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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

AMENDMENT NO. 1

FORM F-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

HOLLINGER INC.
(Exact name of registrant as specified in its charter)

<Table>

ONTARIO, CANADA 2711 NOT APPLICABLE
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</Table>

<Table>

FREDERICK A. CREASEY MARK S. KIPNIS COPY TO: ANDREW J. BECK, ESQ.
10 TORONTO STREET HOLLINGER INTERNATIONAL INC. TORYS LLP
TORONTO, ONTARIO 401 NORTH WABASH AVENUE, 237 PARK AVENUE
CANADA M5C 2B7 SUITE 740, CHICAGO, ILLINOIS NEW YORK, NY 10017
(416) 363-8721 (312) 321-2299 (212) 880-6000
(Address, including zip code, and (Name, address, including zip code, and
telephone number, including area code, telephone number, of agent for service)
of registrant's principal executive
offices)
</Table>

RAVELSTON MANAGEMENT INC.
(Exact name of registrant as specified in its charter)

<Table>

J. A. BOULTBEE MARK S. KIPNIS COPY TO: ANDREW J. BECK, ESQ.
10 TORONTO STREET HOLLINGER INTERNATIONAL INC. TORYS LLP
TORONTO, ONTARIO 401 NORTH WABASH AVENUE, 237 PARK AVENUE
CANADA M5C 2B7 SUITE 740, CHICAGO, ILLINOIS NEW YORK, NY 10017
(416) 363-8721 (312) 321-2299 (212) 880-6000
(Address, including zip code, and (Name, address, including zip code, and
telephone number, including area code, telephone number, of agent for service)
of registrant's principal executive
offices)
</Table>

504468 N.B. INC.
(Exact name of registrant as specified in its charter)

<Table>

Approximate date of commencement of proposed sale to the public: N/A.

If this Form is filed to register additional securities for an offering
pursuant to Rule 462 (b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462 (d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT A SOLICITATION OF AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION, DATED SEPTEMBER 17, 2003

PROSPECTUS

US$120,000,000

HOLLINGER INC.

(UNCONDITIONALLY GUARANTEED BY RAVELSTON MANAGEMENT INC.
AND 504468 N.B. INC.)

OFFER TO EXCHANGE:
ALL OUTSTANDING 11 7/8% SENIOR NOTES DUE 2011

FOR

11 7/8% SENIOR NOTES DUE 2011

We are offering to exchange a total of US$120,000,000 new 11 7/8% senior
notes due 2011 for an equal amount of our currently outstanding 11 7/8% senior
notes due 2011. We will exchange new notes for all outstanding old notes that
are validly tendered and not withdrawn prior to the expiration of the exchange
offer. You may withdraw tenders of old notes at any time prior to the expiration
of the exchange offer. The terms of the new notes are substantially identical to
those of the old notes, except that the transfer restrictions and registration
rights relating to the old notes do not apply to the new notes. We will issue
the new notes under the same indenture under which we issued the old notes, and
the new notes will represent the same debt as the old notes for which they are
exchanged. We will not receive any proceeds from the exchange offer. The old
notes are, and the new notes will be, unconditionally guaranteed on a senior
basis by (1) Ravelston Management Inc. ("RMI"), a wholly-owned subsidiary of our
controlling shareholder, The Ravelston Corporation Limited, and (2) 504468 N.B.
Inc. ("NB Inc." or "NBI"), one of our indirect wholly-owned subsidiaries. The
new notes are sometimes referred to as the "Notes" in this prospectus.

PRINCIPAL TERMS OF THE EXCHANGE OFFER

- - The exchange of old notes for new notes will not be a taxable exchange for
U.S. federal income tax purposes but you should see the discussion under the
caption "United States Federal Income Tax Considerations."

- - The exchange offer is the initial public offering of the new notes. There is
no established trading market for the new notes or the old notes. We do not
intend to apply for listing of the new notes on any national securities
exchange or the Nasdaq Stock Market, Inc.

- - Each broker-dealer that receives new notes for its own account pursuant to
this offer must acknowledge that it will deliver a prospectus in connection
with any resale of the new notes. The letter of transmittal states that by
making this acknowledgement and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning
of the Securities Act of 1933, as amended (the "Securities Act"). This
prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer during the 180-day period following the
effectiveness of this registration statement (excluding any period during
which any stop order shall be in effect suspending the effectiveness of this
registration statement or during which we have suspended the use of this
prospectus) in connection with resales of the new notes received in exchange
for old notes where the old notes were acquired by the broker-dealer as a
result of market-making activities or other trading activities. We have
agreed that, during that 180-day period following the effectiveness of this
registration statement, we will make this prospectus available to any
broker-dealer for use in connection with any such resale. You should see the
discussion under the caption "Plan of Distribution".

YOU SHOULD CAREFULLY REVIEW THE RISK FACTORS BEGINNING ON PAGE 16 OF THIS
PROSPECTUS.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

The date of this prospectus is September , 2003

TABLE OF CONTENTS

<Table>

IMPORTANT NOTICE TO READERS................................. 1
AVAILABLE INFORMATION....................................... 1
DOCUMENTS INCORPORATED BY REFERENCE......................... 2
FORWARD-LOOKING STATEMENTS.................................. 2
ENFORCEMENT OF CIVIL LIABILITIES............................ 3
EXCHANGE RATES.............................................. 4
CIRCULATION AND READERSHIP INFORMATION...................... 4
PROSPECTUS SUMMARY.......................................... 6
RISK FACTORS................................................ 15
CONSOLIDATED CAPITALIZATION................................. 26
RELATIONSHIP AMONG THE COMPANY, INTERNATIONAL, RAVELSTON,
RMI AND NB INC. .......................................... 27
DESCRIPTION OF INTERNATIONAL'S CLASS B COMMON STOCK AND
CLASS A COMMON STOCK...................................... 29
MARKET PRICE AND DIVIDEND INFORMATION OF INTERNATIONAL'S
CLASS A COMMON STOCK...................................... 30
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA.............. 32
OPERATING RESULTS........................................... 37
THE COMPANY................................................. 73
MANAGEMENT.................................................. 86
RELATED PARTY TRANSACTIONS.................................. 89
THE EXCHANGE OFFER.......................................... 93
DESCRIPTION OF THE COLLATERAL AND THE INTERCREDITOR AND
SUPPORT ARRANGEMENTS...................................... 101
DESCRIPTION OF NOTES........................................ 105
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS.......... 148
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS............. 148
PLAN OF DISTRIBUTION........................................ 150
LEGAL MATTERS............................................... 151
EXPERTS..................................................... 151
INDEX TO FINANCIAL STATEMENTS............................... F-1
INDEMNIFICATION OF DIRECTORS AND OFFICERS................... II-1
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.................. II-2
UNDERTAKINGS................................................ II-5
SIGNATURES.................................................. II-7
AUTHORIZED REPRESENTATIVE................................... II-9
</Table>

IMPORTANT NOTICE TO READERS

You should rely only on the information contained in this prospectus or to
which we have specifically referred you. We have not authorized anyone to
provide you with information that is different. If anyone provides you with
different or inconsistent information, you should not rely on it. This document
may be used only where it is legal to sell these securities. The information in
this prospectus is accurate only on the date of this prospectus.

AVAILABLE INFORMATION

We have filed a registration statement on Form F-4 with the Securities and
Exchange Commission covering the exchange notes. This prospectus is part of our
registration statement. For further information about us and the exchange notes,
you should refer to our registration statement and its exhibits. This prospectus
summarizes material provisions of contracts and other document to which we refer
you. Since the prospectus might not contain all of the information that you
might find important, you should review the full text of these documents. We
have included copies of these documents as exhibits to our registration
statement.

Neither RMI nor NB Inc. is a reporting company and do not make separate
filings with the SEC.

We are subject to the periodic reporting and other informational
requirements of the US Securities Exchange Act of 1934, and accordingly we file
reports and other information with the SEC. Copies of our reports and other
information may be inspected and copied at the public reference facilities
maintained by the SEC. However, we are a "foreign private issuer" as defined in
Rule 405 of the Securities Act, and therefore are not required to comply with
Exchange Act provisions regarding proxy statements and short swing profit
disclosure.

Copies of these materials may also be obtained by mail at prescribed rates
from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330. In addition, the
SEC maintains an Internet site that contains reports and other information
regarding issuers that file electronically through "EDGAR" (Electronic Data
Gathering, Analysis and Retrieval) System, available on the SEC's website
(http://www.sec.gov).

We also file information, such as periodic reports and financial
information, with the Canadian Securities Administrators, which may be accessed
at www.sedar.com

In the indenture for the notes we have agreed that, whether or not we are
required to do so by the rules and regulations of the SEC, for so long as any of
the notes remain outstanding, we will furnish the trustee and the holders of the
notes:

- all quarterly and annual financial information that would be required to
be contained in a submission to the SEC on Forms 20-F and 6-K if we were
required to file or furnish such forms;

- with respect to our annual financial information only, a report on the
information by our certified independent accountants; and

- all reports that would be required to be furnished to the SEC on Form
6-K if we were required to furnish such reports.

In addition, for so long as any of the notes remain "restricted securities"
within the meaning of Rule 144(a)(3) of the Securities Act, unless we furnish
information to the SEC in accordance with Rule 12g 3-2(b) or under Section 13 or
15(d) of the Exchange Act, we have agreed to make available to any holder or
beneficial owner of the notes, or any prospective purchaser of the notes
designated by a holder or beneficial owner of the notes, in connection with any
sale of the notes, the information required by Rule 144(d)(4) under the
Securities Act.

DOCUMENTS INCORPORATED BY REFERENCE

We are incorporating by reference all documents we have filed with the SEC
during 2003. These include:

- Annual Report on Form 20-F for the year ended December 31, 2002;

- Report of Foreign Issuer on Form 6-K, dated January 7, 2003;

- Report of Foreign Issuer on Form 6-K, dated February 28, 2003;

- Report of Foreign Issuer on Form 6-K, dated March 10, 2003;

- Report of Foreign Issuer on Form 6-K, dated April 2, 2003;

- Report of Foreign Issuer on Form 6-K, dated April 23, 2003;

- Report of Foreign Issuer on Form 6-K, dated April 30, 2003;

- Report of Foreign Issuer on Form 6-K, dated May 13, 2003;

- Report of Foreign Issuer on Form 6-K, dated May 21, 2003;

- Report of Foreign Issuer on Form 6-K, dated May 22, 2003;

- Report of Foreign Issuer on Form 6-K, dated June 2, 2003;

- Report of Foreign Issuer on Form 6-K, dated June 10, 2003;

- Report of Foreign Issuer on Form 6-K, dated July 14, 2003;

- Report of Foreign Issuer on Form 6-K, dated August 25, 2003; and

- Report of Foreign Issuer on Form 6-K, dated September 3, 2003

All documents that we file pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this prospectus and prior to
termination of this exchange offer shall be deemed to be incorporated in this
prospectus by reference and to be a part hereof from the respective dates of the
filing of such documents. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this prospectus to the extent that a
statement contained herein or in any subsequently filed document which also is,
or is deemed to be, incorporated by reference herein, modifies or supersedes
such earlier statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
prospectus.

We hereby undertake to provide without charge to each person to whom a copy
of this prospectus has been delivered, upon written or oral request of any such
person, a copy of any and all of the documents referred to above which have been
or may be incorporated in this prospectus by reference, other than exhibits to
such documents which are not specifically incorporated by reference into such
documents. Requests for such copies should be directed to Chief Financial
Officer, Hollinger Inc., at 10 Toronto St., Toronto, Ontario, M5C 2B7, telephone
(416) 363-8721.

FORWARD-LOOKING STATEMENTS

This prospectus and the materials incorporated by reference in this
prospectus include forward-looking statements, and we may from time to time
otherwise make in other public filings, press releases and discussions with our
management, forward-looking statements. In particular, statements about our
expectations, beliefs, plans, objectives, assumptions or future events or
performance are forward-looking statements. We have based these forward-looking
statements on our current expectations about future events. While we believe
these expectations are reasonable, forward-looking statements are inherently
subject to risks and uncertainties, many of which are beyond our control. Our
actual results may differ materially from those suggested by these
forward-looking statements for various reasons, including those discussed in
this prospectus

under the heading "Risk Factors." Some of the key factors that could cause
actual results to differ from our expectations are:

- fluctuations in both the amount of dividends we receive from Hollinger
International Inc. ("International") and the size of fees pursuant to
the Services Agreements that RMI receives from International;

- the potential impact of any financing undertaken to pay for retractions
or redemptions of our series of preference shares designated as
Retractable Non-Voting Preference Shares Series III ("Series III
preference shares") before on or after April 30, 2004 for cash payments
of Cdn.$9.50 or $10.00 per share plus any accrued and unpaid dividends
to the retraction or redemption date;

- International's ability to compete in the specific markets for its
products and services;

- the impact of industry consolidation among key suppliers or customers;

- International's ability to continue to obtain improved efficiencies and
lower overall production costs;

- increased newsprint costs;

- the impact of electronic commerce and the increased use of alternative,
non-print media such as the Internet; and

- International's ability to avoid significant increases in labor costs or
a significant deterioration in its labor relations.

Given these risks and uncertainties, you are cautioned not to place undue
reliance on these forward-looking statements. The forward-looking statements
included or incorporated by reference into this prospectus are made only as of
the date of this prospectus. We do not undertake and specifically decline any
obligation to update these forward-looking statements or to publicly announce
the results of any revisions to any of these forward-looking statements to
reflect future events or developments.

ENFORCEMENT OF CIVIL LIABILITIES

We, RMI and NB Inc. are each Canadian corporations. Substantially all of
our assets and the assets of RMI and NB Inc. are located in Canada and a
majority of our directors and executive officers, the directors and executive
officers of RMI and NB Inc. and some of the experts named in this document, are
residents of Canada. As a result, it may be difficult for investors to effect
service within the United States upon us, RMI and NB Inc. or upon such
directors, officers and experts. Execution by United States courts of any
judgment obtained against us, RMI or NB Inc. or any of such directors, officers
or experts in United States courts would be limited to our assets or the assets
of RMI or NB Inc. or that person in the United States. Our counsel has advised
us, RMI and NB Inc. that there is doubt as to the enforceability in Canada of
United States judgments or liabilities in original actions in Canadian courts
predicated solely upon the civil liability provisions of the federal securities
laws of the United States.

EXCHANGE RATES

Unless otherwise noted, all amounts herein are in Canadian dollars. The
following tables set out, for each period indicated, the high and low exchange
rates for one U.S. dollar expressed in Canadian dollars, the average of such
exchange rates on the last day of each month during such period, and the
exchange rate at the end of such period, based upon the noon rate of exchange as
reported by the Federal Reserve Bank of New York (the "Noon Rate"):

<Table>
<Caption>
FISCAL YEAR ENDED DECEMBER 31,
----------------------------------------------
1998 1999 2000 2001 2002
------ ------ ------ ------ ------

High.......................................... 1.5720 1.5302 1.5600 1.6023 1.6126
Low........................................... 1.4075 1.4440 1.4435 1.4933 1.5108
Average....................................... 1.4902 1.4827 1.4871 1.5519 1.5702
Period End.................................... 1.5375 1.4400 1.4995 1.5925 1.5800
</Table>

The following table sets out for the last nine months the high and low
exchange rates for one U.S. dollar expressed in Canadian dollars, based upon the
Noon Rate:

<Table>
<Caption>
DECEMBER JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST
2002 2003 2003 2003 2003 2003 2003 2003 2003
-------- ------- -------- ------ ------ ------ ------ ------ ------

High................. 1.5800 1.5750 1.5315 1.4405 1.4831 1.4221 1.3768 1.4114 1.4100
Low.................. 1.5478 1.5220 1.4880 1.4059 1.4336 1.3446 1.3348 1.3368 1.3836
</Table>

On December 31, 2002, the Noon Rate was Cdn.$1.5800 = U.S.$1.00 and on
September 4, 2003, the Noon Rate was Cdn.$1.3735 = U.S.$1.00.

CIRCULATION AND READERSHIP INFORMATION

Unless otherwise indicated, all circulation information contained in this
prospectus represents approximate current or average daily or non-daily
circulation, as the case may be, derived from the following sources: (1) for
International's Chicago metropolitan area free distribution newspapers, The
Daily Telegraph's Saturday edition and the Jerusalem Post, from International's
unaudited internal records; (2) for the Chicago Sun-Times and the other paid
Chicago metropolitan area newspapers, from unaudited circulation statements
furnished by International to the Audit Bureau of Circulations in the United
States for the six month period October 2002 to March 2003; and (3) for The
Daily Telegraph and The Sunday Telegraph, from audited circulation reports
furnished by International to the Audit Bureau of Circulations in the United
Kingdom for the six month period December 2002 to May 2003.

Unless otherwise indicated all readership information contained in this
prospectus represents approximate current or average daily or non-daily
readership, as the case may be, derived from the following sources: (1) for
International's Chicago metropolitan area free distribution newspapers, from
International's unaudited internal records; and (2) for the Chicago Sun-Times
and other paid Chicago metropolitan area newspapers, research conducted by an
independent research company, Scarborough Research.

CORPORATE STRUCTURE

The following chart is a summary presentation of our corporate organization
at September 4, 2003:

[CORPORATE ORGANIZATION CHART]
- ---------------

Ownership:

(1) Interest held directly and indirectly through Argus Corporation Limited
(TSX: AR). Ravelston owns 100% of the voting shares of Argus Corporation
Limited.

(2) We hold our interest in International directly and indirectly, through NBI.
We hold approximately 11,256,583 shares of Class A common stock and
14,990,000 shares of Class B common stock, amounting to approximately 30.3%
of the combined equity interest, of International.

(3) Canadian Newspaper Group's assets (including some Internet portfolio
investments) are unrestricted for purposes of the notes issued by Publishing
in December 2002 and for purposes of Publishing's credit facilities.

(4) Interest held indirectly through Sugra Limited. We own 100% of Sugra Limited
directly and indirectly through Domgroup Ltd., which is our wholly-owned
subsidiary.

(5) "Restricted Group" is defined as Publishing, the Chicago Group, the U.K.
Newspaper Group and the Community Group for purposes of the indenture
governing Publishing's Notes.

Flow of funds:

(a) Dividends are generally paid on a quarterly basis.

(b) International and its subsidiaries have entered into Services Agreements
with Ravelston, which Ravelston transferred to RMI effective July 5, 2002.

(c) Support payments made to the Company by RMI on a periodic basis by way of
capital contribution (without receiving any shares of the Company) or, in
certain circumstances, by way of subordinated debt.

PROSPECTUS SUMMARY

The following summary information is qualified in its entirety by reference
to, and should be read in conjunction with, the more detailed information and
financial statements (including the notes to those statements) included
elsewhere in this prospectus or incorporated herein by reference. Unless
otherwise stated or the context otherwise requires, all references in this
prospectus to (i) the "Company", "we", "our" and "us" refers to Hollinger Inc.
and its consolidated subsidiaries, (ii) "International" refers to Hollinger
International Inc. and its consolidated subsidiaries including Telegraph Group
Limited, Jerusalem Post Publications Limited and The Sun-Times Company, (iii)
"The Telegraph" refers to Telegraph Group Limited, its consolidated subsidiaries
and its proportionate share of printing joint ventures, (iv) "HCPH Co." refers
to Hollinger Canadian Publishing Holdings Co., its predecessors and its
consolidated subsidiaries (v) "Chicago Sun-Times" refers to The Sun-Times
Company and its consolidated subsidiaries, (vi) "Jerusalem Post" refers to
Jerusalem Post Publications Limited, (vii) "Partnership" refers to Hollinger
Canadian Newspapers, Limited Partnership, (viii) "Publishing" refers to
Hollinger International Publishing Inc., (ix) "National Post" refers to The
National Post Company; (x) "XSTM" refers to XSTM Holdings (2000) Inc. (formerly
Southam Inc. ("Southam"), (xi) "Ravelston" or "RCL" refers to The Ravelston
Corporation Limited, (xii) "RMI" refers to Ravelston Management Inc., (xiii) "NB
Inc." or "NBI" refers to 504468 NB Inc., (xiv) "Chicago Group" refers to the
more than 100 newspapers owned by International in the greater Chicago
metropolitan area, (xv) "U.K. Newspaper Group" refers to The Daily Telegraph,
The Sunday Telegraph, The Weekly Telegraph, telegraph.co.uk, and The Spectator
and Apollo magazines and printing joint ventures, (xvi) "Canadian Newspaper
Group" refers to HCPH Co. and International's ownership in the Partnership and
printing joint ventures, (xvii) "Community Group" refers to International's
ownership of The Jerusalem Post and (xviii) "Investment and Corporate Group"
refers to the Corporate Head Office.

RELATIONSHIP AMONG THE COMPANY, INTERNATIONAL, RAVELSTON, RMI AND NB INC.

Our principal asset is our interest in International, a leading publisher
of English-language newspapers in the United States, the United Kingdom and
Israel with a smaller publishing presence in Canada. International's Class A
common stock is listed on the New York Stock Exchange. At September 4, 2003, we
directly and indirectly owned 30.3% of the combined equity interest and 72.8% of
the combined voting power of the outstanding common stock of International. In
fiscal 2002, our interest in International represented substantially all of our
total assets and total revenues. Through our voting interest, we are able to
control the outcome of any election of directors and through our representatives
on the International Board of Directors, influence management policy, strategic
direction and financial decisions of International and its subsidiaries. At
September 4, 2003, our controlling shareholder, Ravelston, directly and
indirectly owned 78.2% of our outstanding retractable common shares. At June 30,
2003, on a non-consolidated basis, the Company had an aggregate amount of debt
of $333.1 million, including $162.7 (US$120.0) million of Senior Notes. No debt
exists at June 30, 2003, which is senior to the Senior Notes.

The Notes are unconditionally guaranteed on a senior basis by RMI and NB
Inc. RMI is a wholly-owned subsidiary of Ravelston, while NB Inc. is one of our
indirect wholly-owned subsidiaries.

On May 22, 2003, International and the Company announced that they had
reached an agreement in principle whereby the Company would sell some of its
holding of International's Class A shares to Southeastern Asset Management Inc.
("Southeastern"), and would seek certain phased changes in voting rights of
International's Class B shares over five years. There were also, prior and
subsequent to May 22, 2003, tentative agreements on the optimal scale of
management fees, Southeastern nominations to International's Board of Directors,
and on certain other matters, including possible consideration to the Company
for varying the super-voting rights that attach to International's Class B
shares. These discussions have evolved substantially but in a manner generally
consistent with what was announced May 22, 2003. As a result of publicity
accorded these discussions and International's affairs generally, other entities
have initiated conversations on matters related to the subjects of the
Southeastern discussions. All of these conversations are in progress, but it is
impossible at this time to foretell whether they will reach an executable
agreement, or what the nature of such an agreement might be.

INTERNATIONAL'S BUSINESS

International's 23 paid daily newspapers have a worldwide combined
circulation of approximately two million. In addition, International owns or has
an interest in over 250 other publications, including non-daily newspapers and
magazines. Included among International's 144 paid newspapers are the following
premier titles:

- the Chicago Group's Chicago Sun-Times, which has both the second highest
daily readership and circulation of any newspaper in the Chicago
metropolitan area and has the sixth highest daily readership of any
metropolitan daily newspaper in the United States;

- the U.K. Newspaper Group's The Daily Telegraph, which is the leading
daily broadsheet newspaper in the U.K. with a 35% share of circulation
in its domestic market and approximately 270,000 greater circulation
than that of its nearest competitor; and

- the Community Group's Jerusalem Post, which is the most widely read
English-language daily newspaper published in the Middle East and is
highly regarded regionally and internationally.

International's operations consist principally of the Chicago Group, the
U.K. Newspaper Group, the Canadian Newspaper Group and the Community Group, as
well as minority investments in various Internet and media-related companies.

The Chicago Group. The Chicago Group consists of more than 100 newspapers
in the greater Chicago metropolitan area. The group's primary newspaper is the
Chicago Sun-Times, which was founded in 1948. The Chicago Sun-Times is published
in a tabloid format, has a daily circulation of approximately 480,000 and has
the second highest daily readership in the 16 county Chicago metropolitan area,
attracting 1.7 million readers daily. International 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 International to rationalize duplicative back office functions and
printing facilities as well as offer joint selling programs to advertisers. For
the twelve months ended December 31, 2002, the Chicago Group had, revenues of
approximately $693.7 million and operating income of approximately $59.7
million.

The U.K. Newspaper Group. The U.K. Newspaper Group's operations include
The Daily Telegraph, The Sunday Telegraph, The Weekly Telegraph,
telegraph.co.uk, and The Spectator and Apollo magazines. The Daily Telegraph was
launched in 1855 and is based in London, the dominant financial center in
Europe. It is the largest circulation broadsheet daily newspaper in the U.K. as
well as in all of Europe with an average daily circulation of approximately
933,000. The Daily Telegraph's Saturday edition has the highest average daily
circulation (approximately 1.2 million) among broadsheet daily newspapers in the
U.K. The Sunday Telegraph is the second highest circulation broadsheet Sunday
newspaper in the U.K. with an average circulation of approximately 731,000. The
Daily Telegraph's market leadership and national reach have allowed it to
maintain the leading share of advertising among broadsheet daily newspapers in
the U.K. over the last decade. In addition, International has leveraged The
Daily Telegraph's strong reader loyalty, trusted brand name and proprietary
customer database to generate incremental revenue from the sale of ancillary
products and services to its readers. For the twelve months ended December 31,
2002, the U.K. Newspaper Group had revenues of approximately $804.6 million and
operating income of approximately $74.8 million.

The Canadian Newspaper Group. The Canadian Newspaper Group currently
consists of Hollinger Canadian Publishing Holdings Co. ("HCPH Co.") and an 87%
interest in Hollinger Canadian Newspapers, Limited Partnership ("the
Partnership"). HCPH Co. and the Partnership own ten daily and 23 non-daily
newspaper properties and miscellaneous Canadian business magazines and tabloids
for various industries including: transportation, construction, natural
resources and manufacturing. For the twelve months ended December 31, 2002, the
Canadian Newspaper Group had revenues of approximately $109.1 million and an
operating loss of approximately $5.3 million.

The Community Group. The Community Group consists of the Jerusalem Post,
the most widely read English-language daily newspaper published in the Middle
East with a daily and weekend readership of 223,000. The paid circulation of all
the Jerusalem Post products, including English and French-language

international weekly editions, is over 110,000. For the twelve months ended
December 31, 2002, the Community Group had revenues of $20.8 million and an
operating loss of approximately $8.2 million.

BUSINESS STRATEGY

The Company's revenue, on a consolidated basis, is dependent upon the
financial performance of the underlying assets, principally the assets of
International. Through our influence of International's strategic direction and
management, we intend to pursue the following strategies:

Pursue Revenue Growth by Leveraging International's Significant Market
Position. International will continue to leverage its significant position in
daily readership in the attractive Chicago and U.K. markets in order to drive
revenue growth. For the Chicago Group, International will continue to build
revenues by taking advantage of the extensive cluster of its combined Chicago
Group publications, which allows International to offer local advertisers
geographically and demographically targeted advertising solutions and national
advertisers an efficient one-stop vehicle to reach the entire Chicago market.
For the U.K. Newspaper Group, International will continue to focus on retaining
The Daily Telegraph's national circulation dominance and increasing circulation
of The Sunday Telegraph, introduce new sections to the newspaper in order to
help advertisers target specific reader demographics, and periodically implement
cover price increases. In addition, International believes that The Daily
Telegraph's successful prepaid subscription program will continue to enhance
revenue opportunities.

Continue to Maximize Operating Efficiency of Underlying
Assets. International has extensive expertise in introducing and maintaining
operating efficiencies, producing superior newspapers and increasing revenues.
Historically, these efficiencies have resulted from centralized newsprint
purchasing, clustering and consolidating duplicative functions and facilities at
its acquired newspaper publications, and investing in technology and production
equipment. For example, in April 2001, International completed the installation
of a U.S.$115 million, state-of-the-art printing facility in Chicago which has
lowered its production costs, enhanced product quality, and increased the
availability of color printing which generates higher advertising yields. In
response to the recent economic downturn, International has reduced total
compensation and other operating costs (other than newsprint) during fiscal year
2002 as compared to the corresponding period in 2001, which has positioned
International to significantly benefit as the advertising market recovers.
International will continue to aggressively manage its cost structure in the
future in order to optimize cash flow.

Publish Relevant and Trusted High Quality Newspapers. International is
committed to maintaining the high quality of its newspaper product and editorial
integrity so as to ensure continued reader loyalty, which is the foundation of
its newspaper franchises. 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 Daily Telegraph and The
Sunday Telegraph are known for their quality content and superior product and
have in recent times been voted "National Newspaper of the Year", Britain's most
coveted industry award. In addition, International is focused on maintaining its
relevance in the United States in its urban and suburban markets by continuing
to provide leading local news coverage, while providing in-depth national and
international news coverage in the U.K. market. International believes that this
is a key strategy in maintaining and building upon the entrenched readership
base of its leading newspaper properties.

Prudent Asset Management. In addition to pursuing revenue growth from its
existing publications and maximizing operating efficiencies, International may
from time to time pursue selective, complementary newspaper acquisitions and
non-core divestitures. Management has a successful track record of identifying
value-enhancing acquisitions and underperforming newspaper properties,
integrating and optimizing these acquisitions, and opportunistically divesting
assets for optimal value to achieve debt reduction. Since International's
formation in 1986, the existing senior management team has built, primarily
through acquisitions, and managed up to 400 newspapers and related publications.
After acquiring control of The Daily Telegraph in 1986, International
significantly modernized the Telegraph's printing plants, negotiated a two-
thirds reduction in work force, and revitalized its titles. In 1994, it acquired
the Chicago Sun-Times and has since doubled its operating profits. More
recently, International divested its U.S. community newspaper operations and the
majority of its Canadian newspaper assets, which were monetized at attractive
cash flow

multiples. This strategy has positioned International to emerge from the current
downturn with reduced leverage, efficient and focused operations, and solid
operating platforms for growth.

In implementing these strategies there are certain risks that could cause
actual results to differ from our expectations, including the impact of
strategies of our competitors, the ability to compete in specific markets for
products and services, the impact of industry consolidation among key suppliers
or customers, the ability to continue to obtain improved efficiencies and lower
overall production costs, increased newsprint costs, the ability to avoid
significant increases in labor costs or a significant deterioration in labor
relations and the impact of electronic commerce and the increased use of
alternative non-print media such as the Internet.

PLEDGED SHARE COLLATERAL

The Notes will be secured by a security interest in 14,990,000 shares of
Class B common stock and 10,108,302 shares of Class A common stock of
International (the "Pledged Share Collateral") held by us and NB Inc. Each share
of Class B common stock is entitled to 10 votes per share, and each share of
Class A common stock is entitled to one vote per share. International has
14,990,000 shares of Class B common stock outstanding, all of which are owned by
us and NB Inc. and are being pledged as collateral to secure the Notes. The
Pledged Share Collateral represents approximately 29% of the combined
outstanding Class A and Class B common stock and 72.3% of the combined voting
power of the outstanding Class A and Class B common stock of International.

The share collateral may be released in certain circumstances without
replacement assets to be pledged as collateral. For more information see "Risk
Factors -- The share collateral securing the Notes and certain of the guarantees
may be released in certain circumstances, and will become subject to an
Intercreditor Agreement if the Company enters into a credit facility in the
future," and under the caption "Releases of Collateral" (page 103).

SUMMARY DESCRIPTION OF THE EXCHANGE

OLD NOTES.................. On March 10, 2003, we issued US$120 million
aggregate principal amount of 11 7/8% senior notes
due 2011.

NEW NOTES.................. US$120 million aggregate principal amount of
11 7/8% senior notes due 2011. The terms of the new
notes are substantially identical to the terms of
the outstanding old notes, except that the transfer
restrictions and registration rights relating to
the old notes do not apply to the new notes.

EXCHANGE OFFER............. We are offering to exchange up to US$120 million
principal amount of our new 11 7/8% senior notes
due 2011 which have been registered under the
Securities Act, for an equal amount of our
outstanding old 11 7/8% senior notes due 2011, to
satisfy our obligations under the Registration
Rights Agreement that we entered into when we
issued the old notes in transactions exempt from
registration under the Securities Act.

EXPIRATION DATE; TENDERS... The exchange offer will expire at 5:00 p.m., New
York City time, on , 2003, unless
extended. By tendering your old notes, you
represent to us that:

- you are not our "affiliate" within the meaning
of the Securities Act;

- you are not a broker-dealer receiving the new
notes for your own account; and

- you are acquiring the new notes in the ordinary
course of your business, you are not
participating in the distribution of the new
notes and have no arrangements or understandings
with any person to make a distribution of the
new notes.

WITHDRAWAL;
NON-ACCEPTANCE............. You may withdraw any old notes tendered in the
exchange offer at any time prior to 5:00 p.m., New
York City time, on , 2003. If we decide
for any reason not to accept any old notes tendered
for exchange, the old notes will be returned to the
registered holder at our expense promptly after the
expiration or termination of the exchange offer. In
the case of old notes tendered by book-entry
transfer into the exchange agent's account at The
Depository Trust Company, any withdrawn or
unaccepted old notes will be credited to the
tendering holder's account at The Depository Trust
Company. For further information regarding the
withdrawal of tendered old notes, see "The Exchange
Offer -- Terms of the Exchange Offer; Period for
Tendering Old Notes" and "-- Withdrawal Rights."

CONDITIONS TO THE EXCHANGE
OFFER.................... The exchange offer is subject to customary
conditions, which we may waive. See the discussion
below under the caption "The Exchange Offer --
Conditions to the Exchange Offer" for more
information regarding the conditions to the
exchange offer.

PROCEDURES FOR TENDERING
OLD NOTES................ Unless you comply with the procedures described
below under the caption "The Exchange Offer --
Guaranteed Delivery Procedures," you must do one of
the following on or prior to the expiration of the
exchange offer to participate in the exchange
offer:

- tender your old notes by sending the
certificates for your old notes, in proper form
for transfer, a properly completed and duly
executed letter of transmittal, with any
required signature guarantees, and all other
documents required by the letter of transmittal,
to Wachovia Bank, National Association, as
exchange agent, at the address listed below
under the caption "The Exchange Offer --
Exchange Agent"; or

- tender your old notes by using the book-entry
transfer procedures described below and
transmitting a properly completed and duly
executed letter of transmittal, with any
required signature guarantees, or an agent's
message instead of the letter of transmittal, to
the exchange agent. In order for a book-entry
transfer to constitute a valid tender of your
old notes in the exchange offer, Wachovia Bank,
National Association, as exchange agent, must
receive a confirmation of book-entry transfer of
your old notes into its account at The
Depository Trust Company prior to the expiration
of the exchange offer. For more information
regarding the use of book-entry transfer
procedures, including a description of the
required agent's message, see the discussion
below under the caption "The Exchange Offer --
Book-Entry Transfer."

GUARANTEED DELIVERY
PROCEDURES................. If you are a registered holder of the old notes and
wish to tender your old notes in the exchange
offer, but

- the old notes are not immediately available,

- time will not permit your old notes or other
required documents to reach the exchange agent
before the expiration of the exchange offer, or

- the procedure for book-entry transfer cannot be
completed prior to the expiration of the
exchange offer,

then you may tender old notes by following the
procedures described below under the caption "The
Exchange Offer -- Guaranteed Delivery Procedures."

SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS........ If you are a beneficial owner whose old notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
you wish to tender your old notes in the exchange
offer, you should promptly contact the person in
whose name the old notes are registered and
instruct that person to tender on your behalf.

If you wish to tender in the exchange offer on your
own behalf, prior to completing and executing the
letter of transmittal and delivering your old
notes, you must either make appropriate
arrangements to register ownership of the old notes
in your name or obtain a properly completed bond
power from the person in whose name the old notes
are registered.

UNITED STATES FEDERAL
INCOME TAX
CONSIDERATIONS........... The exchange of old notes for new notes in the
exchange offer will not be a taxable transaction
for United States federal income tax purposes. See
the discussion below under the caption "United
States Federal Income Tax Considerations" for more
information regarding the tax consequences to you
of the exchange offer.

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

EXCHANGE AGENT............. Wachovia Bank, National Association is the exchange
agent for the exchange offer. You can find the
addresses and telephone number of the exchange
agent below under the caption "The Exchange Offer
-- Exchange Agent."

RESALES.................... Based on interpretations by the staff of the SEC,
as set forth in no-action letters issued to third
parties, we believe that the new notes you receive
in the exchange offer may be offered for resale,
resold or otherwise transferred without compliance
with the registration and prospectus delivery
provisions of the Securities Act. However, you will
not be able to freely transfer the new notes if:

- you are our "affiliate," within the meaning of
the Securities Act;

- you are a broker-dealer receiving the new notes
for your own account; or

- you are participating in the distribution of the
new notes or have arrangements or understandings
with any person to make a distribution of the
new notes.

If you fall within one of the exceptions listed
above, you must comply with the registration and
prospectus delivery requirements of the Securities
Act, in connection with any resale transaction
involving the new notes, except that if you are a
broker-dealer and receive new notes for your own
account in the exchange offer:

- you must represent that you do not have any
arrangement with us or any of our affiliates to
distribute the new notes;

- you must acknowledge that you will deliver a
prospectus in connection with any resale of the
new notes you receive from us in the exchange
offer; the letter of transmittal states that by
so acknowledging and by delivering a prospectus,
you will not be deemed to admit that you are an
"underwriter" within the meaning of the
Securities Act; and

- you may use this prospectus, as it may be
amended or supplemented from time to time, in
connection with the resale of new notes received
in exchange for old notes acquired by you as a
result of market making or other trading
activities.

For a period of up to 180 days after the
consummation of the exchange offer, we will make
this prospectus available to any broker-dealer for
use in connection with any resale described above.

CONSEQUENCES OF NOT EXCHANGING YOUR OLD NOTES

If you do not exchange your old notes in the exchange offer, your old notes
will continue to be subject to the restrictions on transfer described in the
legend on the certificate for your old notes. In general, you may offer or sell
your old notes only:

- if the sale is registered under the Securities Act and applicable state
securities laws;

- if they are offered or sold under an exemption from registration under
the Securities Act and applicable state securities laws; or

- if they are offered or sold in a transaction not subject to the
Securities Act and applicable state securities laws.

We do not currently intend to register any sale of the old notes under the
Securities Act. Under some circumstances, however, holders of the old notes,
including holders who are not permitted to participate in the exchange offer or
who may not freely resell new notes received in the exchange offer, may require
us to file, and cause to become effective, a shelf registration statement
covering resales of old notes by these holders. For more information regarding
the consequences of not tendering your old notes and our obligation to file a
shelf registration statement, see "The Exchange Offer -- Consequences of
Exchanging or Failing to Exchange Old Notes".

SUMMARY DESCRIPTION OF THE NOTES

The terms of the new notes and those of the outstanding old notes are
substantially identical, except that the transfer restrictions, registration
rights relating to the old notes and the related provisions with respect to the
payment of additional interest described below will not apply to the new notes.
In addition, if

- the Company does not file this registration statement prior to July 1,
2003,

- this registration statement is not declared effective prior to November
5, 2003, or

- the Company does not complete the offer to exchange the old notes for
new notes prior to thirty days following the effectiveness of the
registration statement,

the annual interest rate on the old notes will increase by 0.5%. The annual
interest rate on the old notes will increase by an additional 0.5% for any
subsequent 90-day period until all defaults have been cured, up to a maximum
additional interest rate of 1.0% per year over the 11 7/8% interest rate.

ISSUER..................... Hollinger Inc.

SECURITIES OFFERED......... US$120,000,000 aggregate principal amount of
11 7/8% Senior Secured Notes due 2011.

MATURITY OF NOTES.......... March 1, 2011.

INTEREST PAYMENT DATES..... March 1 and September 1 of each year, beginning on
September 1, 2003. Interest will accrue from the
issue date of the Notes.

GUARANTORS................. RMI and NB Inc.

RANKING.................... The Notes will be our senior secured obligations
and will rank equal in right of payment to all of
our existing and future senior debt. The Notes will
be structurally subordinated to all existing and
future debt and other liabilities of our
subsidiaries (other than NB Inc., which will be a
guarantor of the Notes), including International
and its subsidiaries. Our restricted subsidiaries
(as defined in "Description of Notes -- Certain
Definitions," which will not include International
and its subsidiaries), other than NB Inc., had
approximately $5.2 million of combined debt owing
to entities outside of our restricted group as at
June 30, 2003.

COLLATERAL................. The Notes and the guarantees will be secured as
follows:

- as to the Notes and the guarantee of NBI, by a
first priority lien in 10,108,302 shares of
Class A common stock and 14,990,000 shares of
Class B common stock of International that are
held by us and NBI;

- as to the guarantee of RMI, by a pledge by RMI
of its rights under (a) the services agreement
between International and Ravelston and (b) the
services agreement between HCPH Co. and
Ravelston, in each case as such agreements were
assigned by Ravelston to RMI in July 2002, and

- as to the Notes, by a pledge of our rights under
the support agreement between RMI and us (as
described below).

OPTIONAL REDEMPTION........ We may redeem some or all of the Notes at any time
on or after March 1, 2007, at the redemption prices
listed in "Description of Notes -- Optional
Redemption," plus accrued interest. In addition,
before March 1, 2006, we may redeem up to 35% of
the Notes using the proceeds from sales of
specified kinds of capital stock as set out in
"Description of Notes -- Optional Redemption."

CHANGE OF CONTROL.......... If a change of control occurs, we must offer to
repurchase the Notes at 101% of the principal
amount of the Notes, plus accrued interest.

BASIC COVENANTS OF
INDENTURE.................. We will issue the Notes under an indenture which,
among other things, restricts our ability and the
ability of our restricted subsidiaries to:

- incur additional debt;

- pay dividends or distributions on, redeem or
repurchase capital stock;

- make investments;

- enter into transactions with affiliates;

- issue stock of restricted subsidiaries;

- engage in unrelated lines of business;

- create liens to secure debt;

- transfer or sell assets or merge with or into
other companies.

The indenture will restrict RMI's ability to incur
any indebtedness, create or incur any liens or
engage in any business activities other than the
issuance of its guarantee on the Notes, the
performance of its obligations under the services
agreements, the support agreement, certain other
permitted activities, and activities incidental to
the foregoing.

International and its subsidiaries (which represent
substantially all of our total assets and total
revenues) will not be restricted subsidiaries for
purposes of the indenture, and will not be bound by
the covenants described above. In addition, these
covenants are subject to important exceptions and
qualifications which are described in the section
"Description of Notes -- Certain Covenants."

SUPPORT AGREEMENT.......... Under the support agreement, RMI will be required
to make an annual support payment in cash to us on
a periodic basis by way of contributions to our
capital (without the issuance of additional shares)
or subordinated debt. The annual support payment
will be equal to the greater of (1) our Negative
Net Cash Flow for the relevant period, and (2) the
Floor Amount, in either case as reduced by any
permanent repayment of the debt owing by Ravelston
to us.

The "Floor Amount" will be equal to US$14.0 million
per year, less (i) any payments of management
services fees made by International directly to us
or NBI, and (ii) any excess in the net dividend
amount received by us and NBI on the shares of
International that we own that is over US$4.65
million per year.

We use the term "Negative Net Cash Flow" as defined
in the support agreement for purposes of
calculation of the annual support payment.

ADDITIONAL AMOUNTS......... In the event Canadian taxes are required to be
withheld or deducted, we, RMI and NB Inc. may be
required to pay such additional amounts as may be
necessary so that the net amount received by each
holder of Notes will not be less than the amount
the holder would have received if such taxes had
not been withheld or deducted.

REDEMPTION FOR CHANGES IN
CANADIAN WITHHOLDING
TAXES.................... In the event we become obligated to pay additional
amounts as described above as a result of changes
affecting withholding taxes applicable to payments
on the Notes, the Notes may be redeemed at our
option in whole, but not in part, for cash on not
less than 30 days' nor more than 60 days' prior
written notice to the holders by first class mail,
at 100% of their aggregate principal amount, plus
accrued and unpaid interest and additional
interest, if any, to the date of redemption.

RISK FACTORS

You should carefully consider the following factors in addition to the
other information set forth in this prospectus and the documents incorporated by
reference into this prospectus before making an investment in the Notes.

YOU MAY FIND IT DIFFICULT TO SELL YOUR NOTES.

The old notes are currently eligible for trading in the PORTAL Market, a
screen-based market operated by the National Association of Securities Dealers.
The PORTAL market is limited to qualified institutional buyers as defined by
Rule 144A of the Securities Act. The new notes are new securities for which
there is no established market. We do not intend to apply for listing or
quotation of the new notes on any securities exchange or stock market. In
addition, the liquidity of the trading market in the new notes, and the market
prices quoted for the new notes, may be adversely affected by changes in the
overall market for high-yield securities and by changes in our financial
performance or in the prospects for companies in our industry generally. As a
result, we cannot assure you that an active trading market will develop for the
new notes. In addition, to the extent old notes are tendered and accepted in the
exchange offer, the trading market, if any, for the old notes would be adversely
affected.

YOU MUST COMPLY WITH THE EXCHANGE OFFER PROCEDURES IN ORDER TO RECEIVE NEW,
FREELY TRADABLE NOTES.

Subject to the conditions set forth under "The Exchange Offer -- Conditions
to the Exchange Offer," delivery of new notes in exchange for old notes tendered
and accepted for exchange pursuant to the exchange offer will be made only after
timely receipt by the exchange agent of the following:

- certificates for old notes or a book-entry confirmation of a book-entry
transfer of old notes into the exchange agent's account at The
Depository Trust Company, New York, New York as depository, including an
agent's message (as defined) if the tendering holder does not deliver a
letter of transmittal,

- a completed and signed letter of transmittal (or facsimile thereof),
with any required signature guarantees, or, in the case of a book-entry
transfer, an agent's message in lieu of the letter of transmittal, and

- any other documents required by the letter of transmittal.

Therefore, holders of old notes who would like to tender old notes in
exchange for new notes should be sure to allow enough time for the old notes to
be delivered on time. We are not required to notify you of defects or
irregularities in tenders of old notes for exchange. Old notes that are not
tendered or that are tendered but we do not accept for exchange will, following
consummation of the exchange offer, continue to be subject to the existing
transfer restrictions under the Securities Act and, upon consummation of the
exchange offer, certain registration and other rights under the Registration
Rights Agreement will terminate. See "The Exchange Offer -- Procedures for
Tendering Old Notes" and "The Exchange Offer -- Consequences of Exchanging or
Failing to Exchange Old Notes."

SOME HOLDERS WHO EXCHANGE THEIR OLD NOTES MAY BE DEEMED TO BE UNDERWRITERS.

If you exchange your old notes in the exchange offer for the purpose of
participating in a distribution of the new notes, you may be deemed to have
received restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction.

OUR SUBSTANTIAL DEBT COULD ADVERSELY AFFECT OUR FINANCIAL POSITION AND PREVENT
US FROM FULFILLING OUR OBLIGATIONS UNDER THE NOTES.

As of June 30, 2003, the Company has combined debt owing to entities
outside of our restricted group of approximately $205.5 million, of which $162.7
(US$120.0) million would be debt represented by the Notes.

The Company's restricted subsidiaries include NBI, Sugra Limited, 10 Toronto
Street Inc and do not include International and its subsidiaries or Domgroup
Ltd.

Our substantial indebtedness could have important consequences to you. For
example, it could make it more difficult to satisfy our obligations with respect
to the Notes, including making interest payments under the Notes and our other
debt obligations, and limit our ability to obtain additional financing.

We may be able to incur additional debt in the future, subject to the terms
of the indenture governing the Notes. Among other things, the indenture permits
us and NB Inc. to establish a credit facility in a maximum aggregate amount of
$15 million. We cannot assure you that we will be able to refinance our debt,
sell assets, borrow more money or raise equity on terms acceptable to us or at
all. In addition, the terms of existing or future debt agreements, including the
indenture governing the notes, may restrict us from adopting any of these
alternatives.

WE AND RMI DEPEND ON THE CASH FLOW OF OUR SUBSIDIARIES, PRINCIPALLY
INTERNATIONAL AND ITS SUBSIDIARIES, TO SATISFY OUR OBLIGATIONS UNDER THE NOTES
AND RMI'S OBLIGATIONS UNDER THE SUPPORT AGREEMENT, RESPECTIVELY.

We are a holding company and own no significant assets other than our
equity interest in International. Therefore, we are largely dependent upon the
cash flow of our subsidiaries, principally International and its subsidiaries,
to meet our obligations. RMI, which is a guarantor of the Notes and is making
support payments to us pursuant to the support agreement, derives all of its
cash flow from the management services fees paid by International and its
subsidiaries under the services agreements that it has with them. Therefore,
RMI's ability to make support payments to us is also dependent upon the cash
flow of International and its subsidiaries. Accordingly, our ability to make
interest and principal payments when due to holders of Notes and to effect any
repurchase of Notes upon a change of control, and RMI's ability to make support
payments to us, are dependent upon the receipt of sufficient funds from
International and its subsidiaries.

International and its subsidiaries may be restricted by the terms of their
existing or future debt or by statute from providing sufficient funds to us.
Substantially all of the shares, properties and assets of International's
subsidiaries, including Publishing, have been pledged to the lenders under
Publishing's senior credit facility. Our right to participate in the
distribution of assets of any subsidiary or affiliated company upon its
liquidation or reorganization will be subject to the prior claims of the
creditors of such subsidiary or affiliated company, including trade creditors,
except to the extent that we may ourselves be a creditor with recognized claims
against such subsidiary or affiliated company. Further, as described below, we
and our restricted subsidiaries have agreed to certain restrictive covenants
under the indenture governing the Notes for the benefit of holders of Notes.
Because International and its subsidiaries will not be restricted subsidiaries
for purposes of the indenture governing the Notes, such covenants will not apply
to them. Therefore, any cash flow generated by International and its
subsidiaries and the proceeds from any sale of such subsidiaries will not be
subject to the restrictive covenants contained in the indenture. International
and its subsidiaries generate substantially all of our total consolidated
revenues and comprise substantially all of our total consolidated assets.

WE ALSO DEPEND ON THE FINANCIAL SUPPORT OF RMI TO SATISFY OUR OBLIGATIONS UNDER
THE NOTES.

On a non-consolidated basis, the Company has experienced a shortfall
between the dividends and fees received from its subsidiaries and its operating
costs, including interest and dividends on its preference shares, and such
shortfalls are expected to continue in the future. Accordingly, the Company is
dependent upon the continuing financial support of RMI to fund such shortfalls
and, therefore, pay its liabilities as they fall due. Prior to March 10, 2003
such shortfalls were funded by Ravelston and RMI on an informal basis. On March
10, 2003, concurrent with the issue by the Company of the Notes, RMI entered
into a Support Agreement with the Company, under which RMI has agreed to make
annual support payments in cash to the Company on a periodic basis by way of
contributions to the capital of the Company (without the issuance of additional
shares of the Company) or subordinated debt. The annual support payments will be
equal to the greater of (a) the Company's negative net cash flow (as defined)
for the relevant period (which does not extend to outlays for retractions or
redemptions), determined on a non-consolidated basis, and

(b) US$14.0 million per year (less any payments of management services fees by
International directly to the Company or NB Inc. and any excess in the net
dividend amount that the Company and NB Inc. receive from International over
US$4.65 million per year), in either case reduced by any permanent repayment of
debt owing by Ravelston to the Company. Pursuant to this arrangement, RMI has
made payments to the Company in respect of the period from March 10 to June 30,
2003 in the amount of US$6.2 million. If in any quarterly period after April 1,
2003 the Company fails to receive in cash a minimum aggregate amount of at least
US$4.7 million from a) payments made by RMI pursuant to the Support Agreement
and b) dividends paid by International on its shares held by the Company, net of
dividends paid by the Company on its Series II preference shares, the Company
would be in default under its Senior Secured Notes. Based on the Company's
current investment in International and the current quarterly dividend paid by
International of US$0.05 per share: (i) the minimum support payment required to
be made by RMI to avoid a default under the terms of the Senior Secured Notes is
approximately US$14.0 million annually and (ii) the Company estimates the
support payment required by RMI to fund its negative net cash flow will
approximate US$20.0 million for the twelve months ending June 30, 2004. This
amount assumes payment by the Company of preference share dividends of
approximately US$5.0 million which have yet to be considered by the Board of
Directors and which depend on the Company having the ability under corporate law
to pay such dividends. The Company's ongoing liquidity on a non-consolidated
basis continues to depend to a large degree on support payments from RMI which
in turn depends on fees received pursuant to its services agreements with
International. If the Company does not receive support payments of a least
US$15.0 million for the twelve months ending June 30, 2004, based on the above
assumptions, then it will be required to dispose of assets or seek financing in
order to meet its non-consolidated obligations as they fall due.

RMI DEPENDS ON CONTINUING TO RECEIVE SUFFICIENT FEES FROM INTERNATIONAL PURSUANT
TO THE SERVICES AGREEMENTS TO CONTINUE TO PROVIDE THE REQUIRED FINANCIAL SUPPORT
TO THE COMPANY UNDER THE SUPPORT AGREEMENT.

As described more fully below under "Operating Results -- Hollinger
International Inc. -- Recent Developments", a shareholder of International has
requested that the Board of Directors of International (the "Board") investigate
and, if determined to be advisable, take corrective action in respect of certain
matters, including the payment of fees by International pursuant to management
services agreements with RMI. Although the Board of International has
established a special committee of the Board of Directors to conduct an
independent review and investigation of the matters, the timing and outcome of
the process and the impact on the Company and RMI is uncertain at this time.
Under the terms of the Senior Secured Notes, if in any quarterly period after
April 1, 2003, the Company fails to receive in cash a minimum aggregate amount
of at least US$4.7 million from a) payments made by RMI pursuant to the support
agreement and b) dividends paid by International on its shares held by the
Company and NBI, the Company would be in default under its Senior Secured Notes
and they could become due and payable immediately.

CLAIMS OF CREDITORS OF OUR SUBSIDIARIES WILL HAVE PRIORITY WITH RESPECT TO THE
ASSETS AND EARNINGS OF SUCH SUBSIDIARIES OVER YOUR CLAIMS.

None of our subsidiaries other than NB Inc. have guaranteed the Notes. As a
result, the Notes are structurally subordinated to the prior payment in full of
all indebtedness and other liabilities of our subsidiaries
17

(other than NB Inc.). As of June 30, 2003 our subsidiary Publishing, and its
subsidiaries, had Cdn. $844.3 million of long-term debt.

Our right to receive assets from any of our subsidiaries upon the
liquidation or reorganization of those subsidiaries is effectively subordinated
to the claims of the creditors of those subsidiaries, except to the extent that
we are recognized as a creditor of those subsidiaries.

SUBSTANTIALLY ALL OF INTERNATIONAL'S ASSETS SECURE PUBLISHING'S AND ITS U.K.
SUBSIDIARIES' OBLIGATIONS UNDER PUBLISHING'S SENIOR CREDIT FACILITY.

Publishing's obligations under its senior credit facility are secured by a
security interest in substantially all of International's assets. In particular,
Publishing's borrowings under its senior credit facility are guaranteed by
Publishing's material U.S. subsidiaries, while First DT Holdings Limited's
("FDTH") and Telegraph Group's borrowings under that senior credit facility are
guaranteed by Publishing and its material U.S. and U.K. subsidiaries.
International is also a guarantor of Publishing's senior credit facility.
Publishing's borrowings under its senior credit facility are secured by
substantially all of the assets of Publishing and its material U.S.
subsidiaries, a pledge of all of the capital stock of Publishing and its
material U.S. subsidiaries and a pledge of 65% of the capital stock of certain
foreign subsidiaries. FDTH's and Telegraph Group's borrowings under that senior
credit facility are secured by substantially all of the assets of Publishing and
its material U.S. and U.K. subsidiaries and a pledge of all of the capital stock
of Publishing and its material U.S. and U.K. subsidiaries.

If Publishing defaults under its senior credit facility, the lenders could
declare all of the funds borrowed thereunder, together with accrued interest,
immediately due and payable. If Publishing is unable to repay such indebtedness,
the lenders could foreclose on the pledged stock of Publishing and its material
subsidiaries and on the assets in which they have been granted a security
interest. As of June 30, 2003, the Notes have been structurally subordinated to
US$265 million of secured borrowings by FDTH under Publishing's senior credit
facility. In addition, US$45 million of senior secured debt is available for
borrowings under the revolving credit facility portion of Publishing's senior
credit facility.

WE HAVE NO MATERIAL ASSETS OTHER THAN OUR OWNERSHIP OF INTERNATIONAL'S CAPITAL
STOCK.

We are a holding company with no material assets other than our ownership
of an equity interest in International's common stock and certain other
subsidiaries, cash and cash equivalents and certain receivables. In the event of
a default, holders of Notes may be unable to recover from us their investment in
the Notes.

INTERNATIONAL'S FOREIGN OPERATIONS AND ASSETS SUBJECT IT TO CURRENCY EXCHANGE
RATE FLUCTUATIONS; ADVERSE MOVEMENTS IN EXCHANGE RATES MAY NEGATIVELY IMPACT
INTERNATIONAL'S NET EARNINGS.

Operations outside of the United States, principally in the U.K. Newspaper
Group, accounted for approximately 56.1% of International's operating revenues
and approximately 53.3% of International's operating income (excluding expenses
incurred by the Investment and Corporate Group) for the year ended December 31,
2002. Generally, International does not hedge against foreign currency exchange
rate risks except through borrowings in those currencies. As a result,
International may experience economic loss and a negative impact on earnings
with respect to its investments and on earnings of its foreign subsidiaries,
solely as a result of currency exchange rate fluctuations (principally any
weakening of the pound sterling against the U.S. dollar).

In 2001, International and the Partnership sold participation interests
("Participations") in $756.8 million principal amount of debentures of a
subsidiary of CanWest Global Communications Corp. ("CanWest") to a special
purpose trust ("Participation Trust") at an exchange rate of US$0.6482 to each
Canadian dollar which translates into US$490.5 million. Units of the
Participation Trust, denominated in U.S. dollars, were in turn issued and sold
by the Participation Trust to third parties. In respect of the underlying
CanWest debentures, based on the original Canadian dollar principal amount,
International will be required to deliver to the Participation Trust US$490.5
million at the then current exchange rate, plus interest

received. On May 11, 2003, CanWest redeemed $265 million of the debentures and
of the total proceeds received U.S.$159.8 million has been paid to the
Participation Trust. Upon receipt of the notice of redemption, International
entered into a U.S. dollar forward purchase contract for the full amount of the
Canadian dollar redemption proceeds to coincide with the date of receipt of the
proceeds. At June 30, 2003, the obligation to the Participation Trust was
U.S.$447.9 million, and the corresponding CanWest debentures had a principal
amount receivable of $691.1 million.

As the requirement to deliver debentures is a U.S. dollar obligation and
the notes are denominated in Canadian dollars, International is exposed to
fluctuations in the related exchange rate. A U.S.$0.05 change in the rate of
exchange of U.S. dollars into Canadian dollars applied to the $691.1 million
principal amount of CanWest debentures at June 30, 2003 would result in a
U.S.$34.6 million loss or gain to International.

RESTRICTIVE COVENANTS IN THE NOTES, PUBLISHING SENIOR NOTES AND PUBLISHING'S
SENIOR CREDIT FACILITY COULD ADVERSELY AFFECT OUR AND INTERNATIONAL'S BUSINESS
BY LIMITING OUR AND INTERNATIONAL'S OPERATING AND STRATEGIC FLEXIBILITY.

The Senior Credit Facility, the indenture governing the Notes and the
indenture governing the Publishing Senior Notes offered in December 2002 contain
restrictive covenants, subject to certain exceptions, that limit the Company's,
Publishing's and its restricted subsidiaries' ability to:

- incur more debt or guarantee indebtedness;

- pay dividends on their capital stock or redeem, repurchase or retire
their capital stock or subordinated indebtedness, or make distributions
or investments;

- enter into transactions with affiliates;

- create liens;

- merge, consolidate or sell assets;

- sell or issue capital stock; and

- pay dividends or other amounts to Publishing from restricted
subsidiaries.

As a result of these covenants, our and International's ability to respond
to changing business and economic conditions may be significantly restricted and
the Company and International may be prevented from engaging in transactions
that might otherwise be beneficial to them. Any breach of these covenants could
cause a default under the Senior Credit Facility, the Notes or Publishing Senior
Notes.

IF THE SHARES OF INTERNATIONAL'S CLASS B COMMON STOCK ARE SUBJECT TO ANY
FORECLOSURE OR OTHER SIMILAR ACTION, SUCH STOCK MAY BE AUTOMATICALLY CONVERTED
INTO SHARES OF CLASS A COMMON STOCK OF INTERNATIONAL AND, AS A RESULT, LOSE
THEIR MULTIPLE VOTING RIGHTS.

Under International's certificate of incorporation, each share of
International's Class B common stock is entitled to certain multiple voting
rights per share. However, in the event that shares of Class B common stock
pledged as collateral security for indebtedness become subject to any
foreclosure or other similar action by a third party pledgee, unless such shares
are transferred to a third party purchaser who purchases or obtains the shares
of Class B common stock in a "Permitted Transaction", they will be automatically
converted into fully paid and non-assessable shares of International's Class A
common stock on a share-for-share basis. A Permitted Transaction, as defined in
International's certificate of incorporation, is a transaction with respect to
shares of Class B common stock between a third party and the Company, its
subsidiaries or affiliates, in which, or as part of which, the third party makes
a bona fide tender offer, in compliance with the applicable securities and other
laws, to purchase all of the outstanding shares of Class A common stock from the
holders for an amount in cash or other consideration equal to the amount per
share to be received by the record holder of shares of Class B common stock, and
such tender offer is successfully consummated. Accordingly, it is unlikely that
upon a foreclosure on the pledged shares of Class B common stock by the
collateral agent acting on behalf of holders of the Senior Secured Notes, the
collateral agent would be able to exercise the same

degree of control over International based upon its ownership of such stock as
Lord Black, the controlling shareholder of the Company and International,
currently does.

THE SHARE COLLATERAL SECURING THE NOTES AND CERTAIN OF THE GUARANTEES MAY BE
RELEASED IN CERTAIN CIRCUMSTANCES, AND WILL BECOME SUBJECT TO AN INTERCREDITOR
AGREEMENT IF THE COMPANY ENTERS INTO A CREDIT FACILITY IN THE FUTURE.

The Notes and the guarantee of NB Inc. will be secured by a first priority
lien in the shares of Class B common stock and certain shares of Class A common
stock of International held directly and indirectly by the Company. The Notes
are also secured by a first priority lien in the Support Agreement. The
indenture governing the Notes permits the first priority lien on the share
collateral to be released in certain circumstances without requiring replacement
assets to be pledged as collateral. In addition, the obligations of RMI under
its guarantee are secured by its interest in the services agreements between it
and International and International's subsidiary, HCPH Co. The Notes and the
guarantees are not secured by any lien on, or any other security interest in,
any other properties or assets of the Company, RMI or NB Inc.

In the event that the Company and the Guarantors enter into a credit
facility with a bank lender as permitted under the indenture governing the
Notes, such bank will be required to enter into an Intercreditor Agreement with
Wachovia Trust Company, National Association, in its capacity as collateral
agent acting on behalf of the holders of Notes, substantially in the form
attached to the indenture governing the Notes. Upon the execution and delivery
of the Intercreditor Agreement, all rights of holders of Notes against the
collateral securing the Notes and the guarantees in the event of a default under
the indenture governing the Notes will be subject to the terms and provisions of
the Intercreditor Agreement. Upon an event of default under the credit facility
giving the lender (or agent and lenders) thereunder the right to accelerate, the
lender (or agent and lenders) shall only be obligated to notify the Trustee of
that default and, following the passage of a 30-day standstill period (subject
to earlier expiry in certain circumstances), will be entitled to exercise any of
its remedies under the facility and against the collateral securing any
outstanding borrowings under the facility.

While the lender (or agent and lenders) under any such credit facility and
the collateral agent acting on behalf of holders of Notes will be secured by
different collateral, by virtue of the lesser exposure that the lender (or agent
and lenders) under that facility would have to the Company as compared to the
principal amount of indebtedness represented by the Notes, it is likely that the
interest of that lender (or agent and lenders) will be different, and
potentially even in conflict with, those of holders of Notes. If the lender (or
agent and lenders) under the credit facility accelerates the indebtedness due
under the credit facility, holders of Notes may be put in a position of having
to accelerate the obligations under the Notes, in order to protect their
position as creditors, and thereby potentially precipitate an insolvency filing
by the Company sooner than might be in the interests of holders of Notes.

IN THE EVENT OF A DEFAULT, THE COLLATERAL SECURING THE NOTES MAY NOT BE
SUFFICIENT TO REPAY THE HOLDERS OF NOTES.

Certain events of default under the indenture governing the Notes are also
events of default under Publishing's senior credit facility and the Publishing
senior notes. If such an event of default occurs and the lenders under
Publishing's senior credit facility and the holders of the Publishing senior
notes accelerate the indebtedness under those debt instruments, the lenders
under Publishing's senior credit facility will be entitled to realize upon and
sell or otherwise dispose of all or any part of the assets of Publishing and its
subsidiaries that are borrowers or guarantors under that facility. The proceeds
of any such sale or disposition would be applied as follows: first, to the
payment of costs and expenses of sale; second, to amounts due to the collateral
agent under Publishing's senior credit facility; third, to the payment in full
of all amounts due and unpaid under Publishing's senior credit facility; fourth,
to the payment in full of all amounts due and unpaid under the Publishing senior
notes; and, finally, any surplus to Publishing or such subsidiary borrowers or
guarantors. The ability of holders of Notes to realize any amount from the share
collateral securing the Notes will depend on whether any residual value remains
in the equity interest of International in Publishing after its and its
subsidiary borrowers' and guarantors' assets and properties have been sold or
disposed of and the proceeds applied to satisfy all amounts due under
Publishing's senior credit facility, the Publishing senior notes and any

other indebtedness permitted to be incurred by it and its subsidiaries under
those debt instruments. As of June 30, 2003, total consolidated indebtedness of
Publishing and its subsidiaries was $844.3 million.

