credit Facility is secured by all of the member units and assets of the
Company. Outstanding principal under the Credit Facility bears interest at a
floating rate based in part on the Company achieving certain operating cash flow
ratios. The weighted average interest rate on the Credit Facility was 8.16% and
7.95% in 1997 and 1996, respectively. The Company is obligated to pay a
quarterly commitment fee on the average daily unused portion of the reducing and
non-reducing revolving credit facilities at an annual rate of 0.375% to 0.50%
depending on certain operating cash flow ratios and an annual agency fee of
$30,000.

Amounts outstanding under the term loans must be repaid over an eight-year
period in quarterly installments beginning in 1997 with final payment required
no later than June 30, 2004. The maximum commitment under the reducing revolving
credit facility reduces by 7.5% in 1998, 10% in 1999, 12.5% in 2000, 15% in
2001, 17.5% in 2002 and 32.5% thereafter with maturity on June 30, 2004. The
non-reducing revolving credit facility must be paid in full by June 30, 2004.
Generally, the Company is required to make principal prepayments with the net
cash proceeds from asset sales and the issuance of additional equity and debt.
The Company must also make annual prepayments of 50% of excess cash flow, as
defined in the Credit Facility, after the Company achieves certain operating
cash flow ratios.

The Credit Facility contains substantial restrictive covenants, including
restrictions on the Company's ability to incur additional debt, acquire
interests in other business entities, sell, mortgage, pledge or otherwise
encumber any of its assets, make capital expenditures or make distributions to
the members (other than distributions used to pay taxes attributable to the
operations of the Company (note 1(i))), without the prior written consent of the
lenders. In addition, the Company is required, among other things, to maintain
certain operating ratios.

F-27

MAX MEDIA PROPERTIES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996 - (CONTINUED)

To reduce the impact of changes in interest rates, the Company is required to
maintain interest rate protection on a minimum of 50% of the aggregate amount
outstanding under the Credit Facility. At December 31, 1997, the Company has two
outstanding interest rate cap agreements which expire on September 30, 1999 and
October 1, 1999 and which limit the rate of interest to 8.50% and 7.50%,
respectively. The principal amounts related to these agreements aggregate
$41,150,000 at December 31, 1997. Any net gain or loss from interest rate
protection agreements is included in interest expense in the period incurred.
The counterparties to these interest rate cap agreements are major financial
institutions with which the Company also has other financial relationships. The
Company is exposed to credit loss in the event of nonperformance by these
counterparties. The Company, however, does not anticipate nonperformance by the
other parties, and in the event of such nonperformance no material loss is
expected.

Estimated aggregate maturities of the Credit Facility and other long-term debt
after December 31, 1997 are as follows:

CREDIT OTHER
FACILITY DEBT TOTAL
-------------- -------------- --------------

1998 ........................ $ 4,440,000 $ 311,520 $ 4,751,520
1999 ........................ 5,440,000 337,210 5,777,210
2000 ........................ 6,800,000 280,681 7,080,681
2001 ........................ 11,880,000 737,468 12,617,468
2002 ........................ 16,085,000 30,007 16,115,007
2003 and thereafter ......... 27,305,000 32,408 27,337,408
------------ ----------- ------------
$ 71,950,000 $ 1,729,294 $ 73,679,294
============ =========== ============

10. MEMBERS' CAPITAL

The Company was organized under the Virginia Limited Liability Company Act (note
2) and the members are generally not liable for any debts or other obligations
of the Company. Under the terms of its January 1, 1996 Operating Agreement, the
Company will cease to exist on December 31, 2045 unless earlier terminated. The
Company has three classes of member units. With the exception of the right to
elect the Company's Board of Managers, all units are identical. Holders of a
majority of the Class A and Class B member units each have the right to elect
four of the eight members of the Company's Board of Managers. Holders of Class C
member units are not entitled to vote for members of the Board. Net profits and
losses are allocated in proportion to the members' respective percentage
interests.

On February 14, 1997, the Operating Agreement was amended to admit additional
members. The Company issued 3,321,931 Class C member units to the new members
for net proceeds of approximately $21.2 million. On March 13, 1997, the Company
paid $11.2 million and incurred transactions costs of approximately $455,000 and
other long-term obligations of approximately $818,000 in connection with the
cancellation of 1,690,500 Class B member units.

11. EMPLOYEE BENEFIT PLANS

(a) Benefit Plans

The Company has retirement savings and cafeteria plans pursuant to Sections
401(k) and 125 of the Internal Revenue Code, respectively, which cover
substantially all of the Company's employees. The Company's discretionary
contribution to the 401(k) plan is determined annually by the Company's Board of
Managers. The Company did not contribute to the 401(k) plan for the years ended
December

F-28

MAX MEDIA PROPERTIES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996 - (CONTINUED)

31, 1997 and 1996. Under the cafeteria plan, employees may elect to participate
in health, dental, life, medical expense reimbursement and dependent care
reimbursement benefit plans funded through employee payroll deductions.

(b) Value Appreciation Rights Plan

In 1996, the Company established a Value Appreciation Rights Plan (the "VAR
Plan") to encourage the retention of key employees and the achievement of
improved financial results. The award of value appreciation rights is at the
discretion of the Company's Board of Managers. The VAR Plan provides for cash
payments equal to appreciation in the value of the rights on retirement, death
or disability of the VAR Plan participant or a change in ownership of the
Company. At December 31, 1997 and 1996, 500,000 rights were authorized, and
500,000 and 155,000 rights were awarded as of December 31, 1997 and 1996,
respectively. The Company incurred approximately $940,000 and $40,000 of expense
with respect to the VAR Plan in 1997 and 1996, respectively. The amounts are
included in accrued compensation and benefits in the accompanying balance
sheets.

12. INCOME TAXES

The unaudited pro forma income tax expense (benefit) presented on the
consolidated statements of operations represents the estimated taxes that would
have been recorded had the Company been a C corporation for income tax purposes
for each of the years presented. The pro forma income tax expense (benefit) is
as follows:

PRO FORMA (UNAUDITED)
----------------------------------
1997 1996
-------------- -----------------

Federal ................. $ 1,359,719 $ (1,234,407)
State ................... 199,959 (181,531)
----------- -------------
Total pro forma ......... $ 1,559,678 $ (1,415,938)
=========== =============

A reconciliation of the statutory federal income tax rate and the pro forma
effective rate is as follows:

1997 1996
------ -------

Statutory tax rate ............................. 34% 34%
Effect of state income taxes, net of federal tax
benefit ....................................... 5% 5%
-- --
Pro forma effective tax rate ................... 39% 39%
== ==

13. RELATED PARTY TRANSACTIONS

At December 31, 1997 and 1996, the Company has a receivable of approximately
$1,339,000 from an entity owned by certain shareholders of a member of the
Company. The receivable is secured by all of the assets of the related entity,
which consists primarily of an aircraft, bears interest at a floating rate equal
to the rate under the Credit Facility (note 9) and is payable on demand, subject
to certain limitations. No principal payments were made in 1997 or 1996. Accrued
interest and other amounts owed to the Company from the related entity totaled
approximately $462,000 and $193,000 at December 31, 1997 and 1996, respectively.
During 1997 and 1996, the Company paid approximately $253,000 and $95,000,
respectively, to the entity for use of the aircraft.

The Company leases office space from an entity owned by certain shareholders of
a member of the Company. The lease has a 10-year term ending November 30, 2005
with three five-year renewal options. During 1997 and 1996, the Company paid
approximately $77,000 and $68,000, respectively, under the lease.

F-29

MAX MEDIA PROPERTIES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996 - (CONTINUED)

At December 31, 1997, the Company has employment agreements with two of its
senior officers. These employment agreements require total annual payments of
$396,000 through December 31, 1998.

The Company paid management fees of $300,000 in 1997 and 1996 to entities
affiliated with entities which hold approximately 80% of the ownership interests
of the Class A member and 100% of the ownership of one of the Class C members.

14. COMMITMENTS AND CONTINGENCIES

(a) Program Contract Rights

At December 31, 1997, the Company's liability for available program contract
rights totals approximately $4.2 million. Additionally, the Company has
commitments to pay approximately $5.0 million under program contract rights not
yet available and approximately $1.0 million for sports broadcasting and news
co-production agreements.

Future minimum payments by year for program contract rights payable, commitments
for future program contract rights and other agreements are as follows:

COMMITMENTS FOR
PROGRAM CONTRACT FUTURE PROGRAM OTHER
RIGHTS PAYABLE CONTRACT RIGHTS AGREEMENTS
------------------ ----------------- --------------

1998 ............... $ 2,430,572 $ 364,360 $ 364,800
1999 ............... 1,224,933 1,069,586 229,150
2000 ............... 411,648 1,221,594 229,150
2001 ............... 99,521 994,653 200,750
2002 ............... -- 648,825 --
Thereafter ......... -- 725,408 --
----------- ----------- -----------
$ 4,166,674 $ 5,024,426 $ 1,023,850
=========== =========== ===========

(b) Leases

The Company incurred total rental expense of $982,058 and $844,900 for the years
ended December 31, 1997 and 1996, respectively, under operating leases for
office space, land, vehicles and equipment (note 13). Future minimum annual
payments under non-cancelable operating leases are as follows:

1998 ....................... $ 1,079,709
1999 ....................... 980,341
2000 ....................... 877,395
2001 ....................... 852,697
2002 ....................... 789,516
Thereafter ................. 2,245,771
-----------
$ 6,825,429
===========

F-30

MAX MEDIA PROPERTIES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996 - (CONTINUED)

At December 31, 1997, future minimum payments under the Company's three TBAs,
which expire between June 30, 2005 and March 13, 2007, are as follows:

1998 ....................... $ 301,750
1999 ....................... 301,750
2000 ....................... 1,122,192
2001 ....................... 679,375
2002 ....................... 95,000
Thereafter ................. 342,000
-----------
$ 2,842,067
===========

The Company is required to satisfy $880,000 of the minimum payments due in 2000
and $550,000 of the minimum payments due in 2001 as a condition to closing the
transactions described in note 3.

