UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-K

Commission File No. 1-14164

Hollinger International Inc.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code

(212) 586-5666

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

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

None

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months 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 Rule 12b-2 of the Act).     Yes þ          No o

      Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes o          No þ

      The aggregate market value of Class A Common Stock held by non-affiliates as of June 30, 2004, was approximately $1,086,014,423 determined using the closing price per share on that date of $16.79, as reported on the New York Stock Exchange. As of June 30, 2005, the aggregate market value of Class A Common Stock held by non-affiliates was approximately $749,557,128 determined using the closing price per share of $10.01, as reported on the New York Stock Exchange. As of each 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 September 30, 2005 was as follows: 75,687,055 shares of Class A Common Stock and 14,990,000 shares of Class B Common Stock.

EXPLANATORY NOTE

      As previously reported, the Company formed a special committee of independent directors (the “Special Committee”) on June 17, 2003 to investigate related party transactions and other payments made to certain executives of the Company and its controlling stockholder, Hollinger Inc., and other affiliates in connection with the sale of certain of the Company’s assets and other transactions. The Company filed with the Securities and Exchange Commission (“SEC”) the full text of the report of the Special Committee on such investigation as an exhibit to a current report on Form 8-K on August 31, 2004, as amended by a current report on Form 8-K/ A filed with the SEC on December 15, 2004 (the “Report”).

      The Company previously made public its need to review the Special Committee’s final report before it could complete its Annual Report on Form 10-K for the fiscal year ended December 31, 2003 (the “2003 10-K”) and its Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2004, June 30, 2004 and September 30, 2004 (collectively, the “2004 10-Qs”). The Company filed its 2003 10-K on January 18, 2005 and its 2004 10-Qs on May 19-20, 2005.

      The completion of the 2003 10-K and 2004 10-Qs required the diversion of a significant amount of resources from the completion of the Company’s consolidated financial statements for the 2004 fiscal year, as well as from the completion of the documentation, assessment and testing of the Company’s internal control over financial reporting as required under Section 404 of the Sarbanes-Oxley Act of 2002.

      In addition, management has determined that disclosure controls and procedures at the Company were ineffective as of December 31, 2004. Management has also identified material weaknesses in the Company’s internal control over financial reporting as of such date. As a result, the Company undertook substantial additional procedures in order that management could conclude that reasonable assurance exists regarding the reliability of financial reporting and the preparation of the consolidated financial statements contained in this filing. Management believes that the consolidated financial statements contained in this filing fairly present the Company’s financial condition, results of operations and cash flows for the periods presented. See “Item 9A — Controls and Procedures.”

      The Company expects to file within a reasonable time, quarterly reports on Form 10-Q for the periods ended March 31, 2005 and June 30, 2005.

TABLE OF CONTENTS

HOLLINGER INTERNATIONAL INC.

2004 FORM 10-K

FORWARD-LOOKING STATEMENTS

      This annual report on Form 10-K (“2004 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:

      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. 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 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 any forward-looking statement made in this annual report on Form 10-K might not occur.

PART I

Overview

      The Company’s business is concentrated in the publishing, printing and distribution of newspapers in the United States and Canada under two operating segments: the Chicago Group and the Canadian Newspaper Group. The Chicago Group represented approximately 83.8% and the Canadian Newspaper Group represented approximately 16.2% of the Company’s revenues for the year ended December 31, 2004. The Chicago Group includes the Chicago Sun-Times, Post-Tribune, Daily Southtown and other city and suburban newspapers in the Chicago metropolitan area. The Canadian Newspaper Group consists primarily of its magazine and business information group and community newspapers in western Canada, the major portion of which are held through the Company’s approximately 87% interest in Hollinger Canadian Newspapers, Limited Partnership (“Hollinger L.P.”).

      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 immediate parent, Hollinger Inc., and its affiliates (other than the Company).

      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 2004 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, 2004, the Chicago Group had revenues of $464.4 million and operating income of $96.4 million. The revenue of the Chicago Group represents approximately 83.8% of the Company’s total revenue in 2004.

      The Canadian Newspaper Group includes the operations of Hollinger Canadian Publishing Holdings Co. (“HCPH Co.”) that has an 87% interest in 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, 2004, the Canadian Newspaper Group had revenues of approximately $89.5 million and operating income of approximately $4.1 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 position in daily readership in the attractive Chicago market in order to drive

revenue growth. Following the sale of The Daily Telegraph, The Sunday Telegraph, The Weekly Telegraph, telegraph.co.uk, and The Spectator and Apollo magazines (collectively, the “Telegraph Group”), 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 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 divestitures of non-core assets. Many of the Company’s Internet and other non-core investments remain available for sale. The Company completed the sale of the Telegraph Group and the sale of The Jerusalem Post and related publications in 2004. Sufficient funds were realized from the sale of the Telegraph Group to enable the Company to repay substantially all of its outstanding long-term debt and to pay significant dividends.

      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 Control and Improper Conduct by Controlling Stockholder

      The Company is controlled by 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. On April 20, 2005, Ravelston filed for protection from its creditors under the Companies’ Creditors Arrangement Act (Canada) (the “CCAA”). In conjunction with that filing, the Ontario Superior Court of Justice appointed a receiver of Ravelston’s assets. Prior to the appointment of the receiver, Hollinger Inc. and the Company were indirectly controlled by Lord Conrad M. Black of Crossharbour (“Black”), a former Director, Chairman and Chief Executive Officer (“CEO”) of the Company through his personal control of Ravelston.

      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 Company’s exploration of alternative strategic transactions, 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, the SEC and the Corporate Review Committee formed by the Company’s Board of Directors consisting of all directors at January 18, 2004, other than Black, Barbara Amiel Black (“Amiel Black”), a former director of the Company and wife of Black, and Daniel W. Colson (“Colson”), a director and former chief operating officer of the Company and former CEO of the Telegraph Group have undertaken several actions designed to prevent Black from repeating his past practices or otherwise interfering with the best interests of the Company’s public stockholders. On January 16, 2004, the Company consented to the entry of a partial 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, 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 Richard C. Breeden (“Breeden”) as a special monitor (“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 incumbent directors at the time of election.

      Following the appointment by the Ontario Superior Court of Justice in April 2005 of RSM Richter Inc. (the “Receiver”) as receiver and monitor of all assets of Ravelston and certain affiliated entities (collectively such entities, the “Ravelston Entities”) that own, directly or indirectly, or exercise control or direction over, approximately 78.3% of Hollinger Inc.’s common stock and the subsequent amendment of the Company’s Shareholders Rights Plan (“SRP”) to designate the Receiver as an “exempt stockholder” (see “Item 13 — Certain Relationships and Related Transactions — Agreement with RSM Richter Inc.”), the Receiver took possession and control over those Hollinger Inc. shares on or around June 1, 2005. The Receiver stated that it took possession and control over those shares for the purposes of carrying out its responsibilities as court appointed officer. As a result of the Receiver’s control over those shares, and subject to the outcome of the proceedings under the CCAA in Canada, Black’s ability to exercise control over Hollinger Inc. and indirectly the Company has been effectively eliminated. See “Item 3 — Legal Proceedings — Receivership and CCAA Proceedings in Canada Involving the Ravelston Entities.”

      On July 19, 2005, Hollinger Inc. appointed four new directors to its Board of Directors and confirmed two existing directors pursuant to the terms of an order of the Ontario Superior Court of Justice dated July 15, 2005. At or around the same time, two former directors resigned from Hollinger Inc.’s Board of Directors. On July 22, 2005, the two existing directors previously confirmed by Hollinger Inc. in their position also resigned from the board. As a result of appointments during July and August 2005, the Board of Directors of Hollinger Inc. consists of six members.

      Although the various court orders and proceedings have been designed, or otherwise serve, 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. If any of these events were to occur, there is a risk that 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 its controlling stockholder, Hollinger Inc., as well as against other former officers and current and former directors of the Company and certain entities affiliated with some of these parties. There is a material risk Hollinger Inc. could exercise its control in a manner intended to thwart or obstruct the efforts of the Company and the Special Committee in pursuing these claims and that 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. and its 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 changes even while the Court Order remains in effect. Under the terms of the Court Order, if the controlling stockholder takes such an action, the Special Monitor would be appointed. There may be further litigation concerning the Special Monitor. The Special Monitor’s mandate will be to protect the interests of the public stockholders of the Company to the extent permitted by law, to prevent the dissipation of assets of the Company, to investigate possible illegal or improper conduct by the Company or any of its current or former officers, directors, employees and agents, to recover property of the Company and to assert claims on behalf of the Company based upon his investigation, and he will be authorized to take any steps he deems necessary to fulfill his mandate. The Company will be required to fully cooperate with the Special Monitor, to provide access to corporate records and to pay reasonable compensa-

tion to the Special Monitor and any experts the Special Monitor retains to assist the Special Monitor in performing his duties.

      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 & Company, LLC (“Tweedy Browne”), an unaffiliated stockholder of the Company, 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.

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 target markets. Historically, increases in advertising revenues have corresponded with economic recoveries while decreases have corresponded with general economic downturns and regional and local economic recessions. Advertising revenue for the Chicago Group in 2004 was up by $10.3 million or 2.9% 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 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.

      The Company’s Consolidated Balance Sheet as of December 31, 2004 includes $867.5 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 in prior years. 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 significant cash payment obligations. 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, 2004 includes $518.3 million of accruals for tax contingencies in a foreign jurisdiction. The accruals are denominated in a 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 also will depend upon the ultimate amount that is payable to the foreign jurisdiction and 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 particularly as it relates to the extent and timing of any transfers of funds.

      Newsprint represents the Company’s single largest raw material expense and is the most significant operating cost other than employee costs. In 2004, newsprint costs represented approximately 13.6% of revenues. Newsprint costs vary widely from time to time. 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, newsprint price increases have in the past had a material adverse effect on the Company and may do so 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, radio, broadcast and cable television, direct mail and other communications and advertising media that operate in the Company’s markets. The extent and nature of such competition is, in large part, determined by the location and demographics of the markets and the number of media alternatives in those markets. Some of the Company’s competitors are larger and have greater financial resources than the Company has. The Company may experience price competition from newspapers and other media sources in the future. In addition, newspapers competing in certain markets have added new, free publications that target similar demographics to those that are particularly strong for some of the Company’s newspapers. Lastly, the use of alternative means of delivery, such as free Internet sites, for news and other content, has increased significantly in the past few years. Should significant numbers of customers choose to receive content using these alternative delivery sources rather than the Company’s newspapers, the Company may be forced to decrease the prices charged for the Company’s newspapers or make other changes in the way the Company operates, or the Company may face a long-term decline in circulation, any or all of which may harm the Company’s results of operations and financial condition.

      The Chicago Sun-Times has experienced declines in circulation. Any significant 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. 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. 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 83.8% of the Company’s revenue for the year ended December 31, 2004, 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.

      The Company’s management concluded that material weaknesses existed in the Company’s internal control over financial reporting as of December 31, 2004. See “Item 9A — Controls and Procedures.” The Company’s independent registered public accounting firm was unable to render an opinion on management’s assessment of internal control over financial reporting or the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004.

      The SEC, in its complaint filed with the federal court in Illinois on November 15, 2004 naming Black, F. David Radler (“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.

      Current management has taken steps to correct internal control deficiencies and weaknesses during and subsequent to 2004, and believes that the Company’s internal controls and procedures have strengthened. However, it is possible that the Company has not yet discovered all deficiencies or weaknesses that may be material to the Company’s business, results of operations or financial position and may not be able to remediate all material weaknesses by December 31, 2005.

      The Company has postponed the filing of its periodic reports for the quarters ended March 31, 2005 and June 30, 2005. 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 two quarters of 2005 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. 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.

      On October 27, 2005, a claim was filed in the Court of Queens Bench of Alberta by the operator of a weekly magazine in Edmonton, Alberta, Canada against the Company, certain of its subsidiaries, the Minister of National Revenue for Canada, and others. The plaintiff alleges that one of the Company’s magazines made certain misrepresentations to customers regarding the magazine’s ownership, resulting in damage to the plaintiff. This action is in a preliminary stage, and it is not yet possible to determine its ultimate outcome.

      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. The Canadian government could seek the return of approximately Cdn.$3.5 million as a result of Black’s renunciation of his Canadian citizenship.

      In June 2004, the Company announced that the Audit Committee of its Board of Directors (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 by 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 the Audit Bureau of Circulations (“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 in 2003 and approximately $2.9 million in 2004. The Company evaluates the adequacy of the reserve on a regular basis and believes the reserve to be adequate as of December 31, 2004. See Note 23 to the Company’s consolidated financial statements.

      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 Related to Voting Control by a Single Stockholder

      Hollinger Inc. and Ravelston may be limited in their ability to sell their direct and indirect voting control in the Company to third parties because of the terms of the Company’s SRP and the Receiver is restricted in its ability to sell beneficial ownership of shares of Hollinger Inc. pursuant to the terms of the Receiver’s mandate and the CCAA proceedings in Canada involving the Ravelston Entities. The Receiver’s general restriction of sale is subject to a limited exception agreed to by the Company and the Receiver pursuant to which the Receiver may sell a limited amount of Hollinger Inc. shares to cover costs and expenses of the receivership. See “Item 13 — Certain Relationships and Related Transactions — Agreement with RSM Richter Inc.”