Furthermore, in the event of foreclosure on the collateral, the value of
the shares of International pledged as collateral for the Notes will depend on
market and economic conditions, the availability of buyers and other factors. We
cannot assure you that the proceeds from the sale or sales of the share
collateral would be sufficient to satisfy our obligations under the Notes. If
such proceeds are not sufficient to repay amounts outstanding under the Notes,
then holders of Notes, to the extent not repaid from the proceeds of the sale of
the collateral, will only have an unsecured claim against our remaining assets.

YOUR RIGHTS UNDER THE INDENTURE GOVERNING THE NOTES AND THE GUARANTEES AND RIGHT
TO FORECLOSE UPON THE COLLATERAL SECURING THE NOTES AND THE GUARANTEES UPON AN
EVENT OF DEFAULT WILL BE SUBJECT TO LIMITATIONS UNDER CANADIAN BANKRUPTCY LAWS.

We are incorporated under the laws of Canada, RMI is incorporated under the
laws of the Province of Ontario and NB Inc. is incorporated under the laws of
the Province of New Brunswick. Any insolvency proceedings by or against us or
those entities could be brought in Canada or the United States. Any proceedings
brought in Canada will likely be based on Canadian federal and provincial
insolvency laws. There are, however, a variety of proceedings which may be
initiated in Canada that could, at a minimum, postpone the enforcement of your
rights against us or the Guarantors with respect to the Notes, the guarantees
and the other security documents.

We and/or one or more of the Guarantors could seek protection under the
Companies' Creditors Arrangement Act (the "CCAA") of Canada. Protection can and
is sometimes sought without notice to creditors, and the court hearing the
initial application will generally grant a 30-day stay of any proceedings in
respect of claims against the debtor in order to allow the debtor to attempt to
restructure. The stay of proceedings granted is typically extremely broad, and
in all likelihood would stay any and all proceedings of creditors against us and
the Guarantors, assuming that all had sought the protection of the Canadian
bankruptcy court. In addition, after the initial 30-day stay period, the court
may on further application extend the stay of proceedings for an indefinite
period. Affected creditors are permitted, at any time, to either request that
the stay of proceedings be terminated, or that a further stay of proceedings not
be granted. Generally, however, the Canadian bankruptcy court will allow a
debtor with a realistic chance of restructuring to continue under the protection
of the court, so long as the interests of major creditors (particularly secured
creditors) and other stakeholders are not being unduly prejudiced.

Alternatively, we or one or more of the Guarantors may seek protection
under the proposal provisions of the Bankruptcy and Insolvency Act of Canada.
The stay of proceedings under this statute is automatic on the filing of a
proposal, or a notice of an intention to make a proposal, to creditors. The
initial stay is 30 days. However, the stay can only be extended for 45 days at
any time, and in any event not beyond six months (including the initial 30-day
period). While the stay of proceedings invoked by a filing under this statute
would generally be narrower than a stay of proceedings under the CCAA, in either
case the exercise of creditors' remedies against us or the Guarantors would
effectively be prevented during the stay period.

Canada also has regimes which are invoked for the liquidation of a debtor's
assets or business, as opposed to a restructuring. These regimes may also
involve a stay of proceedings, equally as broad as the stays of proceedings
referred to above. As a result of a stay of proceedings, realization against
assets or security can be delayed or even prevented if priority contests arise.
Canadian personal property security statutes, like the Uniform Commercial Code
in the United States, allow certain creditors (purchase-money security holders)
to gain priority to certain assets if those creditors provided the value used by
the debtor to obtain those assets. In addition, certain statutes provide
priority to federal or provincial governments, and in some cases individuals,
with respect to employee or employee-related remittances, sales taxes, pension
contributions and vacation pay. In addition, construction liens, repair and
storage liens and realty taxes, among other things, can in some cases take
priority over prior-registered secured debt.

In addition, a trustee in bankruptcy under the Bankruptcy and Insolvency
Act could, among other things, apply to a Canadian court to have the guarantees
of either of RMI or NB Inc. set aside as a fraudulent preference which prefers
the holders of Notes over other creditors of those entities if:

- the guarantee was given within three months of the bankruptcy of such
entity;

- such entity was insolvent at the time of giving the guarantee; and

- the guarantee has the effect of preferring the holders of Notes over
other creditors of such entity.

In such circumstances, in order for the guarantee not to be set aside, it
would be necessary to prove that the guarantee was given not to prefer the
holders of Notes but rather to achieve the closing of the offering of the Notes
and the receipt of the net proceeds from such offering. The guarantees of RMI
and NB Inc. could also be challenged under applicable Canadian provincial
creditor protection laws.

Finally, under the terms of the indenture governing the Notes, if an event
of default occurs and is continuing, the repayment of all amounts outstanding on
the Notes can only be accelerated by written notice to us given by the trustee
or by the holders of at least 25% in aggregate principal amount of the then
outstanding Notes. If the event of default involves our or RMI's or NB Inc.'s
bankruptcy or insolvency, court approval may be required under Canadian
insolvency laws in order to provide the required written notice of acceleration.

THE SERVICES AGREEMENTS ARE TERMINABLE UPON CERTAIN INSOLVENCY EVENTS OR ON 180
DAYS' NOTICE. IF RMI INITIATES CANADIAN BANKRUPTCY PROCEEDINGS, A CANADIAN COURT
ORDER PROHIBITING INTERNATIONAL FROM TERMINATING ITS SERVICES AGREEMENTS MAY NOT
BE GIVEN EFFECT IN THE UNITED STATES. IF RMI OR INTERNATIONAL INITIATES U.S.
BANKRUPTCY PROCEEDINGS, RMI'S GUARANTEE MAY BE SET ASIDE AS A FRAUDULENT
CONVEYANCE OR INTERNATIONAL MAY REJECT ITS SERVICES AGREEMENTS.

The services agreements by their terms are terminable by either party upon,
among other things, the insolvency or commencement of bankruptcy proceedings by
or against it or the other party. In addition, each of the services agreements
may be terminated by either party upon 180 days' written notice to the other
party.

In the event that RMI commences proceedings under the CCAA, it is likely
that it would seek a stay of any measures that might be taken by International
and HCPH Co. to terminate the services agreements. Assuming that the Canadian
court were to grant such stay, RMI could initiate an ancillary proceeding under
Section 304 of the U.S. Bankruptcy Code in the U.S. bankruptcy court having
competent jurisdiction and request an order giving effect to the Canadian stay
order as it related to International. Unlike the automatic stay that occurs at
the commencement of a Chapter 11 proceeding, the grant of any injunction in a
Section 304 ancillary proceeding is within the discretion of the court. We
cannot assure you that a Canadian court's stay order would be given effect in a
Section 304 ancillary proceeding in the United States. In that event, we may be
unable to prevent International from terminating its services agreements and
thereby cutting off the payment of management fees to RMI, as a result of which
RMI would be unable to continue to meet its support obligations under its
support agreement with us.

Alternatively, if RMI were to commence proceedings under Chapter 11 in the
United States bankruptcy court an automatic stay would enjoin termination by
International of its services agreements. It is possible that International
could seek to lift or modify the automatic stay in order to terminate its
services agreements, although there is no assurance that International would be
successful in doing so. RMI, as a debtor in possession operating in Chapter 11,
or a trustee in bankruptcy might seek to have the guarantee of RMI set aside on
the basis that it constituted a fraudulent conveyance under applicable U.S. law
(which could apply even though RMI is a non-U.S. person). Under U.S. federal
bankruptcy law, this would require RMI or the bankruptcy trustee to show that
either:

- RMI issued the guarantee with the actual intent to hinder, delay or
defraud any entity to which the debtor was, or became on or after the
date of the transfer under the guarantee, indebted; or

- it did not receive reasonably equivalent value in consideration for
giving the guarantee and, at the time it issued the guarantee, RMI (i)
was insolvent (or was rendered insolvent as a result of the issuance
22

of the guarantee), (ii) was engaged in business or a transaction, or was
about to engage in business or a transaction, for which any property
remaining with RMI was an unreasonably small capital or (iii) intended
to incur, or believed it would incur, debts that would be beyond the
debtor's ability to pay as such debts matured.

A trustee in bankruptcy also may be able to avoid the guarantee under
applicable state fraudulent conveyance laws, if any. State fraudulent conveyance
laws in general are similar but not identical to the fraudulent conveyance
statute in the U.S. federal bankruptcy code described above.

While we believe that it could be shown that at the time it gave the
guarantee RMI was not insolvent nor rendered insolvent thereby, it is possible
that the court could find that RMI did not receive reasonably equivalent value
in consideration for the guarantee and that the "unreasonably small capital" or
"inability to pay debts as they mature" tests described above were met, and
therefore set aside the guarantee as a fraudulent conveyance.

Also, in the event that International commences a proceeding under Chapter
11, it is possible that it or a bankruptcy trustee, might seek to reject its
services agreements with RMI, as permitted under the U.S. Bankruptcy Code.
Assuming the bankruptcy court approved the debtor's rejection of its services
agreements, RMI would have a general unsecured claim for damages against
International. The amount of the damages claim would be the damages to which RMI
would be entitled under applicable non-bankruptcy law. As the services
agreements by their terms contemplate that the amount of the management fee will
be reset annually and are terminable at any time upon 180 days' notice, it is
possible that the bankruptcy court could conclude that the maximum amount of
damages to which RMI would be entitled would be the management fee that would
have been payable during the six-month notice period had International
terminated its services agreements, plus any earned and unpaid fees. Assuming
this had occurred in 2003, the maximum amount of the management fee that would
have been payable to RMI by International, and therefore the maximum amount of
RMI's damages claim, would have been approximately US$11 to $12 million.

WE MAY NOT BE ABLE TO FINANCE A CHANGE OF CONTROL OFFER REQUIRED BY THE
INDENTURE.

If we or RMI were to experience a change of control, the indenture
governing the Notes requires us to offer to purchase all the Notes then
outstanding at 101% of their principal amount, plus accrued interest to the date
of purchase. If a change of control were to occur, we cannot assure you that we
would have sufficient funds to purchase the Notes. Further, similar change of
control events may result in an event of default under Publishing's senior
credit facility and Publishing's senior notes and cause the acceleration of the
debt thereunder. The inability to repay that debt, if accelerated, and to
purchase all of the tendered Notes in the event of a change of control, would
constitute an event of default under the indenture governing the Notes.

We may enter into transactions, including acquisitions, refinancings,
recapitalizations or highly leveraged transactions, that do not constitute a
change of control under the indenture governing the Notes. Any of these
transactions may result in an increase in our debt or otherwise affect our
capital structure, harm our credit ratings or have a material adverse effect on
holders of Notes.

YOU MAY FACE DIFFICULTIES IN THE ENFORCEMENT OF CERTAIN CIVIL LIABILITIES.

A substantial portion of our, RMI's and NB Inc.'s assets are located in
Canada and a majority of our, RMI's and NB Inc.'s directors and officers are
residents of Canada. As a result, it may be difficult to effect service of
process within the United States upon us, RMI, NB Inc. or upon such directors
and officers. Execution by United States courts of any judgment obtained against
us, RMI or NB Inc. or any such person in United States courts would be limited
to our, RMI's, NB Inc.'s or such person's assets in the United States. Our
counsel has advised that there is doubt as to the enforceability in Canada of
United States judgments or of liabilities in original actions in Canadian courts
predicated solely upon the civil liability provisions of the federal securities
laws of the United States.

WE MAY REDEEM THE NOTES IF THERE ARE CHANGES IN CANADIAN WITHHOLDING TAXES.

The Notes will also be subject to redemption in whole, but not in part, at
our option at any time in cash, on not less than 30 nor more than 60 days' prior
written notice to the holders by first class mail, at 100% of the aggregate
principal amount, together with accrued and unpaid interest and additional
interest, if any, to the date fixed for redemption and all additional amounts
then due or becoming due on the redemption date in the event we are, have become
or would become obligated to pay, on the next date on which any amount would be
payable with respect to the Notes, any additional amount as a result of a change
or amendment in the laws or treaties (including any regulations promulgated
thereunder) of Canada (or any political subdivision or taxing authority thereof
or therein or any change in or new or different position regarding the
application, interpretation or administration of such laws, treaties or
regulations including a holding, judgment or order by a court of competent
jurisdiction), which change is announced or becomes effective on or after March
5, 2003 and provided that we deliver to the trustee an opinion of counsel and an
officers' certificate attesting to such change or amendment.

LORD BLACK IS THE COMPANY'S CONTROLLING SHAREHOLDER AND THERE MAY BE A CONFLICT
BETWEEN HIS INTERESTS AND YOUR INTERESTS AS A HOLDER OF NOTES.

Lord Black currently controls a majority of the voting power of the Company
and indirectly the voting power of International, and other shareholders of the
Company will be unable to affect the outcome of stockholder voting as long as
Lord Black retains his controlling interest.

Ravelston, the Company's controlling stockholder, is controlled by Lord
Black, Chairman of the Board and Chief Executive Officer of the Company and
International, through his direct and indirect ownership of Ravelston, a
corporation owned by Lord Black and Messrs. F. David Radler, Daniel Colson, J.A.
Boultbee, Peter Atkinson, Peter White and Charles Cowan and the estate of Mr.
Dixon Chant (all of whom are current or former officers and/or directors of
International and the Company). As of September 4, 2003, Lord Black controlled a
78.2% voting interest in the Company. As a result of this controlling interest,
Lord Black will be able to determine the outcome of all matters that require
shareholder approval, including the election of directors, amendment of the
Company's articles and approval of significant corporate transactions. Lord
Black will also have a significant influence over decisions affecting the
capital structure, including the incurrence of additional indebtedness and the
declaration of dividends. In addition, transactions may be pursued that could
enhance the equity investments of shareholders, including that of the
controlling shareholder, while involving risks to the interests of the holders
of the Notes. We cannot assure you that the interests of our controlling
shareholder will not conflict with the interests of the holders of the Notes. We
understand that neither Ravelston nor Lord Black presently intends to reduce its
voting control over the Company such that a third party would be able to
exercise effective control over it.

HOLDERS WHO FAIL TO EXCHANGE THEIR OLD NOTES WILL CONTINUE TO BE SUBJECT TO
RESTRICTIONS ON TRANSFER.

If you do not exchange your old notes for new notes in the exchange offer,
you will continue to be subject to the restrictions on transfer of your old
notes described in the legend on the certificates for your old notes. The
restrictions on transfer of your old notes arise because we issued the old notes
under exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, you may only offer or sell the old notes if they are registered under
the Securities Act and applicable state securities laws, or offered and sold
under an exemption from these requirements. We do not plan to register any sale
of the old notes under the Securities Act. For further information regarding the
consequences of tendering your old notes in the exchange offer, see the
discussions below under the captions "The Exchange Offer -- Consequences of
Exchanging or Failing to Exchange Old Notes" and "United States Federal Income
Tax Considerations."

We believe that new notes issued in exchange for old notes pursuant to the
exchange offer may be offered for resale, resold or otherwise transferred by you
without registering the new notes under the Securities Act or delivering a
prospectus so long as you (1) are not one of our "affiliates," which is defined
in Rule 405 of the Securities Act and (2) acquire the new notes in the ordinary
course of your business and, unless you are a broker-dealer, you do not have any
arrangement or understanding with any person to participate in the

distribution of the new notes. Our belief is based on interpretations by the
SEC's staff in no-action letters issued to third parties. Please note that the
SEC has not considered our exchange offer in the context of a no-action letter,
and the SEC's staff may not make a similar determination with respect to our
exchange offer.

Unless you are a broker-dealer, you must acknowledge that you are not
engaged in, and do not intend to engage in, a distribution of the new notes and
that you have no arrangement or understanding to participate in a distribution
of the new notes. If you are one of our affiliates, or you are engaged in,
intend to engage in or have any arrangement or understanding with respect to,
the distribution of new notes acquired in the exchange offer, you (1) should not
rely on our interpretations of the position of the SEC's staff and (2) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction.

If you are a broker-dealer and receive new notes for your own account
pursuant to the exchange offer, you must acknowledge that you will deliver a
prospectus in connection with any resale of the new notes. The letter of
transmittal states that by so acknowledging and by delivering a prospectus, you
will not be deemed to admit that you are an "underwriter" within the meaning of
the Securities Act. If you are a broker-dealer, you may use this prospectus, as
it may be amended or supplemented from time to time, in connection with the
resale of new notes received in exchange for old notes acquired by you as a
result of market-making or other trading activities. For a period of 180 days
after the expiration or termination of the exchange offer, we will make this
prospectus available to any broker-dealer for use in connection with any resale.
See "Plan of Distribution."

In addition, you may offer or sell the new notes in certain jurisdictions
only if they have been registered or qualified for sale there, or an exemption
from registration or qualification is available and is complied with. Subject to
the limitations specified in the Registration Rights Agreement relating to the
old notes, we will register or qualify the new notes for offer or sale under the
securities laws of any jurisdictions that you reasonably request in writing.
Unless you request that the sale of the new notes be registered or qualified in
a jurisdiction, we currently do not intend to register or qualify the sale of
the new notes in any jurisdiction.

CONSOLIDATED CAPITALIZATION

The following table sets out our unaudited consolidated cash and cash
equivalents and unaudited consolidated capitalization as of June 30, 2003.

<Table>
<Caption>
AS OF
JUNE 30, 2003
-----------------
(IN THOUSANDS OF
CANADIAN DOLLARS)

Cash and cash equivalents(1)................................ $ 212,387
==========
Short and long term debt
The Company:
Exchangeable shares
Series II preference shares(2)....................... 25,363
Series III preference shares......................... 92,712
Amounts due to Ravelston and RMI....................... 52,326
Senior Notes due 2011 offered hereby................... 162,696
----------
Total Company debt........................................ 333,097
----------
International:
Senior Credit Facility................................. 357,050
8.625% Senior Notes due 2005........................... 6,890
9% Senior Notes due 2010............................... 406,740
Capital lease obligations and other debt(3)............ 73,654
----------
Total International debt.................................. 844,334
----------
Total debt.................................................. 1,177,431
Total shareholders' deficiency(4)........................... (442,158)
----------
Total capitalization........................................ $ 735,273
==========
</Table>

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

(1) Cash and cash equivalents includes approximately $17.5 million of cash
attributable to the Company's 50% owned printing joint ventures in the U.K.
that are proportionately consolidated under Canadian GAAP but not under U.S.
GAAP. Included in cash is $26.8 million of restricted cash which is
unavailable for general corporate purposes at the present time.

(2) The Series II preference shares are redeemable at the holder's option for
0.46 of a share of Class A common stock of International for each Series II
preference share and the liability is recorded at the fair value of such
Class A common stock of International. The Company has the option to make a
cash payment of equivalent value on the redemption of any of the Series II
preference shares.

(3) Included is approximately $53.0 million of capital lease obligations of the
Company's 50% owned printing joint ventures, which are proportionately
consolidated under Canadian GAAP. Such entities are accounted for using the
equity method under US GAAP and such obligations would be excluded from
debt.

(4) For Canadian GAAP, common shares in the amount of $281.7 million, which are
retractable at the option of the holder, are included in shareholders'
deficiency, whereas, under U.S. GAAP, the retractable common shares would be
excluded from shareholders' deficiency.

RELATIONSHIP AMONG THE COMPANY, INTERNATIONAL, RAVELSTON,
RMI AND NB INC.

RELATIONSHIP BETWEEN THE COMPANY, INTERNATIONAL, RAVELSTON, RMI AND NB INC.

At September 4, 2003, we directly and indirectly owned 30.3% of the
combined equity interest and 72.8% of the combined voting power of the
outstanding common stock of International. As a result, we are able to control
the outcome of any election of directors and through our representatives on the
International Board of Directors, influence management policy, strategic
direction and financial decisions of International and its subsidiaries.

Specifically, as at September 4, 2003, we own, directly and through our
indirect wholly-owned subsidiary, NBI, the following shares of International:

(a) 11,256,538 shares of Class A common stock; and

(b) 14,990,000 shares of Class B common stock that can be converted at any
time, at our option, into shares of Class A common stock on a one for one basis.

At September 4, 2003, Ravelston directly and indirectly owned 78.2% of the
outstanding retractable common shares of the Company. RMI is a wholly-owned
subsidiary of our controlling stockholder, Ravelston.

At September 4, 2003, we indirectly owned all of the outstanding shares of
NB Inc.

SUPPORT AGREEMENT

RMI has entered into a support agreement with us. Under the agreement, RMI
is required to make an annual support payment in cash to us on a periodic basis
by way of contributions to our capital (without the issuance of additional
shares) or subordinated debt. The annual support payment will be equal to the
greater of (1) our negative net cash flow (as defined in the support agreement)
for the relevant period, and (2) US$14.0 million per year (less any payments of
management services fees by International directly to us or NB Inc., and any
excess in the net dividend amount that we and NB Inc. receive from International
over US$4.65 million per year), in either case as reduced by any permanent
repayment of debt owing by Ravelston to us. See "Description of the Collateral
and the Intercreditor and Support Arrangements -- Support Agreement."

CONTRIBUTION AGREEMENT

In addition, Ravelston and RMI have entered into a contribution agreement
with us. The contribution agreement was requested by an independent committee of
our board of directors following its review of all aspects of the offering of
the Notes and the other transactions contemplated thereby among RMI, Ravelston
and us. The contribution agreement will not be pledged to the trustee for the
Notes, and holders of the Notes are not entitled to any rights thereunder.

The contribution agreement sets out the manner in which RMI will make the
support payments described above to us, and provides that such payments will be
made by way of contributions to our capital (without the issuance of additional
shares) or by way of loan represented by subordinated debt, depending on
specified circumstances. Ravelston will guarantee RMI's obligations under the
contribution agreement and its obligations to make support payments to us under
the support agreement. This guarantee will not enure to the benefit of, or be
enforceable by, the trustee for the Notes or holders of the Notes. Subject to
the approval of the independent committee of our board of directors, we may
pledge the benefit of this guarantee as security for our obligations under
certain permitted indebtedness (as such term is defined in the indenture
governing the Notes). The contribution agreement will terminate upon the
repayment in full of the Notes, the termination of the support agreement or if
we cease to be a public company. The contribution agreement, including the
guarantee thereunder, may be amended or terminated without the consent of the
trustee for the Notes or holders of the Notes.

SERVICES AGREEMENTS

RMI provides services to International and HCPH Co. pursuant to two
separate services agreements, each of which was assigned to RMI on July 5, 2002.
These services agreements govern the provision by RMI of certain advisory,
consultative, procurement and administrative services to International and HCPH
Co. The services to be provided pursuant to the services agreements include,
among other things, strategic advice and planning and financial services
(including advice and assistance with respect to acquisitions), and assistance
in operational matters. The Services Agreements may be terminated by either
party upon 180 days notice. Each services agreement will be in effect until
terminated by either party under certain specified circumstances.

The services fees are generally determined on an annual basis and are
subject to negotiation with and the approval of an independent committee of the
board of directors of International. The aggregate amount of the annual services
fees payable to Ravelston (and, after its assignment of the services agreements
to RMI in July 2002, to RMI) for 2002 was approximately US$23.9 million. On
February 26, 2003, the independent committee of the board of International
approved an aggregate annual services fee for 2003 that was at a comparable
level to 2002.

Certain executives and affiliates of Ravelston receive fees directly from
certain subsidiaries of International pursuant to various services agreements.
Ravelston is not a party to such agreements and such agreements were not
assigned to RMI and the fees under such agreements are not reflected in the
accounts of RMI. The aggregate payments by International and its subsidiaries
made pursuant to their services agreements are subject to the review and
approval of the audit committee of the board of directors of International.

DIVIDEND POLICY

We receive dividends on the shares of Class A common stock and Class B
common stock of International that we hold. The decision to declare those
dividends and the amount of the dividend is determined by the board of directors
of International.

In December 2002, Publishing, a wholly-owned subsidiary of International,
entered into a credit agreement providing for new senior credit facilities and
issued a new series of senior notes. The covenants of the indenture with respect
to the senior notes and the credit agreement for the senior credit facilities
may make it more difficult for International to pay dividends on the shares of
Class A common stock and Class B common stock. See "Description of Existing
Indebtedness."

DESCRIPTION OF INTERNATIONAL'S CLASS B COMMON STOCK AND
CLASS A COMMON STOCK

CLASS B COMMON STOCK

Shares of International's Class A common stock and Class B common stock
vote together as a single class on all matters, except as otherwise required by
applicable law. With respect to all such matters, including the election of
directors, each share of International's Class B common stock is entitled to 10
votes per share. Holders of Class B common stock are entitled to receive
dividends if, as and when declared by the board of directors of International,
provided that a concurrent and equivalent dividend is declared on the Class A
common stock. Dividends payable in shares of Class B common stock may be paid
only on shares of Class B common stock. In the event of any voluntary or
involuntary liquidation, dissolution or winding-up of International, after
distribution in full of the preferential amounts to be distributed to the
holders of any series of Preferred Stock, the remaining assets of International
shall be distributed ratably among the holders of Class A common stock and Class
B common stock in proportion to the number of shares held by each holder. No
combination or subdivision of Class B common stock is permitted unless the Class
A common stock is proportionately combined or subdivided at the same time.

CLASS B COMMON STOCK CONVERSION FEATURES

Any holder of Class B common stock shall be entitled at their option to
have their Class B common stock converted into fully paid and non-assessable
shares of Class A common stock on a share-for-share basis.

If a share of International's Class B common stock held by the Company or
its subsidiaries or affiliates is sold, transferred or disposed of to a third
party which is not a subsidiary or affiliate of the Company, each such share of
Class B common stock shall be converted automatically into one share of Class A
common stock immediately prior to the transfer to such third party.
Notwithstanding this however, any holder of Class B common stock may pledge its
shares of Class B common stock to a pledgee pursuant to a bona fide pledge of
such shares as collateral security for indebtedness due to the pledgee, provided
that such shares shall not be transferred to or registered in the name of the
pledgee and shall remain subject to the provisions of this paragraph. In the
event that shares of Class B common stock pledged as collateral security for
indebtedness become subject to any foreclosure, realization or other similar
action by a third party pledgee, such shares may only be transferred to a third
party purchaser who purchases or obtains the Class B common stock in a Permitted
Transaction, or will otherwise be converted automatically into fully paid and
non-assessable shares of Class A common stock on a share-for-share basis. A
Permitted Transaction is a transaction with respect to Class B common stock
between a third party and the Company, its subsidiaries or affiliates, in which
or as part of which the third party makes a bona fide tender offer, in
compliance with the applicable securities and other laws, to purchase all of the
outstanding shares of Class A common stock from the holders for an amount in
cash or other consideration equal to the amount per share to be received by the
record holder of Class B common stock.

CLASS A COMMON STOCK

The Class A common stock rights with respect to dividends and liquidation
are identical to those of the Class B common stock. However, with respect to all
matters where shares of International's Class A and Class B common stock vote
together as a single class, including the election of directors, each share of
International's Class A common stock is entitled to one vote per share.

MARKET PRICE AND DIVIDEND INFORMATION OF
INTERNATIONAL'S CLASS A COMMON STOCK

International's Class A common stock trades on the New York Stock Exchange
under the symbol "HLR." The following table sets forth the range of high and low
sale prices for International's Class A common stock as reported on the New York
Stock Exchange during the five most recent years, including quarterly
information for the two most recent years and monthly information for the past
nine months.

<Table>
<Caption>
HIGH LOW
-------- --------

1998........................................................ US$18.63 US$11.19
1999........................................................ 16.81 9.75
2000........................................................ 17.06 9.69
2001........................................................ 16.49 9.08
2002........................................................ 13.75 8.65
2001:
First Quarter............................................. 16.48 14.21
Second Quarter............................................ 16.12 13.69
Third Quarter............................................. 14.80 10.25
Fourth Quarter............................................ 11.71 9.08
2002:
First Quarter............................................. 13.54 11.00
Second Quarter............................................ 13.75 11.15
Third Quarter............................................. 12.10 9.04
Fourth Quarter............................................ 10.81 8.65
2003:
First Quarter............................................. 10.73 7.54
Second Quarter............................................ 11.70 7.89
July...................................................... 11.64 10.45
August.................................................... 13.05 10.88
</Table>

On September 4, 2003, the closing price of the Class A common stock on the
New York Stock Exchange was US$13.30.

International's Class B common stock is not traded on any exchange.

The following table sets forth the quarterly dividends paid by
International with respect to the corresponding quarter on its Class A common
stock during the five most recent years:

<Table>
<Caption>
DATE DIVIDENDS PER SHARE
- ---- -------------------

03/30/98.................................................... US$0.10
06/29/98.................................................... 0.10
09/29/98.................................................... 0.14
12/29/98.................................................... 0.14
03/30/99.................................................... 0.14
06/29/99.................................................... 0.14
09/29/99.................................................... 0.14
12/29/99.................................................... 0.14
03/29/00.................................................... 0.14
06/28/00.................................................... 0.14
09/27/00.................................................... 0.14
12/27/00.................................................... 0.14
03/28/01.................................................... 0.14
06/27/01.................................................... 0.14
09/27/01.................................................... 0.14
12/27/01.................................................... 0.14
03/27/02.................................................... 0.11
06/27/02.................................................... 0.11
09/27/02.................................................... 0.05
12/27/02.................................................... 0.05
03/27/03.................................................... 0.05
06/27/03.................................................... 0.05
</Table>

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The selected historical consolidated financial data presented below as of
December 31, 2001 and 2002, and for each of the years in the three-year period
ended December 31, 2002, have been derived from the audited consolidated
financial statement of the Company, included elsewhere in this prospectus. The
selected historical consolidated financial data as of December 31, 1998, 1999
and 2000, and for the years ended December 31, 1998 and 1999, have been derived
from the audited consolidated financial statements of the Company. The selected
historical consolidated financial data presented below as of June 30, 2003, and
for the six months ended June 30, 2002 and 2003, have been derived from the
unaudited interim consolidated financial statements of the Company, incorporated
by reference into this prospectus. The summary historical consolidated financial
data as of June 30, 2002 has been derived from the unaudited interim
consolidated financial statements of the Company. In the opinion of management,
all adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation of the interim periods have been included.
Results for the six months ended June 30, 2002 and 2003, are not necessarily
indicative of results to be expected for the full year or any future period. The
following data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and notes thereto of the Company, included elsewhere in
this prospectus.

Our consolidated financial statements have been prepared in accordance with
Canadian GAAP. For a discussion of the material differences between Canadian
GAAP and US GAAP, see note 26 of our audited consolidated financial statements.

<Table>
<Caption>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------------------------------------- ---------------------------
1998 1999 2000 2001 2002 2002 2003
---------- ---------- ---------- ---------- ---------- ------------- -----------
(UNAUDITED) (UNAUDITED)
(RESTATED)(8)
(ALL AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AMOUNTS)

OPERATING DATA:
Canadian GAAP:
Revenue
Sales.............................. $3,319,188 $3,241,319 $3,158,280 $1,822,060 $1,628,198 $ 812,791 $ 783,927
Investment and other income........ 22,464 18,953 28,146 97,282 29,729 15,686 13,637
---------- ---------- ---------- ---------- ---------- ---------- ----------
3,341,652 3,260,272 3,186,426 1,919,342 1,657,927 828,477 797,564
---------- ---------- ---------- ---------- ---------- ---------- ----------
Expenses
Cost of sales and expenses(1)...... 2,620,177 2,647,465 2,586,183 1,730,108 1,453,894 716,221 700,880
Depreciation and amortization(2)... 209,498 228,802 219,932 144,716 88,193 44,097 42,083
Interest expense(3)................ 233,878 258,231 274,331 177,926 121,747 62,624 45,968
---------- ---------- ---------- ---------- ---------- ---------- ----------
3,063,553 3,134,498 3,080,446 2,052,750 1,663,834 822,942 788,931
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) in equity
accounted companies.............. (616) 1,211 (14,115) (18,571) (1,233) (485) (1,391)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net foreign currency gains
(losses)......................... (2,230) 3,911 (12,288) (7,470) (19,741) (4,950) 126,934
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) before the
undernoted....................... 275,253 130,896 79,577 (159,449) (26,881) 100 134,176
Unusual items...................... 404,519 413,397 700,945 (295,434) (62,630) (41,356) (37,227)
Income tax recovery (expense)(4)... (300,929) (207,263) (260,091) 89,477 (124,025) 13,819 (35,409)
Minority interest recovery
(expense)........................ (267,358) (182,215) (331,058) 233,508 124,896 7,741 (28,822)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss)................ $ 111,485 $ 154,815 $ 189,373 $ (131,898) $ (88,640) $ (19,696) $ 32,718
========== ========== ========== ========== ========== ========== ==========
Dividends per retractable common
share(5)......................... $ 0.60 $ 0.60 $ 0.60 $ 0.60 $ 0.60 $ 0.30 $ 0.30
Basic net earnings (loss) per
share............................ $ 3.35 $ 4.43 $ 5.11 $ (3.91) $ (2.76) $ (0.62) $ 1.00
Diluted net earnings (loss) per
share(6)......................... $ 3.09 $ 4.39 $ 5.05 $ (4.17) $ (2.79) $ (0.62) $ 1.00
</Table>

US GAAP:
Revenue(7)......................... $3,109,670 $1,774,255 $1,579,663
Net earnings (loss)................ $ 86,281 $ (82,047) $ (83,760)
Basic earnings (loss) before
cumulative effect of change in
accounting principles, per
share............................ $ 1.52 $ (2.33) $ (2.32)
Basic net earnings (loss) per
share............................ $ 1.52 $ (2.33) $ (2.70)
Diluted earnings (loss) before
cumulative effect of change in
accounting principles, per
share............................ $ 1.42 $ (2.62) $ (2.35)
Diluted net earnings (loss) per
share............................ $ 1.42 $ (2.62) $ (2.73)
Balance Sheet Data (at period end):
Canadian GAAP:
Total assets(8).................... $5,704,776 $5,650,609 $4,671,372 $3,656,116 $3,639,861 $2,812,910 $2,565,019
Bank indebtedness.................. $ 232,128 $ 307,961 $ 312,000 $ 129,475 $ 90,810 $ 91,900 --
Long-term debt, including current
portion.......................... $2,412,749 $2,465,416 $1,276,920 $1,351,626 $1,789,321 $ 861,119 $1,007,030
Capital stock(9)................... $ 240,434 $ 315,229 $ 308,263 $ 271,774 $ 273,759 $ 271,774 $ 281,740
Net assets......................... $ (67,168) $ 138,888 $ (68,431) $ (263,470) $ (351,331) (296,450) $ (442,158)
Weighted average number of
retractable common shares
outstanding during the period
(thousands)...................... 33,152 34,971 37,041 33,740 32,064 32,069 33,891
OTHER DATA (UNAUDITED):
Canadian GAAP:
Ratio of earnings to fixed
charges(10).................. 3.7 2.9 3.7 3.0
US GAAP:
Ratio of earnings to fixed
charges(10).................. 3.8
</Table>

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

(1) The Company adopted effective January 1, 1999, on a retroactive basis, a new
Canadian accounting standard issued by The Canadian Institute of Chartered
Accountants ("CICA") with respect to accounting for employee future
benefits, including pension and non-pension post-retirement benefits. The
Company elected not to restate the comparative figures for periods prior to
1999 for this change in accounting policy. The cumulative effect of adopting
the new standard in 1999 under Canadian GAAP was to increase the deficit as
at January 1, 1999 by $7,766,000.

(2) Effective January 1, 2002, the Company implemented, on a prospective basis,
CICA Handbook Section 3062 ("HB 3062"), "Goodwill and Other Intangible
Assets", which is consistent with SFAS No. 142 in the U.S. The new standard
requires that goodwill and intangible assets with indefinite lives no longer
be amortized, but instead be tested for impairment at least annually.

The transitional provisions of HB 3062 and SFAS No. 142 require the Company
to assess whether goodwill is impaired as of January 1, 2002. The Company
completed its transitional impairment testing for goodwill and recorded an
impairment charge of $32.0 million in respect of the goodwill for the
Jerusalem Post operation. Such loss, net of related minority interest,
amounted to $12.1 million and was recorded as a charge to the opening
deficit as at January 1, 2002 under Canadian GAAP (as a cumulative effect of
a change in accounting principle under US GAAP).

At January 1, 2002, the Company has unamortized goodwill in the amount of
$905.6 million, which is no longer being amortized. This amount is before
any reduction for the transitional impairment.

This change in accounting policy cannot be applied retroactively and the
amounts presented for prior periods have not been restated for this change.
If this change in accounting policy were applied to the reported Canadian
GAAP consolidated statement of earnings for the years ended December 31,
1998, 1999, 2000 and 2001 and the U.S. GAAP consolidated statement of
earnings for the years ended December 31, 2000 and 2001, the impact of the
change, in respect of goodwill and intangible assets not being amortized,
would be as follows:

<Table>
<Caption>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1998 1999 2000 2001
----------- ----------- ----------- ------------
(ALL AMOUNTS THOUSANDS OF CANADIAN DOLLARS EXCEPT PER
SHARE AMOUNTS)

Canadian GAAP
Net earnings (loss), as reported.............. $111,485 $154,815 $189,373 $(131,898)
Add goodwill and intangible asset amortization
net of income taxes and minority interest... 31,113 36,829 31,384 16,978
-------- -------- -------- ---------
Adjusted net earnings (loss).................. $142,598 $191,644 $220,757 $(114,920)
======== ======== ======== =========
Basic earnings (loss) per share -- as
reported.................................... $ 3.35 $ 4.43 $ 5.11 $ (3.91)
Basic adjusted earnings (loss) per share...... $ 4.29 $ 5.48 $ 5.97 $ (3.41)
Diluted earnings (loss) per share -- as
reported(6)................................. $ 3.09 $ 4.39 $ 5.05 $ (4.17)
Diluted adjusted earnings (loss) per share.... $ 3.99 $ 5.36 $ 5.90 $ (3.64)
</Table>

<Table>
<Caption>
YEAR ENDED DECEMBER 31,
------------------------
2000 2001
---------- -----------

U.S. GAAP
Net earnings (loss), as reported............................ $ 86,281 $ (82,047)
Add goodwill and intangible asset amortization net of income
taxes and minority interest............................... 38,668 17,548
-------- ---------
Adjusted net earnings (loss)................................ $124,949 $ (64,499)
======== =========
Basic earnings (loss) per share -- as reported.............. $ 1.52 $ (2.33)
Basic adjusted earnings (loss) per share.................... $ 2.56 $ (1.81)
Diluted earnings (loss) per share -- as reported............ $ 1.42 $ (2.62)
Diluted adjusted earnings (loss) per share.................. $ 2.46 $ (2.10)
</Table>

Adjusted net earnings (loss), noted above, in respect of both US and
Canadian GAAP, reflects only the reduction in amortization expense of
intangibles now classified as goodwill and does not give effect to the
impact that this change in accounting policy would have had on the gains and
losses resulting from the disposal of operations during 1998, 1999, 2000 and
2001, nor the expensing of the costs previously capitalized under Canadian
GAAP to increase long-term readership in 1998, 1999, 2000 and 2001.

(3) Total interest expense is the sum of interest on long-term debt and other
interest.

(4) The Company adopted effective January 1, 2000, on a retroactive basis, a new
Canadian accounting standard issued by the CICA with respect to accounting
for income taxes. The Company elected not to restate the comparative figures
for periods prior to 2000 for this change in accounting policy. The
cumulative effect of adopting the new standard in 2000 under Canadian GAAP
was to increase the deficit as at January 1, 2000 by $291,004,000.

(5) Dividends include stock dividends. Based on the average foreign exchange
rate for the period, the US dollar equivalent of the dividends per
retractable common share is US$0.40, US$0.40, US$0.40, US$0.39, US$0.38,
US$0.19 and US$0.21, for the years ended December 31, 1998, 1999, 2000, 2001
and 2002 and the six month periods ended June 30, 2002 and 2003,
respectively.

(6) Effective January 1, 2001, the Company adopted, retroactively with
restatement, the recommendations of the CICA Section 3500 with respect to
earnings per share. Under the revised standard, the treasury stock method is
used instead of the imputed earnings approach for determining the dilutive
effect of options, issued warrants or other similar instruments.

The change in the method of calculation of earnings per share did not impact
the previously reported basic earnings per share for 1998, 1999 and 2000.
Diluted earnings per share for 1998 were increased from $3.01 per share to
$3.09 per share, for 1999 were increased from $3.83 per share to $4.39 per
share and for 2000 were increased from $4.48 per share to $5.05 per share.

(7) Under Canadian GAAP, the Company is required to proportionately consolidate
its 50% interest in its joint ventures, resulting in higher revenues under
Canadian GAAP than under US GAAP.

(8) The unaudited interim consolidated financial statements for the six months
ended June 30, 2002 as originally reported, have been restated as described
below.

a) Effective January 1, 2002, the Company adopted the CICA Handbook
Section 3062, "Goodwill and Other Intangible Assets" ("Section 3062")
and certain transitional provisions of CICA Handbook Section 1581,
"Business Combinations" ("Section 1581").

All of the Company's operations are owned through International and
substantially all of the Company's goodwill and intangible assets are
reflected in the accounts of International. Upon initial adoption on
January 1, 2002 of the new accounting standards for goodwill and
other intangible assets, International classified $186,780,000 of
advertiser and subscriber relationship intangible assets as goodwill.
Also on initial adoption on January 1, 2002, the Company made a
similar reclassification to goodwill of such amounts which had been
included within circulation for the Chicago Group. However, based on
the consensus reached by the U.S. Emerging Issues Task Force in Issue
No. 02-17, "Recognition of Customer Relationship Intangible Assets
Acquired in a Business Combination" and a comment made by the U.S.
Securities and Exchange Commission in their review of International's
results for the nine months ended September 30, 2002, International
has subsequently concluded that its advertiser and subscriber
relationship intangible assets do meet the criteria for recognition
apart from goodwill under SFAS No. 142 (which is substantially
consistent with CICA Handbook Section 3062). Therefore, in the
accounts of both International and the Company, the advertiser and
subscriber relationship intangible assets were reclassified from
goodwill to identifiable intangible assets during the fourth quarter
of 2002 and continue to be amortized over their 30-year useful lives.
Accordingly, the financial statements for the six months ended June
30, 2002 have been restated. Amortization expense was increased by
$3,576,000, income tax recovery was increased by approximately
$1,430,000, minority interest reduced by $1,454,000 and net loss was
increased by $692,000 to reflect the adjustment to amortization and
related effects to income tax and minority interest. This adjustment
was reflected in the December 31, 2002 financial statements.

b) In connection with the Section 3062 transitional impairment
evaluation, the Company was required to assess whether goodwill was
impaired as of January 1, 2002. The fair values of the Company's
reporting units were 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
was in excess of the estimated fair value at January 1, 2002.
Accordingly, the value of goodwill attributable to the Jerusalem Post
of $32.0 million was written down in its entirety in the three months
ended December 31, 2002. Such loss, net of related minority interest
amounted to $12.1 million and has been recorded as a charge to the
opening deficit as at January 1, 2002. In accordance with Section
3062, the opening deficit for the six months ended June 30, 2002 has
been restated to reflect this adjustment

c) Foreign exchange gains totaling $5,997,000 realized on the substantial
liquidation of the Canadian operations were not previously recognized
as at June 30, 2002, however the gains were recognized in the three
months ended December 31, 2002. As a result, the financial statements
for the six months ended June 30, 2002 have been restated to reduce
foreign exchange losses by $5,997,000 and increase minority interest
expense by $4,012,000 with a net decrease in the net loss for the
period of $1,985,000.

(9) For Canadian GAAP, common shares which are retractable at the option of the
holder are included in shareholders' deficiency, whereas, under U.S. GAAP,
the retractable common shares would be excluded from shareholders'
deficiency.

(10) The term "earnings" is the amount resulting from adding and subtracting the
following items. Add the following: (a) Pre-tax income from continuing
operations before adjustment for minority interest in

consolidated subsidiaries or income or loss from equity investees, (b) fixed
charges, (c) amortization of capitalized interest, and (d) distributed income of
equity investees. From the total of the added items, subtract the following: (a)
interest capitalized, and (b) the minority interest in pre-tax income or
subsidiaries that have not incurred fixed charges. Equity investees are
investments that we account for using the equity method of accounting. The
term "fixed charges" means the sum of the following: (a) interest expensed
(excluding interest paid in connection with the Total Return Equity Swap)
and capitalized, (b) amortized premiums, discounts and capitalized expenses
related to indebtedness and (c) an estimate of the interest within rental
expense (deemed to be one third of minimum operating lease rentals). The
ratio of earnings to fixed charges calculations are included in Exhibit 12.
Canadian GAAP earnings were inadequate to cover fixed charges by $437.1
million, $86.9 million, and $40.0 million for the year ended December 31,
2001, the year ended December 31, 2002 and the six-month period ended June
30, 2002, respectively. US GAAP earnings were inadequate to cover fixed
charges by $436.7 million, $143.8 million, for the year ended December 31,
2001 and the year ended December 31, 2002, respectively.

On a proforma basis, after giving effect to the transactions described in
"Use of Proceeds" as if they occurred on January 1, 2002 and January 1,
2003, the earnings for the year ended December 31, 2002 would have been
inadequate to cover fixed charges by $104.3 million under Canadian GAAP and
$161.3 million under U.S. GAAP and for the six-month period ended June 30,
2003, the ratio of earnings to fixed charges would have been 2.9,
respectively. The proforma ratio of earnings to fixed charges calculations
are included in Exhibit 12.1.

OPERATING RESULTS

OVERVIEW -- HOLLINGER INC.

The Company is an international holding company and its assets consist
primarily of investments in subsidiaries and affiliated companies, principally
the investment in International. As at September 4, 2003, the Company directly
and indirectly owns 11,256,538 shares of Class A common stock and 14,990,000
shares of Class B common stock of International, which represent 30.3% of the
equity and 72.8% of the voting interests. International's Class A common stock
is listed on the New York Stock Exchange. All of the Company's operating
subsidiaries are owned through International. Significant obligations of the
Company on a non-consolidated basis as of June 30, 2003 included Senior Secured
Notes due 2011 and Series II and Series III preference shares, which are
retractable by the holder. NB Inc., a wholly owned subsidiary of the Company,
has subordinated debt due to International. On a non-consolidated basis, the
Company's income consists mainly of dividends from subsidiaries, principally
International, and its operating costs include public company costs (mainly
legal and professional fees, directors' fees and transfer agent fees), interest
on its Senior Secured Notes and dividends on Series II and Series III preference
shares.

On a non-consolidated basis, the Company has experienced a shortfall
between the dividends and fees received from its subsidiaries and its
obligations to pay its operating costs, including interest and dividends on its
preference shares and such shortfalls are expected to continue in the future.
Accordingly, the Company is dependent upon the continuing financial support of
RMI, a wholly owned subsidiary of Ravelston, the Company's ultimate parent
company, to fund such shortfalls and, therefore, pay its liabilities as they
fall due. On March 10, 2003, concurrent with the issue of Senior Secured Notes,
RMI entered into a support agreement with the Company, under which RMI has
agreed to make annual support payments in cash to the Company by way of capital
contributions (without the issuance of additional shares of the Company) or
subordinated debt. The annual support payments will generally be equal to the
greater of (a) the Company's negative net cash flow for the relevant period
(which does not extend to outlays for retractions or redemptions), determined on
a non-consolidated basis, and (b) U.S.$14.0 million per year subject to certain
adjustments. Pursuant to this arrangement, RMI has made payments to the Company
in respect of the period from March 10 to June 30, 2003 in the amount of US$6.2
million.

As described more fully below in"Hollinger International Inc. -- Recent
Developments", a shareholder of International has requested that the Board
investigate and, if determined to be advisable, take corrective action in
respect of certain matters, including the payment of fees by International
pursuant to management services agreements with RMI. Although the Board of
International has established a special committee of the Board of Directors to
conduct an independent review and investigation of the matters, the timing and
outcome of the process and the impact on the Company and RMI is uncertain at
this time. Under the terms of the Senior Secured Notes, if in any quarterly
period after April 1, 2003, the Company fails to receive in cash a minimum
aggregate amount of at least US$4.7 million from a) payments made by RMI
pursuant to the support agreement and b) dividends paid by International on its
shares held by the Company and NBI, the Company would be in default under its
Senior Secured Notes and they could become due and payable immediately.

US$20.0 million for the twelve months ending June 30, 2004. This amount assumes
payment by the Company of preference share dividends of approximately US$5.0
million which have yet to be considered by the Board of Directors and which
depend on the Company having the ability under corporate law to pay such
dividends. The Company's ongoing liquidity on a non-consolidated basis continues
to depend to a large degree on support payments from RMI which in turn depends
on fees received pursuant to its services agreements with International. If the
Company does not receive support payments of at least US$15.0 million for the
twelve months ending June 30, 2004, based on the above assumptions, then it will
be required to dispose of assets of seek financing in order to meet its
non-consolidated obligations as they fall due.

The Company is contemplating a variety of initiatives to address the
potential matters referred to above, however at this time there can be no
certainty that such initiatives will be completed.

In addition, the Company's issued capital stock consists of Series II
preference shares, Series III preference shares and retractable common shares,
each of which is retractable at the option of the holder. There is uncertainty
regarding the Company's ability to meet its future financial obligations arising
from the retraction of preference shares and retractable common shares. These
matters are more fully discussed under "Liquidity and Capital Resources --
Financial Condition and Cash Flows".

OVERVIEW -- HOLLINGER INTERNATIONAL INC.

International's business is concentrated in the publication of newspapers
in the United States, the United Kingdom, Canada and Israel. Revenues are
derived principally from advertising, paid circulation and, to a lesser extent,
job printing. Of International's reported total operating revenue in 2002,
approximately 44% was attributable to the Chicago Group, 48% to the U.K.
Newspaper Group, 7% to the Canadian Newspaper Group and 1% to the Community
Group. The Chicago Group consists of the Chicago Sun-Times and other daily and
weekly newspapers in the greater Chicago metropolitan area. The U.K. Newspaper
Group consists of the operations of The Daily Telegraph, The Sunday Telegraph,
The Weekly Telegraph, telegraph.co.uk, and The Spectator and Apollo magazines,
its subsidiaries and joint ventures. The Canadian Newspaper Group consists of
the operations of HCPH Co., an 87% investment in the Partnership and until
August 31, 2001, a 50% interest in National Post publications. The Community
Group consists of the Jerusalem Post publications.

During 2000, International sold most of its remaining U.S. community
newspaper properties and completed the sale of most of International's Canadian
newspapers and related assets to CanWest.

During 2001, International sold most of the remaining Canadian newspaper
properties, the 50% interest in the National Post and the last remaining United
States community newspaper. In addition, International sold its approximate
15.6% equity interest in CanWest and participation interests in most of the
debentures issued by a subsidiary of CanWest both of which were received in 2000
as part of the proceeds on the sale of Canadian newspaper properties to CanWest.

RECENT DEVELOPMENTS -- HOLLINGER INTERNATIONAL INC.

On May 19, 2003, a shareholder of International filed a Schedule 13D with
the SEC and, amongst other things, served a demand letter on the Board of
International requesting that the Board investigate and, if determined to be
advisable, take corrective action in respect of payments made to senior
executives of International and to RCL in respect of non-competition agreements
as previously disclosed in International's and the Company's financial
statements. On June 11, 2003, the same shareholder filed an Amendment to the
Schedule 13D with the SEC reiterating the earlier demands as well as requesting
that the Board investigate and, if determined to be advisable, take corrective
action in respect of (i) an asset sale by International to an entity affiliated
with certain officers and directors of International, and (ii) the payment of
fees by International pursuant to various affiliated management services
agreements including fees paid to RMI. On June 17, 2003, in response to these
requests, the Board established a special committee to conduct an independent
review and investigation of those concerns. The special committee's review and
investigation are continuing. The timing and outcome of this process is
uncertain. The potential impact of the demand letters and special committee
process on the financial statements of International and the Company and on RCL
and RMI can not now be precisely calculated but the costs of the process are
estimated at between US$6.0 million

and US$8.0 million of increased expenses in the current year. Increased expenses
related to higher director and officer insurance premiums, legal costs and other
costs incurred in connection with the special committee's review and
investigation will be reflected in the third and subsequent quarters.

BUSINESS OF THE COMPANY

The Company, through operating subsidiaries, has in the past acquired
underperforming newspaper properties with a view to improving the operation and
enhancing profitability and value. Generally, it was the Company's intention to
control the business and to realize profits from the continued ownership,
operation and improvement of the business along with profits from the periodic
disposal of all or part of the Company's holding in an operation. The Company's
emphasis has been on daily newspapers and usually those that are dominant in
their respective markets. The Company's purchases generally have been of
newspaper businesses that are underperforming either through weak operating
management or as a result of an inability to access necessary capital. The
Company also concentrated on acquisitions and disposals that increased the
average size of the Company's newspapers or that had significant potential
synergies with its other newspapers. In recent years, the Company has focused
more on selling mature newspaper franchises with considerably less emphasis on
acquisitions. Management's current intention is to concentrate on a few core
assets to maximize their potential.

OUTLOOK FOR HOLLINGER INTERNATIONAL INC.

All of the Company's significant operations are owned through the
investment in International. International has recently issued guidance in
respect of its operating income for the year ending December 31, 2003.
International's operating income is expected to be affected by non-recurring
items, particularly the costs associated with the review now being conducted by
the special committee of the Board of Directors of International and undertaken
in response to the concerns of a shareholder of International. A thorough and
independent inquiry into the matters raised leading up to the announcement of
the formation of the special committee on June 17, 2003, will produce higher
legal costs and insurance premiums than could have been foreseen when
International's original forecast was made. The present impact on 2003 of these
costs is in the range of US$6.0 million to US$8.0 million. The new forecast also
reflects continued softness in the U.K. newspaper advertising market, which has
persisted longer than was generally expected. Please refer to the form 10-Q
filed by International with the SEC on August 18, 2003.

THE COMPANY'S SIGNIFICANT TRANSACTIONS

In June 2000, the Company and International exercised their option to pay
cash on the mandatory exchange of the Hollinger Canadian Publishing Holdings
Inc. Special shares. Each Special share was exchanged for cash of US$8.88
resulting in a payment to special shareholders of US$95.0 million. The Company
was responsible for US$36.8 million of this amount.

On June 1, 2001, International converted all of its Series C preferred
stock, which was held by the Company, at the conversion ratio of 8.503 shares of
International's Class A common stock per share of

Series C preferred stock into 7,052,464 shares of International's Class A common
stock. The 7,052,464 shares of Class A common stock of International were
subsequently purchased for cancellation by International on September 5, 2001
for a total of $143.8 million (U.S. $92.2 million). The purchase price per share
was 98% of the closing price of a share of Class A common stock and was approved
by International's independent directors. The proceeds were used to reduce the
Company's bank indebtedness by $142.0 million.

On September 27, 2001, International redeemed 40,920 shares of its Series E
redeemable convertible preferred stock held by the Company at their stated
redemption price of $146.63 per share for a total of $6.0 million.

In December 2001, the Company sold 2,000,000 shares of International's
Class A common stock to third parties for total cash proceeds of $31.4 million,
the proceeds of which were used to reduce the Company's bank indebtedness.

During January 2002, the Company sold a further 2,000,000 shares of
International's Class A common stock to third parties for total cash proceeds of
$38.6 million, the proceeds of which were used to reduce the Company's bank
indebtedness.

On March 10, 2003, the Company issued U.S. $120.0 million aggregate
principal amount of 11 7/8% Senior Secured Notes due 2011. The total net
proceeds were used to refinance existing indebtedness, to repay amounts due to
Ravelston and to make certain advances to Ravelston. The Senior Secured Notes
are fully and unconditionally guaranteed by RMI. The Company and RMI entered
into a support agreement, under which RMI has agreed to make annual support
payments in cash to the Company on a periodic basis by way of contributions to
the capital of the Company (without receiving any shares of the Company) or
subordinated debt. The amount of the annual support payments will be equal to
the greater of (a) the non-consolidated negative net cash flow of the Company
(which does not extend to outlays for retractions or redemptions) and (b) U.S.
$14.0 million per year (subject to certain adjustments as permitted under the
Indenture governing the Company's Senior Secured Notes), in either case, as
reduced by any permanent repayment of debt owing by Ravelston to the Company.
Initially, the support amount to be contributed by RMI will be satisfied through
the permanent repayment by Ravelston of its approximate $16.4 million of
advances from the Company, which resulted from the use of proceeds of the
Company's issue of Senior Secured Notes. Thereafter, all support amount
contributions by RMI will be made through contributions to the capital of the
Company, without receiving any additional shares of the Company, except that, to
the extent that the minimum payment exceeds the negative net cash flow of the
Company, the amounts will be contributed through an interest-bearing, unsecured,
subordinated loan to the Company. The support agreement terminates upon the
repayment of the Senior Secured Notes, which mature in 2011. All aspects of the
offering of Senior Secured Notes and the amendment to certain indebtedness due
to International described below were approved by a Special Committee of the
Board of Directors of the Company, comprised entirely of independent directors.

On March 10, 2003, prior to the closing of the above offering, NB Inc. sold
its shares of Class A common stock and Series E redeemable convertible preferred
stock of International to RMI. Such shares were in turn sold back to NB Inc.
from RMI at the same price, with a resulting increase in the tax basis of the
shares of International and a taxable gain to RMI. As the exchange of the
International shares with RMI represents a transfer between companies under
common control, NB Inc. will record, in 2003, contributed surplus of
approximately $2.3 million, being the tax benefit associated with the increase
in the tax value of the shares of International.

Contemporaneously with the closing of the issue of Senior Secured Notes,
International:

(a) repurchased for cancellation, from NB Inc., 2,000,000 shares of Class
A common stock of International at U.S. $8.25 per share for total
proceeds of U.S. $16.5 million; and

(b) redeemed, from NB Inc., pursuant to a redemption request, all of the
93,206 outstanding shares of Series E redeemable convertible preferred
stock of International at the fixed redemption price of $146.63 per
share totalling U.S. $9.3 million.

Proceeds from the repurchase and redemption were offset against debt due
from NB Inc. to International, resulting in net outstanding debt due to
International of approximately U.S. $20.4 million. The remaining debt bears
interest at 14.25% (or 16.5% in the event that the interest is paid in kind) is
subordinated to the Company's Senior Secured Notes (so long as the Senior
Secured Notes are outstanding), and is guaranteed by Ravelston and secured by
certain assets of Ravelston.

All aspects of the transaction relating to the changes in the debt
arrangements with NB Inc. and the subordination of this remaining debt have been
reviewed by the audit committee of the Board of Directors of International,
comprised entirely of independent directors.

HOLLINGER INTERNATIONAL INC.'S SIGNIFICANT TRANSACTIONS

SIGNIFICANT TRANSACTIONS IN 2000

On November 16, 2000, International and its affiliates, XSTM and the
Partnership ("Hollinger Group") completed the sale of most of International's
Canadian newspapers and related assets to CanWest. Included in the sale were the
following assets of the Hollinger Group:

- a 50% interest in National Post (International continued as managing
partner);

- the metropolitan and a large number of community newspapers in Canada
(including the Ottawa Citizen, The Vancouver Sun, The Province
(Vancouver), the Calgary Herald, the Edmonton Journal, The Gazette
(Montreal), The Windsor Star, the Regina Leader Post, the Star Phoenix
and the Times-Colonist (Victoria); and

- the operating Canadian Internet properties, including canada.com.

The sale resulted in the Hollinger Group receiving approximately $1.7
billion (U.S.$1.1 billion) cash, approximately $425 million (U.S.$277 million)
in voting and non-voting shares of CanWest at fair value (representing an
approximate 15.6% equity interest and 5.7% voting interest) and subordinated
non-convertible debentures of a holding company in the CanWest group at fair
value of approximately $697 million (U.S.$456 million). The aggregate sale price
of these properties at fair value was approximately $2.8 billion (U.S.$1.8
billion), plus closing adjustments for working capital at August 31, 2000 and
cash flow and interest for the period September 1 to November 16, 2000 which, in
total, approximated an additional U.S.$40.7 million at December 31, 2000.
U.S.$972 million of the cash proceeds from this sale were used to pay down
International's bank credit facility.

During 2000, International sold most of its remaining U.S. community
newspaper properties including 11 paid dailies, three paid non-dailies and 31
free distribution publications for total proceeds of approximately U.S.$215.0
million. Pre-tax gains totaling U.S.$91.2 million were recognized by
International on these sales.

In December 2000, International acquired four paid daily newspapers, one
paid non-daily and 12 free distribution publications in the Chicago suburbs, for
total consideration of U.S.$111.0 million.

In November 2000, XSTM converted a promissory note from the Partnership in
the principal amount of $225.8 million (U.S.$147.9 million) into 22,575,324
limited partnership units of the Partnership, thereby increasing its interest in
the Partnership to 87.0%.

On February 17, 2000, Interactive Investor International, in which
International owned 51.7 million shares or a 47.0% equity interest, completed
its initial public offering ("IPO"), issuing 52 million shares and raising
$181.0 million. The IPO reduced International's equity ownership interest to 33%
and resulted in a dilution gain of $25.8 million. Subsequently International
sold five million shares of its holding, reducing its equity interest to 28.5%
resulting in a pretax gain of $2.4 million in 2000. The balance of the
investment was sold in 2001 resulting in an additional pre-tax gain in 2001 of
$14.7 million.

SIGNIFICANT TRANSACTIONS IN 2001

In January 2001, the Partnership completed the sale of UniMedia Company to
Gesca Limited, a subsidiary of Power Corporation of Canada. The publications
sold represented the French language
41

newspapers of the Partnership, including three paid circulation dailies and 15
weeklies published in Quebec and Ontario. A pre-tax gain of approximately $75.1
million was recognized on this sale.

In two separate transactions in July and November 2001, International and
the Partnership completed the sale of most of International's remaining Canadian
newspapers to Osprey Media Group Inc. ("Osprey") for total sale proceeds of
approximately $255.0 million plus closing adjustments primarily for working
capital. Included in these sales were community newspapers in Ontario, such as
The Kingston Whig-Standard, The Sault Star, the Peterborough Examiner, the
Chatham Daily News and The Observer (Sarnia). Pre-tax gains of approximately
$1.5 million were recognized on these sales. The former Chief Executive Officer
of Hollinger L.P. is a minority shareholder of Osprey.

In August 2001, International entered into an agreement to sell to CanWest
its remaining 50% interest in the National Post. In accordance with the
agreement, its representatives resigned from their executive positions at the
National Post effective September 1, 2001. Accordingly, from September 1, 2001,
International had no influence over the operations of the National Post and
International no longer consolidates or records, on an equity basis, its share
of earnings or losses. The results of operations of the National Post are
included in the consolidated results to August 31, 2001. A pre-tax loss of
approximately $120.7 million was recognized on the sale.

In August and December 2001, International sold participation interests
("Participations") in $540.0 million (U.S. $350.0 million) and $216.8 million
(U.S.$140.5 million), respectively, principal amounts of debentures issued by a
subsidiary of CanWest to a special purpose trust ("Participation Trust"). Units
of the Participation Trust were sold by the Participation Trust to arm's-length
third parties. These transactions resulted in net proceeds of $621.8 million
(U.S.$401.2 million) and have been accounted for as sales of International's
CanWest debentures. The pre-tax loss on these transactions, including realized
holding losses on the underlying debentures, amounted to $97.4 million and has
been recognized in unusual items.

On November 28, 2001, International sold 27,405,000 non-voting shares in
CanWest (including 405,000 shares issued on conversion of 2,700,000 multiple
voting preferred shares) for total cash proceeds of approximately $271.3
million. The sale resulted in a realized pre-tax loss of $157.5 million, which
is included in unusual items.

SIGNIFICANT TRANSACTIONS IN 2002

On December 23, 2002, a wholly owned subsidiary of International,
Publishing and certain of Publishing's subsidiaries entered into an amended and
restated U.S. $310.0 million Senior Credit Facility with a group of financial
institutions arranged by Wachovia Bank N.A. (the "Senior Credit Facility").

The Senior Credit Facility consists of (a) a U.S. $45.0 million revolving
credit facility, which matures on September 30, 2008 (the "Revolving Credit
Facility"), (b) a U.S. $45.0 million Term Loan A, which matures on September 30,
2008 ("Term Loan A") and (c) a U.S. $220.0 million Term Loan B, which matures on
September 30, 2009 ("Term Loan B"). Publishing (a wholly owned direct
subsidiary) and Telegraph Group (a wholly owned indirect subsidiary) are the
borrowers under the Revolving Credit Facility and First DT Holdings Ltd.
("FDTH", a wholly owned indirect subsidiary in the United Kingdom) is the
borrower under Term Loan A and Term Loan B. The Revolving Credit Facility and
Term Loans bear interest at either the Base Rate (U.S.) or LIBOR, plus an
applicable margin. Cross-currency floating to fixed rate swaps from US$ LIBOR to
Sterling fixed rate have been purchased in respect of all amounts advanced under
the Senior Credit Facility. No amounts have currently been drawn under the
Revolving Credit Facility.

