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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Commission File No. 1-14164

Registrant’s telephone number, including area code

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

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

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.    Yes o         No þ

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

     Indicate by check mark whether the registrant is an accelerated filer (as defined in the Securities Exchange Act of 1934 Rule 12b-2)    Yes þ         No o

     The aggregate market value of Class A Common Stock held by non-affiliates as of June 30, 2003, was approximately $644,988,310 determined using the closing price per share on that date of $10.77, as reported on the New York Stock Exchange. As of such date, non-affiliates held no shares of Class B Common Stock. There is no active market for the Class B Common Stock.

     The number of outstanding shares of each class of the registrant’s common stock as of December 31, 2004 was as follows: 75,687,055 shares of Class A Common Stock and 14,990,000 shares of Class B Common Stock.

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EXPLANATORY NOTE

      The Company is filing this annual report on Form 10-K for the fiscal year ended December 31, 2003 following its review of the report of the Special Committee of Independent Directors (the “Special Committee”). The Company’s Board of Directors formed the Special Committee on June 17, 2003 to investigate, among other things, allegations described in a beneficial ownership report on Schedule 13D filed with the SEC by Tweedy, Browne & Company, LLC (“Tweedy Browne”), an unaffiliated stockholder of the Company, on May 19, 2003, as amended on June 11, 2003, and any other matters the Special Committee determined should be investigated. The Special Committee filed its report with the U.S. District Court for the Northern District of Illinois on August 30, 2004. The Company included the full text of the report as an exhibit to a current report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on August 31, 2004, as amended by a current report on Form 8-K/A filed with the SEC on December 15, 2004.

      The Company previously made public its need to review the Special Committee’s report before it could complete its annual report on Form 10-K for the year ended December 31, 2003. The Company expects to file, within a reasonable time, quarterly reports on Form 10-Q for the periods ended March 31, 2004, June 30, 2004 and September 30, 2004 and the required pro forma financial information reflecting the sale of Telegraph Group Limited on a current report on Form 8-K.

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HOLLINGER INTERNATIONAL INC.

2003 FORM 10-K

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FORWARD-LOOKING STATEMENTS

      This annual report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”) and the Private Securities Litigation Reform Act of 1995, that involve a number of risks and uncertainties. These statements relate to future events or the Company’s future financial performance with respect to its financial condition, results of operations, business plans and strategies, operating efficiencies, competitive positions, growth opportunities, plans and objectives of management, capital expenditures, growth and other matters. These statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, levels of activity, performance or achievements of the Company or the newspaper industry to be materially different from those expressed or implied by any forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” “pro forma,” “seek,” or “continue” or the negative of those terms or other comparable terminology. These statements are only predictions and such expectations may prove to be incorrect. Some of the things that could cause the Company’s actual results to differ substantially from its current expectations are:

	•	changes in prevailing economic conditions, particularly in the target markets of the Company’s newspapers;
	•	actions of the Company’s controlling stockholder;
	•	continuing investigations by the SEC and other government agencies in the United States and Canada;
	•	adverse developments in pending litigation involving the Company and its affiliates, directors and executive officers;
	•	actions of competitors, including price changes and the introduction of competitive service offerings;
	•	changes in the preferences of readers and advertisers, particularly in response to the growth of Internet-based media;
	•	the effects of changing cost or availability of raw materials, including changes in the cost or availability of newsprint and magazine body paper;
	•	changes in laws or regulations, including changes that affect the way business entities are taxed;
	•	changes in accounting principles or in the way such principles are applied; and
	•	other matters identified in “Item 1 — Business — Risk Factors.”

      The Company does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, after the date this Form 10-K is filed with the SEC. The Company does not, nor does any other person, assume responsibility for the accuracy and completeness of those statements. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under the caption “Risk Factors.”

      The Company cautions that the areas of risk described above may not be exhaustive. The Company operates in a continually changing business environment, and new risks emerge from time to time. Management cannot predict such new risks, nor can it assess either the impact, if any, of such risks on the Company’s businesses or the extent to which any risk or combination of risks may cause actual results to differ materially from those projected in any forward-looking statements. In light of these risks, uncertainties and assumptions, it should be kept in mind that events, trends or financial performance described in any forward-looking statement made in this annual report on Form 10-K might not occur.

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PART I

Overview

      The Company is a leading publisher of English-language newspapers in the United States and Canada. The Company owns or has interests in over 200 publications, including daily and non-daily newspapers, and magazines. The Company’s premier title is the Chicago Group’s Chicago Sun-Times, which has the second highest daily readership and circulation of any newspaper in the Chicago metropolitan area and had the eighth highest daily readership of any metropolitan daily newspaper in the United States, as reported in the 2003 Scarborough Report.

      Unless the context requires otherwise, all references herein to the “Company” are to Hollinger International Inc., its predecessors and consolidated subsidiaries, “Publishing” refers to Hollinger International Publishing Inc., a wholly-owned subsidiary of the Company, and “Hollinger Inc.” refers to the Company’s parent, Hollinger Inc. and its affiliates.

      The Chicago Group consists of more than 100 newspapers in the greater Chicago metropolitan area. The Chicago Group’s primary newspaper is the Chicago Sun-Times, which was founded in 1948 and is one of Chicago’s most widely read newspapers. The Chicago Sun-Times is published in a tabloid format and has the second highest daily readership and circulation of any newspaper in the 16-county Chicago metropolitan area, attracting approximately 1.6 million readers daily as reported in the 2003 Scarborough Report. The Chicago Group pursues a clustering strategy in the greater Chicago metropolitan market, covering all of Chicago’s major suburbs as well as its surrounding high growth counties. This strategy enables the Company to offer joint selling programs to advertisers, thereby expanding advertisers’ reach. For the year ended December 31, 2003, the Chicago Group had revenues of $450.8 million and operating income of $24.5 million.

      The Canadian Newspaper Group includes the operations of Hollinger Canadian Publishing Holdings Co. (“HCPH Co.”) that has an 87% interest in Hollinger Canadian Newspapers, Limited Partnership (“Hollinger L.P.”). HCPH Co. and Hollinger L.P. own numerous daily and non-daily newspaper properties and Canadian trade magazines and tabloids for the transportation, construction, natural resources and manufacturing industries, among others. In addition, the Canadian Newspaper Group administers the retirement plans, and absorbs the costs related to post-retirement, post-employment benefit and pension plans of certain retired employees of HCPH Co. (successor of Southam Inc.). For the year ended December 31, 2003, the Canadian Newspaper Group had revenues of approximately $80.5 million and an operating loss of approximately $5.0 million.

Recent Developments

      Hollinger Inc., a Canadian publicly traded company, directly or indirectly owns approximately 17.4% of the equity and 66.8% of the voting interest in the Company. In beneficial ownership reports filed with the SEC on Schedule 13D, The Ravelston Corporation Limited (“Ravelston”), a privately held Canadian company, and Lord Conrad M. Black of Crossharbour (“Black”), a Director and former Chairman and Chief Executive Officer of the Company, claim beneficial ownership over Hollinger Inc.’s interests in the Company. Black also owns 600 shares of the Company’s Class A Common Stock directly. In addition, Black claims beneficial ownership over 1,363,750 shares of Class A Common Stock underlying stock options that Black has alleged he exercised in February and April 2004. These shares have not been issued by the Company, pending the outcome of litigation involving the alleged option exercises. See “Item 3 — Legal Proceedings — Black v. Hollinger International Inc., filed on April 5, 2004.”

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      The above ownership figures are based on 75,687,055 shares of Class A Common Stock and 14,990,000 shares of Class B Common Stock outstanding as of December 31, 2004 and beneficial ownership reports of Hollinger Inc., Ravelston and Black filed with the SEC. According to those reports, Hollinger Inc. owns directly or indirectly, and Ravelston and Black claim beneficial ownership over, all of the shares of Class B Common Stock outstanding, each of which carries the right of 10 votes per share.

      On June 17, 2003, the Board of Directors established a special committee of independent directors (the “Special Committee”) to investigate, among other things, certain allegations regarding various related party transactions, including allegations described in a beneficial ownership report on Schedule 13D filed with the SEC by Tweedy Browne, an unaffiliated stockholder of the Company, on May 19, 2003, as amended on June 11, 2003. In its Schedule 13D report, Tweedy Browne made allegations with respect to the terms of a series of transactions between the Company and certain former executive officers and certain current and former members of the Board of Directors, including Black, F. David Radler (“Radler”), the Company’s former President and Chief Operating Officer, J.A. Boultbee (“Boultbee”), a former Executive Vice-President and a former member of the Board of Directors, and Peter Y. Atkinson (“Atkinson”), a former Executive Vice-President and a former member of the Board of Directors. The allegations concern, among other things, payments received directly or indirectly by such persons relating to “non-competition” agreements arising from asset sales by the Company, payments received by such persons under the terms of management services agreements between the Company and Ravelston, Ravelston Management Inc. (“RMI”), Moffat Management Inc. (“Moffat”) and Black-Amiel Management Inc. (“Black-Amiel”) and sales by the Company of assets to entities with which such persons were affiliated. In October 2003, the Special Committee found references to previously undisclosed “non-competition” payments to Hollinger Inc. while reviewing documents obtained from the Company. The Special Committee also found information showing that “non-competition” payments to Black, Radler, Boultbee and Atkinson had been falsely described in, among other filings, the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2001 (the “2001 Form 10-K”). The Special Committee and the Audit Committee each conducted expedited investigations into these matters.

      On November 15, 2003, the Special Committee and the Audit Committee disclosed to the Board of Directors the preliminary results of their investigations. The committees determined that a total of $32.2 million in payments characterized as “non-competition” payments were made by the Company without appropriate authorization by either the Audit Committee or the full Board of Directors. Of the total unauthorized payments, approximately $16.6 million was paid to Hollinger Inc. in 1999 and 2000, approximately $7.2 million was paid to each of Black and Radler in 2000 and 2001, and $602,500 was paid to each of Boultbee and Atkinson in 2000 and 2001. As a consequence of these findings, the Special Committee then entered into discussions with Black that culminated in the Company and Black signing an agreement on November 15, 2003 (the “Restructuring Agreement”). The Restructuring Agreement provides for, among other things, restitution by Hollinger Inc., Black, Radler, Boultbee and Atkinson to the Company of the full amount of the unauthorized payments, plus interest; the hiring by the Board of Directors of Lazard Frères & Co. LLC and Lazard & Co., Limited (collectively, “Lazard”) as financial advisors to explore alternative strategic transactions, including the sale of the Company as a whole or the sale of its specific businesses (the “Strategic Process”); and certain management changes, including the retirement of Black as CEO and the resignations of Radler, Boultbee and Atkinson. In addition, Black agreed, as the majority stockholder of Hollinger Inc., that during the pendency of the Strategic Process he would not support a transaction involving ownership interests in Hollinger Inc. if such transaction would negatively affect the Company’s ability to consummate a transaction resulting from the Strategic Process unless the transaction were necessary to enable Hollinger Inc. to avoid a material default or insolvency.

      On November 19, 2003, Black retired as CEO of the Company. Gordon Paris (“Paris”) became the Company’s Interim CEO upon Black’s retirement. Effective November 16, 2003, Radler resigned as President and Chief Operating Officer of the Company and as publisher of the Chicago Sun-Times, at which time Paris became Interim President. On November 16, 2003, Radler and Atkinson also resigned as members of the Board of Directors. The Company terminated Boultbee as an officer on November 16, 2003. On January 17, 2004, Black was removed as non-executive Chairman of the Board of Directors and Paris was elected as Interim Chairman on January 20, 2004. On March 5, 2004 Black was removed as Executive Chairman of the

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      Although Radler was not a direct party to the Restructuring Agreement, he has agreed to pay the amount identified as attributable to him in the Restructuring Agreement. Prior to the end of December 2003, Radler paid the Company $850,000. During 2004, Radler paid an additional amount of approximately $7.8 million, including interest of $1.5 million.

      Although Atkinson was not a direct party to the Restructuring Agreement, he agreed to pay the amount identified as attributable to him in the Restructuring Agreement. On April 27, 2004, Atkinson and the Company entered into a settlement agreement in which Atkinson has agreed to pay a total amount of approximately $2.8 million, representing all “non-competition” payments and payments under the incentive compensation plan of Hollinger Digital LLC (“Hollinger Digital”) that he received, plus interest. The total amount of $2.8 million includes approximately $603,000 identified as attributable to Atkinson in the Restructuring Agreement. Prior to the end of December 2003, Atkinson paid the Company $350,000. On April 27, 2004, Atkinson exercised his vested options and the net proceeds of $4.0 million from the sale of the underlying shares of Class A Common Stock were deposited into an escrow account. Upon the approval of the terms of the settlement agreement by the Court of Chancery in the State of Delaware (the “Delaware Chancery Court”), the Company will receive $2.4 million. Included in the $2.4 million is approximately $253,000 which represents the balance identified, before interest, as attributable to Atkinson at December 31, 2003 in the Restructuring Agreement. On April 27, 2004, the Company entered into a consulting agreement with Atkinson. See “Item 13 — Certain Relationships and Related Transactions — Release and Settlement Agreement with Atkinson” and “— Consulting Agreement with Atkinson.”

      By Order and Judgment dated June 28, 2004, the Delaware Chancery Court found, among other things, that Black and Hollinger Inc. breached their respective obligations to make restitution pursuant to the Restructuring Agreement and ordered, among other things, that Black and Hollinger Inc. pay the Company $29.8 million in aggregate. Hollinger Inc. and Black paid the Company the amount ordered by the court on July 16, 2004, but both have appealed the order to the Delaware Supreme Court. See “Item 3 — Legal Proceedings — Hollinger International Inc. v. Conrad M. Black, Hollinger Inc., and 504468 N.B. Inc.”

      Boultbee has not paid to the Company any amounts in restitution for the unauthorized “non-competition” payments set forth in the Restructuring Agreement, and has filed a suit in Canada against the Company and members of the Special Committee seeking damages for an alleged wrongful dismissal. See “Item 3 — Legal Proceedings — Other Actions.”

      As more fully described under “Item 13 — Certain Relationships and Related Transactions — Services Agreements,” the Company was party to management services agreements with RMI, Moffat and Black-Amiel. The Restructuring Agreement provides for the termination of these agreements in accordance with their terms, effective June 1, 2004, and the negotiation of the management fee payable thereunder for the period from January 1, 2004 until June 1, 2004. In November 2003, in accordance with the terms of the Restructuring Agreement, the Company notified RMI of the termination of the services agreements effective June 1, 2004 and subsequently proposed a reduced management fee of $100,000 per month for the period from January 1, 2004 through June 1, 2004. RMI did not accept the Company’s offer and demanded a management fee of $2.0 million per month, which the Company did not accept. RMI seeks damages from the Company for alleged breaches of the services agreements in legal actions pending before the courts. See “Item 3 — Legal Proceedings — Hollinger International Inc. v. Ravelston, RMI and Hollinger Inc.”

      On January 16, 2004, the Company consented to the entry of a partial final judgment and order of permanent injunction (the “Court Order”) against the Company in an action brought by the SEC in the U.S. District Court for the Northern District of Illinois (the “January 2004 SEC Action”). The Court Order enjoins the Company from violating provisions of the Exchange Act, including the requirements to file accurate annual reports on Form 10-K and quarterly reports on Form 10-Q and keep accurate books and records. The Court Order requires the Company to permit the Special Committee to complete its

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      On January 28, 2004, the Company filed a civil complaint in the United States District Court for the Northern District of Illinois asserting breach of fiduciary duty and other claims against Hollinger Inc., Ravelston, RMI, Black, Radler and Boultbee, which complaint was first amended on May 7, 2004. The amended complaint added certain other defendants, including Barbara Amiel Black (“Amiel Black”), a Director of the Company and wife of Black, and Daniel W. Colson (“Colson”), former Chief Operating Officer and Director of the Company, sought approximately $484.5 million in damages, including approximately $103.9 million in pre-judgment interest, and also included claims under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), which provides for a trebling of damages and attorneys’ fees. On October 8, 2004, the court granted the defendants’ motion to dismiss the RICO claims and also dismissed the remaining claims without prejudice on jurisdictional grounds. On October 29, 2004, the Company filed a second amended complaint seeking to recover approximately $542.0 million in damages, including prejudgment interest of approximately $117.0 million, and punitive damages. The second amended complaint adds Richard N. Perle (“Perle”), a Director of the Company, as a defendant and withdrew as defendants certain companies affiliated with Black and Radler. The Company is seeking to appeal the dismissal of the RICO claims. On December 13, 2004, defendants moved to dismiss the second amended complaint. The motions are pending. See “Item 3 — Legal Proceedings — Litigation Involving Controlling Stockholder, Senior Management and Directors.”