      If Hollinger Inc. and Ravelston 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.

      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. The SRP has been amended to allow for the appointment of the Receiver in respect of the Ravelston Entities, but not for the sale by the Receiver of the Ravelston Entities’ controlling stake in Hollinger Inc. to a third party. On July 13, 2005, Hollinger Inc. filed a motion with the Ontario Superior Court of Justice in the CCAA proceedings in Canada respecting the Ravelston Entities for an order that certain secured amounts owing to Hollinger Inc. and one of its wholly-owned subsidiaries be satisfied in full with common shares of Hollinger Inc. held by the Ravelston Entities.

      On July 19, 2005, Hollinger Inc. appointed four new directors to its Board of Directors and confirmed two existing directors pursuant to the terms of an order of the Ontario Superior Court of Justice dated July 15, 2005. At or around the same time, two former directors resigned from Hollinger Inc.’s Board of Directors. On July 22, 2005, the two existing directors previously confirmed by Hollinger Inc. in their position also resigned from the board. As a result of appointments during July and August 2005, the Board of Directors of Hollinger Inc. consists of six members.

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

      An agreement between Hollinger Inc. and the Company sets forth the terms under which Hollinger Inc. and the Company will resolve conflicts over business opportunities (the “Business Opportunities Agreement”). 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 it owns, 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 11⁷/8% Senior Secured Notes due 2011 and 11⁷/8% Second Priority Secured Notes due 2011. Hollinger Inc. has reported that $78.0 million principal amount of the Senior Secured Notes and $15.0 million principal amount of the Second Priority Secured Notes are 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.

      In April 2005, the Ravelston Entities sought protection from their creditors in the CCAA proceedings and the Receiver was appointed by the Ontario Superior Court of Justice as receiver and monitor of all assets of the Ravelston Entities. On August 1, 2005, Hollinger Inc. commenced a change of control tender offer to purchase any and all of its outstanding Senior Secured Notes and Second Priority Secured Notes. On September 6, 2005, Hollinger Inc. announced that no notes were tendered pursuant to the change of control tender offer. The offer was prompted by the Receiver’s having taken control over the common shares of Hollinger Inc. held directly or indirectly by the Ravelston Entities, which may constitute a change of control under the indentures governing the notes.

      If Hollinger Inc. or any of its subsidiaries that own shares of Class A or Class B Common Stock of the Company were also to commence proceedings to restructure its indebtedness in a CCAA proceeding, or became the subject of an insolvency or liquidation proceeding under the Bankruptcy and Insolvency Act (Canada) 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 voting rights currently assigned to the Class B Common Stock would be eliminated. There is a risk that this result would be challenged in court by Hollinger Inc. or its insolvency representatives.

      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 Business

      The Company operates principally in the business of publishing, printing and distribution of newspapers and magazines and holds investments largely in companies that operate in the same business. The Company divides its business into two operating segments; the Chicago 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. On December 15, 2004, the Company completed the sale of The Palestine Post Limited, the publisher of The Jerusalem Post and related publications, which represented substantially all of the assets and operations of the Community Group. In this annual report, the results of operations and financial condition of The Telegraph Group and The Palestine Post Limited are reported as discontinued operations for all periods presented. Consequently, the following description of the Company’s business excludes the businesses of the U.K. Newspaper Group and the Community Group. See “Item 7 — Management’s Discussion and Analysis of Financial Condition — Overview” and “Significant Transactions in 2004.”

      The Chicago Group consists of more than 100 newspapers in the greater Chicago metropolitan area including northwest Indiana. The Chicago Group’s newspaper properties include:

      On August 10, 2005, the Company announced a new divisional structure and related changes for the Chicago Group. The new structure is designed to support a customer-focused strategic plan for long-term growth. In connection with this plan, the Chicago Group has been renamed the Sun-Times News Group.

      The Sun-Times News Group’s strategic plan, which will be implemented through 2007, centers on capitalizing on the power of its locally focused publications in order to better serve its customers, maintaining and building the local identity of each title and continuously offering enhanced products and services for readers and advertisers.

      Components of the strategic plan include: grouping the media properties into three regional divisions; enhancing capabilities in areas including technology, circulation and strategic marketing; putting in place appropriate management to spearhead new initiatives; and strengthening and standardizing human resource practices across the Sun-Times News Group. In addition, the Company is in the process of evaluating its printing operations in order to improve productivity and product quality. This may include consolidating or outsourcing production from older, less efficient facilities.

      The Sun-Times News Group will be reorganized into the following divisions.

      METRO: This division includes the Chicago Sun-Times and its related Internet properties.

      Sources of Revenue. The Chicago Group’s revenues were approximately 83.8%, 84.8% and 86.4% of the Company’s consolidated revenues in 2004, 2003 and 2002, 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, 2004.

      Advertising. Advertisements are carried either within the body of the newspapers and are referred to as run-of-press (“ROP”) advertising, which make up approximately 83.6% of the Chicago Group advertising revenue, or as inserts. 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 2004, retail advertising accounted for the largest share of advertising revenues (44.5%) followed by classified (37.5%) and national (18.0%). 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. The network 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 2004, approximately 55% of the copies of the Chicago Sun-Times reported as sold and 61% of the circulation revenues generated were attributable to single-copy sales. Approximately 78.8% of 2004 circulation revenues of the Company’s suburban newspapers were derived from home delivery subscription sales.

      For participating publications, 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, 2003 was publicly reported in the audit report dated April 1, 2004.

      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 3 — Legal Proceedings — The Chicago Sun-Times Circulation Cases,” the Audit Committee initiated an internal review into practices that resulted in the overstatement of the 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 the daily and Sunday paid circulation of the Post-Tribune were approximately 66,000 and 73,000 respectively; and aggregate daily and Sunday paid circulation of Fox Valley Publications of approximately 124,000 and 133,000, respectively. The reported aggregate circulation for the free TMC products disclosed in the most recent ABC audit report was approximately 214,000 copies. Pioneer has reported weekly paid circulation of approximately 183,000. The most recent ABC audit reports for the Chicago Sun-Times and Midwest Suburban Publishing were withdrawn following the discovery of overstated circulation figures discussed above.

      Other Publications and Business Enterprises. The Chicago Group continues to strengthen its online presence. Suntimes.com and the related Chicago Group websites have approximately 2.2 million unique users with some 45 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 Chicago Group publications, as well as Paddock Publications’ metropolitan daily creating a valuable venue for advertisers, readers and on-line users. Additionally, www.DriveChicago.com continues to be a leader in automotive websites. This website, which represents a partnership with the Chicago Automobile Trade Association, pools the automotive classified advertising of three of the metropolitan Chicago area’s biggest dailies with the automotive inventories of many of Chicago’s new car dealerships. In 2004, the Chicago Group launched www.chicagojobs.com, a partnership with Paddock Publications and Shaker Advertising, one of the

largest recruitment agencies in the Chicago market. The website provides online users and advertisers an extremely robust employment website that management believes to be one of the best in the Chicago market.

      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 Publications’ 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 produced by Fox Valley Publications and Midwest Suburban Publishing. The Chicago Sun-Times has approximately 5,880 street newspaper boxes and more than 8,540 newsstands and over-the-counter outlets from which single copy newspapers are sold, as well as approximately 250 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 1,935 outlets and newspaper boxes in Chicago’s southern suburbs and Chicago’s south side and downtown areas. Approximately 84% of Fox Valley Publications’ circulation is from home delivery subscriptions. While approximately 83% of the Post-Tribune’s circulation is by home delivery, it also distributes newspapers through approximately 700 retail outlets and approximately 435 single copy newspaper boxes. Pioneer has a home delivery base that represents approximately 94% of its circulation. Pioneer publications are also distributed through approximately 215 newspaper boxes and more than 960 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 newspapers’ 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.

      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, 2004, the Chicago Group had approximately 3,200 employees including approximately 500 part-time employees. Of the 2,692 full-time employees, 646 were production staff, 650 were sales and marketing personnel, 364 were circulation staff, 246 were general and administrative staff, 764 were editorial staff and 22 were facilities staff. Approximately 1,160 employees were represented by 23 collective bargaining units. Employee costs (including salaries, wages, fringe benefits, employment-related taxes and other direct employee costs) were approximately 37.5% of the Chicago Group’s revenues in the year ended December 31, 2004.

      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 2004, approximately 126,000 tonnes were consumed. Newsprint costs were approximately 14.6% of the Chicago Group’s revenues. Average newsprint prices for the Chicago Group increased approximately 10.0% in 2004 from 2003. 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 to meet anticipated needs.

Canadian Newspaper Group

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

      At December 31, 2004, HCPH Co. and Hollinger L.P. owned numerous daily and non-daily newspaper properties and the business information group which publishes directories and 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 approximately 16.2%, 15.2% and 13.6% of the Company’s consolidated revenues in 2004, 2003 and 2002, respectively. The following table sets forth the sources of revenue and the percentage such sources represent of total revenues for the Canadian Newspaper Group, during the three years ended December 31, 2004.

      Advertising. Advertising revenue in 2004 was approximately $66.3 million. Advertisements are carried either within the body of the newspapers or as inserts. ROP advertising, which represented 95.2% of total advertising revenue in 2004, is categorized as either retail, classified or national. The three categories represented 43%, 46% and 11%, respectively, of ROP advertising revenue in 2004.

      Circulation. Virtually all circulation revenue in 2004 was from subscription sales.

      Job Printing and Other. The Company utilizes spare press capacity to print newspaper and advertising inserts for third parties. The Company does not have any long term contracts for this activity.

      Competition. Each of the Company’s Canadian newspapers and magazines competes to varying degrees with radio, broadcast and cable television, direct marketing and other communications and advertising media, as well as with other newspapers and magazines having local, regional or national circulation. The majority of revenue is from advertising. Advertising revenue 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. Certain advertising segments such as real estate, automotive and help wanted are significantly affected by local factors.

      Employees and Labor Relations. As of December 31, 2004, the Canadian Newspaper Group had approximately 1,120 full-time equivalent employees of which approximately 28% are unionized. The percentage of unionized employees varies widely from paper to paper while the business information group is non-union. As 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., a predecessor to HCPH Co.

      Raw Materials. Newsprint consumption in 2004 was 12,878 tonnes. The Canadian Newspaper Group believes that its sources of supply for newsprint are adequate to meet anticipated 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 of the Minister of Industry of Canada.

      Ownership. During 2001, HCPH Co. became the successor to the operations of XSTM Holdings (2000) Inc. Hollinger International Inc. indirectly owns a 100% interest in HCPH Co. and 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. 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. The Canadian government could seek the return of approximately Cdn.$3.5 million as a result of Black’s renunciation of his Canadian citizenship.

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, 2004, the Company’s Investment and Corporate Group operated out of offices in New York, New York, Toronto, Ontario, Chicago, Illinois and Tinley Park, Illinois. During the second half of 2004 and into 2005, the Company largely relocated functions previously performed

in Toronto, Ontario to Illinois. As of December 31, 2004, the Investment and Corporate Group employed 31 people.

      The Company, like 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 tanks, and the management and disposal of wastes at the Company’s major printing facilities. These requirements are becoming increasingly stringent. The Company believes that the cost of compliance with these laws and regulations will not have a material adverse effect on its business or results of operations.

      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.

      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 other 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, Chief Financial Officer (“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.

      Except as noted in this paragraph, the Company believes that its properties and equipment are in generally good condition, well-maintained and adequate for current operations. The Company is in the process of evaluating its printing operations in order to improve productivity from older, less efficient facilities, particularly printing facilities operated by the Company’s Midwest Suburban Publishing and Post-Tribune units in southwestern Chicago and Gary, Indiana.

      The Company owns a 320,000 square foot, state of the art printing facility that houses 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 in downtown Chicago that was owned by the Company. In October 2004, the Chicago Sun-Times vacated this facility and relocated its editorial, pre-press, marketing, sales and administrative activities to a 127,000 square foot leased facility, which is also in downtown Chicago. The Company has entered into a 15-year lease for this new office space. The Chicago Sun-Times also maintains approximately twenty distribution facilities throughout the Chicago area. All but one of these distribution centers are leased. In 2002, the Company entered into a joint venture established to develop a residential tower on property formerly occupied by its seven-story building. In June 2004, the Company agreed to sell its 50% share of the joint venture and a related property for net proceeds of $70.7 million. This transaction closed on October 15, 2004. See Note 18 to the Company’s consolidated financial statements and “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Significant Transactions in 2004 — Disposition of Interest in Trump Joint Venture.”

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

      The Canadian Newspaper Group’s newspapers are produced and published at numerous facilities throughout Canada. The printing of magazines is outsourced.

      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 2,097 square feet of office space in Toronto, Ontario. This lease replaces a lease for 4,927 square feet through August 31, 2005, commences on September 1, 2005 and expires August 31, 2006. The Company has largely relocated the functions performed in the Toronto office to Chicago and its suburbs.