Publishing's borrowings under the Senior Credit Facility are guaranteed by
Publishing's material U.S. subsidiaries, while FDTH's and Telegraph Group's
borrowings under the Senior Credit Facility are guaranteed by Publishing and its
material U.S. and U.K. subsidiaries. International is also a guarantor of the
Senior Credit Facility. Publishing's borrowings under the Senior Credit Facility
are secured by substantially all of the assets of Publishing and its material
U.S. subsidiaries, a pledge of all of the capital stock of Publishing and its
material U.S. subsidiaries and a pledge of 65% of the capital stock of certain
foreign subsidiaries. FDTH's and Telegraph Group's borrowings under the Senior
Credit Facility are secured by

substantially all of the assets of Publishing and its material U.S. and U.K.
subsidiaries and a pledge of all of the capital stock of Publishing and its
material U.S. and U.K. subsidiaries. International's assets in Canada have not
been pledged as security under the Senior Credit Facility.

The Senior Credit Facility loan documentation requires Publishing to comply
with certain covenants which include, without limitation and subject to certain
exceptions, restrictions on additional indebtedness; liens; certain types of
payments (including without limitation, capital stock dividends and redemptions,
payments on existing indebtedness and intercompany indebtedness), and on
incurring or guaranteeing debt of an affiliate, making certain investments and
paying management fees; mergers, consolidations, sales and acquisitions;
transactions with affiliates; conduct of business, except as permitted; sale and
leaseback transactions; changing fiscal year; changes to holding company status;
creating or allowing restrictions on taking action under the Senior Credit
Facility loan documentation; and entering into operating leases, subject to
certain baskets and exceptions. The Senior Credit Facility loan documentation
also contains customary events of default.

On December 23, 2002, Publishing also issued U.S.$300.0 million aggregate
principal amount of 9% senior unsecured notes due 2010 (the "9% Senior Notes")
at par to certain qualified institutional buyers ("QIBs") pursuant to Rule 144A
under the Securities Act of 1933, as amended. The proceeds from the sale of the
9% Senior Notes, together with drawdowns under the Senior Credit Facility and
available cash balances, were used to redeem approximately U.S. $239.9 million
of Publishing's Senior Subordinated Notes due 2006 and approximately U.S. $265.0
million of Publishing's Senior Subordinated Notes due 2007, plus applicable
premium and accrued interest to the date of redemption, and to make a
distribution of U.S. $100.0 million to International. International used the
distribution (a) to repay all amounts borrowed by International on October 3,
2002 under its loan agreement with Trilon International Inc., (b) to retire the
equity forward purchase agreements between International and certain Canadian
chartered banks (the "Total Return Equity Swap") made as of October 1, 1998, as
amended, and (c) for other general corporate purposes.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenue and expenses, and the related disclosure of contingent assets and
liabilities. On an ongoing basis, we evaluate our estimates, including those
related to bad debts, investments, intangible assets, income taxes,
restructuring, pensions and other post-retirement benefits, contingencies and
litigation. We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from those estimates under different assumptions or
conditions.

We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.

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

We hold minority interests in both publicly traded and privately held
companies. Some of the publicly traded companies have highly volatile share
prices. We record an investment impairment charge when we believe an investment,
whether or nor publicly traded, has experienced a decline in value that is other
than temporary. Future adverse changes in market conditions or poor operating
results of underlying investments may not be reflected in an investment's
current carrying value, thereby requiring an impairment charge in the future.

We have significant goodwill recorded in our accounts. Certain of our
newspapers operate in highly competitive markets. We are required to determine
annually whether or not there has been any impairment in the value of these
assets. Changes in long-term readership patterns and advertising expenditures
may affect the value and necessitate an impairment charge. Certain indicators of
potential impairment that could impact

the Company's reporting units include, but are not limited to, the following:
(a) a significant long-term adverse change in the business climate that is
expected to cause a substantial decline in advertising spending, (b) a permanent
significant decline in a reporting units' newspaper readership, (c) a
significant adverse long-term negative change in the demographics of a reporting
units' newspaper readership and (d) a significant technological change that
results in a substantially more cost-effective method of advertising than
newspapers.

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 evaluated,
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. For the years ended
December 31, 2000 and 2001, the Company estimated its estimated long term rate
of return on plan assets at between 7.0% and 9.0% and for the year ended
December 31, 2002, the estimated long term rate of return on plan assets was
reduced to between 6.5% and 7.0%. In 2001 and 2002, however, the Company's
actual return on plan assets were losses of $67.9 million and $37.9 million,
respectively.

Unrecognized actuarial gains and losses in respect of pension and
post-retirement benefit plans are recognized by the Company over a period
ranging from 8 to 17 years, which represents the weighted average remaining
service life of the employee groups. Unrecognized actuarial gains and losses
arise from several factors, including experience, assumption changes in the
obligations and from the difference between expected returns and actual returns
on assets. At the end of 2002, the Company had unrecognized net actuarial losses
of $233.4 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 CICA Section 3461, "Employee
Future Benefits".

The estimated accumulated benefit obligations for the defined benefit plans
exceeded the fair value of the plan assets at December 31, 2002 and 2001, as a
result of the negative impact that declines in global capital markets and
interest rates had on the assets and obligations of the Company's pension plans.
During 2002, the Company made contributions of $20.2 million to the defined
benefit plans. Global capital market and interest rate fluctuations could impact
funding requirements for such plans. If the actual operations of the plans
differ from the assumptions, and the deficiency between the plans' assets and
obligations continues, additional Company contributions may be required. If the
Company is required to make significant contributions to fund the defined
benefit plans, reported results could be adversely affected, and the Company's
cash flow available for other uses may be reduced.

The Company recognizes a pension valuation allowance for any excess of the
prepaid benefit cost over the expected future benefit. Increases or decreases in
global capital markets and interest rate fluctuations could increase or decrease
any excess of the prepaid benefit cost over the expected future benefit
resulting in an increase or decrease to the pension valuation allowance. Changes
in the pension valuation allowance are recognized in earnings immediately.

Included in current liabilities are income taxes that have been provided on
gains on sales of assets computed on tax bases that result in higher gains for
tax purposes than for accounting purposes. Strategies have been and may be
implemented that may also defer and/or reduce these taxes, but the effects of
these strategies have not been reflected in the accounts.

CHANGES IN ACCOUNTING POLICIES

ACCOUNTING FOR INCOME TAXES

During 1999, the CICA mandated a change to the method of accounting for
income taxes that made Canadian GAAP more consistent with US GAAP. The change
was required to be adopted retroactively effective January 1, 2000 and the
Company chose to do so without restating prior years' financial statements.

The change required the Company to provide income taxes on the excess of book
value of intangible assets, other than goodwill, over the tax value of those
assets (book/tax differences). Over the years, the Company has recorded
significant amounts as circulation assets when businesses were purchased, which
has not resulted in amortizable tax cost. The adjustment made effective January
1, 2000 increased future income tax liabilities by $516.1 million and reduced
minority interest by $225.1 million with the net amount being recorded as an
increase in deficit in the amount of $291.0 million. The recording of these
amounts is not an indication that taxes will actually be paid, not does it
reflect the timing of any such payments.

EARNINGS PER SHARE

Effective January 1, 2001, the Company adopted, retroactively with
restatement, the recommendations of CICA Section 3500 with respect to earnings
per share. Under the revised standard, the treasury stock method is used instead
of the imputed earnings approach for determining the dilutive effect of options,
issued warrants or other similar instruments.

The change in the method of calculation of earnings per share did not
impact the previously reported basic earnings per share for 2000. Diluted
earnings per share for 2000 were increased from $4.48 per share to $5.05 per
share.

BUSINESS COMBINATIONS AND GOODWILL AND OTHER INTANGIBLES

In August 2001, the CICA issued Handbook Section 1581, "Business
Combinations" ("Section 1581") and Handbook Section 3062, "Goodwill and Other
Intangible Assets" ("Section 3062"). Section 1581 specifies criteria that
intangible assets acquired in a business combination must meet to be recognized
and reported separately from goodwill. Section 3062 requires that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead be tested for impairment at least annually by comparing the carrying
value to the respective fair value in accordance with the provisions of Section
3062. Section 3062 also requires that intangible assets with estimable useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment by assessing the
recoverability of the carrying value.

The Company adopted the provisions of Section 1581 as of July 1, 2001 and
Section 3062 as of January 1, 2002. Upon adoption of Section 3062, the Company
was required to evaluate its existing intangible assets and goodwill that were
acquired in purchase business combinations, and effective January 1, 2002, has
reclassified certain amounts previously ascribed to circulation to
non-competition agreements and subscriber and advertiser relationships, with the
balance to goodwill.

In connection with Section 3062's transitional goodwill impairment
evaluation, Section 3062 requires the Company to perform an assessment of
whether there is an indication that goodwill is impaired as of the date of
adoption. To accomplish this, the Company identified its reporting units and
determined the carrying value of each reporting unit by assigning the assets and
liabilities, including the existing goodwill and identifiable intangible assets,
to those reporting units as of January 1, 2002. The Company had until June 30,
2002 to determine the fair value of each reporting unit and compare it to the
carrying amount of the reporting unit. To the extent the carrying amount of a
reporting unit exceeded the fair value of the reporting unit, an indication
existed that the reporting unit goodwill may be impaired and the Company was
required to perform the second step of the transitional impairment test. The
second step was required to be completed no later than December 31, 2002. In the
second step, the Company compared the implied fair value of the reporting unit
goodwill with the carrying amount of the reporting unit goodwill, both of which
would be measured as of January 1, 2002. The implied fair value of goodwill was
determined by allocating the fair value of the reporting unit to all of the
assets (recognized and unrecognized) and liabilities of the reporting unit in a
manner similar to a purchase price allocation, in accordance with Section 1581.
The residual fair value after this allocation is the implied fair value of the
reporting unit goodwill.

At January 1, 2002, the Company had unamortized goodwill in the amount of
$905.6 million, which is no longer being amortized. This amount is before any
reduction for the transitional impairment noted below. This

change in accounting policy cannot be applied retroactively and the amounts
presented for prior periods have not been restated for this change.

The Company completed its transitional impairment testing for goodwill
under Section 3062 and recorded an impairment charge of $32.0 million in respect
of the goodwill for the Jerusalem Post operation. That loss, net of related
minority interest, amounted to $12.1 million and has been recorded as a charge
to the opening deficit as at January 1, 2002.

STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS

The Company and certain of its subsidiaries have employee stock-based
compensation plans. Until December 31, 2001, compensation expense was not
recognized on the grant or modification of options under these plans.

Effective January 1, 2002, the Company adopted Handbook Section 3870,
"Stock-based Compensation and Other Stock-based Payments" ("Section 3870").
Under Section 3870, the Company is required to account for, on a prospective
basis, all stock-based payments made by the Company to non-employees, including
employees of RCL, and employee awards that are direct awards of stock, call for
settlement in cash or other assets, or are stock appreciation rights that call
for settlement by the issuance of equity instruments, granted on or after
January 1, 2002, using the fair value-based method. For all other stock-based
payments, the Company has elected to use the settlement method of accounting
whereby cash received on the exercise of stock options is recorded as capital
stock.

Under the fair value-based method, stock options granted to employees of
RCL by the Company and its subsidiaries are measured at the fair value of the
consideration received, or the fair value of the equity instruments issued, or
liabilities incurred, whichever is more reliably measurable. Such fair value
determined is recorded as a dividend-in-kind with no resulting impact on the
Company's net earnings. Section 3870 will be applied prospectively to all
stock-based payments to non-employees granted on or after January 1, 2002. The
Company has not granted any stock options since the adoption of Section 3870.
During 2002, the only options granted by International which are impacted by the
adoption of 3870 are options granted to employees of RCL. The fair value of such
options must be recorded as a dividend by International, with no impact to the
Company's results. Consequently, there is no impact of adoption of this standard
on the Company's financial statements for the year ended December 31, 2002.

RECENT CANADIAN ACCOUNTING PRONOUNCEMENTS

FOREIGN CURRENCY AND HEDGING

In November 2001, the CICA issued Accounting Guideline 13, "Hedging
Relationships" ("AcG 13"). AcG 13 establishes new criteria for hedge accounting
and will apply to all hedging relationships in effect on or after July 1, 2003.
Effective January 1, 2004, the Company will reassess all hedging relationships
to determine whether the criteria are met or not and will apply the new guidance
on a prospective basis. To qualify for hedge accounting, the hedging
relationship must be appropriately documented at the inception of the hedge and
there must be reasonable assurance, both at the inception and throughout the
term of the hedge, that the hedging relationship will be effective. The Company
is in the process of formally documenting all hedging relationships and has not
yet determined whether any of its current hedging relationships will not meet
the new hedging criteria.

IMPAIRMENT OF LONG-LIVED ASSETS

asset to be held and used exceeds the projected future net cash flows expected
from its use and disposal, and is measured as the amount by which the carrying
amount of the asset exceeds its fair value. Section 3475 provides specific
criteria for and requires separate classification for assets held for sale and
for these assets to be measured at the lower of their carrying amounts and fair
value, less costs to sell. Section 3475 also broadens the definition of
discontinued operations to include all distinguishable components of an entity
that will be eliminated from operations. Section 3063 is effective for the
Company's 2004 fiscal year; however, early application is permitted. Revised
Section 3475 is applicable to disposal activities committed to by the Company
after May 1, 2003; however, early application is permitted. The Company expects
that the adoption of these standards will have no material impact on its
financial position, results of operations or cash flow at this time.

DISCLOSURE OF GUARANTEES

In February 2003, the CICA issued Accounting Guideline 14, "Disclosure of
Guarantees" ("AcG 14"). AcG 14 requires certain disclosures to be made by a
guarantor in its interim and annual financial statements for periods beginning
after January 1, 2003. The Company has determined the impact of these new
disclosures and included such information in note 27h) to its audited
consolidated financial statements included elsewhere in this prospectus.

RECENT US ACCOUNTING PRONOUNCEMENTS

DEBT EXTINGUISHMENTS

In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections ("SFAS 145"). The Statement
addresses, among other things, the income statement treatment of gains and
losses related to debt extinguishments, requiring that such expenses no longer
be treated as extraordinary items, unless the items meet the definition of
extraordinary per APB Opinion No. 30, Reporting the Results of Operations --
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions. Upon adoption, any
gain or loss on extinguishment of debt that was classified as an extraordinary
item in prior periods presented, that does not meet the criteria in APB Opinion
No. 30 for classification as an extraordinary item, is required to be
reclassified. The Company has adopted this Statement effective January 1, 2002
for US GAAP purposes and retroactively classified net losses on repayment of
debt previously classified as extraordinary items.

COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES

In July 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, Accounting for Costs Associated with Exit or Disposal Activities ("FAS
146"). FAS 146 addresses financial accounting and reporting for costs associated
with exit or disposal activities, and is effective for exit or disposal
activities initiated after December 31, 2002. FAS 146 nullifies Emerging Issues
Task Force Issue No. 94-3 ("EITF 94-3") Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in Restructuring). The principal difference between FAS
146 and EITF 94-3 relates to the recognition of a liability for a cost
associated with an exit or disposal activity. FAS 146 requires that the cost
associated with an exit or disposal activity be recognized when the liability is
incurred, whereas under EITF 94-3 the liability was recognized at the date of an
entity's commitment to an exit plan. The Company is currently assessing the
impact of FAS 146 on its financial position and results of operations.

GUARANTEES

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"), which requires certain
disclosures to be made by a guarantor in its interim and annual financial
statements for periods ending after December 15, 2002 about its obligations
under guarantees. FIN 45 also requires the recognition

of a liability by a guarantor at the inception of certain guarantees entered
into or modified after December 31, 2002. FIN 45 requires the guarantor to
recognize a liability for the non-contingent component of certain guarantees;
that is, it requires the recognition of a liability for the obligation to stand
ready to perform in the event that specified triggering events or conditions
occur. The initial measurement of this liability is the fair value of the
guarantee at inception. The Company included the disclosure of its guarantee in
note 27h) of its audited consolidated financial statements included elsewhere in
this prospectus.

VARIABLE INTEREST ENTITIES

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("VIE's") ("FIN 46") which requires that companies
that control another entity through interests other than voting interest should
consolidate the controlled entity. In the absence of clear control through a
voting equity interest, a company's exposure (variable interests) to the
economic risk and the potential rewards from a VIE's assets and activities are
the best evidence of a controlling financial interest. VIE's created after
January 31, 2003 must be consolidated immediately. VIE's existing prior to
February 1, 2003 must be consolidated by the Company commencing with its third
quarter 2003 financial statements. The Company has not yet determined whether it
has any VIE's which will require consolidation.

LIABILITIES AND EQUITY

On May 15, 2003, the FASB issued Statement No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity. The
Statement requires issuers to classify as liabilities (or assets in some
circumstances) three classes of freestanding financial instruments that embody
obligations for the issuer.

Generally, the Statement is effective for financial instruments entered
into or modified after May 31, 2003 and is otherwise effective at the beginning
of the first interim period beginning after June 15, 2003. The Company will
adopt the provisions of the Statement on July 1, 2003.

To date, the Company has not entered into any financial instruments within
the scope of the Statement. The Company is currently assessing the impact of the
new standard.

DERIVATIVES AND HEDGING ACTIVITIES

In April 2003, the FASB issued SFAS No. 149, "Amendment of SFAS No. 133 on
Derivative Instruments and Hedging Activities". SFAS 149 amends and clarifies
accounting for SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities". In particular, it clarifies under what circumstances a contract
with an initial net investment meets the characteristics of a derivative as
discussed in SFAS No. 133; clarifies when a derivative contains a financing
component; amends the definition of an underlying to conform it to the language
used in the FASB Interpretation No. 45; and amends certain other existing
pronouncements.

SFAS No. 149 is effective for contracts entered into or modified after June
30, 2003 and for hedging relationships designated after June 30, 2003. The
Company will adopt the provisions of SFAS No. 149 for U.S. GAAP purposes in the
quarter ending June 30, 2003 and is currently assessing the impact, if any, that
the adoption of SFAS No. 149 will have on its results of operations and
financial position.

CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES FOR THE INTERIM PERIOD

The interim consolidated financial statements of the Company as at June 30,
2003, and for the six month periods ended June 30, 2003 and 2002, which are
incorporated by reference, have been prepared in accordance with Canadian GAAP
for interim financial reporting. Such principles differ in certain respects from
U.S. GAAP. For information on material differences between Canadian GAAP and
U.S. GAAP, reference should be made to note 26, Reconciliation with United
States Generally Accepted Accounting Principles included in the Company's
audited consolidated financial statements, which is included in this prospectus.

The financial information presented in the interim consolidated financial
statements and in this reconciliation to U.S. GAAP is unaudited. However, in the
opinion of management such information reflects all adjustments, consisting
solely of normal recurring adjustments, which are necessary to a fair statement
of the results for the interim periods presented.

Our statement of operations prepared under Canadian GAAP does not present
operating income as is required under US GAAP. The following are the significant
differences between Canadian and US GAAP which would impact any assessment of
our US GAAP operating income:

(i) We present as unusual items certain operating expenses, which are of
an infrequent nature, including startup costs associated with new
printing facilities as well as certain pensions, benefit and
redundancy costs. Such costs are presented as operating expenses
under US GAAP.

(ii) We proportionately consolidated the operating results of our joint
ventures under Canadian GAAP. Under US GAAP joint ventures are
required to be accounted for using the equity method. While this GAAP
difference does not affect our consolidated net earnings, it does
increase operating revenues and operating expenses from those that
would be reported under US GAAP.

(iii) We report investment and interest income as revenue under Canadian
GAAP, whereas such income is required to be reported as non-operating
income under US GAAP.

There are also a number of additional differences between Canadian and US
GAAP which would impact our non-operating income, including the following:

(i) We are required under Canadian GAAP to treat the dividends paid on
our Series II and Series III mandatory redeemable preference shares
as interest expense. Under US GAAP, such dividends are charged to
retained earnings which would result in lower interest expense under
US GAAP.

(ii) We are not required to mark-to-market International's forward
purchase contracts under Canadian GAAP. The unrealized losses on
these contracts are required to be expensed under US GAAP.

(iii) Our dilution gains reported under Canadian GAAP are lower than those
which would be reported under US GAAP principally as a result of the
capitalization of certain operating costs incurred to improve the
long-term readership of our publications under Canadian GAAP.

(iv) Our writedown of goodwill resulting from impairment testing completed
upon the adoption of new accounting standards is required to be
recorded as a charge to the opening deficit as at January 1, 2002.
Under US GAAP, such writedown is required to be reflected in the
consolidated statement of earnings as a cumulative effect of a change
in accounting principle, resulting in lower US GAAP net earnings.

(v) Under Canadian GAAP, certain previously deferred foreign exchange
losses were required to be recognized due to a reduction in the net
investment in a foreign subsidiary. Such losses must remain deferred
under US GAAP, resulting in higher earnings under US GAAP.

(vi) Effective March 10, 2003, the Company was required to recognize in
earnings, under Canadian GAAP, the mark-to-market and foreign exchange
gains in respect of the Series II preference shares. Under US GAAP,
such amounts must be charged to shareholders' deficiency and would not
be recognized in earnings.

In addition to the above items, under U.S. GAAP, the retractable common
shares do not qualify as permanent equity due to the retractable features, being
effective at the option of the holder. As a result, retractable common shares
are classified outside shareholders' deficiency under U.S. GAAP.

CONSOLIDATED FINANCIAL INFORMATION

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2003 COMPARED TO JUNE
30, 2002

NET EARNINGS (LOSS)

Net earnings for the six months ended June 30, 2003 amounted to $32.7
million or earnings of $1.00 per retractable common share compared to a net loss
of $19.7 million or a loss of $0.62 per retractable common share in 2002. The
results of both years have been significantly impacted by foreign currency gains
and losses and unusual items each of which are discussed below.

SALES REVENUE

Sales revenue for the six months ended June 30, 2003 was $783.9 million
compared with $812.8 million in 2002, a decrease of $28.9 million or 3.6%. In
Canadian dollars sales revenue at the Chicago Group decreased $21.4 million and
at the U.K. Newspaper Group decreased $7.1 million. An increase in sales revenue
at the Chicago Group, in local currency, year over year of approximately US$3.8
million or 1.7% was more than offset by the weakening of the U.S. dollar
compared to the Canadian dollar. Sales revenue at the U.K. Newspaper Group, in
local currency, decreased year over year by approximately L8.2 million or 4.6%.
This decrease in sales revenue was partly offset by the strengthening of the
pound sterling compared with the Canadian dollar on average, primarily in the
first quarter of 2003 compared with the first quarter of 2002.

COST OF SALES AND EXPENSES

Cost of sales and expenses for the six months ended June 30, 2003 were
$700.9 million compared with $716.2 million in 2002, a decrease of $15.3 million
or 2.1%. In Canadian dollars, cost of sales and expenses at the Chicago Group
decreased $27.5 million and at the U.K. Newspaper Group increased $10.3 million.
The decrease at the Chicago Group resulted from a reduction of cost of sales and
expenses in local currency of approximately US$3.4 million or 1.8% and the
impact of the weakening of the U.S. dollar compared to the Canadian dollar. The
increase in cost of sales and expenses at the U.K. Newspaper Group, in local
currency, of L0.4 million or 0.3% has been further increased by the
strengthening of the pound sterling compared to the Canadian dollar.

INVESTMENT AND OTHER INCOME

In the six months ended June 30, 2003, investment and other income amounted
to $13.6 million compared with $15.7 million in 2002, a decrease of $2.1
million. The year to date decrease results primarily from lower interest income
at International in the first quarter of 2003 due to lower average cash balances
on hand in the first quarter of 2003 compared with 2002.

INTEREST EXPENSE

In the six months ended June 30, 2003, interest expense amounted to $46.0
million compared with $62.6 million in 2002, a decrease of $16.6 million. The
decreases are primarily the result of lower average interest rates on long-term
debt at International in the second quarter and the six months ended June 30,
2003. The contractual rates of interest on long-term debt at International were
reduced through the use of a fixed to floating interest rate swap on US$250.0
million of Publishing's 9% Senior Notes in part offset by a cross-currency
floating to fixed rate swap on Publishing's Senior Credit Facility. Interest
costs were further reduced as a result of marking to market value of the fixed
to floating interest rate swap.

The decreases at International were partly reduced by increased interest
expense at the Company in both the quarter and year to date as a result of both
a higher average debt level than in 2002 and a higher fixed interest rate. In
March 2003, the Company issued US$120.0 million of 11 7/8% Senior Secured Notes,
the proceeds of which were used to repay bank indebtedness, to repay amounts due
to RCL, to advance a subordinated loan to RCL and for general corporate
purposes.

NET FOREIGN CURRENCY GAINS

Net foreign currency gains in the six months ended June 30, 2003 were
$126.9 million compared to losses of $5.0 million in 2002.

Net foreign currency gains in 2003 included a net gain on International's
Participation Trust obligation, losses on the marking to market of
International's cross currency swaps and gains on the marking to market of the
Company's U.S. dollar Senior Secured Note obligation. Net foreign currency
losses for the six months ended June 30, 2002, included a loss on the
International Participation Trust obligation.

UNUSUAL ITEMS

Unusual items, net in the six months ended June 30, 2003 resulted in a loss
of $37.2 million compared to a loss of $41.4 million in 2002. Unusual items in
2003 included the $57.4 million write-off of the premium and unamortized
deferred finance costs related to the January 2003 retirement of Senior
Subordinated Notes of Publishing, partly reduced by a $12.4 million net gain on
the marking to market of the Series II preference shares and a $4.5 million gain
on the sale and dilution of the Company's investment in International. As at
December 31, 2002, the Company had $12.0 million of cumulative deferred
unrealized gains on the Series II preference shares which had previously been
deferred as the shares were designated as a hedge of the Company's investment in
shares of International Class A common stock and which the Company intended to
deliver to complete future Series II preference share retractions. Due to the
March 2003 sale of shares of International Class A common stock in settlement of
amounts owing to International and the pledging of International shares under
the Trust Indenture for the Company's Senior Secured Notes, the Series II
preference shares are no longer a hedge and previously deferred gains and gains
or losses arising in the quarter, have been recognized in income. Unusual items
in the six months to June 30, 2002 included the write-off of the premium and
unamortized deferred finance costs related to the March 2002 retirement of
Publishing's Senior Notes due 2005 in the amount of $56.3 million, partly offset
by an $18.8 million gain on the sale of and dilution of the Company's investment
in International.

INCOME TAX EXPENSE OR RECOVERY

In the six months ended June 30, 2003, income tax expense was $35.4 million
computed on earnings before income taxes and minority interest of $96.9 million.
The tax provision is lower than expected primarily as a result of non-taxable
unrealized gains on the Series II preference shares recognized in the first
quarter of 2003. In the six months ended June 30, 2002, the loss before income
taxes and minority interest of $41.3 million was net of a non-taxable gain on
the dilution of the Company's investment in International and the tax recovery
of $13.8 million was net of an income tax expense related to an adjustment of
intercompany interest.

MINORITY INTEREST

In the six months ended June 30, 2003 minority interest amounted to $28.8
million compared with a recovery of $7.7 million in 2002. Minority interest
primarily represents the minority share of the net earnings of International and
the net earnings of Hollinger Canadian Newspapers, Limited Partnership
("Hollinger L.P."). The minority interest recovery in the six months ended June
30, 2002 primarily results from the minority interest in International's net
loss.

RESULTS OF OPERATIONS BY SEGMENT FOR THE SIX MONTHS ENDED JUNE 30, 2003 COMPARED
TO JUNE 30, 2002

Chicago Group

Sales revenue for the six months ended June 30, 2003 was $321.9 million
compared with $343.3 million in 2002, a decrease of $21.4 million or 6.2%. The
decreases result entirely from a weaker U.S. dollar compared to the Canadian
dollar on average year to date 2003 compared with 2002. In the six months ended
June 30, 2003, in U.S. dollars, sales revenue was US$222.0 million compared with
US$218.2 million in 2002, an increase of US$3.8 million or 1.7%.

In the six months ended June 30, 2003, in U.S. dollars, advertising revenue
was US$172.2 million compared with US$167.3 million in 2002, an increase of
US$4.9 million or 2.9%. Retail advertising increased over 2002 year to date and
national advertising increased in the second quarter.

In the six months ended June 30, 2003, in U.S. dollars, circulation revenue
was US$43.8 million compared with US$45.7 million in 2002, a decrease of US$1.9
million or 4.2%. The decrease in circulation revenue continues to be
attributable to price discounting, particularly in the home delivery market.
Although home delivery circulation has increased, single copy sales have
declined from the prior year in large part as a consequence of free circulation
papers offered by the Chicago Group and its primary competitor.

Cost of sales and expenses in the six months ended June 30, 2003 were
$268.3 million compared with $295.8 million in 2002, a decrease of $27.5 million
or 9.3%. The decreases primarily result from a weaker U.S. dollar compared to
the Canadian dollar on average year to date 2003 compared with 2002. In the six
months ended June 30, 2003 cost of sales and expenses were US$184.5 million
compared with US$187.9 million in 2002, a decrease of US$3.4 million or 1.8%.

Newsprint expense in the six months ended June 30, 2003 was US$29.6 million
compared with US$32.3 million in 2002, a decrease of US$2.7 million. Reflected
in newsprint cost is a book to physical inventory adjustment and a favourable
recovery of an inventory provision for unusable newsprint which reduced
newsprint expense for each of the three and six months ended June 30, 2003 by
US$2.2 million.

Compensation costs in the six months ended June 30, 2003 were US$85.3
million compared with US$85.7 million in 2002, a decrease of US$0.4 million.
Modest declines in wages and salaries were partially offset by increased
employee benefit costs for the six months ended June 30, 2003.

Other operating costs in the six months ended June 30, 2003 were US$69.5
million compared with US$69.9 million in 2002, a decrease of US$0.4 million or
0.6%. The decrease in other operating costs resulted from general cost
reductions across all areas.

Depreciation and amortization in the six months ended June 30, 2003 was
US$13.3 million compared with US$12.4 million in 2002, an increase of US$0.9
million.

Operating income in the six months ended June 30, 2003 was $34.3 million
compared with $28.0 million in 2002, an increase of $6.3 million or 22.5%. The
increased operating income results from improvements in local currency operating
income offset in part by the impact of a weaker U.S. dollar compared to the
Canadian dollar on average year to date 2003 compared with 2002. In local
currency, operating income in the six months ended June 30, 2003 was US$24.2
million compared with US$17.9 million in 2002, an increase of US$6.3 million.
The increases result primarily from higher revenues combined with lower
newsprint, compensation and other operating costs.

U.K. Newspaper Group

Sales revenue for the six months ended June 30, 2003 was $397.3 million
compared with $404.4 million in 2002, a decrease of $7.1 million or 1.8%. In the
six months ended June 30, 2003 sales revenue in pounds sterling was L169.8
million compared with L178.0 million in 2002, a decrease of L8.2 million or
4.6%. The year to date decrease in sales revenue in local currency was in part
offset by the strengthening of the pound sterling compared with the Canadian
dollar particularly in the first quarter of 2003 compared with the first quarter
of 2002.

In the six months ended June 30, 2003, advertising revenue, in local
currency, was L101.7 million compared with L111.5 million in 2002, a decrease of
L9.8 million or 8.8%. Recruitment advertising revenue decreased by 28.9% and
display advertising revenue decreased 10.0% in the second quarter year over year
due to the continuing advertising recession in the U.K.

For the six months ended June 30, 2003, circulation revenue in local
currency, was L50.9 million compared with L45.2 million in 2002, an increase of
L5.7 million or 12.6%. Circulation volume has declined during 2003 from that in
the prior year period as a result of management's decision to reduce both bulk
and foreign print sales and to reinvest the significant associated costs in
developing and marketing the newspapers.

In spite of the planned reductions in circulation, The Daily Telegraph had an
average daily circulation of 915,000 in June. The declines were compensated for
by the impact of a price increase implemented in September of 2002 and, as price
increases are only implemented as existing voucher programs expire, the
continuing impact of a September 2001 price increase. In addition, circulation
revenue in the second quarter of 2002 was reduced by a L2.2 million provision
following a revised estimate of expected redemption rates for vouchers issued
principally prior to second quarter 2002 to attract new sales.

In the six months ended June 30, 2002 cost of sales and expenses, were
$344.2 million compared with $333.9 million in 2002, an increase of $10.3
million. In local currency costs, for the six months ended June 30, 2003, cost
of sales and expenses were L147.0 million compared with L146.6 million in 2002,
and increase of L0.4 million or 0.3%.

In the six months ended June 30, 2003, newsprint costs, in local currency,
were L23.6 million compared with L27.7 million in 2002, a decrease of L4.1
million or 14.8%. The decrease in the six months results from a 7.8% reduction
in consumption, due to lower pagination as a result of lower advertising revenue
and the reduction of bulk and foreign production, and a 7.7% reduction in the
average price per tonne of newsprint.

In the six months ended June 30, 2003, compensation costs, in local
currency, were L32.4 million compared with L30.9 million in 2002, an increase of
L1.5 million or 4.9%.

In the six months ended June 30, 2003, other operating costs in local
currency, were L91.0 million compared with L88.1 million in 2002, an increase of
L2.9 million or 3.3%. The year over year increase in costs for the six months
ended June 30, 2003 relates primarily to increased marketing activities in the
first quarter.

Depreciation and amortization for the six months ended June 30, 2003 was
L8.0 million, compared with L9.0 million in 2002.

Operating income in the six months ended June 30, 2003 was $34.6 million
compared with $50.1 million in 2002, a decrease of $15.5 million or 30.9%. In
local currency, operating income in the six months ended June 30, 2003 was L14.7
million compared with L22.3 million in 2002, a decrease of L7.6 million.

Canadian Newspaper Group

Sales revenue for the six months ended June 30, 2003 was $57.0 million
compared with $54.0 million in 2002, an increase of $3.0 million or 5.6%. For
the six months ended June 30, 2003 the operating loss was $2.2 million compared
with an operating loss of $1.3 million in 2002. The results for the Canadian
Newspaper Group include pension and post-retirement obligation expense of $3.8
million for the six months ended June 30, 2003 and $3.6 million for the same
period in 2002. These expenses are in respect of employee benefit costs of
retired former employees of Southam Inc. and Hollinger L.P. for which the
obligations were retained when the majority of the Canadian operations were sold
to CanWest Global Communications Corp. ("Canwest") in 2000.

Community Group

Sales revenue and operating income for the six months ended June 30, 2003
was $7.8 million and a loss of $3.8 million compared with $11.2 million and a
loss of $2.9 million in 2002. The decline in sales revenue and the increase in
operating losses are primarily attributable to the loss of business under a
contract for the printing of a commercial telephone directory.

CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES FOR THE ANNUAL
STATEMENTS

We prepare our consolidated financial statements in accordance with
Canadian GAAP. GAAP in the United States (US GAAP) differs in certain respects
from Canadian GAAP. The areas of material differences and their impact on our
consolidated financial statements are described in note 26 to the audited
consolidated financial statements, included elsewhere in this prospectus.

i) Prior to January 1, 2002, the Company capitalized certain operating
costs incurred to improve the long-term readership of our
publications ("betterments") and amortized such costs on a straight-
line basis over their useful lives. Capitalization of such operating
costs is not permitted under US GAAP, which would result in higher
operating costs, partially offset by lower amortization expense under
US GAAP.

ii) The Company presented as unusual items certain operating expenses,
which are of an infrequent nature, including start up costs
associated with new printing facilities as well as certain pension,
benefit and redundancy costs. Such costs are presented as operating
expenses under US GAAP.

iii) The Company proportionately consolidated the operating results of our
joint ventures under Canadian GAAP. Under US GAAP joint ventures are
required to be accounted for using the equity method. While this GAAP
difference does not affect our consolidated net earnings, it does
increase operating revenues and operating expenses from those that
would be reported under US GAAP.

iv) The Company reported investment and interest income as revenue under
Canadian GAAP, whereas such income is required to be reported as
non-operating income under US GAAP.

v) On January 1, 2000, upon adoption of a new income tax standard under
Canadian GAAP, the Company elected not to restate our prior year's
results. As a result, under Canadian GAAP the Company reported a
charge to deficit. Under US GAAP this has been reflected as additional
goodwill upon recognition of deferred income tax liabilities on
business acquisitions. Accordingly, the Company had higher goodwill
amortization (for periods prior to January 1, 2002) under US GAAP.

There are also a number of additional differences between Canadian and US
GAAP which would impact the Company's non-operating income, including the
following:

i) The Company is required under Canadian GAAP to treat the dividends
paid on our Series II and Series III redeemable preference shares as
interest expense. Under US GAAP, such dividends are charged to
retained earnings which would result in lower interest expense under
US GAAP.

ii) The Company is not required to mark-to-market International's forward
purchase contracts under Canadian GAAP. The unrealized losses on
these contracts are required to be expensed under US GAAP. In
December 2002, these contracts were settled and the losses realized.

iii) Dilution gains reported under Canadian GAAP are lower than those
which would be reported under US GAAP principally as a result of the
capitalization of betterments under Canadian GAAP.

iv) Gains on sales of businesses reported under Canadian GAAP are higher
than those which would be reported under US GAAP principally as a
result of additional goodwill recorded under US GAAP in connection
with income taxes on business acquisitions noted under item (v)
above.

v) Canadian GAAP requires recognition of a pension valuation allowance
for any excess of the benefit expense over the expected future
benefit. Changes in the pension valuation allowance are recognized in
earnings under Canadian GAAP immediately. US GAAP does not permit the
recognition of pension valuation allowances.

vi) Under U.S. GAAP, the transitional provisions of new accounting
standards for goodwill require the write-down resulting from the
impairment test, upon adoption on January 1, 2002, to be reflected in
the consolidated statement of earnings as a cumulative effect of a
change in accounting principle. However, Canadian GAAP requires the
same loss to be recorded as a charge to the opening deficit as at
January 1, 2002.
54

vii) Under Canadian GAAP, the Company was required to treat the transfer
in 1997 of the Canadian newspapers to International as a disposition
at fair value. This resulted in the recognition of a gain to the
extent there is a minority interest in International.

U.S. GAAP requires that the transfer of the Canadian newspapers to a
subsidiary company be accounted for at historical values using "as-if" pooling
of interests accounting. As a result, the revenues and expenses for the periods
prior to January 1, 1997 would be restated to give effect to the transfer of the
Canadian newspapers to International and the gross gain of $114,000,000, prior
to deducting expenses on the sale of the properties and the increase in
intangible assets of an equivalent amount, would not have been recorded for U.S.
GAAP purposes. However, such gain would be recognized for U.S. GAAP purposes as
the underlying Canadian newspaper operations were sold to third parties, or
there was a further dilution in the Company's interest in International.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2002 COMPARED TO 2001

Net Loss. The net loss in the year ended December 31, 2002 amounted to
$88.6 million or a loss of $2.76 per retractable common share compared to a net
loss of $131.9 million or a loss of $3.91 per retractable common share in 2001.
The results of both periods are impacted by a large number of unusual items
which are discussed below.

Sales Revenue. Sales revenue in 2002 was $1,628.2 million compared with
$1,822.1 million in 2001, a decrease of $193.9 million. The reduction in sales
revenue is primarily due to the sale of most of the remaining Canadian newspaper
properties in July and November 2001 and the sale of the remaining 50% interest
in the National Post in August 2001. Declines in U.K. advertising revenue in
local currency were partly offset by the strengthening of the pound sterling.
Sales revenue in local currency, for the Chicago Group was flat year over year.

Cost of Sales and Expenses. Cost of sales and expenses in 2002 were
$1,453.9 million compared with $1,730.1 million in 2001, a decrease of $276.2
million. The decrease in cost of sales and expenses resulted primarily from the
disposition of Canadian newspaper properties in 2001 as well as lower newsprint
costs, lower compensation costs and general cost reductions at the Chicago Group
and the U.K. Newspaper Group, primarily as a result of cost containment
strategies. Lower cost of sales and expenses at the U.K. Newspaper Group, in
local currency, were partially offset by the effect of the strengthening of the
pound sterling.

Depreciation and Amortization. Depreciation and amortization in 2002
amounted to $88.2 million compared with $144.7 million in 2001, a reduction of
$56.5 million. The reduction results from both the disposition of Canadian
properties in 2001 and the adoption on January 1, 2002 of CICA Handbook Section
3062, which resulted in goodwill not being amortized subsequent to January 1,
2002. In the year ended December 31, 2001, amortization of goodwill and
intangible assets, including amortization of goodwill and intangible assets in
respect of properties sold during 2001 which were not being amortized in 2002,
approximated $53.3 million.

Investment and Other Income. Investment and other income in 2002 amounted
to $29.7 million compared with $97.3 million in 2001, a decrease of $67.6
million. Investment and other income in 2001 included interest on debentures
issued by a subsidiary of CanWest and a dividend on CanWest shares. In September
2001, CanWest temporarily suspended its semi-annual dividend. In the latter part
of 2001, all of the CanWest shares were sold and participation interests were
sold to the Hollinger Participation Trust in respect of nearly all of the
CanWest debentures, resulting in significantly lower interest and dividend
income in 2002. Most of the proceeds from the disposal of the CanWest
investments were retained as short-term investments at low rates of interest
until the end of the first quarter of 2002 when a portion of International's
long-term debt was retired.

Interest Expense. Interest expense for 2002 was $121.7 million compared
with $177.9 million in 2001, a reduction of $56.2 million. The reduction mainly
results from lower average debt levels in 2002 compared with 2001. The Company
reduced its revolving bank credit facility in 2001 by $173.4 million and by
$38.5 million in January 2002 and International reduced its long-term debt
beginning in March 2002 by U.S. $290.0 million. In addition, since both the
Company's Series II and Series III preference shares are financial liabilities,
dividends on such shares are included in interest expense. Dividends paid on the
Series II preference shares were lower in 2002 than in 2001, as a result of
Series II preference share retractions and International reducing its dividend
on shares of Class A common stock, on which the Series II preference dividends
are based.

Net Loss in Equity-Accounted Companies. Net loss in equity-accounted
companies amounted to $1.2 million in 2002 compared with $18.6 million in 2001.
Net loss in equity-accounted companies in 2001 primarily represented an
equity-accounted loss in Interactive Investor International, which was sold
during the third quarter of 2001.

Net Foreign Currency Losses. Net foreign currency losses increased from a
loss of $7.5 million in 2001 to a loss of $19.7 million in 2002. Net foreign
currency losses in 2002 includes a $10.4 million net loss on amounts sold to the
Hollinger Participation Trust and a $5.7 million loss on a cross currency swap.

Unusual Items. Unusual items in 2002 amounted to a loss of $62.6 million
compared with a loss of $295.4 million in 2001. Unusual items in 2002 included
the loss on retirement of Publishing's Senior Notes in the amount of $56.3
million, a $63.6 million write-off of investments, and a $43.3 million loss on
the termination of the Total Return Equity Swap, partly reduced by a $20.1
million gain on the dilution of the Company's investment in International, a net
$44.5 million foreign exchange gain on the reduction of net investments in
foreign subsidiaries and a $34.4 million reduction of the pension valuation
allowance. Unusual items in 2001 included a $240.1 million loss on sales of
investments, a $23.0 million loss on sale of publishing interests, a $79.9
million loss on write-off of investments and a $29.6 million realized loss on
the Total Return Equity Swap, partly offset by a $59.4 million gain on the sale
of and dilution of the Company's investment in International and a $58.7 million
reduction of the pension valuation allowance.

Income Taxes. In 2002, income tax expense was $124.0 million computed on a
loss before income taxes and minority interest of $89.5 million primarily as a
result of non-deductible expenses including the settlement of the Total Return
Equity Swap and an increase in the tax valuation allowance of $74.0 million. In
2001, the income tax recovery was $89.5 million on a loss before income taxes
and minority interest of $454.9 million in part due to the impact of losses at
the National Post for which a tax benefit was not recorded.

Minority Interest. Minority interest in the year ended December 31, 2002
was a recovery of $124.9 million compared to a recovery of $233.5 million in
2001. Minority interest primarily represents the minority share of the net loss
of International and the net earnings of the Partnership. In 2001, minority
interest also included the minority's 50% share of the National Post net loss to
August 31, which totaled $28.7 million.

RESULTS OF OPERATIONS BY SEGMENT FOR THE YEAR ENDED DECEMBER 31, 2002 COMPARED
TO 2001

Chicago Group

Sales revenue in 2002 was $693.7 million compared with $686.3 million in
2001, an increase of $7.4 million or 1.1%. The increase results entirely from
the slightly stronger United States dollar compared to the Canadian dollar on
average in 2002 compared with 2001. In U.S. dollars, sales revenue was U.S.
$441.8 million in 2002, a slight decrease compared with U.S. $442.9 million in
2001. Advertising revenue in 2002 was U.S. $341.3 million compared with
U.S.$338.5 million in 2001, an increase of U.S. $2.8 million or 0.8%.
Circulation revenue in 2002 was U.S. $89.4 million compared with U.S. $92.7
million in 2001, a decrease of U.S. $3.3 million or 3.6%. The decrease was
primarily the result of price discounting.

Cost of sales and expenses in 2002 were $591.6 million compared with $623.0
million in 2001, a decrease of $31.4 million or 5.0%. In U.S. dollars, cost of
sales and expenses were U.S. $376.7 million in 2002 compared with U.S. $402.1
million in 2001, a decrease of U.S. $25.4 million or 6.3%. Cost savings were
achieved across the board with reductions in compensation costs, in newsprint
costs and in other operating
56

costs. Reductions in compensation and other costs are the result of cost
management initiatives undertaken during the course of 2002 and 2001; however,
the reduction in newsprint cost was primarily the result of newsprint price
decreases. The average newsprint cost per tonne was approximately 21% lower in
2002 than in 2001.

Depreciation and amortization in 2002 was $42.4 million compared with $53.5
million in 2001, a reduction of $11.1 million. The reduction is largely the
result of the adoption, effective January 1, 2002 of Section 3062, which
resulted in goodwill and intangible assets with indefinite useful lives no
longer being amortized. Amortization of approximately $15.3 million in 2001
related to such assets.

Operating income in 2002 totaled $59.7 million compared with $9.8 million
in 2001, an increase of $49.9 million. This increase is the result of lower
newsprint, compensation and other operating costs in 2002 compared with 2001 and
lower amortization expense resulting from the adoption of new accounting
standards for goodwill and intangible assets.

U.K. Newspaper Group

In 2002, sales revenue for the U.K. Newspaper Group was $804.6 million
compared with $801.1 million in 2001, an increase of $3.5 million or 0.4%. In
pounds sterling, sales revenue was L341.5 million in 2002 compared with L358.9
million in 2001, a decrease of L17.4 million or 4.8%. In 2002 compared to 2001,
the pound sterling on average strengthened compared with the Canadian dollar.
Advertising revenue at the Telegraph in 2002 was L211.0 million compared with
L228.7 million in 2001, a decrease of L17.7 million or 7.7%. Advertising
revenues were lower in the recruitment and financial areas. Circulation revenue
in 2002 was L93.6 million at the Telegraph compared with L94.5 million in 2001.
Lower revenue from both a change in the mix of sales between single copy and
subscribers and lower overall average circulation in 2002 compared with 2001 was
partly offset by increased revenue resulting from single copy cover price
increases of 5 pence in each of September 2001 and 2002 in respect of The Daily
Telegraph.

Total cost of sales and expenses in the year ended December 31, 2002 were
$693.9 million compared with $703.3 million in 2001, a decrease of $9.4 million
or 1.3%. In local currency, cost of sales and expenses in 2002 approximated
L294.3 million compared with L314.9 million in 2001, a decrease of L20.6 million
or 6.5%. The majority of the decrease is due to a reduction in newsprint and
compensation costs. The decrease in newsprint costs results from a reduction in
consumption due to lower pagination as a result of lower advertising revenue,
and a reduction in the average price per tonne of newsprint of 9.9%. Lower
compensation costs in 2002 result primarily from reduced staff levels, mainly in
editorial, which occurred at the end of 2001, as well as a general salary level
freeze in 2002.

Depreciation and amortization in 2002 was $35.9 million compared with $63.9
million in 2001, a reduction of $28.0 million. The reduction is primarily the
result of the adoption, effective January 1, 2002, of new accounting standards,
which resulted in goodwill and other intangible assets with indefinite useful
lives not being amortized in 2002. Amortization expense of approximately $25.9
million in 2001 related to such assets.

Operating income in 2002 totaled $74.8 million compared with $33.9 million
in 2001, an increase of $40.9 million. The increase in operating income, in
local currency, is the result of lower newsprint and compensation costs and
reduced amortization expense resulting from the adoption of new accounting
standards, reduced by lower advertising revenue. In addition, the strength of
the pound sterling on average in 2002 compared with the Canadian dollar, further
improved operating income in Canadian dollars.

Canadian Newspaper Group

Sales revenue at the Canadian Newspaper Group in 2002 was $109.1 million
compared with $305.1 million in 2001, a decrease of $196.0 million. The
operating loss was $5.3 million in 2002 compared with an operating loss of $50.4
million in 2001, a decrease of $45.1 million. The results for 2001 included the
results of the National Post and other Canadian newspaper properties, all of
which were sold during 2001. The newspapers that were sold accounted for the
majority of the decrease in year-over-year sales revenue and the

net reduction in year-over-year operating loss. The 2001 operating loss included
a $57.3 million operating loss for the National Post for the period January 1 to
August 31, when the National Post was sold. Sales revenue for operations owned
throughout 2001 and 2002 was $108.8 million in 2002 and $114.1 million in 2001,
a decrease of $5.3 million or 4.6%. The decrease primarily resulted from lower
sales revenue at the Business Information Group.

Community Group

In 2002, sales revenue was $20.8 million and the operating loss was $8.2
million compared with sales revenue of $29.6 million and an operating loss of
$5.3 million in 2001. The results for 2001 include the last remaining U.S.
Community Group newspaper which had operating revenue of U.S.$0.8 million and an
operating loss of U.S.$0.2 million in 2001. Sales revenue at the Jerusalem Post
in 2002 was U.S.$13.2 million compared with U.S.$19.1 million in 2001, a
decrease of U.S.$5.9 million. Advertising revenue declined U.S.$1.9 million,
circulation revenue declined U.S.$1.7 million and printing revenue declined
U.S.$2.3 million, each due to the poor economic climate in Israel. In addition
in the past, Jerusalem Post derived a relatively high percentage of its revenues
from printing as a result of a long-term contract to print and bind copies of
the Golden Pages, Israel's equivalent of a Yellow Pages telephone directory.
During 2002, Golden Pages effectively cancelled this agreement and has ceased
placing printing orders. An action was commenced by the Jerusalem Post in 2003
seeking damages for the alleged breach of contract. In addition, amortization
expense in the amount of $0.9 million at the Jerusalem Post in 2001 was not
incurred in 2002 as a result of new accounting standards for goodwill.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001 COMPARED TO 2000

Net Earnings (Loss). The Company had a net loss of $131.9 million in 2001
or a loss of $3.91 per retractable common share compared with net earnings of
$189.4 million in 2000 or $5.11 per retractable common share. The results of
both years included a large number of unusual items. In 2001, the net loss from
unusual items after income taxes and minority interest amounted to $74.0 million
compared with net income from unusual items after income taxes and minority
interest, in 2000 of $219.5 million. Excluding the net effect of unusual items,
the net loss in 2001 was $57.9 million compared with a net loss of $30.1 million
in 2000.

Sales Revenue. Sales revenue in 2001 was $1,822.1 million compared with
$3,158.3 million in 2000, a decrease of $1,336.2 million. The overall decrease
in sales revenue was primarily due to the sale of Canadian Newspaper Group
properties in both 2000 and 2001 and the 2000 sale of Community Newspaper Group
properties. In addition, lower sales revenue at the U.K. Newspaper Group and the
Chicago Group on a same store basis contributed to the decrease. However, the
acquisition of Fox Valley Publications Inc. (formerly Copley Group) in December
2000 increased total Chicago Group sales revenue.

Cost of Sales and Expense. Total cost of sales and expenses in 2001 were
$1,730.1 million compared with $2,586.2 million in 2000, a decrease of $856.1
million. The decrease in costs primarily results from the sales of Canadian
Newspaper Group properties in both 2000 and 2001 and the sale of Community Group
newspaper properties in 2000. In addition newsprint expense in respect of
properties owned throughout both 2000 and 2001 was lower mainly as a result of
lower consumption at the U.K. Newspaper Group and the Chicago Group. Cost of
sales and expenses are net of betterments capitalized. On completion of a
detailed impairment analysis of the cumulative betterments capitalized,
principally in respect of the U.K. Newspaper Group, a write-down of $37.8
million was taken in the fourth quarter of 2001 and included in cost of sales
and expenses. This partly offsets the decreases noted above.

Depreciation and Amortization. Depreciation and amortization in 2001
totaled $144.7 million compared with $219.9 million in 2000, a decrease of $75.2
million. Lower depreciation and amortization resulting from the sale of
properties in both the Community Group and Canadian Newspaper Group was in part
offset by increased depreciation at the Chicago Group related to the new
printing facility and increased depreciation and amortization resulting from the
Fox Valley Publications Inc. acquisition in December 2000.

Investment and Other Income. Investment and other income in 2001 totaled
$97.3 million compared with $28.1 million in 2000, an increase of $69.2 million.
Investment and other income in 2001 included interest on the CanWest debentures
until the sale of participation interests in August and December, interest on
the remaining CanWest debentures, dividends on CanWest shares and bank interest
on the significant cash balance primarily accumulated from the proceeds of the
sale in 2001 of Canadian newspaper properties and the sale of CanWest shares and
participation interests in CanWest debentures. In 2000, interest and dividend
income on CanWest investments was received only for the period November 17 to
December 31.

Interest on Long-Term Debt. Interest on long-term debt amounted to $122.7
million in 2001 compared with $220.0 million in 2000, a decrease of $97.3
million. This decrease primarily results from the significantly lower debt
levels during 2001 compared with 2000. In November 2000, International repaid
U.S.$972.0 million of its senior credit facility with the proceeds from the sale
of properties to CanWest.

Unusual Items. Unusual items in 2001 amounted to a loss of $295.4 million
compared with a gain of $700.9 million in 2000. Unusual items in 2001 included a
loss on sale of investments of $240.1 million, being primarily the loss on sale
of participations in CanWest debentures and a loss on sale of CanWest shares, a
net loss of $23.0 million on sale of publishing interests including the loss on
sale of National Post, partly offset by gains on sales of Canadian properties, a
$79.9 million write-off of investments, a $29.6 million realized loss on
International's Total Return Equity Swap, a pension and post retirement plan
liability adjustment of $16.8 million primarily in respect of retired former
Southam employees, redundancy, rationalization and other costs of $16.9 million
and $7.2 million of duplicated costs resulting from operating two plants during
the start-up of a new plant in Chicago. These unusual losses were reduced by a
$59.4 million gain on the effective sale of International shares and a $58.7
million accounting gain resulting from a decrease in the required pension
valuation allowance in respect of Canadian Newspaper Group pension plans due to
a decline in the value of plan assets.

Unusual items in 2000 included $697.9 million of gains on sales of
publishing interests, being primarily the sale of Canadian properties to CanWest
and the sale of most of the remaining United States Community Group newspaper
properties, a $47.9 million gain on sale of investments, a $28.5 million gain on
the effective sales of International shares and a $25.8 million gain on the
dilution of the investment in Interactive Investor International. These gains
were reduced by a loss on the write-off of investments of $31.4 million,
redundancy, rationalization and other costs of $41.5 million, the write-off of
financing fees of $16.1 million and $10.1 million of duplicated costs resulting
from operating two plants during the start-up of the new plant in Chicago.

Income Taxes. In 2001, the effective tax rate was lower than the effective
tax rate in 2000 due to the impact of significantly higher losses of the
National Post, for which a tax benefit is not being recorded.

Minority Interest. Minority interest in 2001 was a recovery of $233.5
million compared with an expense of $331.1 million in 2000. Minority interest
primarily represents the minority share of the results of International, and the
net earnings of the Partnership and in 2001, the minority's share of the
National Post losses. In 2001, International reported a significant net loss
including unusual losses whereas in 2000 International reported net earnings
including unusual gains. Minority interest reflects the minority's share of
these results.

RESULTS OF OPERATIONS BY SEGMENT FOR THE YEAR ENDED DECEMBER 31, 2001 COMPARED
TO 2000

Chicago Group

Sales revenue in 2001 was $686.3 million compared with $596.8 million in
2000, an increase of $89.5 million. In United States dollars, sales revenue was
US$442.9 million in 2001 compared with US$401.4 million, an increase of US$41.5
million. Advertising revenue was US$338.5 million in 2001 compared with US$305.0
million in 2000, an increase of US$33.5 million. Circulation revenue was US$92.7
million in 2001 compared with US$80.3 million in 2000, an increase of US$12.4
million. Printing and other revenue was US$11.7 million in 2001 compared with
US$16.1 million in 2000, a decrease of US$4.4 million.

Chicago Group results are based on standard accounting periods, which for
2000 resulted in a 53-week year for the reported results of the Chicago Group
only. The effect of the 53rd week in 2000 was to add
59

US$6.0 million to sales revenue and US$6.2 million to operating costs and
expenses. On December 15, 2000, the acquisition of Chicago Suburban Newspapers
from Copley Group was completed and operating results of this group have been
included since that time. Revenues for operations owned in both years, excluding
Chicago Suburban Newspapers ("same store") and based on a 52-week year in 2000,
were US$363.6 million for 2001, compared with US$392.0 million in 2000.
Advertising revenue in 2001, on a same store 52-week basis, was US$20.0 million
or 6.7% lower than in 2000. Circulation revenue on a same store 52-week basis,
in 2001, was US$2.7 million or 3.5% lower than in 2000. Chicago Sun-Times
average daily circulation in 2001 was higher than in 2000; however, circulation
revenue for 2001 was lower than in 2000 as a result of price discounting to
build and maintain market share in response to competitive activity. Printing
and other revenue, on a same store 52-week basis was US$10.1 million in 2001
compared with US$15.8 million in 2000, a decrease of US$5.7 million.

Cost of sales and expenses in 2001 were $623.0 million compared with $504.1
million in 2000, an increase of $118.9 million. In US dollars, costs of sales
and expenses were US$402.1 million in 2001 compared with US$339.0 million in
2000, an increase of US$63.1 million. Newsprint expense in 2001 was US$76.4
million compared with US$69.2 million in 2000, an increase of US$7.2 million.
Compensation costs were US$178.7 million in 2001 compared with US$150.9 million
in 2000, an increase of US$27.8 million. Other operating costs were US$147.0
million in 2001 compared with US$118.9 million in 2000, an increase of US$28.1
million. On a same store 52-week basis, cost of sales and expenses were US$328.5
million compared with US$329.9 million in 2000, a decrease of US$1.4 million or
0.4%. Same store newsprint expense in 2001 was US$67.5 million, compared to
US$67.6 million in 2000. Average newsprint prices in 2001 were approximately 11%
higher than in 2000. In 2001, newsprint consumption was significantly less than
in 2000 as a result of lower page counts due to reduced advertising revenue, a
reduction in commercial printing, and general cost controls. On a same store
52-week basis, compensation and other costs decreased US$1.3 million or 0.5%
year over year. The lower compensation costs result from staff reductions across
the Chicago Group offset in part by increased medical costs and workers
compensation costs. Other operating costs are lower as a result of reduced
commercial printing production costs, and general cost reductions across all
areas. On a same store basis depreciation and amortization increased US$4.7
million mainly as a result of higher depreciation charges related to the new
Chicago printing facility.

Operating income in 2001 totaled $9.8 million compared with $55.4 million
in 2000, a decrease of $45.6 million. On a same store 52-week basis in United
States dollars, operating income was US$3.8 million in 2001 compared with
US$37.0 million in 2000, a decrease of US$20.1 million. The decrease results
primarily from lower sales revenue, increased depreciation and amortization
offset in part by lower compensation and other operating costs. The acquisition
of Chicago Suburban Newspapers in 2000 added US$79.3 million to sales revenue
and operating income of US$2.4 million in 2001.

U.K. Newspaper Group

In 2001, sales revenue for the U.K. Newspaper Group was $801.1 million
compared with $882.2 million in 2000, a decrease of $81.1 million or 9.2%. In
2001 compared to 2000, the pound sterling on average strengthened compared with
the Canadian dollar. In pounds sterling, sales revenue was L358.9 million in
2001 compared with L392.3 million in 2000, a decrease of L33.4 million or 8.5%.
The decrease in revenue was almost entirely the result of lower advertising
revenue. Advertising revenue in 2001 was L228.7 million compared with L255.9
million in 2000, a decrease of L27.2 million or 10.6%. Circulation revenue in
2001 was L94.5 million compared with L95.7 million in 2000. On September 5,
2001, the price of The Daily Telegraph on Monday to Friday increased from 45
pence to 50 pence and on September 8, 2001, the price of The Daily Telegraph on
Saturday increased from 75 pence to 85 pence. The price increases improved
circulation revenue in the last quarter of 2001.

Cost of sales and expenses in 2001 were $703.3 million compared with $684.9
million in 2000, an increase of $18.4 million or 2.7%. In local currency, cost
of sales and expenses in 2001 approximated L314.9 million compared with L305.9
million in 2000, an increase of L9.0 million or 2.9%. Newsprint expense in local
currency was L64.7 million in 2001 compared with L60.6 million in 2000, an
increase of L4.1 million or 6.8%. This increase results from the significant
increase in newsprint prices in 2001 compared to 2000, offset in part
60

by 4% lower consumption in 2001 compared to 2000. In addition, cost of sales and
expenses are net of betterments capitalized. On completion of a detailed
impairment analysis during 2001 of the cumulative betterments capitalized, a
write down was taken in the fourth quarter of 2001, resulting in a net reduction
in betterments capitalized year over year of L9.8 million. The increased cost of
sales and expenses in 2001 compared with 2000 resulted from increased newsprint
and the net reduction in betterments capitalized reduced in part by lower other
operating costs.

Depreciation and amortization in 2001 was $63.9 million compared with $58.1
million in 2000, an increase of $5.8 million.

Operating income in 2001 totaled $33.9 million compared with $139.1 million
in 2000, a decrease of $105.2 million. The decrease in operating income is
primarily the result of lower advertising revenue, increased newsprint costs,
the net reduction in betterments capitalized and increased depreciation and
amortization offset in part by lower other operating costs.

Canadian Newspaper Group

Sales revenue in the Canadian Newspaper Group was $305.1 million in 2001
compared with $1,579.2 million in 2000 and in 2001 there was an operating loss
of $50.4 million compared with operating income of $174.1 million in 2000. The
significant decrease in both sales revenue and operating income was largely a
result of the sale of newspaper assets in November 2000 to CanWest, the sale of
UniMedia Company completed in January 2001, the July and November 2001 sales of
operations to Osprey and the August 31, 2001 sale of the National Post.

Included in the $50.4 million operating loss for the year ended December
31, 2001, are overhead costs of approximately $3.8 million that are not expected
to be incurred in 2002. Also included is a $2.6 million expense in respect of
employee benefit costs of retired former Southam employees.

Community Group

Sales revenue and operating income were $29.6 million and a loss of $5.3
million in 2001, compared to $100.1 million and operating income of $6.7 million
in 2000. The significant decrease in both sales revenue and operating income
results almost entirely from the sale of Community Group properties that
occurred primarily during 2000. During the third quarter of 2001, the last
remaining U.S. Community Group property was sold. At December 31, 2001, the
Jerusalem Post was the only Community Group property still owned by the Company.

LIQUIDITY AND CAPITAL RESOURCES

FINANCIAL CONDITION AND CASH FLOWS

The Company is an international holding company and its assets consist
primarily of investments in its subsidiaries and affiliated companies. As a
result, the Company's ability to meet its future financial obligations, on a
non-consolidated basis, is dependent upon the availability of cash flows
principally from International through dividends and other payments.
International and the Company's other subsidiaries and affiliated companies are
under no obligation to pay dividends. International's ability to pay dividends
on its common stock may be limited as a result of its dependence on the receipt
of dividends and other receipts primarily from Publishing. Publishing and its
principal United States and foreign subsidiaries are subject to statutory
restrictions and restrictions in debt agreements that limit their ability to pay
dividends. Substantially all of the assets of Publishing and its material U.S.
and U.K. subsidiaries have been pledged to the group's lenders. The Company's
right to participate in the distribution of assets of any subsidiary or
affiliated company upon its liquidation or reorganization will be subject to the
prior claims of the creditors of such subsidiary or affiliated company,
including trade creditors, except to the extent that the Company may itself be a
creditor with recognized claims against such subsidiary or affiliated company.

On a non-consolidated basis, the Company has experienced a shortfall
between the dividends and fees received from its subsidiaries and its
obligations to pay its operating costs, including interest and dividends on its
preference shares, and such shortfalls are expected to continue in the future.
Accordingly, the Company is dependent upon the continuing financial support of
RMI to fund such shortfalls and, therefore, pay its liabilities as they fall
due. Prior to March 10, 2003, such shortfalls were funded by Ravelston and RMI
on an informal basis. On March 10, 2003, concurrent with the issue of U.S.$120.0
million Senior Secured Notes due 2011, RMI entered into a support agreement with
the Company. Under the agreement, RMI has agreed to make annual support payments
in cash to the Company on a periodic basis by way of contributions to the
capital of the Company (without the issuance of additional shares of the
Company) or subordinated debt. The annual support payments will be equal to the
greater of (a) the Company's negative net cash flow (as defined) for the
relevant period (which does not extend to outlays for retractions or
redemptions), determined on a non-consolidated basis, and (b) U.S.$14.0 million
per year (less any payments of management services fees by International
directly to the Company or NB Inc. and any excess in the net dividend amount
that the Company and NB Inc. receive from International over U.S.$4.65 million
per year), in either case as reduced by any permanent repayment of debt owing by
Ravelston to the Company. Pursuant to this arrangement, RMI has made payments to
the Company in respect of the period from March 10 to June 30, 2003 in the
amount of U.S.$6.2 million.