In July 1997, the Company paid $25,000 for an option to purchase certain assets
and the FCC licenses of WWBI-LPTV, Burlington, Vermont for $2 million. The
option expires December 31, 1998, however, the Company may extend the option to
June 30, 1999 for a one-time payment of $25,000. The sellers have issued to the
Company non-interest bearing promissory notes in the aggregate amount of
$359,000 that will be applied to the purchase price if the option is exercised.

In connection with the closing of the transactions discussed in note 3, the
Company is committed to pay an aggregate of approximately $10 million under the
VAR Plan, other incentive plans and for transaction costs.

(d) Year 2000 Conversion (unaudited)

The Company is currently evaluating its information systems to determine the
scope of its year 2000 issues and has not fully developed a year 2000
transformation plan or determined the costs associated with implementing such a
plan. Failure to achieve year 2000 compliance by the Company could adversely
impact the Company's ability to conduct business for an extended period of time.

15. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following summarizes the estimated fair value of the Company's financial
instruments at December 31, 1997:

(a) Long-term Debt

The carrying amount of long-term debt approximates fair value. Fair value is
estimated by discounting the future cash flows under the debt at rates currently
offered to the Company.

(b) Program Contract Rights Payable

The amount reflected in program contract rights payable at December 31, 1997
represents future payments to be made under program license agreements. The fair
value of program contract rights payable is the present value of these future
payments. At December 31, 1997, the present value of these future payments is
approximately $3.7 million.

The carrying value of cash, accounts receivable, other receivables, accounts
payable and accrued expenses approximate fair value because of the short
maturity of these instruments. The fair value of the interest rate cap
agreements (note 9) is insignificant.

F-31

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders
of Sullivan Broadcast Holdings, Inc.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of cash flows, and of changes in
shareholders' equity present fairly, in all material respects, the financial
position of Sullivan Broadcast Holdings, Inc. and its subsidiaries (the
"Company") at December 31, 1996 and 1997, and the results of their operations
and their cash flows for the period from inception (June 2, 1995) through
December 31, 1995 and each of the two years in the period ended December 31,
1997, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

/s/Price Waterhouse LLP
Boston, Massachusetts

March 10, 1998

F-32

SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET

(DOLLARS IN THOUSANDS)

DECEMBER 31,
-------------------------
1996 1997
----------- -----------

ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................................... $ 6,469 $ 3,840
Accounts receivable, net of allowance for doubtful accounts of $1,297 and
$1,325...................................................................... 31,686 34,990
Current portion of programming rights ........................................ 23,360 22,850
Current deferred tax asset ................................................... 4,535 4,310
Prepaid expenses and other current assets .................................... 733 941
--------- ---------
Total current assets ....................................................... 66,783 66,931
Property and equipment, net .................................................. 44,454 39,723
Programming rights, net of current portion ................................... 21,319 23,432
Deferred financing costs, net of accumulated amortization of $1,238 and
$2,120...................................................................... 14,016 13,134
Intangible assets, net ....................................................... 590,972 567,096
--------- ---------
Total assets ............................................................... $ 737,544 $ 710,316
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of senior debt ............................................... $ 18,583 $ 23,562
Interest payable ............................................................. 4,362 3,882
Accounts payable ............................................................. 1,925 2,262
Current portion of programming contracts payable ............................. 24,281 24,944
Income taxes payable ......................................................... 2,865 195
Accrued expenses ............................................................. 3,771 4,367
--------- ---------
Total current liabilities .................................................. 55,787 59,212
Senior debt, net of current portion ........................................... 195,917 171,820
Borrowings under revolving lines of credit .................................... 56,500 59,500
Subordinated debt ............................................................. 155,326 155,508
Interest payable .............................................................. 4,942 10,394
Programming contracts payable, net of current portion ......................... 20,392 22,710
Deferred tax liability and other non-current liabilities ...................... 84,124 82,132
--------- ---------
Total liabilities .......................................................... 572,988 561,276
--------- ---------
15% Mandatorily redeemable cumulative preferred stock, non-voting $.001 par
value; authorized 1,500,000 shares; 1,150,000 shares issued and outstanding .. 111,483 133,185
--------- ---------
Commitments and contingencies (Note 11) ....................................... -- --
SHAREHOLDERS' EQUITY:
Class B-1 common stock, $.001 par value; 5,000,000 shares authorized;
1,204,077 and 1,201,577 shares issued and outstanding at December 31,
1996 and 1997, respectively ................................................ 1 1
Class B-2 common stock; $.001 par value; 7,000,000 shares authorized;
6,158,211 shares issued and outstanding at December 31, 1996 and 1997 ...... 6 6
Class C common stock; $.001 par value; 2,000,000 shares authorized; 896,229
and 853,854 shares issued and outstanding at December 31, 1996 and 1997,
respectively ............................................................... 1 1
Additional paid-in capital ................................................... 76,861 55,117
Accumulated deficit .......................................................... (23,796) (39,270)
--------- ---------
Total shareholders' equity ................................................. 53,073 15,855
--------- ---------
Total liabilities and shareholders' equity ................................. $ 737,544 $ 710,316
========= =========

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

F-33

SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
STATEMENT OF OPERATIONS

(DOLLARS IN THOUSANDS)

PERIOD FROM
INCEPTION
(JUNE 2, 1995) YEAR ENDED
THROUGH DECEMBER 31,
DECEMBER 31, ----------------------------
1995 1996 1997
--------------- ------------- ------------

Revenues (excluding barter) ......................... $ -- $ 129,711 $ 144,169
Less: commissions .................................. -- 21,997 24,045
--------- --------- ---------
Net revenues (excluding barter) ..................... -- 107,714 120,124
Trade and barter revenues ........................... -- 14,808 17,650
--------- --------- ---------
Total net revenues ............................... -- 122,522 137,774
--------- --------- ---------
Expenses:
Operating expenses ................................. 1,601 15,005 17,301
Selling, general and administrative ................ -- 23,921 28,319
Amortization of programming rights ................. -- 26,673 30,197
Depreciation and amortization ...................... -- 48,051 42,220
--------- --------- ---------
1,601 113,650 118,037
--------- --------- ---------
Operating (loss) income ......................... (1,601) 8,872 19,737
Interest expense, net, including amortization of debt
discount and deferred loan costs ................... 258 41,187 40,711
Other expenses (income) ............................. -- 131 (12)
--------- --------- ---------
Loss before income taxes ............................ (1,859) (32,446) (20,962)
Income tax benefit .................................. 335 10,174 5,488
--------- --------- ---------
Net loss ........................................... $ (1,524) $ (22,272) $ (15,474)
--------- --------- ---------

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

F-34

SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

PERIOD FROM
INCEPTION
(JUNE 2, 1995) YEAR ENDED
THROUGH DECEMBER 31,
DECEMBER 31, -----------------------------
1995 1996 1997
--------------- ------------- -------------

Cash flows from operating activities:
Net loss ............................................................. $ (1,524) $ (22,272) $ (15,474)
Adjustments to reconcile net loss to net cash (used for) provided
by operating activities:
Deferred income taxes .............................................. (349) (11,767) (8,332)
Depreciation of property and equipment ............................. -- 7,865 9,251
Amortization of intangible assets .................................. -- 40,186 32,969
Amortization of programming rights (excluding barter) .............. -- 12,911 13,198
Payments for programming rights .................................... -- (9,087) (11,820)
Amortization of deferred financing costs and debt discount ......... 38 2,765 1,064
Changes in assets and liabilities:
Increase in accounts receivable .................................... -- (2,707) (3,048)
Increase in prepaid expenses and other assets ...................... -- (477) (131)
Increase (decrease) in amounts due to related party ................ 1,547 (2,717) --
Increase (decrease) in income taxes payable ........................ 14 (179) (1,328)
Increase in interest payable ....................................... 485 8,819 4,972
Increase in deferred debt issuance costs ........................... (6,647) -- --
Increase in accounts payable ....................................... -- 383 337
Increase (decrease) in accrued expenses ............................ 5,163 (7,060) (201)
Decrease in non-current liabilities ................................ -- -- (96)
---------- ---------- ---------
Net cash (used for) provided by operating activities .............. (1,273) 16,663 21,361
---------- ---------- ---------
Cash flows from investing activities:
(Increase) decrease in restricted cash ............................. (162,599) 162,599 --
Acquisition of Act III Broadcasting, Inc., net of cash acquired -- (550,045) 751
Acquisition of WFXV and WPNY (Note 3) .............................. -- (792) --
Acquisition of WMSN (Note 3) ....................................... -- (26,584) --
Purchase of CTBC stock (Note 3) .................................... -- (26,950) --
Payments for purchase options ...................................... -- (2,800) --
Acquisition of Cascom stock (Note 3) ............................... -- -- (4,142)
Capital expenditures ............................................... -- (3,105) (4,439)
---------- ---------- ---------
Net cash used for investing activities ............................ (162,599) (447,677) (7,830)
---------- ---------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock ............................. 6,972 61,692 10
Proceeds from issuance of subordinated debt ........................ 125,000 -- --
Proceeds from issuance of long-term debt ........................... -- 220,000 --
Proceeds from borrowings under credit facilities ................... -- 56,500 3,000
Proceeds from bridge loan .......................................... 1,300 -- --
Proceeds from issuance of preferred stock .......................... -- 115,000 --
Proceeds from issuance of senior accrual debentures ................ 35,000 -- --
Repayment of long-term debt ........................................ -- (5,500) (19,118)
Repurchase of common stock ......................................... -- (129) (52)
Debt and preferred stock issuance costs ............................ (4,400) (5,684) --
Advance buydown of programming rights .............................. -- (4,396) --
---------- ---------- ---------
Net cash provided by (used for) financing activities .............. 163,872 437,483 (16,160)
---------- ---------- ---------
Net increase (decrease) in cash and cash equivalents .............. -- 6,469 (2,629)
Cash and cash equivalents, beginning of period .................... -- -- 6,469
---------- ---------- ---------
Cash and cash equivalents, end of period .......................... $ -- $ 6,469 $ 3,840
========== ========== =========