      On August 30, 2004, the Special Committee published the results of its investigation. See “— Report of the Special Committee” below.

      On November 15, 2004, the SEC filed an action in the United States District Court for the Northern District of Illinois against Black, Radler and Hollinger Inc. seeking injunctive, monetary and other equitable relief. In the action, the SEC alleges that the three defendants violated federal securities laws by engaging in a fraudulent and deceptive scheme to divert cash and assets from the Company and to conceal their self-dealing from the Company’s public stockholders from at least 1999 through at least 2003. The SEC also alleges that Black, Radler and Hollinger Inc. were liable for the Company’s violations of certain federal securities laws at least during this period. See “Item 3 — Legal Proceedings — United States Securities and Exchange Commission v. Conrad M. Black, et al.”

      The Company is party to several lawsuits either as plaintiff or as a defendant, including several stockholder class action lawsuits, in connection with the events described above. See “Item 3 — Legal Proceedings.”

      On January 18, 2004, Black and Ravelston entered into a Tender and Stockholder Support and Acquisition Agreement with Press Holdings International Limited (“PHIL”) for the sale of the control of Hollinger Inc., (the “Hollinger Sale”). The Company formed the Corporate Review Committee of the Board of Directors, consisting of all directors, other than Black, Amiel Black and Colson, all of whom were directly or indirectly interested in the Hollinger Sale, to review the terms of the Hollinger Sale and supervise the Strategic Process. The Corporate Review Committee adopted a shareholder rights plan (“SRP”), described further below. On January 23, 2004, Hollinger Inc. adopted by written stockholder consent amendments to the Company’s bylaws and attempted to dissolve all committees of the Board of Directors, including the Corporate Review Committee, other than the Special Committee and the Audit Committee. On January 26, 2004, the Company commenced legal action in Delaware seeking relief declaring that Hollinger Inc.’s actions were invalid; that the adoption of the SRP was valid; and that Black and Hollinger Inc. breached their fiduciary duties to the Company and the terms of the Restructuring Agreement. On March 4, 2004, the Delaware Chancery Court issued a decision in favor of the Company declaring the bylaw amendments invalid;

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      On February 27, 2004, under the terms of the SRP, the Company paid a dividend of one preferred share purchase right (a “Right”) for each share of Class A Common Stock and Class B Common Stock held of record at the close of business on February 5, 2004. Each Right, if and when exercisable, entitles its holder to purchase from the Company one one-thousandth of a share of a new series of preferred stock at an exercise price of $50.00.

      The SRP provides that the Rights will separate from the Class A Common Stock and Class B Common Stock and become exercisable only if a person or group beneficially acquires, directly or indirectly, 20% or more of the outstanding stockholder voting power of the Company or if a person or group announces a tender offer which, if consummated, would result in such person or group beneficially owning 20% or more of such voting power, in either case, without the approval of the Company’s directors, who may amend or redeem the SRP. The directors of the Company may redeem the Rights at $0.001 per Right or amend the terms of the SRP at any time prior to the separation of the Rights from the Class A Common Stock and Class B Common Stock.

      If a person or group acquires 20% or more of the stockholder voting power of the Company, each Right will entitle its holder (other than such person or group), in lieu of purchasing preferred stock, to purchase one share of Class A Common Stock at a 50% discount to the then current per share market price. In addition, in the event of certain business combinations following such an acquisition, each Right will entitle its holder to purchase the common stock of an acquirer of the Company at a 50% discount from the market value of the acquirer’s stock.

      Black and each of his controlled affiliates, including Hollinger Inc., are considered “exempt stockholders” under the terms of the SRP. This means that so long as Black and his controlled affiliates do not collectively, directly or indirectly, increase the number of shares of Class A and Class B Common Stock above the level owned by them when the SRP was adopted, their ownership will not cause the Rights to separate from the Common Stock. This exclusion would not apply to any person or group to whom Black or one of his affiliates transfers ownership, whether directly or indirectly, of any of the Company’s shares. Consequently, the Rights may become exercisable if Black transfers sufficient voting power to an unaffiliated third party through a sale of interests in the Company, Hollinger Inc., Ravelston or another affiliate.

      The SRP provides that on or before January 25, 2005, the Special Committee (or any other committee of independent directors of the Board of Directors who were not the subject of the report delivered by the Special Committee described below) will re-evaluate the SRP to determine whether it remains in the best interests of the Company’s stockholders. If determined as necessary, such committee may recommend amendments to the terms of the SRP, or redemption of the Rights. Unless earlier redeemed, exercised or exchanged, the Rights will expire on January 25, 2014.

      The validity of the SRP is the subject of an appeal to the Delaware Supreme Court. See “Item 3 — Legal Proceedings — Hollinger International Inc. v. Conrad M. Black, Hollinger Inc., and 504468 N.B. Inc.”

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      As part of the Strategic Process, on July 30, 2004, the Company completed the sale of Telegraph Group Limited (“Telegraph Group”) to Press Holdings Limited and Holyrood Holdings Limited, affiliates of PHIL. Telegraph Group operated the Company’s business in the United Kingdom, including The Daily Telegraph, The Sunday Telegraph, The Weekly Telegraph, telegraph.co.uk and The Spectator and Apollo magazines. Under the terms of the agreement, Press Acquisitions Limited acquired all of the outstanding shares of Telegraph Group for a purchase price of £729.6 million in cash (or approximately $1,323.9 million at an exchange rate of $1.8145 to £1 as of the date of sale). This purchase price is subject to adjustment depending on certain working capital levels in the Telegraph Group, but the Company does not expect any such adjustment to be material.

      The Company used approximately $603.1 million of the proceeds of the sale of the Telegraph Group to repay long-term indebtedness and related derivative contracts. The Board of Directors also declared a special cash dividend (the “Special Dividend”) payable on January 18, 2005 in an aggregate amount of approximately $227.0 million, this being the first tranche of a total amount of $500.0 million which the Board of Directors determined was in the best interest of the Company and its stockholders to be distributed to stockholders. The Board of Directors intends to distribute approximately $273.0 million of the proceeds of the sale of the Telegraph Group, this being the second tranche of the $500.0 million cash distribution, either by way of a tender offer or a second special dividend. See “— Declaration of Special and Regular Dividend.”

      For the year ended December 31, 2003, the U.K. Newspaper Group had revenues of approximately $519.5 million and operating income of approximately $40.7 million. Results of the U.K. Newspaper Group for the year ended December 31, 2003 are included in the Consolidated Financial Statements of the Company for that period.

      In June 2004, the Company commenced a tender offer and consent solicitation to purchase and retire Publishing’s 9% Senior Notes due in 2010 (the “9% Senior Notes”) and eliminate the covenants in place with respect to principal amounts not tendered. Approximately 97% of the principal amount of the 9% Senior Notes were tendered, and the covenants were removed from the 9% Senior Notes that remained outstanding. The Company used approximately $344.8 million of the proceeds from the sale of the Telegraph Group to purchase the 9% Senior Notes tendered and for related expenses. The Company also used $10.5 million to cancel the interest rate swaps the Company had in place on the 9% Senior Notes. The tender closed on August 2, 2004. The Company has since purchased and retired an additional $3.4 million in principal amount of the 9% Senior Notes. See “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

      On July 30, 2004, the Company used approximately $213.4 million of the proceeds from the sale of the Telegraph Group to repay all amounts outstanding under and cancel the Company’s $310.0 million Senior Credit Facility with Wachovia Bank, N.A. (the “Senior Credit Facility”). In addition, the Company paid approximately $2.1 million in fees related to this early repayment and incurred costs of $32.3 million in fees to cancel the cross currency interest rate swaps the Company had in place with respect to amounts outstanding under the Senior Credit Facility. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

      On December 16, 2004, from the proceeds of the sale of the Telegraph Group, the Board of Directors declared a Special Dividend of $2.50 per share payable on the Company’s Class A and Class B Common Stock on January 18, 2005 to holders of record of such shares on January 3, 2005, in an aggregate amount of approximately $227.0 million, this being the first tranche of a total amount of $500.0 million which the Board of Directors determined was in the best interest of the Company and its stockholders to be distributed to

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      On December 16, 2004, the Board of Directors also declared a regular quarterly dividend in the amount of $0.05 per share, payable on the Company’s Class A and Class B Common Stock on January 18, 2005 to stockholders of record on January 3, 2005.

      On June 15, 2004, the Company announced that the Audit Committee was conducting an internal review into practices that resulted in the overstatement of circulation figures for the Chicago Sun-Times. On October 5, 2004, the Company announced the results of this internal review. The review by the Audit Committee determined that weekday and Sunday average circulation of the Chicago Sun-Times, as reported in the audit reports issued by the Audit Bureau of Circulations (“ABC”) commencing in 1998, had been overstated. The Audit Committee found no overstatement of Saturday circulation data. The inflated circulation figures were submitted by the Company to ABC, which then reported these figures in its annual audit report issued with respect to the Chicago Sun-Times.

      Inflation of the Chicago Sun-Times single-copy circulation began modestly and increased over time. In the most recent report of the Chicago Sun-Times circulation published by ABC, which covered the period ended March 2003, the average single-copy circulation was found by the Audit Committee to have been overstated by approximately 50,000 weekday copies and 17,000 Sunday copies. The inflation of circulation continued to grow during the twelve-month period ended March 28, 2004, but these circulation figures were not included in an ABC audit report.

      The Chicago Sun-Times announced a plan intended to make restitution to its advertisers for losses associated with the overstatements in the ABC circulation figures. To cover the estimated cost of restitution and settlement of related lawsuits filed against the Company, the Company recorded pre-tax charges of approximately $24.1 million for 2003 and approximately $2.9 million for the first quarter of 2004. The Company will evaluate the adequacy of the accruals as negotiations with advertisers proceed. See “— Risk Factors” below.

      The Company has implemented procedures to help ensure that similar circulation overstatements do not occur in the future. See “Item 9A — Controls and Procedures.”

      The Audit Committee also conducted a Company-wide review and found that certain circulation inflation practices were employed at two other Chicago area newspapers, the Daily Southtown and The Star, as well as at The Jerusalem Post. Since the inflation practices at the Daily Southtown and The Star began in mid-2003, none of the inflated circulation figures have been reported publicly in ABC circulation audit reports. There is no independent third-party, such as the ABC, that audits or reports circulation figures for Israeli newspapers. The overstatement practices have been discontinued at these newspapers, and the Company does not expect the practices at these three newspapers will have a material impact on the Company.

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      On June 21, 2004, the Company entered into an agreement to sell its 50% interest in the real estate joint venture that was established by the Company and an entity affiliated with Mr. Donald Trump for the development of the property on which a portion of the facilities of the Chicago Sun-Times operations were situated. Immediately prior to the sale of the interest in the joint venture, the Company contributed to the joint venture, its property in downtown Chicago where the Chicago Sun-Times had conducted its editorial, pre-press, marketing, sales and administrative activities. Under the terms of the agreement, the Company received $4.0 million in cash upon the signing of the sales agreement and the balance of approximately $66.7 million, net of closing costs and adjustments, was received in cash on closing. The Company completed this transaction on October 15, 2004.

      As a result of the decision to sell its interest in the joint venture and the property to be developed, the Chicago Sun-Times entered into a 15-year operating lease for new office space. The Chicago Sun-Times relocated to the new office space in the fourth quarter of 2004.

      On August 30, 2004, the Special Committee released its report setting out the scope and results of its investigation into certain related party transactions involving certain former executive officers and certain current and former directors of the Company and Hollinger Inc. and its affiliates. The report was delivered to the SEC and filed with the U.S. District Court for the Northern District of Illinois. In addition, on August 31, 2004, the Company filed a copy of the report with the SEC as an exhibit to a current report on Form 8-K, as amended by a current report on Form 8-K/A filed with the SEC on December 15, 2004. The report, as filed with the SEC in an amended form on such date, is hereinafter referred to as the “Report”.

      Below is a summary of the results of the Special Committee’s investigation contained in the Report. For a complete discussion of the results of the investigation of the Special Committee, see the Report, as amended, included as an exhibit to the Company’s Form 8-K/A filed with the SEC.

      As noted under “Item 3 — Legal Proceedings,” most of the findings of the Special Committee set forth in the Report are the subject of ongoing litigation and are being disputed by the former executive officers and certain of the current and former directors of the Company who are the subject of the Report. The amount of damages sought by the Company in these actions is set out in “Item 3 — Legal Proceedings.” It should be noted that all of the directors do not necessarily agree with all of the findings of the Report as to any one or more of the directors who are the subject of the Report.

      Where disclosure either as a related party transaction or otherwise is required, such disclosure, including corrections to previously disclosed information, has been made in this annual report on Form 10-K, including the Consolidated Financial Statements and related Notes, or in the Report.

      The Special Committee concluded that Hollinger Inc., Ravelston and RMI collected excessive and unjustifiable management fees from the Company for the benefit of Black, Radler and certain other former executive officers of the Company. From 1997 through 2003, the Company paid approximately $218.4 million in management fees to Hollinger Inc., Ravelston, RMI and their affiliates (including Moffat and Black-Amiel, as discussed below). As noted above, the Restructuring Agreement provided for the termination of the services agreements with RMI as of June 1, 2004.

      The Company disclosed publicly the amounts charged by and paid to Hollinger Inc., Ravelston and RMI as related party transactions in previous years. In its 2002 Form 10-K (by way of incorporating portions of its proxy statement), the Company attributed a portion of the management fees to the compensation of Black, Radler, Colson, Atkinson and Boultbee for 2001 and 2002. For years prior to 2001, the Company did not attribute any portion of the management fees to executive compensation. The Company has commenced legal actions to recoup the excessive management fees that the Company paid to Hollinger Inc., Ravelston and RMI. See “Item 3 — Legal Proceedings — Litigation Involving Controlling Stockholders, Senior Management and Directors.”

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      Moffat and Black-Amiel, offshore companies directly or indirectly owned by Black and certain other former executive officers of the Company, also entered into management services agreements with the Company. The Special Committee concluded that these services agreements did not have any economic substance, nor did they provide any direct benefit to the Company, and were in fact created as a means to allow those former executive officers to divert monies from the Company to offshore entities. The management fees paid to these companies have been disclosed publicly as related party transactions in previous years. The Company did not attribute any portion of these management fees to executive compensation in previous years. Additionally, in or about August 1999, former management caused the Company to pay $900,000 to Moffat that was recorded as a “broker fee.” The Special Committee determined that this related party payment was never authorized by the Company’s independent directors, and moreover, that it was a sham and unfair to the Company’s public stockholders because neither Moffat nor its principals ever performed “broker” services for the Company. The Company has commenced legal action, as noted above, to recoup this $900,000 payment.

      The Special Committee concluded that there was no economic substance for compensation of $1.4 million paid to Amiel Black since 1999, for serving as the Company’s Vice President, Editorial. These salary and bonus payments were in addition to payments of director fees and for writing columns. The Company is seeking to recover these payments through legal action pending before the courts. See “Item 3 — Legal Proceedings.”

      The Special Committee investigated several past transactions relating to sales of U.S. community newspapers formerly owned by the Company to both related and third parties. The Special Committee concluded, among other things, that as part of these transactions significant payments ($32.2 million) of purported “non-competition” fees were made to Hollinger Inc., Black, Radler, Boultbee and Atkinson without the approval of the Audit Committee or the Board of Directors. The Special Committee also determined that there was no economic rationale for the payments of the purported “non-competition” fees made to Hollinger Inc., Black, Radler, Boultbee and Atkinson, and that those payments were unfair to the Company. The Special Committee also determined that the Company’s past public disclosures made with respect to the following transactions were incomplete or inaccurate.

      (i) Intertec Publishing Co.

      In its 1998 Form 10-K, the Company disclosed that it had concluded a transaction to sell American Trucker magazine. The purchase and sale agreement provided for the payment by the purchaser of a $2.0 million “non-competition” fee to the Company. The Company failed to disclose that on February 1, 1999, approximately eight months after the sale closed, the Company transferred funds equivalent to the “non-competition” fee to Hollinger Inc. According to the Report, no approval of the Audit Committee or the full Board of Directors was sought or obtained for this transfer of funds.