RMI currently derives all of its income and operating cash flow from the
fees paid pursuant to services agreements with International and its
subsidiaries. RMI's ability to provide the required financial support under the
support agreement with the Company is dependent on RMI continuing to receive
sufficient fees pursuant to those services agreements. The services agreements
may be terminated by either party by giving 180 days notice. The fees in respect
of the services agreements are negotiated annually with and approved by the
audit committee of International. The fees to be paid to RMI for the year ending
December 31, 2003 amount to approximately U.S.$22.0 million to U.S.$24.0 million
and were approved in February 2003. The fees in respect of the periods after
December 31, 2003 have not yet been negotiated or approved. As described more
fully in note 12 to the unaudited interim consolidated financial statements,
which are incorporated by reference, a shareholder of International has
requested that the Board of International investigate and, if determined to be
advisable, take corrective action in respect of certain matters, including the
payment of fees by International pursuant to management services agreements with
RMI. Although the Board of International has established a special committee of
the Board of Directors to conduct an independent review and investigation of the
matters, the timing and outcome of the process and the impact on the Company and
RMI is uncertain at this time. Under the terms of the Senior Secured Notes, if
in any quarterly period after April 1, 2003 the Company fails to receive in cash
a minimum aggregate amount of at least U.S.$4.7 million from a) payments made by
RMI pursuant to the support agreement and b) dividends paid by International on
its shares held by the Company and NB Inc, the Company would be in default under
its Senior Secured Notes and they could become due and payable immediately.

Based on the Company's current investment in International and the current
quarterly dividend paid by International of US$0.05 per share: (i) the minimum
support payment required to be made by RMI to avoid a default under the terms of
the Senior Secured Notes is approximately US$14.0 million annually and (ii) the
Company estimates the support payment required by RMI to fund its negative net
cash flow will approximate US$20.0 million for the twelve months ending June 30,
2004. This amount assumes payment by the Company of preference share dividends
of approximately US$5.0 million which have yet to be considered by the Board of
Directors and which depend on the Company having the ability under corporate law
to pay such dividends. The Company's ongoing liquidity, on a non-consolidated
basis, continues to depend to a large degree on support payments from RMI which
in turn depends on fees received pursuant to its services agreements with
International. If the Company does not receive support payments of a least
US$15.0 million for the twelve months ending June 30, 2004, based on the above
assumptions, then it will be required to dispose of assets or seek financing in
order to meet its non-consolidated obligations as they fall due.

The Company is contemplating a variety of initiatives to address the
potential matters referred to above, however at this time there can be no
certainty that such initiatives will be completed.

Initially, the support amount to be contributed by RMI will be satisfied
through the permanent repayment by Ravelston of its approximate $16.4 million of
advances from the Company, which resulted from the use of proceeds of the
Company's issue of its Senior Secured Notes. Thereafter, all support amount
contributions by RMI will be made through contributions to the capital of the
Company, without receiving any additional shares of the Company, except that, to
the extent that the minimum payment exceeds the negative net cash flow of the
Company, the amounts will be contributed through an interest-bearing, unsecured,
subordinated loan to the Company. The support agreement terminates upon the
repayment of the Senior Secured Notes which mature in 2011. The Senior Secured
Notes are secured by a first priority lien on 10,108,302 shares of
International's Class A common stock and 14,990,000 shares of International's
Class B common stock owned by the Company and NB Inc. Therefore, at September 4,
2003, the Company and NB Inc., in total, hold only 1,148,236 shares of
International Class A common stock which are unencumbered, the then market value
of which approximates US$15.3 million. The Company has the right to redeem up to
35% of the Senior Secured Notes with money raised from a public offering, which
would, in turn, result in a portion of the pledged shares of International Class
A common stock being released from this lien. The Company has no plans at this
time to conduct a public offering.

On March 10, 2003, the Company repaid the amount due to Ravelston, made an
advance to Ravelston and repaid all borrowings under its revolving credit
facility and operating line of credit with the proceeds of its issuance of
Senior Secured Notes. Currently, the Company does not have a line of credit. The
Trust Indenture governing the Senior Secured Notes places certain limitations on
the Company's ability to incur additional indebtedness and the ability to
retract the Series II and III preference shares and the retractable common
shares.

In addition, on March 10, 2003, Ravelston and RMI entered into a
contribution agreement with the Company. The contribution agreement is not
pledged to the trustee for the Senior Secured Notes, and holders of the Senior
Secured Notes are not entitled to any rights thereunder. The contribution
agreement sets out the manner in which RMI will make support payments to the
Company as described above. Ravelston has guaranteed RMI's obligations under the
contribution agreement and its obligation to make support payments to the
Company under the support agreement. Ravelston's guarantee will not enure to the
benefit of, or be enforceable by, the trustee for the Senior Secured Notes or
holders of the Senior Secured Notes. The Company has pledged the benefit of this
guarantee as security for its obligations under the indebtedness of NB Inc. due
to International. The contribution agreement will terminate upon the repayment
in full of the Senior Secured Notes, the termination of the support agreement or
if the Company ceases to be a public company.

RETRACTABLE SHARES.

The Company's issued capital stock consists of Series II preference shares,
Series III preference shares and retractable common shares, each of which is
retractable at the option of the holder. There is continuing uncertainty
regarding the Company's future ability to complete retractions and redemptions
of preference shares and retractable common shares. Dividends on the preference
shares are not payable until declared by the Board of Directors which will take
into account when dividends are considered from time to time, among other
things, the support payments to be made to it by RMI. Under corporate law, the
Company cannot redeem shares (either on a retraction or on the April 30, 2004
redemption date in the case of the Series III Preference Shares) or declare or
pay dividends in certain circumstances, including if there are reasonable
grounds for believing that the Company is, or would after the payment be, unable
to pay its liabilities as they become due. In such circumstances, shareholders
do not become creditors of the Company and, in the case of shares submitted for
retraction or in the case of the Series III Preference Shares to be redeemed on
April 30, 2004, holders thereof remain as shareholders until such time as the
retraction or redemption is able to be completed under applicable law. The
Company's uncertain ability to make payments on future retractions and
redemptions of shares or dividends on shares is due to the fact that liquidity
of its assets is limited at present, given that substantially all of its shares
of International common stock were provided as security for the Senior Secured
Notes.

During the six months ended June 30, 2003, the Company was able to complete
the retraction of 504,989 Series II preference shares for 232,293 shares of
International Class A common stock, 300,000 Series II preference shares for cash
consideration of $1,585,000 being the cash equivalent value of 0.46 of a share
of Class A common stock of International for which each Series II preference
share was exchangeable, at the time of retraction, 876,050 Series III preference
shares for approximately $7.7 million in cash and 22,500 retractable common
shares for cash of $124,000. This completed all retraction notices received up
to and including April 30, 2003.

After careful deliberation, the Company concluded that at the current time
it was not able to complete the retractions of shares submitted after April 30,
2003 without unduly impairing its liquidity. Since April 30, 2003 and up to and
including August 5, 2003, the Company has received retraction notices from
holders of 3,680,193 Series III preference shares of which 1,387,139 retraction
notices were subsequently withdrawn, leaving retraction notices from holders of
2,293,054 Series III preference shares for aggregate retraction proceeds of
approximately $21.8 million which are unable to be completed at the current
time. In addition, during the same time period, retraction notices were received
from the holders of 401,712 Series II preference shares for aggregate retraction
proceeds of 184,787 shares of International's Class A common stock or cash of
approximately $2.9 million, which were unable to be completed at the current
time. Also, during the same period, retraction notices were received from
holders of 318 retractable common shares for aggregate retraction proceeds of
$1000, which are unable to be completed at the current time.

Giving effect to the retractions completed as of September 4, 2003, there
continues to be outstanding 3,775,990 Series II preference shares (exchangeable
for 1,736,955 shares of Class A common stock of International), 9,271,175 Series
III preference shares and 33,891,404 retractable common shares.

The Company's Series III preference shares have a fixed redemption date on
April 30, 2004 for a cash payment of $10.00 per share plus any accrued and
unpaid dividends to that date. The total cost to redeem all of the issued and
outstanding Series III preference shares would be $92.7 million. On April 21,
2003 the Company made an offer to exchange all of its Series III preference
shares for newly issuable Series IV preference shares having comparable terms,
except for a higher dividend rate (8% compared to 7% for the Series III
preference shares) and a longer term to mandatory redemption (April 30, 2008
compared to April 30, 2004). On June 9, 2003, the Company announced that it was
permitting the exchange offer to expire because holders of at least 5,000,000 of
the Series III preference shares had not accepted the offer.

The Company will periodically review its liquidity position to determine if
and when further retractions can be completed. The Company will not complete
retractions or redemptions if to do so would unduly impair its liquidity.
Retractions of Series II preference shares and Series III preference shares will
be processed on a combined basis in order determined by their retraction date
(with equal ranking of the series) in advance of any retractable common shares
that are submitted for retraction. Following the satisfaction of all pending
retracted Series II preference shares and Series III preference shares,
retractions of the retractable common shares will be processed in order
determined by their retraction date. Accordingly, retractions of retractable
common shares cannot be completed as long as there are pending and unsatisfied
retractions of Series II preference shares and Series III preference shares.

RETRACTION PRICE OF RETRACTABLE COMMON SHARES OF HOLLINGER INC.

The retractable common shares of the Company have terms equivalent to
common shares, except that they are retractable at any time by the holder for
their retraction price in exchange for shares of the Company's holding of
International Class A common stock of equivalent value. The Company has the
right to settle the retraction price by cash payment. The retraction price
determined each quarter (or, in certain specific cases more frequently) by the
Company's Retraction Price Committee, is between 90% and 100% of the Company's
current value, being the aggregate fair market value of all of its assets less
the aggregate of (i) the maximum amount payable at such date by the Company on
its liquidation, dissolution or winding-up in respect of outstanding preference
shares other than the retractable common shares, and (ii) its liabilities,
including any tax liabilities that would arise on a sale of all or substantially
all of its assets, which, in the

opinion of the Board, would not be refundable at such date, divided by the
number of retractable common shares outstanding on such date.

Currently the Company and its wholly owned subsidiaries, which excludes
International, have assets which consist principally of the investment in
International together with other miscellaneous investments. The Company as at
September 4, 2003 directly and indirectly owns 11,256,538 shares of Class A
common stock and 14,990,000 shares of Class B common stock of International with
a then market value of approximately U.S.$349.1 million. The Company's
significant liabilities include U.S.$120.0 million 11 7/8% Senior Secured Notes
due 2011, Series II preference shares, which are exchangeable into 1,736,955
shares of International Class A common stock with a current value of
approximately U.S.$23.1 million and Series III preference shares which are
redeemable on April 30, 2004 for an aggregate of $92.7 million. In addition, NBI
has a debt due to International of US$20.4 million which is subordinated to the
Senior Secured Notes.

The retraction price of the retractable common shares during 2002 and early
2003 was as follows:

<Table>
<Caption>
PER RETRACTABLE
COMMON SHARE
---------------

January 10, 2002............................................ $7.50
April 11, 2002.............................................. $9.50
July 9, 2002................................................ $7.50
October 3, 2002............................................. $5.50
January 7, 2003............................................. $5.50
April 2, 2003............................................... $1.75
July 12, 2003............................................... $3.75
</Table>

The decline in the retraction price of the retractable common shares from
$5.50 per share on January 7, 2003 to $3.75 per share on July 12, 2003 primarily
results from the lower market price of shares of International Class A common
stock and a strengthening of the Canadian dollar relative to the U.S. dollar.

Since at the current time the Company is unable to complete retractions in
respect of retraction notices received for Series III preference shares, the
Company would be unable to complete any retraction notices received in the
future in respect of retractable common shares until all preference share
retraction notices, received by the Company and not withdrawn, are completed.

At September 4, 2003 there are 33,891,404 retractable common shares issued
and outstanding, of which 26,516,886 are held by Ravelston and its affiliates.

WORKING CAPITAL

Working capital consists of current assets less current liabilities. At
June 30, 2003, working capital excluding the current portion of long-term debt
obligations was a deficiency of $384.1 million compared to working capital,
excluding the current portion of long-term debt obligations and the related
funds held in escrow at December 31, 2002, which was a deficiency of $604.4
million. The decrease in the working capital deficiency is due to the
refinancing of the Company's bank indebtedness and the repayment of the amount
due to Ravelston with the proceeds of the issue of Senior Secured Notes. Current
assets, excluding funds held in escrow, were $628.3 million at June 30, 2003
compared to $618.1 million at December 31, 2002. Current liabilities, excluding
debt obligations, but including short-term bank indebtedness and retractable
preference shares, were $1,012.4 million at June 30, 2003, compared with
$1,222.5 million at December 31, 2002. Current liabilities, at June 30, 2003,
include $118.1 million in respect of retractable preference shares. These
retractable preference shares are included in current liabilities since they are
retractable at any time at the option of the holder. Also included in current
liabilities is approximately $500.9 million of income taxes that has primarily
been provided on gains on sales of assets computed on tax bases that result in
higher gains for tax purposes than for accounting purposes. Strategies have been
and may be implemented that may also defer and/or reduce these taxes but the
effects of these strategies have not been reflected in the accounts. While the
timing of the payment of such income taxes, if any, is uncertain, the Company
does not expect any significant amounts to be paid in 2003.

At December 31, 2002, working capital, excluding the current portion of
long-term debt obligations and the related funds held in escrow, was a
deficiency of $604.4 million compared to working capital of $133.6 million at
December 31, 2001. Current assets excluding funds held in escrow were $618.1
million at December 31, 2002 compared with $1,223.8 million at December 31,
2001. Current liabilities, excluding debt obligations, but including short-term
bank indebtedness, were $1,222.5 million at December 31, 2002, compared with
$1,090.2 million at December 31, 2001. Current liabilities at December 31, 2002
include $147.3 million in respect of retractable preference shares and the
related deferred unrealized gain. Also included in current liabilities at
December 31, 2002 are approximately $436.7 million of income taxes that have
been provided on gains on sales of assets computed on tax bases that result in
higher gains for tax purposes than for accounting purposes.

The reduction in working capital in 2002, excluding the current portion of
long-term debt obligations and related funds held in escrow, is primarily the
result of the retractable preference shares being included in current
liabilities and the reduction in cash and cash equivalents as a result of the
pay-down of long-term debt since December 31, 2001, offset by the reduction in
bank indebtedness. During the year ended December 31, 2002, approximately
U.S.$370.8 million of cash and cash equivalents, which included both principal
repayments and related premiums, was used to retire a portion of Publishing's
long-term debt.

During January 2002, the Company's revolving bank credit facility was
reduced to $81.9 million from $120.4 million at December 31, 2001, using
proceeds from the sale of 2,000,000 shares of International's Class A common
stock. During 2001, the Company reduced its bank indebtedness by $142.0 million
with proceeds from the sale of 7.1 million shares of International's Class A
common stock to International for cancellation and from the December 2001 sale
to third parties of 2,000,000 shares of International's Class A common stock.

At December 31, 2002, the Company had fully borrowed on its bank operating
line that provided for up to $10.0 million of borrowings and its revolving bank
credit facility that provided for up to $80.8 million in borrowings. The
Company's revolving bank credit facility was secured by International shares
owned by the Company and bore interest at the prime rate plus 2.5% or the
bankers' acceptance ("BA") rate plus 3.5%. Under the terms of the revolving bank
credit facility, the Company and its wholly owned subsidiaries were subject to
restrictions on the incurrence of additional debt. The revolving bank credit
facility was amended and restated on August 30, 2002 and was to mature on
December 2, 2002. A mandatory repayment of the revolving bank credit facility in
the amount of $50.0 million was required by December 2, 2002 and if such payment
was made, the lenders could have consented to an extension of the maturity date
to December 2, 2003 in respect of the principal outstanding. On December 2,
2002, the lenders extended the $50.0 million principal repayment date to
December 9, 2002. This repayment was not made, and on December 9, 2002, the bank
credit facility was amended to require a principal repayment of $44.0 million on
February 28, 2003 with the balance maturing on December 2, 2003. As a result of
the impending closing of the Company's Senior Secured Note issue, the lenders
further extended the due date for the repayment of $44.0 million to March 14,
2003. On March 10, 2003, the revolving bank credit facility in the amount of
$80.8 million and the bank operating line of $10.0 million were repaid with part
of the proceeds of the Company's issue of Senior Secured Notes.

On October 3, 2002, International entered into a term lending facility and
borrowed U.S.$50.0 million ($79.6 million). As a result of International's
borrowing under this term lending facility, the Company was in default of a
covenant under its revolving bank credit facility which, while in default,
resulted in borrowings being due on demand. The Company's banks waived the
default and on December 23, 2002, International repaid the full amount borrowed
under the term lending facility.

LONG-TERM DEBT

Long-term debt, including the current portion was $1,007.0 million at June
30, 2003 and, $1,789.3 million at December 31, 2002 compared with $1,351.6
million at December 31, 2001. Included in long-term debt at December 31, 2002 is
$797.8 million in respect of Publishing's Senior Subordinated Notes due 2006 and
2007, which were retired in January 2003.

On March 10, 2003, the Company issued U.S. $120.0 million aggregate
principal amount of 11 7/8% Senior Secured Notes due 2011. The total net
proceeds were used to repay the Company's revolving bank credit facility and
bank operating line, repay amounts due to Ravelston and to make on advance to
Ravelston. The Senior Secured Notes are fully and unconditionally guaranteed by
RMI and are secured by a first priority lien on 10,108,302 shares of
International's Class A common stock and 14,990,000 shares of Class B common
stock owned by the Company and NB Inc.

During the first six months of 2003, International retired US$504.9 million
principal amount of Senior Subordinated Notes, repaid US$1.7 million of debt due
under its Senior Credit Facility and reduced other debt by US$1.4 million. Under
the terms of the Senior Credit Facility, Publishing is required to repay US$2.2
million of amounts advanced as term debt during the remainder of 2003.

Under the terms of Publishing's Senior Credit Facility and Publishing's 9%
Senior Notes, International is subject to certain restrictive covenants. These
covenants included certain leverage ratios and restrictions on the use of funds
in certain circumstances. If International were to be in violation of the
restrictive covenants, the debts could become due and payable on demand. At June
30, 2003, International was in compliance with all covenants under these
agreements.

On December 23, 2002, certain of International's subsidiaries entered into
an amended and restated U.S. $310.0 million Senior Credit Facility with a group
of financial institutions arranged by Wachovia Bank, N.A. (the "Senior Credit
Facility").

The Senior Credit Facility consists of (a) a U.S. $45.0 million revolving
credit facility, which matures on September 30, 2008 (the "Revolving Credit
Facility"), (b) a U.S. $45.0 million Term Loan A, which matures on September 30,
2008 ("Term Loan A") and (c) a U.S. $220.0 million Term Loan B, which matures on
September 30, 2009 ("Term Loan B"). Publishing (a wholly owned direct
subsidiary) and Telegraph Group Limited ("Telegraph Group", a wholly owned
indirect United Kingdom subsidiary) are the borrowers under the Revolving Credit
Facility and First DT Holdings Ltd. ("FDTH", a wholly owned indirect U.K.
subsidiary) is the borrower under Term Loan A and Term Loan B. The Revolving
Credit Facility and Term Loans bear interest at either the Base Rate (U.S.) or
U.S.$ LIBOR, plus an applicable margin. Cross-currency floating to fixed rate
swaps from U.S.$ LIBOR to Sterling fixed rate have been purchased in respect of
all amounts advanced under the Senior Credit Facility. No amounts have currently
been drawn under the Revolving Credit Facility.

On December 23, 2002, Publishing issued U.S. $300.0 million aggregate
principal amount of 9% senior unsecured notes due 2010 (the "9% Senior Notes")
at par to certain qualified institutional buyers ("QIBs") pursuant to Rule 144A
under the Securities Act of 1933, as amended. The aggregate commissions were
U.S. $8.3 million. The proceeds from the sale of the 9% Senior Notes, together
with drawdowns under the Senior Credit Facility and available cash balances,
were used to redeem approximately U.S. $239.9 million of Publishing's Senior
Subordinated Notes due 2006 and approximately U.S. $265.0 million of
Publishing's Senior Subordinated Notes due 2007, plus applicable premium and
accrued interest to the date of redemption, and to make a distribution of U.S.
$100.0 million to International. International used the distribution (a) to
repay all amounts borrowed by International on October 3, 2002 under its loan
agreement with Trilon International Inc., (b) to retire the equity forward
purchase agreements between International and certain Canadian chartered banks
(the "Total Return Equity Swap") made as of October 1, 1998, as amended, and (c)
for other general corporate purposes. The trust indenture in respect of the 9%
Senior Notes contains customary covenants and events of default, which are
comparable to those under the Senior Credit Facility.

On February 14, 2002, Publishing commenced a cash tender offer for any and
all of its outstanding 8.625% Senior Notes due 2005. In March 2002, Senior Notes
in the aggregate principal amount of U.S. $248.9 million had been validly
tendered pursuant to the offer and these Senior Notes were paid out in full. In
addition, in 2002, Publishing purchased for retirement an additional U.S.$41.1
million in aggregate principal amount of the Senior Notes and Senior
Subordinated Notes. The total principal amount of Publishing's Senior Notes and
Senior Subordinated Notes retired during 2002 was U.S. $290.0 million. The
premiums paid to retire the debt totaled U.S. $27.1 million, which, together
with a write-off of U.S. $8.3 million of related deferred financing costs, have
been presented as an unusual item.

AMOUNT DUE TO INTERNATIONAL FROM NB INC.

The amount due to International from NB Inc. at December 31, 2002,
including accrued interest, totaled U.S.$45.8 million. On March 10, 2003
International repurchased for cancellation, from NB Inc., 2,000,000 shares of
Class A common stock of International at U.S.$8.25 per share for total proceeds
of U.S.$16.5 million and redeemed from NB Inc., pursuant to a redemption
request, all of the 93,206 outstanding shares of Series E Redeemable Convertible
Preferred Stock of International at the fixed redemption price of $146.63 per
share. Proceeds from the repurchase and redemption were offset against the debt
due to International from NB Inc., resulting in net outstanding debt due to
International of approximately U.S.$20.4 million as of March 10, 2003. The
remaining debt of U.S.$20.4 million was subordinated in right of payment to the
11 7/8% Senior Secured Notes due 2011 and the interest rate amended to 14.25% if
paid in cash and 16.5% if paid in kind.

The debt due to International originated on July 11, 2000 and represented
amounts loaned by International to NBI in connection with the cash purchase by
the Company of Hollinger Canadian Publishing Holdings Inc. special shares.
Following the receipt of an independent fairness opinion and a review by a
committee of the Board of Directors of International, composed entirely of
independent directors, of all aspects of the transaction relating to the changes
in the debt arrangements with the Company and the subordination of this
remaining debt, the committee approved the new debt arrangements.

International and the Company previously reported that the committee of
independent directors of International referred to had agreed to a partial
offset to the remaining US$20.4 million of debt against amounts owed by
International to RMI, and further stated that the offset was effected April 30,
2003. Although management of International and the Company believed final
approval had been given to the offset by the committee of independent directors
of International, the committee has advised that final approval of any offset
remains subject to appropriate due diligence and receipt of a further
independent fairness opinion. The due diligence process has not yet been
concluded and accordingly, the accompanying interim consolidated financial
statements do not reflect the completion of the offset.

International is indebted to RMI as a consequence of the sale of NP
Holdings Company ("NP Holdings") and its related tax losses to RMI on July 3,
2002. Prior to the sale, NP Holdings had no significant assets or liabilities
except for its tax losses and an obligation to CanWest for $22.5 million. To

structure NP Holdings such that it had no material net assets or liabilities
except for its tax losses upon its sale to RMI, immediately prior to the sale
International contributed $22.5 million as equity to NP Holdings and then
borrowed that amount from NP Holdings by way of promissory note. As that note
was offset by the CanWest obligation, NP Holdings had no net material assets or
liabilities apart from its tax losses upon sale. Notwithstanding these
transactions, International may have continuing direct exposure to CanWest in
respect of the $22.5 million obligation.

As a result of an understanding that the partial offset had been completed
on April 30, 2003, NBI did not pay interest on the full principal amount of the
debt due to International and Ravelston did not make a payment of US$600,000 due
on June 30, 2003 into a cash collateral account securing the debt. International
is in discussions with NBI and Ravelston regarding these matters.

CASH FLOWS

Cash flows used in operating activities for the six months ended June 30,
2003, were $32.8 million compared to cash flows provided by operating activities
of $4.5 million in 2002. Excluding changes in working capital (other than cash),
cash flows provided by operating activities were $15.2 million in 2003 and $3.2
million in 2002.

Cash flows provided by financing activities in the six months ended June
30, 2003, were $73.8 million and cash flows used in financing activities were
$527.1 million in 2002. In 2003, International repaid $883.1 million of
long-term debt from escrow deposits and restricted cash on hand at December 31,
2002 which was raised upon issuance of Publishing's Senior Notes and completion
of Publishing's Senior Credit Facility. In 2002, the Company repaid US$291.3
million of long-term debt primarily from available cash balances. Long-term debt
repayments as disclosed in the unaudited interim consolidated statements of cash
flows include both principal repayments and premiums paid on extinguishment of
debt. The cash flows used in financing activities in 2002 also included cash
dividends paid of $9.6 million and dividends and distributions to minority
interests in International and Hollinger L.P. of $20.6 million.

Cash flows provided by investing activities in the six months ended June
30, 2003, were $9.0 million compared with cash flows provided by investing
activities of $26.7 million in 2002. Cash flows provided by investing activities
in 2003 included $32.4 million of proceeds on disposal of investments, which
primarily represents the proceeds on redemption of part of International's
investment in CanWest debentures. This was reduced by additions to investments
of $11.2 million which primarily represents additional CanWest debentures
received in payment of interest and $12.4 million of additions to fixed assets.
The cash flows provided by investing activities in 2002 resulted primarily from
the sale of two million Class A common shares of International in January 2002
and the sale of fixed assets offset by capital expenditures.

Cash flows provided by operating activities were $149.4 million for the
year ended December 31, 2002, and cash flows used for operating activities were
$334.9 million for the year ended December 31, 2001. Improved operating results
and lower cash interest costs and cash taxes resulted in improved year-over-year
cash flows provided by operating activities. The cash flows used in operating
activities in 2001 primarily resulted from the sales of Canadian Newspaper Group
properties and Community Group properties, lower operating results at the
Company's remaining operations and the non-cash interest income received on the
CanWest debentures.

Cash flows used in financing activities were $751.4 million for the year
ended December 31, 2002 and $239.5 million for the year ended December 31, 2001.
In 2002, International repaid U.S. $290.0 million of long-term debt primarily
from available cash balances and repaid U.S. $100.0 million to terminate the
forward share purchase contracts. The cash flows used in financing activities in
2001 included the repurchase of shares of International's Class A common stock
and the redemption of retractable common and preferred shares totalling $72.4
million.

Cash flows used in investing activities were $18.8 million for the year
ended December 31, 2002 compared to cash flows provided by investing activities
of $1,132.5 million for the year ended December 31, 2001. The cash flows used in
investing activities in 2002 resulted primarily from purchase of fixed assets
and

investments partially offset by proceeds from the sale of 2,000,000 shares of
International's Class A common stock in January 2002 and proceeds on the sale of
fixed assets. The cash flows provided by investing activities in 2001 resulted
principally from the sales of Canadian newspaper operations and sale of
investments offset in part by additions to investments and fixed assets.

CAPITAL RESOURCES AND NEEDS

Additions to capital assets amounted to $64.0 million, $91.0 million and
$113.0 million in 2002, 2001 and 2000 respectively. These additions are
principally in respect of International's operations. The following is a summary
of the major capital expenditures during these periods:

<Table>
<Caption>
2002 2001 2000
--------- --------- ---------
MILLION $ MILLION $ MILLION $

Chicago Sun-Times plant..................................... $ 3 $ 6 $ 38
Montreal presses............................................ -- -- 26
National Post............................................... -- -- 4
Printing joint venture -- new presshall and mailroom........ -- 20 --
Airplane.................................................... -- 18 --
Jerusalem Post press........................................ 5 -- --
Fox Valley -- printing facility............................. 6 -- --
Other capital additions and routine capital expenditures.... 50 47 45
---- ---- ----
$ 64 $ 91 $113
==== ==== ====
</Table>

CAPITAL EXPENDITURES AND ACQUISITION FINANCING.

In the past three years, the Chicago Group, the Community Group, the U.K.
Newspaper Group and the Canadian Newspaper Group have funded their capital
expenditures and acquisition and investment activities out of cash provided by
their respective operating activities and in 2000 through borrowings. In 2003
International expects to invest approximately U.S.$20 million in capital
expenditure primarily through available cash flow.

Capital expenditures at the Chicago Group amounted to $24.3 million, $19.3
and $38.2 million in 2002, 2001 and 2000, respectively. International began
construction of a new printing facility in Chicago during 1998, which became
partially operational in 2000 and fully operational in 2001. The capital
expenditures in 2001 and 2000 are primarily related to the construction of its
facility.

Capital expenditures at the Community Group amounted to $7.9 million, $0.5
million and $4.9 million in 2002, 2001 and 2000, respectively. The capital
expenditures in 2002 were primarily for the acquisition of a new press by the
Jerusalem Post.

Capital expenditures at the U.K. Newspaper Group were $27.7 million, $48.8
million and $24.1 million in 2002, 2001 and 2000, respectively.

Capital expenditures at the Canadian Newspaper Group were $3.6 million,
$4.4 million and $42.8 million in 2002, 2001 and 2000, respectively.

Capital expenditures at the Corporate Group were $0.1, $18.4 million and
$2.6 million in 2002, 2001 and 2000, respectively. Expenditures in 2001 were
primarily in respect of a new airplane to replace an older airplane that was
sold in early 2002.

DERIVATIVE INSTRUMENTS

The Company may enter into various swap, option and forward contracts from
time to time when management believes conditions warrant. Management does
intend, however, that such contracts will be limited to those that relate to the
actual exposure to commodity prices, interest rates and foreign currency

risks. If, in management's view, the conditions that made such arrangements
worthwhile no longer exist, the contracts may be closed.

On December 27, 2002, FDTH, entered into two cross-currency floating to
fixed rate swap transactions to hedge principal and interest payments on U.S.
dollar borrowings by FDTH under the December 23, 2002 Senior Credit Facility.
The contracts have a total foreign currency obligation notional value of U.S.
$265.0 million, fixed at a rate of U.S. $1.5922 to L1, convert the interest rate
on such borrowings from floating rate to a fixed blended interest rate of 8.47%,
and expire as to U.S. $45.0 million on December 29, 2008 and as to U.S. $220.0
million on December 29, 2009. The swaps were purchased to take advantage of low
rates on this type of instrument and to provide certainty on interest charges to
the operations of the U.K. Newspaper Group in a time of soft advertising sales.

On January 22, 2003 and February 6, 2003, Publishing entered into interest
rate swaps to convert U.S. $150.0 million and U.S. $100.0 million, respectively,
of the total U.S.$300.0 million Senior Notes issued in December 2002, from fixed
to floating rates for the period to December 15, 2010, subject to early
termination notice, with the objective of reducing the cost of borrowing.
Interest for the first six months has been set at 5.98% and floats, for
subsequent periods, at the six-month LIBOR rate plus a blended spread of 4.61%.

A further discussion of the Company's derivative instruments can be found
in note 24 d) to the Company's audited consolidated financial statements
included elsewhere in this prospectus.

OFF-BALANCE SHEET ARRANGEMENTS

Hollinger Participation Trust. As part of its November 16, 2000 purchase
and sale agreement with CanWest, International was prohibited from selling the
CanWest debentures received in partial consideration prior to May 15, 2003. In
order to monetize this investment, International entered into a participation
agreement in August 2001 pursuant to which it sold participation interests in
$540.0 million (U.S. $350.0 million) principal amount of CanWest debentures to a
special purpose trust (the "Participation Trust") administered by an
arm's-length trustee. That sale of participation interests was supplemented by a
further sale of participation interests in $216.8 million (U.S. $140.5 million)
principal amount of CanWest debentures in December 2001. International remains
the record and beneficial owner of the participated CanWest debentures and is
required to make payments to the Participation Trust with respect to those
debentures if and to the extent it receives payment in cash or kind on the
debentures from CanWest. Coincident with the Participation Trust's purchase of
the participation interests, the Participation Trust sold senior notes to
arm's-length third parties to finance the purchase of the participation
interests. These transactions resulted in net cash proceeds to International of
$621.8 million and for accounting purposes have been accounted for as sales of
CanWest debentures. The net loss on the transactions amounted to $97.4 million
and is included in unusual items in 2001.

At any time up to November 5, 2005, CanWest may elect to pay interest on
the debentures by way of additional CanWest debentures or through the issuance
of non-voting common shares of CanWest. Further, at any time after May 15, 2003,
the holders of the Participation Trust senior notes may, under the terms of the
Participation Trust request that the Participation Trust require International
to complete an outright transfer to the Participation Trust of the CanWest
debentures. The unrealized foreign exchange losses recognized at December 31,
2002 and 2001 are classified as deferred credits in the consolidated balance
sheet.

On May 11, 2003, CanWest redeemed $265 million of the debentures of which
U.S.$159.8 million has been delivered to the Participation Trust and the balance
of US$27.6 million has been received by International and the Partnership, a
portion of which must be retained until November 4, 2010. This will reduce the
Company's obligation to the Trust and hence its exposure to changes in the U.S.
dollar to Canadian dollar exchange rate.

Upon receipt of the notice of redemption, International entered into a U.S.
dollar forward purchase contract for the full amount of the Canadian dollar
redemption proceeds to coincide with the date of receipt of

the proceeds. At June 30, 2003, the obligation to the Participation Trust was
U.S.$447.9 million, and the corresponding CanWest debentures had a principal
amount receivable of $691.1 million.

COMMERCIAL COMMITMENTS AND CONTRACTUAL OBLIGATIONS.

The Telegraph Group has guaranteed the printing joint venture partners'
share of leasing obligations to third parties, which amounted to $1.0 million
(L0.4 million) at December 31, 2002. These obligations are also guaranteed
jointly and severally by each joint venture partner.

In connection with International's insurance program, letters of credit are
required to support certain projected workers' compensation obligations. At
December 31, 2002, letters of credit in the amount of $4.4 million were
outstanding.

In special circumstances, the Company's newspaper operations may engage
freelance reporters to cover stories in locales that carry a high risk of
personal injury or death. Subsequent to December 31, 2002, the Telegraph has
engaged a number of journalists and photographers to report from the Middle
East. As a term of their engagement, The Telegraph has agreed to provide a death
benefit which, in the aggregate for all freelancers engaged, amounts to $13.1
million (L5.1 million). This exposure is uninsured. Precautions have been taken
to avoid a concentration of the freelancers in any one location.

In connection with certain of its cost and equity method investments,
International is committed to fund approximately $1.9 million (U.S.$1.2 million)
to those investees in 2003.

Set out below is a summary of the amounts due and committed under
contractual cash obligations, other than in respect of the retractable common
shares at December 31, 2002:

<Table>
<Caption>
DUE DUE
DUE IN BETWEEN BETWEEN
1 YEAR 1 AND 4 AND DUE OVER
TOTAL OR LESS 3 YEARS 5 YEARS 5 YEARS
---------- -------- -------- ------- ----------
(DOLLARS IN THOUSANDS)

Existing Senior and Senior
Subordinated Notes(1)......... $1,279,781 $797,751 $ 8,030 $ -- $ 474,000
Other long-term debt............ 443,954 4,886 40,014 45,212 353,842
Capital lease obligations....... 65,586 12,157 17,165 11,909 24,355
Series II preference
shares(2)..................... 33,827 33,827 -- -- --
Series III preference
shares(3)..................... 101,472 101,472 -- -- --
Operating leases................ 257,251 27,095 45,590 35,125 149,441
---------- -------- -------- ------- ----------
Total contractual cash
obligations................... $2,181,871 $977,188 $110,799 $92,246 $1,001,638
========== ======== ======== ======= ==========
</Table>

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

(1) During 2002, Publishing purchased for retirement approximately $406.8
million (U.S.$254.9 million) of the existing Senior Notes due 2005. The
balance of those notes outstanding, approximately $8.0 million (U.S.$5.1
million) will mature in 2005. Included in the total of notes outstanding is
$797.8 million (U.S.$504.9 million) of Senior Subordinated Notes with
maturities in 2006 and 2007. At December 31, 2002, the borrowings under the
Senior Credit Facility and the 9% Senior Notes due 2010 were held in escrow
pending and for the purpose of redemption of the Senior Subordinated Notes.
Consequently, outstanding balances for the Senior Subordinated Notes,
irrespective of their maturity date, have been reflected as due in one year
or less. Refer to "long-term debt" for a discussion of the new Senior Credit
Facility $489.8 million (U.S.$310 million) maturing in 2008 and 2009.

(2) The Company has Series II preference shares that are exchangeable at the
holder's option for 0.46 of a share of International's Class A common stock
for each Series II preference share. The Company has the option to make a
cash payment of equivalent value on redemption of any of the Series II
preference shares. As at December 31, 2002, the market value of the shares
of International's Class A common stock that they are exchangeable into
totals $33.8 million. While it is uncertain as to when, if ever, the

preference shares will be retracted, because the retraction can occur at any
time at the option of the holder, the outstanding balance has been reflected
as due in one year or less.

(3) The Company has Series III preference shares which provide for a mandatory
redemption on the fifth anniversary of issue (April 30, 2004) for $10.00
cash per share (plus unpaid dividends) and an annual cumulative dividend,
payable quarterly, of $0.70 per share per annum (or 7%) during their
five-year term. The Company had the right at its option to redeem all or any
part of the Series III preference shares at any time after three years
(April 30, 2002) for $10.00 cash per share (plus unpaid dividends). Holders
have the right at any time to retract Series III preference shares for a
retraction price payable in cash which, until April 30, 2003, fluctuates by
reference to two benchmark Government of Canada bonds having a comparable
yield and term to the shares, and during the year ending April 30, 2004,
will be $9.50 per share (plus unpaid dividends in each case). While it is
uncertain as to when, if ever, the preference shares will be retracted,
because the retraction can occur at any time at the option of the holder,
the outstanding balance has been reflected as due in one year or less.

In addition to amounts committed under contractual cash obligations, the
Company has also assumed a number of contingent obligations by way of guarantees
and indemnities in relation to the conduct of its business. The more significant
guarantees and indemnities include those for lease obligations of a 50% owned
joint venture producing many of our U.K. publications; in support of
representations and warranties on the disposition of operations; against changes
in laws affecting returns to certain lenders; and against fluctuations in
foreign currency exchange rates in respect of the Participation Trust. For more
information on our contingent obligations, refer to note 27(h) to the
Consolidated Financial Statements, on page F-79.

THE COMPANY

Hollinger Inc. is the continuing company, under the laws of Canada,
resulting from the 1985 amalgamation of Argcen Holdings Inc., Hollinger Argus
Limited (incorporated June 28, 1910) and Labmin Resources Limited. The Company's
corporate offices are located at 10 Toronto Street, Toronto, Ontario, M5C 2B7,
(416) 363-8721.

Our principal asset is our approximately 30.3% equity (approximately 72.8%
voting) interest in International, a leading publisher of English-language
newspapers in the United States, the U.K. and Israel with a smaller publishing
presence in Canada. In addition to the investment in International, we also have
interests through wholly-owned subsidiaries in various other properties that do
not, in the aggregate, contribute materially to our revenue or earnings. These
properties include a 40% interest in a daily newspaper in the Cayman Islands and
Canadian commercial real estate properties, including our head office at 10
Toronto Street, Toronto, Canada. International's 23 paid daily newspapers have a
worldwide combined circulation of approximately two million. In addition,
International owns or has an interest in over 250 other publications, including
non-daily newspapers and magazines. Included among International's 144 paid
newspapers are the following premier titles:

- the Community Group's Jerusalem Post, which is the most widely read
English-language daily newspaper published in the Middle East and is
highly regarded regionally and internationally.

The Canadian Newspaper Group. The Canadian Newspaper Group primarily
consists of HCPH Co. and an 87% interest in the Partnership. HCPH Co. and the
Partnership own ten daily and 23 non-daily newspaper properties and
miscellaneous Canadian business magazines and tabloids for various industries
including: transportation, construction, natural resources and manufacturing.

NEWSPAPER INDUSTRY OVERVIEW

Newspaper publishing is one of the oldest and largest segments of the media
industry and the only remaining mass medium that has not become fragmented.
Newspapers are generally viewed as the best medium for retail advertising, which
emphasizes the price of goods, in contrast to television, which is generally
used for image-oriented advertising. According to the Newspaper Association of
America ("NAA"), daily newspaper readers include 60% of college graduates and
64% of households with income greater than US$75,000. Due to their significant
readership and household penetration, newspapers continue to be the most cost
effective means for advertisers to reach this highly sought after demographic
group. Additionally, management believes newspaper advertising is more cost
effective than television and radio advertising.

ADVERTISING

Most newspapers rely on advertising (70-80% of total revenue) and
circulation (20-30% of total revenue) for their revenues; by contrast,
television and radio rely almost entirely on advertising revenue. Newspaper
advertising is sold in several ways: full-run (printed on a newspaper page and
included in all editions, known as "run of press"), zoned part-run (printed on a
page and included in editions slated for a specific local geographic area), or
as preprints or inserts (advertising that is printed separately and inserted in
a newspaper). Department stores traditionally have been a major source of
display advertising, filling pages with pictures of their merchandise.
Classified advertising is also a significant component of revenue for
newspapers, usually accounting for about one-third of total advertising sales.
The circulation and demographic information verified by the Audit Bureau of
Circulations ("ABC") is the basis for the ad rates that newspapers charge to
advertisers.

U.S. NEWSPAPER INDUSTRY

In 2001, daily newspaper advertising expenditures in the U.S. were
approximately $44.3 billion, representing a compounded annual growth rate (CAGR)
of 3.9% since 1991. In addition total morning daily and Sunday circulation has
increased nationally from 29.4 million and 54.7 million in 1980 to 46.8 million
and 59.1 million in 2001, respectively. While there are a few newspapers that
have national circulation, most U.S. newspapers operate in regional markets with
limited local competition. Display and classified advertising are sold to both
local and national advertisers. Newspapers account for 20% of total U.S.
advertising spending. Because newspapers reach 54% of U.S. adults daily,
advertisers utilize newspapers to reach the broadest possible number of
potential customers for their products and services.

Over the last several years, newspapers have used a clustering strategy
consisting of owning and managing papers with geographic proximity in order to
achieve both revenue and cost benefits. Newspaper clusters are able to offer
advertisers broader, bundled purchasing compared to the narrower reach of a
single newspaper. Clusters can also facilitate cost efficiencies by
consolidating printing facilities, distribution channels, sharing editorial
resources and other types of centralized cost savings.

U.K. NEWSPAPER INDUSTRY

British national newspapers more closely resemble North American magazines
in that they have broad distribution and readership across the country and
derive a much larger portion of their advertising revenue from national
advertisers, unlike North American newspapers which, because of their relatively
small geographic distribution areas, derive a substantial portion of their
advertising from local advertisers. National newspapers in the U.K. reach 70% of
the adult population, the second highest reach of all U.K. media behind only
television.

The U.K. newspaper market is segmented and, within each segment, highly
competitive. The U.K. newspaper market consists of 10 national daily and 11
national Sunday newspapers, 2,609 regional and local newspapers, 3,152 consumer
magazines, and 5,161 business magazines. There are nine national U.K. newspaper
owners and three newspaper segments, the quality, mid-market and popular
segments. The market segment in which The Daily Telegraph competes is generally
known as the quality daily newspaper segment, consisting of all the broadsheets.
The Daily Telegraph and its competitors in this market segment appeal to the
middle and upper end of the demographic scale. In 2002, newspapers received a
34% share of the total advertising spending in the U.K., which is the largest
percentage of any medium. In addition, national newspaper advertising spending
has increased in nine of the last 11 years and has grown at a compound annual
growth rate of 5.1% since 1991.

BUSINESS STRATEGY

Our revenue and RMI's revenue, on a consolidated basis, is dependent upon
the financial performance of our underlying assets, principally the assets of
International. Through our influence of International's strategic direction and
management and RMI's provision of services under the services agreements, we
intend to pursue the following strategies:

Continue to Maximize Operating Efficiency of Underlying
Assets. International has extensive expertise in introducing and maintaining
operating efficiencies, producing superior newspapers and increasing revenues.
Historically, these efficiencies have resulted from centralized newsprint
purchasing, clustering and consolidating duplicative functions and facilities at
its acquired newspaper publications, and investing in technology and production
equipment. For example, in April 2001, International completed the installation
of a US$115 million, state-of-the-art printing facility in Chicago which has
lowered its production costs, enhanced product quality, and increased the
availability of color printing which generates higher advertising yields. In
response to the recent economic downturn, International has reduced total
compensation and other operating costs (other than newsprint) during fiscal year
2002 as compared to the corresponding period in 2001, which has positioned
International to significantly benefit as the advertising market recovers.
International will continue to aggressively manage its cost structure in the
future in order to optimize cash flow.

Prudent Asset Management. In addition to pursuing revenue growth from its
existing publications and maximizing operating efficiencies, International may
from time to time pursue selective, complementary newspaper acquisitions and
non-core divestitures. Management has a successful track record of identifying
value-enhancing acquisitions and underperforming newspaper properties,
integrating and optimizing these acquisitions, and opportunistically divesting
assets for optimal value to achieve debt reduction. Since International's
formation in 1986, the existing senior management team has built, primarily
through acquisitions, and managed up to 400 newspapers and related publications.
After acquiring control of The Daily Telegraph in 1986, International
significantly modernized the Telegraph's printing plants, negotiated a two-
thirds reduction in work force, and revitalized its titles. In 1994,
International acquired the Chicago Sun-Times and have since doubled its
operating profits. More recently, International divested its U.S. community
newspaper operations and the majority of its Canadian newspaper assets, which
were monetized at attractive cash flow multiples. This strategy has positioned
International to emerge from the current downturn with reduced leverage,
efficient and focused operations, and solid operating platforms for growth.

CHICAGO GROUP

SOURCES OF REVENUE. The following table sets forth the sources of revenue
and the percentage such sources represent of total revenues for the Chicago
Group during the past three years.

<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
2000 2001 2002
-------------- -------------- --------------
(US$ IN THOUSANDS)

Advertising................................. $305,027 76% $338,521 76% $341,261 77%
Circulation................................. 80,261 20 92,716 21 89,427 20
Job Printing and Other...................... 16,129 4 11,647 3 11,089 3
-------- --- -------- --- -------- ---
Total....................................... $401,417 100% $442,884 100% $441,777 100%
======== === ======== === ======== ===
</Table>

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

- Pioneer Newspapers Inc., which currently publishes 56 weekly newspapers
in Chicago's north and northwest suburbs;

- Midwest Suburban Publishing Inc., which in addition to the Daily
Southtown, publishes 23 biweekly newspapers, 13 weekly newspapers and
four free distribution papers primarily in Chicago's south and southwest
suburbs; and

- Fox Valley Publications Inc., which publishes 4 daily newspapers, The
Herald News, The Beacon News, The Courier News and The News Sun, 12 free
distribution newspapers and six free total market coverage products
("TMC") in the fast growing counties surrounding Chicago and Cook
County.

Advertising. Substantially all advertising revenues are derived from local
and national retailers and classified advertisers. Advertising rates and rate
structures vary among the publications and are based, among other things, on
circulation, penetration and type of advertising (whether classified, national
or retail). In 2002, retail advertising accounted for the largest share of
advertising revenues (47%), followed by classified (39%) and national (14%). The
Chicago Sun-Times offers a variety of advertising alternatives, including full-
run advertisements, geographically zoned issues, special interest pull-out
sections and advertising supplements in addition to regular sections of the
newspaper targeted to different readers, such as arts, food, real estate, TV
listings, weekend, travel and special sections. The Chicago area suburban
newspapers also offer similar alternatives to the Chicago Sun-Times platform for
their daily and weekly publications. The Chicago Group operates the Reach
Chicago Newspaper Network, an advertising vehicle that can reach the combined
readership base of all the Chicago Group publications and allows International
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 from single copy newspaper
sales made through retailers and vending racks and home delivery newspaper sales
to subscribers. In 2002, approximately 69% of the copies of the Chicago
Sun-Times sold and 61% of the circulation revenues were single copy sales.
Approximately 80% of 2002 circulation revenues of the Chicago area suburban
newspapers were derived from subscription sales. The average paid daily and
Sunday circulation of the Chicago Sun-Times is approximately 481,000 and
383,000, respectively. The Chicago Sun-Times has had consecutive increases over
the past two years in paid daily circulation. The daily and Sunday paid
circulation of the Daily Southtown is approximately 48,000 and 53,000,
respectively. The daily and Sunday paid circulation of the Post-Tribune is
approximately 65,000 and 70,000, respectively. The aggregate daily and Sunday
paid circulation of the Chicago Suburban Newspapers is approximately 100,000 and
114,000, respectively. The aggregate circulation for the free TMC products is
approximately 296,000 and the circulation of the free distribution newspapers
and bi-weekly paid circulation of the Chicago Suburban Newspapers is
approximately 227,000 and 21,000, respectively.

Other Publications and Business Enterprises. The Chicago Group continues
to strengthen its online dominance. Suntimes.com and related Group websites have
approximately 1.4 million unique users with some 25 million page impressions per
month. The www.classifiedschicago.com regional classified-advertising website,
which was created through a partnership with Paddock Publications, pools
classified advertisements from all Chicago Group publications, as well as
Paddock Publications' metropolitan daily to create a valuable new venue for
advertisers, readers and on-line users. Additionally, www.DriveChicago.com
continues to be a leader in automotive websites. During 2000, the Chicago Group
joined Paddock Publications and the Chicago Automobile Trade Association to
create this website that pools the automotive classified advertising of three of
the Chicago metropolitan area's biggest dailies with the automotive inventories
of many of Chicago's metropolitan new car dealerships.

Sales and Marketing. Each newspaper or operating subsidiary in the Chicago
Group has had its own marketing department which works closely with both
advertising and circulation sales and marketing teams to introduce new readers
to the Group's newspapers through various initiatives. The Chicago Sun-Times
marketing department uses strategic partnerships, such as major event
productions and sporting venues, for on-site promotion and to generate
subscription sales. The Chicago Sun-Times has also formed a marketing and media
partnership with local TV and radio outlets for targeted audience exposure.
Similarly at Fox Valley Publications and Midwest Suburban Publishing, marketing
professionals work closely with circulation sales professionals to determine
circulation promotional activities, including special offers, sampling programs,
in-store kiosks, sporting event promotions, dealer promotions and community
event participation. In-house printing capabilities allow the Fox Valley
marketing department to offer direct mail as an enhancement to customers' run of
press advertising programs. Midwest Suburban Publishing, like the other
newspapers, generally targets readers by zip code. Midwest Suburban Publishing
owns its existing customer list of 120,000 names along with the Penny Saver
address list containing 435,000 household names. The Post-Tribune marketing
department focuses on attracting readers in the top 20 zip codes that major
advertisers have identified as being the most attractive.

Distribution. The Chicago Group has gained benefits from International's
clustering strategy. In recent years, International 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 publication, Fox Valley
Publications, in which Fox Valley Publications distributes the Chicago Sun-Times
in areas outside of Cook County. The Chicago Sun-Times has approximately 8,000
street newspaper boxes and more than 8,500 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. Of the
total circulation, approximately 69% is sold through single copy outlets, and
31% through home delivery subscriptions. Midwest Suburban Publishing's Daily
Southtown is distributed primarily by Chicago Sun-Times independent contractors.
Additionally, in certain western suburbs, the Daily Southtown also has a joint
distribution program with Fox Valley Publications. The Daily Southtown and its
sister publication, The Star, are also distributed in approximately 1,600
outlets and newspaper boxes in Chicago's southern suburbs and Chicago's south
side and downtown areas. Midwest's Penny Saver is distributed through the post
office and through independent contractors. Approximately 83% of Fox Valley
Publication's circulation is from home delivery subscriptions. While 85% of the
Post-Tribune's circulation is by home delivery, it also distributes newspapers
to 635 retail outlets and approximately 420 single copy newspaper boxes. Pioneer
has a solid home delivery base that represents 94% of its circulation. Pioneer
is also distributed to more than 350 newspaper boxes and is in more than 1,200
newsstand locations.

Printing. The Chicago Sun-Times' Ashland Avenue printing facility became
fully operational in April 2001 and gives the Chicago Group printing presses
that have the quality and speed necessary to effectively compete with the other
regional newspaper publishers. Fox Valley Publications' 100,000 sq. ft. plant,
which was completed in 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 sections
are printed at the Chicago Sun-Times Ashland Avenue facility. The Post-Tribune
has one press facility in Gary, Indiana.

Competition. Each of the Chicago area newspapers competes in 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 International owns six. The Chicago Sun-Times competes
in the Chicago region with the Chicago Tribune, a large established metropolitan
daily and Sunday newspaper, which is the fifth largest metropolitan daily
newspaper in the United States based on circulation. 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.

Employees and Labor Relations. As of December 31, 2002, the Chicago Group
employed approximately 3,372 employees (including approximately 639 part-time
employees), of which 702 are production staff, 649 are sales and marketing
personnel, 379 are circulation staff, 254 are general and administrative staff
and 739 are editorial staff. Approximately 920 employees are represented by 23
collective bargaining units. Employee costs (including salaries, wages, fringe
benefits, employment-related taxes and other direct employee costs) equaled
approximately 38.7% of the Chicago Group's revenues in the year ended December
31, 2002. 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 basic raw material for newspapers is newsprint. In 2002
approximately 132,000 tons were consumed. Newsprint costs equaled approximately
14.3% of the Chicago Group's revenues. Average newsprint prices for the Chicago
Group decreased about 21% in 2002 from 2001. The Chicago Group is not dependent
upon any single newsprint supplier. The Chicago Group's access to Canadian,
United States and offshore newsprint producers ensures an adequate supply of
newsprint. The Chicago Group, like other newspaper publishers in North America,
has not entered into any long-term fixed price newsprint supply contracts. The
Chicago Group believes that its sources of supply for newsprint are adequate for
its anticipated needs.

U.K. NEWSPAPER GROUP

SOURCES OF REVENUE. The following table sets forth the sources of revenue
and their percentage of total revenues for The Telegraph during the past three
years.

<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
2000 2001 2002
-------------- -------------- --------------
(IN THOUSANDS OF BRITISH POUNDS STERLING)

Advertising................................. L255,945 69% L228,715 68% L211,045 66%
Circulation................................. 95,690 26 94,502 28 93,640 29
Other....................................... 19,020 5 14,252 4 16,261 5
-------- --- -------- --- -------- ---
Total....................................... L370,655 100% L337,469 100% L320,946 100%
======== === ======== === ======== ===
</Table>

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

(1) Financial data is in accordance with U.K. generally accepted accounting
principles.

The U.K. Newspaper Group's operations include The Daily Telegraph, The
Sunday Telegraph, The Weekly Telegraph, telegraph.co.uk, and The Spectator and
Apollo magazines.

Advertising. Advertising is the largest source of revenue at The
Telegraph. The Telegraph's display advertising strengths are in the financial,
automobile and travel sections. The level of classified advertisements,
especially recruitment advertisements, fluctuates with the economy. The
Telegraph's strategy with respect to classified advertising is to improve volume
and yield in four sectors: recruitment, property, travel and automobiles.
Classified advertising revenue represents 27% of total advertising revenue.
Recruitment advertising is the largest classified advertising category,
representing about 36% of all classified advertising in terms of revenue in
2002.

Circulation. The target audience of The Telegraph's newspapers is
generally conservative, middle and upper income readers, with a continuing
emphasis on gaining new younger readers. The editorial strengths of The
Telegraph's newspapers are national, international, financial news and features
and comprehensive sports coverage. In May 1996, The Telegraph introduced the
first United Kingdom national advance purchase subscription program. The program
has proven successful in driving circulation increases although there has been
some inevitable cannibalization of single copy sales. By the end of 1996, the
plan had added about 100,000 new weekday and 200,000 new Sunday average sales
and the average prepaid subscription was for a period of about 40 weeks. In
order to gain broad acceptance of this revolutionary plan, the subscriptions
were offered at a significant discount. The amount of that discount was reduced
throughout 1997 and continued to be reduced thereafter. The program currently
has approximately 315,000 subscribers.

Other Publications and Business Enterprises. The Telegraph is involved in
several other publications and business enterprises, including The Spectator,
Apollo, The Weekly Telegraph and telegraph.co.uk (formerly Electronic
Telegraph). Telegraph.co.uk has over 3.2 million unique users with some 30
million page impressions per month. The Telegraph uses its brand in developing
ancillary revenue streams such as reader offers including travel promotions,
financial services, household products and books. During 1999, The Telegraph, in
conjunction with The Boots Company plc, the United Kingdom's leading beauty and
health retailer, launched a new web site focusing on the women's on-line market,
www.handbag.com. The site deals with, among other things, health, beauty and the
arts.

Sales and Marketing. The Telegraph's marketing department helps introduce
new readers to International's newspapers through new strategic marketing
initiatives. International has research groups that seek the views of readers.
This provides useful information to better target editorial, promotional and
commercial activities The Telegraph's marketing and prospect database, which
contains information about the newspaper readership, purchasing, and lifestyles
of readers, is used to selectively target customers. In addition, the marketing
department is responsible for the development of a customer contact strategy,
circulation initiatives such as subscription programs, discount vouchers
supporting the launch of new sections and supplements, and various support
promotions. The marketing department is composed of 23 employees organized into
the following four groups: business development, which assists in providing data
solutions for commercial activity; management information, which analyzes
business performance and business potential; campaign management, which focuses
on subscription and voucher programs; and data management, which looks after the
flow of data and managing the customer database.

Distribution. Since 1988, The Telegraph's newspapers have been distributed
to wholesalers by truck under a contract with a subsidiary of TNT Express (U.K.)
Limited ("TNT"). The Telegraph's arrangements with wholesalers contain
performance provisions to ensure minimum standards of copy availability while
controlling the number of unsold copies. On May 25, 2001, a new contract with
TNT was entered into by each of the major publishers at West Ferry Printers, a
joint venture owned equally by The Telegraph and another British newspaper
publisher. That contract is for a minimum term of five years and six months and
commenced on May 27, 2001.

Wholesalers distribute newspapers to retail news outlets. The number of
retail news outlets throughout the United Kingdom has increased as a result of a
1994 ruling by the British Department of Trade and Industry that prohibits
wholesalers from limiting the number of outlets in a particular area. More
outlets do not necessarily mean more sales and The Telegraph's circulation
department has continued to develop its control of wastage while taking steps to
ensure that copies remain in those outlets with high single copy sales. In
addition to single copy sales, many retail news outlets offer home delivery
services. In 2002 home deliveries accounted for 40% of sales of both The Daily
Telegraph and The Sunday Telegraph.

Historically, wholesalers and retailers have been paid commissions based on
a percentage of the cover price. Prior to June 1994 when competitive pressures
caused The Telegraph to reduce its cover price, wholesaler and retailer
commissions amounted to approximately 34% of the then cover price.
Notwithstanding the reduction of the cover price, the commissions paid were not
reduced. In line with other national newspapers, The Telegraph has recently
moved away from a commission paid on a percentage of cover price to a fixed
price in pence per copy.

Printing. The majority of copies of The Daily Telegraph and The Sunday
Telegraph are printed by The Telegraph's two 50% owned joint venture printing
companies, West Ferry Printers and Trafford Park Printers. The Telegraph has a
very close involvement in the management of the joint venture companies and
regards them as being important to The Telegraph's day-to-day operations. The
magazine sections of the Saturday edition of The Daily Telegraph and of The
Sunday Telegraph are printed under contract by external magazine printers. The
Telegraph also prints the majority of its overseas copies under contracts with
external printers in Northern Ireland, Spain and Belgium.

Management of each joint venture printing company continually seeks to
improve production performance. Major capital expenditures require the approval
of the boards of directors of the joint venture partners. There is high
utilization of the plants at West Ferry and Trafford Park Printers, with little
spare capacity. At Trafford Park Printers, revenue earned from contract printing
for third parties has a marginal effect on The Telegraph's printing costs. West
Ferry Printers also undertakes some contract printing for third parties, which
results in increased profitability.

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

Competition. In common with other national newspapers in the United
Kingdom, The Telegraph's newspapers compete for advertising revenue with other
forms of media, particularly television, magazine, direct mail, posters and
radio. In addition, total gross advertising expenditures, including financial,
display and recruitment classified advertising, are affected by economic
conditions in the United Kingdom. International's primary competition in the
United Kingdom is The Times, however The Daily Telegraph has a 42% greater
circulation than The Times.

Employees and Labor Relations. At December 31, 2002, The Telegraph and its
subsidiaries employed approximately 1,238 persons and the joint venture printing
companies employed an additional 914 persons. Of The Telegraph's approximately
1,238 employees, 52 are production staff, 414 are sales and marketing personnel,
223 are general and administrative staff and 549 are editorial staff. Collective
agreements between The Telegraph and the trade unions representing certain
portions of The Telegraph's workforce expired on June 30, 1990 and have not been
renewed or replaced. The absence of such collective agreements has had no
adverse effect on The Telegraph's operations and, in management's view, is
unlikely to do so in the foreseeable future.

The Telegraph's joint venture printing companies, West Ferry Printers and
Trafford Park Printers, each have "in-house" collective agreements with the
unions representing their employees and certain provisions of these collective
agreements are incorporated into the employees' individual employment contracts.
In contrast to the union agreements that prevailed on Fleet Street when
International acquired control of The Telegraph, these collective agreements
provide that there shall be flexibility in the duties carried out by union
members and that staffing levels and the deployment of staff are the sole
responsibility of management. Binding arbitration and joint labor-management
standing committees are key features of each of the collective agreements. These
collective agreements may be terminated by either party by six months' prior
written notice.

There have been no strikes or general work stoppages involving employees of
The Telegraph or the joint venture printing companies in the past five years.
Management of The Telegraph believes that its relationships with its employees
and the relationships of the joint venture printing companies with their
employees are generally good.

Raw Materials. Newsprint represents the single largest raw material
expense of The Telegraph's newspapers and, next to employee costs, is the most
significant operating cost. Approximately 157,000 metric tons are consumed
annually. In 2002, the total cost was approximately 17% of the U.K. Newspaper
Group's revenues. Prices were fixed throughout 2002 at levels some 9.9% below
the average price paid during 2001. Inventory held at each printing location is
sufficient for three to four days production and in addition,

suppliers' stock held in the United Kingdom normally represents a further four
to five weeks consumption. Recently negotiated contracts for 2003 are at prices
7.1% below those for 2002.

On October 17, 2001, Paper Purchase and Management Limited was established
as a joint venture between The Telegraph and Guardian Media Group plc. The main
purpose of the joint venture is to control the specifications and sourcing, as
well as monitoring the usage, of newsprint throughout the printing plants
operated by one or both of the joint venture partners and at other locations
where the joint venture partners' publications are printed on a contract basis.
Further, by combining the purchasing power of the joint venturers, The Telegraph
is able to negotiate better prices. The Telegraph purchases newsprint from a
number of different suppliers located primarily in Canada, the United Kingdom,
Scandinavia and continental Europe. With many sources of newsprint accessible to
it, The Telegraph is neither reliant on any single supplier nor is availability
of newsprint a concern.

CANADIAN NEWSPAPER GROUP

SOURCES OF REVENUE. The following table sets forth the sources of revenue
and the revenue mix of the total Canadian Newspaper Group, during the past three
years, including revenue of operations sold up to the date of sale. Operations
sold in the past three years include: the Canadian metropolitan newspapers and a
large number of community papers to CanWest in 2000; the sale of the French
language newspapers to Gesca in 2001; the sale of Ontario community newspapers
to Osprey in 2001; and the sale of International's remaining 50% interest in the
National Post to CanWest in 2001.

<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2000 2001 2002
---------------- -------------- --------------
(IN THOUSANDS OF CANADIAN DOLLARS)

Newspapers:
Advertising.............................. $1,158,678 73% $171,032 56% $ 47,215 43%
Circulation.............................. 287,513 18 53,030 17 6,611 6
Job printing and other................... 70,809 5 35,249 12 11,883 11
Business Communications.................... 62,193 4 45,763 15 43,412 40
---------- --- -------- --- -------- ---
Total...................................... $1,579,193 100% $305,074 100% $109,121 100%
========== === ======== === ======== ===
</Table>

At December 31, 2002, International's Canadian Newspaper Group primarily
consisted of HCPH Co. and an 87% interest in Hollinger L.P. During 2001 HCPH Co.
(formerly Hollinger Canadian Publishing Holdings Inc. ("HCPH")) became the
successor to the operations of XSTM Holdings (2000) Inc. (formerly Southam Inc.
("Southam")).

HCPH Co. and Hollinger L.P. owned ten daily and 23 non-daily newspaper
properties and the Business Information Group (formerly Southam Magazine and
Information Group) which publishes Canadian business magazines and tabloids for
the transportation, construction, natural resources, manufacturing and other
industries.

Advertising. Newspaper advertising revenue in 2002 totaled Cdn.$47.2
million. Advertisements are carried either within the body of the newspapers,
and referred to as run-of-press (ROP) advertising, or as inserts. ROP, which
represented 91% of total advertising revenue in 2002 is categorized as either
retail, classified or national. The three categories represented 72%, 12% and
16%, respectively, of ROP advertising revenue in 2002.

Circulation. Virtually all newspaper circulation revenue in 2002 was from
subscription sales.