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

F-35

SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

(DOLLARS IN THOUSANDS)

CLASS B-1 CLASS B-2
---------------------- ---------------------
COMMON STOCK COMMON STOCK
---------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
------------- -------- ------------ --------

Issuance of Class B-1 common stock ............. 560,000 $ 1 -- $--
Issuance of Class B-2 common stock- ............ -- -- 697,243 1
Net loss ....................................... -- -- -- --
------- --- ------- ---
Balance at December 31, 1995 ................... 560,000 1 697,243 1
Issuance of Class B-1 common stock ............. 651,577 -- -- --
Repurchase of Class B-1 common stock ........... (7,500) -- -- --
Issuance of Class B-2 common stock ............. -- -- 5,460,968 5
Issuance of Class C common stock ............... -- -- -- --
Repurchase of Class C common stock ............. -- -- -- --
Issuance of common stock purchase warrants ..... -- -- -- --
Accretion of preferred stock ................... -- -- -- --
Net loss ....................................... -- -- -- --
------- --- --------- ---
Balance at December 31, 1996 ................... 1,204,077 1 6,158,211 6
Repurchase of Class B-1 common stock ........... (2,500) -- -- --
Issuance of Class C common stock ............... -- -- -- --
Repurchase of Class C common stock ............. -- -- -- --
Accretion of preferred stock ................... -- -- -- --
Net loss ....................................... -- -- --
--- --------- ---
Balance at December 31, 1997 ................... 1,201,577 $ 1 6,158,211 $ 6
========= === ========= ===

CLASS C
---------------------
COMMON STOCK ADDITIONAL TOTAL
--------------------- PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
------------ -------- ------------ ------------- --------------

Issuance of Class B-1 common stock ............. -- $-- $ 5,599 $ -- $ 5,600
Issuance of Class B-2 common stock- ............ -- -- 6,971 -- 6,972
Net loss ....................................... -- -- -- (1,524) (1,524)
-- --- ---------- --------- ----------
Balance at December 31, 1995 ................... -- -- 12,570 (1,524) 11,048
Issuance of Class B-1 common stock ............. -- -- 6,515 -- 6,515
Repurchase of Class B-1 common stock ........... -- -- (75) -- (75)
Issuance of Class B-2 common stock ............. -- -- 54,605 -- 54,610
Issuance of Class C common stock ............... 990,979 1 566 -- 567
Repurchase of Class C common stock ............. (94,750) -- (54) -- (54)
Issuance of common stock purchase warrants ..... -- -- 24,063 -- 24,063
Accretion of preferred stock ................... -- -- (21,329) -- (21,329)
Net loss ....................................... -- -- -- (22,272) (22,272)
------- --- ---------- --------- ----------
Balance at December 31, 1996 ................... 896,229 1 76,861 (23,796) 53,073
Repurchase of Class B-1 common stock ........... -- -- (25) -- (25)
Issuance of Class C common stock ............... 5,000 -- 10 -- 10
Repurchase of Class C common stock ............. (47,375) -- (27) -- (27)
Accretion of preferred stock ................... -- -- (21,702) -- (21,702)
Net loss ....................................... -- -- -- (15,474) (15,474)
------- --- ---------- --------- ----------
Balance at December 31, 1997 ................... 853,854 $ 1 $ 55,117 $ (39,270) $ 15,855
======= === ========== ========= ==========

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

F-36

SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BUSINESS OPERATIONS

A-3 Holdings Inc. ("Holdings" or the "Company") was incorporated on June 2, 1995
in the State of Delaware for the sole purpose of acquiring 100% of the
outstanding capital stock of Act III Broadcasting, Inc. ("Act III"), through its
wholly owned subsidiary A-3 Acquisition, Inc. ("A-3"), under a purchase
agreement dated June 19, 1995. The purchase of Act III was consummated on
January 4, 1996 (the "Act III Acquisition"), at which time A-3 merged with and
into Act III and changed its name to Sullivan Broadcasting Company, Inc. ("SBC")
(Note 3).

The Company currently owns, operates and programs, through its subsidiaries,
nine Fox Broadcasting Company ("Fox") affiliated television stations, one
television station affiliated with the American Broadcasting Companies, Inc.
("ABC"), and one independent television station throughout the Northeast,
Southeast, and the Mid-Atlantic states. The Company programs two independent
television stations under local marketing agreements ("LMA") in markets where
the Company owns another television station (Note 4). Television broadcasting is
subject to the jurisdiction of the Federal Communications Commission ("FCC")
under the Communications Act of 1934, as amended (the "Communications Act"). The
Communications Act prohibits the operation of television broadcasting stations
except under a license issued by the FCC and empowers the FCC, among other
things, to issue, revoke, and modify broadcasting licenses, determine the
location of the stations, regulate the equipment used by the stations, adopt
regulations to carry out the provision of the Communications Act, and impose
penalties for violation of such regulations.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidations

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

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original
maturity of ninety days or less to be cash equivalents.

Revenue Recognition

Advertising revenues are recognized in the period during which the advertising
spots are aired. Revenues from other sources are recognized in the period when
the services are provided.

Trade and Barter Transactions

The Company trades certain advertising time for various goods and services.
These transactions are recorded at the estimated fair value of the goods or
services received. Revenues from trade transactions are recognized when
advertisements are broadcast and services or merchandise received are charged to
expense when received or used.

The Company barters advertising time for certain program material. These
transactions are recorded at management's estimate of the value of the
advertising time exchanged, which approximates the fair value of the program
material received.

Concentration of Credit Risk

Financial instruments which potentially expose the Company to a concentration of
credit risk include cash, cash equivalents and accounts receivable. The Company
maintains cash in excess of federally insured deposits at several financial
institutions at December 31, 1997. The Company does not believe

F-37

SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)

that such deposits are subject to any unusual credit risk beyond the normal
credit risk associated with operating its business. The Company maintains
reserves for potential credit losses and such losses, in the aggregate, have not
historically exceeded management's expectations.

Programming Rights and Contracts Payable

Programming rights, primarily in the form of syndicated programs and feature
film packages, represent amounts paid or payable to program suppliers for the
limited right to broadcast the suppliers' programming and are recorded when
available for use. Programming rights are stated at the lower of unamortized
cost or net realizable value. Amortization is computed using the straight-line
method based on the license period or based on usage, whichever yields the
greater accumulated amortization for each program. The current portion of
programming rights represents those rights available for broadcast which will be
amortized in the succeeding year.

The Company has estimated the fair value of these programming contracts payable
at approximately $49,480,000 as of December 31, 1997 based on future cash flows
discounted at the Company's current borrowing rate.

Property and Equipment

Property and equipment is stated on the basis of cost or estimated fair value at
the date of acquisition. Major renewals and betterments are capitalized and
ordinary repairs and maintenance are charged to expense in the period incurred.
Depreciation is computed on the straight-line basis over the estimated useful
lives of the assets which range from three to thirty-nine years.

Intangible Assets

Intangible assets represent the estimated fair value of both identifiable
intangible assets and goodwill resulting from acquisitions. Identifiable
intangibles include FCC broadcast licenses, network affiliation agreements,
non-competition agreements, and favorable leases and are being amortized on a
straight-line basis over periods ranging from 5 to 15 years. Goodwill is the
excess of the purchase price over the fair value of the net assets acquired,
determined through an independent appraisal, and is amortized over 40 years
using the straight-line method. The Company evaluates the recoverability of its
intangible assets whenever adverse events or changes in business climate
indicate that the expected undiscounted future cash flows from the related
intangible assets may be less than previously anticipated. If the net book value
of the related intangible asset exceeds the undiscounted future cash flows of
the intangible asset, the carrying value would be reduced to the present value
of its expected future cash flows and an impairment loss would be recognized.
The Company did not recognize any impairment loss during the years ended
December 31, 1996 and 1997.

Deferred Financing Costs

Deferred financing costs represent costs incurred in obtaining long-term
financing. These costs are expensed as interest over the lives of the related
loans, using the effective interest method.

Accounting for Income Taxes

The Company accounts for income taxes under the liability method of accounting
as set forth in Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes". Under the method prescribed by this statement, deferred
income taxes are recognized at enacted tax rates to reflect the future effects
of income tax carryforwards and temporary differences arising between the tax
basis of assets and liabilities and their financial reporting amounts at each
period end.