      (ii) Community Newspaper Holdings Inc. I

      In its 1998 Form 10-K, the Company disclosed as a subsequent event that it had concluded a transaction to sell certain U.S. community newspaper properties. The underlying agreement for the purchase and sale allocated $50.0 million of the proceeds to a “non-competition” agreement and included Hollinger Inc. as a non-competition covenantor along with the Company. The Company failed to disclose that upon closing of the transaction $12.0 million of the “non-competition” fee was paid to Hollinger Inc. According to the Report, neither the Audit Committee nor the Board of Directors was informed of or approved this payment to Hollinger Inc.

      The Special Committee determined that Hollinger Inc. used the $14.0 million of unauthorized payments, which Hollinger Inc. received from the Company on February 1, 1999 out of the Company’s proceeds from the Intertec and Community Newspaper Holdings Inc. (“CNHI”) I transactions, to ostensibly repay a portion of a 1997 $42.5 million overdue loan from the Company.

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      (iii) Horizon Publications Inc.

      In its 1999 Form 10-K, the Company disclosed that it had concluded a transaction with Horizon Publications Inc. (“Horizon”), a company controlled by Black and Radler, to sell various community newspapers. The underlying agreement for the purchase and sale provided for a “non-competition” payment by Horizon of $5.0 million. Of this amount $1.2 million was paid directly to Hollinger Inc. The existence of this payment was not disclosed in the 1999 Form 10-K. According to the Report, neither the Audit Committee nor the Board of Directors was informed of or approved this payment, nor were they informed of the extent of ownership and participation of Black and Radler in Horizon.

      (iv) Forum Communications Inc., Paxton Media Group and Community Newspaper Holdings Inc. II

      In its 2000 Form 10-K, the Company disclosed that it had concluded three separate transactions to sell various publishing assets to Forum Communications Inc. (“Forum”), Paxton Media Group (“Paxton”) and CNHI. The underlying agreements for the purchase and sale provided for the payment of “non-competition” fees to Hollinger Inc. totaling $1.4 million in connection with these transactions, which occurred in September and November of 2000. According to the Report, neither the Audit Committee nor the Board of Directors was informed of or approved these payments.

      In addition to the above noted “non-competition” payments, the Special Committee determined that an additional $9.5 million of sale proceeds from the CNHI II transaction was improperly paid to Black, Radler, Boultbee and Atkinson in 2000 without the authorization of either the Audit Committee or the full Board of Directors. The Special Committee also concluded that further amounts totaling $5.5 million were paid to the same executive officers in February 2001, which payments were purportedly supported by sham “non-competition” agreements backdated to December 31, 2000. Lastly, according to the Report, in April 2001, payments totaling $600,000 were made to the same four executive officers without approval of either the Audit Committee or the full Board of Directors and without any underlying “non-competition” agreements. The Special Committee determined that these latter payments were made out of unutilized post-closing accruals relating to certain U.S. community newspaper sale transactions.

      The Company failed to disclose the above discussed payments, totaling $15.6 million, in its 2000 Form 10-K. Although disclosure of those payments was made in the 2001 Form 10-K, based on the Report, the disclosure was incorrect and incomplete in several ways, including the following:

	•	the Company asserted falsely that its independent directors had approved the terms of the payments;
	•	no disclosure was made of the $1.4 million paid to Hollinger Inc. in connection with the Forum, Paxton and CNHI II transactions;
	•	the $600,000 in payments to Black, Radler, Boultbee and Atkinson were incorrectly stated to have been made in connection with the sale of U.S. newspaper properties;
	•	the “non-competition” agreements and payments were falsely stated to have been made to satisfy a closing condition of the sale; and
	•	the payment of the $5.5 million was incorrectly characterized as having been made in 2000. The payment was actually made and documented in 2001.

      On November 16, 2000, the Company completed the sale of most of its Canadian newspapers and related assets to CanWest Global Communications Corporation (“CanWest”). In connection with that sale, “non-competition” payments totaling Cdn.$80.0 million ($51.8 million) and interest payments totaling $1.1 million were made to Ravelston, Black, Radler, Boultbee and Atkinson. According to the Report, under the terms of a management services agreement between CanWest and Ravelston, which was entered into in conjunction with the CanWest transaction, Ravelston received, and continues to receive, an annual management fee of Cdn.$6.0 million until the fee arrangement is terminated. If the agreement is terminated by CanWest,

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      In connection with these payments, the Special Committee concluded that:

	•	the structure of the management services and “non-competition” provisions of the CanWest transaction resulted in substantial and unjustifiable damage to the Company’s public stockholders;
	•	the terms of the management services agreement between CanWest and Ravelston had the effect of reducing the purchase price otherwise payable to the Company by Cdn.$60.0 million ($39.0 million);
	•	although the “non-competition” agreements were approved by the Board of Directors and the Audit Committee prior to the sale, such approval and the ratification of such approval in May 2001, were based on false, misleading and incomplete information.
	•	the interest payments of $1.1 million were never disclosed to the Audit Committee nor was approval for those payments sought or obtained;
	•	the “non-competition” fees and interest payments had the effect of reducing the transaction proceeds to the Company upon sale by $52.9 million;
	•	no one was negotiating on behalf of the Company’s public stockholders with respect to the above fees;
	•	none of the payment recipients was entitled to any consideration for signing the “non-competition” agreements because they remained Company officers and the Company was itself bound not to compete with CanWest;
	•	although the properties sold to CanWest included assets of both the Company and Hollinger L.P., prior management of the Company directed that the entire “non-competition” payment attributable to the assets sold to CanWest by Hollinger L.P. be made from the Company’s share of the Hollinger L.P. distribution. In other words, the Company bore 100%, rather than its pro rata share of 87%, of this burden;
	•	the entirety of the payments to Ravelston, Black, Radler, Boultbee and Atkinson represents proceeds from a direct violation of their fiduciary duties to the Company and its public stockholders.

      The Company’s 2000 Form 10-K disclosed the transactions with CanWest but failed to disclose the existence of the above-mentioned “non-competition” and interest payments and management fees.

      The management fees and “non-competition” payments to Ravelston and the four former executive officers were disclosed in the Company’s 2001 Form 10-K. However, the Special Committee concluded that disclosure to be deficient in at least the following ways:

	•	payment of $1.1 million in interest in connection with the “non-competition” payments was not disclosed;
	•	the disclosure incorrectly stated the allocation of amounts between Ravelston and the four former executive officers;
	•	the disclosure creates the false impression that the “non-competition” payments were paid in addition to the purchase price, when in fact they effectively reduced the purchase price, and that the negotiation with CanWest determined the amounts paid to the individuals and Ravelston when, in fact, the allocation of the payments was determined solely by the Company’s former executive officers; and
	•	contrary to the disclosure, CanWest did not require as a condition to the closing of the transaction the “non-competition” agreements from Boultbee and Atkinson.

      In two separate transactions in July and November 2001, the Company completed the sale of most of its remaining Canadian newspapers to Osprey Media Holdings Inc. (“Osprey Media”). In connection with these

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      The Special Committee determined that there was no economic substance to or valid business purpose for a $1.1 million payment made to Colson on September 5, 2001, which payment was not approved by either the Audit Committee or the Compensation Committee of the Board of Directors.

      The Special Committee concluded that during the period from early 1999 to January 2003, Black and Radler diverted income, assets and opportunities from the Company to Horizon and Bradford Publishing Co. (“Bradford”), newspaper-publishing companies controlled by Black and Radler. According to the Report, the diversion was effected by repeatedly transferring some of the Company’s publications to Horizon and Bradford at less than fair market value and by usurping corporate opportunities belonging to the Company. These actions, the Special Committee concluded, constituted a violation of Black’s and Radler’s fiduciary duties as controlling stockholders and as officers and directors of the Company.

      Although in a number of instances the Horizon and Bradford transactions were approved by the Audit Committee, the Special Committee determined that the approvals were based on false, misleading or incomplete information. In only one instance was a fairness opinion obtained and, in that case, the Special Committee concluded that the opinion was based in large part on false information and incorrect assumptions. The Special Committee found no evidence that this opinion was ever submitted to the Board of Directors.

      The transactions between the Company and Horizon and Bradford during the years 1999 to 2001 were not properly disclosed in the Company’s annual reports on Form 10-K. Among other things, the Company aggregated the asset transfers into one combined disclosure relating to the Company’s sales of U.S. community newspapers, and failed to identify that some of these transactions were conducted with related parties. In 2001, the Company amended the disclosures to state the number of properties sold to Bradford and Horizon and the total aggregate consideration for those properties, but did not identify assets that were transferred to Horizon or Bradford.

      The Special Committee reviewed certain aspects of the Company’s technology and other investments, in particular, those made through its subsidiary Hollinger Digital and its investment in Trireme Associates LLC (“Trireme”). The Special Committee determined that the incentive compensation plan of Hollinger Digital (“Digital Incentive Plan”) was excessive and unfair to the Company’s public stockholders, in particular because incentive compensation was based solely upon investment gains with no offset for the effect of losses and because these “upside-only” bonuses were awarded based on a definition of “realized gain” on an investment that was divorced from the amount the Company actually realized. The Special Committee also

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      The Company did not disclose in its 2000 or 2001 Form 10-Ks or proxy statements that Black, Radler, Colson, Boultbee and Atkinson received payments under the Digital Incentive Plan, totaling approximately $5.2 million, although the Company’s proxy statements for the same periods contain some incomplete disclosures with respect to these payments. In addition, the Company did not disclose in its 2000 or 2001 Form 10-Ks or proxy statements that one of its directors, Perle, received $3.1 million in incentive payments under the Digital Incentive Plan. Overall, the Special Committee found that former management received over $8.0 million in Digital Incentive Plan payments, while the Company suffered an aggregate net loss of approximately $68.0 million on its investments through Hollinger Digital as of December 31, 2003. No payments were made under the Digital Incentive Plan in either 2002 or 2003.

      According to the Report, in late 2002, Perle purported to commit the Company to invest $25.0 million in Trireme, a venture capital fund in which Perle had a significant financial interest. The Report also stated that, although this commitment was not binding on the Company, the Company subsequently invested $2.5 million in Trireme. At the time, Perle was a director of the Company and a director and executive officer of Hollinger Digital. The Special Committee concluded that the Trireme investment was a related party transaction that required the approval of the independent directors or the Audit Committee and that no such approval was ever sought or obtained.

      The Special Committee also reviewed the Company’s acquisitions of papers and other memorabilia of President Franklin Delano Roosevelt (the “FDR Collection”). The Special Committee found that the Company paid at least $9.6 million for the FDR Collection. According to the Report, no approval for the purchases was obtained from the Board of Directors or the Audit Committee prior to their consummation. The Special Committee determined that: (i) Black arranged the Company’s purchases of the FDR Collection without obtaining independent appraisals; (ii) the majority of the items comprising the FDR Collection were displayed or stored in Black’s private residences; (iii) during the period over which the Company purchased the FDR Collection, Black was writing a biography of President Roosevelt; and (iv) the Company significantly overpaid for portions of the FDR Collection, at Black’s direction. The U.S. National Archives has asserted an ownership claim to a portion of the FDR Collection known as the Grace Tully Collection.

      The Special Committee concluded that a number of perquisites paid by the Company for the benefit of Black, Radler, Colson and Amiel Black were contrary to the public stockholders’ interests because the aggregate cost of the perquisites was prohibitive; there was no legitimate business purpose for most of the expenditures; and the perquisites were not submitted for approval of either the Compensation Committee or the Audit Committee. In addition, there was inadequate disclosure of the perquisites in the Company’s public filings. According to the Report these perquisites included, among other things: personal use of corporate aircraft; Company provided cars and drivers; payment for personal staff; payment for household staff costs; and car repairs.

      The Special Committee also concluded that Black violated his fiduciary duties to the Company by causing the Company to sell to him an apartment it owned in Manhattan for a fraction of its actual value in December 2000. According to the Report, this related party transaction was not presented to the Audit Committee or the full Board of Directors for approval. The Report stated that the transaction was falsely characterized in the Company’s 2001 and 2002 proxy statements as having been made for “fair market value,” when, in fact, Black paid substantially less than fair market value.

      The Special Committee concluded, among other things, that the Company’s charitable giving was tainted by Black’s and Radler’s usurpation of public credit for substantial cash donations made with Company funds. The Special Committee also concluded that Black and Radler abused the Company’s charitable giving to

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      In 2002, the Company sold its subsidiary, NP Holdings Company (“NP Holdings”), to RMI allowing RMI to use tax loss carryforwards which the Company was unable to fully use. Although this sale was approved by the Audit Committee, the Special Committee concluded that this approval was based upon false and misleading information. The Special Committee also concluded, among other things, that the transaction was unfair to the Company and that no disclosure was made to the Audit Committee of either a higher offer for NP Holdings or of an underlying financing arrangement exposing the Company to a contingent liability of $14.6 million arising from the sale. According to the Report, prior disclosure of this transaction in the Company’s public filings was false and misleading with respect to these issues.

      The Special Committee determined that during the period from 1997 to 2002, former executive officers caused the Company to enter into a number of unfair related party transactions to the detriment of the Company, which allowed Hollinger Inc. to, among other things, borrow money from the Company at below market rates of interest, “repay” the Company with the Company’s own funds, use the Company’s limited liquidity to Hollinger Inc.’s advantage, and defer obligations to Hollinger Inc. creditors by drawing on the Company’s credit capacity without adequate compensation to the Company. The Special Committee concluded that the various manipulations of loan structures caused the Company to suffer significant financial loss. The Report stated that these transactions were undertaken, for the most part, either without Audit Committee approval or with Audit Committee approval predicated upon false, misleading and incomplete information. The Special Committee concluded that Black, Radler and Boultbee made material misrepresentations to the Audit Committee and breached their fiduciary duties to the Company in these transactions. The Special Committee found that the Company’s financial statement disclosure regarding a reduction in the interest rate charged on one of the related party loans was incorrect because it suggested that the reduction had been properly approved.

      The Special Committee concluded that the Audit Committee was deliberately misled repeatedly by prior management. The Special Committee also determined that, although the Audit Committee was generally entitled to reasonably rely on representations and presentations by management, the Audit Committee was not sufficiently deliberate in its evaluation of certain related party transactions. The Special Committee Report also notes that since June 2003, the Audit Committee has performed ably and in the interests of the Company’s public stockholders.

      On August 6, 2004, the Toronto Stock Exchange (“TSX”) suspended the listing of the units of Hollinger L.P. because the general partner of Hollinger L.P. does not have at least two independent directors as required by TSX listing requirements. On August 5, 2004, the Company expressed an interest in pursuing a tender offer for the units of Hollinger L.P. not held by affiliates of the Company. An independent committee of the general partner of Hollinger L.P., consisting of the sole independent director of the general partner, was formed and it retained independent legal counsel and financial advisors. Continuing liquidity for minority unit holders during the tender process has been provided through a listing of the units on a junior board of the TSX Venture Exchange. On December 10, 2004, it was announced that the Company would not pursue the tender until such time as Hollinger L.P. is current in its financial statement filings.

      In November 2000, the Company and Hollinger L.P., received approximately Cdn.$766.8 million aggregate principal amount of 12 1/8% Fixed Rate Subordinated Debentures due November 15, 2010 (the “CanWest Debentures”) issued by a wholly-owned subsidiary of CanWest called 3815668 Canada Inc. (the

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      On October 7, 2004, the Company and Hollinger L.P. entered into a Facilitation Agreement (the “Facilitation Agreement”) with CanWest pursuant to which the parties agreed to redeem the CanWest Debentures and dissolve the Trust. CanWest exchanged the Trust Notes for new debentures issued by CanWest (the “CanWest Exchange Offer”). The CanWest Exchange Offer closed on November 18, 2004, and the amount received by the Company and Hollinger L.P. was approximately $133.6 million in cash in respect of CanWest Debentures beneficially owned and residual interests in the Participation Trust attributable to foreign currency exchange. As a result of the closing, the Participation Trust has been unwound and neither the Company nor Hollinger L.P. have retained any ownership in the CanWest Debentures.

     Sale of The Jerusalem Post

      On December 15, 2004, the Company announced that as part of the Strategic Process, it had completed the sale of The Palestine Post Limited, the publisher of The Jerusalem Post, The Jerusalem Report and related publications, to Mirkaei Tikshoret Ltd. (“MTL”). The transaction involved the sale by the Company of its debt and equity interests in The Palestine Post Limited to MTL for $13.2 million.

General

      Hollinger International Inc. was incorporated in the State of Delaware on December 28, 1990 and its wholly owned subsidiary Publishing was incorporated in the State of Delaware on December 12, 1995. The Company’s principal executive offices are at 712 Fifth Avenue, New York, New York, 10019, telephone number (212) 586-5666.