Employees and Labor Relations. As of December 31, 2002, the Canadian
Newspaper Group had approximately 725 employees of which approximately 31% are
unionized. The Canadian Newspaper Group has union contracts in place at
approximately 11 of the 19 newspaper operating locations. The percentage of
unionized employees varies widely from paper to paper. With the large number of
contracts being renegotiated every year, labor disruptions are always possible,
but no single disruption would have a material effect on International.

Raw Materials. The basic raw material for newspapers is newsprint.
Newsprint consumption in 2002, was approximately 10,900 tons. The newspapers
within the Canadian Newspaper Group have access to adequate supplies to meet
anticipated production needs. They are not dependent upon any single newsprint
supplier. The Canadian Newspaper Group, like other newspaper publishers in North
America, has not entered into any long-term fixed price newsprint supply
contracts.

Regulatory Matters. The publication, distribution and sale of newspapers
and magazines in Canada is regarded as a "cultural business" under the
Investment Canada Act and consequently, any acquisition of control of the
Canadian Newspaper Group by a non-Canadian investor would be subject to the
prior review and approval by the Minister of Industry of Canada. Because no such
acquisition of control of the Company or International has occurred, the current
ownership is acceptable.

Relationship with International. International owns a 100% interest in
HCPH Co. International indirectly owns an 87.0% interest in the Partnership.

COMMUNITY GROUP

SOURCES OF REVENUE. The following table sets forth the sources of revenue
and the percentage that such sources represented of total revenues for the
Community Group during the past three years.

<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
2000 2001 2002
------------- ------------- -------------
(US$ IN THOUSANDS)

Advertising.................................... $38,294 57% $ 5,806 30% $ 3,937 30%
Circulation.................................... 19,168 28 7,751 41 6,082 46
Job Printing and Other......................... 9,874 15 5,558 29 3,212 24
------- --- ------- --- ------- ---
Total.......................................... $67,336 100% $19,115 100% $13,231 100%
======= === ======= === ======= ===
</Table>

Advertising. Approximately 46% of the Jerusalem Post's revenues of $13.2
million in 2002 were derived from circulation, with 24.2% from job printing and
other and 29.8% from advertising. The Jerusalem Post in the past derived a
relatively high percentage of its revenues from job printing as a result of a
long-term contract to print and bind copies of the Golden Pages, Israel's
equivalent of a Yellow Pages telephone directory. During 2002, Golden Pages
effectively cancelled this agreement and has ceased placing printing orders. An
action was commenced by the Jerusalem Post in 2003 seeking damages for the
alleged breach. Newsprint costs relating to publication of the Jerusalem Post
equaled approximately 11.3% of the Jerusalem Post's revenues in 2002. Newsprint
used in producing the Golden Pages was provided by the owners of that
publication.

Regulatory Matters. Newspapers in Israel are required by law to obtain a
license from the country's interior minister, who is authorized to restrain
publication of certain information if, among other things, it may endanger
public safety. To date, the Jerusalem Post has not experienced any difficulties
in maintaining its license to publish or been subject to any efforts to restrain
publication. In addition, all written media publications in Israel are reviewed
by Israel's military censor prior to publication in order to prevent the
publication of information that could threaten national security. Such
censorship is considered part of the ordinary course of business in the Israeli
media and has not adversely affected the Jerusalem Post's business in any
significant way.

PROPERTIES

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

The Chicago Sun-Times conducts its editorial, pre-press, marketing, sales
and administrative activities in a 535,000 square foot, seven-story building in
downtown Chicago, which is owned by International. International has completed
the full conversion of its Chicago Sun-Times production operations to a new
320,000 square foot state-of-the-art printing facility, at a total construction
cost of approximately

US$115 million. It is intended that new facilities will be identified to house
the Chicago Sun-Times non-production activities and the downtown Chicago
building will be redeveloped. Agreement has been reached for a joint development
of the downtown Chicago building under which, if it proceeds, the Chicago Group
will receive the first US$75 million of consideration and will share in future
profits. There can be no assurance that this joint development will proceed.

Pioneer utilizes and owns a building in north suburban Chicago for
editorial, pre-press, sales and administrative activities. Pioneer leases
several outlying satellite offices for its editorial and sales staff in
surrounding suburbs. Production currently occurs at a 65,000 square foot leased
building in a neighboring suburb. Midwest Suburban Publishing utilizes one
building for editorial, pre-press, marketing, sales and administrative
activities. Production activities occur at a separate facility. Both facilities
are located in Chicago's south suburbs. The Post-Tribune editorial, pre-press,
marketing, sales and administrative activities are housed in the newly completed
facility in Merrillville, Indiana while production activities continue at its
facility in Gary, Indiana. The headquarters for Fox Valley Publications Inc. is
a 172,000 square foot owned facility, built in 1992 and located in Plainfield,
Illinois. Fox Valley Publications produces its newspapers at this facility,
which also houses marketing functions, prepress, as well as certain sales and
administrative activities. The editorial and sales activities are housed at five
owned facilities located in surrounding suburbs.

The Telegraph occupies five floors of a tower at Canary Wharf in London's
Docklands under a 25-year operating lease expiring in 2017. Printing of The
Telegraph's newspaper titles is done principally at fifty percent owned joint
venture printing plants in London's Docklands and in Trafford Park, Manchester.

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

The Canadian Newspaper Group's newspapers and magazines are published at
numerous facilities throughout Canada.

ENVIRONMENTAL

International and the Company, as well as other newspaper companies engaged
in similar operations, are 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 International's major
printing facilities. These requirements are becoming increasingly stringent.
International believes that compliance with these laws and regulations will not
have a material adverse effect on its operations.

LEGAL PROCEEDINGS

International and the Company become involved from time to time in various
claims and lawsuits incidental to the ordinary course of their business,
including such matters as libel, defamation and invasion of privacy actions. In
addition, International and the Company are 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.

Domgroup Ltd. ("Domgroup"), a wholly owned subsidiary of the Company, is
currently involved in litigation concerning two shopping centre leases which
Domgroup entered into in 1979 and 1980 and subsequently assigned to third
parties. In or around 1994, the third party assignee made a proposal under the
Bankruptcy and Insolvency Act and the leases were repudiated. In 1997, the
landlords pursued a claim against Domgroup as the original lessee under the
leases.

In their pre-trial briefs filed in 2000, the landlords claimed total
damages of $2,573,000, plus interest and costs. In 2001, Domgroup brought a
successful summary judgment motion dismissing the claim on the ground that the
New Brunswick Court had endorsed the termination of the leases and there was no
basis on which Domgroup remained liable under the leases. In 2002, the Ontario
Court of Appeal reversed the summary judgment and held that Domgroup's liability
under the leases had not been extinguished. Domgroup has

appealed this decision to the Supreme Court of Canada and the appeal will be
heard in November 2003. At this stage, it is not possible to predict how the
Supreme Court of Canada will rule.

On November 22, 2000, United News & Media plc sold their interest in
Express Newspapers to Northern & Shell Media Holdings Ltd. As a result of this
change of control, under the terms of the West Ferry Printers' Joint Venture
Agreement, The Telegraph had an option to purchase Express Newspapers' interest
in West Ferry Printers. The Telegraph made an offer for the shares in January
2001 which was rejected by Express Newspapers in February 2001. Express
Newspapers subsequently commenced arbitration proceedings pursuant to the Joint
Venture Agreement to determine the option price.

In April 2001, Express Newspapers commenced two actions against The
Telegraph, a claim for specific performance, seeking an order that The Telegraph
buy out Express Newspapers' interest in West Ferry, and a petition under section
459, Companies Act 1985, claiming unfair prejudice (the "s. 459 Petition").
Express Newspapers lost the specific performance proceedings and the s. 459
Petition was struck out. Express Newspapers appealed both decisions in March
2002. Again, the claim for specific performance was rejected by the courts.
However, the court determined that the option for The Telegraph to purchase
Express Newspapers' interest had expired on January 3, 2001. Leave was given for
Express Newspapers to continue with the s. 459 Petition. Subsequent to March
2002, Express Newspapers entered into a consent order with the Telegraph
withdrawing the s. 459 Petition and Express Newspapers' directors have been
reappointed to the West Ferry Board. International believes that the dispute has
been resolved.

There are a number of libel and legal actions outstanding against
International and the Company, however the management of International and the
Company believe there are valid defenses to these proceedings or sufficient
insurance to protect them from material loss. The management of International
and the Company believe that the outcome of any pending claims or proceedings
will not have a material adverse effect on either International or the Company
taken as a whole.

MANAGEMENT

The name, age and position held of each of the directors and executive
officers of the Company as of September 4, 2003 are set forth below.

<Table>
<Caption>
NAME AND AGE POSITION(S) WITH THE COMPANY
- ------------ ----------------------------

Peter Y. Atkinson, 56................................ Executive Vice President and Director
Douglas G. Bassett, OC, OOnt, 63..................... Director
Barbara Amiel Black, 61.............................. Vice President, Editorial and Director
The Lord Black of Crossharbour, PC(C), OC, KCSG,
58................................................. Chairman of the Board, Chief Executive Officer
and Director
J. A. Boultbee, 59................................... Executive Vice President and Director
Daniel W. Colson, 54................................. Vice Chairman and Director, Deputy Chairman,
Chief Executive Officer and Director of The
Telegraph
Frederick A. Creasey, 52............................. Vice President and Chief Financial Officer
Charles G. Cowan, CD, QC, 74......................... Vice President and Secretary, Director
Claire F. Duckworth, 35.............................. Controller
Fredrik S. Eaton, OC, OOnt, 64....................... Director
Allan E. Gotlieb, CC, 74............................. Director
Henry H. Ketcham III, 52............................. Director
Peter K. Lane, 49.................................... Vice President
F. David Radler, 60.................................. Deputy Chairman, President, Chief Operating
Officer and Director
Sherrie L. Ross, 34.................................. Assistant Treasurer
Maureen J. Sabia, 61................................. Director
Tatiana Samila, 39................................... Treasurer
Peter G. White, 63................................... Director, Executive Vice-President, The
Ravelston Corporation Limited
</Table>

The principal occupation, business experience and tenure as a director of
the Company are set forth below. Unless otherwise indicated, all principal
occupations have been held for more than five years.

Peter Y. Atkinson, Executive Vice President and Director. Mr. Atkinson has
served as a Director and as Vice President since February 1996. In 2000 he was
appointed Vice President and General Counsel of the Company and in 2002 was
appointed Executive Vice President. He also serves as an officer and director of
Argus Corporation Ltd. and Hollinger Canadian Newspapers G.P. Inc. He is an
Executive Vice President and a Director of International. He is a director of
Toronto Hydro Corporation and of Canadian Tire Corporation, Limited and
Diamondex Resources Ltd., the latter two corporations being Canadian public
reporting companies.

Barbara Amiel Black (Lady Black), Vice President, Editorial and Director.
Barbara Amiel Black has served as Vice President, Editorial since September 1995
and as a director since February 1996 and is the wife of Lord Black. After an
extensive career in both on and off-camera television production, she was Editor
of The Toronto Sun from 1983 to 1985; columnist of The Times and senior
political columnist of The Sunday Times of London from 1986 to 1994; and
columnist of The Telegraph from 1994 to present. She has been a columnist of
Maclean's magazine since 1977. Barbara Amiel Black also serves as a director of
International and the Jerusalem Post. She is the author of two books: "By
Persons Unknown" (co-author), which won the Mystery Writers of America Edgar
Award for best non-fiction in 1978, and "Confessions", a book of political
essays published in 1980, which won the Canadian periodical publishers prize.

Douglas G. Bassett, Director. Mr. Bassett was appointed as director in June
2003. Mr. Bassett is Chairman of Windward Investments, a private investment
company. He is also a Director of Canadian Imperial Bank of Commerce,
Mercedes-Benz Canada Inc., Rothman's Inc., and a Trustee of Retirement
Residences Real Estate Investment Trust. From 1980 to 1996 he was the President
and Chief Executive Officer of Baton Broadcasting Incorporated and from 1994 to
1998 he was the Chairman of CTV Television Network Limited. Mr. Bassett was
appointed an Officer of the Order of Canada in 1991 and appointed to the Order
of Ontario in 1995.

The Lord Black of Crossharbour, PC(C), OC, KCSG, Chairman of the Board of
Directors, Chief Executive Officer and Director, International, New York,
Chicago; Hollinger Inc., Toronto; Argus Corporation Ltd., Toronto. Lord Black
has held these or equivalent or similar positions since 1978. He currently
serves as the Chairman and as a director of Telegraph Group Limited, London,
U.K., and as a director of the Jerusalem Post and The Spectator (London). Lord
Black also serves as a director of Brascan Limited, the Canadian Imperial Bank
of Commerce and CanWest Global Communications Corp., all of which are public
reporting companies in Canada, and as a director of Sotheby's Holdings, Inc.
Lord Black is Chairman of the Advisory Board of The National Interest
(Washington) and a member of the International Advisory Board of The Council on
Foreign Relations (New York).

J.A. Boultbee, Executive Vice President and Director. Mr. Boultbee has
served as Executive Vice President since June 1996 and as Chief Financial
Officer from 1995 to 1999. Mr. Boultbee served as a Vice President of
International from 1990 to June 1996 and as a director of International from
1990 to October 25, 1995. Mr. Boultbee has served for the past five years as a
director and as the Vice-President, Finance and Treasury and Executive Vice
President and Chief Financial Officer of the Company. Mr. Boultbee also serves
as a director of Argus, IAMGOLD Corporation and Consolidated Enfield
Corporation, all of which are Canadian public reporting companies.

Daniel W. Colson, Vice Chairman and Director, Deputy Chairman, Chief
Executive Officer and Director of The Telegraph. Mr. Colson currently serves as
Vice Chairman and as a director of the Company. Mr. Colson has served as a
director of International since February 1995 and as Vice Chairman of
International since May 1998. He has served as Deputy Chairman of The Telegraph
since 1995 and as Chief Executive Officer of The Telegraph since 1994, and was
Vice Chairman of The Telegraph from 1992 to 1995. Mr. Colson also currently
serves as Chairman and as a director of Hollinger Telegraph New Media Ltd. and
as Vice Chairman and director of Hollinger Digital Inc. He also serves as a
director of Argus, Molson Inc. and Macyro Group Inc. (Canada), all of which are
Canadian public reporting companies. Mr. Colson also served as Deputy Chairman
and director of Interactive Investor International plc from 1998 to 2001.

Frederick A. Creasey, Vice President and Chief Financial Officer. Mr.
Creasey has served as Chief Financial Officer since September 2002 and for the
past five years as the Controller of the Company. Mr. Creasey has also served as
Vice President of International since September 2002 and Group Corporate
Controller since June 1996.

Charles G. Cowan, CD, QC, Vice-President and Secretary, Director. Mr. Cowan
has served as a Director since 1981 and as Vice-President and Secretary since
1985. He also serves as a director and officer of Argus Corporation Limited and
Ravelston. He was appointed the Secretary of the Company's predecessor
corporations in 1961, at which time he was practising law in the
corporate/commercial field with the Toronto law firm that was the general
counsel to those companies, and he continued with that firm, becoming Managing
Partner and Chairman of its Executive Committee, until he joined the Company on
a full-time basis in 1985.

Claire F. Duckworth, Controller. Ms. Duckworth was appointed Controller in
June 2003 and has served as Assistant Controller from May 2002 to June 2003. Ms.
Duckworth has also served as Assistant Treasurer from 1999 to May 2002. Prior to
1999, Ms. Duckworth was a principal with Ernst & Young LLP.

Fredrik S. Eaton, OC, OOnt, Director. Mr. Eaton initially served as a
director from 1979 to 1991 and has subsequently served as a director since 1994.
Mr. Eaton is presently Chairman of White Raven Capital Corp., a privately owned
investment holding company, and director of Eaton's of Canada Inc. From 1967
until 1999,

he held various positions with The T. Eaton Company Limited, including director,
Chairman, President and Chief Executive Officer. Mr. Eaton is also a director of
Masonite International Corporation.

Allan E. Gotlieb, CC, Director. Mr. Gotlieb has served as a director since
1989. Mr. Gotlieb has served as Canadian Ambassador to the United States,
Chairman of the Canada Council and Undersecretary of State for External Affairs.
Mr. Gotlieb is currently Chairman of Sotheby's Canada, the Donner Canadian
Foundation and The Ontario Heritage Foundation and a senior advisor to the law
firm, Stikeman Elliott LLP and various other corporate and financial
institutions. He is also currently a Director of D+H Holdings Corp. and a
Trustee of Davis + Henderson Income Fund.

Henry H. Ketcham III, Director. Mr. Ketcham has served as a director since
1996. Mr. Ketcham is Chairman, President and Chief Executive Officer of West
Fraser Timber Co. Ltd. and has held that position since 1996. Mr. Ketcham is
also a Director of the Toronto Dominion Bank.

Peter K. Lane, Vice President. Mr. Lane has served as Vice President since
October 2002. Mr. Lane acted as Chief Financial Officer of Southam Publications
from 2000 to 2002 and prior to that as Chief Financial Officer of Philip
Utilities Management Corporation commencing in 1994. Mr. Lane was a partner with
Coopers & Lybrand from 1990 to 1994. Before then he was a partner with Ernst &
Young, having joined that firm in 1976.

F. David Radler, Deputy Chairman, President, Chief Operating Officer and
Director. Mr. Radler currently serves as President and Chief Operating Officer
and Deputy Chairman of the Company and as a director of The Telegraph. Mr.
Radler has also served as President and Chief Operating Officer of International
since October 1995, as Deputy Chairman since May 1998 and as a director since
1990. Mr. Radler was Chairman of the Board of Directors of International from
1990 to October 1995. Mr. Radler also serves as a director of Argus, Dominion
Malting Limited, West Fraser Timber Co. Ltd. and CanWest Global Communications
Corp., all of which are Canadian public reporting companies. Mr. Radler also
serves as a director of the Jerusalem Post.

Sherrie L. Ross, Assistant Treasurer. Ms. Ross has served as Assistant
Treasurer since May 2002 having joined the Company in 2001. Prior to that Ms.
Ross was an accountant in public practice for three years.

Maureen J. Sabia, Director. Ms. Sabia has served as a director since 1996.
Ms. Sabia has served as the principal of her own consulting practice with
specialized business, organizational and strategic related projects in the
private sector since 1986. Ms. Sabia was appointed Chairman of Export
Development Corporation's Board of Directors in 1991 and is a director of a
number of organizations, including Canadian Tire Corporation Limited; O&Y
Properties Corporation and O&Y FPT Inc.

Tatiana Samila, Treasurer. Ms. Samila has served as a Treasurer since May
2002. Ms. Samila has also served as Assistant Controller from 1992 to May 2002.

Peter White, Director, Executive Vice-President, The Ravelston Corporation
Limited. Mr. White initially served as a director from 1979 to 1984 and from
1986 to 1988 and subsequently has served as a director since 1991. Mr. White
also serves as an officer and director of Argus Corporation Ltd. Mr. White is a
Director of Cinram International, Transat A.T. Inc., Normerica Building Systems
Inc., and Proprietary Industries Inc. From 1984 to 1986, and again from 1988 to
1989, Mr. White was respectively Director of Government Appointments and
Principal Secretary to the Prime Minister of Canada. On April 10, 1997, Mr.
White was named Chevalier de l'Ordre National de la Legion d'Honneur by the
President of France.

RELATED PARTY TRANSACTIONS

International and its subsidiaries have entered into services agreements
with Ravelston, whereby Ravelston acts as manager of International and its
subsidiaries and carries out head office and executive responsibilities. These
services agreements were assigned on July 5, 2002 to RMI, a wholly-owned
subsidiary of Ravelston. Ravelston and RMI billed International and its
subsidiaries $37.3 million in 2002 pursuant to these agreements ($44.9 million
in 2001 and $49.9 million in 2000). In addition, certain executives of Ravelston
and Moffat Management and Black-Amiel Management, affiliates of Ravelston and
RMI, have separate services agreements with certain subsidiaries of
International. During 2002, amounts paid directly by subsidiaries of
International pursuant to such agreements were $3.0 million ($2.6 million in
2001 and $5.4 million in 2000). The fees under Ravelston's and RMI's services
agreement and the fees paid directly to executives and affiliates of Ravelston,
have been negotiated and approved by International's independent directors.

In addition to the amounts referred to in the preceding paragraph, during
2001 and 2000 there were further remuneration paid directly by subsidiaries of,
International to certain Ravelston executives of $2.6 million and $6.3 million
respectively (2002-nil).

Similarly, Ravelston carries out head office and executive responsibilities
for the Company and its subsidiaries, other than International and its
subsidiaries. In 2002 and 2001, no amounts were charged by Ravelston for such
services. In 2000, the Company received $10.7 million, net, from Ravelston
pursuant to a services agreement which was terminated on December 31, 2000.

In 2002, expenses are net of $2.4 million received from Ravelston and RMI
as a reimbursement of certain head office expenses incurred on behalf of
Ravelston and RMI ($2.0 million in 2001). Such expenses were not incurred on
behalf of Ravelston in 2000.

During 2001 and 2000, in connection with the sales of properties, the
Company, Ravelston, International, Lord Black and three senior executives
entered into non-competition agreements with the purchasers in return for cash
consideration paid.

During the six months ended June 30, 2003, International made a venture
capital investment of US$2.5 million in a company in which a director of
International has a minority interest. The funds invested are to be used for a
subsequent investment in a venture capital limited partnership.

On March 10, 2003, prior to the issue of Senior Secured Notes, NB Inc. sold
its shares of Class A common stock and Series E redeemable preferred stock of
International to RMI. Such shares were in turn sold back to NB Inc. from RMI at
the same price with a resulting increase in the tax basis of the shares of
International and a taxable gain to RMI.

All of the services agreements were negotiated in the context of a
parent-subsidiary relationship and, therefore, were not the result of arm's
length negotiations between independent parties. The terms of the Service
Agreements may therefore not be as favorable to International and its
subsidiaries as the terms that might be reached through negotiations with
non-affiliated third parties.

ASSET SALES

On July 3, 2002, NP Holdings, a subsidiary of International, was sold to
RMI for cash consideration of $5,750,000. The net assets of NP Holdings
primarily included Canadian tax losses. The tax losses, only a portion of which
were previously recognized for accounting purposes, were effectively sold at
their carrying value. Due to the inability of NP Holdings to utilize its own tax
losses prior to their expiry, as a result of its disposing of its interest in
the National Post, it sold these losses to a company which would be able to
utilize the losses. The only other potential purchaser for these losses,
CanWest, declined the opportunity to acquire the losses. The terms of the sale
of the tax losses to RMI were negotiated with and approved by the independent
directors of International.

In two separate transactions in July and November, 2001, International and
the Partnership completed the sale of most of their remaining Canadian
newspapers to Osprey for total sale proceeds of approximately
89

$255 million plus closing adjustments primarily for working capital. The former
Chief Executive Officer of the Partnership is a minority shareholder and Chief
Executive Officer of Osprey. International's independent directors approved the
terms of these transactions.

In connection with the above two sales of Canadian newspaper properties to
Osprey and to satisfy a closing condition, International, the Company, and Lord
Black and three senior executives entered into non-competition agreements with
Osprey pursuant to which each agreed not to compete directly or indirectly in
Canada with the Canadian businesses sold to Osprey for a five-year period,
subject to certain limited exceptions, for aggregate consideration of $7.9
million. Such consideration was paid to Lord Black and the three senior
executives and was approved by International's independent directors.

On November 16, 2000, International, together with its affiliates, Southam
and the Partnership, completed the sale of most of their Canadian newspapers and
related assets to CanWest. The aggregate sale price of these properties at fair
value was approximately $2.8 billion, plus closing adjustments for working
capital at August 31, 2000 and cash flow and interest for the period September 1
to November 16, 2000 which in total at December 31, 2000 approximated an
additional $40.7 million.

In connection with the sale to CanWest, Ravelston entered into a management
services agreement with CanWest and National Post pursuant to which it agreed to
continue to provide management services to the Canadian businesses sold to
CanWest in consideration for an annual fee of $6 million payable by CanWest.
CanWest will be obligated to pay Ravelston a termination fee of $45 million in
the event that CanWest chooses to terminate the management services agreement or
$22.5 million in the event that Ravelston chooses to terminate the agreement.
Further, CanWest required as a condition to the transaction that International,
Ravelston, the Company, Lord Black and three senior executives enter into
non-competition agreements with CanWest pursuant to which each agreed not to
compete directly or indirectly in Canada with the Canadian business sold to
CanWest for a five-year period, subject to certain limited exceptions, for
aggregate consideration of $80 million paid by CanWest in addition to the
purchase price referred to above of which $38 million was paid to Ravelston and
$42 million was paid to Lord Black and the three senior executives.
International's independent directors approved the terms of these payments.

During 2001, International transferred two publications to Horizon
Publications Inc. in exchange for net working capital. Horizon Publications Inc.
is managed by former Community Group executives and controlled by certain
members of the Board of Directors of International. The terms of theses
transactions were approved by the independent directors of International.

During 2000, International sold most of its remaining U.S. community
newspaper properties, for total proceeds of approximately US$215 million. In
connection with those sales, to satisfy a closing condition, International, Lord
Black and three senior executives entered into non-competition agreements with
the purchasers to which each agreed not to compete directly or indirectly in the
United States with the United States businesses sold to purchasers for a fixed
period, subject to certain limited exceptions, for aggregate consideration paid
in 2001 of US$0.6 million. These amounts were in addition to the aggregate
consideration paid in respect of these non-competition agreements in 2000 of
US$15 million. International's independent directors approved the terms of these
payments. Included in these dispositions during 2000 International sold four
U.S. community newspapers for an aggregate consideration of US $38.0 million
($56.5 million) to Bradford Publishing Company, a company formed by a former
U.S. Community Group executive and in which some of International's directors
are shareholders. The terms of this transaction were approved by the independent
directors of International.

International issued to a subsidiary of the Company in connection with the
1995 Reorganization in which International acquired the Company's interest in
The Telegraph and Southam, 739,500 shares of Series A preferred stock. The
Series A preferred stock was subsequently exchanged for Series D preferred
stock. During 1998, 408,551 shares of Series D preferred stock were converted
into 2,795,165 shares of Class A common stock. In February 1999, 196,823 shares
of Series D preferred stock were redeemed for cash of US$19.4 million. In May
1999, the remaining 134,126 shares of Series D preferred stock were converted
into 134,126 shares of Series E preferred stock. In September 2001, 40,920
shares of Series E preferred stock were redeemed for cash of US$3.8 million. The
shares of Series E preferred stock are redeemable in whole or in
90

part, at any time and from time to time, subject to restrictions in
International's credit facilities, by International or by a holder of such
shares. As described above, the remaining Series E preferred stock was redeemed
on March 10, 2003.

Pursuant to a January 1997 transaction wherein International acquired
Canadian publishing assets from the Company, International issued 829,409 shares
of Series C preferred stock. The stated value of each share was $108.51. On June
1, 2001, International converted all the Series C preferred stock at the
conversion ratio of 8.503 shares of Class A common stock per share of Series C
preferred stock into 7,052,464 shares of Class A common stock. On June 1, 2001,
the market price of the shares of Class A common stock of International was
US$12.76 per share. On September 5, 2001, International purchased for
cancellation, from the Company, the 7,052,464 shares of Class A common stock for
a total cost of US$92.2 million or US$13.07 per share which represented 98% of
the September 5, 2001 closing price.

International has reviewed its procedures for ensuring that transactions
with affiliates of Publishing (other than its subsidiaries) comply with the
covenants under its debt instruments existing prior to the December 2002
refinancing, including the indentures governing outstanding debt securities.
Based on this review, International has determined that in one related-party
transaction, although International satisfied the requirement to obtain the
approval of the independent directors of International's Board of Directors that
the transaction was being undertaken on an arm's length basis, International did
not obtain a fairness opinion although the transaction exceeded the relevant
threshold for delivering such an opinion by US$23 million. In light of the
various intercompany transactions and arrangements within the Hollinger group
and the related party transactions that have occurred from time to time in the
past and may occur in the future, International intends to strengthen its
controls for monitoring compliance with those covenants under the 9% Senior
Notes and other debt instruments by which International, Publishing and our
other subsidiaries are bound that are applicable to such transactions and
arrangements.

Lord Black controls Ravelston and, through Ravelston and its subsidiaries,
together with his associates, he exercises control or direction over 78.2% of
our outstanding retractable common shares.

RIGHTS OF FIRST REFUSAL

Ravelston has rights of first refusal in respect of any retractable common
shares of the Company that may be issued on exercise of options held to acquire
retractable common shares should the holders decide to exercise their options
and dispose of the retractable common shares.

As at June 30, 2003, the Company had 913,000 options exercisable into one
retractable common share of the Company for each option held at an exercise
price of $13.72.

PRINCIPAL AGREEMENTS WITH INTERNATIONAL

Services Agreements. Two Services Agreements govern the provision of
certain advisory, consultative, procurement and administrative services to
International and its subsidiaries by RMI. Services provided include, among
other things, strategic advice and planning and financial services (including
advice and assistance with respect to acquisitions) and assistance in
operational matters. The Services Agreements will be in effect until terminated
by either party under certain specified circumstances. The Services Agreement
may be terminated by either party by giving 180 days notice. Payments by
International and its subsidiaries made pursuant to the Services Agreements are
subject to the review and approval of the Audit Committee of the Board of
Directors of International.

Business Opportunities Agreement. The Business Opportunities Agreement
provides that International will be the Company's principal vehicle for engaging
in and effecting acquisitions in newspaper businesses and in related media
businesses in the United States, Israel and, through The Telegraph, the European
Community, Australia and New Zealand (the "Telegraph Territory"). The Company
has reserved to itself the ability to pursue newspaper and all media acquisition
opportunities outside the United States, Israel and the Telegraph Territory, and
media acquisition opportunities unrelated to the newspaper business in the
United States, Israel and the Telegraph Territory. The Business Opportunities
Agreement does not restrict newspaper

companies in which the Company has a minority investment from acquiring
newspaper or media businesses in the United States, Israel or the Telegraph
Territory, nor does it restrict subsidiaries of the Company from acquiring up to
20% interests in publicly held newspaper businesses in the United States. The
Business Opportunities Agreement will be in effect for so long as the Company
holds at least 50% of the voting power of International, subject to termination
by either party under specified circumstances. The Company assigned its rights
and obligations under the Business Opportunities Agreement to a wholly-owned
subsidiary on September 22, 1997 with the consent of International.

Co-operation Agreement. In connection with the listing of The Telegraph's
shares on the London Stock Exchange in July 1992, the Company and The Telegraph
entered into the Co-operation Agreement which sets forth the basis upon which
the Company and The Telegraph will divide their respective newspaper and other
media interests world-wide. Under this agreement, The Telegraph and the Company
have agreed not to engage in, or hold a significant interest in an enterprise
engaging in, the newspaper, magazine, radio or television business where the
other has existing operations, except in specified circumstances. For purposes
of this agreement, The Telegraph's areas of operation are the United Kingdom,
the rest of the European Union, Australia and New Zealand; the Company's areas
of operation are the United States, Canada, the Caribbean and Israel.
International, which assumed the Company's position under the Co-operation
Agreement in 1995, has agreed not to violate the Co-operation Agreement.

RELATED PARTY INDEBTEDNESS

The Company and its subsidiaries have amounts due to related parties of
$103.3 million and $72.8 million as at December 31, 2002 and 2001 respectively.
Included in these amounts are unsecured demand loans and advances, including
accrued interest owing to Ravelston of $75.8 million and $59.1 million as at
December 31, 2002 and 2001, respectively, which were borrowed to partially fund
the Company's operating costs, including interest and preference share dividend
obligations. The loans bear interest at the bankers' acceptance rate plus 3.75%
per annum or 6.68% at December 31, 2002. In addition, International owes $5.0
million and $13.7 million at December 31, 2002 and 2001, respectively, to
Ravelston or RMI in connection with fees payable pursuant to the services
agreements as noted below. The amounts due to related parties at December 31,
2002 also includes $22.5 million owing to RMI in connection with the assumption
by RMI, as a result of its purchase of NP Holdings (as noted above), of a
liability of $22.5 million owing to CanWest. As at December 31, 2002, this
amount is due on demand, is unsecured and is stated to bear interest at an
annual rate of the bankers' acceptance rate plus 4%.

On July 11, 2000, International loaned US$36.8 million to a subsidiary of
the Company in connection with the cash purchase by the Company of HCPH Co.
Special shares. The loan is payable on demand and to December 31, 2001, interest
was payable at the rate of 13% per annum at which time, with the approval of the
independent directors, it was changed to LIBOR plus 3% per annum. This loan,
together with accrued interest, totaled US$45.8 million at December 31, 2002. On
March 10, 2003, prior to the closing of the offering of the Notes, International
repurchased for cancellation, from NB Inc., 2,000,000 shares of Class A common
stock at US$8.25 per share for total proceeds of $24.2 million (US $16.5
million) and redeemed, from NB Inc., pursuant to a redemption request, all of
the 93,206 outstanding shares of Series E redeemable convertible preferred stock
of International at the fixed redemption price of $146.63 per share for a total
proceeds of $13.6 million (US$9.3 million). The proceeds from the repurchase and
redemption were used to repay US$25.4 million of the loan resulting in the net
outstanding debt due to International of approximately $29.9 million (US$20.4
million) as of March 10, 2003. The remaining debt bears interest at 14.25% or,
if paid in additional notes, 16.5% and is subordinated to the Company's Senior
Secured Notes (so long as the Senior Secured Notes are outstanding), guaranteed
by Ravelston and secured by certain assets of Ravelston. Following a review by a
special committee of the Board of Directors of International, comprised entirely
of independent directors, of all aspects of the transaction relating to the
changes in the debt arrangements with NB Inc. and the subordination of this
remaining debt, the special committee approved the new debt arrangements,
including the subordination.

The debt due by NB Inc. to International is guaranteed by Ravelston and the
Company. International entered into a subordination agreement with the Company
and NB Inc. pursuant to which International has subordinated all payments of
principal, interest and fees on the debt owed to it by NB Inc. to the payment in
full of principal, interest and fees on the Senior Secured Notes, provided that
payments with respect to principal and interest can be made to International to
the extent permitted in the indenture governing the Senior Secured Notes.

In response to the 1998 issuer bid, all options held by executives, were
exercised. As at December 31, 2002, included in accounts receivable is $5.8
million (2001-$5.8 million) due from Lord Black and F. David Radler, which bear
interest at the prime rate plus 1/2%. The receivables are fully secured by a
pledge of the shares held by the executives.

In 1999, companies controlled by Lord Black and F. David Radler invested in
the Partnership. As at December 31, 2002, included in accounts receivable is
$0.4 million (2001-$0.4 million) due from these companies, which bears interest
at the prime rate plus 1/2%. The receivables are partially secured by a pledge
of the units held in the Partnership.

Included in Other Assets at December 31, 2002 is $6.5 million (US$4.1
million) owing to International from Bradford Publishing Company ("Bradford"), a
company in which certain of the Company's and International's directors are
significant shareholders. Such amount represents the present value of the
remaining amounts owing under a non-interest bearing note receivable granted to
International in connection with a non-competition agreement entered into on the
sale of certain operations to Bradford during 2000. The note receivable is
unsecured, due over the period to 2010 and is subordinated to Bradford's
lenders.

Included in Other Assets at December 31, 2002 is $7.7 million (US$4.9
million) owed by Horizon Publications Inc. ("Horizon"), a company controlled by
certain members of the Board of Directors of Hollinger International and the
Company. Such amount represents the unpaid purchase price payable to
International in connection with the sale of certain operations to Horizon
during 1999. The amount receivable is unsecured, bears interest at the lower of
LIBOR plus 2% and 8% per annum and is due in 2007.

During 2002, the Company paid to Horizon a management fee in the amount of
$0.3 million in connection with certain administrative services provided by
Horizon. The fee was approved by International's independent directors.

THE EXCHANGE OFFER

TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES

We issued an aggregate principal amount of US$120 million of our 11 7/8%
senior notes due 2011 in private placements on March 10, 2003. The old notes
were issued, and the new notes will be issued, under an indenture, dated as of
March 10, 2003, among us, RMI, NB Inc. and Wachovia Trust Company, National
Association, as trustee (the "Indenture"). In connection with the issuance and
sale of the old notes, we signed a registration rights agreement in which we
agreed to exchange all the issued and outstanding old notes for a like principal
amount of our new notes to be issued in a registered offering. The terms of the
new notes are substantially identical to those of the outstanding old notes,
except that the transfer restrictions and registration rights relating to the
old notes do not apply to the new notes.

Subject to the terms and conditions set forth in this prospectus and in the
letter of transmittal, we are offering to exchange up to US$120 million in
aggregate principal amount of our 11 7/8% senior notes due 2011 for an equal
amount of our outstanding 11 7/8% senior notes due 2011.

This prospectus and the enclosed letter of transmittal constitute an offer
to exchange new notes for all of the issued and outstanding old notes. This
exchange offer is being extended to all holders of the old notes. As of the date
of this prospectus, US$120 million aggregate principal amount of old notes due
2011 are outstanding. This prospectus and the enclosed letter of transmittal are
first being sent on or about , 2003, to all holders of old notes known to
us.

Subject to the conditions listed below, we will accept for exchange all old
notes which are properly tendered on or prior to the expiration of the exchange
offer and not withdrawn as permitted below. The exchange offer will expire at
5:00 p.m., New York City time, on , 2003. The indenture governing the
Notes requires that the exchange offer remain open for 30 calendar days or a
minimum of 22 business days which is longer than the 20 business days required
by Rule 14e-1(a) of the Securities Act of 1933, as amended. However, if we, in
our sole discretion, extend the period of time during which the exchange offer
is open, the exchange offer will expire at the latest time and date to which we
extend the exchange offer. Our obligation to accept old notes for exchange in
the exchange offer is subject to the conditions listed below under the caption
"-- Conditions to the Exchange Offer."

We expressly reserve the right, at any time and from time to time, to
extend the period of time during which the exchange offer is open, and thereby
delay acceptance for exchange of any old notes. If we elect to extend the period
of time during which the exchange offer is open, we will give you oral or
written notice of the extension and delay, as described below. During any
extension of the exchange offer, all old notes previously tendered and not
withdrawn will remain subject to the exchange offer and may be accepted for
exchange by us. We will return to the registered holder, at our expense, any old
notes not accepted for exchange as promptly as practicable after the expiration
or termination of the exchange offer. In the case of an extension, we will issue
a press release or other public announcement no later than 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration of
the exchange offer.

We expressly reserve the right to amend or terminate the exchange offer,
and not to accept for exchange any old notes not previously accepted for
exchange if any of the events described below under the caption "-- Conditions
to the Exchange Offer" should occur. We will give you oral or written notice of
any amendment, termination or non-acceptance as promptly as practicable.

Following completion of the exchange offer, we may, in our sole discretion,
commence one or more additional exchange offers to those old note holders who
did not exchange their old notes for new notes. The terms of these additional
exchange offers may differ from those applicable to this exchange offer. We may
use this prospectus, as amended or supplemented from time to time, in connection
with any additional exchange offers. These additional exchange offers, if made,
would take place from time to time until all outstanding old notes have been
exchanged for new notes, subject to the terms and conditions contained in the
prospectus and letter of transmittal we will distribute in connection with the
additional exchange offers.

Each broker-dealer that receives new notes for its own account in exchange
for old notes, where the old notes were acquired by the broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of the new notes
during that 180-day period following the effectiveness of this registration
statement (excluding any period during which any stop order shall be in effect
suspending the effectiveness of this prospectus or during which we have
suspended the use of this registration statement). You should see the discussion
under the caption "Plan of Distribution" for more information.

PROCEDURES FOR TENDERING OLD NOTES

Old notes tendered in the exchange offer must be in denominations of
US$1,000 principal amount and any integral multiple of US$1,000.

When you tender your old notes, and we accept the old notes, this will
constitute a binding agreement between you and us subject to the terms and
conditions set forth in this prospectus and the enclosed letter of transmittal.
Unless you comply with the procedures described below under the caption
"-- Guaranteed Delivery Procedures," you must do one of the following on or
prior to the expiration of the exchange offer to participate in the exchange
offer:

- tender your old notes by sending the certificates for your old notes, in
proper form for transfer, a properly completed and duly executed letter
of transmittal, with any required signature guarantees, and all other
documents required by the letter of transmittal, to Wachovia Bank,
National Association, as exchange agent, at the address listed below
under the caption "-- Exchange Agent"; or

- tender your old notes by using the book-entry procedures described below
under the caption "-- Book-Entry Transfer" and transmitting a properly
completed and duly executed letter of
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transmittal, with any required signature guarantees, or an agent's
message instead of the letter of transmittal, to Wachovia Bank, National
Association, as exchange agent, at the address listed below under the
caption "-- Exchange Agent."

In order for a book-entry transfer to constitute a valid tender of your old
notes in the exchange offer, the exchange agent must receive a confirmation of
book-entry transfer of your old notes into the exchange agent's account at The
Depository Trust Company prior to the expiration of the exchange offer. The term
"agent's message" means a message, transmitted by The Depository Trust Company
and received by the exchange agent and forming a part of the book-entry
confirmation, which states that The Depository Trust Company has received an
express acknowledgment from you that you have received and have agreed to be
bound by the letter of transmittal. If you use this procedure, we may enforce
the letter of transmittal against you.

THE METHOD OF DELIVERY OF CERTIFICATES FOR OLD NOTES, LETTERS OF
TRANSMITTAL, AGENT'S MESSAGES AND ALL OTHER REQUIRED DOCUMENTS IS AT YOUR
ELECTION. IF YOU DELIVER YOUR OLD NOTES BY MAIL, WE RECOMMEND REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED. IN ALL CASES, YOU SHOULD ALLOW
SUFFICIENT TIME TO ASSURE TIMELY DELIVERY. DO NOT SEND CERTIFICATES FOR OLD
NOTES, LETTERS OF TRANSMITTAL OR AGENT'S MESSAGES TO US.

Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless you are either a registered old note
holder and have not completed the box entitled "Special Issuance Instructions"
or "Special Delivery Instructions" on the letter of transmittal or you are
exchanging old notes for the account of an eligible guarantor institution. An
eligible guarantor institution means:

- Banks (as defined in Section 3(a) of the Federal Deposit Insurance Act);

- Brokers, dealers, municipal securities dealers, municipal securities
brokers, government securities dealers and government securities brokers
(as defined in the Exchange Act);

- Credit unions (as defined in Section 19B(1)(A) of the Federal Reserve
Act);

- National securities exchanges, registered securities associations and
clearing agencies (as these terms are defined in the Exchange Act); and

- Savings associations (as defined in Section 3(b) of the Federal Deposit
Insurance Act).

If signatures on a letter of transmittal or a notice of withdrawal are
required to be guaranteed, the guarantor must be an eligible guarantor
institution. If you plan to sign the letter of transmittal but you are not the
registered holder of the old notes -- which term, for this purpose, includes any
participant in The Depository Trust Company's system whose name appears on a
security position listing as the owner of the old notes -- you must have the old
notes signed by the registered holder of the old notes and that signature must
be guaranteed by an eligible guarantor institution. You may also send a separate
instrument of transfer or exchange signed by the registered holder and
guaranteed by an eligible guarantor institution, but that instrument must be in
a form satisfactory to us, in our sole discretion. In addition, if a person or
persons other than the registered holder or holders of old notes signs the
letter of transmittal, certificates for the old notes must be endorsed or
accompanied by appropriate bond powers, in either case signed exactly as the
name or names of the registered holder or holders that appear on the
certificates for old notes.

All questions as to the validity, form, eligibility -- including time of
receipt -- and acceptance of old notes tendered for exchange will be determined
by us, in our sole discretion. Our determination will be final and binding. We
reserve the absolute right to reject any and all tenders of old notes improperly
tendered or not accept any old notes, the acceptance of which might be unlawful
as determined by us or our counsel. We also reserve the absolute right to waive
any defects or irregularities or conditions of the exchange offer as to any old
notes either before or after the expiration of the exchange offer -- including
the right to waive the ineligibility of any holder who seeks to tender old notes
in the exchange offer. Our interpretation of the terms and conditions of the
exchange offer as to any particular old notes either before or after the
expiration of the exchange offer -- including the terms and conditions of the
letter of transmittal and the accompanying instructions -- will be final and
binding. Unless waived, any defects or irregularities in connection with tenders
of old notes for exchange must be cured within a reasonable period of time, as
determined by us. Neither we, Wachovia Bank, National Association, as exchange
agent, nor any other person has any duty to give

notification of any defect or irregularity with respect to any tender of old
notes for exchange, nor will we have any liability for failure to give this
notification.

If you are a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation, or act in a similar fiduciary or representative
capacity, and wish to sign the letter of transmittal or any certificates for old
notes or bond powers, you must indicate your status when signing. If you are
acting in any of these capacities, you must submit proper evidence satisfactory
to us of your authority to so act unless we waive this requirement.

By tendering your old notes, you represent to us:

- that you are not an "affiliate" of ours within the meaning of the
Securities Act;

- that you are not a broker-dealer receiving the new notes for your own
account; and

- you are acquiring the new notes in the ordinary course of your business,
you are not participating in the distribution of the new notes and have
no arrangements or understandings with any person to make a distribution
of the new notes.

ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NOTES

Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept, promptly after the expiration of the exchange offer, all old
notes properly tendered and will issue the new notes promptly after acceptance
of the old notes. For purposes of the exchange offer, we will be deemed to have
accepted properly tendered old notes for exchange when, as and if we have given
oral or written notice of acceptance to Wachovia Bank, National Association, as
exchange agent, with written confirmation of any oral notice to be given
promptly after any oral notice.

For each outstanding note accepted for exchange in the exchange offer, the
holder of the old note will receive a new note having a principal amount at
maturity equal to that of the surrendered old note. Interest on the new note
will accrue:

- from the later of (a) the last date to which interest was paid on the
old note surrendered in exchange for the new note and (b) if the old
note is surrendered for exchange on a date in a period which includes
the record date for an interest payment date to occur on or after the
date of the exchange and as to which interest will be paid, the date to
which interest will be paid on such interest payment date; or

- if no interest has been paid on the old note, from and including March
10, 2003.

Payments of interest, if any, on old notes that were exchanged for new
notes will be made on each September 1st and March 1st during which the Notes
are outstanding to the person who, at the close of business on the August 15th
and February 15th next preceding the interest payment date, is the registered
holder of the old notes if the record date occurs prior to the exchange, or is
the registered holder of the new notes if the record date occurs on or after the
date of the exchange, even if the old notes are cancelled after the record date
and on or before the interest payment date.

In addition, if

- this registration statement is not filed on or prior to June 30, 2003,
is not declared effective on or prior to November 5, 2003 or the
exchange offer is not completed by the 30th day from the date this
registration statement is so declared effective,

- we are obligated to file a shelf registration statement and we fail to
do so on or prior to the 30th day after the obligation arises or the
shelf registration statement is not declared effective on or prior to
the 90th day after the obligation arises, or

- either the registration statement or the shelf registration statement is
declared effective but then ceases to be effective or usable, we agree
to pay liquidated damages of 0.5% per annum per US$1,000 in principal
amount of Notes for each 90 day period until all defaults have been
cured, up to a maximum of 1.0% per annum per US$1,000 in principal
amount of Notes.

In all cases, the issuance of new notes in exchange for old notes will be
made only after Wachovia Bank, National Association, as exchange agent, timely
receives either certificates for all physically tendered old notes, in proper
form for transfer, or a book-entry confirmation of transfer of the old notes
into the exchange agent's account at The Depository Trust Company, as the case
may be, a properly completed and duly executed letter of transmittal, with any
required signature guarantees, and all other required documents or, in the case
of a book-entry confirmation, a properly completed and duly executed letter of
transmittal, with any required signature guarantees, or an agent's message
instead of the letter of transmittal. If for any reason we do not accept any
tendered old notes or if old notes are submitted for a greater principal amount
than the holder desires to exchange, we will return the unaccepted or
non-exchanged old notes without expense to the registered tendering holder. In
the case of old notes tendered by book-entry transfer into the exchange agent's
account at The Depository Trust Company by using the book-entry procedures
described below, the unaccepted or non-exchanged old notes will be credited to
an account maintained with The Depository Trust Company. Any old notes to be
returned to the holder will be returned as promptly as practicable after the
expiration or termination of the exchange offer.

BOOK-ENTRY TRANSFER

Within two business days after the date of this prospectus, Wachovia Bank,
National Association, as exchange agent, will establish an account at The
Depository Trust Company for the old notes tendered in the exchange offer. Once
established, any financial institution that is a participant in The Depository
Trust Company's systems may make book-entry delivery of old notes by causing The
Depository Trust Company to transfer the old notes into the exchange agent's
account at The Depository Trust Company in accordance with The Depository Trust
Company's procedures for transfer. Although delivery of the old notes may be
effected through book-entry transfer at The Depository Trust Company, the letter
of transmittal or facsimile of the letter of transmittal, with any required
signature guarantees, or an agent's message instead of a letter of transmittal,
and any other required documents, must be transmitted to and received by the
exchange agent on or prior to the expiration of the exchange offer at one of the
addresses listed below under the caption "-- Exchange Agent." In addition, the
exchange agent must receive book-entry confirmation of transfer of the old notes
into the exchange agent's account at The Depository Trust Company prior to the
expiration of the exchange offer. If you cannot comply with these procedures,
you may be able to use the guaranteed delivery procedures described below.

GUARANTEED DELIVERY PROCEDURES

If you are a registered holder of the old notes and wish to tender your old
notes, but

- the certificates for the old notes are not immediately available,

- time will not permit your certificates for the old notes or other
required documents to reach Wachovia Bank, National Association, as
exchange agent, before the expiration of the exchange offer, or

- the procedure for book-entry transfer cannot be completed before the
expiration of the exchange offer,

then you may effect a tender of your old notes if:

- the tender is made through an eligible guarantor institution;

- prior to the expiration of the exchange offer, the exchange agent
receives from an eligible guarantor institution a properly completed and
duly executed notice of guaranteed delivery, substantially in the form
we have provided, setting forth your name and address, and the amount of
old notes you are tendering and stating that the tender is being made by
notice of guaranteed delivery. These documents may be sent by overnight
courier, registered or certified mail or facsimile transmission. If you
elect to use this procedure, you must also guarantee that within three
New York Stock Exchange, Inc. trading days after the date of execution
of the notice of guaranteed delivery, the certificates for all
physically tendered old notes, in proper form for transfer, or a
book-entry confirmation of transfer of the old notes into the exchange
agent's account at The Depository Trust Company, as the case may be, a
properly completed and duly executed letter of transmittal, with any
required signature guarantees, and all other required documents or, in
the case of a book-entry confirmation, a properly completed and duly
executed letter of transmittal, with any required signature guarantees,
or an
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agent's message instead of the letter of transmittal, will be deposited
by the eligible guarantor institution with the exchange agent; and

- the exchange agent receives the certificates for all physically tendered
old notes, in proper form for transfer, or a book-entry confirmation of
transfer of the old notes into the exchange agent's account at The
Depository Trust Company, as the case may be, a properly completed and
duly executed letter of transmittal, with any required signature
guarantees, and all other required documents or, in the case of a
book-entry confirmation, a properly completed and duly executed letter
of transmittal, with any required signature guarantees, or an agent's
message instead of the letter of transmittal, in each case, within three
New York Stock Exchange, Inc. trading days after the date of execution
of the notice of guaranteed delivery.

WITHDRAWAL RIGHTS

You may withdraw tenders of old notes at any time prior to the expiration
of the exchange offer.

For a withdrawal to be effective, a written notice of withdrawal must be
received by Wachovia Bank, National Association, as exchange agent, prior to the
expiration of the exchange offer at one of the addresses listed below under the
caption "-- Exchange Agent." Any notice of withdrawal must specify the name of
the person who tendered the old notes to be withdrawn, identify the old notes to
be withdrawn, including the principal amount of the old notes, and, where
certificates for old notes have been transmitted, specify the name in which the
old notes are registered, if different from that of the withdrawing holder. If
certificates for old notes have been delivered or otherwise identified to the
exchange agent, then, prior to the release of the certificates, the withdrawing
holder must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
eligible guarantor institution unless the holder is an eligible guarantor
institution. If old notes have been tendered using the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name and
number of the account at The Depository Trust Company to be credited with the
withdrawn old notes and otherwise comply with the procedures of the book-entry
transfer facility. All questions as to the validity, form and eligibility --
including time of receipt -- of these notices will be determined by us. Our
determination will be final and binding. Any old notes so withdrawn will be
deemed not to have been validly tendered for exchange for purposes of the
exchange offer. Any old notes which have been tendered for exchange but which
are not exchanged for any reason will be returned to the registered holder
without cost to that holder as soon as practicable after withdrawal,
non-acceptance of tender or termination of the exchange offer. In the case of
old notes tendered by book-entry transfer into the exchange agent's account at
The Depository Trust Company by using the book-entry transfer procedures
described above, any withdrawn or unaccepted old notes will be credited to the
tendering holder's account at The Depository Trust Company. Properly withdrawn
old notes may be retendered at any time on or prior to the expiration of the
exchange offer by following one of the procedures described above under "--
Procedures for Tendering Old Notes."

CONDITIONS TO THE EXCHANGE OFFER

Notwithstanding any other provision of the exchange offer, we will not be
required to accept any old notes for exchange or to issue any Notes in exchange
for old notes, and we may terminate or amend the exchange offer if, at any time
prior to the expiration of the exchange offer or, with respect to conditions
dependent upon the receipt of necessary government approvals, prior to the
exchange of Notes for old notes, any of the following events occurs:

- the exchange offer is determined to violate any applicable law or any
applicable interpretation of the staff of the SEC;

- an action or proceeding is pending or threatened in any court or by any
governmental agency that might materially impair our ability to proceed
with the exchange offer;

- any material adverse development occurs in any existing legal action or
proceeding involving us;

- we do not receive any governmental approval we deem necessary for the
completion of the exchange offer; or

- any of the conditions precedent to our obligations under the
Registration Rights Agreement are not fulfilled.

These conditions are for our benefit only and we may assert them, acting
reasonably, regardless of the circumstances giving rise to any condition. We may
also waive any condition in whole or in part at any time in our sole discretion,
acting reasonably. Our failure at any time to exercise any of the foregoing
rights will not constitute a waiver of that right and each right is an ongoing
right that we may assert at any time.

In addition, we will not accept any old notes for exchange or issue any new
notes in exchange for old notes, if at the time a stop order is threatened or in
effect which relates to:

- the registration statement of which this prospectus forms a part; or

- the qualification under the Trust Indenture Act of 1939 of the indenture
under which the old notes were issued and the new notes will be issued.

EXCHANGE AGENT

We have appointed Wachovia Bank, National Association as the exchange agent
for the exchange offer. All completed letters of transmittal and agent's
messages should be directed to the exchange agent at the address listed below.
Questions and requests for assistance, requests for additional copies of this
prospectus or the letter of transmittal, agent's messages and requests for
notices of guaranteed delivery should be directed to the exchange agent at the
following address:

Attention: Marsha Rice
CORPORATE TRUST OPERATIONS
1525 West W. T. Harris Blvd.
Charlotte, NC 28288

DELIVERY OF A LETTER OF TRANSMITTAL OR AGENT'S MESSAGE TO AN ADDRESS OTHER THAN
THE ADDRESS LISTED ABOVE OR TRANSMISSION OF INSTRUCTIONS BY FACSIMILE OTHER THAN
AS SET FORTH ABOVE IS NOT VALID DELIVERY OF THE LETTER OF TRANSMITTAL OR AGENT'S
MESSAGE.

FEES AND EXPENSES

The principal solicitation is being made by mail by Wachovia Bank, National
Association, as exchange agent. We will pay the exchange agent customary fees
for its services, reimburse the exchange agent for its reasonable out-of-pocket
expenses incurred in connection with the provision of these services and pay
other registration expenses, including fees and expenses of the trustee under
the indenture relating to the new notes, filing fees, blue sky fees and printing
and distribution expenses. We will not make any payment to brokers, dealers or
others soliciting acceptances of the exchange offer.

Additional solicitation may be made by telephone, facsimile or in person by
our and our affiliates' officers and regular employees and by persons so engaged
by the exchange agent.

ACCOUNTING TREATMENT

We will record the new notes at the same carrying value as the old notes,
as reflected in our accounting records on the date of the exchange. Accordingly,
we will not recognize any gain or loss for accounting purposes in respect of the
Exchange Offer.

TRANSFER TAXES

You will not be obligated to pay any transfer taxes in connection with the
tender of old notes in the exchange offer unless you instruct us to register new
notes in the name of, or request that old notes not tendered or not accepted in
the exchange offer be returned to, a person other than the registered tendering
holder. In those cases, you will be responsible for the payment of any
applicable transfer tax.

CONSEQUENCES OF EXCHANGING OR FAILING TO EXCHANGE OLD NOTES

If you do not exchange your old notes for new notes in the exchange offer,
your old notes will continue to be subject to the provisions of the indenture
relating to the notes regarding transfer and exchange of the old

notes and the restrictions on transfer of the old notes described in the legend
on your certificates. These transfer restrictions are required because the old
notes were issued under an exemption from, or in transactions not subject to,
the registration requirements of the Securities Act and applicable state
securities laws. In general, the old notes may not be offered or sold, unless
registered under the Securities Act, except under an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. We do not plan to register the old notes under the Securities Act.

Based on interpretations by the staff of the SEC, as set forth in no-action
letters issued to third parties, we believe that the new notes you receive in
the exchange offer may be offered for resale, resold or otherwise transferred
without compliance with the registration and prospectus delivery provisions of
the Securities Act. However, you will not be able to freely transfer the new
notes if:

- you are an "affiliate" of ours within the meaning of the Securities Act;

- you are a broker-dealer receiving the new notes for your own account; or

- you are participating in the distribution of the new notes or have any
arrangements or understandings with any person to make a distribution of
the new notes.

We do not intend to request the SEC to consider, and the SEC has not
considered, the exchange offer in the context of a similar no-action letter. As
a result, we cannot guarantee that the staff of the SEC would make a similar
determination with respect to the exchange offer as in the circumstances
described in the no-action letters discussed above. Each holder, other than a
broker-dealer, must acknowledge that it is not engaged in, and does not intend
to engage in, a distribution of new notes and has no arrangement or
understanding to participate in a distribution of new notes. If you are our
affiliate, are engaged in or intend to engage in a distribution of the new notes
or have any arrangement or understanding with respect to the distribution of the
new notes you will receive in the exchange offer, you may not rely on the
applicable interpretations of the staff of the SEC and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction involving the new notes. If you are a
participating broker-dealer, you must acknowledge that you will deliver a
prospectus in connection with any resale of the Notes. In addition, to comply
with state securities laws, you may not offer or sell the Notes in any state
unless they have been registered or qualified for sale in that state or an
exemption from registration or qualification is available and is complied with.
The offer and sale of the Notes to "qualified institutional buyers" -- as
defined in Rule 144A of the Securities Act -- is generally exempt from
registration or qualification under state securities laws. We do not plan to
register or qualify the sale of the Notes in any state where an exemption from
registration or qualification is required and not available.

INDEMNIFICATION FOR SECURITIES ACT LIABILITY

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.

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DESCRIPTION OF THE COLLATERAL AND THE INTERCREDITOR AND
SUPPORT ARRANGEMENTS

GENERAL

Capitalized terms set forth in this section but not otherwise defined
herein shall have the meanings ascribed to them in the section entitled
"Description of Notes -- Certain Definitions."

The following description of the Senior Notes Collateral, intercreditor and
support arrangements is subject to and qualified in its entirety by reference to
the actual provisions of the Security Agreement, form of Intercreditor Agreement
and Support Agreement. We urge you to read those agreements and the Indenture
governing the Notes because they, and not this description, define your rights
as a holder of Notes. Copies of the Security Agreement, the Indenture, the form
of Intercreditor Agreement and the Support Agreement are available upon request
to the Company at the address indicated under "Available Information."

THE SENIOR NOTES COLLATERAL

PLEDGED SHARE COLLATERAL AND RIGHTS UNDER PLEDGED AGREEMENTS

The Notes and the NB Inc. Guarantee will be secured by a first priority
lien on all of the shares of Class B common stock of International (the "Class B
Shares") and by such number of the shares of Class A common stock of
International (the "Designated Class A Shares") held directly and indirectly by
the Company (collectively, the "Pledged Share Collateral") as shall, together
with the pledged Class B Shares, have an aggregate Current Market Price as of
the date of this prospectus of at least 200 percent of the aggregate principal
amount of the Notes offered hereby. In addition, the Notes will be secured by a
first priority lien in the Company's rights under the Support Agreement and
RMI's rights under the Services Agreements (each as described below). On March
10, 2003, the Company, its indirect wholly owned subsidiary, NB Inc., and RMI
entered into a Security Agreement with Wachovia Trust Company, National
Association, as Trustee and Collateral Agent, under which the first priority
lien in the Pledged Share Collateral and the Pledged Agreements (as defined
below) and any profits, proceeds and other property received with respect to the
Pledged Share Collateral and the Pledged Agreements were created.

The Indenture and the Security Agreement will allow each of the Company and
NB Inc. to substitute, for any Designated Class A Shares initially included in
the Pledge Share Collateral, other shares of Class A Common Stock of
International not previously pledged to the Collateral Agent. See "-- Releases
of Collateral" below. Under the Security Agreement, the Company will agree that,
if requested by the Trustee or the Noteholders, the Company will cause
International to register the Class A common stock, and any Class A common stock
issued upon the conversion of the Class B common stock, pursuant to a shelf
registration statement (to enable resales of the shares in the event of
foreclosure).

PLEDGED AGREEMENTS

The RMI Guarantee will be secured by a first priority lien in RMI's rights
under the International Services Agreement and HCPH Services Agreement
(collectively, the "Services Agreements"). The Services Agreements, together
with the Support Agreement, are collectively referred to as the "Pledged
Agreements"; the Pledged Agreements, together with the Pledged Share Collateral,
are referred to as the "Senior Notes Collateral." On March 10, 2003, RMI entered
into the Security Agreement described above under which a first priority lien in
the Services Agreements and any profits, proceeds and other property received
with respect to the Services Agreements were created. Each of International,
HCPH and RCL has advised RMI that it has consented to RMI's assignment of its
rights under the respective Services Agreement to the Collateral Agent. See the
section entitled "Relationship among the Company, International, Ravelston, RMI
and NB Inc. -- Services Agreements" for descriptions of the International
Services Agreement and the HCPH Services Agreement. In the event that the
Company becomes the successor-in-interest or assignee of RMI's rights under the
Services Agreements, the Company shall take such actions as may be necessary to
ensure that the Collateral Agent continues to have a perfected first priority
security interest in the Services Agreements.

101

The first priority liens on the Senior Notes Collateral will run in favor
of the Collateral Agent for the benefit of the holders of the Notes. So long as
no Event of Default has occurred and is continuing under the Indenture governing
the Notes, the Company will be entitled to vote, and receive and retain cash
dividends and other distributions on any of, the shares comprising the Pledged
Share Collateral. Similarly, so long as no Event of Default has occurred and is
continuing, RMI will be entitled to receive the management fees and other
amounts paid from time to time by International and HCPH under the Services
Agreements. If an Event of Default under the Indenture has occurred and is
continuing, the Collateral Agent shall be entitled to realize upon and sell or
otherwise dispose of all or any part of the Senior Notes Collateral and will
apply the proceeds of any sale or disposition, first to the payment of costs and
expenses of sale, second to amounts due to the Collateral Agent, third to the
payment in full of all amounts due and unpaid on the Notes and, finally, any
surplus to the Company or the applicable pledgor or to whomever may be lawfully
entitled to receive such surplus. In addition, provision shall be made such that
if an Event of Default has occurred and is continuing and upon the giving of a
notice of Default by the Trustee, 70% of any amounts payable to RMI under the
Services Agreements shall thereafter be paid directly to the Collateral Agent
for the benefit of holders of the Notes, for so long as such Event of Default
shall continue. Furthermore, under those circumstances and upon the Trustee
giving notice to RMI and the Company, 100% of any amounts payable to the Company
under the Support Agreement shall be paid directly to the Collateral Agent for
the benefit of holders of the Notes for so long as such Event of Default shall
continue. Any amounts received by RMI shall be deemed held in trust for and
promptly turned over to the Collateral Agent.

The Notes and the Guarantees are not secured by any lien on, or any other
security interest in, any other properties or assets of the Company, RMI or NB
Inc.. The security interest in the Senior Notes Collateral in favor of the
Collateral Agent will not alter the structural subordination of the Notes to the
indebtedness and other liabilities of International and its subsidiaries,
including the indebtedness of Publishing under its 9% senior notes due 2010 and
of Publishing and its subsidiaries under the Senior Credit Facility. As of June
30, 2003, the total consolidated indebtedness of Publishing and its subsidiaries
was $844.3 million, including $357.1 million outstanding under the Senior Credit
Facility and $406.7 million principal amount of the Publishing Notes).

The Collateral Agent's ability to foreclose and realize upon the Senior
Notes Collateral upon an Event of Default will be subject to the terms of the
Intercreditor Agreement and limitations under Canadian bankruptcy laws. See
"Risk Factors -- The right to foreclose and realize upon the senior notes
collateral upon an event of default would be subject to limitations under
Canadian bankruptcy laws."

The Senior Notes Collateral may only be sold or disposed of by the Company
or any of the Guarantors and the security interest therein may only be released
in compliance with the provisions of the Indenture and the Security Agreement,
as described below under "-- Releases of Collateral."