F-38

SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)

Interest Rate Risk Management

The Company enters into interest rate swap agreements with commercial banks to
mitigate the risk of possible rising interest rates. These agreements are
designated as hedges of interest rates, and the differential to be paid or
received on interest rate swaps is accrued as an adjustment to interest expense
as interest rates change. The Company is exposed to credit loss in the event of
nonperformance by the other parties to the interest rate swap agreements;
however, the Company does not anticipate nonperformance by the counterparties.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and use assumptions
that affect the reported amounts of assets and liabilities and the disclosure
for contingent assets and liabilities at the date of the financial statements as
well as the reported amounts of revenues and expenses during the reporting
period. Actual results may vary from estimates used.

3. ACQUISITIONS

In 1996 and 1997, the Company made the acquisitions set forth below, each of
which has been accounted for as a purchase. The consolidated financial
statements include the operating results of each business from the date of
acquisition, except for the Act III Acquisition which includes the operating
results of Act III from January 1, 1996 through January 4, 1996 due to the
immateriality of the results in relation to the financial statements taken as a
whole. Pro forma results of operations of the other acquisitions made in 1996
and 1997 are not considered material.

The Act III Acquisition

On January 4, 1996, the Company acquired all of the outstanding stock of Act
III. The acquisition cost consisted of the following:

Cash paid to Act III shareholders ......... $ 359,108,000
Cash paid to retire debt .................. 167,764,000
Acquisition costs ......................... 23,173,000
-------------
$ 550,045,000
=============

The excess of the purchase price over the fair value of the net assets acquired
was $208,861,000. In 1997, the Company received $751,000 from the sellers due to
the settlement of certain items for which funds were being held in escrow. This
amount, net of expenses, was recorded as a reduction of goodwill during the year
ended December 31, 1997.

The Utica Acquisition

On February 7, 1996, the Company executed an asset purchase agreement to acquire
certain assets of Mohawk Valley Broadcasting, Inc. ("Mohawk") and Acme T.V.
Corporation ("Acme"), the owners and operators of WFXV and WPNY in Utica, New
York, for a total purchase price of $400,000. In addition, the Company paid
$2,600,000 for the option to purchase the remaining assets of Mohawk and Acme
pending FCC approval for $250,000 and simultaneously entered into a LMA with
Mohawk and Acme (Note 4). One June 24, 1996, the FCC granted approval for the
Company to purchase the remaining assets at which time the LMA with Mohawk and
Acme was terminated and the remaining assets were purchased. The Company
allocated the total cost of $3,250,000 plus fees and expenses of $142,000 to the
net assets acquired. The excess of the purchase price over the fair value of the
net assets acquired was $1,322,000.

F-39

SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)

The Madison Acquisition

On July 1, 1996, the Company acquired substantially all of the assets of Channel
47 Limited Partnership, owner and operator of a television station in Madison,
Wisconsin (WMSN) for a total purchase price of $26,500,000 plus fees and
expenses of $84,000. The excess of the purchase price over the fair value of the
net assets acquired was $4,155,000.

The Nashville Acquisition

On February 22, 1996, the Company entered into a LMA with Central Tennessee
Broadcasting Corporation ("CTBC"), owner and operator of WXMT, an independent
television station in Nashville, Tennessee. Additionally, the Company paid
$200,000 for the option to acquire the stock of CTBC based upon certain events
defined in the underlying agreement for $13,710,000 in cash plus the repayment
of $13,030,000 of CTBC's debt. On July 12, 1996, the Company exercised the
option and purchased the stock of CTBC. The cost plus fees of $210,000 were
allocated to the net assets acquired. The excess of the purchase price over the
fair value of the net assets acquired was $17,505,000.

The Cascom Acquisition

On January 2, 1997, the Company acquired substantially all of the assets of
Cascom International, Inc. and related film libraries for $4,038,000 plus fees
and expenses of $104,000. The excess of the purchase price over the fair value
of the net assets acquired was $1,877,000.

4. LOCAL MARKETING AGREEMENTS

As part of the Act III Acquisition, the Company was assigned Act III's right,
title and interest in a LMA with Guilford Telecasters, Inc. ("Guilford"), owner
of WUPN (formerly WGGT), an independent television station in Greensboro, North
Carolina (the "WUPN LMA"). Under the WUPN LMA, the Company sells and collects
the advertising revenues of WUPN, programs WUPN, and reimburses Guilford for
operating expenses. In connection with the Act III Acquisition, the Company also
acquired Act III's right, title and interest in a prepayment made under the WUPN
LMA, which released the Company from the quarterly payments based on the cash
flows of WUPN which were initially required under the WUPN LMA. In July 1996,
Guilford sold the assets of WUPN to Mission Broadcasting II, Inc. ("Mission II")
and assigned their right, title and interest in the WUPN LMA to Mission II under
substantially similar terms.

On July 12, 1996, the Company entered into an LMA with Mission Broadcasting I,
Inc. ("Mission I"), owner of WUXP (formerly WXMT), an independent station in
Nashville, Tennessee (the "WUXP LMA"). Under the terms of the WUXP LMA, the
Company sells and collects the advertising revenues of WUXP and reimburses
Mission I for operating expenses and debt service requirements.

Net revenues of $7,121,000 and $11,989,000, respectively, and expenses of
$2,818,000, and $3,397,000, respectively, related to the WUXP and WUPN LMAs have
been included in the Company's consolidated statement of operations for the
years ended December 31, 1996 and 1997. The Company has guaranteed an aggregate
amount of debt of $3,850,000 related to WUXP and WUPN as of December 31, 1997.

F-40

SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)

5. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

ESTIMATED DECEMBER 31,
USEFUL LIFE -------------------------------
(YEARS) 1996 1997
------------ -------------- --------------

Land .................................................... -- $ 1,385,000 $ 1,426,000
Buildings and improvements .............................. 15-39 6,262,000 6,556,000
Broadcasting equipment .................................. 3-5 39,978,000 43,845,000
Furniture and other equipment ........................... 5-7 3,070,000 3,724,000
Construction in progress ................................ -- 1,624,000 1,288,000
------------ ------------
52,319,000 56,839,000
Less: accumulated depreciation and amortization ......... 7,865,000 17,116,000
------------ ------------
$ 44,454,000 $ 39,723,000
============ ============

6. INTANGIBLE ASSETS

Intangible assets consists of the following:

AMORTIZATION DECEMBER 31,
PERIOD -----------------------------------
(YEARS) 1996 1997
------------- ---------------- ----------------

Commercial advertising contracts ......... 15 $ 148,986,000 $ 148,986,000
Goodwill ................................. 40 231,494,000 238,508,000
Affiliation agreements ................... 10 98,445,000 98,445,000
FCC licenses ............................. 15 81,297,000 81,297,000
Canadian cable rights .................... 10 59,000,000 59,000,000
Other intangible assets .................. 5- 15 11,936,000 14,015,000
------------- -------------
631,158,000 640,251,000
Less: accumulated amortization ........... 40,186,000 73,155,000
------------- -------------
$ 590,972,000 $ 567,096,000
============= =============

7. LONG-TERM DEBT

Long term debt consists of the following:

DECEMBER 31,
----------------------------------
1996 1997
--------------- ----------------

SENIOR DEBT:
Revolving credit facility ........... $ 30,000,000 $ 6,000,000
Acquisition credit facility ......... 26,500,000 53,500,000
Term loan ........................... 214,500,000 195,382,000
------------- -------------
271,000,000 254,882,000
Less: current portion ............... 18,583,000 23,562,000
------------- -------------
$ 252,417,000 $ 231,320,000
============= =============

F-41

SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)

DECEMBER 31,
-------------------------------------
1996 1997
----------------- -----------------

SUBORDINATED DEBT:
Senior accrual debentures, interest at 13.25% compounded
semi-annually payable on June 15, 2001 and payable semi-
annual thereafter, principal due December 15, 2005 ......... $ 35,000,000 $ 35,000,000
Less: unamortized discount ................................... (4,859,000) (4,677,000)
------------- -------------
30,141,000 30,323,000
Senior subordinated notes, interest at 10.25% payable semi-
annually, principal due December 15, 2005 .................. 125,000,000 125,000,000
Senior subordinated notes, interest at 9.625% payable semi-
annually, principal due December 31, 2003 .................. 185,000 185,000
------------- -------------
$ 155,326,000 $ 155,508,000
============= =============

On January 4, 1996, the Company entered into a Credit Agreement (the "Credit
Agreement") to provide a $220,000,000 term loan to finance the Act III
Acquisition. The Credit Agreement also provides for a revolving credit facility
and an acquisition credit facility allowing for borrowings of $30,000,000 and
$75,000,000, respectively, through 2003. During 1997, the Company rolled
$24,000,000 of borrowings under the revolving credit facility into the
acquisition credit facility per the lenders permission as the borrowings were
utilized to finance acquisitions. All borrowings under the Credit Agreement bear
interest at the lender's base rate plus a percentage determined based upon the
Company's most recent quarterly leverage ratio as defined in the Credit
Agreement (8.49% at December 31, 1997). The interest is payable quarterly or at
other increments if the Company has chosen a LIBOR interest rate for a period
greater than 90 days. These borrowings are secured by substantially all of the
Company's assets. The term loan is payable in varying quarterly installments
beginning in December 1996 through December 2003. The lender may require
prepayments based upon the meeting of certain cash flow criteria as defined in
the Credit Agreement.