Business Strategy

      Pursue Revenue Growth by Leveraging the Company’s Leading Market Position. The Company intends to continue to leverage its leading position in daily readership in the attractive Chicago market in order to drive revenue growth. Following the successful sale of the Telegraph Group for approximately $1.3 billion, the Company’s primary asset is the Chicago Group, including its flagship property, the Chicago Sun-Times. The Company will seek to continue to build revenues by taking advantage of the extensive cluster of the combined Chicago Group publications which allows the Company to offer local advertisers geographically and demographically targeted advertising solutions and national advertisers an efficient one-stop vehicle to reach the entire Chicago market.

      Publish Relevant and Trusted High Quality Newspapers. The Company is committed to maintaining the high quality of the Company’s newspaper products and editorial integrity in order to ensure continued reader loyalty. The Chicago Sun-Times has been recognized for its editorial quality with several Pulitzer Prize-winning writers and awards for excellence from Illinois’ major press organizations. The Company will continue to explore ways in which it can define and institute best practices for the Company’s publications.

      Prudent Asset Management. In addition to pursuing revenue growth from existing publications, from time to time the Company may pursue acquisitions to expand the Chicago Group and selective newspaper acquisitions in the United States and non-core divestitures. Many of the Company’s Internet and other non-

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      Institute Strong Corporate Governance Practices. The Company is committed to the implementation and maintenance of strong and effective corporate governance policies and practices and to high ethical business practices.

Risk Factors

      Certain statements contained in this report under various sections, including but not limited to “Business Strategy” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are forward-looking statements that involve risks and uncertainties. Such statements are subject to the following important factors, among others, which in some cases have affected, and in the future could affect, the Company’s actual results and could cause the Company’s actual consolidated results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company:

Risks Relating to Recent Developments

      The Company is controlled by Hollinger Inc., and is indirectly controlled by Black through his control of Ravelston, which in turn controls Hollinger Inc. Through its controlling interest, Hollinger Inc. is able to determine the outcome of all matters that require stockholder approval, including the election of directors, amendment of the Company’s charter, adoption or amendment of bylaws and approval of significant corporate transactions such as a sale of assets. Hollinger Inc. can also have a significant influence over decisions affecting the Company’s capital structure, including the incurrence of additional indebtedness and the declaration of dividends.

      As more fully described in its Report, the Special Committee concluded that during the period from at least 1997 to at least 2003, Black, in breach of his fiduciary duties as a controlling stockholder and officer and director, used his control over the affairs of the Company to divert cash and assets from the Company and to conceal his actions from the Company’s public stockholders. The SEC, in its complaint filed with the federal court in Illinois on November 15, 2004, alleges that certain of the acts and omissions of Black violated federal securities laws in several respects in the period from at least 1999 to at least 2003. In addition, the Delaware Chancery Court found that during the period from November 2003 to early 2004, Black breached his fiduciary and contractual duties “persistently and seriously” in connection with the Strategic Process and purported to adopt bylaws “disabling the Board of Directors from protecting the Company from his wrongful acts.”

      The Company’s current management, the Special Committee and the Corporate Review Committee, as well as the SEC, have undertaken several actions designed to prevent Black from repeating his past practices. The Court Order in the January 2004 SEC Action, among other things, requires the Company to comply with its undertaking to allow the Special Committee to complete its work and provides for the appointment of Breeden as a Special Monitor of the Company under certain circumstances. For example, Breeden would become Special Monitor upon the adoption of any resolution that discharges the Special Committee before it completes its work, diminishes or limits the powers of the Special Committee or narrows the scope of its investigations or review, or if any directors are removed prior to the end of their terms, or there is a failure to nominate or re-elect any incumbent director (unless such director voluntarily decides not to seek nomination or re-election to the Board of Directors), or there is an election of any new person as a director unless such action is approved by 80% of the then incumbent directors. In addition, the Delaware Chancery Court has enjoined Hollinger Inc. and Black from taking any action in violation of the Restructuring Agreement, including interference with the Strategic Process, until the earlier of January 31, 2005 or the date of the

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      Although the various court remedies are designed to prevent Hollinger Inc. and Black from engaging again in similar practices, there can be no assurance that they will remain in place or will not be modified or vacated in the future or that Hollinger Inc. or Black will comply with those remedies. If any of these events were to occur, there is a risk that Black, Ravelston and Hollinger Inc. will again use their control over the affairs of the Company to repeat past practices identified in the Report or otherwise take actions detrimental to the public stockholders of the Company.

      The Company, through the Special Committee, has commenced litigation against Hollinger Inc., Black, other former officers and current and former directors of the Company and certain entities affiliated with the Company’s controlling stockholder. There is a material risk that the controlling stockholder may attempt to thwart or obstruct the efforts of the Company and the Special Committee and that if any such efforts succeed, the Company may not fully recover on its claims. Even without such interference, there can be no assurance that the Company will prevail on its claims and damages allegations, or that it will be able to collect money from any judgment it may obtain against Hollinger Inc., Black and their co-defendants.

      The Company has received various subpoenas and requests from the SEC and other government agencies in the United States and Canada, seeking the production of documentation in connection with various investigations into the Company’s governance, management and operations. The Company is cooperating fully with these investigations and is complying with these requests. See “Item 3 — Legal Proceedings” for a more detailed description of these investigations. On January 16, 2004, the Company consented to the entry of the Court Order against it in the January 2004 SEC Action. The Court Order, among other things, enjoins the Company from violating certain provisions of the Exchange Act, including the requirements to file accurate annual reports on Form 10-K, quarterly reports on Form 10-Q and keep accurate books and records. As part of the Court Order, the Company agreed that the SEC has the right to amend its complaint in the January 2004 SEC Action to assert that the conduct alleged in such action also violated other federal securities laws, including the anti-fraud provisions of the Exchange Act, and to add allegations of other conduct the SEC believes to have violated federal securities laws. The Company cannot predict when these government investigations will be completed, nor can the Company predict what the outcome of these investigations may be. It is possible that the Company will be required to pay material amounts in disgorgement, interest and/or fines, consent to or be subject to additional court orders or injunctions, or suffer other sanctions, each of which could have a material adverse effect on the Company’s business and results of operations.

      The Court Order, to which the Company consented, provides for a Special Monitor under certain circumstances, including the adoption of any resolution that discharges the Special Committee before it completes its work, diminishes or limits the powers of the Special Committee or narrows the scope of its investigations or review, or if any directors are removed prior to the end of their term, or there is a failure to nominate or re-elect any incumbent director (unless such director voluntarily decides not to seek nomination or re-election to the Board of Directors), or there is an election of any new person as a director unless such action is approved by 80% of the then incumbent directors. Although nothing in the Court Order prevents the Company’s controlling stockholder from changing the composition of the Board of Directors, the Court Order may make it less likely that there will be any changes in the composition of the Board of Directors while the Court Order remains in effect. There is a risk, however, that the Company’s controlling stockholder will, by written stockholder consent, make such change even while the Court Order remains in effect. Under the terms

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      The Company is currently involved, either as plaintiff or as defendant, in several lawsuits, including: a derivative action brought by Cardinal Value Equity Partners, L.P. against certain of the Company’s former executive officers and certain of its current and former directors, entities affiliated with them and the Company as “nominal” defendant; purported class actions brought by stockholders against it, certain former executive officers and certain of its current and former directors, Hollinger Inc., Ravelston, other affiliated entities, Torys LLP, the Company’s former legal counsel and the Company’s independent registered public accounting firm, KPMG LLP; and, several suits and counterclaims brought by Black and/or Hollinger Inc. Tweedy Browne has also initiated a suit against the Company for attorneys’ fees. In addition, Black has commenced libel actions against certain of the Company’s current directors, officers and advisors to whom the Company has indemnification obligations. See “Item 3 — Legal Proceedings” for a more detailed description of these proceedings. Several of these actions remain in preliminary stages and it is not yet possible to determine their ultimate outcome. The Company cannot provide assurance that the legal and other costs associated with the defense of all of these actions, the amount of time required to be spent by management and the Board of Directors in these matters and the ultimate outcome of these actions will not have a material adverse effect on the Company’s business, financial condition and results of operations.

      The efforts of the current senior management team and Board of Directors to manage the Company’s business have been hindered at times by their need to spend significant time and effort to resolve issues inherited from and arising from the conduct of the prior senior management team and the direct and indirect controlling stockholders. To the extent the senior management team and the Board of Directors will be required to devote significant attention to these matters in the future, this may have, at least in the near term, an adverse effect on operations.

      Based in part on the results of the investigations of the Special Committee set forth in its Report, the Company’s management concluded that both significant deficiencies and material weaknesses existed in the Company’s systems of internal controls and procedures prior to, during the year ended and as of December 31, 2003. The SEC, in its complaint filed with the federal court in Illinois on November 15, 2004 naming Black, Radler and Hollinger Inc. as defendants, alleges that Black, Radler and Hollinger Inc. were liable for the Company’s failure to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurance that transactions were recorded as necessary to permit preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) from at least 1999 through at least 2003. The SEC also alleges that Black, Radler and Hollinger Inc., directly and indirectly, falsified or caused to be falsified books, records, and accounts of the Company in order to conceal their self-dealing from the Company’s public stockholders. In addition, subsequent to December 31, 2003, the Company became aware that circulation figures for the Chicago Sun-Times and certain other publications had been

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      Section 404 of the Sarbanes-Oxley Act of 2002 and related rules require that management document and test the Company’s internal control over financial reporting and assert in the annual report for the year ended December 31, 2004 whether the Company’s internal control over financial reporting at December 31, 2004 was effective. In addition, the Company’s independent registered public accounting firm must report on management’s assessment and the effectiveness of the Company’s internal controls. Any material weakness in internal control over financial reporting existing at that date will preclude either management or the independent registered public accounting firm from making positive assertions.

      The Company is in the process of documenting and testing its internal control over financial reporting to provide the basis for management’s report. However, at this time, due to the recent instances of breakdowns in the Company’s internal controls and procedures and the ongoing evaluation and testing, it is possible that the Company will identify continued material weaknesses in internal control over financial reporting that will be required to be reported as of December 31, 2004.

      In addition, the Company’s independent registered public accounting firm only recently completed their audit of the 2003 consolidated financial statements and have not yet provided the Company with a “management letter” in connection with such audit. It is possible that, in connection with their 2003 audit, the independent registered public accounting firm will identify certain matters involving internal controls over financial reporting and their operation that the independent registered public accounting firm considers to be reportable conditions under standards established by the American Institute of Certified Public Accountants as well as material weaknesses in internal controls over financial reporting, which the Company would not have addressed prior to December 31, 2004.

      The Company has postponed the filing of its periodic reports for the quarters ended March 31, 2004, June 30, 2004 and September 30, 2004 and the required pro forma financial information reflecting the sale of the Telegraph Group on a current report on Form 8-K. Although the Company intends to make these filings within a reasonable time, it cannot state with certainty when complete financial and operational information relating to its first three quarters of 2004 will become available. When these reports are filed they may reflect changes or trends that are material to the Company’s business.

      Under the Canadian Income Tax Act (the “ITA”), there are limits on the deductibility by advertisers of the cost of advertising in newspapers that are not considered Canadian-owned under the ITA. The Canada Revenue Agency (“CRA”) may find that, as a consequence of Black’s renunciation of his Canadian citizenship in June 2001, certain of the Company’s Canadian newspapers are no longer considered to be Canadian-owned for purposes of the ITA. Although the Company believes that it has a structure in place that meets the ITA Canadian ownership rules for at least a portion of the period since June 2001, that structure may be challenged by the CRA. Should any challenge be successful, advertisers might seek compensation from the Company for any advertising costs disallowed or otherwise seek a reduction of advertising rates for certain Canadian newspaper publications.

      Additionally, one or more of the Company’s Canadian subsidiaries has received funding under a Canadian governmental program that is intended to benefit entities that are Canadian owned or controlled.

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      In June 2004, the Company announced that the Audit Committee had initiated an internal review into practices that resulted in the overstatement of circulation figures for the Chicago Sun-Times. Following the announcement, several lawsuits were filed against the Company, some of which are purported class actions composed of all persons who purchased advertising space in the Chicago Sun-Times during the period in which circulation figures were overstated.

      In October 2004, the Company announced the results of the internal review of the Audit Committee. The Audit Committee determined that weekday and Sunday average circulation of the Chicago Sun-Times, as reported in the audit reports published by ABC commencing in 1998, had been overstated. The Audit Committee found no overstatement of Saturday circulation data. The Chicago Sun-Times announced a plan intended to make restitution to its advertisers for losses associated with the overstatements in the ABC circulation figures. To cover the estimated cost of the restitution and settlement of related lawsuits filed against the Company, the Company recorded pre-tax charges of approximately $24.1 million for 2003 and approximately $2.9 million for the first quarter of 2004. The Company will evaluate the adequacy of the accruals as negotiations with advertisers proceed. If the actual total cost of restitution and settlement of related lawsuits significantly exceeds the Company’s current estimates this could have an adverse effect on the Company’s results of operations and liquidity.

      In addition, a significant portion of the Company’s revenue is derived from the sale of advertising space in the Chicago Sun-Times. Should certain advertisers decide not to advertise with the Chicago Sun-Times in the future, the Company’s business, results of operations and financial condition could be adversely affected.

Risks Relating to the Company’s Business and the Industry

      Advertising and circulation are the Company’s two primary sources of revenue. The Company’s advertising revenues and, to a lesser extent, circulation revenues are cyclical and dependent upon general economic conditions in the Company’s newspapers’ target markets. Historically, increases in advertising revenues have corresponded with economic recoveries while decreases, as well as changes in the mix of advertising, have corresponded with general economic downturns and regional and local economic recessions. Advertising revenue for the Chicago Group in 2003 was up by $10.8 million or 3.2% over the prior year. However, the Company’s dependency on advertising sales, which generally have a short lead-time, means that the Company has only a limited ability to accurately predict future results.

      The Company is a holding company and its assets consist primarily of investments in subsidiaries and affiliated companies. The Company relies on distributions from subsidiaries to meet its financial obligations. The Company’s ability to meet its future financial obligations may be dependent upon the availability of cash flows from its domestic and foreign subsidiaries through dividends, intercompany advances, management fees and other payments. Similarly, the Company’s ability to pay dividends on its common stock may be limited as a result of being dependent upon the distribution of earnings of the Company’s subsidiaries and affiliated companies. The Company’s subsidiaries and affiliated companies are under no obligation to pay dividends and, in the case of Publishing and its principal domestic and foreign subsidiaries, are subject to statutory restrictions and may become subject to restrictions in future debt agreements that limit their ability to pay dividends.

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      The Company’s Consolidated Balance Sheet as of December 31, 2003 includes $748.8 million of accruals intended to cover contingent liabilities related to additional taxes and interest it may be required to pay in various tax jurisdictions. A substantial portion of these accruals relate to the tax treatment of gains on the sale of a portion of the Company’s non-U.S. operations. The accruals to cover contingent tax liabilities also relate to management fees, “non-competition” payments and other items that have been deducted in arriving at taxable income, which deductions may be disallowed by taxing authorities. If those deductions were to be disallowed, the Company would be required to pay additional taxes and interest since the dates such taxes would have been paid had the deductions not been taken, and it may be subject to penalties. The Company will continue to record accruals for interest that it may be required to pay with respect to its contingent tax liabilities.

      Although the Company believes that it has defensible positions with respect to significant portions of these tax liabilities, there is a risk that the Company may be required to make payment of the full amount of such tax liabilities. Although these accruals for contingent tax liabilities are reflected in the Company’s Consolidated Balance Sheet, if the Company were required to make payment of the full amount, this could result in a significant cash payment obligation. The actual payment of such cash amount could have a material adverse effect on the Company’s liquidity and on the Company’s ability to borrow funds.

      The Company’s Consolidated Balance Sheet at December 31, 2003 includes $455.6 million of accruals for tax contingencies in a foreign jurisdiction. The accruals are denominated in foreign currency and translated into U.S. dollars at the period-end currency exchange rate effective as of each balance sheet date. If the Company were required to make payments with respect to such tax contingencies, it may be necessary for the Company to transfer U.S. dollar-denominated funds to its foreign subsidiaries to fund such payments. The amount of U.S. dollar-denominated funds that may need to be transferred will depend primarily on the resolution of the matters described in the preceding paragraph. The amount of U.S. dollar-denominated funds that may need to be transferred also will depend upon the currency exchange rate between the U.S. dollar and the foreign currency at the time or times such funds might be transferred. The Company cannot predict future currency exchange rates. Changes in the exchange rate could have a material effect on the Company’s financial position, results of operations and cash flows, depending on the extent and timing of transfers of funds, if any are required.