      On June 17, 2003, the Board of Directors established 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 former members of the Board of Directors, including Black, 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, RMI, Moffat Management Inc. (“Moffat”) and Black-Amiel Management Inc. (“Black-Amiel”), which are entities with whom Black and some of the noted individuals were associated, and sales by the Company of assets to entities with which some of the noted individuals 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 approximately $0.6 million 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 provided 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 individual 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 indirect controlling 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 August 30, 2004, the Special Committee published the results of its investigation.

      On November 19, 2003, Black retired as CEO of the Company. Gordon A. 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

Telegraph Group. On June 2, 2005, the Company received a letter from Black and Amiel Black informing the Company of their retirement from the Board of Directors with immediate effect.

      On March 23, 2004, Colson, who was also cited in the Report in connection with receiving unauthorized payments, retired as Chief Operating Officer of the Company and CEO of the Telegraph Group in accordance with the terms of his Compromise Agreement with the Company. On April 27, 2004, Atkinson resigned as Executive Vice President of the Company under the terms of his settlement with the Company.

      Although Radler was not a party to the Restructuring Agreement, he agreed to pay the amount identified as attributable to him in the Restructuring Agreement. During 2003, Radler paid the Company approximately $0.9 million. During 2004, Radler paid an additional amount of approximately $7.8 million, including interest of $1.5 million.

      Although Atkinson was not a 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 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 $0.6 million identified for repayment by Atkinson in the Restructuring Agreement. Prior to the end of December 2003, Atkinson paid the Company approximately $0.4 million. 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 under an escrow agreement. Upon the Delaware Chancery Court’s approval of the settlement agreement, the Company will receive $2.4 million and Atkinson will receive the remainder. 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. See “— 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 “— Other Actions.”

      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, Moffat and Black-Amiel of the termination of the services agreements effective June 1, 2004 and subsequently proposed, and recorded a charge for, a reduced aggregate 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 “— Hollinger International Inc. v. Ravelston, RMI and Hollinger Inc.”

      The Company is party to several other lawsuits either as plaintiff or as a defendant, including several stockholder class action lawsuits, in connection with the events noted above and described below.

      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 at January 18, 2004, other than Black, Amiel Black and Colson, each 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 the 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. As a result, PHIL withdrew its offer and the Hollinger Sale was abandoned. See “—Hollinger International Inc. v. Conrad M. Black, Hollinger Inc. and 504468 N.B. Inc.”

      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.

      On May 3, 2005, certain of the Company’s current and former independent directors agreed to settle claims brought against them in this action. The settlement provides for $50.0 million to be paid to the Company. The settlement is conditioned upon funding of the settlement amount by proceeds from certain of the Company’s directors and officers liability insurance policies, and is also subject to court approval. Hollinger Inc. and several other insureds under the insurance policies have challenged the funding of the settlement by the insurers and have commenced applications in the Ontario Superior Court of Justice for this purpose. The settlement is subject to the Ontario Court’s approval of the funding. Proceedings on the matter are pending. If the Ontario Court approves the funding, the settlement will then be subject to approval by the Court of Chancery of the State of Delaware. See “—Hollinger Inc. v. American Home Assurance Company and Chubb Insurance Company of Canada.”

      The parties to the settlement include current independent directors Richard R. Burt, Henry A. Kissinger, Shmuel Meitar, and James R. Thompson, and former independent directors Dwayne O. Andreas, Raymond G. Chambers, Marie-Josee Kravis, Robert S. Strauss, A. Alfred Taubman, George Weidenfeld and Leslie H. Wexner. The plaintiff had previously dismissed Special Committee members Graham W. Savage, Raymond G.H. Seitz, and Paris as defendants, and, under the settlement, the plaintiff will not be able to replead the claims against them.

      The other defendants named in the suit, who are not parties to the settlement, are Black, Amiel Black, Colson, Richard N. Perle (“Perle”), Radler, Atkinson, Bradford Publishing Co. (“Bradford”) and Horizon Publications, Inc. (“Horizon”). Bradford and Horizon are private newspaper companies controlled by Black and Radler. The Company, through the Special Committee, has previously announced a settlement of its claims against Atkinson, and the Company anticipates that the Atkinson settlement will be presented to the Delaware Court of Chancery for approval in conjunction with the independent director settlement.

      The Special Committee is continuing to pursue the Company’s claims in the U.S. District Court for the Northern District of Illinois against Black, Amiel Black, Radler, Colson, Perle, Boultbee, Hollinger Inc., Ravelston, and RMI. See “— Litigation Involving Controlling Stockholder, Senior Management and Directors.”

      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 monetary damages, rescission, and an injunction against future violations. In January 2005, the defendants in In re Hollinger International Inc. Securities Litigation, including the Company, filed motions to dismiss the second consolidated amended class action complaint in the United States District Court for the Northern District of Illinois. The motions are pending. 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.C. 1985, c. C.-44 and seek unspecified monetary damages. On July 8, 2005, the Company and other defendants served motion materials seeking orders dismissing or staying the Saskatchewan claim on the basis that the Saskatchewan court has no jurisdiction over the defendants or, alternatively, that Saskatchewan is not the appropriate forum to adjudicate the matters in issue.

      On February 3, 2005, substantially the same group of plaintiffs as in the Saskatchewan and Ontario claims initiated a purported class action by issuing a Statement of Claim in Quebec, Canada. The Quebec claim, issued in that province’s Superior Court, is substantially similar to the Saskatchewan and Ontario claims and the defendants are the same as in the other two proceedings. The plaintiffs allege, among other things, breach of fiduciary duty, violation of the Ontario Securities Act, breaches of obligations under the Canada Business Corporations Act and seek unspecified money damages.

      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. The complaint seeks an award of attorneys’ fees “commensurate with the corporate benefits that have been or will be conferred on the Company as a result of the efforts undertaken by plaintiffs and their counsel.” On

August 22, 2005, the Company moved to dismiss the action. This action is in a preliminary stage, and it is not yet possible to determine its ultimate outcome.

      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 “Special Committee Action”). 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 the Racketeer Influenced and Corrupt Organizations Act (“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, 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. On February 3, 2005, the Court denied the Company’s request for an immediate appeal of the Court’s dismissal of the RICO claims.

      In December 2004, all defendants moved to dismiss the complaint against them on a variety of grounds, and on March 11, 2005, the Court denied those motions. All defendants have now answered the complaint, and with their answers defendants Black, Radler, Boultbee, Amiel Black and Colson asserted third-party claims against Richard Burt and James Thompson and former director Marie-Josee Kravis. These claims seek contribution for some or all of any damages for which defendants are held liable to the Company. On June 27, 2005, Burt, Thompson, and Kravis moved to dismiss the claims against them. In addition, Black asserted counterclaims against the Company alleging breach of his stock options contracts with the Company and seeking a declaration that he may continue participating in the Company’s options plans and exercising additional options. On May 26, 2005, the Company filed its reply to Black’s counterclaims. Ravelston and RMI asserted counterclaims against the Company and third-party claims against HCPH Co. and Publishing. Without specifying any alleged damages, Ravelston and RMI allege that the Company has failed to pay unidentified management services fee amounts in 2002, 2003, and 2004 and breached an indemnification provision in the management services agreements. Ravelston and RMI also allege that the Company breached a March 10, 2003 “Consent and Agreement” (“Consent”) between the Company and Wachovia Trust Company. That Consent provided, among other things, for the Company’s consent to a pledge and assignment by RMI to Wachovia Trust Company, as trustee, of the management services agreements as part of the security for Hollinger Inc.’s obligations under Hollinger Inc.’s 11⁷/8% Senior Secured Notes. The Consent also provided for certain restrictions and notice obligations in relation to the Company’s rights to terminate the management services agreements. Ravelston and RMI allege that they were “third-party beneficiaries” of the Consent, that the Company breached it, and that they have incurred unspecified damages as a result. The Company believes that the Consent was not approved or authorized by either the Company’s Board of Directors or its Audit Committee. The Company filed a Motion to Dismiss these claims on August 15, 2005.

      The U.S. Attorney’s Office has intervened in the case and moved to stay discovery until the close of criminal proceedings. The Company has informed the Court that it agrees to a temporary stay of discovery, other than document discovery, until December 1, 2005. The Court has not yet ruled on the motion.

      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 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 Restructuring Agreement, and violation of the just compensation and due process provisions of the Fourteenth Amendment to the U.S. Constitution. In addition to declaratory and injunctive relief, defendants sought unspecified damages.

      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 the 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 October 29, 2004, the Company, Hollinger Inc. and Black entered into an extension agreement (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 16, 2004, defendants made the payments required under the order and final judgment but filed notices of appeal of the Court’s rulings to the Delaware Supreme Court. On April 19, 2005, the Delaware Supreme Court denied the appeals and affirmed the Court of Chancery’s rulings. The matter is now completed.

      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 litigation that he is involved in. On June 4, 2004, the parties entered a stipulation and final order resolving the matter (the “June 4, 2004 Stipulation and Final Order”). 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. The complaint sought (i) specific performance or damages for the alleged breaches, (ii) damages for the Company’s alleged failure to issue to Black 145,000 and 1,218,750 shares of Class A Common Stock upon alleged exercises by Black of options on February 13, 2004 and April 2, 2004, respectively, and (iii) declaratory judgment that Black’s removal as Chairman of the Company and from the Telegraph Group did not constitute termination of employment under the 1997 Stock Option Plan and that his options must be treated equally with those of other executive officers and directors of the Company. The total damages sought were (i) the highest value of 145,000 shares of Class A Common Stock after February 13, 2004, plus pre-judgment interest, and (2) the highest value of 1,218,750 shares of Class A Common Stock after April 2, 2004, less the option exercise price, plus pre-judgment interest. On November 11, 2004, the Court dismissed the action without prejudice, granting Black leave to refile his claims as counterclaims in Hollinger International Inc. v. Hollinger Inc., et al., Case No. 04C-0698, which is described above under “— Litigation Involving Controlling Stockholder, Senior Management and Directors.”

      On May 13, 2005, Black filed an action against the Company in the Delaware Court of Chancery in regard to the advancement of fees and expenses in connection with his engagement of Williams & Connolly LLP to represent him in the investigations of Black by the U.S. Department of Justice and the SEC. In his initial complaint, Black sought payment of $6.8 million in legal fees allegedly already incurred, plus interest, and a declaration that he is entitled to advancement of 100% of Williams & Connolly’s legal fees going forward in connection with the two investigations, notwithstanding the June 4, 2004 Stipulation and Final Order in which the Company and Black agreed that the Company would advance only 50% of Black’s legal fees.

      In its response, filed on June 8, 2005, the Company brought counterclaims against Black for breach of contract in failing to repay money advanced to him in connection with Hollinger International Inc. v. Conrad Black, Hollinger Inc., and 504468 N.B. Inc. described above (the “Delaware Litigation”), and seeking a declaration that the Company is no longer obligated to advance fees to Black because he repudiated his undertaking to repay money advanced in connection with the Delaware Litigation and because of the court’s findings in the Delaware litigation that he breached his fiduciary and contractual duties to the Company. In

the alternative, the Company sought a declaration that Black is entitled to advancement of only 50% of the Williams & Connolly fees under the June 4, 2004 Stipulation and Final Order. The Company also filed a third-party claim against Hollinger Inc. seeking equitable contribution from Hollinger Inc. for fees that the Company has advanced to Black, Amiel Black, Radler, and Boultbee.

      Black filed an amended complaint on July 11, 2005. In addition to the relief sought in the initial complaint, the amended complaint seeks advancement of the fees of two other law firms — Baker Botts LLP and Schopf & Weiss LLP — totaling about $435,000. On July 21, 2005, Hollinger Inc. moved to dismiss the Company’s third-party claims.

      This action is in preliminary stages and it is not yet possible to determine the ultimate outcome.

      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 (see “Black v. Hollinger International Inc., filed on April 5, 2004”) against it and from bringing any claims against Ravelston arising out of its 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 by the Ontario Superior Court of Justice. 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. 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, those appeals 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. did not deliver such a notice and, therefore, did not appeal the stay of its counterclaim. On February 28, 2005, the Divisional Court denied Ravelston’s December motion.

      Five defamation actions have been brought by Black in the Ontario Superior Court of Justice against Breeden, Richard C. Breeden & Co. (“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 not name James Thompson and Richard Burt as defendants but adds Paul B. Healy as a defendant. Damages in the amount of Cdn.$850.0 million are sought in the first and second cases; damages in the amount of Cdn.$110.0 million are sought in the third and fourth cases; and Cdn.$1.0 billion in general damages and Cdn.$100.0 million in punitive damages are sought in the fifth case. Black has agreed to

a stay of these actions pending the determination of the proceedings and appeals described under “— Hollinger International Inc. v. Conrad W. Black, Hollinger Inc. and 504468 N. B. Inc.” above although such matters described above are now completed, no steps have been taken to advance the defamation actions in the Ontario Superior Court of Justice.

      On February 11, 2005, Black issued a libel notice indicating his intention to issue a sixth defamation action, with the defendants being Breeden, Breeden & Co., Paris, James Thompson, Richard Burt, Graham Savage, Raymond Seitz, Shmuel Meitar and Henry Kissinger. On March 9, 2005, a statement of claim in the sixth action was issued. This action names all of the aforementioned individuals as defendants. The amount claimed in the action is Cdn.$110.0 million.