The Credit Agreement requires the Company to enter into interest rate swap
agreements for notional amounts of at least 50% of its total outstanding
floating rate debt under the Credit Agreement. At December 31, 1997, the Company
had several interest rate swap agreements. These financial instruments, which
are not held for trading purposes, expire from 1998 to 2001. The swap agreements
set rates in the range of 5.14% to 5.61%. The notional amount related to these
agreements was $200,000,000 at December 31, 1997. The Company has no intentions
of terminating these instruments prior to their expiration dates unless it
repays a portion of its bank debt in advance of scheduled payments. The Company
estimates the fair value of these instruments at December 31, 1997 to be
$1,576,000.

On December 21, 1995, the Company issued and sold 35,000 units through a public
offering consisting in the aggregate of $35,000,000 in principal amount of
13.25% senior accrual debentures (the "Debentures") due in 2006 and 560,000
shares of Holdings Class B-1 common stock, the proceeds of which were used to
finance the acquisition of Act III. An estimated value of $5,600,000 was
assigned to the shares of Class B-1 common stock resulting in a discount of the
same amount on the Debentures. This discount is being amortized through charges
to interest expense over the life of the Debentures using the effective interest
method.

Interest on the Debentures for the period of issuance until June 15, 2001 will
accrue at the stated interest rate, compounded on a semi-annual basis, and will
be payable in cash on that date in an aggregate amount of $35,879,000.
Thereafter, interest on the Debentures will accrue at the stated rate and will
be payable semi-annually in arrears on June 15 and December 15 of each year,
commencing December 15, 2001. The Company is required to redeem $2,772,000 in
aggregated principal of the Debentures on June 15, 2001.

F-42

SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)

On December 21, 1995, the Company issued and sold $125,000,000 of 10.25% senior
subordinated notes (the "Notes") due on December 15, 2005 in a public offering,
the proceeds of which were used to finance the Act III Acquisition. The Notes
are unsecured and are subordinated to all existing and future debt of the
Company.

Interest on the Notes is payable semi-annually on June 15 and December 15 of
each year, commencing June 15, 1996. The Notes are subject to redemption on or
after December 15, 2000 at the option of the Company at redemption prices
specified in the debt agreement. In addition, on or prior to December 15, 1998,
the Company may redeem additional principal amounts of the Notes with the
proceeds from an initial public offering of equity at redemption prices
specified in the agreement, so long as 67% of the original principal of the
Notes is still outstanding.

Concurrent with the Act III Acquisition, the Company made a tender offer for
$100,000,000 9 5/8% senior subordinated notes (the "9 5/8 Notes") originally
issued by Act III. At December 31, 1997, $185,000 of the 9 5/8 Notes were still
outstanding.

The Credit Agreement, Debentures and Notes contain covenants which, among other
restrictions, require the Company to comply with certain financial ratios and
provisions and limit the Company's ability to incur additional indebtedness and
pay dividends. The Company was in compliance with all covenants as of December
31, 1997.

The Company has estimated the fair value of long-term debt at December 31, 1996
and 1997 to approximate the carrying value. The fair value was estimated by
discounting the future cash flows of loans with similar terms and remaining
maturities at the Company's current borrowing rate.

As of December 31, 1997, scheduled maturities, including debt discount, are
summarized as follows:

1998 ............... $ 23,562,000
1999 ............... 31,513,000
2000 ............... 42,017,000
2001 ............... 42,963,000
2002 ............... 42,963,000
Thereafter ......... 232,049,000
-------------
$ 415,067,000
=============

F-43

SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)

8. INCOME TAXES

The income tax benefit consists of the following:

PERIOD FROM
INCEPTION
(JUNE 2, 1995) YEAR ENDED
THROUGH DECEMBER 31,
DECEMBER 31, ------------------------------------
1995 1996 1997
--------------- ------------------ ---------------

Current tax expense:
Federal ........................ $ -- $ -- $ 166,000
State .......................... 14,000 1,593,000 2,678,000
----------- -------------- ------------
14,000 1,593,000 2,844,000

Deferred tax benefit:
Federal ........................ (324,000) (8,779,000) (5,884,000)
State .......................... (25,000) (2,988,000) (2,448,000)
----------- -------------- ------------
(349,000) (11,767,000) (8,332,000)
----------- -------------- ------------
Net income tax benefit ......... $ (335,000) $ (10,174,000) $ (5,488,000)
=========== ============== ============

Reconciling amounts, stated below as a percentage of pretax income, between the
statutory federal income tax rate and the Company's effective tax rate are as
follows:

PERIOD FROM
INCEPTION
(JUNE 2, 1995) YEAR ENDED
THROUGH DECEMBER 31,
DECEMBER 31, -----------------------
1995 1996 1997
--------------- ---------- ----------

U.S. federal statutory rate ........... 35.0% 35.0% 35.0%
State and local taxes, net ............ 1.2 4.3 (1.5)
Amortization of goodwill .............. -- (7.9) (9.5)
Other ................................. 0.6 -- --
Change in valuation allowance ......... (18.8) -- --
----- ---- ----
Effective tax rate .................... 18.0% 31.4% 24.0%
===== ==== ====

The components of the net deferred tax liability at December 31, 1996 and 1997
are as follows:

DECEMBER 31,
-------------------------------------
1996 1997
----------------- -----------------

Property and equipment .................................. $ (9,699,000) $ (7,624,000)
Programming rights ...................................... 770,000 239,000
Bad debts ............................................... 1,739,000 1,885,000
Intangible assets ....................................... (131,966,000) (119,912,000)
Accrued interest ........................................ 576,000 783,000
Net operating loss and charitable carryforwards ......... 61,357,000 46,073,000
Other assets ............................................ 2,649,000 2,879,000
Other ................................................... (4,882,000) (2,098,000)
-------------- --------------
Net deferred tax liability .............................. $ (79,456,000) $ (77,775,000)
-------------- --------------

F-44

SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)

At December 31, 1997, the Company had net operating loss and charitable
contribution carryforwards of approximately $109,857,000 and $10,000,000,
respectively, for federal income tax purposes, available to reduce future
taxable income. To the extent not used, federal net operating loss carryforwards
expire in varying amounts beginning in 2003. In addition, the Company had net
operating loss carryforwards of approximately $38,604,000 for state and local
income tax purposes in various jurisdictions.

A corporation that undergoes a "change of ownership" pursuant to Section 382 of
the Internal Revenue Code is subject to limitations on the amount of its net
operating loss carryforwards which may be used in the future. An ownership
change occurred on January 4, 1996. The annual limitation on the use of the net
operating loss is $10,050,000. The Company estimates the limitation on the net
operating loss will not have a material adverse impact on the Company's
consolidated financial position or results of operations. No assurance can be
given that an ownership change will not occur as a result of other transactions
entered into by the Company, or by certain other parties over which the Company
has no control. If a "change in ownership" for income tax purposes occurs, the
Company's ability to use "pre-change losses" could be postponed or reduced,
possibly resulting in accelerated or additional tax payments which, with respect
to tax periods beyond 1997, could have a material adverse impact on the
Company's consolidated financial position or results of operations.

In 1996, the tax benefit related to the repurchase of stock options of
approximately $3,850,000 was recorded as a reduction of goodwill. In 1997, an
adjustment of approximately $4,500,000 was made to goodwill resulting from a
change in management's estimate of the ultimate tax benefit of acquired assets,
liabilities and carryforwards related to the Act III Acquisition.

9. MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK

On January 4, 1996, the Company issued $115,000,000, 15% mandatorily redeemable
cumulative preferred stock (the "Preferred Stock"). Dividends accrue on the
outstanding shares of Preferred Stock at a rate of 15% per year compounding
annually. Accrued dividends are payable on March 15, 2001 and will be payable
annually subsequent to that date. In connection with the issuance of the
Preferred Stock, the Company issued 2,406,307 warrants to purchase Class B-1
common stock at $.001 per share. These warrants are currently exercisable and do
not expire. Accretion to record the value of the Preferred Stock at its
redemption value is calculated using the effective interest method. Such amounts
have been charged to additional-paid-in-capital.

10. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

The Company paid interest of $33,828,000 and $34,666,000 during the years ended
December 31, 1996 and 1997, respectively.

During the years ended December 31, 1996 and 1997, the programming rights
increased $44,679,000 and $31,800,000 due to the assumption of programming
liabilities.

During the years ended December 31, 1996 and 1997, the Company paid
approximately $1,749,000 and $3,600,000, respectively for income taxes.

11. COMMITMENTS AND CONTINGENCIES

Leases

The Company has operating lease agreements for land, office space, office
equipment and other property which expire on various dates through 2005. Rental
expense was $691,000, $750,000 and $884,000 during the years ended December 31,
1995, 1996 and 1997, respectively. As of December 31, 1997, minimum required
annual payments under noncancelable operating leases are as follows:

F-45

SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)

1998 ............... $ 978,000
1999 ............... 968,000
2000 ............... 984,000
2001 ............... 836,000
2002 ............... 715,000
Thereafter ......... 1,230,000
-----------
$ 5,711,000
===========

Programming Contracts

Programming contracts acquired under license agreements are recorded as an asset
and a corresponding liability at the inception of the license period. In
addition to the programming contracts payable at December 31, 1996, the Company
has $17,575,000 of commitments to acquire programming rights for which the
license period has not commenced and, accordingly, for which no asset or
liability has been recorded. Future minimum payments arising from such
commitments outstanding at December 31, 1996, excluding $18,976,000 of barter
commitments, are as follows:

1998 ............... $ 14,798,000
1999 ............... 11,437,000
2000 ............... 9,351,000
2001 ............... 5,868,000
2002 ............... 3,632,000
Thereafter ......... 1,167,000
------------
$ 46,253,000
============

Litigation

The Company currently and from time to time is involved in litigation incidental
to the conduct of its business. In the opinion of management, no existing or
contingent claims will have a material adverse effect on the Company's financial
position or results of operations.