      Newsprint represents the Company’s single largest raw material expense and is the most significant operating cost, other than employee costs. In 2003, newsprint costs represented approximately 14.0% of revenues. Newsprint costs vary widely from time to time and trends in pricing can vary between geographic regions. If newsprint prices increase in the future and the Company is unable to pass these costs on to customers, such increases may have a material adverse effect on the Company’s results of operations. Although the Company has, in the past, implemented measures in an attempt to offset a rise in newsprint prices, such as reducing page width where practical and managing waste through technology enhancements, price increases have in the past had a material adverse effect on the Company and may do so again in the future.

      Revenues in the newspaper industry are dependent primarily upon advertising revenues and paid circulation. Competition for advertising and circulation revenue comes from local and regional newspapers,

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      The Chicago Sun-Times has experienced declines in circulation. Any declines in circulation the Company may experience at its publications could have a material adverse impact on the Company’s business and results of operations, particularly on advertising revenue. Any future significant declines in circulation could lead to a material adverse effect in addition to that occasioned by the previously described overstatement of circulation. Significant declines in circulation could result in an impairment of the value of the Company’s intangible assets, which could have a material adverse effect on the Company’s results of operations and financial position.

      Approximately 36% of the Chicago Group employees are represented by labor unions and those employees are mostly covered by collective bargaining or similar agreements which are regularly renewable. A work stoppage or strike may occur prior to the expiration of the current labor agreements or during negotiations of new labor agreements or extensions of existing labor agreements. Work stoppages or other labor-related developments could slow down or halt production or distribution of the newspapers, which would adversely affect results of operations.

      The geographic diversification the Company previously experienced has been substantially curtailed. With the sale of the Telegraph Group in July 2004, and The Jerusalem Post in December 2004, approximately 85% of the Company’s revenue for the year ended December 31, 2003, excluding the U.K. Newspaper Group and The Jerusalem Post and related publications, and a major portion of the Company’s business activities are concentrated in the greater Chicago metropolitan area. As a result, the Company’s revenues are heavily dependent on economic and competitive factors affecting the greater Chicago metropolitan area.

Risks Related to Voting Control by a Single Stockholder

      The Company is controlled by Hollinger Inc., and is indirectly controlled by Black through his control of Ravelston, which in turn controls Hollinger Inc. Through its controlling interest, Hollinger Inc. is able to control the affairs of the Company. As more fully described above under “Risks Relating to Recent Developments,” and as detailed in the Report, in the past, Hollinger Inc. and Black have used their control over the Company to engage in practices that conflicted with the interests of the Company’s public

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      Hollinger Inc., Ravelston and Black are currently restricted in their ability to sell their beneficial interests in the Company to third parties by the terms of an order of the Delaware Chancery Court, the Restructuring Agreement and the Company’s SRP. The scope and time of these restrictions are the subject of legal proceedings pending before the Delaware Supreme Court and the final outcome is uncertain.

      If Hollinger Inc., Ravelston and Black were not restricted in their ability to sell their beneficial controlling interest in the Company, and they chose to make such a sale, such a sale could result in a change of control of the Company under circumstances not approved by the independent directors of the Company.

      Under the terms of the Restructuring Agreement, Black agreed, among other things, that the Company would hire Lazard as financial advisor to pursue the Strategic Process. Black agreed that during the pendency of the Strategic Process, in his capacity as the majority stockholder of Hollinger Inc., he would not support a transaction involving ownership interests in Hollinger Inc. if such transaction would negatively affect the Company’s ability to consummate a transaction resulting from the Strategic Process, unless such a transaction involving Hollinger Inc. was necessary to enable it to avoid a material default or insolvency.

      In January 2004, Black attempted to sell his controlling interest in Hollinger Inc. as part of the Hollinger Sale. The Company filed a suit in the Delaware Chancery Court for judgment declaring that, among other things, the Hollinger Sale violated the terms of the Restructuring Agreement. The Delaware Chancery Court, among other things, has enjoined Black and Hollinger Inc. from taking any action to consummate any transaction in violation of the provisions of the Restructuring Agreement, including the Hollinger Sale. On October 29, 2004, the Company, Hollinger Inc. and Black entered into the Extension Agreement to voluntarily extend the injunction until the earlier of January 31, 2005 or the date of the completion of a distribution by the Company to its stockholders of a portion of the proceeds of the Company’s sale of the Telegraph Group. On October 30, 2004, the court issued an order extending the injunction as provided in, and incorporating the other terms of, the Extension Agreement.

      In February 2004, the Company adopted a shareholder rights plan. This SRP is designed to prevent any third person from acquiring, directly or indirectly, without the approval of the Company’s Board of Directors (or Corporate Review Committee of the Board of Directors), a beneficial interest in the Company’s Class A Common Stock and Class B Common Stock that represents over 20% of the outstanding voting power of the Company. Through its ownership of all outstanding Class B Common Stock, Hollinger Inc. currently controls approximately 66.8% of the Company’s outstanding voting power, which ownership is excluded from triggering the provisions of the SRP. However, a transaction resulting in a change of control in Hollinger Inc., without the approval of the Company’s Board of Directors (or the Corporate Review Committee), would have the effect of triggering the SRP. As part of its June 2004 judgment, the Delaware Chancery Court upheld the validity of the plan as to its effect on Hollinger Inc. However, Black and Hollinger Inc. have appealed the court’s judgment. There can be no assurance that the plan will be upheld on appeal.

      The Company is unable to determine what impact, if any, a change of control may have on the Company’s corporate governance or business initiatives.

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      The Business Opportunities Agreement sets forth the terms under which Hollinger Inc. and the Company will resolve conflicts over business opportunities. The Company and Hollinger Inc. agreed to allocate to the Company opportunities relating to the start-up, acquisition, development and operation of newspaper businesses and related media businesses in the United States, Israel, the United Kingdom and other member states of the European Union, Australia and New Zealand and to Hollinger Inc. opportunities relating to the start-up, acquisition, development and operation of media businesses, other than related media businesses, globally and newspaper businesses and related media businesses in Canada. For purposes of the agreement, “newspaper business” means the business of publishing and distributing newspapers, magazines and other paid or free publications having national, local or targeted markets, “media business” means the business of broadcast of radio, television, cable and satellite programs, and “related media business” means any media business that is an affiliate of, or is owned or operated in conjunction with, a newspaper business. The terms of the Business Opportunities Agreement will be in effect for so long as Hollinger Inc. holds at least 50% of the Company’s voting power. See “Item 13 — Certain Relationships and Related Transactions — Business Opportunities Agreement.”

      The Business Opportunities Agreement may have the effect of preventing the Company from pursuing business opportunities that the Company’s management would have otherwise pursued.

      Hollinger Inc. has publicly stated that as of December 15, 2004, Hollinger Inc. owned, directly or indirectly 782,923 shares of the Company’s Class A Common Stock and 14,990,000 shares of the Company’s Class B Common Stock (which represent all of the issued and outstanding shares of Class B Common Stock). All of the direct and indirect interest of Hollinger Inc. in the shares of the Company’s Class A Common Stock is being held in escrow with a licensed trust company in support of future retractions of Hollinger Inc.’s Series II Preference Shares and all of the direct and indirect interest of Hollinger Inc. in the shares of the Company’s Class B Common Stock is pledged as security in connection with Hollinger Inc.’s outstanding 11 7/8% Senior Secured Notes due 2011 and 11 7/8% Second Priority Secured Notes due 2011. Hollinger Inc. reported that, as of the close of business on December 10, 2004, $78.0 million principal amount of the Senior Secured Notes and $15.0 million principal amount of the Second Priority Secured Notes were outstanding.

      Under the terms of the Series II Preference Shares of Hollinger Inc., each Preference Share may be retracted by its holder for 0.46 of a share of the Company’s Class A Common Stock. Until the Series II Preference Shares are retracted in accordance with their terms, Hollinger Inc. may exercise the economic and voting rights attached to the underlying shares of the Company’s Class A Common Stock.

      Hollinger Inc. has relied on payments from Ravelston to fund its operating losses and service its debt obligations. Ravelston financed its support of Hollinger Inc., in part, from the management fees received from the Company under the terms of the management services agreement with RMI. The Company terminated this agreement effective June 1, 2004.

      If Hollinger Inc. or any of its subsidiaries that own shares of Class A or Class B Common Stock of the Company were to commence proceedings to restructure its indebtedness under the Companies’ Creditors Arrangement Act (Canada), (the “CCAA”), or became the subject of an insolvency or liquidation proceeding under the Bankruptcy and Insolvency Act (Canada) (the “BIA”) or enforcement proceedings by the pledgee, the collectibility of amounts owed by Hollinger Inc. to the Company may be negatively impacted.

      In any such proceedings, issues may arise in connection with any transfer or attempted transfer of shares of the Company’s Class B Common Stock. Under the terms of the Company’s certificate of incorporation, such transfers may constitute a non-permitted transfer. In the event of a non-permitted transfer, the Class B Common Stock would automatically convert into Class A Common Stock as a result of which the controlling

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      In an insolvency or secured creditor enforcement proceeding, the ownership rights, including voting rights, attached to the shares of the Company’s Class A and Class B Common Stock would be exercised with a view to maximizing value for the secured creditors and other stakeholders of Hollinger Inc. Since the interests of secured creditors and other stakeholders of Hollinger Inc. may not be aligned with the interests of the Company’s public stockholders, actions might be taken that are not in the best interests of the Company’s public stockholders.

Description of Historical Business

      The Company operates principally in the business of publishing, printing and distribution of newspapers and magazines and holds investments principally in companies that operate in the same business. The Company divides its business into four principal segments; the Chicago Group, the U.K. Newspaper Group, the Community Group and the Canadian Newspaper Group. In addition, the Company’s operations include its Investment and Corporate Group, which performs various administrative and corporate functions. On July 30, 2004, the Company sold the Telegraph Group which carried out the operations of the U.K. Newspaper Group. See “Item 1 — Recent Developments — Sale of the Telegraph Group.” On December 15, 2004, the Company completed the sale of The Palestine Post, the publisher of The Jerusalem Post and related publications, which represented substantially all of the assets and operations of the Community Group. See “Item 1 — Recent Developments — Sale of The Jerusalem Post.”

      The Chicago Group consists of more than 100 newspapers in the greater Chicago metropolitan area including the Chicago Sun-Times, the Post Tribune in northwest Indiana and Chicago’s Daily Southtown. The Chicago Group’s other newspaper properties in the greater Chicago metropolitan area include:

	•	Pioneer Newspapers Inc. (“Pioneer”), which currently publishes 57 weekly newspapers in Chicago’s northern and northwestern suburbs;
	•	Midwest Suburban Publishing Inc., which in addition to the Daily Southtown, publishes 23 biweekly newspapers, 13 weekly newspapers and four free distribution papers primarily in Chicago’s southern and southwestern suburbs;
	•	Fox Valley Publications Inc., which does business as Chicago Suburban Newspapers and publishes five daily newspapers (The Herald News, The Beacon News, The Courier News, The News Sun and The Naperville Sun), and 13 free distribution newspapers and six free total market coverage (“TMC”) products in the fast growing counties surrounding Chicago and Cook County; and
	•	Post Tribune, located in northwest Indiana, publishes a daily newspaper, a weekly newspaper and one TMC product.

      Sources of Revenue. The Chicago Group’s revenues were 42.5%, 43.9% and 38.6% of the Company’s consolidated revenues in 2003, 2002 and 2001, respectively. The following table sets forth the sources of revenue and the percentage such sources represent of total revenues for the Chicago Group during the three years ended December 31, 2003.

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      Advertising. Substantially all advertising revenues are derived from local and national retailers and classified advertisers. Advertising rates and rate structures vary among the publications and are based on, among other things, circulation, readership, penetration and type of advertising (whether classified, national or retail). In 2003, retail advertising accounted for the largest share of advertising revenues (44%), followed by classified (39%) and national (17%). The Chicago Sun-Times offers a variety of advertising alternatives, including full-run advertisements, geographically zoned issues, special interest pullout sections and advertising supplements in addition to regular sections of the newspaper targeted to different readers. The Chicago area suburban newspapers also offer similar alternatives to the Chicago Sun-Times platform for their daily and weekly publications. The Chicago Group operates the Reach Chicago Newspaper Network, an advertising vehicle, that can reach the combined readership base of all the Chicago Group publications and allows it to offer local advertisers geographically and demographically targeted advertising solutions and national advertisers an efficient one-stop vehicle to reach the entire Chicago market.

      Circulation. Circulation revenues are derived primarily from two sources. The first is sales of single copies of the newspaper made through retailers and vending racks, and the second is home delivery newspaper sales to subscribers. In calendar year 2003, approximately 60% of the copies of the Chicago Sun-Times reported as sold and 60% of the circulation revenues generated were attributable to single-copy sales. Approximately 79% of 2003 circulation revenues of the Company’s suburban newspapers were derived from home delivery subscription sales. When the copies of the Chicago Sun-Times sold in calendar year 2003 are adjusted to eliminate the inflation of single-copy sales, discussed below, the percentage of copies sold attributable to single-copy sales drops to approximately 56%; the revenue percentage remains the same because the inflation techniques did not inflate revenue.

      U.S. newspaper circulation is reported annually in an audit report published by the ABC. Circulation data for the 52 week period ending on the last day of the first quarter of each year is audited by ABC and published in an audit report dated April 1 of the following year. Therefore, for example, circulation occurring in the twelve months ended March 31, 2002 was publicly reported in the audit report dated April 1, 2003.

      The average daily (i.e. Monday through Friday), Saturday and Sunday circulation of the Chicago Sun-Times reported in the ABC audit report dated April 1, 2004 was 482,421, 307,324, and 376,401 copies, respectively. As discussed below, these daily and Sunday circulation figures were overstated. As noted in “Item 1 — Business — Recent Developments,” the Audit Committee initiated an internal review into practices that resulted in the overstatement of Chicago Sun-Times daily and Sunday circulation and determined that inflation of daily and Sunday single-copy circulation of the Chicago Sun-Times began modestly in the late 1990’s and increased over time. The Audit Committee concluded that the report of the Chicago Sun-Times circulation published in April 2004 by ABC, overstated single-copy circulation by approximately 50,000 copies on weekdays and approximately 17,000 copies on Sundays. That published audit report reflected inflated circulation during the 53 week period ended March 30, 2003. The Audit Committee determined that inflation of single-copy circulation continued until all inflation was discontinued in early 2004. The inflation occurring after March 30, 2003 did not affect public disclosures of circulation. The Company has implemented procedures to help ensure that circulation overstatements do not occur in the future.

      The most recent ABC audit reports for other papers produced by the Chicago Group disclosed daily and Sunday paid circulation of the Daily Southtown of approximately 48,000 and 53,000, respectively; daily and Sunday paid circulation of the Post-Tribune of approximately 66,000 and 71,000 respectively; and aggregate daily and Sunday paid circulation of the Chicago Suburban Newspapers of approximately 125,000 and 136,000, respectively. The reported aggregate circulation for the free TMC products disclosed in the most recent ABC audit report was approximately 211,000 copies. Pioneer has reported weekly paid circulation of approximately 187,000 copies and Midwest Suburban Publishing Inc. has 23 bi-weekly newspapers with paid Thursday circulation of approximately 49,000 copies and Sunday circulation of approximately 47,000 copies.

      Other Publications and Business Enterprises. The Chicago Group continues to strengthen its online presence. Suntimes.com and the related Chicago Group websites have approximately 2.5 million unique users with some 35 million-page impressions per month. The www.classifiedschicago.com regional classified-advertising website, which is a partnership with Paddock Publications, pools classified advertisements from all

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      Sales and Marketing. Each operating division in the Chicago Group has its own marketing department that works closely with both advertising and circulation sales and marketing teams to introduce new readers to the Company’s newspapers through various initiatives. The Chicago Sun-Times marketing department uses strategic alliances at major event productions and sporting venues, for on-site promotion and to generate subscription sales. The Chicago Sun-Times has media relationships with local TV and radio outlets that has given it a presence in the market and enabled targeted audience exposure. Similarly at Fox Valley Publications, Pioneer and Midwest Suburban Publishing, marketing professionals work closely with circulation sales professionals to determine circulation promotional activities, including special offers, sampling programs, in-store kiosks, sporting event promotions, dealer promotions and community event participation. In-house printing capabilities allow the Fox Valley marketing department to offer direct mail as an enhancement to customers’ run of press advertising programs. Midwest Suburban Publishing, like the other operating divisions, generally targets readers by zip code and has designed a marketing package that combines the strengths of its daily and bi-weekly publications. The Post-Tribune marketing department focuses on attracting readers in areas with zip codes that major advertisers have identified as being the most attractive.