EXERCISE OF REMEDIES; INTERCREDITOR AGREEMENT

The Indenture permits the Company and NBI Inc. to establish a Credit
Facility for up to Cdn. $15 million in principal amount of indebtedness (the
"Bank Indebtedness"), which may be secured by a first priority lien in the
assets, properties and rights of the Company or NBI Inc. other than the Senior
Notes Collateral (the "Bank Collateral"). Although the Company will not have the
Credit Facility in place at the closing of the offering, it intends to negotiate
and enter into such facility shortly after the closing in order to provide for
its working capital and other liquidity needs.

The Company's and NB Inc.'s ability under the Indenture to enter into the
Credit Facility is conditional upon the lender (or Agent and lenders, as
applicable) under the Credit Facility entering into an Intercreditor Agreement
substantially in the form attached to the Indenture. Under the Intercreditor
Agreement, the lender (or Agent and lenders) under the Credit Facility shall
agree that, upon an event of default under the Credit Facility, before
accelerating or demanding payment of any of the Bank Indebtedness or commencing
proceedings to enforce their rights in any of the Bank Collateral, such lenders
shall provide written notice of the default to the Trustee and shall thereafter
refrain from taking any such enforcement action until the expiration of a 30-day
standstill period or, if earlier, the Trustee or the Collateral Agent takes any
enforcement

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action on the Notes or in respect of the Senior Notes Collateral or any
proceeding by or against the Company or NBI is commenced under Bankruptcy Law.
Further, the lender (or Agent and lenders) under the Credit Facility shall agree
that the Collateral Agent and Trustee under the Indenture and holders of Notes
shall, upon any Event of Default under the Indenture, be entitled to exercise
any of their rights under the Indenture in respect of that Event of Default,
including acceleration, foreclosure, commencement of insolvency proceedings
against the debtor and other remedies of secured lenders, with notice to the
lender (or Agent and lenders) under the Credit Facility. Also, the lender (or
Agent and lenders) under the Credit Facility, on behalf of the secured parties
thereunder, on the one hand, and the Collateral Agent and Trustee under the
Indenture, on behalf of themselves and each of the holders of the Notes, on the
other, shall agree not to contest the privity, validity or enforceability of the
first lien held by the other on the collateral covered thereby, or assert or
claim the benefit of any marshalling, valuation, appraisal or similar rights
that may be available to such party.

In addition, the Intercreditor Agreement contains the following
acknowledgments by the Collateral Agent and the lender (or Agent and lenders)
under the Credit Facility:

- the lender (or Agent and lenders) acknowledge that any security
interests they may have in any of the assets of the Company or the Note
Guarantors shall be limited to the Bank Collateral and shall not apply
to any security interests of the Collateral Agent in the Senior Notes
Collateral, and that they shall have no right to take any action with
respect to the Senior Notes Collateral or to take possession of any of
the Senior Notes Collateral; and

- the Collateral Agent acknowledges that any security interests it may
have in any of the assets of the Company or the Note Guarantors shall be
limited to the Senior Notes Collateral and shall not apply to any
security interests of the lenders in the Bank Collateral, and that it
shall have no right to take any action with respect to the Bank
Collateral or to take possession of any of the Bank Collateral.

While the lender (or Agent and lenders) under the Credit Facility and the
Collateral Agent acting on behalf of holders of Notes will be secured by
different collateral, by virtue of the lesser exposure that the lender (or Agent
and lenders) under that facility would have to the Company as compared to the
principal amount of indebtedness represented by the Notes, it is likely that the
interests of such lender (or Agent and lenders) will be different, and
potentially even in conflict with, those of holders of the Notes.

RELEASES OF COLLATERAL

The first priority lien on the Senior Notes Collateral shall be released in
the following situations with respect to the Senior Notes Collateral discussed
below:

- upon the repayment in full in cash of all principal, premium, if any,
and interest under the Indenture and the Notes at the Stated Maturity,
all of the Senior Notes Collateral shall be released;

- with respect to any of the Pledged Share Collateral, in the event of a
redemption or repurchase in part of the Notes that is permitted or
required by the Indenture, such number of Designated Class A Shares
and/or Class B Shares shall be released from the security interest in
favor of the Collateral Agent upon the Company's request in writing to
the Collateral Agent and the Trustee, together with any officer's
certificate and opinion of counsel required under the Indenture, as
bears the same proportion to the total number of Designated Class A
Shares and Class B Shares comprising the Pledged Share Collateral as of
the Closing Date as the proportion of the principal amount of Notes
redeemed or repurchased to the original principal amount of Notes issued
on the Closing Date, provided that the total number of Designated Class
A Shares and Class B Shares comprising the Pledged Share Collateral
after any portion thereof is released from the lien under the Indenture
and the Security Agreement shall have an aggregate Current Market Price
on the date of such release that is not less than 2 times the principal
amount of Notes remaining outstanding after giving effect to such
redemption or repurchase;

- with respect to any of the shares of Class A Common Stock included in
the Designated Class A Shares pledged by either of the Company or NB
Inc. as part of the Pledged Share Collateral, such
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number of shares of Class A Common Stock out of the Designated Class A
Shares so pledged shall be released from the security interest in favor
of the Collateral Agent as the Company or NBI may request in writing to
the Collateral Agent and the Trustee, together with any officers'
certificate required under the Indenture, provided that concurrent with
the release of such shares, either the Company or NBI deposits with the
Collateral Agent, free and clear of any Liens whatsoever, a number of
shares of Class A Common Stock equal to the number of shares of Class A
Common Stock released pursuant to this provision, in substitution of the
shares of Class A Common Stock so released, such that after giving
effect to this substitution, the total number of Designated Class A
Shares included within the Pledged Share Collateral immediately prior to
such release shall be the same as the number of Designated Class A
Shares immediately after such release, provided further that the Company
delivers to the Trustee and the Collateral Agent (a) an officers'
certificate confirming that the shares of Class A Common Stock of
International delivered to the Collateral Agent in substitution of the
shares of Class A Common Stock requested to be released are free and
clear of any Liens whatsoever, and (b) an opinion of counsel that (i)
the Collateral Agent has a valid, perfected security interest in the
substitute shares of Class A Common Stock, and (ii) either (x) such
action has been taken as is necessary to maintain the continuing
validity of the security interest in favor of the Collateral Agent in
the Designated Class A Shares not so substituted or (y) no such action
is necessary to maintain such security interest;

- upon a redemption of all of the Notes effected by the Company as
described in "Description of Notes -- Optional Redemption" or "--
Special Tax Redemption," or legal defeasance effected by the Company as
described in "Description of Notes -- Defeasance or Covenant Defeasance"
or upon a satisfaction and discharge effected by the Company as
described in "Description of Notes -- Satisfaction and Discharge," all
of the Senior Notes Collateral shall be released;

- upon the deposit by the Company in a cash collateral account with the
Collateral Agent, as security for the Company's payment obligations with
respect to that portion of the outstanding principal amount of the Notes
(the "Cash Collateralized Notes") specified in a notice to the Trustee,
cash in United States dollars, U.S. Government Obligations, or a
combination thereof, in such amounts (the "Cash Collateralized Note
Amount") as will be sufficient, in the opinion of a recognized firm of
independent public accountants nationally recognized in the United
States or in Canada, to pay and discharge the principal of, premium, if
any, and interest on the Cash Collateralized Notes on the Stated
Maturity, such number of Designated Class A Shares and/or Class B Shares
as the Company may request in writing to the Trustee and the Collateral
Agent, together with any officers' certificate and opinion of counsel
required under the Indenture, shall be released from the lien under the
Indenture and the Security Agreement in favor of the Collateral Agent as
bears the same proportion to the total number of Designated Class A
Shares and Class B Shares comprising the Pledged Share Collateral as of
the Closing Date as the proportion of the aggregate principal amount of
the Cash Collateralized Notes to the original principal amount of Notes
issued on the Closing Date, provided that the total number of Designated
Class A Shares and Class B Shares comprising the Pledged Share
Collateral after any portion thereof is released pursuant to this
provision shall have an aggregate Current Market Price on the date of
such release that is not less than 2 times the aggregate principal
amount of Notes outstanding (excluding the Cash Collateralized Notes);
or

- upon consent of holders of 90 percent in principal amount of the Notes,
any or all of the Senior Notes Collateral may be released from the liens
under the Indenture and the Security Agreement.

AMENDMENT TO SECURITY AGREEMENT

Neither the Company nor any Note Guarantor shall amend, modify or
supplement, or permit or consent to any amendment, modification or supplement
of, the Security Agreement in any way that would be adverse to the holders of
Notes in any material respect except in the following circumstances:

- to effectuate a release of Senior Notes Collateral permitted under "--
Releases of Collateral" above; or

104

- with the written consent of holders of at least 90 percent of the
principal amount of the Notes outstanding or without the consent of any
holder of the Notes in accordance with the second to last paragraph
under "Description of Notes -- Modifications and Amendments."

SUPPORT AGREEMENT

On the Closing Date, RMI and the Company will enter into a Support
Agreement pursuant to which RMI will agree that in each fiscal year, it will
contribute to the Company an amount (the "Annual Support Amount") equal to (i)
the greater of (A) the Negative Net Cash Flow of the Company for that fiscal
year and (B) the Floor Amount, less (ii) any RCL Repayment Amount made during
that fiscal year. The Annual Support Amount shall be contributed by RMI to the
Company as either (i) subscription for Qualified Capital Stock, (ii)
contributions to capital in respect of Capital Stock of the Company already
issued (and without the issuance of any additional Capital Stock of the
Company), or (iii) Subordinated Indebtedness of the Company, as determined by
RMI and the Company.

The Annual Support Amount shall be paid by RMI to the Company as follows:

- for the first three quarters of each fiscal year, an amount equal to (i)
the Negative Net Cash Flow for the preceding quarter, less (ii) any RCL
Repayment Amount for that preceding quarter, shall be paid by RMI to the
Company within 45 days of the end of each such quarter; and

- for the last quarter of each fiscal year, an amount equal to

- the greater of (A) the Negative Net Cash Flow for the fiscal year and
(B) the Floor Amount,

- less any RCL Repayment Amount made during the fiscal year,

- less the aggregate amount previously paid by RMI to the Company in
respect of the Annual Support Amount during the fiscal year pursuant to
the Support Agreement,

shall be paid by RMI to the Company (or, if negative, paid by the Company to
RMI, provided that no Event of Default has occurred and is continuing) no later
than 90 days after the end of such fiscal year. With respect to any period that
is less than a fiscal quarter or a fiscal year, the Annual Support Amount to be
paid by RMI to the Company for such period shall be calculated pro rata by
reference to the number of days in such period, computed on the basis of a
360-day year of twelve 30-day months.

On a quarterly basis, the Company shall deliver to RMI a report setting out
the amount of the Negative Net Cash Flow and any RCL Repayment Amount for the
relevant quarter.

The Support Agreement shall remain in effect so long as any of the Notes
remains outstanding, and shall terminate upon repayment in full of the Notes and
termination or release of the RMI Guarantee. The Trustee, acting on behalf of
holders of Notes, shall be a third party beneficiary of certain provisions of
the Support Agreement.

DESCRIPTION OF NOTES

The Company issued the Notes under an indenture, dated as of March 10,
2003, among the Company, RMI, RCL, Sugra, NB Inc. and Wachovia Trust Company,
National Association, as trustee (the "Indenture"). The terms of the Notes
include those stated in the Indenture and those made a part of the Indenture by
reference to the Trust Indenture Act of 1939.

The following summary of the material provisions of the Indenture does not
purport to be complete, and where reference is made to particular provisions of
the Indenture, such provisions, including the definitions of certain terms, are
qualified in their entirety by reference to all of the provisions of the
Indenture and those terms made a part of the Indenture by reference to the Trust
Indenture Act. A copy of the form of Indenture will be made available upon
request to the Company at the address indicated under "Available Information".

For definitions of certain capitalized terms used in the following summary,
see "-- Certain Definitions." In this description, the term "Company" refers
only to Hollinger Inc. and not to any of its subsidiaries.
105

The Indenture provides for the issuance by the Company of Notes with a
maximum aggregate principal amount of US$150,000,000, of which US$120,000,000
were issued in the offering. The Company may issue additional notes ("Additional
Notes") from time to time after the date or the Indenture. Any offering of
Additional Notes is subject to the covenant described below under the caption
"-- Certain Covenants -- Limitation on Indebtedness" and the definition of
"Permitted Indebtedness." The Notes and any Additional Notes subsequently issued
under the Indenture will be treated as a single class for all purposes under the
Indenture, including, without limitation, waivers, amendments, redemptions and
offers to purchase.

The Notes will mature on March 1, 2011. The Notes and the NBI Guarantee are
secured by a first priority lien on the Pledged Share Collateral and the RMI
Guarantee is secured by a first priority lien in the Services Agreements. In
addition, the Notes are secured by a first priority security interest in the
Support Agreement. See "Description of the Collateral and the Intercreditor and
Support Arrangements."

Interest on the Notes will accrue at the rate of 11.875% per annum and will
be payable semi-annually in arrears on March 1 and September 1, commencing on
September 1, 2003. The Company will make each interest payment to the holders of
record on the immediately preceding February 15 and August 15, respectively.

Interest on the Notes will accrue from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months. For the purposes of the Indenture, whenever interest to be paid
hereunder is to be calculated on the basis of a 360-day year, the yearly rate of
interest to which the rate determined pursuant to such calculation is equivalent
is the rate so determined multiplied by the actual number of days in the
calendar year in which the same is to be ascertained and divided by 360.

Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes will be exchangeable and transferable, at the office or agency of
the Company maintained for such purposes (which initially will be the corporate
trust office of the Trustee); provided, however, that payment of interest may be
made at the option of the Company by check mailed to the Person entitled to such
interest as shown on the security register.

The Notes will be issued only in fully registered form, without coupons, in
denominations of US$1,000 and any integral multiple thereof. See "-- Book-Entry;
Delivery and Form." No service charge will be made for any registration of
transfer, exchange or redemption of Notes, except in certain circumstances for
any tax or other governmental charge that may be imposed.

RANKING

The Notes will be secured (as described in "Description of the Collateral
and the Intercreditor and Support Arrangements") and will rank pari passu in
right of payment with all other existing and future senior secured Indebtedness
of the Company, and senior in right of payment to all existing and future
subordinated Indebtedness of the Company. It is contemplated that the Company
may establish a credit facility (the "Credit Facility") of up to $15 million
which may will be secured by any of the assets or properties of the Company and
its subsidiaries other than those pledged as collateral for the Notes. In such a
case, the Notes will be effectively subordinated to the Company's Indebtedness
under the Credit Facility to the extent of the assets securing such
Indebtedness. Moreover, all existing and future liabilities (including trade
payables) of the Company's Subsidiaries (including International and its
Subsidiaries, which will be Unrestricted Subsidiaries for purposes of the
Indenture) other than NBI, will be structurally senior to the Notes.

GUARANTEES

RMI will irrevocably and unconditionally Guarantee on a senior basis the
performance and punctual payment when due, whether at Stated Maturity, by
acceleration or otherwise, of all the obligations of the Company under the
Indenture and the Notes. RMI will pledge to the Trustee and the Collateral
Agent, as security for its Guarantee, its rights under the Services Agreements
(including without limitation its rights to fees received under the Services
Agreements). RMI is a limited purpose entity and has no material assets or

106

cash flow other than the cash flow generated pursuant to the Services
Agreements. See "Description of the Collateral and the Intercreditor and Support
Arrangements -- Pledged Agreements" and "Relationship among the Company,
International, Ravelston, RMI and NB Inc." for a description of the Services
Agreements.

In addition, NB Inc., which is an indirect wholly owned subsidiary of the
Company, will irrevocably and unconditionally Guarantee on a senior basis the
performance and punctual payment when due, whether at Stated Maturity, by
acceleration or otherwise, of all the obligations of the Company under the
Indenture and the Notes. NB Inc. will pledge to the Trustee and the Collateral
Agent, as security for its Guarantee, 3,427,956 shares of Class A common stock
of International and 12,990,000 shares of Class B common stock of International
in which it has a beneficial interest. See "Description of the Collateral and
the Intercreditor and Support Arrangements -- Pledged Share Collateral" above.

The NB Inc. Guarantee shall be released upon the Company's request if all
of the Designated Class A Shares and Class B Shares owned by NB Inc. and pledged
as part of the Pledged Share Collateral have been released from the security
interest in favor of the Collateral Agent as permitted by and in accordance with
the provisions of the Indenture and/or the Security Agreement.

OPTIONAL REDEMPTION

Except as set forth below and under "-- Special Tax Redemption," the
Company will not be entitled to redeem the Notes at its option prior to March 1,
2007. The Notes will be subject to redemption at any time on or after March 1,
2007, at the Company's option, in whole or in part, on not less than 30 nor more
than 60 days' prior notice by first class mail in amounts of US$1,000 or an
integral multiple thereof at the following redemption prices (expressed as
percentages of the principal amount), if redeemed during the 12-month period
beginning March 1 of the years indicated below:

<Table>
<Caption>
REDEMPTION
YEAR PRICE
- ---- ----------

2007........................................................ 105.938%
2008........................................................ 102.969%
2009 and thereafter......................................... 100.000%
</Table>

in each case together with accrued and unpaid interest, if any, to the
redemption date (subject to the right of holders of record on relevant record
dates to receive interest due on an interest payment date).

In addition, at any time on or prior to March 1, 2006 the Company may at
its option redeem up to 35% of the principal amount of Notes originally issued
under the Indenture with the net cash proceeds of a Public Equity Offering at
111.875% of the aggregate principal amount, together with accrued and unpaid
interest, if any, to the redemption date (subject to the right of holders of
record on relevant record dates to receive interest due on an interest payment
date).

If less than all of the Notes are to be redeemed, the Trustee shall select
the Notes or portions thereof to be redeemed pro rata, by lot or by any other
method the Trustee shall deem fair and reasonable.

SPECIAL TAX REDEMPTION

The Notes may be redeemed at the option of the Company, in whole but not in
part, upon not less than 30 nor more than 60 days' notice, at any time, at a
redemption price equal to the principal amount thereof plus accrued interest to
the date fixed for redemption only if, as a result of (1) any change in or
amendment to the laws of Canada (or of any political subdivision or taxing
authority therein or thereof) or any regulations or rulings promulgated
thereunder or any change in the official interpretation or official application
of such laws, regulations or rulings (including a judgment, holding or order by
a court of competent jurisdiction), or (2) any change in the official
application or interpretation (including a judgment, holding or order by a court
of competent jurisdiction) of, or any execution of or amendment to, any treaty
or treaties affecting taxation to

107

which Canada (or such political subdivision or taxing authority) is a party,
which change, amendment or treaty becomes effective on or after the date of the
Indenture:

(1) the Company is or would be required on the next succeeding due date
for a payment with respect to the Notes to pay any Additional Amounts
with respect to the Notes as described under "Withholding Taxes," or

(2) with respect to any payment due or to become due under the Guarantees
or the Indenture, RMI or NB Inc. is, or on the next succeeding due
date with respect to the Notes would be, required to pay any
Additional Amounts as described under "Withholding Taxes."

Prior to the publication of any notice of redemption of the Notes, the
Company shall deliver to the Trustee an officers' certificate stating that the
Company is entitled to effect such redemption and setting forth a statement of
facts showing that the conditions precedent to the right of redemption have
occurred. The Company will be bound to redeem the Notes on the date fixed for
redemption.

SINKING FUND

There will be no sinking fund payments for the notes.

WITHHOLDING TAXES

Each of the Company and the Note Guarantors is required to make all
payments under or with respect to the Notes free and clear of and without
withholding or deduction for or on account of any present or future tax, duty,
levy, impost, assessment or other governmental charge (including penalties,
interest and other liabilities related thereto) (hereinafter "Taxes") imposed or
levied by or on behalf of the government of Canada or any political subdivision
or any authority or agency therein or thereof having power to tax, or within any
other jurisdiction in which it is organized or is otherwise resident for tax
purposes or any jurisdiction from or through which payment is made (each a
"Relevant Taxing Jurisdiction"), unless it is required to withhold or deduct
Taxes by law or by the interpretation or administration thereof.

If the Company or any Note Guarantor is so required to withhold or deduct
any amount for or on account of Taxes imposed by a Relevant Taxing Jurisdiction
from any payment made under or with respect to the Notes, it will be required to
pay such additional amounts ("Additional Amounts") as may be necessary so that
the net amount received by holders of the Notes (including Additional Amounts)
after such withholding or deduction will not be less than the amount that such
holders would have received if such Taxes had not been withheld or deducted;
provided, however, that the foregoing obligation to pay Additional Amounts does
not apply (1) with respect to a payment made to a holder (an "Excluded Holder")
(a) with which the Company or such Note Guarantor does not deal at arm's length
(within the meaning of the Income Tax Act (Canada)) at the time of making such
payment, or (b) which is subject to any Taxes by reason of the existence of any
present or former connection between the relevant holder (or between a
fiduciary, settlor, beneficiary, member or shareholder of, or possessor of power
over the relevant holder, if the relevant holder is an estate, nominee, trust or
corporation) and the Relevant Taxing Jurisdiction (other than the mere receipt
of such payment or the ownership or holding outside of Canada of such Note); or
(2) to any estate, inheritance, gift, sales, excise, transfer, personal property
tax or similar tax, assessment or governmental charge ("Excluded Taxes"); nor
will the Company or any Note Guarantor pay Additional Amounts if the payment
could have been made without such deduction or withholding if the beneficiary of
the payment had presented the Note for payment within 30 days after the date on
which such payment or such Note became due and payable or the date on which
payment thereof is duly provided for, whichever is later (except to the extent
that the holder would have been entitled to Additional Amounts had the Note been
presented on the last day of such 30-day period).

The Company and each Note Guarantor will also (a) make such withholding or
deduction and (b) remit the full amount deducted or withheld to the relevant
authority in accordance with applicable law. The Company and each Note Guarantor
will furnish to the holders of the Notes, within 30 days after the date the
payment of any Taxes is due pursuant to applicable law, certified copies of tax
receipts evidencing such

108

payment by the Company or such Note Guarantor. The Company and each Note
Guarantor will indemnify and hold harmless each holder (other than an Excluded
Holder or with respect to Excluded Taxes) and upon written request will
reimburse each such holder for the amount of (1) any Taxes so levied or imposed
and paid by such holder as a result of payments made under or with respect to
the Notes and (2) any Taxes levied or imposed and paid by such holder with
respect to any reimbursement under clause (1), but excluding any such Taxes on
such holder's income or net income.

At least 30 days prior to each date on which any payment under or with
respect to the Notes is due and payable, if the Company or the Note Guarantors
will be obligated to pay Additional Amounts with respect to such payment, the
Company and the Note Guarantors will deliver to the Trustee an officers'
certificate stating the fact that such Additional Amounts will be payable and
the amounts so payable, and will set forth such other information necessary to
enable the Trustee to pay such Additional Amounts to holders on the payment
date.

Whenever in the Indenture there is mentioned, in any context:

(1) the payment of principal;

(2) purchase prices in connection with a purchase of Notes;

(3) interest; or

(4) any other amount payable on or with respect to any of the Notes,

such reference shall be deemed to include payment of Additional Amounts as
described under this heading to the extent that, in such context, Additional
Amounts are, were or would be payable in respect thereof.

The Company and the Note Guarantors will pay any present or future stamp,
court or documentary taxes or any other excise or property taxes, charges or
similar levies that arise in any jurisdiction from the execution, delivery,
enforcement or registration of the Notes, the Indenture or any other document or
instrument in relation thereof, or the receipt of any payments with respect to
the Notes, excluding such taxes, charges or similar levies imposed by any
jurisdiction outside of Canada, the jurisdiction of incorporation of any
successor of the Company or any of the Note Guarantors or any jurisdiction in
which a paying agent is located, and the Company and the Note Guarantors will
agree to indemnify the holders for any such taxes paid by such holders.

The obligations described under this heading will survive any termination,
defeasance or discharge of the Indenture and will apply mutatis mutandis to any
jurisdiction in which any successor Person to the Company or any Note Guarantor,
as applicable, is organized or any political subdivision or taxing authority or
agency thereof or therein.

For a discussion of Canadian withholding taxes applicable to payments under
or with respect to the Notes, see "Certain Canadian Federal Income Tax
Considerations."

CERTAIN COVENANTS

LIMITATION ON INDEBTEDNESS

The Company will not, and will not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness, including any Acquired Indebtedness but
excluding any Permitted Indebtedness.

LIMITATION ON RESTRICTED PAYMENTS

(a) The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly:

(i) declare or pay any dividend or make any other distribution or
payment on or in respect of the Company's Capital Stock (including
dividends or distributions of the Capital Stock of any
Subsidiary), or make any other payment to the direct or indirect
holders (in their capacities as such) of the Company's Capital
Stock (other than (x) the Permitted Distribution and

109

(y) dividends or distributions payable in shares of the Company's
Qualified Capital Stock or in options, warrants or other rights to
acquire such Qualified Capital Stock);

(ii) purchase, redeem or otherwise acquire or retire for value,
directly or indirectly, any Capital Stock of the Company or any
Capital Stock of any Affiliate of the Company (other than Capital
Stock of any Restricted Subsidiary or Capital Stock of a Person
that is, or immediately following such repurchase will become, a
Restricted Subsidiary), or options, warrants or other rights to
acquire such Capital Stock;

(iii) make any principal payment on, or repurchase, redeem, defease,
retire or otherwise acquire for value, prior to any scheduled
principal payment, sinking fund payment or maturity, any
Subordinated Indebtedness (other than Subordinated Indebtedness
owing by the Company to any Restricted Subsidiary, by any
Restricted Subsidiary to the Company or by any Restricted
Subsidiary to any other Restricted Subsidiary) or make any cash
interest payment on the International Intercompany Note;

(iv) declare or pay any dividend or distribution on any Capital Stock of
any Restricted Subsidiary to any Person (other than (x) dividends
and distributions on Preferred Stock of Restricted Subsidiaries or
(y) dividends and distributions made to any Person on a pro rata
basis consistent with the ownership interests in such Capital Stock
to the owners of such Capital Stock, except that, in the case of
the Capital Stock of a Restricted Subsidiary that has provided a
Guarantee, (i) no Default or Event of Default shall have occurred
and be continuing, and (ii) no holders of any other Indebtedness of
the Company or any Restricted Subsidiary shall have an Acceleration
Right);

(v) Incur, create or assume any guarantee of Indebtedness of any
Affiliate of the Company (other than a Restricted Subsidiary of the
Company);

(vi) make any Restricted Investment in any Person; or

(vii) designate any Restricted Subsidiary as an Unrestricted Subsidiary;

(any of the payments described in paragraphs (i) through (vii) above, other than
any such action that is a Permitted Payment (as defined below), collectively,
"Restricted Payments") unless at the time of and after giving effect to the
proposed Restricted Payment (the amount of any such Restricted Payment, if other
than cash, as determined by the Board of Directors, whose determination shall be
conclusive and evidenced by a Board Resolution):

(1) no Default or Event of Default shall have occurred and be continuing;

(2) no holders of any other Indebtedness of the Company or any Restricted
Subsidiary shall have an Acceleration Right; and

(3) the aggregate amount expended by the Company and its Restricted
Subsidiaries (provided that, in the case of a Restricted Payment by a
Restricted Subsidiary, such Restricted Payment is calculated for the
purposes of this paragraph (3) by multiplying the amount of the
Restricted Payment by the percentage of the Company's common equity
interest in such Restricted Subsidiary at the time of such Restricted
Payment) in connection with all Restricted Payments made subsequent to
the Closing Date, taken together with any payments made pursuant to
paragraph (b)(viii) below, shall not exceed the sum of (without
duplication):

(i) 50% of the aggregate cumulative Adjusted Net Cash Flow of the
Company and its Restricted Subsidiaries accrued during the period
(treated as a single accounting period) beginning on the first day
of the Company's fiscal quarter commencing prior to the date of
the Indenture and ending on the last day of the Company's last
fiscal quarter ending prior to the date of the Restricted Payment
plus

(ii) the aggregate Net Cash Proceeds received after the date of the
Indenture by the Company from the issuance or sale (other than to
any of its Restricted Subsidiaries) of its Qualified
110

Capital Stock or any options, warrants or rights to purchase such
Qualified Capital Stock (except, in each case, to the extent such
proceeds are used to purchase, redeem or otherwise retire Capital
Stock or Subordinated Indebtedness of the Company as set forth in
(b)(iv) and (b)(v) below); plus

(iii) the aggregate Net Cash Proceeds received after the date of the
Indenture by the Company (other than from any of its Restricted
Subsidiaries) upon the exercise of any options or warrants to
purchase Qualified Capital Stock of the Company subsequent to the
Closing Date (except to the extent such proceeds are used to
purchase, redeem or otherwise retire Capital Stock or Subordinated
Indebtedness of the Company as set forth in (b)(iv) and (b)(v)
below; plus

(iv) the aggregate amount by which any Permitted Indebtedness of the
Company or any Restricted Subsidiary is reduced after the date of
the Indenture as a result of the conversion or exchange of debt
securities or Redeemable Capital Stock of the Company that has been
converted into or exchanged for Qualified Capital Stock of the
Company to the extent such debt securities or Redeemable Capital
Stock plus the aggregate Net Cash Proceeds received by the Company
at the time of any such conversion or exchange were originally sold
for cash; plus

(v) the aggregate Net Cash Proceeds received after the Closing Date by
the Company from cash capital contributions made to the Company
(other than from a Restricted Subsidiary, and other than cash
capital contributions made pursuant to the Support Agreement); plus

(vi) the aggregate Net Cash Proceeds of any (A) sale or other
disposition of Restricted Investments (which Investment was made
after the Closing Date) made by the Company or a Restricted
Subsidiary, (B) dividends or other distributions, whether
liquidating or otherwise, from, or the sale of capital stock of, an
Unrestricted Subsidiary, or (C) dividends or other distributions,
whether liquidating or otherwise, from Restricted Investments
(which Investment was made after the Closing Date); plus

(vii) with respect to any Unrestricted Subsidiary that is redesignated
by the Board of Directors as a Restricted Subsidiary, an amount
equal to the lower of (x) the fair market value (as determined by
a majority of the Independent Directors of the Board of Directors
and evidenced by a Board Resolution) of the Company's or a
Restricted Subsidiary's interest in such Unrestricted Subsidiary
or (y) the amount of the original Investment by the Company or
such Restricted Subsidiary in such Unrestricted Subsidiary plus
any additional Investment made in such Unrestricted Subsidiary
after the date such Subsidiary was so designated; provided that in
determining the amount of the Investment by the Company or such
Restricted Subsidiary in (A) any Subsidiary designated as an
Unrestricted Subsidiary as of the date of the Indenture, such
amount shall be the fair market value of such Unrestricted
Subsidiary as at the date of the Indenture, (B) any Restricted
Subsidiary that is designated as an Unrestricted Subsidiary after
the date of the Indenture, such amount shall be the fair market
value of such Unrestricted Subsidiary as at the date of such
designation, and (C) any Investment made in an Unrestricted
Subsidiary after the date such Subsidiary was so designated, such
amount shall be equal to the cash amount so invested or the fair
market value of any property contributed; plus

(viii) $30,000,000.

The sum of the amounts provided for in clauses (3)(i) through (3)(viii) above,
less the aggregate amount of Restricted Payments made by the Company and its
Restricted Subsidiaries, is referred to in the Indenture as the "RP Available
Amount."

(b) Notwithstanding the foregoing (and, in the case of clauses (ii)
through (viii) below, so long as (1) no Default or Event of Default
shall have occurred and be continuing or shall occur as a consequence
of the actions or payments set forth therein and (2) no holders of any
other
111

Indebtedness of the Company or any Restricted Subsidiary have an
Acceleration Right), the foregoing provisions will not prohibit the
following actions (clauses (i) through (viii) being referred to as
"Permitted Payments"):

(i) the payment of any dividend or distribution within 60 days after
the date of declaration thereof, if at such date of declaration
such payment would be permitted by the provisions of paragraph (a)
of this section and such payment will be deemed to have been paid
on such date of declaration for purposes of the calculation
required by paragraph (a) of this section;

(ii) the payment of any dividend or distribution on (1) the Series II
Preferred Shares (and any Capital Stock issued in connection with
the purchase, redemption, retirement or other refinancing of the
Series II Preferred Shares permitted under the Indenture), in an
amount not to exceed the aggregate dividends paid by International
to the Company on Class A Common Stock that corresponds to the
number of Class A Common Stock into which the Series II Preferred
Shares are exchangeable and (2) the Series III Preferred Shares
(and any Capital Stock issued in connection with the purchase,
redemption, retirement or other refinancing of the Series III
Preferred Shares permitted under the Indenture), in an amount not
to exceed $9 million in any calendar year;

(iii) the payment of any dividend or distribution on the retractable
common shares of the Company in an amount not to exceed the
aggregate cash amount received by the Company from RCL or RMI
after the Closing Date in the form of a Subordinated Intercompany
Loan;

(iv) any repurchase, redemption or other acquisition or retirement of
any shares of Capital Stock of the Company in exchange for
(including any such exchange pursuant to the exercise of a
conversion right or privilege in connection with which cash is paid
in lieu of the issuance of fractional shares or scrip), or out of
the Net Cash Proceeds of a substantially concurrent issue and sale
for cash (other than to a Restricted Subsidiary) of, (A) other
Qualified Capital Stock of the Company or (B) in the case of a
retraction of the Company's retractable Capital Stock, shares of
Class A common stock of International; provided, that the Net Cash
Proceeds from the issuance of such shares of Qualified Capital
Stock are excluded from clauses (3)(ii) and (3)(iii) of paragraph
(a) of this section;

(v) any repurchase, redemption, defeasance, retirement or acquisition
for value or payment of principal of any Subordinated Indebtedness
in exchange for, or out of the net proceeds of, a substantially
concurrent issuance and sale for cash (other than to any Restricted
Subsidiary of the Company) of, any Qualified Capital Stock of the
Company; provided that the Net Cash Proceeds from the issuance of
such Qualified Capital Stock are excluded from clauses (3)(ii) and
(3)(iii) of paragraph (a) of this section;

(vi) the repurchase, redemption, defeasance, retirement, refinancing,
acquisition for value or payment of principal of any Subordinated
Indebtedness (other than Redeemable Capital Stock) (a
"refinancing") through the issuance of new Subordinated
Indebtedness of the Company; provided that any such new
Subordinated Indebtedness (1) shall be in a principal amount that
does not exceed the principal amount so refinanced (or, if the
Subordinated Indebtedness so refinanced provides for an amount less
than the principal amount thereof to be due and payable upon a
declaration or acceleration thereof, then such lesser amount as of
the date of determination), plus the amount of any premium required
to be paid in connection with such refinancing pursuant to the
terms of such refinanced Indebtedness and any reasonable
out-of-pocket expenses of the Company Incurred in connection with
such refinancing; (2) has an Average Life to Stated Maturity
greater than the remaining Average Life to Stated Maturity of the
Notes; (3) has a Stated Maturity for its final scheduled principal
payment later than the Stated Maturity for the final scheduled
principal payment of the Notes; and (4) is expressly subordinated
in right of payment to the Notes at least to the same extent as the
Indebtedness to be refinanced;

112

(vii) the repurchase, redemption, defeasance, retirement, refinancing,
acquisition for value or payment of redemption amount of the
Company's Series III Preferred Shares through the issuance of
either (1) new Subordinated Indebtedness of the Company of which
not more than 50% in principal amount of such Subordinated
Indebtedness has a Stated Maturity occurring earlier than that of
the Notes, (2) new Redeemable Capital Stock of the Company, or (3)
a combination of clauses (1) and (2) above; provided, in each
case, that such new Subordinated Indebtedness or Redeemable
Capital Stock or combination thereof shall be in an aggregate
principal amount or redemption amount, as the case may be, that
does not exceed the redemption amount of the Series III Preferred
Shares so refinanced plus any reasonable out-of-pocket expenses of
the Company Incurred in connection with such refinancing; and

(viii) the repurchase, redemption, defeasance, retirement, acquisition
for value or payment of redemption amount of the Company's Series
III Preferred Shares (1) on the mandatory redemption date of such
shares on April 30, 2004 or (2) pursuant to the exercise by the
holder of such shares of the retraction right attached to such
shares.

For purposes of this "Limitation on Restricted Payments" covenant, if the
Board of Directors designates a Restricted Subsidiary as an Unrestricted
Subsidiary, a "Restricted Payment" shall be deemed to have been made in an
amount equal to the fair value of the Investment of the Company and its other
Restricted Subsidiaries in such Unrestricted Subsidiary as determined by the
Board of Directors with the concurrence of a majority of the Independent
Directors (there being at least one Independent Director), whose good faith
determination shall be conclusive. If a particular Restricted Payment involves a
non-cash payment, including a distribution of assets, then such Restricted
Payment shall be deemed to be in an amount equal to the fair market value of the
non-cash portion of such Restricted Payment as determined by the Board of
Directors, whose good faith determination shall be conclusive.

LIMITATION ON TRANSACTIONS WITH AFFILIATES

The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into or suffer to exist any
transaction or series of related transactions (including, without limitation,
the sale, purchase, exchange or lease of assets, property or services) with any
Affiliate of the Company (other than the Company or a Restricted Subsidiary)
unless (a) such transaction or series of related transactions is on terms that
are no less favorable to the Company or such Restricted Subsidiary, as the case
may be, than would be available in a comparable transaction in arm's-length
dealings with an unrelated third party and (b) with respect to any transaction
or series of related transactions involving aggregate payments in excess of
US$1,000,000, the Company delivers an Officers' Certificate to the Trustee
certifying that such transaction or series of related transactions complies with
clause (a) above and such transaction or series of related transactions has been
approved by a majority of the Independent Directors of the Board of Directors
(or, if the Company ceases to be a public company, by a majority of the members
of the Board of Directors); provided that any transaction or series of related
transactions otherwise permitted under this paragraph (other than any
transaction or series of related transactions with respect to the making of any
Restricted Payment permitted pursuant to the "Limitation on Restricted Payments"
covenant described above) pursuant to which the Company or any Restricted
Subsidiary shall receive or render value exceeding US$5,000,000 shall not be
permitted unless, prior to the consummation of any such transaction or series of
related transactions, the Company shall have received an opinion, from an
independent nationally recognized investment banking firm or firm experienced in
the appraisal or similar review of similar types of transactions, that such
transaction is fair to the Company from a financial point of view; provided
further, that this covenant shall not apply to (i) transactions or agreements as
in effect or securities outstanding on the date of the Indenture (provided that
any amendment to any existing agreement, and any transaction pursuant to the
Business Opportunities Agreement, shall require approval pursuant to this
covenant; notwithstanding the foregoing, any amendment to the Business
Opportunities Agreement shall only require the approval of a majority of the
Independent Directors of the Board of Directors); (ii) directors' fees approved
by the Board of Directors; (iii) any employee benefit plan or arrangement
entered into or made available to officers or other employees of the

113

Company or the Restricted Subsidiaries in the ordinary course of business; (iv)
the performance by RMI, RCL, the Company and any Restricted Subsidiary of their
respective obligations under the Support Agreement (and the related Contribution
Agreement), the Security Documents and the Indenture or the contribution by RMI
or RCL of any voluntary support amounts to the Company; (v) for so long as the
Company is a public company, any sale to International of shares of Capital
Stock of International held by the Company or its Restricted Subsidiaries for
fair value (as determined by a majority of the Independent Directors of the
Board of Directors); and (vi) a purchase by RMI or its Affiliates from the
Company or any of its Restricted Subsidiaries and substantially concurrent sale
in an arm's length transaction by RMI or its Affiliates to a third party (other
than an Affiliate of the Company or RMI) or to International of shares of
Capital Stock of International where the purchase and sale were undertaken at
the same price and RMI delivers an officers' certificate to the Trustee
certifying that such purchase and sale of such shares were undertaken at the
same price.

LIMITATION ON LIENS

(a) The Company will not, and will not permit any Restricted Subsidiary
to, create, incur, assume or suffer to exist any Lien on any of its
assets or properties of any character, or any shares of Capital Stock
or Indebtedness of any Restricted Subsidiary, without making effective
provision for all of the Notes and all other amounts due under the
Indenture to be directly secured equally and ratably with (or, if the
obligation or liability to be secured by such Lien is subordinated in
right of payment to the Notes, prior to) the obligation or liability
secured by such Lien.

(b) The foregoing limitation does not apply to:

(i) liens (other than on the Capital Stock of NBI (until and unless
the NBI Guarantee shall have been released in accordance with the
Indenture) or any of the Senior Notes Collateral) securing
Indebtedness incurred under the Credit Facility that is permitted
to be incurred under the definition of "Permitted Indebtedness";

(ii) liens existing on the Closing Date;

(iii) liens granted after the Closing Date on any assets or Capital
Stock of the Company or its Restricted Subsidiaries created in
favor of the holders of Notes;

(iv) liens with respect to the assets of a Restricted Subsidiary granted
by such Restricted Subsidiary to the Company or a Restricted
Subsidiary to secure Indebtedness owing to the Company or such
other Restricted Subsidiary;

(v) liens securing Indebtedness which is Incurred to refinance secured
Indebtedness which is permitted to be Incurred under clause (viii)
of the definition of "Permitted Indebtedness"; provided that such
Liens do not extend to or cover any property or assets of the
Company or any Restricted Subsidiary other than the property or
assets securing the Indebtedness being refinanced;

(vi) liens on any property or assets or capital stock of a Restricted
Subsidiary securing Indebtedness of such Restricted Subsidiary
permitted under the definition of "Permitted Indebtedness"; or

(vii) Permitted Liens.

LIMITATION ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS

(a) The Company will not permit any Restricted Subsidiary (other than
NBI), directly or indirectly, to guarantee, assume or in any other
manner become liable with respect to any Indebtedness of the Company
(other than pursuant to a Credit Facility) unless such Restricted
Subsidiary simultaneously executes and delivers a supplemental
indenture to the Indenture providing for a senior Guarantee of the
Notes and if such Indebtedness of the Company is by its terms pari
passu with or expressly subordinated to the Notes, any such
assumption, guarantee or other liability of
114

such Restricted Subsidiary with respect to such Indebtedness shall be
pari passu with or subordinated to such Restricted Subsidiary's
Guarantee to the same extent as such Indebtedness is pari passu with
or subordinated to the Notes.

(b) Notwithstanding the foregoing, any Guarantee by a Restricted
Subsidiary of the Notes that is provided pursuant to the foregoing
paragraph may provide by its terms that it shall be automatically and
unconditionally released and discharged (i) upon any sale, exchange or
transfer, to any Person not an Affiliate of the Company, of all of the
Company's Capital Stock in, or all or substantially all the assets of,
such Restricted Subsidiary, which sale, exchange or transfer is in
compliance with the Indenture, (ii) if the Restricted Subsidiary
issuing such Guarantee ceases to be a Restricted Subsidiary or (iii)
upon the release by the holders of the Indebtedness of the Company
described in paragraph (a) above of their guarantee by such Restricted
Subsidiary (including any deemed release upon payment in full of all
obligations under such Indebtedness), at a time when (A) no other
Indebtedness of the Company or any Restricted Subsidiary has been
guaranteed by such Restricted Subsidiary or (B) the holders of all
such other Indebtedness which is guaranteed by such Restricted
Subsidiary also release their guarantee by such Restricted Subsidiary
(including any deemed release upon payment in full of all obligations
under such Indebtedness).

LIMITATION ON SALE OF ASSETS

(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, consummate an Asset Sale
unless:

(i) at least 75% of the proceeds from such Asset Sale are received in
cash; provided that the amount of (A) any Pari Passu Indebtedness
of the Company or Indebtedness of any such Restricted Subsidiary
that is pari passu with any guarantee of the Notes (as shown on
the Company's or such Restricted Subsidiaries' most recent balance
sheet or in the notes thereto) of the Company or any such
Restricted Subsidiary that is assumed by the transferee of any
asset in connection with any Asset Sale and (B) any deferred
payment obligations received by the Company or any such Restricted
Subsidiary as proceeds of an Asset Sale that are concurrently with
the Asset Sale converted into cash without recourse to the Company
or any of its Restricted Subsidiaries shall be deemed to be cash
for purposes of this provision; provided further that, for
purposes of this clause (i), "cash" shall include any cash
proceeds received from the sale of securities received in an Asset
Sale as long as at the time of such Asset Sale, the Company or its
Restricted Subsidiary, as applicable, has entered into a legally
binding agreement for the sale of such securities and such
securities are sold within 90 days of such Asset Sale; and
provided further that this clause (i) shall not apply to

(x) any contribution, sale or other disposition of shares of
Capital Stock of International held by the Company or its
Restricted Subsidiaries (other than the Pledged Share
Collateral) to International or its Subsidiaries in
satisfaction of such portion of any Indebtedness owed by the
Company or any of its Restricted Subsidiaries to International
or its Subsidiaries under the International Intercompany Note
as is no less than 90% of the aggregate Current Market Price
of the shares of Capital Stock of International so
contributed, sold or disposed of, so long as and to the extent
that the repayment of such Indebtedness would be permitted
under the "Limitation on Restricted Payments" and "Limitation
on Transactions with Affiliates" covenants, or

(y) any sale of an interest in the Company's newspaper businesses
in the Cayman Islands held through Holcay Holdings Ltd., or in
Costa Rica held through 172847 Canada Limited, to
International or its Subsidiaries in satisfaction of such
portion of any Indebtedness owed by the Company or any of its
Restricted Subsidiaries to International or its Subsidiaries
under the International Intercompany Note as is equal to the
fair market value of the shares or assets so sold, so long as
and to the extent that

115

the repayment of such Indebtedness would be permitted under
the "Limitation on Restricted Payments" and "Limitation on
Transactions with Affiliates" covenant, and

(ii) the Company or such Restricted Subsidiary receives consideration
at the time of such Asset Sale at least equal to the fair market
value of the shares or assets sold (as determined by the Board of
Directors of the Company and evidenced by a Board Resolution). The
value of any properties or assets (other than cash) received
pursuant to an Asset Sale shall be determined by the Board of
Directors of the Company and evidenced by a Board Resolution;
provided that if the value of the asset which is the subject of
the Asset Sale is in excess of US$5,000,000, the value of the
properties or assets received shall be determined by an
independent nationally recognized investment banking firm or firm
experienced in the appraisal or similar review of similar types of
assets.

(b) the Company will, and will cause its Restricted Subsidiaries to, apply
100% of the Net Cash Proceeds of any Asset Sale

(i) first, (A) to the extent the Company elects, to the reinvestment
by the Company or such Restricted Subsidiary in properties and
assets that (as determined by the Board of Directors) replace the
properties and assets that were the subject of the Asset Sale or
in properties and assets that will be used in the businesses of
the Company or its Restricted Subsidiaries existing on the date of
the Indenture or in businesses reasonably related thereto, or (B)
to the extent the Company elects, to the making of an offer to
purchase (an "Offer"), out of such amount of the Net Cash Proceeds
as the Company shall determine to allocate for such purpose (the
"Allocated Proceeds"), a principal amount of Notes equal to the
Securities Amount (as defined in clause (c) below) and (to the
extent so required by the terms of the debt instrument governing
such Indebtedness) a principal amount of Pari Passu Indebtedness
equal to the Pari Passu Amount (as defined in clause (c) below),
any such Offer pursuant to this clause (b)(i)(B) to be conducted
in accordance with the procedures set forth in clause (c) below
(substituting the term "Allocated Proceeds" in place of any
reference therein to "Excess Proceeds") and in the Indenture (with
any Deficiency (as defined in clause (c) below) occurring after
such Offer to be excluded from the calculation of Excess Proceeds
and treated the same as a Deficiency occurring after an Offer made
using Excess Proceeds), any such application pursuant to clauses
(A) and (B) to be made within 12 months of receipt of such Net
Cash Proceeds;

(ii) second, to the extent of the balance of such Net Cash Proceeds
after application in accordance with clause (i) above, to make an
Offer to purchase Notes pursuant to and subject to the conditions
set forth below; provided, however, that if the Company elects (or
is required by the terms of any Pari Passu Indebtedness), such
Offer may be made ratably to purchase the Notes and any Pari Passu
Indebtedness of the Company (any Net Cash Proceeds from Asset
Sales (excluding any Deficiency resulting from an Offer made using
Allocated Proceeds pursuant to clause (b)(i)(B)) that are not
applied as provided in clause (i) above shall constitute "Excess
Proceeds"); and

(iii) third, to the extent of the balance of any Excess Proceeds after
application in accordance with clauses (i) and (ii) above, for any
general corporate purpose permitted pursuant to the terms of the
Indenture;

provided, however, that in connection with any prepayment, repayment or purchase
of Indebtedness pursuant to clauses (i)(B) and (ii) above, the Company or such
Restricted Subsidiary will retire such Indebtedness and (in the case of the
Credit Facility, to the extent of any borrowings thereunder that have been
converted to a term loan as permitted under the Indenture) will cause the
related loan commitment (if any) to be permanently reduced in an amount equal to
the principal amount so prepaid, repaid or purchased.

(c) When the aggregate amount of Excess Proceeds equals or exceeds
US$5,000,000, the Company will apply the Excess Proceeds to the
repayment of the Notes and any Pari Passu Indebtedness

116

required to be repurchased under the instrument governing such Pari
Passu Indebtedness as follows: (i) the Company will make an offer to
purchase (an "Offer") from all holders of the Notes, in accordance
with the procedures set forth in the Indenture, the maximum principal
amount (expressed as a multiple of US$1,000) of Notes that may be
purchased out of an amount (the "Securities Amount") equal to the
product of such Excess Proceeds multiplied by a fraction, the
numerator of which is the outstanding principal amount of the Notes,
and the denominator of which is the sum of the outstanding principal
amount of the Notes and such Pari Passu Indebtedness (subject to
proration in the event such amount is less than the aggregate Offered
Price (as defined herein) of all Notes tendered) and (ii) to the
extent required by such Pari Passu Indebtedness to permanently reduce
the principal amount of such Pari Passu Indebtedness, the Company will
make an offer to purchase or otherwise repurchase or redeem Pari Passu
Indebtedness (a "Pari Passu Offer") in an amount (the "Pari Passu Debt
Amount") equal to the excess of the Excess Proceeds over the
Securities Amount; provided that in no event will the Pari Passu Debt
Amount exceed the principal amount of such Pari Passu Indebtedness
plus the amount of any premium required to be paid to repurchase such
Pari Passu Indebtedness. The offer price shall be payable in cash in
an amount equal to 100% of the principal amount of the Notes plus
accrued and unpaid interest, if any, to the date (the "Purchase Date")
such Offer is consummated (the "Offered Price"), in accordance with
the procedures set forth in the Indenture. To the extent that the
aggregate Offered Price of the Notes tendered pursuant to the Offer is
less than the Securities Amount relating thereto or the aggregate
amount of Pari Passu Indebtedness that is purchased is less than the
Pari Passu Debt Amount (the amount of such shortfall, if any,
constituting a "Deficiency"), the Company may use such Deficiency for
any purpose not otherwise prohibited by the Indenture. Upon completion
of the purchase of all Notes tendered pursuant to an Offer and
repurchase of the Pari Passu Indebtedness pursuant to a Pari Passu
Offer, the amount of Excess Proceeds, if any, shall be reset at zero.

(d) Whenever the aggregate amount of Excess Proceeds received by the
Company exceeds US$5,000,000, such Excess Proceeds will, prior to the
purchase of Notes or any Pari Passu Indebtedness described in
paragraph (c) above, be set aside by the Company in a separate account
pending (i) deposit with the depository or a paying agent of the
amount required to purchase the Notes or Pari Passu Indebtedness
tendered in an Offer or Pari Passu Offer and (ii) delivery by the
Company of the Offered Price to the holders of the Notes or Pari Passu
Indebtedness tendered in an Offer or a Pari Passu Offer. Such Excess
Proceeds may be invested in Temporary Cash Investments; provided that
the maturity date of any such investment made after the amount of
Excess Proceeds equals or exceeds US$5,000,000 shall not be later than
the Purchase Date. The Company shall be entitled to any interest or
dividends accrued, earned or paid on such Temporary Cash Investments;
provided that the Company will not be entitled to such interest and
will not withdraw such interest from the separate account if an Event
of Default has occurred and is continuing.

(e) If the Company becomes obligated to make an Offer pursuant to
paragraph (c) above, the Notes will be purchased by the Company, at
the option of the holder thereof, in whole or in part in integral
multiples of US$1,000, on a date that is not earlier than 30 days and
not later than 60 days from the date the notice is given to holders,
or such later date as may be necessary for the Company to comply with
the requirements under the Exchange Act, subject to proration in the
event the Securities Amount is less than the aggregate Offered Price
of all Notes tendered.

(f) Notwithstanding the foregoing, with respect to the proceeds of an
Asset Sale arising from the issuance of Capital Stock of a Restricted
Subsidiary ("Issuance Proceeds"):

(i) Prior to the day following the fifth anniversary of the original
issuance of the Notes, the Company shall not be required to use
Issuance Proceeds to make an Offer to purchase Notes in an amount
in excess of 25% of the original aggregate principal amount of the
Notes. For greater certainty, the maximum amount of the Issuance
Proceeds that may be applied to make an Offer to purchase Notes
that has a date of purchase prior to the day following the
117

fifth anniversary of the original issuance of the Notes is 25% of
the original aggregate principal amount of the Notes less the
aggregate principal amount of Notes previously purchased pursuant
to a purchase offer using Issuance Proceeds. To the extent the
aggregate amount of Notes tendered exceeds the permitted amount of
the Offer, the tendered Notes shall be selected for repurchase on
a pro-rata basis.

(ii) Promptly after the fifth anniversary of the original issuance of
the Notes, the Company shall be required to make an Offer to
purchase Notes in accordance with the requirements set out in
paragraph (c) above, in an aggregate amount equal to the aggregate
amount of Issuance Proceeds in excess of 25% of the principal
amount of the Notes that was not applied to purchase Offers
pursuant to the provisions of this paragraph.

(g) The Company will comply with the applicable tender offer rules,
including Rule 14e-1 under the Exchange Act, and any other applicable
securities laws or regulations in connection with an Offer.

(h) The Company will not, and will not permit any Restricted Subsidiary
to, create or permit to exist or become effective any restriction that
would expressly impair the ability of the Company to make an Offer to
purchase the Notes or, if such Offer is made, to pay for the Notes
tendered for purchase.

(i) Notwithstanding anything to the contrary herein, until and unless the
NBI Guarantee shall have been released in accordance with the
Indenture, the Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, consummate an
Asset Sale in respect of any of the Capital Stock or assets and
properties of either Sugra or NBI to the extent that any such Asset
Sale would impair the Lien in favor of the Collateral Agent in the
Pledged Share Collateral.

PURCHASE OF NOTES UPON A CHANGE OF CONTROL

If a Change of Control occurs at any time, each holder with respect to
Notes will have the right to require that the Company purchase such holder's
Notes in whole or in part in integral multiples of US$1,000, at a purchase price
(the "Change of Control Purchase Price") in cash in an amount equal to 101% of
the principal amount of the Notes, plus accrued and unpaid interest, if any, to
the date of purchase (the "Change of Control Purchase Date"), pursuant to the
offer described below (the "Change of Control Offer") and the other procedures
set forth in the Indenture.

Within 30 days following any Change of Control, the Company shall notify
the Trustee thereof and give written notice of such Change of Control to each
holder of Notes, by first-class mail, postage prepaid, at his address appearing
in the security register, stating, among other things, (i) the purchase price,
(ii) the Change of Control Purchase Date, which shall be a Business Day no
earlier than 30 days nor later than 60 days from the date such notice is mailed,
or such later date as is necessary to comply with requirements under the
Exchange Act, (iii) that any Notes not tendered will continue to accrue
interest, (iv) that, unless the Company defaults in the payment of the purchase
price, any Notes accepted for payment pursuant to the Change of Control Offer
will cease to accrue interest after the Change of Control Purchase Date and (v)
certain other procedures that a holder of Notes must follow to accept a Change
of Control Offer or to withdraw such acceptance.

If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for any or all of the Notes that might be delivered by holders of
the Notes seeking to accept the Change of Control Offer and, accordingly, none
of the holders of the Notes may receive the Change of Control Purchase Price for
their Notes in the event of a Change of Control. The failure of the Company to
make or consummate the Change of Control Offer or pay the Change of Control
Purchase Price when due will give the Trustee and the holders of the Notes the
rights described under "Events of Default."

The existence of a holder's right to require the Company to repurchase such
holder's Notes upon a Change of Control may deter a third party from acquiring
the Company in a transaction which constitutes a Change of Control.

118

The provisions of the Indenture may not afford holders of Notes the right
to require the Company to repurchase the Notes in the event of a highly
leveraged transaction or certain transactions with the Company's management or
its Affiliates or the management of RCL or its Affiliates, including a
reorganization, restructuring, merger, amalgamation or similar transaction
(including, in certain circumstances, an acquisition of the Company by its
management or Affiliates) involving the Company that may adversely affect
holders of the Notes, if such transaction is not a transaction defined as a
Change of Control. Reference is made to "Certain Definitions" for the definition
of "Change of Control." A transaction involving the Company's management or its
Affiliates or the management of RCL or its Affiliates, or a transaction
involving a recapitalization of the Company, may result in a Change of Control
if it is the type of transaction specified by such definition.

The Company will comply with the applicable tender offer rules, including
Rule 14e-1 under the Exchange Act, and any other applicable securities laws or
regulations in connection with a Change of Control Offer.

The Company shall not, and shall not permit any Restricted Subsidiary to,
create or permit to exist or become effective any restriction that would
expressly impair the ability of the Company to make a Change of Control Offer to
purchase the Notes or, if such Change of Control Offer is made, to pay for the
Notes tendered for purchase.

LIMITATION ON ISSUANCE AND SALE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES

The Company will not permit:

(i) any Restricted Subsidiary to issue any Capital Stock (other than to
the Company or any Restricted Subsidiary) or

(ii) any Person (other than the Company or a Restricted Subsidiary) to
acquire any Capital Stock of any Restricted Subsidiary from the
Company or any Restricted Subsidiary,

except if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would continue to be a Restricted Subsidiary or if,
immediately after giving effect to such issuance or sale, such Restricted
Subsidiary would no longer be a Restricted Subsidiary and the Company's
Investment in such Person after giving effect to such issuance or sale would
have been permitted to be made under the "Limitation on Restricted Payments"
covenant as if made on the date of such issuance or sale (and such Investment
shall be deemed to be an Investment made for the purposes of such covenant). The
proceeds of any issuance or sale of such Capital Stock permitted hereby will be
treated as Net Cash Proceeds from an Asset Sale and must be applied in
accordance with the terms of the "Limitation on Sale of Assets" covenant
(including the limitation noted in paragraph (f) thereof). Notwithstanding the
foregoing, no issuance or sale of any Capital Stock of NBI (other than to the
Company or any other Restricted Subsidiary) shall be permitted.

LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES

The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (a) pay dividends or make any other distribution on its
Capital Stock to the Company or any other Restricted Subsidiary, (b) pay any
Indebtedness owed to the Company or any Restricted Subsidiary, (c) make any
Investment in the Company or (d) transfer any of its properties or assets to the
Company or any Restricted Subsidiary, except (i) any encumbrance or restriction
pursuant to or in connection with any agreement as in effect on the date of the
Indenture, (ii) any encumbrance or restriction, with respect to a Restricted
Subsidiary that is not a Restricted Subsidiary of the Company on the date of the
Indenture, in existence at the time such Person becomes a Restricted Subsidiary
of the Company and not Incurred in connection with, or in contemplation of, such
Person becoming a Restricted Subsidiary, (iii) customary provisions restricting
subletting or assignment of any lease governing a leasehold interest of the
Company or any Restricted Subsidiary and (iv) any encumbrance or restriction
existing under any amendments, modifications, restatements, renewals,
supplements, replacements or refinancings of the

119

agreements containing the encumbrances or restrictions in the foregoing clauses
(i) and (ii) provided that the terms and conditions of any such encumbrances or
restrictions, taken as a whole, are not materially less favorable to the holders
of the Notes than those under or pursuant to the agreement evidencing the
Indebtedness so extended, renewed, refinanced or replaced.

PROVISION OF FINANCIAL STATEMENTS

Whether or not the Company or RMI is subject to Section 13(a) or 15(d) of
the Exchange Act, the Company and RMI will, to the extent permitted under the
Exchange Act, file with, or furnish to, the Commission the annual reports and
other documents that they would have been required to file with, or furnish to,
the Commission pursuant to such Section 13(a) or 15(d) of the Exchange Act,
including any information relating to the Company and RMI as may be required by
Regulation S-X under the Exchange Act or by the Commission, if they were so
subject, such documents to be filed with, or furnished to, the Commission on or
prior to the respective dates (the "Required Filing Dates") by which they would
have been required so to file, or to furnish, such documents if they were so
subject; provided, that if and for so long as RMI is no longer subject to
Section 13(a) or 15(d) of the Exchange Act, RMI may satisfy its obligations
under this paragraph through the inclusion in the Company's annual reports and
other documents filed with or furnished to the Commission pursuant to Section
13(a) or 15(d) of the Exchange Act (or these provisions of the Indenture) of
audited annual and unaudited quarterly financial statements for RMI prepared in
accordance with Canadian GAAP, and reconciled to US GAAP; provided further that
at such time as RMI may become a 100% owned Restricted Subsidiary of the
Company, RMI may satisfy its obligations under this paragraph through the
inclusion in a footnote to the Company's consolidated financial statements of
financial information for RMI, any other Guarantors of the Notes that are
Subsidiaries of the Company and any non-Guarantor Subsidiaries, equivalent to
that which would be required under Rule 3-10 of Regulation S-X. The Company will
in any event (x) within 15 days of each Required Filing Date (i) transmit by
mail to all holders of Notes, as their names and addresses appear in the
security register, without cost to such holders of Notes and (ii) file with the
Trustee, copies of the annual reports and other documents (including the audited
annual market value financial statements described above) which the Company and
RMI would have been required to file with, or furnish to, the Commission
pursuant to Section 13(a) or 15(d) of the Exchange Act if they were subject to
such Sections (subject to the proviso set forth in the immediately preceding
sentence) and (y) if filing or furnishing such documents by the Company or RMI
with the Commission is not permitted under the Exchange Act, promptly upon
written request and payment of the reasonable cost of duplication and delivery,
supply copies of such documents to any prospective holder of Notes at the
Company's cost.

LIMITATION ON THE DESIGNATION OF UNRESTRICTED SUBSIDIARIES

(a) The Board of Directors may designate any Restricted Subsidiary as an
Unrestricted Subsidiary if (i) such action is in compliance with the
"Limitation on Restricted Payments" covenant described above and (ii)
such action complies with the definition of "Unrestricted
Subsidiaries."

(b) The Board of Directors may not designate any Unrestricted Subsidiary
as a Restricted Subsidiary unless any additional Indebtedness incurred
as a result of giving effect to such action (and treating any Acquired
Indebtedness as having been incurred at the time of such action) would
constitute Permitted Indebtedness.

LIMITATION ON BUSINESS ACTIVITIES OF RMI

RMI will not incur any Indebtedness other than its Guarantee of the Notes
(and any refinancings or replacements thereof permitted under the definition of
"Permitted Indebtedness") or create, incur, assume or suffer to exist any Lien
on any of its assets or properties of any character, nor will it engage in any
business activities other than the issuance of the Guarantee, the performance of
its obligations and pursuit of its rights under the Services Agreements, the
Support Agreement and the Contribution Agreement or its rights and obligations
existing on the date of the Indenture, the transactions contemplated in
paragraph (vi) under the "Limitation on Transactions with Affiliates" covenant,
and activities incidental to those described in this paragraph.
120

ADDITIONAL COVENANTS

The Indenture also contains covenants with respect to the following
matters: (i) payment of principal, premium and interest; (ii) maintenance of an
office or agency in The City of New York; (iii) arrangements regarding the
handling of money held in trust; (iv) maintenance of corporate existence; (v)
payment of taxes and other claims; (vi) maintenance of properties; (vii)
maintenance of insurance; and (viii) statement by officers as to default.

COVENANTS OF RMI, RCL AND SUGRA

RMI will covenant not to assign the Services Agreement to any other party,
other than (i) pursuant to the pledge of the Services Agreements to the Trustee
and the Collateral Agent under the Indenture and the Security Documents or (ii)
a Permitted Transfer.

RCL will covenant to vote its Capital Stock in RMI, and cause any
subsequent holder of Capital Stock of RMI to vote such stock, so as to cause RMI
to comply with its obligations under the Indenture, its Guarantee, the Support
Agreement, the Security Documents and other transaction agreements. These
covenants by RCL will not be deemed to be a guarantee by RCL of the Notes.

In addition, RCL and RMI will covenant that, for so long as any of the
Notes is outstanding, they will not form any other vehicle that would be used to
provide the same services to International and its Subsidiaries as those
currently provided under the Services Agreements.

Sugra will covenant that, until and unless the NBI Guarantee shall have
been released in accordance with the Indenture, it will not create, incur,
assume or suffer to exist any Lien on any of its shares of Capital Stock of NBI.