Employment Contracts

The Company has entered into an employment contract with an executive officer of
the Company providing for a minimum aggregate amount of $500,000 payable
annually commencing September 13, 1995 for an initial term of eight years.
Additionally, the Company has guaranteed annual bonus arrangements with two
other executive officers which have historically been paid.

12. RELATED PARTY TRANSACTIONS

Operating expenses include reimbursements to ABRY Partners, Inc. ("ABRY"), an
entity related through common ownership, for the Company's allocable share of
rent paid by ABRY for the Company. These expenses approximated $73,000 and
$106,000 for the years ended December 31, 1996 and 1997, respectively, and are
included in selling, general and administrative expenses in the Company's
consolidated statement of operations.

The Company also pays ABRY a management fee for financial and other advisory
services. Management fees paid to ABRY were approximately $252,000 and $265,000
for the years ended December 31, 1996 and 1997, respectively and are included in
selling general and administrative expenses in the Company's consolidated
statement of operations.

F-46

SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)

13. SUBSEQUENT EVENT

On February 23, 1998, the Company entered into a Plan of Merger (the "Merger").
Under the terms of the Merger, 100% of the issued and outstanding common stock
of the Company will be acquired by means of a merger. The Merger is subject to
approval of the FCC and is expected to close prior to August 1998.

F-47

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders
of Sullivan Broadcasting Company, Inc.
(formerly Act III Broadcasting, Inc. as successor by
merger with A-3 Acquisition, Inc.)

In our opinion, the accompanying consolidated statements of operations, of
cash flows and of changes in shareholders' deficit and present fairly, in all
material respects, the results of operations and of cash flows of Sullivan
Broadcasting Company, Inc. and its subsidiaries (the "Company") for the year
ended December 31, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.

/s/Price Waterhouse LLP
Boston, Massachusetts

March 25, 1996

F-48

SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)

YEAR ENDED
DECEMBER 31,
1995
-------------
Revenues ....................................................... $112,039
Less -- commissions .......................................... 19,914
--------
Net revenues ................................................... 92,125
Trade and barter revenues ...................................... 7,876
--------
Total net revenues ........................................... 100,001

Expenses:
Operating expenses ........................................... 11,136
Selling, general and administrative .......................... 23,447
Amortization of programming rights ........................... 18,033
Depreciation and amortization ................................ 11,780
========
64,396
--------
Operating income ............................................. 35,605
Interest expense, including amortization of debt dis-
count and deferred loan costs ................................ 17,777
Other expenses ................................................. 247
--------
Income before provision for income taxes ....................... 17,581
Provision for income taxes ..................................... (4,762)
--------
Net income ..................................................... $ 22,343
========

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

F-49

SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)

YEAR ENDED
DECEMBER 31,
1995
-------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................... $ 22,343
Adjustments to reconcile net income to net cash
provided by operating activities:
Adjustment to goodwill relating to realization of
net operating loss ............................... 484
Depreciation of property and equipment ............. 3,147
Amortization of intangibles ........................ 8,633
Amortization of programming rights, excluding
barter ........................................... 10,728
Payments for programming rights .................... (8,368)
Prepayment of WGGT time brokerage fees ............. (6,000)
Amortization of debt issuance costs and discount.... 851
Loss on sale or retirement of fixed assets ......... 24
Increase in interest payable ....................... 95
Amortization of deferred compensation .............. 153
CHANGES IN ASSETS AND LIABILITIES:
Increase in accounts receivable .................... (3,121)
Increase in prepaid expenses and other assets ...... (515)
Increase in deferred tax assets .................... (7,326)
Increase in taxes payable .......................... 1,105
Decrease in accounts payable and other accrued
liabilities ...................................... (413)
---------
Net cash provided by operating activities .......... 21,820
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for WGGT option ............................ (1,000)
Purchase of fixed assets ........................... (5,560)
---------
Net cash used for investing activities ........... (6,560)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of principal amounts ......................... (14,971)
---------
Net cash used for financing activities ............. (14,971)
---------
Net increase in cash and cash equivalents .......... 289
Cash and cash equivalents, beginning of year ....... 3,295
---------
Cash and cash equivalents, end of year ............. $ 3,584
=========

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

F-50

SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
(DOLLARS IN THOUSANDS)

CLASS A CLASS C
-------------------- --------------------
COMMON STOCK COMMON STOCK ADDITIONAL TOTAL
-------------------- -------------------- PAID-IN ACCUMULATED DEFERRED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT COMPENSATION DEFICIT
------------ ------- ------------ ------- ----------- ------------ ------------- --------------

Balance at December 31, 1994 ...... 893.720 $ 9 666.879 $ 7 $ 6,285 $ (114,639) $ (153) $ (108,491)
Accretion of discount and divi-
dends on 8% Cumulative Re-
deemable Preferred Stock ......... -- -- -- -- (2,518) -- -- (2,518)
Amortization of deferred compen-
sation ........................... -- -- -- -- -- -- 153 153
Net income ........................ -- -- -- -- -- 22,343 -- 22,343
------- --- ------- --- --------- ---------- ------ ----------
Balance at December 31, 1995 ...... 893,720 $ 9 666,879 $ 7 $ 3,767 $ (92,296) $ -- $ (88,513)
======== === ======== === ========= ========== ====== ==========

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

F-51

SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

On January 4, 1996, all of the outstanding capital stock of Act III Broadcasting
(the "Company") was purchased by and the Company was merged with and into A-3
Acquisition, Inc. The Company then changed its name to Sullivan Broadcasting
Company, Inc. (Note 11).

The Company was incorporated in Delaware in 1986 and at December 31, 1995 owned,
operated and/or programmed, through its subsidiaries, seven Fox Broadcasting
Company ("Fox") affiliated stations, one television station affiliated with the
American Broadcasting Companies, Inc. ("ABC"), and two independent television
stations that the Company programs under time brokerage agreements throughout
the Northeast, Southeast, and Mid-Atlantic states. Television broadcasting is
subject to the jurisdiction of the Federal Communications Commission ("FCC")
under the Communications Act of 1934, as amended (the "Communications Act"). The
Communications Act prohibits the operation of television broadcasting stations
except under a license issued by the FCC and empowers the FCC, among other
things, to issue, revoke and modify broadcasting licenses, determine the
location of the stations, regulate the equipment used by the stations, adopt
regulations to carry out the provisions of the Communications Act and impose
penalties for violation of such regulations.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
its subsidiaries. Significant intercompany accounts and transactions have been
eliminated in consolidation.

As of December 31, 1995, Act III Communications Holdings, L.P. ("Holdings")
directly owned approximately 15%, 100% and 6% of the Company's 8% Cumulative
Redeemable Preferred Stock ("Senior Preferred Stock"), Class A Common Stock and
Class C Common Stock, respectively.

Revenue Recognition

Advertising revenues are recognized in the period during which the time spots
are aired. Revenues from other sources are recognized in the period when the
services are provided.

Trade and Barter Transactions

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

Programming Rights and Contracts Payable

F-52

SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Property and Equipment

Property and equipment is stated on the basis of cost or estimated fair value at
the date of acquisition. Expenditures for renewals and improvements that
significantly add to productive capacity or extend the useful life of an asset
are capitalized. Expenditures for maintenance and repairs are charged to income
when incurred. Depreciation is computed on the straight-line basis over the
estimated useful lives of the assets which range from 3 to 37 years.

Intangible Assets

Intangible assets represent the estimated fair value of both identifiable assets
and goodwill resulting from acquisitions. Identifiable intangibles include FCC
broadcast licenses, non-competition agreements, favorable leases, accelerated
market growth assets and underdeveloped market competition assets and are being
amortized on a straight-line basis over periods ranging from 5 to 15 years.
Goodwill is being amortized over 40 years using the straight-line method. The
Company evaluates the recoverability of its intangible assets whenever adverse
events or changes in business climate indicate that the expected undiscounted
future cash flows from the related intangible assets may be less than previously
anticipated. If the net book value of the related intangible asset exceeds the
undiscounted future cash flows of the intangible asset, the carrying value would
be reduced to the present value of its expected future cash flows and an
impairment loss would be recognized. The Company did not recognize any
impairment loss for the year ended December 31, 1995.

Deferred Loan Costs

Deferred loan costs represent costs incurred in obtaining long-term financing.
These costs are expensed as interest over the lives of the related loan using
the effective interest method.

Accounting for Income Taxes

The Company accounts for income taxes under the liability method of accounting
as set forth in Statement of Financial Accounting Standards No. 109; "Accounting
for Income Taxes". Under the method prescribed by this statement, deferred
income taxes are recognized at enacted tax rates to reflect the future effects
of income tax carryforwards and temporary differences arising between the tax
basis of assets and liabilities and their financial reporting amounts at each
period end.

Use of Estimates

Supplementary Statement of Operations Information

Included in operating expenses for the year ended December 31, 1995 were
advertising costs of $1,694,000 and music license fees of $548,000.

2. TIME BROKERAGE AGREEMENT

On September 30, 1991, the Company entered into a time brokerage agreement with
Guilford Telectasters, Inc. ("Guilford") for WGGT, an independent television
station in Greensboro, North Carolina. The purchase price was $2,000,000, plus
the assumption of $821,000 in film liabilities. Under the terms of the
agreement, Guilford sells certain broadcast time of WGGT to the Company for the

F-53

SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

purpose of retransmitting the signal of WXLV, the Company's television station
in Winston-Salem, North Carolina. In addition to the purchase price, the Company
will remit quarterly payments, not to be lower than $50,000, to Guilford based
on a specified calculation. The term of the contract is five years with a
five-year extension that may be exercised by Guilford.