      Distribution. The Company has gained benefits from its clustering strategy. In recent years, the Company has succeeded in combining distribution networks within the Chicago Group where circulation overlaps. The Chicago Sun-Times is distributed through both an employee and contractor network depending upon the geographic location. The Chicago Sun-Times takes advantage of a joint distribution program with its sister publications, Fox Valley Publications and Midwest Suburban Publishing. The Chicago Sun-Times has approximately 6,000 street newspaper boxes and more than 8,400 newsstands and over the counter outlets from which single copy newspapers are sold, as well as approximately 270 street “hawkers” selling the newspapers in high-traffic urban areas. Midwest Suburban Publishing’s Daily Southtown is distributed primarily by Chicago Sun-Times independent contractors. Additionally, in certain western suburbs, the Daily Southtown has a joint distribution program with Fox Valley Publications. The Daily Southtown and its sister publication, The Star, are also distributed in approximately 2,100 outlets and newspaper boxes in Chicago’s southern suburbs and Chicago’s south side and downtown areas. Midwest’s Penny Saver is distributed through the United States Postal Service and through independent contractors. Approximately 82% of Fox Valley Publications’s circulation is from home delivery subscriptions. While 83% of the Post-Tribune’s circulation is by home delivery, it also distributes newspapers to approximately 620 retail outlets and approximately 420 single copy newspaper boxes. Pioneer has a solid home delivery base that represents 96% of its circulation. Pioneer is also distributed to approximately 80 newspaper boxes and is in more than 800 newsstand locations.

      Printing. The Chicago Sun-Times’ Ashland Avenue printing facility was completed in April 2001 and gave the Chicago Group printing presses with the quality and speed necessary to effectively compete with the other regional newspaper publishers. Fox Valley Publications’ 100,000 sq. ft. plant, which has been operating since 1992, houses a state-of-the-art printing facility in Plainfield, Illinois, which prints all of its products. Midwest Suburban Publishing prints all of its publications at its South Harlem Avenue facility in Chicago. Pioneer prints the main body of its weekly newspapers at its Northfield production facility. In order to provide advertisers with more color capacity, certain of Pioneer’s newspaper’s sections are printed at the Chicago Sun-Times Ashland Avenue facility. The Post-Tribune has one press facility in Gary, Indiana. The Chicago Group has been successful in implementing new production technology, sharing resources and excess capacity available during certain print “windows” to achieve cost savings and effectively compete for commercial print jobs.

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      Competition. Each of the Company’s Chicago area newspapers competes to varying degrees with radio, broadcast and cable television, direct marketing and other communications and advertising media, as well as with other newspapers having local, regional or national circulation. The Chicago metropolitan region comprises Cook County and six surrounding counties and is served by eight local daily newspapers of which the Company owns six. The Chicago Sun-Times competes in the Chicago region with the Chicago Tribune, a large established metropolitan daily and Sunday newspaper. In addition, the Chicago Sun-Times and other Chicago Group newspapers face competition from other newspapers published in adjacent or nearby locations and circulated in the Chicago metropolitan area market. In 2002, the Chicago Sun-Times launched Red Streak, a newspaper targeted at younger readership in the region. The majority of the editorial content is derived from the Chicago Sun-Times. This paper is intended to serve as an effective vehicle to compete with the Red Eye (a publication of the Tribune Company).

      Employees and Labor Relations. As of December 31, 2003, the Chicago Group employed approximately 3,200 employees including approximately 520 part-time employees. Of the 2,674 full-time employees, 678 were production staff, 653 were sales and marketing personnel, 360 were circulation staff, 220 were general and administrative staff, 741 were editorial staff and 22 were facilities staff. Approximately 1,150 employees were represented by 23 collective bargaining units. Employee costs (including salaries, wages, fringe benefits, employment-related taxes and other direct employee costs) equaled approximately 37.8% of the Chicago Group’s revenues in the year ended December 31, 2003.

      There have been no strikes or general work stoppages at any of the Chicago Group’s newspapers in the past five years. The Chicago Group believes that its relationships with its employees are generally good.

      Raw Materials. The primary raw material for newspapers is newsprint. In 2003, approximately 138,000 tonnes were consumed. Newsprint costs equaled approximately 14.4% of the Chicago Group’s revenues. Average newsprint prices for the Chicago Group decreased approximately one percent in 2003 from 2002. The Chicago Group is not dependent upon any single newsprint supplier. The Chicago Group’s access to Canadian, United States and offshore newsprint producers ensures an adequate supply of newsprint. The Chicago Group, like other newspaper publishers in North America, has not entered into any long-term fixed price newsprint supply contracts. The Chicago Group believes that its sources of supply for newsprint are adequate for its anticipated needs.

U.K. Newspaper Group

      On July 30, 2004, the Company completed the sale of the Telegraph Group which carried out the operations of the U.K. Newspaper Group. See “Item 1 — Recent Developments — Sale of the Telegraph Group.” The following information reflects the U.K. Newspaper Group’s business while the Telegraph Group was owned by the Company. The U.K. Newspaper Group’s operations included The Daily Telegraph, The Sunday Telegraph, The Weekly Telegraph, telegraph.co.uk, and The Spectator and Apollo magazines.

      Sources of Revenue. The U.K. Newspaper Group’s revenues were 49.0%, 47.9% and 42.4% of the Company’s consolidated revenues in 2003, 2002 and 2001, respectively. The following table sets forth the sources of revenue and their percentage of total revenues for the U.K. Newspaper Group during the three years ended December 31, 2003.

      Advertising. Advertising is the largest source of revenue at the Telegraph Group. The Daily Telegraph and The Sunday Telegraph display advertising strengths in the financial, automobile and travel sections. The

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      Circulation. In 2003, The Daily Telegraph had an average net circulation of approximately 925,000 and The Sunday Telegraph had an average net circulation of approximately 717,000. The Daily Telegraph had 311,000 pre-paid non-postal subscriptions. The Sunday Telegraph was the second highest circulation quality Sunday newspaper in the U.K.

      Other Publications and Business Enterprises. The Telegraph Group is involved in several other publications and business enterprises, including The Spectator and Apollo magazines, The Weekly Telegraph newspaper and telegraph.co.uk (formerly Electronic Telegraph). Telegraph.co.uk had approximately 3.0 million unique users with some 30.0 million page impressions per month in 2003.

      Sales and Marketing. The Telegraph Group’s marketing department helps introduce new readers to its newspapers through strategic marketing initiatives. The Telegraph Group uses research groups that seek the views of readers and non-readers providing useful information to better target editorial, promotional and commercial activities. In addition, the direct marketing department is responsible for the development of a customer contact strategy, circulation initiatives such as subscription programs, discount vouchers supporting the launch of new sections and supplements, and various support promotions.

      Distribution. The Telegraph Group’s newspapers are distributed to wholesalers by truck under a contract with a subsidiary of TNT Express (U.K.) Limited (“TNT”). The arrangements with wholesalers contain performance provisions to ensure minimum standards of copy availability while controlling the number of unsold copies. On May 25, 2001, a new contract with TNT was entered into by West Ferry Printers, a joint venture of the Telegraph Group and another British newspaper publisher.

      Wholesalers distribute newspapers to retail news outlets. The number of retail news outlets throughout the United Kingdom has increased as a result of a 1994 ruling by the British Department of Trade and Industry that prohibits wholesalers from limiting the number of outlets in a particular area. More outlets do not necessarily mean more sales and the Telegraph Group’s circulation department has continued to develop its control of wastage while taking steps to ensure that copies remain in those outlets with high single copy sales. In addition to single copy sales, many retail news outlets offer home delivery services. In 2003, home deliveries accounted for approximately 45% of sales of both The Daily Telegraph and The Sunday Telegraph.

      Printing. The majority of copies of The Daily Telegraph and The Sunday Telegraph are printed by West Ferry Printers and another joint venture, Trafford Park Printers. The magazine sections of the Saturday edition of The Daily Telegraph and of The Sunday Telegraph are printed under contract by external magazine printers. The Telegraph Group also prints the majority of its overseas copies under contracts with external printers in Northern Ireland, Spain and Belgium.

      Major capital expenditures at each joint venture require the approval of the Boards of Directors of the joint venture partners. There is high utilization of the plants at West Ferry Printers and Trafford Park Printers, with little spare capacity.

      West Ferry Printers has 18 presses, six of which are configured for The Telegraph Group’s newspapers, eight are used for the newspapers published by The Telegraph Group’s joint venture partner, and the remaining four are used by contract printing customers. Trafford Park Printers has six presses, two of which are used primarily for The Telegraph Group’s newspapers.

      Competition. The Telegraph Group’s newspapers compete for advertising revenue with other forms of media, particularly television, magazine, direct mail, posters and radio. In addition, total gross advertising expenditures, including financial, display and recruitment classified advertising, are affected by economic conditions in the United Kingdom. The Daily Telegraph’s primary competition in the United Kingdom is The Times.

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      Employees and Labor Relations. At December 31, 2003, the Telegraph Group and its subsidiaries employed approximately 1,238 persons and the joint venture printing companies employed an additional 917 persons. Of the Telegraph Group’s approximately 1,238 employees, 49 were production staff, 397 were sales and marketing personnel, 204 were general and administrative staff and 588 were editorial staff.

      Raw Materials. Newsprint represents the single largest expense next to employee costs. Approximately 146,000 tonnes of newsprint are consumed annually. In 2003, the total cost was approximately 14.5% of the U.K. Newspaper Group’s revenues. Prices were fixed throughout 2003 at levels some 7.6% below the average price paid during 2002. Negotiated contracts for 2004 are consistent with those in 2003.

      On October 17, 2001, Paper Purchase and Management Limited was established as a joint venture between the Telegraph Group and Guardian Media Group plc. The main purpose of the joint venture is to control the specifications and sourcing, as well as monitoring the usage of newsprint throughout the printing plants operated by one or both of the joint venture partners and at other locations where the joint venture partners’ publications are printed on a contract basis. Further, by combining the purchasing power of the joint venturers, the Telegraph Group is able to obtain better prices. The joint venture purchases newsprint from a number of different suppliers located primarily in Canada, the United Kingdom, Scandinavia and continental Europe.

Community Group

      On December 15, 2004, the Company announced that it had completed the sale of The Palestine Post Limited, the publisher of The Jerusalem Post and related publications, which represented substantially all assets and operations of the Community Group. See “Item 1 — Recent Developments — Sale of The Jerusalem Post.” The following information reflects the Community Group’s business without giving effect to the sale of The Jerusalem Post and related publications.

      Sources of Revenue. The Community Group’s revenues were 1.0%, 1.3% and 1.7% of the Company’s consolidated revenues in 2003, 2002 and 2001, respectively. The following table sets forth the sources of revenue and the percentage that such sources represented of total revenues for The Jerusalem Post during the three years ended December 31, 2003.

      The Community Group’s primary source of revenue is from circulation of The Jerusalem Post and its related publications, including The Jerusalem Report, which is a bi-weekly magazine. It also derives revenue from advertising and from specialty job printing. The Jerusalem Post in the past derived a relatively high percentage of its revenues from job printing as a result of a long-term contract to print and bind copies of the Golden Pages, Israel’s equivalent of a Yellow Pages telephone directory. During 2002, Golden Pages ceased placing printing orders. An action was commenced by The Jerusalem Post in 2003 against the Golden Pages seeking damages for alleged breach of contract.

      Distribution. The Jerusalem Post daily and Friday editions are available through either home delivery subscriptions or single-copy kiosk sales. The daily products are sold at approximately 2,000 retail outlets across Israel.

      Printing. The Jerusalem Post and its related publications use two offset printing presses for printing various daily and weekend editions of the newspaper and for commercial printing. The Jerusalem Post commenced production, in August 2003, on a state-of-the-art press that reduced the paper’s operating costs and increased printing revenue through meeting the growing demands of contract printing clients. Automation

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      Competition. The Jerusalem Post is the leading English-language daily newspaper in the Middle East. Its nearest competitor, the English translation of Ha’aretz, Israel’s oldest Hebrew daily newspaper, has a circulation level that is approximately 14% of that of The Jerusalem Post.

      Employees and Labor Relations. As of December 31, 2003, The Jerusalem Post and its related publications employed approximately 150 people, of which 17 were represented by a union. Subsequent to December 31, 2003, the Company replaced the publisher of The Jerusalem Post.

      Raw Materials. Newsprint costs were approximately 9.1% of the Community Group’s revenue in 2003. Newsprint that had been used for the production of the Golden Pages had been provided by the owners of that publication.

      Regulatory Matters. Newspapers in Israel are required by law to obtain a license from the country’s interior minister, who is authorized to restrain publication of certain information if, among other things, it may endanger public safety. To date, The Jerusalem Post has not experienced any difficulties in maintaining its license to publish nor has it been subject to any efforts to restrain publication. In addition, all written media publications in Israel are reviewed by Israel’s military censor prior to publication in order to prevent the publication of information that could threaten national security. Such censorship is considered part of the ordinary course of business in the Israeli media and has not adversely affected The Jerusalem Post’s business in any significant way.

Canadian Newspaper Group

      The Canadian Newspaper Group includes the operations of HCPH Co. that has an 87% interest in Hollinger L.P.

      At December 31, 2003, HCPH Co. and Hollinger L.P. owned numerous daily and non-daily newspaper properties and the Business Information Group (formerly Southam Magazine and Information Group) which publishes Canadian trade magazines and tabloids for the transportation, construction, natural resources and manufacturing industries, among others.

      Sources of Revenue. The Canadian Newspaper Group’s revenues were 7.6%, 6.9% and 17.3% of the Company’s consolidated revenues in 2003, 2002 and 2001, respectively. The following table sets forth the sources of revenue and the revenue mix of the total Canadian Newspaper Group, including operations sold up to the date of sale, during the three years ended December 31, 2003. Operations sold in the past three years include: the sale of French language newspapers to Gesca in 2001; the sale of Ontario community newspapers to Osprey Media in 2001; and the sale of the remaining 50% interest in the National Post to CanWest in 2001. See Note 3 to the Company’s consolidated financial statements.

      Advertising. Newspaper advertising revenue in 2003 totaled Cdn. $52.1 million. Advertisements are carried either within the body of the newspapers, and referred to as run-of-press (ROP) advertising, or as inserts. ROP advertising, which represented 91.6% of total advertising revenue in 2003, is categorized as either

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      Circulation. Virtually all newspaper circulation revenue in 2003 was from subscription sales.

      Competition. The majority of revenue is from advertising. Advertising linage in the newspapers is affected by a variety of factors including competition from print, electronic and other media as well as general economic performance and the level of consumer confidence. Specific advertising segments such as real estate, automotive and help wanted are significantly affected by local factors.

      Employees and Labor Relations. As of December 31, 2003, the Canadian Newspaper Group had approximately 1,223 full time equivalent employees of which approximately 18% are unionized. The percentage of unionized employees varies widely from paper to paper. As a large number of the union contracts are renegotiated every year, labor disruptions are always possible, but no single disruption would have a material effect on the Company.

      The Company has a significant prepaid pension benefit recorded in respect of certain Canadian defined benefit plans. There are uncertainties regarding the Company’s legal right to access any plan surplus and due to the Company having a limited number of active employees in Canada, there are limitations on the ability to utilize the surplus through contribution holidays or increased benefits. In addition, the Canadian Newspaper Group administers and absorbs the costs of the retirement plans for certain retired employees of Southam Inc., predecessor to HCPH Co.

      Raw Materials. Newsprint consumption in 2003 was approximately 11,534 tonnes. The newspapers within the Canadian Newspaper Group have access to adequate supplies to meet anticipated production needs. They are not dependent upon any single newsprint supplier. The Canadian Newspaper Group, like other newspaper publishers in North America, has not entered into any long-term fixed price newsprint supply contracts. The Business Information Group contracts out the printing of its publications.

      Regulatory Matters. The publication, distribution and sale of newspapers and magazines in Canada is regarded as a “cultural business” under the Investment Canada Act and consequently, any acquisition of control of the Canadian Newspaper Group by a non-Canadian investor would be subject to the prior review and approval by the Minister of Industry of Canada.