      The defendants named in the six 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 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 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 incumbent directors at the time of the election. 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 during at least 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 intention to devote his time to an effort to sell Company assets for the benefit of all of the Company’s stockholders and not to undermine that process by engaging in transactions for the benefit of himself and Hollinger Inc. The SEC further alleges that Black and Radler misrepresented and omitted to state material facts regarding related party transactions to the Company’s Audit Committee and Board of Directors and in the Company’s SEC filings and at the Company’s stockholder meetings.

      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 March 10, 2005, the SEC filed an amended complaint that corrects several minor errors in the original complaint, extends the SEC’s claim of Section 14(a) violation to Hollinger Inc., and amends the relief sought to include a voting trust upon the shares of the Company that are controlled directly or indirectly by Black and Hollinger Inc. On September 14, 2005, the court granted a motion by the U.S. Attorney’s Office to stay discovery, other than document discovery, pending resolution of the government’s criminal case and investigation. It is not yet possible to determine the ultimate outcome of this action.

      On August 18, 2005, a federal grand jury in Chicago indicted Radler, the Company’s former President and Chief Operating Officer, Mark S. Kipnis (“Kipnis”), the Company’s former Vice-President, Corporate Counsel and Secretary, and Ravelston on federal fraud charges for allegedly diverting $32.2 million from the Company through a series of self-dealing transactions between 1999 and May 2001. The indictment, which includes five counts of mail fraud and two counts of wire fraud, alleges that the defendants illegally funneled payments disguised as “non-competition” fees to Radler, Hollinger Inc., and others, at the Company’s expense, and fraudulently mischaracterized bonus payments to certain Company executives as “non-competition” fees in order to defraud Canadian tax authorities. The transactions alleged in the indictment are among the transactions that form the basis for the Company’s civil claims against Radler, Ravelston, and others in the Special Committee Action. On August 24, 2005, Kipnis entered a not guilty plea. On September 20, 2005, Radler pleaded guilty to one count of fraud. Under a plea bargain, he agreed to cooperate with federal prosecutors, accept a prison sentence of two years and five months and pay a $250,000 fine.

      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 other 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 & Associates 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., No. 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 (the “Combined Circulation Proceeding”) 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 were filed in the County Department, Chancery Division: International Profit Assocs., Inc. v. Chicago Sun-Times, Inc. and Hollinger International Inc., No. 04 CH 17964, filed October 29, 2004; and Business Pro Communications, Inc. v. Hollinger Inc., Hollinger International Inc. and The Sun-Times Co., originally filed in Lake County, Illinois on July 9, 2004 as No. 04 L560, re-filed in Cook County, Illinois on December 1, 2004 as No. 04 CH 19930. Those two cases have since joined the Combined Circulation Proceeding plaintiffs under the heading In re: Chicago Sun-Times Circulation Litigation. The Court conditionally certified a settlement class in the Combined Circulation Proceeding, following which the parties have engaged in an extensive mediation process. The parties have entered into a settlement stipulation, for which they received preliminary approval on September 16, 2005. Final approval of the terms of the settlement will be sought but will be subject to an evidentiary hearing presently scheduled for January 17, 2006, following notice to putative class members providing both an opportunity to object and to opt out of the global settlement. The proposed preliminary settlement will provide advertisers with a combination of $7.7 million in cash and up to $7.3 million in added advertising benefits. In the absence of significant objections or opt outs, the settlement would, together with earlier settlements made between the Chicago Sun-Times and certain of its advertisers, release the claims of advertisers representing more than 93% of the Chicago Sun-Times’ advertising revenues received during the overstatement period. If the settlement is approved without material delay, the cash portion of the settlement payments will be made in the second calendar quarter of 2006 and the additional advertising will be provided thereafter. The settlements will be administered by an independent third-party claims administrator, Rust Consulting, Inc., the cost of which will be borne by the Company. The Company has also agreed to not contest the petition for attorneys fees of the attorneys for the consolidated class in an amount not to exceed $5.575 million. Earlier the Company entered into settlements with over 95% of its major advertisers at an aggregate commitment of approximately $10.1 million in cash and up to $6.8 million of additional advertising benefits. The combined major advertiser and class action settlements described above will not cover the claims of advertisers who are plaintiffs in four separate actions and certain advertisers whose advertising expenditures represent approximately 3.5% of the spending of all advertisers during the relevant period. The Company is pursuing third party recoveries of its defense costs and other amounts under existing insurance policies. The cost to the Company of resolving the remaining claims will vary depending upon the type of additional advertising benefits selected and the extent to which advertisers elect to accept additional advertising in lieu of cash as part of their settlement. The class action settlements used the same circulation estimates that were used in the settlements with major advertisers.

      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., No. 04 L 11657, filed October 14, 2004; Chicago Sun-Times, Inc. v. Oral Sekendur, No. 03 MI170004, circulation-related claims filed October 12, 2004; and Mancari’s Chrysler-Jeep-Dodge of Des Plaines, Inc.; Mancari’s of Orland Park, Inc.; Mancari’s Chrysler Jeep of Crestwood, Inc.; and Mancari’s Chrysler Jeep, Inc. v. Chicago Sun-Times, Inc., No. 05 L 3248, filed March 22, 2005. 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, No. 04 C 4317, filed June 28, 2004. The AJE’s the Salon, Inc. case was voluntarily dismissed, the National Foundation for Abused and Neglected Children, Inc. case was dismissed without prejudice, and the American Mattress case has been settled. Motions to dismiss have been filed in each of the remaining cases. Overall, the remaining cases are in preliminary stages and it is not yet possible to determine their ultimate outcome.

      On October 5, 2004, the Company announced the results of the Audit Committee’s internal review. 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 in 2003 and approximately $2.9 million in 2004. The Company evaluates the adequacy of the reserve on a regular basis and believes the reserve to be adequate, including the amounts of the settlements and proposed preliminary settlement referred to above, at December 31, 2004.

      Hollinger Inc. reported that on April 20, 2005, Ravelston and RMI were placed in receivership by an order of the Ontario Superior Court of Justice pursuant to the Courts of Justice Act (Ontario) (the “Receivership Order”) and granted protection by a separate order pursuant to the CCAA (the “CCAA Order”). The court appointed RSM Richter Inc. as the Receiver to monitor all assets of Ravelston and RMI. On May 18, 2005, the court extended the orders to include Argus Corporation and five of its subsidiaries and provided that nothing in the Receivership Order or the CCAA Order should stay or prevent the Special Committee’s action in the United States District Court for the Northern District of Illinois, including as against Ravelston and RMI (See — Litigation Involving Controlling Stockholder, Senior Management and Directors). According to public filings of Hollinger Inc., the Ravelston Entities own, directly or indirectly, or exercise control or direction over, Hollinger Inc.’s common shares representing approximately 78.3% of the issued and outstanding common stock of Hollinger Inc. Following the amendment of the Company’s SRP to designate the Receiver as an “exempt stockholder” (see “Item 13 — Certain Relationships and Related Transactions — Agreement with RSM Richter Inc.”), the Receiver took possession and control over those shares on or around June 1, 2005. The Receiver stated that it took possession and control over those shares for the purposes of carrying out its responsibilities as court appointed officer. As a result of this action, a change of control of the Company may be deemed to have occurred. See “Risk Factors — There could be a change of control of the Company through a change in control of Hollinger Inc. under circumstances not approved by the independent directors of the Company.”

      On June 20, 2005, Hollinger Inc. filed a motion with the Ontario Superior Court of Justice in the context of the CCAA proceedings respecting the Ravelston Entities for an order establishing a claims procedure in respect of such entities. Hollinger Inc. says that it filed its motion to identify claims against the Ravelston Entities, so that creditors of the Ravelston Entities may be in a position to review and consider all strategic alternatives and options to maximize recovery from the assets and property of the Ravelston Entities. On July 13, 2005, Hollinger Inc. filed a further motion with the Ontario Superior Court of Justice in the receivership and CCAA proceedings respecting the Ravelston Entities for an order that certain secured claims owing to Hollinger Inc. and one of its wholly-owned subsidiaries be satisfied in full with common shares of Hollinger Inc. held by the Ravelston Entities. These motions originally scheduled to be heard by the court on July 19, 2005, have been adjourned to a date not yet fixed by the court.

      On July 19, 2005, the Ontario Superior Court of Justice ordered that the Receiver is to develop a claims process to be submitted to the court for approval by no later than August 31, 2005 and that the stay of proceeding in the CCAA proceeding is lifted for the limited purpose of permitting Hollinger Inc. to proceed with its application to the Ontario Securities Commission (“OSC”) to vary the cease trade order of the OSC to allow attachment and perfection of Hollinger Inc.’s security interest in the common shares of Hollinger Inc. held by the Ravelston Entities. The Receiver submitted a claims process to the Ontario Superior Court of Justice on August 31, 2005 which is subject to approval by the court.

      By a second order of the Ontario Superior Court of Justice on July 19, 2005, on motion by the Receiver, the court declared that any realization on the common shares of Hollinger Inc. held directly or indirectly by the Ravelston Entities, the ability of any holder of a security interest granted by the Receiver to realize upon such security interest and title to the common shares acquired from the Receiver or through a realization by a security holder, shall be free and clear of any and all forfeiture claims asserted by the United States Attorney under RICO. This order was made subject to a “comeback clause” permitting the United States Attorney to apply to vary or amend the order. The United States Attorney did not respond to the motion and the court was advised that the United States Attorney took the position that it was not bound by any order made by the Ontario Superior Court of Justice.

      By a third order of the Ontario Superior Court of Justice on August 25, 2005, on motion by the Receiver, the court authorized the Receiver to enter into a settlement of a dispute between the Receiver and CanWest with respect to the termination of the management services agreement among Ravelston, CanWest and The National Post Company dated November 15, 2000. Immediately prior to the appointment of the Receiver, Ravelston gave notice that it would terminate the management services agreement, effective six months later. The following day, after the Receiver was appointed, CanWest terminated the management services agreement on the grounds that Ravelston had ceased carrying on business and had become insolvent. The dispute related to whether a termination fee was payable upon termination. The Receiver claimed that a termination fee of Cdn.$22.5 million was payable, plus an accrued fee of Cdn.$3.0 million for 2005 (one-half of the annual fee). CanWest claimed that no termination fee or accrued management fee was payable. The parties settled the dispute by agreeing that CanWest would pay a termination fee of Cdn.$11.25 million, plus Cdn.$1.5 million in respect of the 2005 annual fee, for a total payment of Cdn.$12.75 million. The court approved this settlement as being fair and reasonable.

      On August 31, 2005, as mentioned above, the Receiver served a motion seeking to establish a process for the assertion and resolution of claims against the Ravelston Entities. The purpose of the claims process is to determine the status and quantum of creditor claims for the purpose of a distribution to creditors from the estate of the Ravelston Entries.

      On September 12, 2005, the Ontario Superior Court of Justice made an order approving a claims process in relation to the Ravelston Entities. Pursuant to the Court’s order, except for excluded claims, claimants are required to file a proof of claim with the Receiver by December 15, 2005. The Receiver can thereafter accept a claim in whole or in part or reject the claim. The order contains procedures for the resolution of disputed claims. At the request of the Company, a clause was included in the order which provides that, in the event that the Receiver wishes to accept or settle a claim for an amount that equals or exceeds Cdn.$1.0 million, the Company is to receive notice of the claim and the Company has the right to refer the claim to the Ontario Superior Court of Justice for resolution. Pursuant to the Court’s order, the Special Committee Action is an excluded claim. The quantum of the Company’s claim against the Ravelston Entities as asserted in the Special Committee Action will be determined in that proceeding.

      On October 4, 2005, the Ontario Superior Court of Justice made an order upon application by the Receiver authorizing the Receiver, on behalf of Ravelston, to accept service of the federal indictment referred to above under the heading “Federal Indictment of Ravelston and Former Company Officials”, and to voluntarily appear and enter a plea of not guilty to the indictment. Black filed a notice of appeal to the Ontario Court of Appeal. The Receiver disputed Black’s entitlement to appeal the October 4, 2005 order contending that Black required leave to appeal to the Ontario Court of Appeal. On October 18, 2005, a panel of the Ontario

Court of Appeal heard argument on the Receiver’s motion to quash Black’s appeal and on Black’s cross-motion for leave to appeal if required. The panel of the Court reserved judgement on the two motions.

      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 in 2000. CanWest and the Company have competing claims relating to this transaction. CanWest claims the Company and certain of its direct subsidiaries owe CanWest approximately Cdn.$84.0 million. The Company is contesting this claim, and has asserted a claim against CanWest in the aggregate amount of approximately Cdn.$80.5 million. 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. This action has been discontinued and claims have been transferred to the arbitration referred to above (CanWest Arbitration) on consent of the parties.

      RMI brought a third party claim in this action against HCPH Co. for indemnification from HCPH Co. in the event CanWest and The National Post Company were successful in their motion for partial summary judgment as against RMI in the main action. CanWest’s motion against RMI was unsuccessful and CanWest’s claim against RMI was dismissed on consent of the parties. RMI’s third party action against HCPH Co. remains outstanding. The Company is seeking a discontinuance of the third party claim and an acknowledgment and release from RMI that HCPH Co. and the Company are not liable on a promissory note issued in connection with the sale of NP Holdings Company. See “Item 13 — Certain Relationships and Related Transactions — NP Holdings Sale.”