On June 30, 1995, the Company and Guilford amended the time brokerage agreement.
Under the terms of the amended agreement, the Company paid Guilford $6,000,000
in exchange for the right to broadcast the signal of WXLV on WGGT through
September 30, 2001. This payment released the Company from the quarterly
payments originally required under the agreement. This amount is being amortized
on a straight line basis, over the term of the agreement.

In conjunction with the amendment, the Company also paid Guilford $1,000,000 and
Guilford granted to a third party an option to purchase certain assets of WGGT
of an exercise price of $1,000,000. The third party granted the Company the
right to require such third party to assign this option to the Company or
another third party.

3. LONG-TERM DEBT

Long-term debt consisted of the following:

DECEMBER 31,
1995
---------------

Senior Debt:
Bank Credit Agreement, $60,000,000 revolving credit, commitment reducing
year by year, due December 31, 2000 ............................................ $ 24,000,000
Series A Senior Notes, interest at 11.34% payable semi-annually, principal
payable in semi-annual installments commencing June 30, 1993 ................... 15,260,000
Less: unamortized discount ...................................................... (109,000)
-------------
15,151,000
-------------
Series B Senior Notes, interest at 12.03% payable semi-annually, principal
payable in semi-annual installments commencing June 30, 1993 ................... 2,723,000
Series C Senior Notes, interest at 12.60% payable semi-annually, principal
due on December 31, 1996 ....................................................... 13,432,000
Less: unamortized discount ...................................................... (61,000)
-------------
13,371,000
-------------
Series D Senior Notes, interest at 13.31% payable semi-annually, principal
due on December 31, 1996 ....................................................... 4,368,000
Senior Acquisition Notes, interest at 12.92% payable semi-annually, principal
payable in semi-annual installments commencing June 30, 1993 ................... 3,363,000
-------------
62,976,000
Less: current maturities ........................................................ (24,078,000)
-------------
$ 38,898,000
=============
Subordinated Debt:
Senior Subordinated Notes, interest at 9.625% payable semi-annually, princi-
pal due December 15, 2003 ...................................................... $ 100,000,000
=============

On December 22, 1993, the Company refinanced a substantial portion of its
outstanding debt. The Company secured a revolving credit facility (the "Bank
Credit Agreement") originally in the amount of $50 million, currently at $57.6
million, to mature on December 31, 2000, and issued $100 million of 9 5/8%
Senior Subordinated Notes due December 2003 ("Notes"). With the proceeds from
these transactions,

F-54

SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

the Company repaid $35,000,000 of its Floating Rate Senior Notes, $36,867,000
Series A Senior Notes, $10,054,000 Series B Senior Notes, $8,689,000 Senior
Acquisition Notes, $7,568,000 Series A Subordinated Notes and $9,632,000 of its
Series B Subordinated Notes. In connection with the issuance of the Notes and
Bank Credit Agreement, the Company amended its existing loan agreement (the
"Amended Existing Agreement") which extended the maturity of a portion of the
Company's existing senior and subordinated debt from its then current maturity
of December 31, 1996 to December 31, 1997. Of the $40,615,000 of remaining notes
under the Amended Existing Agreement, $15 million is due December 31, 1997. All
the notes under the Amended Existing Agreement rank pari passu with the debt
issued under the Bank Credit Agreement. Concurrent with the refinancing, the
Company redeemed 17.2 shares of 8% Cumulative Redeemable Preferred Stock
("Senior Preferred Stock") at a price of $22,865,000 (see Note 5) and 606.478
shares of Class C Common Stock at a price of $16,557,000 (see Note 6).

The interest rate under the Bank Credit Agreement will be based, at the
Company's option, on the lender's (i) ABR; (ii) Eurodollar or (iii) CD rates
(each as defined therein), each plus an applicable margin which is based on the
Company's ratio of Total Funded Debt to Operating Cash Flow (as defined
therein). Interest rates will be adjusted monthly, with the applicable margins
varying between .5% to 1.5% for the ABR rate, 1.5% to 2.5% for the Eurodollar
rate, and 1.625% to 2.625% for the CD rate. The Company is required to pay to
the lender an annual commitment and an annual agency fee. The interest rate at
December 31, 1995 was 7.25%.

Borrowings under the Bank Credit Agreement are subject to a maximum available
amount (the "Maximum Amount"), currently $57.6 million, and may be repaid and
reborrowed at any time. The Maximum Amount is being reduced in varying quarterly
amounts beginning June 30, 1995 through December 31, 2000. Principal amounts
outstanding on such dates must be repaid to reduce total outstanding principal
to at least the Maximum Amount. Generally, the Company may prepay a greater
amount of borrowed funds than is required without premium or penalty, except for
certain breakage costs associated with prepayment of CD and Eurodollar loans.

The Series A Senior Notes require principal payments of $260,000 on each June 30
and December 31 through June 30, 1996, with the remaining $15,000,000 due on
December 31, 1997. In consideration for extending this maturity to 1997 the
Company will be required to pay a 3% premium or $450,000 upon maturity. The
Company has recorded the liability for this premium. The Series B Senior Notes
require principal payments of $359,000 on each June 30 and December 31 through
June 30, 1996 with the remaining $2,364,000 due December 31, 1996. The Series C
Senior Notes and Series D Senior Notes are due in full on December 31, 1996. A
principal payment on Senior Acquisition Notes totaling $214,000 is due on June
30, 1996 with the remaining $3,147,000 due on December 31, 1996. Interest is
payable in semi-annual installments on June 30 and December 31.

The Notes mature on December 15, 2003. Interest on the Notes accrues at the rate
of 9 5/8% per annum and will be payable semiannually in arrears on June 15, and
December 15. Although the Notes are general unsecured obligations of the Company
and are subordinate to all indebtedness, the Notes are guaranteed jointly and
severally by each of the Company's subsidiaries.

As of December 31, 1995, scheduled maturities, including discounts, are
summarized as follows:

1996 ......................... $ 24,145,000
1997 ......................... 15,000,000
1998 ......................... --
1999 ......................... 9,000,000
2000 ......................... 15,000,000
Thereafter ................... 100,000,000
------------
$163,145,000
============

F-55

SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The Notes, Bank Credit Agreement and Amended Existing Agreement of the Company
contain covenants which, among other restrictions, require the maintenance of
certain financial ratios and cash flow, restrict asset purchases and the
encumbrance of existing assets, require lender approval for proposed
acquisitions, and limit the incurrence of additional indebtedness and the
payment of dividends.

The Company has estimated the fair value of long-term debt at December 31, 1995
to approximate the carrying value. The fair value was estimated by discounting
the future cash flows of loans with similar terms and remaining maturities at
the Company's current borrowing rate.

4. INCOME TAXES

The Company accounts for income taxes in accordance with Financial Accounting
Standards Statement No. 109, "Accounting for Income Taxes" ("FAS 109"), which
mandates the liability method for computing deferred income taxes. The provision
for income taxes charged to continuing operations was as follows:

YEAR ENDED
DECEMBER 31,
1995
---------------
Current tax expense:
Federal ....................................... $ 373,000
State ......................................... 1,265,000
------------
1,638,000

Deferred tax expense (benefit):
Federal ....................................... (7,000,000)
State ......................................... 116,000
------------
(6,884,000)

Benefit of acquired loss carryforward used to re-
duce goodwill ................................. 484,000
------------
Total benefit ................................... $ (4,762,000)
============

Reconciling amounts, stated below as a percentage of pretax income, between the
statutory federal income tax rate and the Company's effective tax rate are as
follows:

YEAR ENDED
DECEMBER 31,
1995
-------------
U.S. federal statutory rate ....................... 35.0%
State and local taxes, net ........................ 5.1%
Amortization of goodwill .......................... 1.3%
Realized benefit for net operating losses ......... (27.1)%
Other ............................................. 0.3%
Change in valuation allowance ..................... (41.7)%
-----
Effective tax rate ................................ (27.1)%
=====

The components of the net deferred tax asset are as follows:

F-56

SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

DECEMBER 31,
1995
-------------
Property and equipment ..................... $ (744,000)
Programming rights .......................... 3,498,000
Bad debts ................................ 443,000
Intangible assets ........................ 745,000
Music license fees ....................... 12,000
Net operating loss carryforwards ......... 25,373,000
Other .................................... (944,000)
----------
28,383,000
Less -- valuation allowance .............. (21,057,000)
-----------
Net deferred tax asset ................... $ 7,326,000
=============

At December 31, 1995, the Company had net operating loss carryforwards of
approximately $60,303,000 for federal income tax purposes, available to reduce
future taxable income. To the extent not used, federal net operating loss
carryforwards expire in varying amounts beginning in 2002. In addition, the
Company had net operating loss carryforwards of approximately $44,147,000 for
state and local income tax purposes in various jurisdictions. Under FAS 109, the
Company has recorded valuation allowances against the realization of the federal
and state and local tax benefits resulting from net operating losses in the
amounts of $16,647,000 at December 31, 1995. In 1995, the valuation allowance
decreased by $11,438,000, of this $7,326,000 was a result of the determination
by management that it is more likely than not that certain deferred tax assets
will be utilized in future periods. The remaining valuation allowances are based
on management's estimates and analysis, which include the impact of tax laws
which may limit the Company's ability to utilize such loss carryforwards.