      Ownership. During 2001, HCPH Co. became the successor to the operations of XSTM Holdings (2000) Inc. The Company indirectly owns a 100% interest in HCPH Co. The Company indirectly owns an 87% interest in Hollinger L.P. There are limits on the deductibility by advertisers of the cost of advertising in newspapers that are not considered Canadian-owned under the ITA. It is possible the CRA may find that, as a consequence of Black’s renunciation of his Canadian citizenship in June 2001, certain of the Company’s Canadian newspapers are no longer considered Canadian-owned for purposes of the ITA. Although the Company believes that it has a structure in place that meets the ITA Canadian ownership rules for at least a portion of the period since June 2001, that structure may be challenged by the CRA.

     Investment and Corporate Group

      The Investment and Corporate Group performs administrative and corporate finance functions for the Company including treasury, accounting, tax planning and compliance and the development and maintenance of the systems of internal controls. At December 31, 2003, the Company’s Investment and Corporate Group operated out of offices in New York, New York and Toronto, Ontario. The Company is in the process of relocating functions performed in Toronto to Chicago, Illinois. As of December 31, 2003, the Investment and Corporate Group employed 10 people. Additional services were provided by RMI pursuant to a management services agreement which was terminated effective June 1, 2004.

      The Company, similar to other newspaper companies engaged in similar operations, is subject to a wide range of federal, state and local environmental laws and regulations pertaining to air and water quality, storage

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     Seasonality

      The Company’s operations are subject to seasonality. Typically, the Company’s advertising revenue is highest during the fourth quarter and lowest during the third quarter.

     Intellectual Property

      The Company seeks and maintains protection for its intellectual property in all relevant jurisdictions, and has current registrations, pending applications, renewals or reinstatements for all of its material trademarks. No claim adverse to the interests of the Company of a material trademark is pending or, to the best of the Company’s knowledge, has been threatened. The Company has not received notice, or is otherwise aware, of any infringement or other violation of any of the Company’s material trademarks. Internet domain names also form an important part of the Company’s intellectual property portfolio. Currently, there are approximately 230 domain names registered in the name of the Company or its subsidiaries, including numerous variations on each major name. In the Chicago market, the Company participates in aggregation of advertising information with other periodical companies whereby the Company’s advertisements are presented in an on-line format along with advertisements of others newspapers.

Available Information

      The Company files annual, quarterly and current reports, proxy statements and other information with the SEC under the Exchange Act.

      You may read and copy this information at the Public Reference Room of the SEC, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information about the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically through the “EDGAR” (Electronic Data Gathering, Analysis and Retrieval) System, available on the SEC’s website (http://www.sec.gov).

      The Company also maintains a website on the World Wide Web at www.hollingerinternational.com. The Company makes available, free of charge, on its website the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC. The Company’s reports filed with, or furnished to, the SEC are also available at the SEC’s website at www.sec.gov.

      The Company has implemented a Code of Business Conduct and Ethics, which applies to all employees of the Company including each of its CEO, CFO and principal accounting officer or controller or persons performing similar functions. The text of the Code of Business Conduct and Ethics can be accessed on the Company’s website at www.hollingerinternational.com. Any changes to the Code of Business Conduct and Ethics will be posted on the website.

      The Company believes that its properties and equipment are in generally good condition, well-maintained and adequate for current operations.

      The Chicago Sun-Times owns a 320,000 square foot, state of the art printing facility. This facility handles all of the production for the Chicago Sun-Times. Until October 2004, the Chicago Sun-Times conducted its editorial, pre-press, marketing, sales and administrative activities in a 535,000 square foot, seven-story building

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      Fox Valley Publications produces its newspapers at a 100,000 square foot plant built in 1992 in Plainfield, Illinois. The facility, owned by the Company, also houses Fox Valley Publication’s editorial, pre-print, sales and administrative functions. Fox Valley Publications also owns facilities in the surrounding suburbs where editorial and sales activities take place for each of its daily newspapers. Pioneer utilizes and owns a building in north suburban Chicago for editorial, pre-press, sales and administrative activities. Pioneer leases several outlying satellite offices for its editorial and sales staff in surrounding suburbs. Production currently occurs at a 65,000 square foot leased building in a neighboring suburb. Midwest Suburban Publishing owns one south suburban building which it uses for editorial, pre-press, marketing, sales and administrative activities. Production activities occur at a separate 150,000 square foot owned facility in southwest Chicago. The Post-Tribune editorial, pre-press, marketing, sales and administrative activities are housed in a facility in Merrillville, Indiana, while production activities take place at its facility in Gary, Indiana.

      The Telegraph Group was sold on July 30, 2004 and accordingly, the Company no longer holds any real property in the U.K. See “Item 1 — Recent Developments — Sale of the Telegraph Group.”

      At the time of the sale, the Telegraph Group occupied five floors of a tower at Canary Wharf in London’s Docklands under a 25-year operating lease expiring in 2017. Printing of the Telegraph Group’s newspapers titles was done principally at 50% owned joint venture printing plants in London’s Docklands and in Trafford Park, Manchester.

      The Jerusalem Post is produced and distributed in Israel from a three-story building in Jerusalem owned by The Jerusalem Post. The Jerusalem Post also leases a sales office in Tel Aviv and a sales and distribution office in New York.

      On December 15, 2004 the Company announced that it had completed the sale of The Palestine Post Limited, the publisher of The Jerusalem Post and related publications. Accordingly, the Company no longer holds any real property in Israel. See “Item 1 — Recent Developments — Sale of The Jerusalem Post.”

      The Canadian Newspaper Group’s newspapers are produced and published at numerous facilities throughout Canada.

     Investment and Corporate Group

      The Investment and Corporate Group has 3,803 square feet of office space leased at 712 Fifth Avenue in New York, New York. This lease expires in May 2007. The Investment and Corporate Group also leases 4,927 square feet of office space in Toronto, Ontario. This lease expires in April 2005. The Company is currently relocating the functions performed in the Toronto office to Chicago, Illinois.

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      On December 9, 2003, Cardinal Value Equity Partners, L.P., a stockholder of the Company, initiated a purported derivative action on behalf of the Company against certain current and former executive officers and directors, including Black and certain entities affiliated with them, and against the Company as a “nominal” defendant.

      This action, which was filed in the Court of Chancery for the State of Delaware in and for New Castle County and is entitled Cardinal Value Equity Partners, L.P. v. Black, et al., asserts causes of action that include breach of fiduciary duty, misappropriation of corporate assets and self-dealing in connection with certain “non-competition” payments, the payment of allegedly excessive management and services fees, and other alleged misconduct. The plaintiff is seeking unspecified money damages. This action has been stayed since January 2004. It is not yet possible to determine the ultimate outcome of this action.

      In February and April 2004, three alleged stockholders of the Company (Teachers’ Retirement System of Louisiana, Kenneth Mozingo, and Washington Area Carpenters Pension and Retirement Fund) initiated purported class actions suits in the United States District Court for the Northern District of Illinois against the Company, Black, certain former executive officers and certain current and former directors of the Company, Hollinger Inc., Ravelston and certain affiliated entities and KPMG LLP, the Company’s independent registered public accounting firm. On July 9, 2004, the Court consolidated the three actions for pretrial purposes. The consolidated action is entitled In re Hollinger Inc. Securities Litigation, No. 04C-0834. Plaintiffs filed an amended consolidated class action complaint on August 2, 2004, and a second consolidated amended class action complaint on November 19, 2004. The named plaintiffs in the second consolidated amended class action complaint are Teachers’ Retirement System of Louisiana, Washington Area Carpenters Pension and Retirement Fund, and E. Dean Carlson. They are purporting to sue on behalf of an alleged class consisting of themselves and all other purchasers of securities of the Company between and including August 13, 1999 and December 11, 2002. The second consolidated amended class action complaint asserts claims under federal and Illinois securities laws and claims of breach of fiduciary duty and aiding and abetting in breaches of fiduciary duty in connection with misleading disclosures and omissions regarding: certain “non-competition” payments, the payment of allegedly excessive management fees, allegedly inflated circulation figures at the Chicago Sun-Times, and other alleged misconduct. The complaint seeks unspecified money damages, rescission, and an injunction against future violations. This consolidated action is in a preliminary stage, and it is not yet possible to determine its ultimate outcome.

      On September 7, 2004, a group allegedly comprised of those who purchased stock in one or more of the defendant corporations, initiated purported class actions by issuing Statements of Claim in Saskatchewan and Ontario, Canada. The Saskatchewan claim, issued in that province’s Court of Queen’s Bench, and the Ontario claim, issued in that province’s Superior Court of Justice, are identical in all material respects. The defendants include the Company, certain current and former directors and officers of the Company, Hollinger Inc., Ravelston and certain affiliated entities, Torys LLP, the Company’s former legal counsel, and KPMG LLP. The plaintiffs allege, among other things, breach of fiduciary duty, violation of the Ontario Securities Act, 1988, S-42.2, and breaches of obligations under the Canadian Business Corporations Act, R.S.O. 1985, c. C.-44 and seek unspecified money damages. These actions are in preliminary stages and it is not yet possible to determine their ultimate outcome.

      On December 2, 2003, Tweedy, Browne Global Value Fund and Tweedy Browne (together, the “Tweedy Browne Plaintiffs”), stockholders of the Company, initiated an action against the Company in the Court of Chancery for the State of Delaware in and for Castle County to recover attorneys’ fees and costs in connection with informal inquiries and other investigations performed by and on behalf of the Tweedy Browne Plaintiffs concerning conduct that subsequently has been and continues to be investigated by the Special Committee.

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      On January 28, 2004, the Company, through the Special Committee, filed a civil complaint in the United States District Court for the Northern District of Illinois asserting breach of fiduciary duty and other claims against Hollinger Inc., Ravelston, RMI, Black, Radler and Boultbee, which complaint was amended on May 7, 2004. The action is entitled Hollinger International Inc. v. Hollinger Inc., et al., Case No. 04C-0698. The amended complaint added certain other defendants, including Amiel Black and Colson, sought approximately $484.5 million in damages, including approximately $103.9 million in pre-judgment interest, and also included claims under RICO, which provides for a trebling of damages and attorney’s fees. On October 8, 2004, the court granted the defendants’ motion to dismiss the RICO claims and also dismissed the remaining claims without prejudice on jurisdictional grounds. On October 29, 2004, the Company filed a second amended complaint seeking to recover approximately $542.0 million in damages, including prejudgment interest of approximately $117.0 million, and also punitive damages, on breach of fiduciary duty, unjust enrichment, conversion, fraud, and civil conspiracy claims asserted in connection with transactions described in the Report of the Special Committee, including unauthorized “non-competition” payments, excessive management fees, sham broker fees and investments and divestitures of Company assets. The second amended complaint also adds Perle, a Director of the Company, as a defendant and eliminated as defendants certain companies affiliated with Black and Radler. The second amended complaint alleges that Perle breached his fiduciary duties while serving as a member of the executive committee of the Company’s Board of Directors by, among other things, signing written consents purporting to authorize various related party transactions, without reading, evaluating or discussing those consents; without negotiating or evaluating the related party transactions he was approving; and without taking steps to ensure that those transactions were presented to and reviewed by the Company’s audit committee. The Company is seeking to appeal the dismissal of the RICO claims. On December 13, 2004, defendants Hollinger Inc., Ravelston, RMI, Black, Radler, Boultbee, and Amiel Black moved to dismiss the second amended complaint for failure to join as parties the other companies affiliated with Black and Radler that had previously been named as defendants. Defendants assert that these companies are indispensable to the litigation but that their presence would deprive the court of jurisdiction. Black, Hollinger Inc., Colson and Perle also moved individually to dismiss the complaint on various grounds, including failure to state a claim for relief, lack of personal jurisdiction and res judicata. The motions are pending. This action is in a preliminary stage and it is not yet possible to determine its ultimate outcome.

      On January 26, 2004, the Company filed a complaint against Black, Hollinger Inc. and an affiliated entity in the Court of Chancery of the State of Delaware in and for New Castle County. In this action, the Company sought relief declaring: (i) that a written consent by defendants purporting to abolish the Corporate Review Committee and to amend the Company’s bylaws was invalid; (ii) that the SRP adopted by the Corporate Review Committee on January 25, 2004 was valid; and (iii) that, under the Hollinger Sale, the shares of Class B Common Stock held by Hollinger Inc. would convert to shares of Class A Common Stock. The Company’s complaint also asserted claims that defendants breached their fiduciary duties to the Company and breached the terms of the Restructuring Agreement through their activities in connection with the Hollinger Sale and the purported bylaw amendments.

      On February 3, 2004, defendants filed a counterclaim against the Company, members of the Company’s Corporate Review Committee, and Breeden, advisor and counsel to the Special Committee. In their counterclaim, defendants sought declaratory relief declaring that their bylaw amendments were valid and that the SRP and other actions by the Corporate Review Committee were invalid. Defendants also asserted claims of breach of fiduciary duty, misrepresentation, tortious interference with the Hollinger Sale, breach of the

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      On March 4, 2004, the Court of Chancery entered an order and judgment declaring that Hollinger Inc.’s purported amendments to the Company’s bylaws were invalid, that the Corporate Review Committee was and remained duly constituted, and that the SRP was valid. The Court of Chancery’s order also dismissed defendants’ breach of fiduciary duty, tortious interference, and Fourteenth Amendment counterclaims and preliminarily enjoined the defendants from taking any action to consummate any transaction in violation of the provisions of the Restructuring Agreement, including the Hollinger Sale and any other breaches of the Restructuring Agreement by defendants.

      The Company subsequently moved for summary judgment on the remaining claims and to make the injunctive relief permanent. On June 28, 2004, the Court of Chancery entered an order and final judgment, granting summary judgment to the Company on its breach of fiduciary duty and breach of contract claims and dismissing defendants’ remaining counterclaims. The order and final judgment required payments by defendants to the Company totaling $29.8 million in respect of amounts to be reimbursed to the Company pursuant to the Restructuring Agreement, and extended the previously entered injunctive relief through October 31, 2004. On July 16, 2004, defendants made the payments required under the order and final judgment, but have filed notices of appeal of the Court’s rulings to the Delaware Supreme Court. The appeals are pending. It is not yet possible to determine the ultimate outcome of the appeals.

      On October 29, 2004, the Company, Hollinger Inc. and Black entered into the Extension Agreement to voluntarily extend the injunction until the earlier of January 31, 2005 or the date of the completion of a distribution by the Company to its stockholders of a portion of the proceeds of the Company’s sale of the Telegraph Group remaining as of October 26, 2004, net of taxes to be paid on the sale of the Telegraph Group and less amounts used to pay down the Company’s indebtedness, through one or more of a dividend, a self-tender offer, or some other mechanism. On October 30, 2004, the court issued an order extending the injunction as provided in, and incorporating the other terms of, the Extension Agreement.

      On July 1, 2004, Hollinger Inc. and 504468 N.B. Inc. filed an action in the Court of Chancery for the State of Delaware alleging that the Company violated 8 Del. Code § 271 and engaged in inequitable conduct by not seeking stockholder approval of the proposed sale of the Telegraph Group. Plaintiffs sought preliminary injunctive relief to block the sale unless it was approved by the holders of a majority of the voting power of the Company’s common stock, and an award of costs and attorneys’ fees. The Court of Chancery denied Hollinger Inc.’s motion in an opinion issued on July 29, 2004. That same day, plaintiffs moved before the Chancery Court and Delaware Supreme Court for leave to file an interlocutory appeal and an injunction pending appeal. Both courts denied the motions and the matter is completed.

      On March 18, 2004, Black filed an action against the Company in the Court of Chancery of the State of Delaware seeking advancement of legal fees and expenses he purportedly incurred and continues to incur in connection with the SEC and Special Committee investigations and various litigations that he is involved in. In May 2004, the parties entered a stipulation resolving the matter. The Company agreed to pay half of Black’s legal fees in certain actions in which he is a defendant, pursuant to itemized invoices submitted with sworn affidavits and subject to his undertaking that he will repay the amounts advanced to him if and to the extent it is ultimately determined that he is not entitled to indemnification under the terms of the Company’s bylaws.

      On April 5, 2004, Black filed an action against the Company in the U.S. District Court for the Northern District of Illinois alleging that the Company breached its obligations to Black under three stock option plans.

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      On February 10, 2004, the Company commenced an action in the Ontario Superior Court of Justice (Commercial List) against Ravelston, RMI and Hollinger Inc. This action claimed access to and possession of the Company’s books and records maintained at 10 Toronto Street, Toronto, Ontario, Canada. The parties negotiated and executed a Protocol dated March 25, 2004, providing for access and possession by the Company to the claimed records.