      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 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.). 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. In the initial complaint, the plaintiffs sought $5.1 million in damages, plus interest at the rate of 18 percent per annum and attorneys’ fees. On December 20, 2004, the action was moved from state court to the United States District Court for the Northern District of New York.

      On February 3, 2005, Sugra (Bermuda) filed its answer to the complaint, and filed cross claims against Hollinger Inc. for breach of contract, indemnity, contribution, and negligence, seeking damages, indemnification, or contribution to Sugra (Bermuda) and against Hollinger Inc. for the full amount of any judgment awarded against Sugra (Bermuda) in the action. On February 25, 2005, Hollinger Inc. filed its answer to Sugra (Bermuda)’s cross claims and asserted cross claims of its own against Sugra (Bermuda) for indemnification, negligence/impairment of collateral, and tortious interference with contractual relations,

seeking indemnification and damages for the full amount of any judgment awarded against Hollinger Inc. in the action. Plaintiffs filed an amended complaint on July 5, 2005. The amended complaint asserts an alternative damages claim of $3.3 million, plus interest and attorneys’ fees. In September 2005, plaintiffs filed a motion for leave to amend their complaint again to add the Company and Publishing as defendants. In their proposed complaint, plaintiffs allege that the Company and Publishing assumed Hollinger Inc.’s obligations when Hollinger Inc. transferred ownership of Sugra (Bermuda) to Publishing in 2002 and that they are liable for breach of the obligations that they assumed. Also in September 2005, Hollinger, Inc. filed a motion for leave to bring a third-party action against the Company and Publishing. Hollinger Inc.’s proposed complaint alleges that the Company and Publishing are alter egos of Sugra (Bermuda) and should therefore be held liable on Hollinger Inc.’s cross claims against Sugra (Bermuda). Both motions are pending. This action is in a preliminary stage, and it is not yet possible to determine its ultimate outcome.

      On March 4, 2005, Hollinger Inc. commenced an application in the Ontario Superior Court of Justice against American Home Assurance Company and Chubb Insurance Company of Canada. The relief being sought includes an injunction to restrain the insurers from paying out the limits of their respective policies (which collectively amounts to $50.0 million) to fund a settlement of the claims against the independent directors of the Company being advanced by Cardinal Value Equity Partners. Although the Company has not been named as a party in this application, the order being sought affects its interests and, for this reason, the Company has been participating in the proceeding thus far. On May 4, 2005, an order was made by the Ontario Superior Court of Justice that all parties wishing to seek relief in relation to various insurance policies issued to the Company, Hollinger Inc. and Ravelston for the year July 1, 2002 to July 1, 2003 must issue notices of application no later than May 13, 2005. On May 12, 2005, the Company filed an application with the Ontario Superior Court of Justice seeking declaratory orders regarding the obligations of certain insurers with whom the Company and its directors have coverage to fund the settlement of the Cardinal derivative action. On May 13, 2005, applications naming the Company as a respondent were issued in the Ontario Superior Court of Justice by (i) American Home Assurance Company, (ii) Chubb Insurance Company of Canada, (iii) Temple Insurance Company, Continental Casualty Company, Lloyd’s Underwriters and AXA Corporate Solutions Assurance, and (iv) Hollinger Inc. seeking a variety of declaratory orders regarding the appropriateness of the insurers, or some of them, being authorized or required to fund the settlement of the derivative action. Four additional applications have been commenced by various additional parties claiming to have rights under the insurance policies in question but none of these applications names the Company as a respondent. No damages are being sought in any of these proceedings. This action is in a preliminary stage, and it is not yet possible to determine its ultimate outcome.

      The Company and members of the Special Committee have had a suit filed against them before the Ontario Superior Court of Justice by Boultbee whose position as an officer was terminated in November 2003. In November 2003, the Special Committee found that Boultbee received approximately $0.6 million of “non-competition” payments that had not been properly 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 indemnification of legal fees, as part of which Boultbee agreed to discontinue this portion of claim. The Company is bringing a motion to stay this action until the litigation in Illinois involving the Company, Boultbee and others has been concluded. See “— Litigation Involving Controlling Stockholder, Senior Management and Directors.” The Company’s motion documents were served on June 21, 2005. A date for the hearing of the motion has not yet been scheduled.

      On June 27, 2005, Kenneth Whyte, former editor-in-chief of the National Post, filed an action against the Company in the Supreme Court of the State of New York, County of New York, entitled Whyte v. Hollinger International Inc., Index No. 602321/05. Whyte alleges that the Company improperly declined to allow him to exercise his vested stock options in February 2004 and asserts damages in excess of $680,000. In September 2005, the Company moved to dismiss the action. This action is in a preliminary stage, and it is not yet possible to determine its ultimate outcome.

      On August 25, 2005, Boultbee filed an action against the Company in the Court of Chancery of the State of Delaware alleging that the Company wrongfully failed to advance to him legal fees and expenses he allegedly incurred in connection with certain actions and investigations. He is seeking an order requiring the Company to pay approximately $257,000 in advancement for such legal fees, plus interest, and declaring that he is entitled to such advancement going forward. He is also seeking an award of attorneys fees for bringing the action. In September 2005, the Company filed counterclaims seeking a declaration that Boultbee was not entitled to advancement in connection with certain proceedings and that he is liable for repayment of 50% of amounts already advanced to him. This action is in a preliminary stage, and it is not yet possible to determine its ultimate outcome.

      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.

PART II

      The Company’s Class A Common Stock is listed on the New York Stock Exchange under the trading symbol HLR. At September 30, 2005 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 1,890 beneficial owners. As of September 30, 2005, 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 periods since January 1, 2003, and the cash dividends paid per share on the Class A Common Stock.

      On September 30, 2005, the closing price of the Company’s Class A Common Stock was $9.80 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 upon, among other factors, its results of operations, financial condition and cash requirements, the ability of its 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 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 2004 and to date in 2005.

Equity Compensation Plan Information

      See Note 16 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.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

      None.

      The following table sets forth the net effect of the restatements on specific amounts presented in the Statement of Operations Data:

      The following table summarizes the effect of the restatement on the Consolidated Balance Sheet Data:

General

      All amounts relate to continuing operations unless otherwise noted.

Overview

      The Company’s business is concentrated in the publishing, printing and distribution of newspapers and includes the Chicago Group and the Canadian Newspaper Group. The Chicago Group represents approximately 83.8% of the Company’s revenues for the year ended December 31, 2004 and includes the Chicago Sun-Times, Post Tribune, Daily Southtown and other city and suburban newspapers in the Chicago metropolitan area. The Canadian Newspaper Group represents approximately 16.2% of the Company’s revenues for the year ended December 31, 2004 and consists primarily of its magazine and business information group and community newspapers in western Canada, the major portion of which are held through the Company’s approximately 87% interest in Hollinger L.P.

      As discussed in “Item 1 — Business”, the Company completed the sale of the Telegraph Group on July 30, 2004. The sale of the Telegraph Group represented a disposition of substantially all of the operations of the U.K. Newspaper Group. On December 15, 2004, the Company sold The Jerusalem Post and its related publications, which represented substantially all of the operations of the Community Group. In this annual report, the results of operations and financial condition of the Telegraph Group and The Jerusalem Post are reported for all periods presented as discontinued operations. See Note 3 to the consolidated financial statements. Consequently, the following discussion and analysis of the Company’s financial condition and results of operations exclude the businesses sold unless otherwise noted.

      The Company’s revenues are primarily derived from the sale of advertising space within the Company’s publications. Advertising revenue accounted for approximately 77% of the Company’s consolidated revenues for the year ended December 31, 2004. Advertising revenue is largely comprised of three primary sub-groups: retail, national and classified. Advertising revenue is subject to changes in the economy in general, on both a national and local level, and in individual business sectors. The Company’s advertising revenue experiences seasonality with the third quarter typically being the lowest and the fourth quarter being the highest. Advertising revenue is recognized upon publication of the advertisement.

      Approximately 19% of the Company’s revenues for the year ended December 31, 2004 were generated by circulation of the Company’s publications. This includes sales of publications to individuals on a single copy or subscription basis and to sales outlets, which then re-sell the publications. The Company recognizes circulation revenue from subscriptions on a straight-line basis over the subscription term and single-copy sales at the time of distribution. The Company also generates revenues from job printing and other activities which are recognized upon delivery.

      Significant expenses for the Company are compensation and newsprint. Compensation expense, which includes benefits, was approximately 41% of the Company’s total operating costs for the year ended December 31, 2004. Compensation costs are recognized as employment services are rendered. Newsprint costs represented approximately 13% of the Company’s total operating costs for the year ended December 31, 2004. Newsprint prices are subject to fluctuation as newsprint is a commodity and can vary significantly from period to period. Newsprint costs are recognized upon consumption.

      Management fees paid to Ravelston, RMI and other affiliated entities and costs related to corporate aircraft were incurred at the corporate level and allocated to the operating segments in 2003 and prior periods. The two aircraft were grounded prior to 2004 and consequently, no costs were allocated to the operating segments in 2004. With the termination of the management services agreements effective June 1, 2004 and the sale of one aircraft and lease cancellation of the other, similar charges are not expected to be incurred in future periods. However, litigation against the Company is in process related to the lease cancellation. See Note 23 to the consolidated financial statements. Management fees and aircraft costs incurred during the year ended December 31, 2003 were approximately $26.0 million and $4.6 million, respectively, of which $9.3 million and $1.2 million, respectively, were allocated to the Telegraph Group and The Jerusalem Post and, accordingly, reflected in discontinued operations. Upon completion of the move of the Company’s accounting and finance functions to Chicago from Toronto during 2005, the Company estimates that annualized compensation costs of employees engaged in activities formerly provided under management services agreements with RMI and its affiliates will be approximately $6.0 million.

      The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries and other controlled entities. The Company’s interest in Hollinger L.P. was 87% at December 31 in each of the years 2004, 2003 and 2002. All significant intercompany balances and transactions have been eliminated in consolidation.

      The following events may impact the Company’s consolidated financial statements for periods subsequent to those covered by this report.

      Additional costs of approximately $22.4 million have been incurred through June 30, 2005 related to those activities described under “Significant Transactions in 2004 — Disputes, Investigations and Legal Proceedings with Former Executive Officers and Certain Current and Former Directors.”

      On January 18, 2005, the Company paid a special dividend of $2.50 per share on the Company’s Class A and Class B Common Stock as declared by the Board of Directors to holders of record on January 3, 2005, in an aggregate amount of approximately $226.7 million. On January 27, 2005, the Board of Directors declared a second special dividend of $3.00 per share paid on the Company’s Class A and Class B Common Stock on March 1, 2005 to holders of record of such shares on February 14, 2005, in an aggregate amount of approximately $272.0 million. Following the special dividends in 2005, pursuant to the underlying stock option

plans, the outstanding grants under the Company’s stock incentive plans, including the Deferred Stock Units (“DSU’s”), have been adjusted to take into account this return of cash to existing stockholders and its effect on the per share price of the Company’s Class A Common Stock.

      On January 26, 2005, the Company issued 105,500 DSU’s and on March 14, 2005, the Company issued 20,000 DSU’s that vest in 25% increments on each annual anniversary date with immediate vesting upon: a change in control as defined in the agreement; retirement (with certain restrictions); death or permanent disability. These DSU’s will be expensed ratably over the vesting period.

      On March 31, 2005, the Company notified the SEC of the termination of registration of the 9% Senior Notes due 2010 (the “Senior Notes”). See Note 25 to the consolidated financial statements.

      On March 31, 2005 and June 23, 2005, the Board of Directors declared a regular quarterly dividend in the amount of $0.05 per share, paid on the Company’s Class A and Class B Common Stock on April 20, 2005 and July 15, 2005 to stockholders of record on April 8, 2005 and July 1, 2005, respectively. On September 22, 2005, the Board of Directors 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 October 17, 2005 to stockholders of record on October 3, 2005.

      On May 3, 2005, certain of the Company’s current and former independent directors agreed to settle claims brought against them in Cardinal Value Equity Partners, L.P. v. Black, et al. The settlement provides for $50.0 million to be paid to the Company. The settlement, which is conditioned upon funding of the settlement amount by proceeds from certain of the Company’s directors and officers liability insurance policies is also subject to court approval. See “Item 3 Legal Proceedings — Stockholder Derivative Litigation.”

      On May 13, 2005, Black commenced a lawsuit in Delaware Chancery Court seeking reimbursement of approximately $6.8 million in legal fees and expenses allegedly incurred for one law firm representing Black in connection with investigations by the U.S. Department of Justice and the SEC, as well as in connection with a civil fraud lawsuit initiated by the SEC against Black and others. See “Item 3 Legal Proceedings — Black v. Hollinger International Inc., filed on May 13, 2005.”