A corporation that undergoes a "change of ownership" pursuant to Section 382 of
the Internal Revenue Code is subject to limitations on the amount of its net
operating loss carryforwards which may be used in the future. An ownership
change occurred on January 4, 1996. The Company estimates the limitation on the
net operating loss will not have a material adverse impact on the Company's
consolidated financial position or results of operations. No assurance can be
given that an ownership change will not occur as a result of other transactions
entered into by the Company, or by certain other parties over which the Company
has no control. If a "change in ownership" for income tax purposes occurs, the
Company's ability to use "pre-change losses" could be postponed or reduced,
possibly resulting in accelerated or additional tax payments which, with respect
to tax periods beyond 1995, could have a material adverse impact on the
Company's consolidated financial position or results of operations.

In addition, net operating loss carryforwards acquired through the acquisition
of a corporation are also subject to limitations on the amount which may be used
in the future. If the acquired net operating loss carryforwards are utilized,
the tax benefit will result in an adjustment to the purchase price allocations
of the acquired corporation. As a result of the acquisition of Act III
Broadcasting of Dayton, Inc. (formerly Meridian Communications Corporation) and
Act III Broadcasting of West Virginia, Inc. (formerly West Virginia Telecasting,
Inc.) by the Company, federal tax net operating loss carryforwards were
acquired. During 1995, the Company utilized approximately $1.4 million of the
acquired net operating loss carryforwards with a resulting reduction of
approximately $.5 million to goodwill.

5.8% Cumulative Redeemable Preferred Stock ("Senior Preferred Stock")

Dividends accrue on the outstanding shares of the Senior Preferred Stock at a
rate of 8% per annum of the dividend base. The dividend base is the number of
shares outstanding times $1,000,000 per share plus accrued dividends and is
adjusted on December 31 of each year for dividends accrued during the year. The
accrued dividends converted to shares of Senior Preferred Stock on December 31,
1995 at $1,000,000 per share. All dividends earned subsequent to that date shall
be paid, in cash, on each December 31. With the exception of stock dividends on
securities that are subordinate to the Senior Preferred Stock, dividends may not
be paid on the Class A Common Stock or Class C Common Stock until all accrued
dividends relating to the Senior Preferred Stock are paid and there is no
outstanding

F-57

SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

mandatory redemption obligation. Accretion to record the value of the Senior
Preferred Stock at its redemption value on its scheduled redemption date is
calculated using the effective interest method. Such amounts have been charged
to additional paid-in capital in the accompanying financial statements. Holders
of the Senior Preferred Stock are entitled to elect one director if any
dividends payable are in arrears and unpaid for two consecutive periods or the
Company fails to discharge its mandatory redemption obligation and have no
voting rights except under certain specified circumstances.

The Company has estimated the fair value of the Senior Preferred Stock at
December 31, 1995 to approximate the carrying value based on the recently
negotiated redemption values.

In connection with the issuance of the Notes and the Bank Credit Agreement, the
Company redeemed 17.2 shares of Senior Preferred Stock at a price of $1,000,000
per share plus accrued dividends totaling $22,865,000. The mandatory redemption
on the remaining 16.627 shares of Senior Preferred Stock has been extended from
December 31, 1996 to December 31, 2004. Beginning January 1, 1994, the dividend
on the Senior Preferred Stock increased to 9% from 8%. On January 1, 1997, the
dividend rate will increase to 11% per annum. Dividends are payable in cash or
in-kind at the Company's option. The Senior Preferred Stock will be redeemable,
in whole or in part, at anytime without premium. If the Senior Preferred Stock
is outstanding after December 31, 1996, the holders are entitled to a one-time
2% dividend payable at redemption. Beginning January 1, 2000, the Company will
issue to the holders of Senior Preferred Stock, warrants to purchase Class C
Common Stock every three months.

Each holder will receive thirty-six and one-half warrants for each share of
Senior Preferred Stock owned. Each warrant will entitle the holder to purchase
one share of Class C Common Stock at a price of $27,397 per share. A warrant may
be exercised with cash or by tendering Senior Preferred Stock to the Company.
The warrants expire at the end of each three month period.

6. SHAREHOLDERS' DEFICIT

Class C Common Stock is convertible into Class A Common Stock on a one-to-one
ratio upon the occurrence of certain events. Any necessary approval of the FCC
must be obtained prior to all stock conversions.

Holders of the Class A Common Stock are entitled to one vote per share on all
matters submitted to shareholder vote. Holders of Class C Common Stock have no
voting rights except under certain specified circumstances.

In the event of liquidation, dissolution or winding-up of the affairs of the
Company, the holders of Class A Common Stock and Class C Common Stock are
entitled to share ratably, based on the number of shares held by each holder, in
the remaining assets of the Company.

Holdings has pledged all of its Class A Common Stock of the Company (the
"Holdings Pledge") to secure a promissory note (the "Holdings Note") in the
amount of $12 million held by Mediafin USA Incorporated, a Delaware corporation
("Mediafin") and a wholly owned subsidiary of Tractebel S.A., a Belgian company.
Any foreclosure by Mediafin on the Company's stock, however, would require prior
approval of the FCC. Current FCC rules restrict foreign ownership of broadcast
companies and Mediafin is owned by a foreign entity. The Holdings Note is
assignable in whole or in part, however, the Holdings Pledge of the Company's
Class A Common Stock to Mediafin is not assignable without Holdings' consent.

On November 30, 1989, the Company implemented a stock option plan (the "Plan")
whereby 250 shares of the authorized but unissued shares of Class B Common Stock
have been reserved for issuance upon the exercise of nonqualified stock options
to be granted to certain key personnel. These options are exercisable for a
period of up to ten years from the date of grant. The Class B Common Stock is
convertible into Class A Common Stock at a ratio of one-to-one upon the
occurrence of certain events.

F-58

SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The following options were outstanding under the Plan at December 31, 1995:

PER SHARE
EXERCISE
NUMBER PRICE
---------- ----------
Options outstanding at December 31, 1994 ......... 250.0
Option granted during 1995 ....................... 33.01 $11,850
------
Options outstanding at December 31, 1995 ......... 283.01
======

No options were exercised during the year ended December 31, 1995. There is no
compensation expense associated with the options granted in 1995 as the exercise
price approximates the fair value at the date of the grant.

7. LEASES

The Company has operating lease agreements for land, office space, office
equipment and other property which expire on various dates through 2005. Rental
expense was $691,000 during the year ended December 31, 1995.

As of December 31, 1995, minimum required annual payments under noncancelable
operating leases are as follows:

1996 ....................... $ 650,000
1997 ....................... 620,000
1998 ....................... 594,000
1999 ....................... 595,000
2000 ....................... 510,000
Thereafter ................. 2,518,000
----------
$5,487,000
==========

8. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

The Company paid interest of $16,862,000 during the year ended December 31,
1995.

During the year ended December 31, 1995 the programming rights increased
$12,913,000, due to the assumption of programming liabilities.

During the year ended December 31, 1995 the Company paid approximately $995,000
for income taxes.

9. COMMITMENTS AND CONTINGENCIES

The Company has executed contracts for programming rights totaling approximately
$18,961,000 at December 31, 1995, for which the broadcast period has not begun.
Accordingly, the asset and related liability are not recorded at such dates.

The Company has entered into employment contracts with two of its executive
officers in the minimum aggregate amount of $425,000 payable annually commencing
June 1, 1993 and ending December 31, 1996. In addition, the Company has
quarterly bonus arrangements for its executive officers which are based on
achieving budgeted performance goals. Such budgeted performance goals have been
met historically.

F-59

SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The Company has no post-retirement or post-employment benefit plans.

10. RELATED PARTY TRANSACTIONS

The Company has a management agreement with Holdings to reimburse certain salary
and operating expenses incurred on behalf of the Company. Operating expenses
include reimbursements to Holdings for $6,100 per month representing an
allocable share of rent paid by Holdings under its lease. During the year ended
December 31, 1995, the Company paid $913,000 in management fees and other
charges to Holdings. Such amounts have been included in selling, general and
administrative expenses in the Company's consolidated statements of operations.

A former member of the Company's Board of Directors, who was a member from 1990
through October 1993, also serves as Chairman and President of the Buffalo
Sabres, a professional hockey team. Total programming rights fees payable to the
Buffalo Sabres are $340,000 at December 31, 1995.

11. SUBSEQUENT EVENT

On January 4, 1996, A-3 Acquisition, Inc. ("A-3") acquired substantially all of
the outstanding stock of the Company for approximately $517,000,000 plus certain
amounts defined in the purchase and sale agreement which are based on working
capital and less the amounts necessary to repurchase or repay the existing
indebtedness of the Company. The acquisition will be accounted for by the
purchase method. Accordingly, the results of operations of the Company will be
included with those of A-3 for periods subsequent to the date of acquisition.

The unaudited pro forma combined condensed balance sheet of the Company and A-3
as of December 31, 1995 after giving effect to certain pro forma adjustments is
as follows:

ASSETS
Current assets ............................. $ 49,728,000
Property and equipment, net ................ 44,164,000
Other assets and intangible assets ......... 649,054,000
------------
$742,946,000
============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities ........................ $ 29,043,000
Long-term debt ............................. 488,395,000
Shareholders' equity ....................... 225,508,000
------------
$742,946,000
============

The unaudited pro forma combined results of operations of the Company and A-3
for the year ended December 31, 1995 after giving effect to certain pro forma
adjustments are as follows:

Net revenues .................. $ 101,082,000
Net loss ...................... $ (10,367,000)

F-60