CONSOLIDATION, MERGER, SALE OF ASSETS

The Indenture will provide that the Company shall not, in a single
transaction or a series of related transactions, consolidate with, amalgamate or
merge with or into any other Person or sell, assign, convey, transfer, lease or
otherwise dispose of all or substantially all of its properties and assets to
any Person or group of affiliated Persons, or permit any of its Restricted
Subsidiaries to enter into any such transaction or transactions (other than, in
the case of a Restricted Subsidiary, such a consolidation, amalgamation, merger
or transfer with or to one or more Restricted Subsidiaries) if such transaction
or transactions, in the aggregate, would result in a sale, assignment,
conveyance, transfer, lease or disposition of all or substantially all of the
properties and assets of the Company and its Restricted Subsidiaries on a
Consolidated basis to any other Person or group of affiliated Persons, unless at
the time and after giving effect thereto (a) either (i) the Company shall be the
continuing corporation or (ii) the Person (if other than the Company) formed by
such consolidation or into which the Company is merged or amalgamated or the
Person which acquires by sale, assignment, conveyance, transfer, lease or
disposition all or substantially all of the properties and assets of the Company
and its Restricted Subsidiaries on a Consolidated basis (the "Surviving Entity")
will be a corporation duly organized and validly existing under the laws of
Canada or any province thereof or the United States of America, any state
thereof or the District of Columbia and such Person assumes by a supplemental
Indenture (and, to the extent necessary, a supplemental Security Agreement), in
form and substance reasonably satisfactory to the Trustee, all the obligations
of the Company under the Notes, the Indenture and the Security Agreement, and
the Indenture and the Security Agreement (and the Trustee's security interest in
the Senior Notes Collateral) will remain in full force and effect; (b)
immediately before and immediately after giving effect to such transaction on a
pro forma basis, no Default or Event of Default shall have occurred and be
continuing; (c) immediately after giving effect to the transaction on a pro
forma basis, the Consolidated Net Worth of the Surviving Entity is not less than
the Consolidated Net Worth of the Company and the Restricted Subsidiaries
immediately prior to the transaction; (d) if any of the property or assets of
the Company or any of its Restricted Subsidiaries would thereupon become subject
to any Lien, the "Limitation on Liens" covenant in the Indenture is complied
with; and (e) the Company or the Surviving Entity shall have delivered, or
caused to be delivered, to the Trustee, in form and substance reasonably
satisfactory to the Trustee, an officers' certificate and an opinion of counsel,
each to the effect that such consolidation, merger,
121

amalgamation, transfer, sale, assignment, lease or other transaction and the
supplemental Indenture in respect thereto comply with the provisions described
herein and that all conditions precedent herein provided for relating to such
transaction have been complied with.

None of the Note Guarantors will, in a single transaction or series of
related transactions, consolidate with or merge or amalgamate with or into any
other Person (other than the Company, in which case the requirements of the
foregoing paragraph would apply), or sell, assign, convey, transfer, lease or
otherwise dispose of all or substantially all of its properties and assets on a
Consolidated basis to any Person (other than the Company) if such transaction or
transactions, in the aggregate, would result in a sale, assignment, conveyance,
transfer, lease or disposition of all or substantially all of the properties and
assets of any such Note Guarantor to any other Person or group of affiliated
Persons, unless at the time and after giving effect thereto: (a) either (i) such
Note Guarantor shall be the continuing corporation or (ii) the Person (if other
than such Note Guarantor) formed by such consolidation or into which any such
Note Guarantor is merged or amalgamated or the Person which acquires by sale,
assignment, conveyance, transfer, lease or disposition all or substantially all
the properties and assets of such Note Guarantor shall be a corporation duly
organized and validly existing under the laws of Canada or any province thereof
or the United States, any state thereof or the District of Columbia and shall
expressly assume by a supplemental Indenture (and, to the extent necessary, a
supplemental Security Agreement and supplemental Support Agreement), executed
and delivered to the Trustee and in form and substance reasonably satisfactory
to the Trustee, all the obligations of such Note Guarantor under the Notes, the
Indenture, the Security Agreement and the Support Agreement (as applicable), and
the Indenture, the Security Agreement (and the Trustee's security interest in
the Senior Notes Collateral) and Support Agreement (as applicable) will remain
in full force and effect; (b) immediately before and immediately after giving
effect to such transaction on a pro forma basis, no Default or Event of Default
shall have occurred and be continuing; and (c) such Note Guarantor shall have
delivered or caused to be delivered to the Trustee, in form and substance
reasonably satisfactory to the Trustee, an officers' certificate and an opinion
of counsel, each stating that such consolidation, merger, amalgamation, sale,
assignment, conveyance, transfer, lease or disposition and such supplemental
Indenture (and, to the extent necessary, such supplemental Security Agreement
and supplemental Support Agreement) comply with the Indenture.

In the event of any transaction described in and complying with the
conditions listed in the immediately preceding paragraphs in which the Company
or a Note Guarantor is not the continuing corporation, the successor Person
formed or remaining shall succeed to, and be substituted for, and may exercise
every right and power of, the Company or such Note Guarantor, and the Company or
such Note Guarantor, as the case may be, will be discharged from all obligations
and covenants under the Indenture, the Notes and such Guarantee; provided that
in the case of a transfer by lease, the predecessor shall not be released from
the payment of principal and interest on the Notes or such Guarantee, as the
case may be.

EVENTS OF DEFAULT

An Event of Default with respect to the Notes will occur under the
Indenture if:

(i) there shall be a default in the payment of any interest on any Note
when it becomes due and payable, and such default shall continue for
a period of 30 days;

(ii) there shall be a default in the payment of the principal of (or
premium, if any, on) any Note when and as the same shall become due
and payable at its Maturity (upon acceleration, optional or mandatory
redemption, required repurchase or otherwise);

(iii) (a) there shall be a default in the performance, or breach, of any
covenant or agreement of the Company under the Indenture (other than
a default in the performance, or breach, of a covenant or agreement
which is specifically dealt with in paragraphs (i) or (ii) or in
clauses (b) and (c) of this paragraph (iii)) and such default or
breach shall continue for a period of 30 days after written notice
has been given, by certified mail, (x) to the Company by the Trustee
or (y) to the Company and the Trustee by the holders of at least 25%
in aggregate principal amount of the outstanding Notes, (b) there
shall be a default in the performance or breach of the provisions
described above
122

under "Consolidation, Merger, Sale of Assets," or (c) the Company
shall have failed to make or consummate a Change of Control Offer in
accordance with the "Purchase of Notes upon a Change of Control"
covenant in the Indenture;

(iv) (A) one or more defaults shall have occurred under any agreements,
indentures or instruments under which the Company, a Note Guarantor or
any Restricted Subsidiary of the Company then has outstanding
Indebtedness (other than the Series III Preferred Shares) in excess of
US$2,500,000 in the aggregate and, if not already matured at its final
maturity in accordance with its terms, such Indebtedness shall have
been accelerated or (B) one or more defaults shall have occurred under
any agreements, indentures or instruments under which International or
any of its Subsidiaries then has outstanding Indebtedness in excess of
US$7,500,000 in the aggregate and, if not already matured at its final
maturity in accordance with its terms, such Indebtedness shall have
been accelerated;

(v) any Guarantee relating to the Notes shall for any reason cease to be,
or be asserted in writing by any guarantor or the Company not to be,
in full force and effect, enforceable in accordance with its terms,
except to the extent contemplated by the Indenture and any such
Guarantee;

(vi) one or more final judgments, orders or decrees (including execution,
writ of seizure and sale, sequestration, levy, assessment, injunction
or attachment or other process of court) for the payment of money
shall be entered against (A) the Company, a Note Guarantor or any
Restricted Subsidiary of the Company or any of their respective
properties, either individually or in the aggregate, in an amount
exceeding US$2,500,000, or (B) International or any of its
Subsidiaries or any of their respective properties, either
individually or in the aggregate, in an amount exceeding US$7,500,000
and, in each case, shall not be discharged and either (a) enforcement
proceedings shall have been commenced upon such judgment, order or
decree or (b) there shall have been a period of 60 consecutive days
during which a stay of enforcement of such judgment or order, by
reason of an appeal or otherwise, shall not be in effect;

(vii) there shall have been the entry by a court of competent jurisdiction
of (a) a decree or order for relief in respect of the Company, any
Note Guarantor or any Material Restricted Subsidiary in an
involuntary case or proceeding under any applicable Bankruptcy Law or
(b) a decree or order adjudging the Company, any Note Guarantor or
any Material Restricted Subsidiary bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment or composition of or in
respect of the Company, any Note Guarantor or any Material Restricted
Subsidiary under any applicable federal, provincial or state law, or
appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator, administrator, monitor or similar official of the
Company, any Note Guarantor or any Material Restricted Subsidiary or
of any substantial part of its property, or ordering the winding up
or liquidation of its affairs, and any such decree or order for
relief shall continue to be in effect, or any such other decree or
order shall be unstayed and in effect, for a period of 60 consecutive
days;

(viii) (a) the Company, any Note Guarantor or any Material Restricted
Subsidiary shall commence a voluntary case or proceeding under any
applicable Bankruptcy Law or any other case or proceeding to be
adjudicated bankrupt or insolvent, (b) the Company, any Note
Guarantor or any Material Restricted Subsidiary consents to the
entry of a decree or order for relief in respect of the Company,
such Note Guarantor or such Material Restricted Subsidiary in an
involuntary case or proceeding under any applicable Bankruptcy Law
or to the commencement of any bankruptcy or insolvency case or
proceeding against it, (c) the Company, any Note Guarantor or any
Material Restricted Subsidiary files a petition, proposal, notice of
intention to file a proposal or answer or consent seeking
reorganization or any relief which seeks to stay or has the effect
of staying any creditor under any applicable federal, provincial or
state law, (d) the Company, any Note Guarantor or any Material
Restricted Subsidiary (x) consents to the filing of such petition,
proposal, notice of intention to file a proposal or the appointment
of, or taking possession by, a custodian, receiver, liquidator,
assignee, trustee, sequestrator, administrator, monitor or similar
official of the Company, such Note Guarantor or such Material
Restricted Subsidiary or of any

123

substantial part of its property, (y) makes an assignment for the
benefit of creditors or (z) admits in writing its inability to pay
its debts generally as they become due or (e) the Company, any Note
Guarantor or any Material Restricted Subsidiary takes any corporate
action in furtherance of any such actions in this paragraph (viii);

(ix) the Trustee, Collateral Agent and the Noteholders cease to have a
perfected first priority security interest in any of the Senior Note
Collateral in each case in accordance with the terms of the Security
Agreement;

(x) the Pledged Agreements shall for any reason cease to be, or be
asserted in writing by any party thereto or the Company not to be, in
full force and effect, or the Pledged Agreements are terminated,
suspended or repudiated by any party thereto, except to the extent
contemplated by the Indenture and the Pledged Agreements;

(xi) in any quarterly period after April 1, 2003, the Company fails to
receive in cash a minimum aggregate amount of at least US$4.7 million
from (a) payments made by RMI during such quarter pursuant to the
terms of the Support Agreement, (b) any management fees paid by
International and its Subsidiaries directly to the Company or its
Wholly Owned Restricted Subsidiaries during such quarter, and (c) the
Net Dividend Amount paid by International on its Capital Stock held by
the Company and its Wholly Owned Restricted Subsidiaries during such
quarter (provided, that with respect to any period that is less than a
fiscal quarter, the minimum aggregate amount of US$4.7 million shall
be reduced pro rata be reference to the number of days in such period,
calculated on the basis of a 360-day year of twelve 30-day months); or

(xii) immediately prior to making any repurchase, redemption, defeasance,
retirement, acquisition for value or payment of redemption amount of
the Company's Series III Preferred Shares pursuant to paragraph
(b)(viii) of the "Limitation on Restricted Payments" covenant, the
amount to be paid in connection therewith would, after giving effect
to such payment, exceed the RP Available Amount.

If an Event of Default (other than as specified in paragraphs (vii) and
(viii) of the prior paragraph with respect to the Company) occurs and is
continuing with respect to the Notes, the Trustee or the holders of not less
than 25% in aggregate principal amount of the outstanding Notes may, and the
Trustee upon the request of the holders of not less than 25% in the aggregate
principal amount of the outstanding Notes shall, declare the principal amount of
all the Notes to be due and payable immediately in an amount equal to the
principal amount of the Notes, together with accrued and unpaid interest and
liquidated damages, if any, to the date the Notes shall have become due and
payable, by a notice in writing to the Company (and to the Trustee if given by
the holders of the Notes) and, if a Credit Facility is then in effect, to the
relevant Agent under the Credit Facility in accordance with the terms of the
Intercreditor Agreement described under "Description of the Collateral and the
Intercreditor and Support Arrangements," and upon any such declaration such
amount shall become immediately due and payable; and thereupon the Trustee may,
at its discretion, proceed to protect and enforce the rights of the holders of
the Notes. If an Event of Default specified in clause (vii) or (viii) of the
prior paragraph occurs with respect to the Company and is continuing, then all
the Notes shall ipso facto become and be immediately due and payable, in an
amount equal to the principal amount of the Notes, together with accrued and
unpaid interest and liquidated damages, if any, to the date the Notes become due
and payable, without any declaration or other action on the part of the Trustee
or any holder.

After a declaration of acceleration has been made with respect to the
Notes, but before a judgment or decree for payment of the money due has been
obtained by the Trustee, the holders of a majority in aggregate principal amount
of outstanding Notes, by written notice to the Company and the Trustee, may
rescind and annul such declaration and its consequences if (a) the Company has
paid or irrevocably deposited with the Trustee a sum sufficient to pay (i) all
sums paid or advanced by the Trustee under the Indenture and the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, (ii) all overdue interest on all outstanding Notes, (iii) the
principal of and premium, if any, on any outstanding Notes which have become due
otherwise than by such declaration of acceleration and interest thereon at the
rate or rates presented therefor by the terms of the Notes and (iv) to the
extent that payment of such interest is
124

lawful, interest upon overdue interest at the rate or rates presented therefor
by the terms of the Notes; and (b) all Events of Default with respect to the
Notes, other than the nonpayment of principal of the Notes which have become due
solely by such declaration of acceleration, have been cured or waived.

The holders of not less than a majority in aggregate principal amount of
the Outstanding Notes may on behalf of the holders of all the Notes waive any
past defaults under the Indenture and its consequences, except a default in the
payment of the principal of, premium, if any, or interest on any Note, or in
respect of a covenant or provision which under the Indenture cannot be modified
or amended without the consent of the holder of each Outstanding Note.

The Company is required to notify the Trustee within five business days of
the occurrence of any Default.

The Trust Indenture Act of 1939 contains limitations on the rights of the
Trustee, should it become a creditor of the Company or any guarantor, to obtain
payment of claims in certain cases or to realize on certain property received by
it in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions; provided that if it acquires any
conflicting interest, it must eliminate such conflict upon the occurrence of an
Event of Default or else resign.

DEFEASANCE OR COVENANT DEFEASANCE

The Company may, at its option and at any time (provided, that the Company
obtains all legal opinions and complies with all other requirements under the
Indenture), elect to have the obligations of the Company and any Note Guarantor
discharged with respect to the outstanding Notes, the Indenture and the Security
Agreement ("defeasance"). Such defeasance means that the Company and any Note
Guarantor shall be deemed to have paid and discharged the entire indebtedness
represented by the defeased Notes (which shall thereafter be deemed to be
"Outstanding" only for purposes of the provisions of the Indenture governing the
money or U.S. Government Obligations deposited in trust pursuant to the
provisions described in the second succeeding paragraph, and for purposes of the
provisions governing the rights of holders of the defeased Notes and the
obligations of the Company described in the following clauses (i) and (ii)) and
to have satisfied all its other obligations under the Notes and the Indenture,
except for (i) the rights of holders of outstanding Notes to receive payments in
respect of the principal of, premium, if any, and interest on the Notes when
such payments are due, (ii) the Company's obligations with respect to the Notes
concerning issuing temporary Notes, registration of Notes, mutilated, destroyed,
lost or stolen Notes, and the maintenance of an office or agency for payment and
money for security payments held in trust, (iii) the rights, powers, trusts,
duties and immunities of the Trustee and (iv) the defeasance provisions of the
Indenture.

In addition, the Company may, at its option and at any time, elect to have
the obligations of the Company released with respect to certain covenants
(provided that the Company's obligations to pay interest, premium, if any, and
principal on the Notes shall remain in full force and effect as long as the
Notes are outstanding), that are described in the Indenture ("covenant
defeasance") and any omission to comply with such obligations shall not
constitute a Default or an Event of Default with respect to the Notes. In the
event covenant defeasance occurs, certain events (not including nonpayment,
bankruptcy and insolvency events) described under "Events of Default" will no
longer constitute an Event of Default with respect to the Notes. In the event of
covenant defeasance, the defeased Notes will thereafter be deemed to be not
"Outstanding" for purposes of any direction, waiver, consent or declaration or
Acts of Holders in connection with the covenants from which the Company has been
released, but shall continue to be deemed "Outstanding" for all other purposes
under the Indenture.

In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the holders of the Notes, cash in United States dollars, U.S. Government
Obligations (as defined in the Indenture), or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay and discharge the principal of, premium,
if any, and interest on the outstanding Notes on the Stated Maturity of such
principal or installment of principal (or on any date selected by the Company on
which the Defeased Notes may be redeemed in whole at the option of the Company
(such date being referred to as the "Defeasance Redemption Date"), if when
exercising either defeasance or covenant defeasance, the Company
125

has delivered to the Trustee irrevocable notice to redeem all of the outstanding
Notes on the Defeasance Redemption Date); (ii) in case of defeasance, the
Company shall have delivered to the Trustee an Opinion of Independent Counsel in
the United States stating that (A) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling or (B) since the date
of the Indenture, there has been a change in the applicable federal income tax
law, in either case to the effect that the holders of the outstanding Notes will
not recognize income, gain or loss for federal income tax purposes as a result
of such defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such defeasance had not occurred; (iii) in the case of covenant defeasance, the
Company shall have delivered to the Trustee an Opinion of Independent Counsel in
the United States to the effect that the holders of the outstanding Notes will
not recognize income, gain or loss for federal income tax purposes as a result
of such covenant defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such covenant defeasance had not occurred; (iv) in the case of both
defeasance and covenant defeasance, the Company shall have delivered to the
Trustee an opinion of Canadian counsel stating that the Company has received
from, or there has been published by, the Canada Customs and Revenue Agency a
ruling, in either case to the effect that, and based thereon such opinion shall
confirm that, the holders of the outstanding Notes will not recognize income,
gain or loss for Canadian federal, provincial or territorial income tax or other
tax purposes as a result of such deposit and defeasance and will be subject to
Canadian federal, provincial or territorial income tax or other tax on the same
amounts, in the same manner and at the same times as would have been the case if
such deposit and defeasance had not occurred (and for the purposes of such
opinion, such Canadian counsel shall assume that holders of the Notes include
holders who are not resident in Canada); (v) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit or insofar as
clause (vii) or (viii) under the first paragraph under "Events of Default" above
are concerned, at any time during the period ending on the 121st day after the
date of deposit; (vi) such defeasance or covenant defeasance shall not cause the
Trustee for the Notes to have a conflicting interest with respect to any
securities of the Company; (vii) such defeasance or covenant defeasance shall
not result in a breach or violation of, or constitute a Default under, the
Indenture; (viii) the Company shall have delivered to the Trustee an Opinion of
Independent Counsel in the United States to the effect that after the 121st day
following the deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; (ix) the Company shall have delivered to the
Trustee an officers' certificate stating that the deposit was not made by the
Company with the intent of preferring the holders of the Notes over the other
creditors of the Company with the intent of defeating, hindering, delaying or
defrauding creditors of the Company; (x) no event or condition shall exist that
would prevent the Company from making payments of the principal of, premium, if
any, and interest on the Notes on the date of such deposit or at any time ending
on the 121st day after the date of such deposit; and (xi) the Company shall have
delivered to the Trustee an officers' certificate and an Opinion of Independent
Counsel, each stating that all conditions precedent provided for relating to
either the defeasance or the covenant defeasance, as the case may be, have been
complied with.

SATISFACTION AND DISCHARGE

The Indenture and the Security Agreement will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment funds have been deposited in trust by the Company and
thereafter repaid to the Company or discharged from such trust) have been
delivered to the Trustee for cancellation or (b) all Notes not theretofore
delivered to the Trustee for cancellation (x) have become due and payable, (y)
will become due and payable at their Stated Maturity within one year or (z) are
to be called for redemption within one year under arrangements satisfactory to
the Trustee for the giving of notice of redemption by the Trustee in the name,
and at the expense, of the Company, and the Company has irrevocably deposited or
caused to be deposited with the Trustee as trust funds in trust an amount
sufficient to pay and discharge the entire indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, including principal of,
premium, if any, and accrued interest on such Notes, at such Maturity, Stated
Maturity or redemption date; (ii) the Company has paid or caused to be paid

126

all other sums payable under the Indenture by the Company; and (iii) the Company
has delivered to the Trustee an officers' certificate and an opinion of counsel
in the United States each stating that all conditions precedent under the
Indenture relating to the satisfaction and discharge of the Indenture have been
complied with, and that such satisfaction and discharge will not result in a
breach or violation of, or constitute a Default under, the Indenture.

MODIFICATIONS AND AMENDMENTS

Modifications and amendments of the Indenture with respect to the Notes and
of the Intercreditor Agreement, the Support Agreement and (except as otherwise
provided above in "Description of the Collateral and the Intercreditor and
Support Arrangements -- Amendment to Security Agreement") the Security Agreement
may be made by the Company and the Trustee with the consent of greater than 50%
of the holders in aggregate outstanding principal amount of the Notes; provided,
however, that no such modification or amendment may, without the consent of the
holder of each outstanding Note affected thereby: (i) change the Stated Maturity
of the principal of, or any installment of interest on, any Note or waive a
default in the payment of the principal or interest on any Note or reduce the
principal amount thereof or the rate of interest thereon or any premium payable
upon the redemption thereof, or change the coin or currency in which any Note or
any premium or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment after the Stated Maturity thereof;
(ii) amend, change or modify the obligation of the Company to make and
consummate a Change of Control Offer in the event of a Change of Control in
accordance with the "Purchase of Notes on Change of Control" covenant in the
Indenture including amending, changing or modifying any definitions with respect
thereto; (iii) reduce the percentage in principal amount of Outstanding Notes,
the consent of whose holders is required for any such supplemental indenture, or
the consent of whose holders is required for any waiver; (iv) modify any of the
provisions relating to supplemental indentures requiring the consent of holders
or relating to the waiver of past defaults or relating to the waiver of certain
covenants, except to increase the percentage of outstanding Notes required for
such actions or to provide that certain other provisions of the Indenture cannot
be modified or waived without the consent of the holder of each Note affected
thereby; (v) except as otherwise permitted under "Consolidation, Merger, Sale of
Assets" above, consent to the assignment or transfer by the Company or RMI of
any of its respective rights and obligations under the Indenture; or (vi) amend
or modify any of the provisions of the Indenture relating to the ranking of the
Notes or any guarantee in any manner adverse to the holders of the Notes.

Without the consent of any holder of the Notes, the Company and the Trustee
may amend the Indenture to:

- cure any ambiguity, omission, defect or inconsistency;

- provide for the assumption by a successor corporation of the obligations
of the Company or a Note Guarantor under the Indenture and the
Guarantees, as applicable;

- provide for uncertificated Notes in addition to or in place of
certificated Notes;

- add Guarantees with respect to the Notes or release Guarantees as
provided by the terms of the Indenture;

- secure the Notes or Guarantees, add to the covenants of the Company or
its Restricted Subsidiaries, as applicable, for the benefit of the
holders of the Notes or to surrender any right or power conferred upon
the Company or its Restricted Subsidiaries by the Indenture;

- comply with any requirement of the Commission in connection with the
qualification of the Indenture under the Trust Indenture Act; or

- if necessary, to effect any addition or release of Senior Notes
Collateral permitted under the Indenture or the Security Agreement.

The holders of greater than 50% in aggregate principal amount of the
Outstanding Notes may waive compliance with certain restrictive covenants and
provisions of the Indenture.
127

GOVERNING LAW; JURISDICTION AND SERVICE OF PROCESS

The Indenture and the Notes will be governed by, and construed in
accordance with, the laws of the State of New York, without giving effect to the
conflicts of law principles thereof.

Any legal action or proceeding with respect to the Indenture or the Notes
may be brought in the courts of the State of New York or the federal courts of
the United States located in The City of New York, and each of the Company and
the Note Guarantors consents to the jurisdiction of such courts. Each of the
Company and the Note Guarantors irrevocably waives any objection, including any
objection to the laying of venue or based on forum non conveniens, which it may
have to the bringing of any action or proceeding in such jurisdiction with
respect to the Indenture, the Notes, the Security Agreement or any other
document related thereto. Notwithstanding the foregoing, (1) the Trustee and/or
the Collateral Agent shall have the right to bring any action or proceeding
against the Company, the Note Guarantors and their property in the courts of any
other jurisdiction the Trustee and/or the Collateral Agent deem necessary or
appropriate in order to enforce the obligations of the Company and the Note
Guarantors or to realize upon the Senior Notes Collateral or other security for
those obligations and (2) each of the Company and the Note Guarantors
acknowledges that any appeals from the courts described in the preceding
sentence may have to be heard by a court located outside those jurisdictions.

To the extent allowed by any applicable requirement of law, each of the
Company and the Note Guarantors waives personal service of any and all process
upon it and consents that all such service of process may be made by registered
mail (return receipt requested) directed to such party at its address set forth
in the Indenture and service so made shall be deemed to be completed five days
after the same shall have been so posted in the United States (or Canada, as
applicable), postage prepaid. Nothing contained in this paragraph shall affect
the right of the Trustee and/or the Collateral Agent to serve legal process by
any other manner permitted by law.

JUDGMENT CURRENCY

If for the purpose of obtaining judgment in any court or for the purpose of
determining, pursuant to the obligations of the Company or any Note Guarantor,
the amounts owing hereunder, it is necessary to convert an amount due hereunder
in U.S. dollars into a currency other than U.S. dollars (the "Judgment
Currency"), the rate of exchange applied shall be that at which, in accordance
with normal banking procedures, the Trustee or Collateral Agent could purchase,
in the New York foreign exchange market, U.S. dollars with the Judgment Currency
on the date that is two business days preceding that on which judgment is given
or any other payment is due hereunder. Each of the Company and the Note
Guarantors agrees that its respective obligation in respect of any U.S. dollars
due from it to the holders hereunder shall, notwithstanding any judgment or
payment in the Judgment Currency, be discharged only to the extent that, on the
business day following the date the Trustee or Collateral Agent receives payment
of any sum so adjudged or owing to be due hereunder in the Judgment Currency,
the Trustee or Collateral Agent may, in accordance with normal banking
procedures, purchase, in the New York foreign exchange market U.S. dollars with
the amount of the Judgment Currency so paid; and if the amount of U.S. dollars
so purchased or could have been so purchased is less than the amount originally
due in U.S. dollars, each of the Company and the Note Guarantors agrees as a
separate obligation and notwithstanding any such payment or judgment to
indemnify the Trustee or Collateral Agent against such loss. The term "rate of
exchange" in this paragraph means the spot rate at which the Trustee or
Collateral Agent, in accordance with normal banking practices is able on the
relevant date to purchase U.S. dollars with the Judgment Currency and includes
any premium and costs of exchange payable in connection with such purchase.

No provision of the Indenture, individually or collectively, shall have the
effect of requiring the Company to pay interest (as such term is defined in
section 347 of the Criminal Code of Canada) at a rate in excess of 60% per
annum, taking into account all other amounts which must be taken into account
for the purpose thereof and, to such extent, the Company's obligation to pay
interest hereunder shall be so limited.

128

CERTAIN DEFINITIONS

The Indenture contains the following certain definitions:

"Acceleration Right" means a right, which at the time is immediately
exercisable (without further notice or lapse of time), by the holders or a
trustee to cause the acceleration of the maturity of Indebtedness of the Company
or a Restricted Subsidiary having an aggregate principal amount outstanding of
at least US$2,500,000;

"Acquired Indebtedness" means Indebtedness of a Person (including an
Unrestricted Subsidiary) (i) existing at the time such Person becomes a
Restricted Subsidiary or (ii) assumed in connection with the acquisition of
assets from such Person, in each case, other than Indebtedness incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary or such acquisition. Acquired Indebtedness will be deemed to be
incurred on the date of the related acquisition of assets from any Person or the
date the acquired Person becomes a Restricted Subsidiary.

"Adjusted Net Cash Flow" means, for any period, the Net Cash Flow plus the
Annual Support Amount.

"Affiliate" means, with respect to any specified Person, (i) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person or (ii) any other Person that
owns, directly or indirectly, 10% or more of such Person's equity ownership or
Voting Stock or any officer or director of any such Person or other Person or
with respect to any natural Person, any person having a relationship with such
Person by blood, marriage or adoption not more remote than first cousin. For the
purposes of this definition, "control" when used with respect to any specified
Person means the power to direct the management and policies of such Person
directly or indirectly, whether through ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings relative to the foregoing.

"Agent" means the relevant agent bank under any Credit Facility established
by the Company, and such agent bank's successors and assigns.

"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition (including, without limitation, by way of merger, amalgamation,
consolidation or sale and leaseback transaction but not the grant of a pledge or
security interest) (collectively, a "transfer"), directly or indirectly, in one
or a series of related transactions, of (i) any Capital Stock of any Restricted
Subsidiary; (ii) all or substantially all of the properties and assets of any
division or line of business of the Company or any of its Restricted
Subsidiaries; or (iii) any other properties or assets (other than cash) of the
Company or any Restricted Subsidiary, other than in the ordinary course of
business. For the purposes of this definition, the term "Asset Sale" shall not
include (A) any transfer of properties and assets, in a single transaction or
series of related transactions, that is governed by the provisions described
under "Consolidation, Merger, Sale of Assets," (B) any transfer of properties
and assets from any Restricted Subsidiary to the Company in accordance with the
terms of the Indenture, (C) any transfer of properties and assets, in a single
transaction or series of related transactions, having a market value of less
than US$1,000,000 (it being understood that if the market value of the
properties or assets being transferred exceeds US$1,000,000, the entire value
and not just the portion in excess of US$1,000,000, shall be deemed to have been
the subject of an Asset Sale), (D) any transfer of properties and assets which
are obsolete (in the case of equipment) to the Company's and its Restricted
Subsidiaries' businesses, (E) any transfer of properties and assets to any
Restricted Subsidiary, (F) any transfer of properties and assets from any
Restricted Subsidiary to any other Restricted Subsidiary and (G) any release of
the Senior Notes Collateral permitted under and made in accordance with the
provisions of the Indenture or the Security Documents.

"Average Life to Stated Maturity" means, as of the date of determination
with respect to any Indebtedness, the quotient obtained by dividing (i) the sum
of the product of (a) the number of years from the date of determination to the
date or dates of each successive scheduled principal payment of such
Indebtedness multiplied by (b) the amount of each such principal payment by (ii)
the sum of all such principal payments.

129

"Bankruptcy Law" means Title 11 of the United States Code, as amended, or
any similar United States federal or state or foreign law (including, without
limitation, the Bankruptcy and Insolvency Act (Canada) and the Companies'
Creditors Arrangement Act (Canada)) relating to bankruptcy, insolvency,
receivership, winding-up, liquidation, consolidation, reorganization or relief
of debtors or any amendment to, succession to or change in any such law.

"Board of Directors" means the board of directors of the Company or any
duly authorized committee of such board.

"Board Resolution" means a copy of a resolution certified by an Officer of
the Company to have been duly adopted by the board of directors of the Company
or a duly authorized committee of such board and to be in full force and effect
on the date of such certification, and delivered to the Trustee.

"Business Opportunities Agreement" means the Business Opportunities
Agreement dated as of February 7, 1996, between the Company and International
and any amendment, modification or supplement thereto or restatement thereof and
any similar agreements entered into after the date of the original issuance of
the Notes in accordance with the terms of the Indenture.

"Capital Lease Obligation" of any Person means any obligation of such
Person and its subsidiaries on a consolidated basis under any capital lease of
real or personal property which, in accordance with GAAP, has been recorded as a
capitalized lease obligation.

"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of such Person's
capital stock and options, warrants or other rights to acquire such Person's
capital stock.

"Cash Equivalents" means (i) any evidence of Indebtedness with a maturity
of 180 days or less issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided,
that the full faith and credit of the United States of America is pledged in
support thereof); (ii) certificates of deposit or acceptances with a maturity of
180 days or less of any financial institution that is a member of the Federal
Reserve System having combined capital and surplus and undivided profits of not
less than US$500,000,000; (iii) commercial paper with a maturity of 180 days or
less issued by a corporation that is not an Affiliate of the Company organized
under the laws of any state of the United States or the District of Columbia and
rated A-1 (or higher) according to S&P or P-1 (or higher) according to Moody's
or at least an equivalent rating category of another nationally recognized
securities rating agency; (iv) any money market deposit accounts issued or
offered by a domestic commercial bank having capital and surplus in excess of
US$500,000,000; and (v) repurchase agreements and reverse repurchase agreements
relating to marketable direct obligations issued or unconditionally guaranteed
by the government of the United States of America or issued by any agency
thereof and backed by the full faith and credit of the United States of America,
in each case maturing within 180 days from the date of acquisition; provided
that the terms of such agreements comply with the guidelines set forth in the
Federal Financial Agreements of Depository Institutions With Securities Dealers
and Others, as adopted by the Comptroller of the Currency on October 31, 1985.

"Change of Control" means the occurrence of any of the following:

(a) there is a report filed on Schedule 13D, 14D-1 or 14D-1F (or any
successor schedule, form or report) pursuant to the Exchange Act,
disclosing that any person (for purposes of this definition, as the
term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act or any successor provision to either of the foregoing),
other than any person consisting solely of Lord Black (or his heirs,
executors or legal representatives) and his Affiliates, has become the
beneficial owner (as the term "beneficial owner" is defined under Rule
13d-3 or any successor rule or regulation promulgated under the
Exchange Act) of Voting Stock representing 50% or more of the total
voting power attached to all Voting Stock of the Company or RMI then
outstanding; provided, however, that a person shall not be deemed to
be the beneficial owner of, or to own beneficially, (i) any securities
tendered pursuant to a tender or exchange offer made by or on behalf
of such person or any of such person's Affiliates until such tendered
securities are accepted for purchase or exchange thereunder, or (ii)
any securities if such beneficial ownership (A) arises solely as a
result
130

of a revocable proxy delivered in response to a proxy or consent
solicitation made pursuant to applicable law, and (B) is not also then
reportable on Schedule 13D (or any successor schedule) under the
Exchange Act;

(b) there is a report filed or required to be filed with any securities
commission or securities regulatory authority in Canada, disclosing
(expressly or otherwise) that any offeror (as the term "offeror" is
defined in Section 89(1) of the Securities Act (Ontario) for the
purpose of Section 101 of such Securities Act or any successor
provision of the foregoing and which term shall include, for greater
certainty, any person who directly or indirectly acquires beneficial
ownership within the meaning of such Securities Act of, or control or
direction over, voting or equity securities of the Company) other than
any person consisting solely of Lord Black (or his heirs, executors or
legal representatives) and his Affiliates, has directly or indirectly
acquired beneficial ownership (within the meaning of the Securities
Act (Ontario)) of, or the power to exercise control or direction over,
voting or equity securities, or securities convertible into voting or
equity securities, of the Company, that together with such offeror's
securities (as the term "offeror's securities" is defined in Section
89(1) of the Securities Act (Ontario) or any successor provision
thereto in relation to the voting or equity shares of the Company)
would constitute Voting Stock of the Company representing 50% or more
of the total voting power attached to all Voting Stock of the Company
then outstanding;

(c) any person, other than any person consisting solely of Lord Black (or
his heirs, executors or legal representatives) and his Affiliates,
directly or indirectly acquires beneficial ownership (within the
meaning of the Securities Act (Ontario) of, or the power to exercise
control or direction over, voting or equity securities, or securities
convertible into voting or equity securities, of RMI, that together
with such person's securities (the term "person's securities" to have
the same meaning as "offeror's securities" as defined in Section 89(1)
of the Securities Act (Ontario) or any successor provision thereto in
relation to the voting or equity shares of the RMI) would constitute
Voting Stock of RMI representing 50% or more of the total voting power
attached to all Voting Stock of RMI then outstanding;

(d) there is consummated a consolidation (involving a business
combination), merger or amalgamation of the Company or RMI, as the
case may be, (i) in which the Company or RMI, as the case may be, is
not the continuing or surviving corporation or (ii) pursuant to which
any Voting Stock of the Company or RMI, as the case may be, would be
reclassified, changed or converted into or exchanged for cash,
securities or other property, other than (in each case) a
consolidation, merger or amalgamation of the Company or RMI, as the
case may be, in which the holders of the Voting Stock of the Company
or RMI, as the case may be, immediately prior to the consolidation,
merger or amalgamation have, directly or indirectly, 50% or more of
the Voting Stock of the continuing or surviving corporation
immediately after such transaction; or

(e) during any period of 12 consecutive months, individuals who at the
beginning of such period constituted the Board of Directors of the
Company or RMI (together with any new directors whose election by such
Board of Directors, or whose nomination for election by the
stockholders of the Company or RMI, as the case may be, was approved
by a vote of at least a majority of the directors then still in office
who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease
for any reason to constitute a majority of such Board of Directors
then in office; or

(f) Lord Black (or his heirs, executors and legal representatives) and his
Affiliates cease to beneficially own and control the voting of,
directly or indirectly, Voting Stock of the Company or RMI
representing a greater percentage of the total voting power attached
to the Voting Stock of the Company or RMI than the percentage
beneficially owned and controlled, directly or indirectly, by any
other single shareholder of the Company or RMI together with its
Affiliates (a "Designated Transaction") and there shall occur a Rating
Decline.

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Under the Indenture a "Rating Decline" will be deemed to have occurred if,
on any date within the period (the "Rating Period") beginning on the date (the
"Reference Date") of the earlier to occur of (A) the first public announcement
by the Company or any other Person of an intention to effect any Designated
Transaction and (B) the occurrence of such Designated Transaction, and ending on
the date 90 days thereafter, either of the following events has occurred: (1)
the Notes (or any other securities of the Company which are rated by a Rating
Agency on the date which is 61 days prior to the Reference Date (the "Rating
Date")) shall be rated by any Rating Agency at any time during the Rating Period
at a rating which is lower than the rating of the Notes (or such other
securities of the Company, as the case may be) by such Rating Agency on the
Rating Date by one or more gradations (including gradations within Rating
Categories as well as between Rating Categories) or (2) any Rating Agency shall
have withdrawn its rating of the Notes (or such other securities of the Company,
as the case may be) during the Rating Period.

"Class A Common Stock" means the Class A common stock, par value US$0.01
per share, of International.

"Class B Common Stock" means the Class B common stock, par value US$0.01
per share, of International.

"Class B Shares" means the 14,990,000 shares of Class B Common Stock
pledged pursuant to the Security Agreement as security for the Company's
obligations under the Notes and NBI's obligations under the NBI Guarantee, as
such number may be adjusted from time to time as permitted by the Indenture or
the Security Agreement.

"Closing Date" means the date on which the Notes are originally issued
under the Indenture.

"Collateral Agent" means the collateral agent under the Indenture, the
Intercreditor Agreement and the Security Agreement, which initially shall be
Wachovia Trust Company, acting in its capacity as Collateral Agent under such
agreements on behalf of and for the benefit of the Trustee and the holders of
the Notes.

"Collateral Account" means a collateral account established by the Company
with the Collateral Agent or another financial institution pursuant to and in
accordance with the Security Agreement.

"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or if at any time after the
execution of the Indenture such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.

"Company" means Hollinger Inc., a corporation incorporated under the Canada
Business Corporation Act, until a successor Person shall have become such
pursuant to the provisions described above under "Consolidation, Merger, Sale of
Assets" and thereafter "Company" shall mean such successor Person. To the extent
necessary to comply with the requirements of the provisions of Trust Indenture
Act Sections 310 through 317 as they are applicable to the Company, the term
"Company" shall include any other obligor with respect to the Notes for purposes
of complying with such provisions, including any Note Guarantor.

"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by any one of its Chairman of the Board, its
Vice Chairman, its President or a Vice President (regardless of Vice
Presidential designation), and by any one of its Treasurer, an Assistant
Treasurer, its Secretary or an Assistant Secretary, and in form and substance
reasonably satisfactory to the Trustee and delivered to the Trustee.

"Consolidated Assets" means with respect to the Company, the total assets
shown on the balance sheet of the Company and its Restricted Subsidiaries, as
determined on a Consolidated basis in accordance with GAAP, as of the Company's
latest full fiscal quarter.

"Consolidated Interest Expense" means, with respect to any period, the sum
of (i) the interest expense of the Company and the Restricted Subsidiaries for
such period, determined on a combined basis in accordance with GAAP (other than
any dividends paid by the Company on the Series II Preferred Shares and Series
III Preferred Shares or any Capital Stock issued in replacement therefor),
including, without limitation,

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(a) amortization of debt discount), (b) the net payments, if any, under interest
rate contracts (including amortization of discount), (c) the interest portion of
any deferred payment obligation and (d) accrued interest, plus (ii) the interest
component of Capital Lease Obligations paid, accrued and/or scheduled to be paid
or accrued by the Company and the Restricted Subsidiaries during such period,
and all capitalized interest of the Company and the Restricted Subsidiaries, in
each case as determined on a combined basis in accordance with GAAP.

"Consolidated Net Worth" means the common and preferred stockholders'
equity of the Company (exclusive of any redeemable capital stock), as determined
on a Consolidated basis and in accordance with GAAP.

"Consolidation" means, with respect to any Person, the consolidation of the
accounts of such Person and each of its Subsidiaries if and to the extent the
accounts of such Person and each of its subsidiaries would normally be
consolidated with those of such Person, all in accordance with GAAP; provided,
however, that the accounts of any Unrestricted Subsidiary shall not be
consolidated with the Company but instead the interest of the Company or any
Restricted Subsidiary therein will be accounted for as an investment on an
equity basis. The term "Consolidated" shall have a correlative meaning.

"Contribution Agreement" means the contribution agreement among RCL, RMI
and the Company to be dated the Closing Date.

"Coverage Ratio" means, with respect to the Company and its Restricted
Subsidiaries, the ratio of (x) the sum of Adjusted Net Cash Flow and
Consolidated Interest Expense, to (y) the Consolidated Interest Expense for the
preceding four quarter period.

"Credit Facility" means an agreement that the Company and NBI may enter
into with one or more Canadian chartered banks and other financial institutions
with respect to a credit facility providing for up to Cdn. $15 million in
borrowings by the Company and NBI on a revolving line of credit basis, which
borrowings may (i) at the option of the Company and subject to such conditions
as may be set forth in such agreement, be converted into a term loan having an
Average Life to Stated Maturity and Stated Maturity sooner than those of the
Notes, provided that at the time of such conversion no Default or Event of
Default under the Notes or the Credit Facility has occurred and is continuing,
and (ii) be secured by a first priority Lien on any of the assets and properties
and rights of the Company or NBI not pledged as collateral for the Notes
pursuant to the Security Agreement, as such credit agreement may be amended,
amended and restated, renewed, extended, substituted, refinanced, restructured,
replaced, supplemented, waived, deferred or otherwise modified from time to
time, in each case whether with the same and/or different lenders, and also
including all related guarantees, security or pledge arrangements, hedging
arrangements and other instruments and agreements executed in connection
therewith; provided further that the Agent, any collateral agent and each lender
under such Credit Facility shall, concurrently with the execution and delivery
of such credit agreement, have executed and delivered an Intercreditor
Agreement.

"Currency Agreements" means one or more of the following agreements which
shall be entered into with one or more financial institutions: foreign exchange
contracts, currency swap agreements or other similar agreements or arrangements
designed to protect against fluctuations in currency values.

"Current Market Price" means, with respect to any share of Class A Common
Stock or Class B Common Stock of International on any date, the simple average
of the daily closing prices for the 45 consecutive Trading Days ending on March
3, 2003 (for purposes of determining the number of shares of Class A Common
Stock to be pledged to the Collateral Agent on the Closing Date) or the date on
which any of the Pledged Share Collateral is to be released in connection with a
partial redemption or repurchase of the Notes permitted by the Indenture, as the
content requires. The closing price for each day shall be the last reported
sales price of the Class A common stock or, in case no such reported sale takes
place on such date, the average of the reported closing bid and asked prices of
the Class A common stock in either case on the New York Stock Exchange (the
"NYSE") or if the Class A common stock is not listed or admitted to trading on
the NYSE, on the principal national securities exchange on which the Class A
common stock is listed or admitted to trading or, if not listed or admitted to
trading on any national securities exchange, the closing sales price of

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the Class A common stock as quoted by NASDAQ or, in case no reported sale takes
place, the average of the closing bid and asked prices as quoted by NASDAQ or
any comparable system or, if the Class A common stock is not quoted on NASDAQ or
any comparable system, the closing sales price or, in case no reported sale
takes place, the average of the closing bid and asked prices, as furnished by
any two members of the National Association of Securities Dealers, Inc. selected
from time to time by the Company for that purpose. If no such prices are
available, the Current Market Price per share shall be the fair value of a share
of Class A common stock as determined by the Independent Directors of the
Company.

"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.

"Designated Class A Shares" means the 10,108,302 shares of Class A Common
Stock pledged as security for the Company's obligations under the Notes pursuant
to the Security Agreement, as such number may be adjusted from time to time as
permitted by the Indenture or the Security Agreement.

"Dividend Offset Amount" means the excess of any Net Dividend Amount
received by the Company and NBI in the relevant fiscal year over US$4.65
million.

"Dollar Equivalent" means with respect to any monetary amount in a currency
other than U.S. dollars, at any time of determination thereof, the amount of
U.S. dollars obtained by converting such foreign currency involved in such
computation into U.S. dollars at the spot rate for the purchase of U.S. dollars
with the applicable foreign currency as published in The Wall Street Journal in
the "Exchange Rates" column under the heading "Currency Trading" on the date two
Business Days prior to such determination.

Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Floor Amount" means US$14.0 million in each fiscal year, less (i) the
aggregate amount of management fees paid in cash by International and its
subsidiaries directly to the Company or to its Wholly Owned Restricted
Subsidiaries in such fiscal year, and (ii) any Dividend Offset Amount in such
fiscal year. With respect to any period that is less than a fiscal year, the
Floor Amount shall be calculated pro rata by reference to the number of days in
such period, computed on the basis of a 360-day year of twelve 30-day months.

"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in Canada, consistently applied, which are in
effect on the date of the Indenture.

"Guaranteed Debt" of any Person means, without duplication, all
Indebtedness of any other Person referred to in the definition of Indebtedness
guaranteed directly or indirectly in any manner by such Person, or in effect
guaranteed directly or indirectly by such Person through an agreement (i) to pay
or purchase such Indebtedness or to advance or supply funds for the payment or
purchase of such Indebtedness (or to indemnify another Person for the costs
thereof), (ii) to purchase, sell or lease (as lessee or lessor) property, or to
purchase or sell services, primarily for the purpose of enabling the debtor to
make payment of such Indebtedness or to assure the holder of such Indebtedness
against loss, (iii) to supply funds to, or in any other manner invest in, the
debtor (including any agreement to pay for property or services without
requiring that such property be received or such services be rendered), (iv) to
maintain working capital or equity capital of the debtor, or otherwise to
maintain the net worth, solvency or other financial condition of the debtor or
(v) otherwise to assure a creditor against loss, provided that the term
"guarantee" shall not include endorsements for collection or deposit, in either
case in the ordinary course of business.

"Guarantees" means the RMI Guarantee and the NBI Guarantee and, if the
context requires, the guarantee by any Restricted Subsidiary of the Indenture
Obligations.

"HCPH" means Hollinger Canadian Publishing Holdings Co., a subsidiary of
International organized under the laws of the Province of Nova Scotia.

"Incur" means create, issue, assume, guarantee or otherwise in any manner
become directly or indirectly liable for or with respect to or otherwise incur.

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"Indebtedness" means, with respect to any Person, without duplication, (i)
all indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services (or other obligations to former owners of acquired
businesses), excluding any trade payables and other accrued current liabilities
arising in the ordinary course of business, but including, without limitation,
all obligations, contingent or otherwise, of such Person in connection with any
letters of credit issued under letter of credit facilities, acceptance
facilities or other similar facilities and in connection with any agreement to
purchase, redeem, exchange, convert or otherwise acquire for value any Capital
Stock of such Person, or any warrants, rights or options to acquire such Capital
Stock, now or hereafter outstanding, (ii) all obligations of such Person
evidenced by bonds, notes, debentures or other similar instruments, (iii) all
indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even if
the rights and remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such property), but
excluding trade payables arising in the ordinary course of business, (iv) all
obligations under Interest Rate Agreements and Currency Agreements of such
Person relating to amounts due on the settlement or termination of those
agreements as of the date of determination, (v) all Capital Lease Obligations of
such Person, (vi) all Indebtedness referred to in clauses (i) through (v) above
of other Persons and all dividends of other Persons, the payment of which is
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien, upon or with respect to
property (including, without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness, (vii) all Guaranteed Debt of such Person, (viii)
all Redeemable Capital Stock (whether of the Company or any Restricted
Subsidiary) and (without duplication) all Preferred Stock of Restricted
Subsidiaries other than Redeemable Capital Stock or Preferred Stock held by
Restricted Subsidiaries or the Company, valued at the greater of its voluntary
or involuntary maximum fixed repurchase price plus accrued and unpaid dividends
and (ix) any amendment, supplement, modification, deferral, renewal, extension,
refunding or refinancing of any Indebtedness of the types referred to in clauses
(i) through (viii) above. For purposes hereof, the "maximum fixed repurchase
price" of any Redeemable Capital Stock or Preferred Stock which does not have a
fixed repurchase price shall be calculated in accordance with the terms of such
Redeemable Capital Stock or Preferred Stock as if such Redeemable Capital Stock
or Preferred Stock were purchased on any date on which Indebtedness shall be
required to be determined pursuant to the Indenture, and if such price is based
upon, or measured by, the fair market value of such Redeemable Capital Stock or
Preferred Stock, such fair market value to be determined in good faith by the
Board of Directors of such Person.

"Indenture Obligations" means the obligations of the Company under the
Indenture or under the Notes to pay principal of, premium, if any, and interest
when due and payable, and all other amounts due or to become due under or in
connection with the Indenture and the Notes and the performance of all other
obligations to the Trustee, the paying agent and the holders under the Indenture
and the Notes, according to the terms thereof.

"Independent Committee" means a committee of the board of directors of the
Company whose membership is composed solely of Independent Directors and meets
the requirements of the Toronto Stock Exchange applicable to audit committees as
in effect on the date of original issuance of the Notes or a committee of the
board of directors of the Company whose membership satisfies any more
restrictive requirements of independence of any securities exchange or market on
which the Company's equity securities are traded or listed.

"Independent Director" means a member of the board of directors of a Person
that is not an officer, employee or former officer or employee of such Person or
one of its Affiliates and, with respect to any transaction or series of related
transactions, a member of the board of directors who does not have any material
direct or indirect financial interest in or with respect to such transaction or
series of related transactions (including for such purpose the interest of any
other Person with respect to whom such director is also a director, officer or
employee).

"Intercreditor Agreement" means an intercreditor agreement among the
Trustee, the Collateral Agent, the Agent, and any collateral agent and lenders
under the Credit Facility, substantially in the form attached to the Indenture;
provided, however that (i) any variations from such form shall not be materially
less favorable,
135

taken as a whole, to the Trustee, Collateral Agent and the Holders, than the
terms and conditions reflected in such form and (ii) the Company and the Note
Guarantors shall, at the time such Intercreditor Agreement is entered into, have
delivered to the Trustee and the Collateral Agent an Opinion of Counsel
confirming the matters set forth in clause (i) of this proviso and such other
matters as the Indenture may require and as the Trustee or Collateral Agent may
request.

"Interest Rate Agreements" means one or more of the following agreements
which shall be entered into from time to time with one or more financial
institutions: interest rate protection agreements (including, without
limitation, interest rate swaps, caps, floors, collars and similar agreements)
and/or other types of interest rate hedging agreements.

"International Intercompany Note" means one or more intercompany notes from
the Company and/or NBI to International (or a permitted transferee Affiliate of
International) evidencing the remaining Indebtedness after the reduction in
principal amount thereof on or prior to the Closing Date by the offset against
the original amount of such notes plus accrued and unpaid interest thereon of
the purchase price payable by International to the Company in respect of the
Share Cancellation Transaction. The International Intercompany Note shall have
(1) a Stated Maturity occurring later than the Stated Maturity of the Notes, and
(2) an Average Life to Stated Maturity greater than the Average Life to Stated
Maturity of the Notes.

"International Subordination Agreement" means a Subordination Agreement in
the form attached to the Indenture whereby the Company and International (or a
permitted transferee Affiliate of International) agree that any Indebtedness
owed by the Company to International (or such transferee) under the
International Intercompany Note shall be expressly subordinated in right of
payment to the Notes.

"Investment" means, with respect to any Person, directly or indirectly, any
advance, loan (including guarantees), or other extension of credit or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase, acquisition or ownership by such Person of any Capital Stock, bonds,
notes, debentures or other securities issued or owned by, any other Person and
all other items that are or would be classified as investments on a balance
sheet prepared in accordance with GAAP.

"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
security interest, hypothecation or other encumbrance upon or with respect to
any property of any kind, real or personal, movable or immovable, now owned or
hereafter acquired.

"Lord Black" means Lord Black of Crossharbour, PC(C), OC, KCSG.

"Material Restricted Subsidiary" means each Restricted Subsidiary of the
Company which (i) for the most recent fiscal year of the Company accounted for
more than 5% of the Consolidated revenues of the Company and its Restricted
Subsidiaries or (ii) at the end of such fiscal year was the owner (beneficial or
otherwise) of more than 5% of the Consolidated Assets of the Company and its
Restricted Subsidiaries, all as shown on the Company's Consolidated financial
statements for such fiscal year.

"Maturity" when used with respect to any Note means the date on which the
principal of such Note becomes due and payable as therein provided or as
provided in the Indenture, whether at Stated Maturity, the Purchase Date or the
redemption date and whether by declaration of acceleration, Offer in respect of
Excess Proceeds, Change of Control, call for redemption or otherwise.

"NBI" means 504468 N.B. Inc., an indirect wholly owned subsidiary of the
Company organized under the laws of the Province of New Brunswick.

"NBI Guarantee" means the guarantee by NBI of the Indenture Obligations.

"Negative Net Cash Flow" means Net Cash Flow that is less than zero.

"Net Cash Flow" means, for any period, Net Income plus, without
duplication, (i) the amount of all non-cash items reducing Net Income, (ii) all
amounts deducted in the calculation of Net Income on account of depreciation and
amortization, and (iii) all taxes provided for in the calculation of Net Income,
less, without duplication, (iv) any non-cash items increasing Net Income, (v)
all taxes paid in cash during such
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period, (vi) all capital expenditures made in cash during such period, and (vii)
all dividends (excluding dividends on the Company's retractable common shares)
made during such period; all calculated in accordance with GAAP as of the last
day of any period. The Net Cash Flow of the Company will be calculated in U.S.
dollars; any monetary amount in a currency other than U.S. dollars will be
converted into U.S. dollars at the average exchange rate prevailing during the
relevant period.

"Net Cash Proceeds" means (a) with respect to any Asset Sale by any Person,
the proceeds thereof in the form of cash or Cash Equivalents including payments
of principal and interest in respect of deferred payment obligations when
received in the form of, or stock or other assets when disposed of for, cash or
Cash Equivalents (except to the extent that such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary) net of (i)
brokerage commissions and other reasonable fees and expenses (including fees and
expenses of counsel and investment bankers) related to such Asset Sale, (ii)
provisions for all taxes payable as a result of such Asset Sale, (iii) payments
made to retire indebtedness where payment of such indebtedness is secured by the
assets or properties the subject of such Asset Sale, (iv) amounts required to be
paid to any Person (other than the Company or any Restricted Subsidiary) owning
a beneficial interest in the assets subject to the Asset Sale and (v)
appropriate amounts to be provided by the Company or any Restricted Subsidiary,
as the case may be, as a reserve, in accordance with GAAP, against any
liabilities associated with such Asset Sale and retained by the Company or any
Restricted Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, pension and other postemployment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as determined
and reflected in an officers' certificate delivered to the Trustee and (b) with
respect to any issuance or sale of Capital Stock or options, warrants or rights
to purchase Capital Stock, or debt securities or Capital Stock that have been
converted into or exchanged for Capital Stock, as referred to in the "Limitation
on Restricted Payments" covenant in the Indenture, the proceeds of such issuance
or sale in the form of cash or Cash Equivalents, including payments in respect
of deferred payment obligations when received in the form of, or stock or other
assets when disposed of for, cash or Cash Equivalents (except to the extent that
such obligations are financed or sold with recourse to the Company or any
Restricted Subsidiary), net of attorney's fees, accountant's fees and brokerage,
consultation, underwriting and other fees and expenses actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.

"Net Dividend Amount" means the net cash dividend amount received by the
Company and NBI in the relevant fiscal year on the shares of Class A Common
Stock and Class B Common Stock held by them (including, without limitation, any
such shares pledged to the Collateral Agent as Pledged Share Collateral), after
deducting (i) any withholding taxes or income taxes paid or payable in cash by
the Company or NBI in respect of such dividends, and (ii) any dividends received
by the Company or NBI on such number of shares of International held by the
Company or NBI that corresponds to the number of Class A Common Stock into which
the Series II Preferred Shares are exchangeable.

"Net Income" of the Company means, for any period, the unconsolidated net
income (or loss (and treating a loss as a negative number)) of the Company for
such period, adjusted by (a) excluding, without duplication, to the extent
included in calculating such net income (or loss), (i) all extraordinary gains
and losses, (ii) the net income (or loss) of any Person acquired during the
specified period attributable to any period prior to the date of such
acquisition, (iii) any gain or loss, realized upon the termination of any
employee pension benefit plan, (iv) aggregate gains and losses (less all fees
and expenses relating thereto) in respect of dispositions of assets other than
in the ordinary course of business (provided that any sale of Capital Stock of
International for cash would be considered a disposition in the ordinary course
of business), (v) any gain from the collection of proceeds of life insurance
policies and (vi) any gain or loss arising from the acquisition of any
securities of the Company, or the extinguishment, under GAAP, of any
Indebtedness of the Company. The Net Income of the Company will be calculated in
U.S. dollars; any monetary amount in a currency other than U.S. dollars will be
converted into U.S. dollars at the average exchange rate prevailing during the
relevant period.

"Note Guarantors" mean RMI and NBI and, if the context requires, any
Restricted Subsidiary guarantor of the Indenture Obligations.

137

"Opinion of Counsel" means a written opinion of counsel, in form and
substance reasonably satisfactory to the Trustee, who may be counsel for the
Company or the Trustee, and who shall be reasonably acceptable to the Trustee,
including but not limited to an Opinion of Independent Counsel.

"Opinion of Independent Counsel" means a written opinion, in form and
substance reasonably satisfactory to the Trustee, by someone who is not an
employee or former employee of the Company and who shall be reasonably
acceptable to the Trustee.

"Outstanding" when used with respect to the Notes means, as of the date of
determination, all Notes theretofore authenticated and delivered under the
Indenture, except:

(a) Notes theretofore cancelled by the Trustee or delivered to the Trustee
for cancellation;

(b) Notes, or portions thereof (other than any Cash Collateralized Notes),
for whose payment or redemption money in the necessary amount has been
theretofore irrevocably deposited with the Trustee or any paying agent
(other than the Company) in trust or set aside and segregated in trust
by the Company (if the Company shall act as its own paying agent) for
the Holders of the Notes; provided, that if the Notes are to be
redeemed, notice of such redemption has been duly given pursuant to
the Indenture or provision therefor reasonably satisfactory to the
Trustee has been made;

(c) Notes, except to the extent provided in the provisions described above
under "Defeasance or Covenant Defeasance"; and

(d) Notes in exchange for or in lieu of which other Notes have been
authenticated and delivered pursuant to the Indenture, other than any
such Notes in respect of which there shall have been presented to the
Trustee and the Company proof reasonably satisfactory to each of them
that such Notes are held by a bona fide purchaser in whose hands the
Notes are valid obligations of the Company;

provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Notes have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Notes owned by
the Company or any other obligor upon the Notes or any Affiliate of the Company
or such other obligor shall be disregarded and deemed not to be Outstanding,
except that, in determining whether the Trustee shall be protected in relying
upon any such request, demand, authorization, direction, notice, consent or
waiver, only Notes which the Trustee actually knows to be so owned shall be so
disregarded. Notes so owned which have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the reasonable
satisfaction of the Trustee the pledgee's right so to act with respect to such
Notes and that the pledgee is not the Company or any other obligor upon the
Notes or any Affiliate of the Company or such other obligor.

"Pari Passu Indebtedness" means any Indebtedness of the Company that is
pari passu in right of payment with the Notes.

"Permitted Distribution" means a distribution of an aggregate of US$44.1
million by the Company to RCL on or about the Closing Date, by way of repayment
of a loan of US$32.6 million owed by the Company to RCL and a loan of US$11.5
million by the Company to RCL, which aggregate amount shall be promptly applied
by RCL to repay all outstanding amounts under the RCL Credit Agreement.

"Permitted Indebtedness" means the following:

(i) Indebtedness of the Company (including as guarantor of NBI) or NBI
under a Credit Facility to be established by the Company in a maximum
aggregate principal amount at any one time outstanding (including any
refinancings thereof) not to exceed $15,000,000; provided that, if
any portion of the Credit Facility is comprised of term loans
(defined as loans with an amortizing schedule of principal
repayment), such maximum amount shall be reduced to the extent of any
permanent repayment of any Indebtedness under such term loans
pursuant to the "Limitation on Sale of Assets" covenant in the
Indenture;

138

(ii) Indebtedness of the Company pursuant to the Notes and Indebtedness of
any Restricted Subsidiary constituting a Guarantee of the Notes;

(iii) Indebtedness of the Company or any Restricted Subsidiary outstanding
on the date of the Indenture and listed on a schedule to the
Indenture, provided that with respect to any Indebtedness of the
Company and NBI remaining outstanding on the Closing Date under or in
respect of the International Intercompany Note on the Closing Date
after giving effect to the Share Cancellation Transaction, none of
such Indebtedness shall be deemed to be permitted hereunder unless
the Company and NBI shall have entered into the International
Subordination Agreement;

(iv) Indebtedness (a) of the Company owing to a Restricted Subsidiary, or
(b) of a Restricted Subsidiary owing to another Restricted Subsidiary
or the Company; provided that any such Indebtedness is made pursuant
to an intercompany note setting forth the principal amount, interest
rate and payment dates, the maturity or similar terms and, in the case
of Indebtedness of the Company owing to a Restricted Subsidiary, is
subordinated in right of payment from and after such time as the Notes
shall become due and payable (whether at Stated Maturity, acceleration
or otherwise) to the payment and performance of the Company's
obligations under the Notes; provided further that (x) any
disposition, pledge or transfer of any such Indebtedness to a Person
(other than (A) to the Company or a Restricted Subsidiary or (B) a
pledge of such Indebtedness to secure Indebtedness existing at such
time under, and pursuant to the terms of, the Credit Facility) will be
deemed to be an Incurrence of such Indebtedness by the obligor not
permitted by this clause (iv), and (y) any transaction pursuant to
which any Restricted Subsidiary that has Indebtedness owing to the
Company or any other Restricted Subsidiary, ceases to be a Restricted
Subsidiary, will be deemed to be the Incurrence of Indebtedness by the
Company or such other Restricted Subsidiary that is not permitted by
this clause (iv);

(v) obligations of the Company or any Restricted Subsidiary pursuant to
Interest Rate Agreements or Currency Agreements designed to protect
the Company or any Restricted Subsidiary against fluctuations in
interest rates or currency exchange rates in respect of Indebtedness
of the Company or any of its Restricted Subsidiaries, the notional
amount of which (in the case of Interest Rate Agreements) and the
notional or exchange amount of which (in the case of Currency
Agreements) do not exceed the aggregate principal amount of such
Indebtedness;

(vi) guarantees by Restricted Subsidiaries of Indebtedness of the Company
otherwise permitted to be Incurred under the definition of "Permitted
Indebtedness" and the "Limitation on Issuances of Guarantees of
Indebtedness" covenant in the Indenture;

(vii) Redeemable Capital Stock or Preferred stock issued by the Company
from time to time to finance retractions or redemptions of (a) its
outstanding Retractable Common Shares and Series II Preferred Shares
(other than any such shares held by Affiliates of the Company) and
(b) any Series III Preferred Shares not retracted or redeemed with
proceeds of Subordinated Indebtedness incurred as permitted under
clause (ix) below;

(viii) any renewals, extensions, substitutions, refundings, refinancings or
replacements (collectively, a "refinancing") of any Indebtedness
Incurred as described in clauses (ii), (iii), (vi), (ix) and (x) of
this definition of "Permitted Indebtedness" by the Company or by the
obligor of such Permitted Indebtedness, including any successive
refinancings, so long as (a) such refinancing does not increase the
aggregate principal amount of Indebtedness represented thereby and,
in the case of Pari Passu Indebtedness or Subordinated Indebtedness,
such refinancing does not reduce the Average Life to Stated Maturity
or the Stated Maturity of such Indebtedness and (b) any such
refinancing Indebtedness shall not be senior in right of payment to
the Indebtedness so refinanced;

(ix) Subordinated Indebtedness of the Company incurred to finance the
redemption price at maturity of the Series III Preferred Shares, so
long as (a) such Indebtedness is not in an aggregate principal amount
greater than the aggregate redemption price of such Series III
Preferred Shares and

139

(b) not more than 50% in principal amount of such Indebtedness has a
Stated Maturity occurring earlier than that of the Notes;

(x) Indebtedness of the Company or any Restricted Subsidiary in an
aggregate amount at any time outstanding not to exceed US$1,000,000 in
respect of purchase money obligations, provided such Indebtedness (a)
is Incurred within 180 days of the purchase of the relevant assets,
(b) does not exceed the actual purchase price of such assets and (c)
any related Liens do not extend to any assets other than those being
purchased;

(xi) Subordinated Indebtedness of the Company owing to RMI, where the loans
representing such Subordinated Indebtedness have been made by RMI to
the Company pursuant to the terms of, and RMI's obligations under, the
Support Agreement, provided that such Indebtedness has a Stated
Maturity occurring after the Maturity of the Notes and such
Indebtedness is expressly subordinated in right of payment to the
Notes in accordance with the RMI Subordination Agreement;

(xii) Subordinated Intercompany Loans of the Company owed to RCL or RMI,
representing amounts received by the Company from RCL or RMI,
respectively, through voluntary cash contributions by RCL or RMI to
the Company after the Closing Date; and

(xiii) Additional Notes of up to US$30,000,000 principal amount in one or
more issuances such that, when all such issuances are aggregated
with the Notes originally issued on the date of the Indenture (the
"Original Notes"), the maximum aggregate principal amount of Notes
would not exceed US$150,000,000, provided that: (a) the Coverage
Ratio must be greater than or equal to 150% on the date of such
issuance (before taking into account any Additional Notes to be
issued), (b) the Coverage Ratio must be greater than or equal to
125% pro forma for such Additional Notes issuance, (c) the aggregate
Current Market Price of the Pledged Share Collateral on the date of
such issuance (before taking into account any Additional Notes to be
issued) is at least 200 percent of the principal amount of Notes
outstanding prior to such issuance (excluding any Cash
Collateralized Notes), (d) the Company deposits an amount of
additional Class A Common Stock and/or Class B Common Stock of
International with the Collateral Agent such that the Current Market
Price of the additional common stock is at least 200 percent of the
principal amount of the Additional Notes to be issued, (e) the
Additional Notes are issued at an issue price to investors of not
less than 99.377%, (f) the Floor Amount pursuant to the Support
Agreement is increased proportionately by multiplying the reference
to US$14,000,000 in the definition of Floor Amount by a fraction the
numerator of which is the aggregate principal amount of Notes
outstanding after such issuance and the denominator of which is the
aggregate principal amount of Original Notes, (g) the Company and
RMI enter into a supplemental Support Agreement, or amend the
Support Agreement with the Trustee and Collateral Agent in order to
effect such increase, (h) the Company delivers an opinion of counsel
to the Trustee as to the validity and enforceability of such
supplement or amendment to the Support Agreement; and (i) the
Company delivers an officer's certificate attaching the express
written consent of International to the subordination of the
International Intercompany Note to any such Additional Notes to the
same extent as the Notes issued on the Closing Date.