      In May 2005, Hollinger L.P. declared a special dividend of approximately $91.8 million to its unitholders largely from the proceeds of the CanWest Exchange Offer. See Note 5 to the consolidated financial statements. Approximately 13% (or $12.0 million) of this dividend was paid to the minority unitholders.

      Disputes, Investigations and Legal Proceedings with Former Executive Officers and Certain Current and Former Directors — The Company is involved in a series of disputes, investigations and legal proceedings relating to transactions between the Company and certain former executive officers and certain current and former directors of the Company and their affiliates. The potential impact of these disputes, investigations and legal proceedings on the Company’s financial condition and results of operations cannot currently be estimated. Costs incurred as a result of the investigation of the Special Committee and related litigation involving Black, Radler and others are reflected in “Other operating costs” in the Consolidated Statements of Operations. These costs primarily consist of legal and other professional fees. The legal fees include those incurred directly by the Special Committee in its investigation, the costs of litigation initiated by the Special Committee on behalf of the Company, costs to defend the Company from litigation brought by the Company’s direct and indirect controlling stockholders and various former members of the Company’s management and Board of Directors following the Special Committee’s findings and the Company’s actions in November 2003, costs to defend the court order in the January 2004 SEC action against challenges by Hollinger Inc., costs of cooperating with the various government agencies investigating the matters discussed in the Report, and attorneys’ and other professional fees advanced by the Company to various current and former Company officers, directors and employees, as provided for by the Company’s by-laws, subject to the undertaking of the recipients to repay the fees advanced should it ultimately be determined by the courts that they were not entitled to be indemnified.

      The aforementioned costs amounted to approximately $60.1 million for the year ended December 31, 2004, as further discussed below, in addition to $10.1 million of costs incurred for the year ended December 31, 2003. The costs of $60.1 million for the year ended December 31, 2004 include approximately $26.6 million in costs and expenses arising from the Special Committee’s work. These amounts include the fees and costs of the Special Committee’s members, counsel, advisors and experts, including but not limited to fees and expenses of (i) conducting the investigation, (ii) preparing the Report, (iii) preparing, filing and pursuing litigation on behalf of the Company seeking more than $500 million in damages arising out of the actions of the Company’s controlling stockholders and other current and former officers and directors of the Company, (iv) defending the Court Order in the January 2004 SEC Action against challenges by Hollinger Inc.; (v) defending and defeating the counterclaims of Hollinger Inc. and Black in the Delaware Litigation; (vi) defending and defeating the anti-suit injunction motion and appeal brought by Ravelston and its affiliates in Canada to prevent prosecution in the United States of the Company’s claims; and (vii) cooperating with various government agencies investigating the conduct that is the subject of the Report.

      In addition to the costs for the Special Committee’s work, the Company has incurred other legal costs and other professional fees of $15.5 million for the year ended December 31, 2004. The legal and other professional fees are primarily comprised of costs to defend the Company in litigation that has arisen as a result of the issues the Special Committee has investigated, including costs to defend the counterclaims of Hollinger Inc. and Black in the Delaware litigation.

      The Company has also incurred legal fees and costs of approximately $18.0 million for the year ended December 31, 2004 that the Company has been required to advance to indemnified parties, including the indirect controlling stockholders and their affiliates and associates who are defendants in the litigation brought by the Company. As a result of the Delaware Supreme Court’s April 19, 2005 affirmation of the Chancery Court’s finding that Black repeatedly breached his fiduciary duty, the Company believes Black is obligated to repay the Company all amounts advanced to him relating to this, and potentially other, proceedings. Recoverability of such amounts is uncertain and have not been recognized. Through December 31, 2004, the Company has paid or accrued approximately $6.2 million on behalf of Black.

      During 2003, the Company received from its former executive officers a total of $1.2 million in restitution in accordance with the terms of an agreement. Through December 31, 2004, the Company was paid additional amounts in restitution totaling $30.3 million, excluding interest, in accordance with the terms of the agreement. These amounts were reflected in the Company’s Consolidated Statement of Operations for the year ended December 31, 2003 as “Other income (expense), net.”

      On April 27, 2004, the Company reached a settlement with Atkinson, a former director and officer of the Company. The terms of the settlement are subject to approval by the Delaware Chancery Court. Under the settlement with the Company, Atkinson agreed to pay the Company all the proceeds of the “non-competition” and certain incentive payments he received plus interest, which totaled approximately $2.8 million. Prior to the end of December 2003, Atkinson paid the Company $0.4 million. Atkinson exercised his vested options and the option proceeds of $4.0 million were deposited pursuant to an escrow agreement and are reflected as restricted cash on the Consolidated Balance Sheet as of December 31, 2004. Upon the Delaware Chancery Court’s approval of the settlement agreement, the Company will receive $2.4 million and Atkinson will receive the remainder. The Company recorded approximately $1.7 million of this settlement, excluding interest, in 2004 which is included in “Other income (expense), net” in the accompanying Consolidated Statement of Operations for the year ended December 31, 2004.

      Sale of the Telegraph Group — As part of the Strategic Process, on July 30, 2004, the Company completed the sale of the Telegraph Group for £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 price was subject to adjustment depending on actual working capital of the businesses sold and the amount of U.K. Newspaper Group tax losses ultimately surrendered to the purchaser, but such adjustment was not material (less than one-half of one percent of the purchase price). The sale of the Telegraph Group represented a disposition of substantially all of the operations of the U.K. Newspaper Group. The Telegraph Group has been reported as discontinued operations and the remaining, immaterial components of the U.K. Newspaper Group are reflected in the Investment and

Corporate Group segment for all periods presented. The consolidated financial statements for all periods have been revised to reflect this treatment. See Note 3 to the consolidated financial statements.

      On July 30, 2004, the Company used approximately $213.4 million of the proceeds from the sale of the Telegraph Group to repay in full all amounts outstanding under its Senior Credit Facility with Wachovia Bank, N.A. (the “Senior Credit Facility”) and terminated all derivatives related to that facility. In addition, the Company paid costs of approximately $2.1 million for premiums and fees related to the early repayment of the facility and $32.3 million, including $29.7 million recognized in prior years in mark-to-market adjustments, to cancel the related derivatives. The Senior Credit Facility and related items were previously reflected as obligations of the U.K. Newspaper Group and are included in discontinued operations.

      Retirement of 9% Senior Notes — In June 2004, the Company commenced a tender offer and consent solicitation to retire all of the 9% Senior Notes. Approximately 97% of the principal amount of the 9% Senior Notes were tendered. The Company used approximately $341.2 million of the proceeds from the sale of the Telegraph Group to purchase and retire the 9% Senior Notes tendered and related expenses. The tender closed on August 2, 2004. In September 2004, the Company retired an additional $3.4 million in principal amount of the 9% Senior Notes. The cost of the early retirement of the 9% Senior Notes is approximately $60.4 million, consisting of a premium for early retirement, derivative cancellation fees and related fees. The cost has been reflected in “Other income (expense) — net” for the year ended December 31, 2004. See “— Liquidity and Capital Resources.”

      Declaration of Special and Regular Dividends — 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 on the Company’s Class A and Class B Common Stock paid on January 18, 2005 to holders of record of such shares on January 3, 2005, in an aggregate amount of approximately $226.7 million. On January 27, 2005, the Board of Directors declared a second special dividend of $3.00 per share on the Company’s Class A and Class B Common Stock paid on March 1, 2005 to holders of record of such shares on February 14, 2005, in an aggregate amount of approximately $272.0 million. The Board of Directors believes that following the special dividends, the Company will have sufficient liquidity to fund its operations and obligations and to avail itself of strategic opportunities. Following the special dividends in 2005, the outstanding grants under the Company’s stock incentive plans, including the DSU’s, have been adjusted to take into account this return of cash to existing stockholders and its effect on the per share price of the Company’s Class A Common Stock. On December 16, 2004, the Board of Directors also declared a regular quarterly dividend in the amount of $0.05 per share on the Company’s Class A and Class B Common Stock which was paid on January 18, 2005.

      The Chicago Sun-Times Circulation Overstatement — 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 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 in 2003 and approximately $2.9 million in 2004. On September 16, 2005, the Company reached a tentative settlement of the consolidated class action lawsuits related to the circulation

overstatement. The Company evaluates the adequacy of the reserve on a regular basis and believes the reserve to be adequate, including amounts related to the tentative settlement, as of December 31, 2004. See “— Risk Factors” in Item 1 and Item 3 “— Chicago Sun-Times Circulation Cases.”

      The Audit Committee also conducted a Company-wide review and found that certain circulation inflation practices were employed at two other of its Chicago area newspapers, the Daily Southtown and The Star. 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. The overstatement practices have been discontinued at these newspapers, and the Company does not expect the practices at these newspapers will have a material impact on the Company. Circulation inflation practices were also found at The Jerusalem Post, which was sold in December 2004. See “Sale of The Jerusalem Post” following.

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

      Disposition of Interest in Trump Joint Venture — On June 21, 2004, the Company entered into an agreement to sell its 50% interest in a joint venture for the development of the property on which a portion of the Chicago Sun-Times operations was then 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 upon entering into the agreement and the balance of approximately $66.7 million, net of closing costs and adjustments, was received in cash at closing on October 15, 2004. As a result, the Company recognized a gain before taxes of approximately $44.2 million in 2004, which is included in “Other operating costs” in the accompanying Consolidated Statement of Operations.

      As a result of the decision to sell its interest in the joint venture and related real estate, the Chicago Sun-Times entered into an operating lease for new office space. The new lease is for 15 years and will have an average annual expense of approximately $2.7 million. The Chicago Sun-Times relocated to the new office space in the fourth quarter of 2004 resulting in capital expenditures of approximately $17.7 million through December 31, 2004. See “— Liquidity and Capital Resources — Capital Expenditures.”

      Hollinger L.P. Tender Offer — On August 6, 2004, the Toronto Stock Exchange (“TSX”) suspended the listing of the units of Hollinger L.P. since 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 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, 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. On August 5, 2005, the units were delisted from the TSX and are now listed on the NEX, which is a separate board of the TSX.

      CanWest Debentures — In November 2000, the Company and Hollinger L.P., received approximately Cdn.$766.8 million aggregate principal amount of 12¹/8% Fixed Rate Subordinated Debentures due November 15, 2010 (the “CanWest Debentures”) issued by a wholly-owned subsidiary of CanWest called 3815668 Canada Inc. (the “Issuer”). The CanWest Debentures were guaranteed by CanWest and were issued to the Company and Hollinger L.P. in partial payment for the sale of certain Canadian newspaper and Internet assets to CanWest. In 2001, the Company and Hollinger L.P. sold participations of approximately Cdn.$756.8 million (US$490.5 million) principal amount of the CanWest Debentures to a special purpose trust (the “Participation Trust”). Notes of the Participation Trust, denominated in U.S. dollars (the “Trust Notes”), were in turn issued and sold by the Participation Trust to third parties. As a result of the periodic interest payments on the CanWest Debentures made in kind in 2002, 2003 and 2004 and a partial redemption by the Issuer of the CanWest Debentures in 2003, as of September 30, 2004, there was outstanding approximately Cdn.$889.5 million aggregate principal amount of CanWest Debentures. The Company and Hollinger L.P. were the record owners of all of these CanWest Debentures, but as of

September 30, 2004, beneficially owned only approximately Cdn.$4.7 million and Cdn.$83.8 million principal amount, respectively, of CanWest Debentures, with the balance beneficially owned by the Participation Trust.

      On October 7, 2004, the Company agreed, under the terms of an agreement with CanWest the purpose of which was to facilitate the refinancing by CanWest of the existing CanWest Debentures with newly issued debentures through an exchange offer (the “CanWest Exchange Offer”), to sell to CanWest for cash all of the CanWest Debentures beneficially owned by the Company upon the completion of the CanWest Exchange Offer. The CanWest Exchange Offer was completed on November 18, 2004. The Company received approximately $133.6 million in respect of CanWest Debentures and residual interest in the Participation Trust that was attributable to foreign currency exchange. The CanWest Exchange Offer resulted in the exchange of all outstanding Trust Notes issued by the Participation Trust with debentures issued by a wholly-owned subsidiary of CanWest and the unwinding of the Participation Trust. As a result, the Company’s exposure to foreign exchange fluctuations under the Participation Trust was eliminated at that date. The Company was also relieved of the requirement to maintain cash on hand to satisfy needs of the Participation Trust, which removed the restrictions on $16.7 million held as restricted cash. The Company recognized a loss on the settlement of the Participation Trust and related CanWest Debentures in 2004 of approximately $30.9 million largely due to foreign currency gains recognized in prior years which were not ultimately realized. See Note 5 to the consolidated financial statements and “— Liquidity and Capital Resources — Off Balance Sheet Arrangements” following.

      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. That company is the publisher of The Jerusalem Post, The Jerusalem Report and related publications. The transaction involved the sale by the Company of its debt and equity interests in The Palestine Post Limited for $13.2 million. The sale of The Palestine Post Limited represented a disposition of substantially all of the remaining operations of the Community Group. The Jerusalem Post is reported as discontinued operations and the remaining, immaterial components of the Community Group are reflected in the Investment and Corporate Group segment. The consolidated financial statements for all periods have been revised to reflect this treatment. See Note 3 to the consolidated financial statements.