      On March 5, 2004, a statement of defense and counterclaim was issued by Ravelston and RMI against the Company and two of its subsidiaries, Publishing and HCPH Co. The counterclaim seeks damages in the amount of approximately $174.3 million for alleged breaches of the services agreements between the parties and for alleged unjust enrichment and tortious interference with economic relations by reason of those breaches. On March 10, 2004, Hollinger Inc. filed a statement of defense and counterclaim against the Company seeking Cdn.$300.0 million, claiming that by the Company’s refusal to pay its obligations under its services agreement with Ravelston, the Company intended to cause Ravelston to default in its obligations to Hollinger Inc. under a support agreement between Ravelston and Hollinger Inc., and intended to cause Hollinger Inc. to default on its obligations under its outstanding notes, with the resulting loss of its majority control of the Company.

      On May 6, 2004, Ravelston served a motion for an anti-suit injunction, seeking to restrain the Company from continuing the Illinois litigation against it and from bringing any claims against Ravelston arising out of the management of the Company other than in Ontario. On May 28, 2004, the Company served a notice of cross-motion seeking a temporary stay of the Ravelston and Hollinger Inc. counterclaims pending final resolution of the proceedings in Illinois and Delaware. Ravelston’s motion and the Company’s cross-motion were heard on June 29-30, 2004 at the Ontario Superior Court of Justice, Commercial List. On August 11, 2004, the court denied Ravelston’s motion and granted the Company’s cross-motion. On August 18, 2004, Ravelston and Hollinger Inc. appealed to the Ontario Court of Appeal. The appeals are scheduled to be heard on February 22, 2005. On September 21, 2004, the Company served a motion on Hollinger Inc. and Ravelston, seeking to quash their appeals to the Ontario Court of Appeal for want of jurisdiction. On November 30, 2004, the appeals to the Ontario Court of Appeal were quashed. Ravelston and Hollinger Inc. were required to deliver notices of motion in support of a motion for leave to appeal to the Divisional Court by December 30, 2004. Ravelston delivered such a notice of motion on December 20, 2004, but Hollinger Inc. has not delivered such a notice and is therefore not proceeding with an appeal of the stay of its counterclaim. Ravelston’s motion for leave has not yet been scheduled but will likely be heard some time in February of 2005.

      Five defamation actions have been brought by Black in the Ontario Superior Court of Justice against Breeden, Richard C. Breeden & Co., Paris, James Thompson, Richard Burt, Graham Savage and Raymond Seitz. The first case was filed on February 13, 2004; the second and third cases were filed on March 11, 2004; the fourth case was filed on June 15, 2004; and the fifth case was filed on October 6, 2004. The fifth case does

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      The defendants named in the five defamation actions have indemnity claims against the Company for all reasonable costs and expenses they incur in connection with these actions, including judgments, fines and settlement amounts. In addition, the Company is required to advance legal and other fees that the defendants may incur in relation to the defense of those actions.

      The Company agreed to indemnify Breeden and Richard C. Breeden & Co. against all losses, damages, claims and liabilities they may become subject to, and reimburse reasonable costs and expenses as they are incurred, in connection with the services Breeden and Richard C. Breeden & Co. are providing in relation to the Special Committee’s ongoing investigation.

      On January 16, 2004, the Company consented to the entry of a partial final judgment and order of permanent injunction against the Company in an action brought by the SEC in the U.S. District Court for the Northern District of Illinois. The Court Order enjoins the Company from violating provisions of the Exchange Act, including the requirements to file accurate annual reports on Form 10-K and quarterly reports on Form 10-Q and keep accurate books and records. The Court Order requires the Company to have the previously appointed Special Committee complete its investigation and to permit the Special Committee to take whatever actions it, in its sole discretion, thinks necessary to fulfill its mandate. The Court Order also provides for the automatic appointment of Breeden as Special Monitor of the Company under certain circumstances, including the adoption of any resolution that discharges the Special Committee before it completes its work, diminishes or limits the powers of the Special Committee or narrows the scope of its investigations or review, or if any directors are removed prior to the end of their term, or there is a failure to nominate or re-elect any incumbent director (unless such director voluntarily decides not to seek nomination or re-election to the Board of Directors), or there is an election of any new person as a director unless such action is approved by 80% of the then incumbent directors. On January 26, 2004, Hollinger Inc. filed a motion to vacate certain parts of the Court Order that limit its rights as stockholder. The Court denied Hollinger Inc.’s motion on May 17, 2004.

      The Company has received various subpoenas and requests from the SEC and other agencies seeking the production of documentation in connection with various investigations into the Company’s governance, management and operations. The Company is cooperating fully with these investigations and is complying with these requests.

      On November 15, 2004, the SEC filed an action in the United States District Court for the Northern District of Illinois against Black, Radler and Hollinger Inc. seeking injunctive, monetary and other equitable relief. In the action, the SEC alleges that the three defendants violated federal securities laws by engaging in a fraudulent and deceptive scheme to divert cash and assets from the Company and to conceal their self-dealing from the Company’s public stockholders from at least 1999 through at least 2003. The SEC also alleges that Black, Radler and Hollinger Inc. were liable for the Company’s violations of certain federal securities laws at least during this period.

      The SEC alleges that the scheme used by Black, Radler and Hollinger Inc. included the misuse of so-called “non-competition” payments to divert $85.0 million from the Company to defendants and others; the sale of certain publications owned by the Company at below-market prices to a privately-held company controlled by Black and Radler; the investment of $2.5 million of the Company’s funds in a venture capital fund with which Black and two other directors of the Company were affiliated; and Black’s approval of a press release by the Company in November 2003 in which Black allegedly misled the investing public about his

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      The SEC’s complaint seeks: (i) disgorgement of ill-gotten gains by Black, Radler and Hollinger Inc. and unspecified civil penalties against each of them; (ii) an order enjoining Black and Radler from serving as an officer or director of any issuer required to file reports with the SEC; (iii) a voting trust upon the shares of the Company held directly or indirectly by Black and Hollinger Inc.; and (iv) an order enjoining Black, Radler and Hollinger Inc. from further violations of the federal securities laws.

      On June 15, 2004, the Company announced that the Audit Committee had initiated an internal review into practices that resulted in the overstatement of circulation figures for the Chicago Sun-Times. Following that announcement, a number of lawsuits were filed against the Company, among others defendants. Several of the suits are brought on behalf of a purported class comprised of all persons who purchased advertising space in the Chicago Sun-Times during the period in which circulation figures were overstated. The complaints allege that the Chicago Sun-Times improperly overstated its circulation and that advertisers overpaid for advertising in the newspaper as a result. The complaints variously allege theories of recovery based on breach of contract, unjust enrichment, civil conspiracy, conversion, negligence, breach of fiduciary duty, common law and statutory fraud, and violations of the federal RICO statute. The complaints seek injunctive and declaratory relief, unspecified actual, treble, and punitive damages, interest, attorneys’ fees and costs, and other relief.

      A number of the actions were filed in the Circuit Court of Cook County, Illinois, including the following purported class action cases filed in the County Department, Chancery Division: Central Furniture, Inc. v. Hollinger International, Inc. and Chicago Sun-Times, Inc., No. 04 CH 9757; Ronald Freeman d/b/a Professional Weight Clinic Inc. v. Hollinger International, Inc. and Chicago Sun-Times, Inc., No. 04 CH 9763; Card & Party Mart II Ltd. v. Hollinger International Inc. and Chicago Sun-Times, Inc., No. 04 CH 9824; Geier Enterprises, Inc. v. Chicago Sun-Times, Inc. and Hollinger International, Inc. No. 04 CH 10032; California Floor Coverings d/b/a Olympic Carpet v. Chicago Sun-Times, Inc., No. 04 CH 10048; BNB Land Venture, Inc. v. Chicago Sun-Times, Inc., Hollinger International Publishing Inc. and Docs 1-5, No. 04 CH 10284; Gleason & McMaster LLC v. Chicago Sun-Times, Inc. and Hollinger International Inc., No. 04 CH 10581; James Rolshouse & Assoc. PLLC v. Hollinger International Inc., Chicago Sun-Times, Inc. and The Sun-Times Co., No. 04 CH 11019; and Mark Triffler Oldsmobile, Inc. et al. v. Hollinger International Inc. and Chicago Sun-Times, Inc., 04 CH 12714. The above-stated cases were filed between June 15, 2004 and August 31, 2004, and an Amended Consolidated Complaint under the heading In re: Chicago Sun-Times Circulation Litigation was filed on October 12, 2004. The Amended Consolidated Complaint lists defendants Chicago Sun-Times, Inc. and Hollinger International Inc., and adds Midwest Suburban Publishing, Inc. Two additional purported class action cases are pending in the County Department, Chancery Division: International Profit Assocs., Inc., v. Chicago Sun-Times, Inc. and Hollinger International Inc., 04 CH 17964, filed October 29, 2004; and Business Pro Communications, Inc. v. Hollinger Inc., Hollinger International Inc. and The Sun-Times Co., 04 CH 19930, filed December 1, 2004. Additionally, the following individual actions were brought in the Circuit Court of Cook County: First Federal Auto Auction, Inc. v. Chicago Sun-Times, Inc., Hollinger International Inc. and F. David Radler, No. 04 L 7501, filed July 2, 2004; American Mattress, Inc. v. Hollinger International Inc. and Chicago Sun-Times, Inc., No. 04 L 7790, filed July 12, 2004; National Foundation for Abused and Neglected Children, Inc. v. Chicago Sun-Times, Inc., Hollinger International Inc. and F. David Radler, No. 04 L 7948, filed July 15, 2004; Joe Rizza Lincoln Mercury, Inc. et al. v. Chicago Sun-Times, Inc., 04 L 11657, filed October 14, 2004; Chicago Sun-Times, Inc. v. Oral Sekendur, 03 M1 170004, circulation-related claims filed October 12, 2004. One case was filed in the United States District Court for the Northern District of Illinois: AJE’s the Salon, Inc. v. The Sun-Times, Co., Hollinger International Inc. and F. David Radler, 04 C 4317, filed June 28, 2004. The AJE’s the Salon,

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      On October 5, 2004, the Company announced the results of the Audit Committee’s internal review. The review of the Audit Committee determined that weekday and Sunday average circulation of the Chicago Sun-Times, as reported in the audit reports issued by ABC commencing in 1998, had been overstated. The Audit Committee found no overstatement of Saturday circulation data. The inflated circulation figures were submitted to ABC, which then reported these figures in its annual audit reports issued with respect to the Chicago Sun-Times.

      The Chicago Sun-Times announced a plan intended to make restitution to its advertisers for losses associated with the overstatements in the ABC circulation figures. To cover the estimated cost of restitution and settlement of the related lawsuits, the Company recorded a pre-tax charge of approximately $24.1 million for 2003 and approximately $2.9 million for the first quarter of 2004. The Company will evaluate the adequacy of the accruals as negotiations with advertisers proceed. The impact of restitution on the ultimate outcome of the pending litigation is not possible to determine at this time.

      On December 19, 2003, CanWest commenced notices of arbitration against the Company and others with respect to disputes arising from CanWest’s purchase of certain newspaper assets from the Company. CanWest claims the Company and certain of its direct subsidiaries owe CanWest approximately Cdn.$83.2 million. The Company believes that it has valid defenses to this claim, as well as significant counterclaims against CanWest. The arbitration is in preliminary stages, and it is not yet possible to determine its ultimate outcome.

      On December 17, 2003, CanWest and The National Post Company brought an action in the Ontario Superior Court of Justice against the Company and others for approximately Cdn.$25.7 million plus interest in respect of issues arising from a letter agreement dated August 23, 2001 to transfer the Company’s remaining 50% interest in the National Post to CanWest. In August 2004, The National Post Company obtained an order for partial summary judgment ordering the Company to pay The National Post Company Cdn.$22.5 million plus costs and interest. On November 30, 2004 the Company settled the appeal of the partial summary judgment by paying The National Post Company the amount of Cdn.$26.5 million. This amount includes payment of the Cdn.$22.5 million in principal plus interest and related costs. The two remaining matters in this action consist of a claim for Cdn.$2.5 million for capital and operating requirements of The National Post Company and a claim for Cdn.$752,000 for newsprint rebates. Exchange of documents and examinations for discovery in respect of these remaining matters is expected to proceed in early 2005.

      The Company and members of the Special Committee have had a suit filed against them before the Ontario Superior Court of Justice by Boultbee, former Executive Vice-President with the Company whose position as an officer was terminated in November of 2003. In November 2003, the Special Committee found that Boultbee received approximately $600,000 of “non-competition” payments that had not been appropriately authorized by the Company. The Company was unable to reach a satisfactory agreement with Boultbee for, among other things, repayment of these amounts and as a result, terminated his position as an officer of the Company. Boultbee is asserting claims for wrongful termination, indemnification for legal fees, breach of contract relating to stock options and loss of reputation, and is seeking approximately Cdn.$16.1 million from the defendants. The action is in its preliminary stages, and it is not yet possible to determine its ultimate outcome. On November 18, 2004, the Company and Boultbee resolved Boultbee’s claim for advancement and

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      On November 3, 2004, Wells Fargo Bank Northwest, N.A. and Key Corporate Capital Inc. filed an action in the Supreme Court of the State of New York, in Albany County, against Sugra (Bermuda) Limited (“Sugra Bermuda”), which is a subsidiary of Publishing, and against Hollinger Inc. The action, alleges that Sugra Bermuda defaulted under the terms of a 1995 aircraft lease agreement, and that Hollinger Inc. is a guarantor of Sugra Bermuda’s obligations under the lease. Plaintiffs are seeking $5.1 million in damages, plus interest at the rate of 18 percent per annum and attorneys’ fees. On December 20, 2004, Hollinger Inc. removed the action from state court to the United States District Court for the Northern District of New York. This action, which is entitled Wells Fargo Bank Northwest, N.A. v. Sugra (Bermuda) Limited and Hollinger Inc., No. 1:04-cv-01436-GLD-DRH (N.D.N.Y.), is in a preliminary stage, and it is not yet possible to determine its ultimate outcome.

      During 2002, the largest customer of The Jerusalem Post, the Golden Pages, effectively terminated its agreement with The Jerusalem Post for publication of the Golden Pages by failing to submit orders as required. An action was commenced in the District Court of Tel Aviv by The Jerusalem Post in early 2003 alleging breach of contract. Although significant to The Jerusalem Post, the loss of revenue has not had a material impact on the Company’s business, as a whole. With the completion of the sale of The Palestine Post Limited on December 15, 2004, the Company no longer has pending claims or liabilities relating to this action.

      The Company becomes involved from time to time in various claims and lawsuits incidental to the ordinary course of business, including such matters as libel, defamation and privacy actions. In addition, the Company is involved from time to time in various governmental and administrative proceedings with respect to employee terminations and other labor matters, environmental compliance, tax and other matters.

      Management believes that the outcome of any pending claims or proceedings described under “Other Actions” will not have a material adverse effect on the Company taken as a whole.

      None.

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PART II

      The Company’s Class A Common Stock is listed on the New York Stock Exchange under the trading symbol “HLR.” At December 31, 2004 there were 75,687,055 shares of Class A Common Stock outstanding, excluding 12,320,967 shares held by the Company, and these shares were held by approximately 190 holders of record and approximately 4,500 beneficial owners. As of December 31, 2004, 14,990,000 shares of Class B Common Stock were outstanding, all of which were owned by Hollinger Inc.

      The following table sets forth for the periods indicated the high and low sales prices for shares of the Class A Common Stock as reported by the New York Stock Exchange Composite Transactions Tape for the period since January 1, 2002, and the cash dividends paid per share on the Class A Common Stock.

      On December 31, 2004, the closing price of the Company’s Class A Common Stock was $15.68 per share.

      Each share of Class A Common Stock and Class B Common Stock is entitled to receive dividends if, as and when declared by the Board of Directors of the Company. Dividends must be paid equally, share for share, on both the Class A Common Stock and the Class B Common Stock at any time that dividends are paid.

      As a holding company, the Company’s ability to declare and pay dividends in the future with respect to its Common Stock will be dependent, among other factors, upon its results of operations, financial condition and cash requirements, the ability of its United States and foreign subsidiaries to pay dividends and make payments to the Company under applicable law and subject to restrictions contained in future loan agreements and other financing obligations to third parties relating to such United States or foreign subsidiaries of the Company, as well as foreign and United States tax liabilities with respect to dividends and payments from those entities. The Company has paid all dividends that have been declared during 2003 and to date in 2004, except for the special and regular dividends declared on December 16, 2004 which are payable on January 18, 2005.

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Equity Compensation Plan Information

      See Note 15 to the Company’s Consolidated Financial Statements herein for the summarized information about the Company’s equity compensation plans.

Recent Sales of Unregistered Securities

      None.

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