Critical Accounting Policies and Estimates

      The preparation of the Company’s consolidated financial statements requires it to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to areas that require a significant level of judgment or are otherwise subject to an inherent degree of uncertainty. These areas include bad debts, goodwill, intangible assets, income taxes, pensions and other post-retirement benefits, contingencies and litigation. The Company bases its estimates on historical experience, observance of trends in particular areas, information available from outside sources and various other assumptions that are believed to be reasonable under the circumstances. Information from these sources form the basis for making judgments about the carrying values of assets and liabilities that may not be readily apparent from other sources. Actual amounts may differ from these estimates under different assumptions or conditions.

      The Company believes the following critical accounting policies reflect the more significant judgments and estimates used in the preparation of the consolidated financial statements.

      At December 31, 2004, the Company’s Consolidated Balance Sheet includes $867.5 million of accruals intended to cover contingent liabilities for taxes and interest it may be required to pay in various tax jurisdictions. A substantial portion of the accruals relates 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. The Company may also be subject to penalties. The ultimate resolution of these tax contingencies will be dependent upon a number of factors, including discussions with taxing authorities and the nature, extent and timing of any restitution or reimbursement received by the Company.

      The Company believes that the accruals that have been recorded are adequate to cover the tax contingencies. If the ultimate resolution of the tax contingencies is more or less favorable than what has been assumed by management in determining the accruals, the accruals may ultimately be excessive or inadequate in amounts that are not presently determinable, but such amounts may be material to the Company’s consolidated financial position, results of operations, and cash flows.

      The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of customers to make required payments. If the financial condition of customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances could be required.

      The Company has significant goodwill recorded in its accounts. The Company is required to determine at least annually, whether or not there has been any permanent impairment in the value of these assets. Certain indicators of potential impairment that could impact the Company’s reporting units include, but are not limited to, the following: (i) a significant long-term adverse change in the business climate that is expected to cause a substantial decline in advertising spending, (ii) a permanent significant decline in a reporting unit’s newspaper readership, (iii) a significant adverse long-term negative change in the demographics of a reporting unit’s newspaper readership and (iv) a significant technological change that results in a substantially more cost effective method of advertising than newspapers.

      The Company records a valuation allowance to reduce the deferred tax assets to the amount which, the Company estimates, is more likely than not to be realized. While the Company has considered future taxable income and ongoing tax planning strategies in assessing the need for the valuation allowance, if the Company were to determine that it would be able to realize deferred tax assets in the future in excess of the net recorded amount, the resulting adjustment to deferred tax assets would increase net earnings in the period such a determination was made. Similarly, should the Company determine that it would not be able to realize all or part of the deferred tax assets in the future, an adjustment to deferred tax assets would decrease net earnings in the period that such a determination was made.

      The Company sponsors several defined benefit pension and post-retirement benefit plans for domestic and foreign employees. These defined benefit plans include pension and post-retirement benefit obligations, which are calculated based on actuarial valuations. In determining these obligations and related expenses, key assumptions are made concerning expected rates of return on plan assets and discount rates. In making these assumptions, the Company evaluates, among other things, input from actuaries, expected long-term market returns and current high-quality bond rates. The Company will continue to evaluate the expected long-term rates of return on plan assets and discount rates at least annually and make adjustments as necessary, which could change the pension and post-retirement obligations and expenses in the future.

      Unrecognized actuarial gains and losses are recognized by the Company over a period of approximately 12 years, which represents the weighted-average remaining service life of the employee group. Unrecognized actuarial gains and losses arise from several factors including experience, changes in assumptions and from differences between expected returns and actual returns on assets. At the end of 2004, the Company had unrecognized net actuarial losses of $76.5 million. These unrecognized amounts could result in an increase to

pension expense in future years depending on several factors, including whether such losses exceed the corridor in accordance with SFAS No. 87, “Employers’ Accounting for Pensions.”

      The estimated accumulated benefit obligations for the defined benefit plans exceeded the fair value of the plan assets at December 31, 2004, 2003 and 2002. During 2004, 2003 and 2002, excluding discontinued operations, non-cash charges of $3.9 million ($2.9 million, net of tax and minority interest), $1.6 million ($1.7 million, net of tax and minority interest), and $21.8 million ($12.4 million, net of tax), respectively, were recorded in other comprehensive loss for the increase in minimum pension liability. Similar charges may be required in future years as the impact of changes in global capital markets and interest rates on the value of the Company’s pension plan assets and obligations is measured.

      During 2004, the Company made contributions of $4.8 million to defined benefit pension plans. Global capital market and interest rate fluctuations could impact future funding requirements for such plans. If the actual operation of the plans differs from the assumptions, additional Company contributions may be required. If the Company is required to make significant contributions to fund the defined benefit pension plans, reported results could be adversely affected, and the Company’s cash flow available for other uses would be reduced.

Restatements and Reclassifications

      As described in footnote 6 to “Item 6 — Selected Financial Data” and Note 2 to the consolidated financial statements, the Company has restated certain of the financial statements and related data for prior periods. The following discussion and analysis of results of operations and financial condition is based on such restated financial data. As previously stated, all amounts relate to continuing operations unless otherwise noted.

Results of Operations for the Years ended December 31, 2004, 2003 and 2002

      The following table sets forth, for the Company’s segments and for the periods indicated, certain items and related percentage relationships derived from the Consolidated Statements of Operations.

      Loss from continuing operations in 2004 amounted to $163.9 million, or a loss of $1.81 per share compared to a loss of $89.2 million in 2003, or a $1.02 loss per share. During 2004 and 2003, the Company incurred costs of $60.1 million and $10.1 million, respectively, with respect to Special Committee costs which include legal and other costs incurred directly by the Special Committee in its investigation, the costs of litigation initiated by the Special Committee on behalf of the Company, costs to defend the Company from litigation that has arisen as a result of the issues that the Special Committee has investigated and fees paid by the Company as a result of indemnifications of current and former officers and directors. The Company also incurred costs of approximately $60.4 million related to the premiums, derivative termination fees and other costs to purchase and retire the 9% Senior Notes in 2004, recognized a loss of $30.9 million on settlement of the Participation Trust and related CanWest Debentures and recognized a gain on sale of assets of $44.8 million. During 2003, the Company also had a number of significant items, including costs on the early retirement of debt of $37.3 million, circulation restitution and settlement costs of $24.1 million, gains related to the Participation Trust and related CanWest Debentures of $112.5 million and income from settlements with former directors and officers of $31.5 million, all on a before tax basis.

      Operating revenues and operating loss in 2004 were $553.9 million and $11.0 million, respectively, compared with operating revenues of $531.3 million and an operating loss of $26.0 million in 2003. The

increase in operating revenues of $22.6 million over the prior year is a reflection of an increase in advertising revenues at both the Chicago Group and the Canadian Newspaper Group. The $15.0 million decrease in operating loss in 2004 is primarily due to a decrease in RMI management fees and corporate aircraft costs of $19.2 million, an increase of $45.0 million in gains on the sale of assets, including the Trump joint venture and related assets, a decrease in circulation restitution expenses of $21.2 million, partially offset by an increase in the above referenced costs incurred with respect to the Special Committee of $50.0 million, $5.4 million of insurance premiums related to coverage of directors and officers liability for prior periods, increased stock-based compensation expense of $3.9 million, increases in other corporate legal and professional fees of $7.4 million and a $1.8 million write-off of intangible assets, while the revenue increase was partially offset by increases in other operating expenses.

      Total operating costs and expenses in 2004 increased by $7.6 million to $564.9 million from $557.3 million in 2003. The increase is primarily related to an increase in the above referenced costs incurred with respect to the Special Committee of $50.0 million and other corporate legal and professional fees of $7.4 million, increased compensation expense of $8.7 million, including increased stock-based compensation of $3.9 million, increases in operating expenses associated with increased operating revenues, including newsprint of $3.5 million, $5.4 million for the previously mentioned insurance premiums and an increase of approximately $6.4 million to increase ongoing directors and officers coverage, and higher insurance premiums generally, partially offset by the decrease in RMI management fees of approximately $16.2 million and corporate aircraft costs of $3.0 million, increased gains on the sale of assets of $45.0 million, decreased expense related to Chicago Sun-Times circulation restitution of $21.2 million, and a decrease in depreciation and amortization expense of $6.4 million, largely resulting from intangibles which became fully amortized at the end of 2003 or during 2004.

      Interest expense was $19.1 million and $29.4 million in 2004 and 2003, respectively. The decrease in interest expense largely reflects the retirement of the 9% Senior Notes and related derivatives.

      Interest and dividend income in 2004 was $19.9 million compared with $22.9 million in 2003. This decrease is largely due to $7.1 million in interest recognized on settlements from former officers and directors in 2003 partially offset by income earned on cash invested from the sale of the Telegraph Group.

      Other income (expense), net, in 2004 worsened by $194.2 million to net expense of $116.1 million from net income of $78.1 million in 2003, primarily due to costs associated with the retirement of the Company’s 9% Senior Notes of $60.4 million, representing an increase in the cost of debt retirement on the 9% Senior Notes of $23.1 million as compared to the debt retired in 2003, a loss on settlement of the Participation Trust and related CanWest Debentures of $30.9 million, representing a deterioration of $143.4 million as compared to the $112.5 million in gains in 2003, a decrease in settlements with former directors and officers of $29.8 million, and an increase in losses on sales of publishing interests, net of $12.8 million, partially offset by lower asset and investment write-downs, of $19.8 million. See Note 19 to the consolidated financial statements.

      Income taxes were $35.7 million and $128.0 million in 2004 and 2003, respectively. The Company’s income tax expense varies substantially from the U.S. Federal statutory rate primarily due to provisions for contingent liabilities to cover additional taxes and interest the Company may be required to pay in various tax jurisdictions, changes in the valuation allowance for deferred tax assets and the impact of intercompany and

other transactions between U.S. and foreign entities. Provisions related to contingent liabilities to cover additional taxes and interest that may be payable amounted to $44.1 million in 2004 and $108.2 million in 2003. In both years, the Company recorded changes in the valuation allowance related to its deferred tax assets to give effect to its assessment of the prospective realization of certain future tax benefits. The valuation allowance was increased by $38.6 million in 2004 and decreased by $12.3 million in 2003. The intercompany and other transactions resulted in an expense of $17.6 million in 2004 and a benefit of $1.2 million in 2003. See Note 20 to the Company’s consolidated financial statements.

      Minority interest in 2004 totaled $1.2 million compared to $5.3 million in 2003. Minority interest primarily represents the minority share of net earnings of Hollinger L.P. The decrease in 2004 is due to the lower operating results of Hollinger L.P., primarily due to decreased foreign currency gains mainly from the Participation Trust, partially offset by foreign exchange gains due to the strengthening of the Canadian dollar.

      The Company completed the sale of the Telegraph Group on July 30, 2004. On December 15, 2004, the Company completed the sale of the Palestine Post Limited. These disposals have been recorded as discontinued operations in accordance with SFAS No. 144 for all the periods presented. See Note 3 to the consolidated financial statements and “Sale of the Telegraph Group” and “Sale of The Jerusalem Post” under the heading Significant Transactions in 2004.

      The loss from continuing operations for the year ended December 31, 2003 amounted to $89.2 million or a loss of $1.02 per diluted share compared to a loss from continuing operations of $235.8 million for the year ended December 31, 2002 or a loss of $2.45 per diluted share. The losses in 2003 and 2002 included a large number of infrequent and unusual items as discussed below.

      Operating revenues and operating loss in 2003 were $531.3 million and $26.0 million, respectively, compared with operating revenues of $511.4 million and operating income of $19.7 million, respectively, in 2002. The increase in operating revenues of $19.9 million was principally due to an increase in revenue at both the Chicago and Canadian Newspaper Groups. The decrease in operating income of $45.7 million was largely due to costs of $24.1 million related to circulation restitution at the Chicago Sun-Times for previous overstatements of circulation levels, an increase in expenses related to stock-based compensation of $6.7 million and the costs related to the Special Committee investigation and related litigation of $10.1 million.

      Operating costs and expenses increased by $65.6 million to $557.3 million in 2003 from $491.7 million in 2002. The increase in total operating costs was principally due to the increase in stock-based compensation of $6.7 million, the previously described costs of approximately $10.1 million related to the Special Committee investigation and related litigation, approximately $24.1 million of costs related to circulation restitution at the Chicago Sun-Times and increased management fees and aircraft costs of $3.1 million. In addition, there were increases in operating expenses associated with increased revenues, including newsprint of $6.6 million and compensation expense in the Chicago Group and Canadian Newspaper Group of $9.4 million. These costs were partially offset by the reversal of excess accruals for provisions for doubtful accounts at the Chicago Group of approximately $5.0 million.

      Interest expense totaled $29.4 million and $57.3 million for the years ended December 31, 2003 and 2002, respectively. Interest expense in 2003 included the mark-to-market losses on the value of the interest rate swaps on the 9% Senior Notes entered into in January 2003. In 2003, the mark-to-market valuation of these swaps resulted in an expense of $5.6 million. Excluding the impact of the mark-to-market valuation of these swaps, interest expense reflected lower average interest rates on long-term debt for 2003. The effective rate of interest on the 9% Senior Notes was reduced through the use of a fixed to floating interest rate swap on $250.0 million of the 9% Senior Notes. In addition, the 9.25% Senior Subordinated Notes were retired in January 2003, resulting in lower interest expense in 2003.

      Interest and dividend income was $22.9 million in 2003 compared with $15.1 million in 2002. The increase of $7.8 million arose primarily from approximately $7.1 million of interest that accrued on amounts receivable from settlements with former directors and officers. This increase was partially offset as the Company ceased recognizing interest on amounts due from CanWest, pending resolution of the arbitration (See Note 23 to the consolidated financial statements), and reflected lower average cash deposits throughout 2003.

      Other income (expense), net in 2003 was income of $78.1 million compared to a net expense of $168.1 million in 2002. Included in the income in 2003 was the write-off of deferred financing costs and premiums paid of $37.3 million on the redemption of the Company’s 9.25% Senior Subordinated Notes in January 2003. The Company also recognized write-downs of approximately $6.8 million relating to the FDR Collection, a collection of Franklin D. Roosevelt correspondence and artifacts (see Note 19 to the consolidated financial statements), $7.7 million in write-downs of investments and $5.6 million in write-downs of property, plant and equipment. These costs were partially offset by $31.5 million of restitution received or receivable from certain current or former directors and officers of the Company. Of this amount, $1.2 million was received in 2003 and the remaining $30.3 million has been collected in 2004. For 2002, the other expense, net of $168.1 million primarily consisted of the write-down of investments of $40.5 million, the loss of $15.2 million related to the total return equity swap and losses incurred on the early extinguishment of debt of approximately $35.5 million. Other foreign currency gains and losses in 2003 amounted to losses of $1.2 million compared with net foreign currency losses of $82.2 million in 2002. Gains on the Participation Trust and CanWest Debentures were $112.5 million in 2003, while losses of $78.2 million on the substantial liquidation of the Company’s investment in the Canadian Newspaper Group accounted for the major portion of the expense in 2002. See Note 19 to the consolidated financial statements.

      Income tax expense in 2003 was $128.0 million compared to an expense of $37.4 million in 2002. In both 2003 and 2002, income tax expense varies substantially from the U.S. federal statutory rate primarily due to provisions for contingent liabilities to cover additional taxes and interest that the Company may be required to pay in various tax jurisdictions. Such provisions amounted to $108.2 million in 2003 and $45.3 million in 2002. In both years, the Company recorded changes in the valuation allowance related to its deferred tax assets to give effect to its assessment of the prospective realization of certain future tax benefits. The valuation allowance was decreased by $12.2 million in 2003 and increased by $17.4 million in 2002. Also in 2002, the Company recorded a provision of $38.9 million for the tax impacts of the disposition and liquidation of its Canadian operations. See Note 20 to the Company’s consolidated financial statements.

      Minority interest in 2003 was $5.3 million compared to $2.2 million in 2002. Minority interest represents the minority share of net earnings of Hollinger L.P. The increase primarily reflected the minority interest’s

share of foreign exchange gains in Hollinger L.P. relating to the exchange exposure to the Participation Trust, as a result of the strengthening of the Canadian dollar.

      The transitional provisions of SFAS No. 142 required the Company to assess whether goodwill was impaired as of January 1, 2002. The fair values of the Company’s reporting units are determined primarily using a multiple of maintainable normalized cash earnings. As a result of this transitional impairment test, and based on the methodology adopted, the Company determined that the carrying amount of The Jerusalem Post properties was in excess of its estimated fair value. Accordingly, the value of goodwill attributable to The Jerusalem Post was written down in its entirety. The write-down of $20.1 million (net of tax of $nil) was reflected in the Consolidated Statement of Operations as of January 1, 2002 as “Earnings from operations of business segments disposed of.” The Company determined that the fair value of each of the other reporting units was in excess of its respective carrying amount, both on adoption and at year end for purposes of the annual impairment test. See Note 1(j) to the consolidated financial statements herein.

      See Note 3 to the consolidated financial statements and “Sale of the Telegraph Group” and “Sale of The Jerusalem Post” under the heading “Item 7 — Management’s Discussion and Analysis of Financial Condition — Significant Transactions in 2004.”

      The Company divides its business into three principal segments; the Chicago Group, the Canadian Newspaper Group, and the Investment and Corporate Group.

      Below is a discussion of the results of operations of the Company by segment.

      The following table sets forth, for the Chicago Group, for the periods indicated, certain results of operations and percentage relationships.

      Operating revenues for the Chicago Group were $464.4 million in 2004 compared to $450.8 million in 2003, an increase of $13.6 million.

      Advertising revenue was $362.4 million in 2004 compared with $352.0 million in 2003, an increase of $10.3 million. The increase was a result of higher revenue in retail advertising of $4.8 million and national advertising of $5.6 million.

      Circulation revenue was $90.0 million in 2004 compared with $86.5 million in 2003, an increase of $3.5 million. The increase in circulation revenue is attributable to the single copy price increase at the Chicago Sun-Times which took effect in April 2004 as the increase in price more than offset the decline in volume attributable to the price increase. The single copy price was increased $0.15 from $0.35 to $0.50. The volume decline related to the circulation overstatement had no impact on circulation revenue. Job printing and other revenue was generally comparable between years amounting to $12.1 million in 2004 compared with $12.2 million in 2003.

      The inflation of circulation figures revealed through the Company’s investigation concluded that the inflation of circulation figures did not result in the misstatement of circulation revenues recognized by the Chicago Group. See discussion of “Other operating costs,” below and “Significant Transactions in 2004 — The Chicago Sun-Times Circulation Overstatement.”

      Total operating costs and expenses were $368.0 million in 2004 compared with $426.4 million in 2003, a decrease of $58.4 million. This decrease is largely reflective of the decrease in other operating costs as discussed below.

      Newsprint expense in 2004 was $67.8 million compared with $65.1 million in 2003, an increase of $2.7 million. Total newsprint consumption decreased approximately 8% with the average cost per tonne of newsprint approximately 10% higher in 2004. Declines in consumption reflect the cessation of practices relating to the overstatement of circulation and consequent reduction resulting from the printing of excessive copies of certain publications, principally the Chicago Sun-Times, as well as volume declines primarily resulting from the single copy price increase.

      Compensation costs in 2004 were $174.0 million compared with $170.5 million in 2003, an increase of $3.5 million. The increase is largely due to wage increases in the editorial area and approximately $1.1 million in higher benefit costs.

      Other operating costs were $95.7 million in 2004, compared with $155.1 million in 2003, a decrease of $59.5 million. The decrease is reflective of a $44.2 million gain on the sale of assets related to the Trump joint venture, lower circulation restitution expenses of $21.2 million and a reduction in RMI management fees and aircraft costs of $8.2 million, somewhat offset by increases in severance expense of $0.6 million, increased marketing and promotional spending of $6.0 million to support the Chicago Sun-Times’ single copy price increase, increased circulation and distribution costs of $2.6 million, a write-off of intangible assets of $1.8 million and an increase of $3.0 million in insurance costs, primarily director and officer and property insurance.

      Depreciation and amortization expense was $30.5 million in 2004 compared with $35.7 million in 2003. The decrease, primarily in amortization expense, reflects certain non-compete intangible assets that were fully amortized at the end of 2003. This expense includes $7.3 million and $7.1 million in 2004 and 2003, respectively, related to amortization of capitalized direct response advertising costs.

      Operating income totaled $96.4 million in 2004 compared with $24.4 million in 2003, an increase of $72.1 million. The increases reflect the previously noted gain on sale of assets and higher revenues combined with the lower other operating costs and depreciation and amortization expenses, partially offset by the increases in newsprint and compensation expenses.

      Operating revenues for the Chicago Group were $450.8 million in 2003 compared to $441.8 million in 2002, an increase of $9.0 million.

      Advertising revenue was $352.0 million in 2003 compared with $341.3 million in 2002, an increase of $10.8 million or 3.2%. The overall increase was largely a result of higher advertising revenue in retail advertising of $5.6 million and national advertising of $3.5 million.

      Circulation revenue was $86.5 million in 2003 compared with $89.4 million in 2002, a decrease of $2.9 million. The decline in circulation revenue was attributable primarily to volume declines in the single copy market. Sunday single copy sales declined and, although the volume of Sunday home delivery increased, the increased volume was achieved at discounted price levels.

      Total operating costs in 2003 were $426.4 million compared with $403.1 million in 2002, an increase of $23.3 million. The increase is largely reflective of increases in other operating costs and newsprint expense as discussed below.

      Newsprint expense was $65.1 million for 2003, compared with $60.1 million in 2002, an increase of $5.0 million or 8.3%. Total newsprint consumption in 2003 increased approximately 4% compared with 2002, and the average cost per tonne of newsprint in 2003 was approximately 7% higher than in 2002. Reflected in newsprint costs for 2003 was a favorable recovery against a previously recorded allowance for unusable newsprint, which reduced newsprint expense by $2.2 million.

      Compensation costs in 2003 were $170.5 million compared with $170.9 million in 2002, a decrease of $0.4 million. In 2003, labor cost savings were achieved in production and circulation with the implementation of new technology and further consolidation of the distribution network. These declines were partially offset by a 3% increase in employee benefit costs.

      Other operating costs in 2003 were $155.1 million compared with $136.1 million in 2002, an increase of $19.0 million. In 2003, the Chicago Group recorded costs of $24.1 million for restitution to and settlement of litigation with advertisers as a result of the overstatement of circulation levels in the current and prior years and in 2002, the Chicago Group incurred $0.5 million in pre-operating costs from the start-up of the new printing facility. Other operating costs, excluding those items, decreased in 2003 primarily as a result of a decrease in the provisions for doubtful accounts. During 2003, the Chicago Group updated underlying assumptions used for estimating its allowance for doubtful accounts and determined it could reduce the allowance by approximately $5.0 million. This reduction was partially offset by cost increases due to the launch of a free distribution newspaper during the fourth quarter of 2002 and increases in insurance costs. These increases were partially offset by savings achieved in facilities rental and a reduction in distribution costs.

      Depreciation and amortization expense in 2003 was $35.7 million compared with $36.0 million in 2002, a reduction of $0.3 million. This expense includes $7.1 million and $8.3 million in 2003 and 2002, respectively, related to amortization of capitalized direct response advertising costs.

      Operating income in 2003 was $24.4 million compared with $38.6 million in 2002, a decrease of $14.3 million. The change reflected the combined impact of the items noted above.

      The following table sets forth, for the Canadian Newspaper Group, for the periods indicated, certain results of operations and percentage relationships.

      Operating revenues in the Canadian Newspaper Group in 2004 were $89.5 million compared with $80.5 million in 2003. The increase in revenue was primarily a reflection of the strengthening Canadian dollar against the U.S. dollar. In addition, there was an increase in revenue in local currency of approximately Cdn.$4.0 million primarily due to growth of the Canadian economy in general. Circulation levels remained relatively constant in 2004 compared to 2003.

      The operating income of the Canadian Newspaper Group was $4.1 million in 2004 compared to an operating loss of $5.0 million in 2003. This improvement was primarily the result of the $9.0 million increase in operating revenues. Total operating costs decreased approximately $0.1 million compared to 2003, primarily due to a decrease in compensation costs of $2.6 million as the result of lower pension and post-retirement obligation expense. These obligations relate to pension and post-retirement liabilities to retired employees not assumed by the purchasers of the related businesses when those businesses were sold in prior years. The decrease in compensation expense was partially offset by an increase in other operating expenses of approximately $1.5 million, primarily due to exchange rate effects, higher legal and consulting fees, and an increase in newsprint expense of approximately $0.8 million, partially offset by a decrease in RMI management fees of $2.7 million. The effect of the increase in foreign exchange rates on operating costs approximated its impact on revenue.

      The Canadian Newspaper Group has experienced an increase in competition over the last two years in certain markets where the Company has publications. This did not have a significant effect on results in 2004 and 2003, but may become a factor in the future as competing newspaper groups are aggressively entering markets, both where the Company publishes and where it does not currently publish.

      Operating revenues in the Canadian Newspaper Group in 2003 were $80.5 million compared with $69.6 million in 2002. The increase in revenue was primarily a reflection of the strengthening Canadian dollar against the U.S. dollar, although there was an increase of approximately Cdn.$3.1 million in revenue. During 2003, advertising revenue was higher primarily due to growth of the Canadian economy in general. This

growth was partly offset by a reduction of advertising during the fourth quarter in the automobile sector. Circulation levels remained relatively constant in 2003 compared to 2002.

      The operating loss of the Canadian Newspaper Group was $5.0 million in 2003 compared to operating income of $0.6 million in 2002. The 2003 results for the Canadian Newspaper Group included an increase in pension and post-retirement obligation expense of Cdn.$5.8 million primarily relating to liabilities to retired employees not assumed by the purchasers of the related businesses when those businesses were sold in prior years. In addition, the cost of newsprint increased slightly, but this was partially offset by a decrease in the amount of newsprint used. The effect of the increase in foreign exchange rates on operating costs approximated its impact on revenue. Other operating costs in 2002 includes a gain on sale of assets of $2.7 million.