For purposes of determining compliance with any U.S. dollar denominated
restriction on the Incurrence of Indebtedness where the Indebtedness Incurred is
denominated in a different currency, the amount of such Indebtedness will be the
Dollar Equivalent determined on the date of the Incurrence of such Indebtedness;
provided, however, that if any such Indebtedness denominated in a different
currency is subject to a Currency Agreement with respect to U.S. dollars
covering all principal, premium, if any, and interest payable on such
Indebtedness, the amount of such Indebtedness expressed in U.S. dollars will be
as provided in such Currency Agreement. The principal amount of any refinancing
Indebtedness Incurred in the same currency as the Indebtedness being refinanced
will be the Dollar Equivalent of the Indebtedness refinanced, except to the
extent that (i) such Dollar Equivalent was determined based on a Currency
Agreement, in which case the refinancing Indebtedness will be determined in
accordance with the preceding sentence, and (ii) the principal amount of the
refinancing Indebtedness exceeds the principal amount of the Indebtedness being
refinanced, in

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which case the Dollar Equivalent of such excess will be determined on the date
such refinancing Indebtedness is Incurred.

"Permitted Investment" means any of the following:

(i) Investments in any Restricted Subsidiary or the Company or
Investments in a Person, if as a result of such Investment (A) such
Person becomes a Restricted Subsidiary, or (B) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the
Company or any Restricted Subsidiary;

(ii) Investments in the Notes;

(iii) Indebtedness owing to a Restricted Subsidiary or the Company as
described under clause (iv) of the definition of "Permitted
Indebtedness";

(iv) Temporary Cash Investments;

(v) Investments acquired by the Company or any Subsidiary in connection
with an Asset Sale permitted under the "Limitation on Sale of Assets"
covenant in the Indenture to the extent such Investments are non-cash
consideration as permitted under such covenant;

(vi) Investments in existence on the date of the Indenture; and

(vii) in addition to the Investments described in clauses (i) through (vi)
of this definition of "Permitted Investment," Investments in any
Unrestricted Subsidiary or in any joint venture or other entity in an
amount not to exceed $500,000 in the aggregate since the date of the
Indenture.

"Permitted Liens" means:

(i) Liens for taxes, assessments, governmental charges or claims that are
not yet delinquent or are being contested in good faith by
appropriate legal proceedings promptly instituted and diligently
conducted and for which a reserve or other appropriate provision, if
any, as shall be required in conformity with GAAP shall have been
made;

(ii) statutory and common law Liens of landlords and carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen or other
similar Liens (including maritime Liens) arising in the ordinary
course of business and with respect to amounts not yet delinquent or
being contested in good faith by appropriate legal proceedings
promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made;

(iii) Liens incurred or deposits made in the ordinary course of business in
connection with workplace safety and insurance compensation,
unemployment insurance and other types of social security;

(iv) Liens incurred or deposits made to secure the performance of tenders,
bids, leases, statutory or regulatory obligations, bankers'
acceptances, surety and appeal bonds, government contracts,
performance and return-of-money bonds and other obligations of a
similar nature incurred in the ordinary course of business (exclusive
of obligations for the payment of borrowed money);

(v) easements, rights-of-way, municipal and zoning ordinances and similar
charges, encumbrances, title defects or other irregularities that do
not materially interfere with the ordinary course of business of the
Company or any of its Restricted Subsidiaries;

(vi) Liens (including extensions, renewals and replacements thereof) upon
real or personal property, including Capital Stock, acquired after the
Closing Date; provided that (a) such Lien is created solely for the
purpose of securing Indebtedness Incurred in accordance with clause
(x) of the definition of "Permitted Indebtedness";

(vii) Liens on property of, or on shares of Capital Stock or Indebtedness
of, any Person existing at the time such Person becomes, or becomes a
part of, any Restricted Subsidiary; provided that such

141

Liens do not extend to or cover any property or assets of the Company
or any Restricted Subsidiary other than the property or assets
acquired;

(viii) Liens in favor of the Company or any Restricted Subsidiary;

(ix) Liens securing reimbursement obligations with respect to letters of
credit that encumber documents and other property relating to such
letters of credit and the products and proceeds thereof;

(x) Liens in favor of customs and revenue authorities arising as a matter
of law to secure payment of customs duties in connection with the
importation of goods;

(xi) Liens encumbering customary initial deposits and margin deposits, and
other Liens that are within the general parameters customary in the
industry and incurred in the ordinary course of business, in each
case, securing Indebtedness under Interest Rate Agreements and
Currency Agreements;

(xii) Liens arising out of conditional sale, title retention, consignment
or similar arrangements for the sale of goods entered into by the
Company or any of its Restricted Subsidiaries in the ordinary course
of business; and

(xiii) Liens granted by the Company on or after the date of the Indenture
in favor of International in and to the Company's rights under the
guarantee by RCL of RMI's obligations to the Company under the
Contribution Agreement and the Support Agreement.

"Permitted Transfer" shall mean an assignment (duly consented to by
International) to (a) the Company or (b) any other existing or new direct or
indirect Subsidiary of RCL provided that such entity is (i) formed under the
laws of Canada or any province thereof or the United States of America or any
state thereof, (ii) has a Consolidated Net Worth at least equal to that of RMI
and (iii) has no greater Indebtedness or other liabilities required to be
recorded on its balance sheet (as reflected on the most recently available
financial statements of such entity) by Canadian or U.S. Generally Accepted
Accounting Principles, as applicable, or contingent obligations than those
reflected on RMI's most recent balance sheet.

"Pledged Agreements" means (i) the fee and other contract rights under the
Services Agreements pledged as security for the obligations of RMI under its
Guarantee pursuant to the Security Agreement and (ii) the support payment and
other contract rights under the Support Agreement pledged as security for the
Company's obligations under the Notes pursuant to the Security Agreement.

"Pledged Share Collateral" means the Designated Class A Shares and the
Class B Shares.

"Preferred Stock" means, with respect to any Person, any Capital Stock of
any class or classes (however designated) which is preferred as to the payment
of dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over the
Capital Stock of any other class in such Person.

"Public Equity Offering" means a public offering of Qualified Capital Stock
of the Company.

"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Redeemable Capital Stock.

"Rating Agency" means Standard & Poor's Corporation and its successors
("S&P"), and Moody's Investors Service, Inc. and its successors ("Moody's"), or
if S&P and Moody's or both shall not make a rating of the Notes publicly
available, a nationally recognized United States statistical rating agency or
agencies, substituted for S&P or Moody's or both, as the case may be.

"Rating Category" means each major rating category symbolized by (a) in the
case of S&P, AAA, AA, A, BBB, BB, B, CCC, CC and C and each such Rating Category
shall include pluses or minuses ("gradations") modifying such capital letters;
and (b) in the case of Moody's, Aaa, Aa, A, Baa, Ba, B, Caa, Ca and C and each
such Rating Category shall include added numerals such as 1, 2 or 3
("gradations") modifying such letters.

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"RCL" means The Ravelston Corporation Limited, a corporation incorporated
under the laws of Ontario, and any successor Person.

"RCL Credit Agreement" means the credit agreement dated as of July 6, 1999
among RCL, each financial institution from time to time signatory thereto, and
the lead arranger and administrative agent, syndication agent and documentation
agent named therein, as amended through February 24, 2003.

"RCL Repayment Amount" means, for any period, any permanent repayment of
the principal amount of Indebtedness owing by RCL to the Company that is
received by the Company during such period.

"Redeemable Capital Stock" means any Capital Stock that, either by its
terms or by the terms of any security into which it is convertible or
exchangeable or otherwise, would upon the happening of an event or passage of
time, be required to be redeemed in cash prior to any Stated Maturity of the
principal of the Notes. For the avoidance of doubt, Redeemable Capital Stock
shall not be deemed to include any Capital Stock of the Company that is
retractable or redeemable at the option of the holder thereof for cash or Class
A Common Stock at any time prior to any such Stated Maturity, or is convertible
into or exchangeable for debt securities at any time prior to any such Stated
Maturity at the option of the holder thereof, solely for so long as the Company
continues to qualify as a "mutual fund corporation" under the Income Tax Act
(Canada).

"Restricted Investment" means any Investment other than a Permitted
Investment.

"Restricted Subsidiary" means any Subsidiary other than an Unrestricted
Subsidiary.

"RMI" means Ravelston Management Inc., a corporation incorporated under the
laws of Ontario, and any successor Person.

"RMI Guarantee" means the guarantee by RMI of the Indenture Obligations.

"RMI Subordination Agreement" means a Subordination Agreement in the form
attached to the Indenture whereby the Company and RMI agree that any
Indebtedness owed by the Company to RMI under the Support Agreement shall be
expressly subordinated in right of payment to the Notes.

"Securities Act" means the Securities Act of 1933, as amended.

"Security Agreement" means the Security Agreement dated as of the Closing
Date between the Company, RMI, NBI and the Trustee and the Collateral Agent
governing (i) the first priority security interest granted by RMI over the
Services Agreements in favor of the Collateral Agent, (ii) the first priority
pledge granted by the Company and NBI over the Pledged Share Collateral in favor
of the Collateral Agent and (iii) the first priority security interest granted
by the Company in the Support Agreement in favor of the Collateral Agent.

"Security Documents" means the Security Agreement and all other agreements,
instruments and documents entered into by the Company and the Note Guarantors
from time to time for the purpose of creating and perfecting the security
interests in favor of the Collateral Agent in the Senior Notes Collateral.

"Senior Notes Collateral" means the Pledged Share Collateral, the Pledged
Agreements, any amounts on deposit in the Collateral Account and all other
collateral securing the Notes and the Guarantees from time to time as described
in the Security Agreement and under the section entitled "Description of the
Collateral and the Intercreditor and Support Arrangements."

"Series II Preferred Shares" means the series of preference shares of the
Company designated as Exchangeable Non-Voting Preference Shares Series II.

"Series III Preferred Shares" means the series of preference shares of the
Company designated as Retractable Non-Voting Preference Shares Series III.

"Services Agreements" mean (1) the Services Agreement dated as of January
1, 1998 between International and RCL, as assigned by RCL to RMI pursuant to the
Transfer and Consent Agreement dated July 5, 2002 (the "International Services
Agreement"), and (2) the Amended and Restated Services Agreement dated as of
December 1, 1999 between HCPH (successor in interest to Southam Inc.) and RCL,

143

as assigned by RCL to RMI pursuant to the Transfer and Consent Agreement dated
July 5, 2002 (the "HCPH Services Agreement") and, in each case, as the same may
be amended in accordance with the terms of the Security Agreement.

"Share Cancellation Transaction" means the cancellation of 2,000,000 shares
of Class A Common Stock by way of the repurchase of such shares by International
from the Company, NBI and/or their nominees and the redemption of 93,206 shares
of International's Series E preferred stock by NBI.

"Stated Maturity," when used with respect to any Indebtedness or any
installment of interest thereon, means the dates specified in such Indebtedness
as the fixed date on which the principal of such Indebtedness or such
installment of interest, as the case may be, is due and payable.

"Subordinated Indebtedness" means (i) in the case of any Person other than
the Company, Indebtedness of such Person that is expressly subordinate in right
of payment to any other Indebtedness of such Person pursuant to a written
agreement, and (ii) in the case of the Company, Indebtedness of the Company that
is expressly subordinate in right of payment to the Notes.

"Subordinated Intercompany Loans" means Subordinated Indebtedness of the
Company that, in accordance with its terms, is not required to be repaid
(including, without limitation, with respect to any principal, premium,
redemption amount or interest), and may not be declared due and payable by the
lender, at any time prior to the Stated Maturity of the Notes, such that no cash
payment is required to be made by the Company in respect of such Indebtedness
(including without limitation, in respect of interest) for so long as any Notes
are outstanding.

"Subsidiary" means any Person a majority of the equity ownership of the
Voting Stock of which is at the time owned, directly or indirectly, by the
Company or by one or more Subsidiaries, or by the Company and one or more other
Subsidiaries.

"Sugra" means Sugra Limited, a wholly owned subsidiary of the Company
organized under the laws of the Province of Ontario.

"Support Agreement" means the agreement between RMI and HI to be dated the
Closing Date, as amended or supplemented from time to time in accordance with
the Indenture.

"Temporary Cash Investments" means (i) any evidence of Indebtedness,
maturing not more than one year after the date of acquisition, issued by the
United States of America, or an instrumentality or agency thereof, and
guaranteed fully as to principal, premium, if any, and interest by the United
States of America, (ii) any certificate of deposit, maturing not more than one
year after the date of acquisition, issued by, or time deposit of, the Trustee
or a commercial banking institution that is a member of the Federal Reserve
System and that has combined capital and surplus and undivided profits of not
less than US$500,000,000, with a rating, at the time as of which any investment
therein is made, of "P-1" (or higher) according to Moody's or "A-1" (or higher)
according to S&P, (iii) commercial paper, maturing not more than one year after
the date of acquisition, issued by a corporation (other than an Affiliate or
Restricted Subsidiary of the Company) organized and existing under the laws of
the United States of America with a rating, at the time as of which any
investment therein is made, of "P-1" (or higher) according to Moody's or "A-1"
(or higher) according to S&P, (iv) any money market deposit accounts issued or
offered by the Trustee or a domestic commercial bank having capital and surplus
in excess of US$500,000,000.

"Trading Day" means, with respect to a security, each Monday, Tuesday,
Wednesday, Thursday and Friday, other than any day on which securities are not
generally traded on the exchange or market on which such security is traded.

"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.

"Unrestricted Subsidiary" means (a) as of the date of the Indenture,
International and its Subsidiaries, and Domgroup Ltd. (excluding NBI, Sugra and
10 Toronto Street Inc.), and (b) any Subsidiary that is designated by the Board
of Directors as an Unrestricted Subsidiary after the date of the Indenture
pursuant to a Board Resolution in accordance with the "Restricted Subsidiaries"
covenant of the Indenture; provided,

144

however, that a Person may not be designated as an Unrestricted Subsidiary
unless (i) the creditors of such Person have no direct or indirect recourse
(including, but not limited to, recourse with respect to the payment of
principal or interest on Indebtedness of such Subsidiary) to the Company or a
Restricted Subsidiary and (ii) a default by such Person on any of its
Indebtedness will not result in, or permit any holder of Indebtedness of the
Company or a Restricted Subsidiary to declare, a default on such Indebtedness of
the Company or a Restricted Subsidiary or cause the payment thereof to be
accelerated or payable prior to its Stated Maturity. Any Subsidiary of an
Unrestricted Subsidiary shall be an Unrestricted Subsidiary for purposes of the
Indenture. (other than, in the case of Domgroup Ltd., NB Inc., Sugra and 10
Toronto Street Inc.).

"Voting Stock" means stock of the class or classes pursuant to which the
holders thereof have the general voting power under ordinary circumstances to
elect at least a majority of the board of directors, managers or trustees of a
corporation (irrespective of whether or not at the time stock of any other class
or classes shall have or might have voting power by reason of the happening of
any contingency).

"Wholly Owned Restricted Subsidiary" means a Restricted Subsidiary all the
outstanding Capital Stock (other than directors' qualifying shares) of which are
owned by the Company or another Wholly Owned Restricted Subsidiary.

BOOK ENTRY; DELIVERY AND FORM

Except as provided below, each exchange Note to be issued to a holder
exchanging an initial Note held through a Global Note will be issued in the form
of one or more Global Notes in definitive, fully registered form without
interest coupons and will be deposited with, or on behalf of The Depository
Trust Company, New York, New York, or with the trustee, as custodian for DTC,
and registered in the name of a nominee of DTC.

Unless and until it is exchanged in whole or in part for exchange Notes of
that class in definitive form, a Global Note may not be transferred except as a
whole to a nominee of DTC, or by a nominee of DTC to DTC or another nominee of
DTC, or by DTC or any nominee to a successor depository or a nominee of a
successor depository.

If a holder of initial Notes holds initial Notes in physical form, exchange
Notes issued to the holder will be in physical form.

Except in the limited circumstances described below under "Certificated
Notes", owners of beneficial interests in the Global Notes will not be entitled
to receive physical delivery of certificated Notes. The Notes are not issuable
in bearer form.

The Notes will be issued only in fully registered form in denominations of
US$1,000 and integral multiples thereof. No service charge will be made for any
registration of transfer or exchange of Notes, but the Company may require
payment of a sum sufficient to cover any tax or other government charge payable
in connection therewith.

The Company will initially appoint the trustee at its corporate trust
office as paying agent and registrar for the Notes. In those capacities, the
trustee will be responsible for, among other things,

- maintaining a record of the aggregate holdings of Notes and accepting
Notes for exchange and registration of transfer,

- ensuring that payments of principal, premium, if any, and interest in
respect of the Notes received by the trustee from us are duly paid to
DTC or its nominees, and

- transmitting to the Company any notices from holders.

The Company will keep at the office of the registrar a register in which,
subject to reasonable regulations prescribed by it, the Company will provide for
the registration of the Notes and registration of transfers of the Notes. The
Company may vary or terminate the appointment of any paying agent or registrar,
or appoint additional or other paying agents or approve any change in the office
through which any paying agent acts, provided that there shall always be a
paying agent and registrar in the Borough of Manhattan, in the City of
145

New York, New York. The Company will cause notice of any resignation,
termination or appointment of the trustee or any paying agent or registrar, and
of any change in the office through which any paying agent will act, to be
provided to holders of the Notes.

GLOBAL NOTES

The following description of the operations and procedures of DTC, the
Euroclear System and Clearstream Banking are provided for convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to changes by them from time to time. The
Company takes no responsibility for these operations and procedures and urges
investors to contact the system or their participants directly to discuss these
matters.

Upon the issuance of the Notes, DTC will credit, on its internal system,
the respective principal amount of the individual beneficial interests
represented by the Global Notes to the accounts of DTC participants or persons
who hold interests through participants. Ownership of beneficial interests in
the Global Notes will be shown on, and the transfer of that ownership will be
made only through, records maintained by DTC, or any other nominee appointed by
DTC (with respect to interests of participants) and the records of participants
(with respect to interests of persons other than participants).

As long as DTC, or its nominee, is the registered holder of a Global Note,
DTC or the nominee, as the case may be, will be considered the sole owner and
holder of the Notes represented by the Global Note for all purposes under the
indenture and the Notes. Unless DTC notifies us that it is unwilling or unable
to continue as a depositary for a Global Note, or ceases to be a "clearing
agency" registered under the Exchange Act, or announces an intention permanently
to cease business or does in fact do so, or an Event of Default has occurred and
is continuing with respect to a Global Note, owners of beneficial interests in a
Global Note will not be entitled to have any portions of the Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of Notes in definitive form and will not be considered the owners or
holders of the Global Note (or any Notes represented by it) under the indenture
or the Notes. In addition, no beneficial owner of an interest in a Global Note
will be able to transfer that interest except in accordance with DTC's
applicable procedures (in addition to those under the indenture and, if
applicable, those of CDS, Euroclear and Clearstream). In the event that owners
of beneficial interests in a Global Note become entitled to receive Notes in
definitive form, the Notes will be issued only in registered form in
denominations of US$ 1,000 and integral multiples thereof.

Payments of the principal of, premium, if any, and interest on the Global
Notes will be made to DTC or its nominee as the registered owner thereof. None
of us, the trustee nor any of our or their respective agents will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Notes
or for maintaining, supervising or reviewing any records relating to beneficial
ownership interests.

Subject to the following considerations, beneficial interests in the Global
Notes will trade in DTC's Same-Day Funds Settlement System, and secondary market
trading activity in those interests will therefore settle in immediately
available funds. The Company expects that DTC or its nominee, upon receipt of
any payment of principal or interest in respect of a Global Note representing
any Notes held by it or its nominee, will immediately credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of the Global Note for the Notes as shown on
the records of DTC or its nominee. We also expect that payments by participants
to owners of beneficial interests in the Global Notes held through participants
will be governed by standing instructions and customary practices, as is now the
case with securities held for the accounts of customers registered in "street
name." Those payments will be the responsibility of those participants.

Transfers between participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in CDS, Euroclear and Clearstream will be made in the ordinary way
in accordance with their respective rules and operating procedures.

146

Cross-market transfers between DTC participants, on the one hand, and
Euroclear or Clearstream participants, on the other hand, will be effected in
DTC in accordance with DTC's rules on behalf of Euroclear or Clearstream, as the
case may be, by its respective depositary; however, such cross-market
transactions will require delivery of instructions to Euroclear or Clearstream,
as the case may be, by the counterparty in the system in accordance with the
rules and procedures and within the established deadlines (Brussels time) of the
system. CDS, Euroclear or Clearstream, as the case may be, will, if the
transaction meets its settlement requirements, deliver instructions to its
respective depositary to take action to effect final settlement on its behalf by
delivering or receiving interests in the Global Note in DTC, and making or
receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Euroclear and Clearstream participants may not
deliver instructions directly to the depositaries for CDS, Euroclear or
Clearstream. Because of time zone differences, the securities account of a
Euroclear or Clearstream participant purchasing an interest in the Global Note
from a DTC participant will be credited, and the crediting will be reported to
the relevant Euroclear or Clearstream participant, during the securities
settlement processing day (which must be a business day for Euroclear and
Clearstream) immediately following the DTC settlement date. Cash received on
Euroclear or Clearstream as a result of sales of interests in a Global Note by
or through a Euroclear or Clearstream participant to a DTC participant will be
received with value on the DTC settlement date but will be available in the
relevant CDS, Euroclear or Clearstream cash account only as of the business day
for Euroclear or Clearstream following the DTC settlement date.

DTC has advised us that it will take any action permitted to be taken by a
holder of Notes (including the presentation of Notes for exchange as described
below) only at the direction of one or more participants to whose account with
DTC interest in the Global Notes is credited and only in respect of the portion
of the aggregate principal amount of the Notes as to which the participant or
participants has or have given the direction. However, if there is an Event of
Default under the Notes, DTC reserves the right to exchange the Global Notes for
legended Notes in certificated form, and to distribute the Notes to its
participants.

DTC has advised us as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code, as amended, and a "clearing agency" registered under the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thus eliminating the need for physical
transfer and delivery of certificates. Participants include securities brokers
and dealers, banks, trust companies and clearing corporations and may include
certain other organizations. Indirect access to the DTC system is available to
other entities such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a participant, either directly
or indirectly ("indirect participants").

Although DTC, Euroclear and Clearstream have agreed to the above procedures
in order to facilitate transfers of beneficial ownership interests in the Global
Notes among participants of DTC, Euroclear and Clearstream, they are under no
obligation to perform or continue to perform the procedures, and the procedures
may be discontinued at any time. Neither we nor the trustee nor any of our or
their respective agents will have any responsibility for the performance by DTC,
Euroclear and Clearstream, their participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations, including maintaining, supervising or reviewing the records relating
to, or payments made on account of, beneficial owner interests in the Global
Notes.

CERTIFICATED NOTES

If DTC is at any time unwilling or unable to continue as a depositary for
the reasons given above under "Global Notes", or, in the case of a Global Note
held for an account of Euroclear or Clearstream, Euroclear or Clearstream, as
the case may be, is closed for business for 14 continuous days or announces an
intention to cease or permanently ceases business, we will issue certificates
for the Notes in definitive, fully registered, non-global form without interest
coupons in exchange for the Global Notes. In all cases, certificates for Notes
delivered in exchange for any Global Note or beneficial interests in the Notes
will be registered in the names, and issued in any approved denominations,
requested by DTC.
147

CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS

Under the existing laws of Canada and all proposals to amend such laws
announced by the Minister of Finance prior to the date hereof and the current
published administrative policies of the Canada Customs and Revenue Agency, the
payment by the Company of interest, principal or premium on the Notes to a
holder who acquires Notes pursuant to this prospectus who is a non-resident of
Canada and with whom the Company deals at arm's length within the meaning of the
Income Tax Act (Canada) (the "Act") at the time of making the payment will be
exempt from Canadian withholding tax. For the purposes of the Act, related
persons (as therein defined) are deemed not to deal at arm's length and it is a
question of fact whether persons not related to each other deal at arm's length.

No other tax on income (including taxable capital gains) will be payable
under the Act in respect of the holding, redemption or disposition of the Notes
or the receipt of interest or premium thereon by holders who are neither
residents nor deemed to be residents of Canada for the purposes of the Act and
who do not use or hold and are not deemed to use or hold the Notes in carrying
on business in Canada for the purposes of the Act. The foregoing may not be
applicable to a holder that is a non-resident insurer that carries on an
insurance business in Canada and elsewhere.

This summary is of a general nature only and is not intended to be, and
shall not be interpreted as, legal or tax advice to any particular holder of the
Notes. This summary does not take into account tax legislation or considerations
of any jurisdiction other than Canada. Purchasers of the Notes should consult
their own tax advisors with respect to their particular circumstances.

UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

The following is a summary of the material United States federal income tax
consequences of the exchange of old Notes for new Notes in accordance with the
exchange offer and the ownership and disposition of a new Note by an individual
citizen or resident of the United States for U.S. federal income tax purposes, a
corporation or partnership created or organized in or under the laws of the
United States or any political subdivision thereof, an estate, the income of
which is subject to United States federal income taxation regardless of its
source, or any trust if (i) a United States court is able to exercise primary
supervision over the administration of the trust and (ii) one or more U.S.
persons have the authority to control all substantial decisions of the trust or
if the trust has validly made an election to be treated as a U.S. person under
the applicable Treasury Regulations (collectively, a "U.S. Holder"). This
summary only applies to U.S. Holders that hold the Notes as a "capital asset"
for investment, under Section 1221 of the Internal Revenue Code of 1986, as
amended (the "Code").

This summary is based on the Code, the Treasury regulations, published
rulings of the Internal Revenue Service (the "IRS") and decisions all in effect
on the date hereof, and all of which are subject to change (possibly with
retroactive effect) and differing interpretations. This summary is intended for
general information only and does not discuss all of the tax consequences that
may be relevant to the particular circumstances of a U.S. Holder or to U.S.
Holders subject to special tax rules, such as banks and other financial
institutions, tax-exempt organizations, insurance companies, dealers in
securities or foreign currency, or persons that hold the Notes that are a hedge
or that are hedged against currency risks or that are part of a straddle or
conversion transaction and holders of ten percent or more of the voting shares
of the Company. In addition, this summary does not address the tax consequences
applicable to subsequent purchasers of the Notes or persons who are not U.S.
Holders. Because individual circumstances may differ, U.S. Holders should
consult their own tax advisors concerning the application of United States
federal income tax law, as well as the laws of any state, local or foreign
taxing jurisdiction, to their particular situations. See "Certain Canadian
Federal Income Tax Considerations".

Exchange of Old Notes for New Notes. The exchange of old Notes for new
Notes will not be a taxable exchange for U.S. federal income tax purposes. As a
result, a U.S. Holder will not recognize taxable gain or loss solely by reason
of the receipt of new Notes in exchange for old Notes. A U.S. Holder's holding
period in the new Notes will include the holder's holding period in the old
Notes and the holder's adjusted tax basis in

148

the new Notes will equal the holder's adjusted tax basis in the old Notes. In
addition, any market discount or bond premium (discussed below) applicable to
the old Notes should carry over to the new Notes.

Taxation of Stated Interest. For United States federal income tax
purposes, interest (including additional amounts, if any, in the event that any
Canadian taxes are required to be withheld, as may be necessary to ensure that
the net amount received by a holder is not less than the amount the holder would
have received if such taxes had not been withheld) on a Note generally will be
taxable to a U.S. Holder as ordinary income at the time received or accrued, in
accordance with such holder's method of accounting for such United States
federal income tax purposes. Subject to applicable limitations under the Code
and the Treasury regulations and subject to the discussion below, any Canadian
withholding tax imposed on interest payments in respect of the Notes will be
treated as a foreign income tax eligible for credit against a U.S. Holder's U.S.
federal income tax liability (or, at a U.S. Holder's election, may be deducted
in computing taxable income). Interest paid by the Company on the Notes will
generally constitute income from sources outside the United States and, with
certain exceptions, will be "passive" or possibly "financial services" income,
or, if Canadian withholding tax is imposed on the interest payments at the rate
of 5% or higher, "high withholding tax interest" for U.S. foreign tax credit
purposes. Under the Code, foreign tax credits will not be allowed for
withholding taxes imposed in respect of certain short-term or hedged positions
in securities. Further, the IRS has announced that future regulations could
disallow foreign tax credits (including on a retroactive basis) in respect of
arrangements in which a U.S. Holder's reasonably expected economic profit, after
non-U.S. taxes, is insubstantial compared to the value of the expected foreign
tax credits. No such regulations have been issued to date. The rules regarding
U.S. foreign tax credits are very complex. U.S. Holders should consult their own
tax advisors concerning the implications of U.S. foreign tax credit rules in
light of their particular circumstances.

Market Discount. If a U.S. Holder purchased a note for less than the
stated redemption price of the note at maturity, the difference is considered
market discount, subject to a statutory de minimis exception. Under the de
minimis exception, market discount is treated as zero if the market discount is
less than 1/4 of one percent of the stated redemption price of the note
multiplied by the number of complete years to maturity from the date acquired.
If a U.S. Holder exchanges an old Note, with respect to which there is a market
discount, for a new Note pursuant to the exchange offer, the market discount
applicable to the old Note should carry over to the new Note received. If a U.S.
Holder acquired a note at a market discount, the U.S. Holder will be required to
treat as ordinary income any partial principal payment or gain recognized on the
disposition of that note to the extent of the market discount which has not
previously been included in such U.S. Holder's income and is treated as having
accrued at the time of the payment or disposition. In addition, a U.S. Holder
may be required to defer the deduction of a portion of the interest on any
indebtedness incurred or maintained to purchase or carry the note until the note
is disposed of in a taxable transaction, unless the U.S. Holder elects to
include market discount in income as it accrues.

Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the note, unless the U.S.
Holder elects to accrue on a constant interest method. A U.S. Holder may elect
to include market discount in income currently as it accrues on either a ratable
or constant interest method, in which case the rule described above regarding
deferral of interest deductions will not apply. This election to include market
discount in income currently, once made, applies to all market discount
obligations acquired on or after the first taxable year to which the election
applies and may not be revoked without the consent of the Internal Revenue
Service.

Amortizable Premium. If a U.S. Holder acquired a note for an amount which
is greater than its principal amount, the U.S. Holder will be considered to have
purchased the note with amortizable bond premium equal to the amount of that
excess. If a U.S. Holder exchanges an old Note, with respect to which there is
bond premium, for a new Note pursuant to the exchange offer, the bond premium
applicable to the old Note should carry over to the new Note received. A U.S.
Holder may elect to amortize the premium using a constant yield method over the
period from the acquisition date to the maturity date of the note. Amortized
amounts may be offset only against interest paid with respect to the note. Once
made, an election to amortize and offset interest on the note may be revoked
only with the consent of the IRS and will apply to all Notes a

149

U.S. Holder holds on the first day of the taxable year to which the election
relates and to subsequent taxable years and to all Notes a U.S. Holder
subsequently acquires.

Sale or Other Taxable Disposition of the Notes. Upon the sale, exchange or
redemption of a Note, a U.S. Holder will recognize gain or loss, if any, equal
to the difference between the amount realized on such sale, exchange or
redemption (other than amounts received that are attributable to accrued but
unpaid interest, which amounts shall be taxable as ordinary income to the extent
not previously included in the gross income of the U.S. Holder) and such U.S.
Holder's adjusted tax basis in the Note. Assuming the Note was held by a U.S.
Holder as a capital asset, such gain or loss generally will constitute capital
gain or loss, and will be long-term capital gain or loss if the Note was held by
such U.S. Holder for more than one year. U.S. Holders who are individuals can
qualify for preferential rates of U.S. federal income taxation in respect of
long-term capital gains. The deduction of capital losses is subject to
limitations under the Code. Gain realized by a U.S. Holder on a sale or other
disposition of the Notes generally will be treated as U.S.-source income for
U.S. foreign tax credit purposes.

Backup Withholding. In general, information reporting requirements will
apply to interest and to the proceeds received on the disposition of the Notes
paid within the United States (and in certain cases, outside the United States)
to U.S. Holders, other than certain exempt recipients (such as corporations). A
backup withholding tax of 28% may apply to such amounts if a U.S. Holder (i)
fails to establish properly that it is entitled to an exemption, (ii) fails to
furnish or certify his or her correct taxpayer identification number to the
payer in the manner required, (iii) is notified by the IRS that he or she has
failed to report payments of interest or dividends properly, or (iv) under
certain circumstances, fails to certify that he or she has been notified by the
IRS that he or she is subject to backup withholding for failure to report
interest or dividend payments. Backup withholding tax is not an additional tax
and the amount of any backup withholding may be refunded or allowed as a credit
against the U.S. Holder's U.S. federal income tax liability, provided that
correct information is provided to the IRS.

U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX
CONSEQUENCES TO THEM OF EXCHANGING OLD NOTES FOR NEW NOTES, HOLDING NEW NOTES
AND DISPOSING OF THE NEW NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY
FEDERAL, STATE, LOCAL OR FOREIGN TAX LAWS, AND OF ANY PROPOSED CHANGES IN
APPLICABLE LAW.

PLAN OF DISTRIBUTION

Each broker-dealer that receives Notes for its own account in the exchange
offer must acknowledge that it will deliver a prospectus in connection with any
resale of the Notes. This prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of Notes
received in exchange for old notes where the old notes were acquired as a result
of market-making activities or other trading activities. We have agreed that for
180 days after the closing of the exchange offer we will make this prospectus,
as amended or supplemented, available to any broker-dealer that requests these
documents from the Exchange Agent for use in connection with resales of the
Notes. In addition, until , 2003, all dealers effecting transactions in
the Notes may be required to deliver a prospectus.

We will not receive any proceeds from any sale of Notes by broker-dealers.
Notes received by broker-dealers for their own account in the exchange offer may
be sold from time to time in one or more transactions in the over-the-counter
market, in negotiated transactions, through the writing of options on the Notes
or a combination of such methods of resale, at market prices prevailing at the
time of resale, at prices related to such prevailing market prices or negotiated
prices. Any resale of the Notes may be made directly to purchasers or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer and/or the purchasers of
any such Notes. Any broker-dealer that resells Notes that were received by it
for its own account in the exchange offer and any broker or dealer that
participates in a distribution of the Notes may be deemed to be an "underwriter"
within the meaning of the Securities Act. Any profit on any resale of Notes and
any commissions or concessions received by any persons deemed to be underwriters
may be deemed to be underwriting compensation under the Securities Act. The
enclosed letter of

150

transmittal states that by acknowledging that it will deliver and be delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.

For a period of 180 days after the closing of the exchange offer, we will
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the letter of transmittal. We have agreed to pay all expenses incident to the
exchange offer (including the expenses of one counsel for the holders of the old
notes) other than commissions or concessions of any brokers or dealers and will
indemnify the holders of the old notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.

Following completion of the exchange offer, we may, in our sole discretion,
commence one or more additional exchange offers to holders of old notes who did
not exchange their old notes for Notes in the exchange offer on terms which may
differ from those contained in the prospectus and the enclosed letter of
transmittal. This prospectus, as it may be amended or supplemented from time to
time, may be used by us in connection with any additional exchange offers. These
additional exchange offers may take place from time to time until all
outstanding old notes have been exchanged for Notes, subject to the terms and
conditions in the prospectus and letter of transmittal distributed by us in
connection with these additional exchange offers.

LEGAL MATTERS

Certain legal matters in connection with the offering and sale of the Notes
will be passed upon for us by Torys LLP, 237 Park Avenue, New York, New York
10017 and 3000, Maritime Life Tower, 79 Wellington Street W., Toronto, Ontario,
M5K 1N2.

EXPERTS

The consolidated financial statements of the Company and NB Inc. and the
financial statements of RMI as of December 31, 2001 and 2002, and for each of
the years in the three-year period ended December 31, 2002, included in this
prospectus have been audited by KPMG LLP, independent accountants, as stated in
their reports appearing herein. The audit reports covering the financial
statements of the Company and NB Inc. include "Comments by Auditors for U.S.
Readers on Canada-U.S. Reporting Differences" which refers to changes in
accounting policies for the adoption of the provisions of new accounting
standards for earnings per share, income taxes, and goodwill and intangible
assets and in the case of the Company, for retroactive adjustments.

151

INDEX TO FINANCIAL STATEMENTS

<Table>

HOLLINGER INC.
Audited Consolidated Financial Statements
Report of KPMG LLP, Independent Auditors.................. F-2
Consolidated Balance Sheets as of December 31, 2001 and
2002................................................... F-4
Consolidated Statements of Earnings (Losses) for the Year
Ended December 31, 2000, 2001 and 2002................. F-5
Consolidated Statements of Deficit for the Years Ended
December 31, 2000, 2001 and 2002....................... F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 2001 and 2002....................... F-7
Notes to Consolidated Financial Statements................ F-8

504468 N.B. INC.
Audited Consolidated Financial Statements
Report of KPMG LLP, Independent Auditors.................. F-81
Consolidated Balance Sheets as of December 31, 2001 and
2002................................................... F-83
Consolidated Statements of Earnings (Losses) for the Year
Ended December 31, 2000, 2001 and 2002................. F-84
Consolidated Statements of Retained Earnings (Deficit) for
the Years Ended December 31, 2000, 2001 and 2002....... F-85
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 2001 and 2002....................... F-86
Notes to Consolidated Financial Statements................ F-87

RAVELSTON MANAGEMENT INC.
Audited Financial Statements
Report of KPMG LLP, Independent Auditors.................. F-142
Balance Sheets as of December 31, 2001 and 2002........... F-143
Statements of Income for the Years Ended December 31,
2000, 2001 and 2002.................................... F-144
Statements of Retained Earnings for the period July 5,
2002 to December 31, 2002.............................. F-144
Statements of Cash Flows for the Years Ended December 31,
2000, 2001 and 2002.................................... F-145
Notes to Financial Statements............................. F-146
</Table>

F-1

AUDITORS' REPORT

To the Board of Directors of Hollinger Inc.

We have audited the consolidated balance sheets of Hollinger Inc. as at
December 31, 2001 and 2002 and the consolidated statements of earnings (losses),
deficit and cash flows for each of the years in the three-year period ended
December 31, 2002. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
2001 and 2002 and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 2002 in accordance with
Canadian generally accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.

Toronto, Canada

April 1, 2003, except

as to note 29, which is

as of June 19, 2003 other than note 29e), /s/ KPMG LLP
which is as of August 25, 2003 Chartered Accountants

F-2

COMMENTS BY AUDITORS FOR U.S. READERS
ON CANADA -- U.S. REPORTING DIFFERENCES

In the United States, reporting standards for auditors require the addition
of an explanatory paragraph (following the opinion paragraph) when there is a
change in accounting principles that has a material effect on the comparability
of the Company's financial statements, such as the changes described in note 2,
or when there is a retroactive adjustment such as those described in note 26v),
to the consolidated financial statements as at December 31, 2001 and 2002 and
for each of the years in the three-year period ended December 31, 2002. Our
report to the shareholders dated April 1, 2003 is expressed in accordance with
Canadian reporting standards, which do not require a reference to such changes
in accounting principles in the auditors' report when the change is properly
accounted for and adequately disclosed in the financial statements.

Toronto, Canada /s/ KPMG LLP
April 1, 2003 Chartered Accountants

F-3

HOLLINGER INC.

CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
DECEMBER 31
-----------------------
2001 2002
---------- ----------
(IN THOUSANDS OF
CANADIAN DOLLARS)

ASSETS
CURRENT ASSETS
Cash and cash equivalents (note 3).......................... $ 806,347 $ 188,852
Escrow deposits (note 10a))................................. -- 859,128
Accounts receivable......................................... 336,438 355,031
Amounts due from related parties (note 23d))................ 26,874 23,640
Prepaid expenses............................................ 17,604 28,499
Inventory................................................... 36,506 22,058
---------- ----------
1,223,769 1,477,208
INVESTMENTS (note 5)........................................ 259,435 210,145
CAPITAL ASSETS (note 6)..................................... 666,501 660,501
GOODWILL (note 7)........................................... 174,324 913,327
OTHER INTANGIBLE ASSETS (note 7)............................ 1,177,544 185,143
DEFERRED FINANCING COSTS AND OTHER ASSETS (note 8).......... 154,543 193,537
---------- ----------
$3,656,116 $3,639,861
========== ==========
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness (note 9).................................. $ 129,475 $ 90,810
Accounts payable and accrued expenses....................... 358,444 337,086
Amounts due to related parties (note 23d)).................. 72,793 103,295
Income taxes payable........................................ 463,853 476,387
Deferred revenue............................................ 65,627 67,612
Retractable preference shares (note 11)..................... -- 135,299
Deferred unrealized gain on retractable preference shares
(note 11a))............................................... -- 11,983
Senior Subordinated Notes due 2006 and 2007 (note 10a))..... -- 797,751
Current portion of long-term debt (note 10)................. 10,020 16,800
---------- ----------
1,100,212 2,037,023
LONG-TERM DEBT (note 10).................................... 1,341,606 974,770
RETRACTABLE PREFERENCE SHARES (note 11)..................... 147,472 --
DEFERRED UNREALIZED GAIN ON RETRACTABLE PREFERENCE SHARES
(note 11a))............................................... 7,670 --
FUTURE INCOME TAXES (note 18)............................... 486,937 375,479
OTHER LIABILITIES AND DEFERRED CREDITS (note 12)............ 109,761 130,648
---------- ----------
3,193,658 3,517,920
---------- ----------
MINORITY INTEREST........................................... 725,928 473,272
---------- ----------
SHAREHOLDERS' DEFICIENCY
Capital stock (note 13)..................................... 271,774 273,759
Deficit..................................................... (485,313) (605,145)
---------- ----------
(213,539) (331,386)
Equity adjustment from foreign currency translation (note
14)....................................................... (49,931) (19,945)
---------- ----------
(263,470) (351,331)
---------- ----------
$3,656,116 $3,639,861
========== ==========
Commitments (note 15)
Contingencies (note 16)
Subsequent events (notes 1, 9, 10a), 16d) and 29)
</Table>

F-4

HOLLINGER INC.

CONSOLIDATED STATEMENTS OF EARNINGS (LOSSES)

<Table>
<Caption>
YEAR ENDED DECEMBER 31
----------------------------------------
2000 2001 2002
---------- ---------- ----------
(IN THOUSANDS OF CANADIAN DOLLARS
EXCEPT PER SHARE AMOUNTS)

REVENUE
Sales.............................................. $3,158,280 $1,822,060 $1,628,198
Investment and other income........................ 28,146 97,282 29,729
---------- ---------- ----------
3,186,426 1,919,342 1,657,927
---------- ---------- ----------
EXPENSES
Cost of sales and expenses......................... 2,586,183 1,730,108 1,453,894
Depreciation and amortization...................... 219,932 144,716 88,193
Interest on long-term debt......................... 219,970 122,701 92,625
Other interest..................................... 54,361 55,225 29,122
---------- ---------- ----------
3,080,446 2,052,750 1,663,834
---------- ---------- ----------
NET LOSS IN EQUITY-ACCOUNTED COMPANIES............... (14,115) (18,571) (1,233)
---------- ---------- ----------
NET FOREIGN CURRENCY LOSSES.......................... (12,288) (7,470) (19,741)
---------- ---------- ----------
EARNINGS (LOSS) BEFORE THE UNDERNOTED................ 79,577 (159,449) (26,881)
Unusual items (note 17)............................ 700,945 (295,434) (62,630)
Income tax (expense) recovery (note 18)............ (260,091) 89,477 (124,025)
Minority interest.................................. (331,058) 233,508 124,896
---------- ---------- ----------
NET EARNINGS (LOSS).................................. $ 189,373 $ (131,898) $ (88,640)
========== ========== ==========
EARNINGS (LOSS) PER RETRACTABLE COMMON SHARE (note
19)
Basic.............................................. $ 5.11 $ (3.91) $ (2.76)
========== ========== ==========
Diluted............................................ $ 5.05 $ (4.17) $ (2.79)
========== ========== ==========
</Table>

F-5

HOLLINGER INC.

CONSOLIDATED STATEMENTS OF DEFICIT

<Table>
<Caption>
YEAR ENDED DECEMBER 31
------------------------------------
2000 2001 2002
---------- ---------- ----------
(IN THOUSANDS OF CANADIAN DOLLARS)

DEFICIT AT BEGINNING OF YEAR
As previously reported.................................. $(180,732) $(310,988) $(485,313)
Adjustment of prior years' deficit (note 2)............. (291,004) -- --
--------- --------- ---------
As restated............................................. (471,736) (310,988) (485,313)
Net earnings (loss)....................................... 189,373 (131,898) (88,640)
--------- --------- ---------
(282,363) (442,886) (573,953)
Adjustment to deficit related to transitional impairment
charge, net of minority interest (note 1)............... -- -- (12,071)
Dividends -- retractable common shares.................... (22,177) (20,216) (19,220)
Gain (premium) on retraction of retractable common shares
(notes 13b), 13d) and 13e))............................. (6,448) (22,211) 141
Share issue costs......................................... -- -- (42)
--------- --------- ---------
DEFICIT AT END OF YEAR.................................... $(310,988) $(485,313) $(605,145)
========= ========= =========
</Table>

F-6

HOLLINGER INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
YEAR ENDED DECEMBER 31
-----------------------------------
2000 2001 2002
----------- --------- ---------
(IN THOUSANDS OF CANADIAN DOLLARS)

CASH PROVIDED BY (USED FOR):
OPERATING ACTIVITIES
CASH FLOWS PROVIDED BY (USED FOR) OPERATIONS BEFORE THE
UNDERNOTED (note 20a)).................................... $ 153,579 $(120,211) $ 59,628
Change in non-cash operating working capital (note 20b)).... (82,456) (144,429) 41,328
Other costs................................................. (42,188) (70,234) 48,474
----------- --------- ---------
28,935 (334,874) 149,430
----------- --------- ---------
FINANCING ACTIVITIES
Redemption and cancellation of capital stock................ (700) (273) (1,064)
Redemption and cancellation of retractable preference
shares.................................................... (5,133) (317) (277)
Premium on retirement of senior notes....................... -- -- (56,287)
Capital stock of subsidiaries purchased for cancellation by
subsidiaries.............................................. -- (71,767) (157,056)
Issue of partnership units and common shares of
subsidiaries.............................................. 8,166 10,637 6,667
Decrease in long-term debt and deferred liabilities......... (1,280,475) -- --
Redemption of HCPH Special shares........................... (140,429) -- --
Repayment of long-term debt................................. -- (176,383) (582,920)
Proceeds from long-term debt................................ -- 152,778 514,343
Proceeds from issuance of notes............................. -- -- 474,000
Payment of debt issue costs................................. -- (7,230) (24,666)
Escrow deposits and restricted cash......................... -- -- (859,128)
Dividends................................................... (22,177) (20,216) (16,031)
Dividends and distributions paid by subsidiaries to minority
interest.................................................. (127,390) (126,478) (48,721)
Other....................................................... -- (204) (249)
----------- --------- ---------
(1,568,138) (239,453) (751,389)
----------- --------- ---------
INVESTING ACTIVITIES
Proceeds on disposal of fixed assets........................ 18,813 157 17,024
Purchase of fixed assets.................................... (112,661) (91,406) (63,603)
Proceeds on sale of investment in subsidiary................ -- 31,417 38,637
Proceeds on disposal of investments......................... 87,465 919,567 7,188
Additions to investments.................................... (92,735) (99,040) (17,636)
Additions to circulation.................................... (37,667) (3,920) --
Decrease (increase) in other assets......................... 779 (1,132) (450)
Investment in newspaper operations.......................... (175,376) -- --
Proceeds on disposal of newspaper and magazine operations... 2,016,885 376,865 --
----------- --------- ---------
1,705,503 1,132,508 (18,840)
----------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS............................................... (6,825) 14,250 3,304
----------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 159,475 572,431 (617,495)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 74,441 233,916 806,347
----------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 233,916 $ 806,347 $ 188,852
=========== ========= =========
CASH FLOW PROVIDED BY (USED FOR) OPERATIONS PER RETRACTABLE
COMMON SHARE (note 19)
SUPPLEMENTAL DISCLOSURE OF FINANCING AND INVESTING
ACTIVITIES
Interest paid............................................. $ 244,592 $ 153,972 $ 108,159
Income taxes paid......................................... $ 69,710 $ 122,087 $ 14,095
</Table>

F-7

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

1. SIGNIFICANT ACCOUNTING POLICIES

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles ("GAAP") in Canada, which vary in
certain significant respects from United States GAAP. A description of
significant differences, as applicable to the Company is included in note 26.

BASIS OF PREPARATION

These consolidated financial statements have been prepared in accordance
with Canadian generally accepted accounting principles using a basis of
presentation which assumes that the Company will continue in operation for the
foreseeable future and be able to realize its assets and discharge its
liabilities and commitments in the normal course of business. The Company is an
international holding company and its assets consist primarily of investments in
its subsidiaries and affiliated companies. As a result, the Company's ability to
meet its future financial obligations, on a non-consolidated basis, is dependent
upon the availability of cash flows from its Canadian and foreign subsidiaries
through dividends, management fees and other payments. On a non-consolidated
basis during 2002, the Company experienced a shortfall between the dividends and
fees received from its subsidiaries and its obligations to pay its operating
costs, including interest and dividends on its preference shares and such
shortfalls were expected to continue in the future. Accordingly, the Company is
dependent upon the continuing financial support of Ravelston Management Inc.
("RMI") to fund such shortfalls and, therefore, pay its liabilities as they fall
due. RMI is a wholly owned subsidiary of The Ravelston Corporation Limited
("Ravelston"), the Company's ultimate parent company.

On March 10, 2003, the date of issue of US $120,000,000 aggregate principal
amount of Senior Secured Notes due 2011, RMI entered into a Support Agreement
with the Company. Under the agreement, RMI has agreed to make annual support
payments in cash to the Company on a periodic basis by way of contributions to
the capital of the Company (without receiving any shares of the Company) or
subordinated debt. The amount of the annual support payments will be equal to
the greater of (a) the non-consolidated negative net cash flow of the Company
(which does not extend to outlays for retractions or redemptions) and (b)
US$14.0 million per year (less any future payments of services agreements fees
directly to the Company or to any of the Company's wholly owned restricted
subsidiaries, as they are defined in the indenture governing the Company's
Senior Secured Notes due 2011, and any excess in the net dividend amount
received by the Company and 504468 N.B. Inc. ("NB Inc.") on the shares of
Hollinger International Inc. ("Hollinger International") that the Company and NB
Inc. own that is over US$4.65 million per year), in either case, reduced by any
permanent repayment of debt owing by Ravelston to the Company. Initially, the
support amount to be contributed by RMI is expected to be satisfied through the
permanent repayment by Ravelston of its approximate $16.4 million of advances
from the Company resulting from the use of proceeds of the Company's offering of
Senior Secured Notes. Thereafter, all support amount contributions by RMI will
be made through contributions to the capital of the Company without receiving
any additional shares of the Company, except that, to the extent that the
support payment exceeds the negative net cash flow of the Company, the amounts
will be contributed through an interest-bearing, unsecured, subordinated loan to
the Company. The support agreement terminates upon the repayment of the Senior
Secured Notes, which mature in 2011.

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

December 31, 2003 amount to approximately US$22.0 million to US$24.0 million and
were approved in February 2003. The fees in respect of the periods after
December 31, 2003 have not yet been negotiated or approved. If, in any quarterly
period after April 1, 2003, the Company fails to receive in cash a minimum
aggregate amount of at least US$4.7 million from a) payments made by RMI
pursuant to the Support Agreement and b) dividends paid by Hollinger
International on its shares held by the Company, net of dividends paid by the
Company on its Series 11 preference shares, the Company would be in default
under its Senior Secured Notes. Based on the Company's current investment in
Hollinger International and the current quarterly dividend paid by Hollinger
International of US$0.05 per share, the minimum support payment required to be
made by RMI to avoid such a default is approximately US$3.5 million per quarter
or US$14.0 million annually. This default could cause the Senior Secured Notes
to become due and payable immediately.

The Company's issued capital stock consists of Series II preference shares,
Series III preference shares and retractable common shares each of which is
retractable at the option of the holder. On retraction, the Series II preference
shares are exchangeable into a fixed number of shares of the Company's Class A
common stock of Hollinger International or at the Company's option, cash of
equivalent value. The Series III preference shares are currently retractable at
the option of the holder for a retraction price payable in cash, which
fluctuates by reference to two benchmark Government of Canada bonds having a
comparable yield and term to the shares and, after May 1, 2003, for a cash
payment of $9.50 per share. The retractable common shares are retractable at any
time at the option of the holder at their retraction price (which is fixed from
time to time) in exchange for the Company's shares of Hollinger International
Class A common stock of equivalent value or, at the Company's option, cash.
There is uncertainty regarding the Company's ability to meet future retractions
of preference shares and retractable common shares. Under corporate law, the
Company is not required to make any payment to redeem any shares in certain
circumstances, including if the Company is, or after the payment, the Company
would be, unable to pay its liabilities as they come due. If at the time of
future retractions, the Company does not have sufficient cash or sufficient
available Hollinger International shares of Class A common stock to both fund
such retractions and continue to pay its liabilities as they come due,
shareholders would not become creditors of the Company but would remain as
shareholders until such time as the retraction is able to be completed under
applicable law. On May 20, 2003, the Company concluded it was not able to
complete retractions of shares submitted after April 30, 2003, without unduly
impairing its liquidity (note 29f)).

The Company's uncertain ability to make payments on future retractions and
redemptions of shares is due to the fact that liquidity of its assets is limited
at present given that substantially all of its shares of Hollinger International
common stock were provided as security for the Senior Secured Notes.

GENERAL BUSINESS

Hollinger Inc. publishes, prints and distributes newspapers and magazines
in Canada, the United Kingdom, the United States of America, and Israel through
subsidiaries and associates. In addition, Hollinger Inc. has developed related
websites on the Internet. The consolidated financial statements include the
accounts of Hollinger Inc., its subsidiaries, other controlled entities and its
pro rata share of assets, liabilities,

F-9

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

revenue and expenses of joint ventures (collectively, the "Company"). The
Company's significant subsidiaries and controlled entities are set out below:

<Table>
<Caption>
PERCENTAGE OWNED AS AT DECEMBER 31,
-----------------------------------
2000 2001 2002
------- ------- -------

Hollinger International Inc. ("Hollinger International").... 47.5%(3) 36.0%(3) 31.8%(3)
Hollinger International Publishing Inc. ("Publishing")...... 100.0%(1) 100.0%(1) 100.0%(1)
The Sun-Times Company....................................... 100.0%(1) 100.0%(1) 100.0%(1)
Jerusalem Post Publications Limited ("Jerusalem Post")...... 100.0%(1) 100.0%(1) 100.0%(1)
Hollinger Canadian Publishing Holdings Co. ("HCPH
Co.")(2).................................................. 100.0%(1) 100.0%(1) 100.0%(1)
The National Post Company ("National Post") (note 5c))...... 50.0%(1) -- --
Telegraph Group Limited ("Telegraph")....................... 100.0%(1) 100.0%(1) 100.0%(1)
Hollinger Canadian Newspapers, Limited Partnership
("Hollinger L.P.")........................................ 87.0%(1) 87.0%(1) 87.0%(1)
</Table>

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

(1) Percent owned by Hollinger International.

(2) During 2001 HCPH Co. (formerly Hollinger Canadian Publishing Holdings Inc.
("HCPH")) became the successor to the operations of XSTM Holdings (2000)
Inc. (formerly Southam Inc. ("Southam")).

(3) Represents the Company's equity interest in Hollinger International. The
Company's voting percentage at December 31, 2002 is 72.8% (2001 -- 71.8% and
2000 -- 73.3%).

FOREIGN CURRENCY TRANSLATION

Monetary items denominated in foreign currency are translated to Canadian
dollars at exchange rates in effect at the balance sheet date and non-monetary
items are translated at exchange rates in effect when the assets were acquired
or obligations incurred. Revenues and expenses are translated at exchange rates
in effect at the time of the transactions. Foreign exchange gains and losses are
included in income.

The financial statements of foreign subsidiaries, all of which are
self-sustaining, are translated using the current rate method, whereby all
assets and liabilities are translated at year-end exchange rates, with items in
the consolidated statements of earnings translated at the weighted average
exchange rates for the year. Exchange gains or losses arising from the
translation of balance sheet items are deferred and disclosed separately within
shareholders' equity. These exchange gains or losses are not included in
earnings unless they are actually realized through a reduction of the Company's
net investment in the foreign subsidiary. Exchange gains or losses on the
translation of exchangeable preference shares are deferred as they have been
designated as a hedge of the Company's investment in shares of Hollinger
International Class A common stock for which they are exchangeable.

Effective January 1, 2002, the Company adopted, on a retroactive basis, The
Canadian Institute of Chartered Accountants ("CICA") amended Handbook Section
1650, "Foreign Currency Translations" ("Section 1650"), which eliminates the
deferral and amortization of foreign currency translation gains and losses on
long-term monetary items denominated in foreign currencies, with a fixed or
ascertainable life. There was no impact to the Company upon adoption of this
standard as at January 1, 2002 or any period presented.

CASH EQUIVALENTS

Cash equivalents consist of certain highly liquid investments with original
maturities of three months or less.

F-10

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

INVENTORY

Inventory, principally printing material, is valued at the lower of cost
and net realizable value. Cost is determined using the first-in, first-out
(FIFO) method.

CAPITAL ASSETS

Capital assets are stated at cost. Cost represents the cost of acquisition
or construction, including the direct costs of financing until the asset is
ready for use.

Leases which transfer substantially all of the benefits and risks of
ownership to the Company or its subsidiaries are recorded as assets, together
with the obligations, based on the present value of future rental payments,
excluding executory costs.

Capital assets, including assets under capital leases, are depreciated over
their estimated useful lives as follows:

<Table>

Buildings straight line over 25 to 40 years
Machinery and equipment straight line over 4 to 20 years or 7% to
12% on the diminishing-balance basis
Leasehold interests straight line over the term of the lease
ranging from 5 to 40 years
</Table>

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill represents the excess of acquisition costs over estimated fair
value of net assets, including definite lived intangibles, acquired in business
combinations. Until December 31, 2001, goodwill amortization was calculated
using the straight-line method over the respective estimated useful lives to a
maximum of 40 years.

Prior to January 1, 2002, circulation represented the long-term readership
of paid newspapers and the Company allocated a portion of the purchase price
discrepancy in each business acquired to the cost of circulation. In addition,
the Company capitalized costs incurred to increase the long-term readership.
Circulation was amortized on a straight-line basis over periods ranging from 10
to 40 years.

Effective January 1, 2002, the Company adopted the CICA Handbook Section
3062, "Goodwill and Other Intangible Assets" ("Section 3062") and certain
transitional provisions of CICA Handbook Section 1581, "Business Combinations"
("Section 1581"). The new standards require that goodwill and intangible assets
with indefinite useful lives no longer be amortized, but instead be tested for
impairment at least annually. The standards also specify criteria that
intangible assets must meet to be recognized and reported apart from goodwill.
In addition, Section 3062 requires that intangible assets with estimable useful
lives be amortized over their respective estimated useful lives to their
estimated residual values and reviewed for impairment by assessing the
recoverability of the carrying value.

As of the date of adoption of Section 3062 and certain transitional
provisions of Section 1581, the Company has discontinued amortization of all
existing goodwill, evaluated existing intangible assets and has reclassified
from circulation amounts in respect of non-competition agreements and subscriber
and advertiser relationships, which meet the new criteria for recognition of
intangible assets apart from goodwill. The balance of circulation has been
reclassified to goodwill effective January 1, 2002.

F-11

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

transitional impairment test, and based on the methodology adopted, the Company
has determined that the carrying amount of the Jerusalem Post was in excess of
the estimated fair value at January 1, 2002. Accordingly, the value of goodwill
attributable to the Jerusalem Post of $32.0 million has been written down in its
entirety. Such loss, net of related minority interest amounted to $12.1 million
and has been recorded as a charge to the opening deficit as at January 1, 2002.
The Company has determined that the fair value of all other reporting units is
in excess of the respective carrying amounts, both on adoption and at year end
for purposes of the annual impairment test.

In addition to the transitional goodwill impairment test as of January 1,
2002, the Company is required to test goodwill for impairment on an annual basis
for each of its reporting units. The Company is also required to evaluate
goodwill for impairment between annual tests if an event occurs or circumstances
change that would more likely than not reduce the fair value of a reporting unit
below its carrying amount. Certain indicators of potential impairment that could
impact the Company's reporting units include, but are not limited to, the
following: (a) a significant long-term adverse change in the business climate
that is expected to cause a substantial decline in advertising spending, (b) a
permanent significant decline in a reporting unit's newspaper readership, (c) a
significant adverse long-term negative change in the demographics of a reporting
unit's newspaper readership and (d) a significant technological change that
results in a substantially more cost-effective method of advertising than
newspapers.

Effective January 1, 2002, the Company had unamortized goodwill in the
amount of $873.7 million, which is no longer being amortized. This amount
reflects the transitional impairment loss of $32.0 million relating to the
Jerusalem Post.

This change in accounting policy cannot be applied retroactively and the
amounts presented for prior periods have not been restated for this change. If
this change in accounting policy were applied to the reported consolidated
statement of earnings for the years ended December 31, 2000 and 2001, the impact
of the change, in respect of goodwill and intangible assets not being amortized,
would be as follows:

<Table>
<Caption>
2000 2001
-------- ---------

Net earnings (loss) -- as reported.......................... $189,373 $(131,898)
Add goodwill and intangible asset amortization, net of
income taxes and minority interest........................ 31,384 16,978
-------- ---------
Adjusted net earnings (loss)................................ $220,757 $(114,920)
======== =========
Basic earnings (loss) per share -- as reported.............. $ 5.11 $ (3.91)
======== =========
Basic adjusted earnings (loss) per share.................... $ 5.97 $ (3.41)
======== =========
Diluted earnings (loss) per share -- as reported............ $ 5.05 $ (4.17)
======== =========
Diluted adjusted earnings (loss) per share.................. $ 5.90 $ (3.64)
======== =========
</Table>

Adjusted net earnings (loss), noted above, reflects only the reduction in
amortization expense of intangibles now classified as goodwill and does not give
effect to the impact that this change in accounting policy would have had on the
gains and losses resulting from the disposal of operations during 2000 and 2001,
nor the expensing of the costs previously capitalized to increase long-term
readership in 2000 and 2001.

INVESTMENTS

Investments are accounted for at cost, except for investments in which the
Company exercises significant influence which are accounted for by the equity
method. Investments are written down when declines in value are considered to be
other than temporary. Dividend and interest income are recognized when earned.

F-12

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

Prior to the adoption of new accounting standards for goodwill on January
1, 2002, as described above, the excess of acquisition costs over the Company's
share of the fair value of net assets at the acquisition date of an equity
method investment was amortized on a straight-line basis over its estimated
useful life. Effective January 1, 2002, such equity method goodwill is no longer
amortized. The Company recognizes a loss when there is other than a temporary
decline in the fair value of the investment below its carrying value.

DEFERRED FINANCING COSTS

Deferred financing costs consist of certain costs incurred in connection
with debt financings. Such costs are amortized on a straight-line basis over the
term of the related debt.

DERIVATIVES

The Company uses derivative financial instruments to manage risks generally
associated with interest rate and foreign currency exchange rate market
volatility. The Company does not hold or issue derivative financial instruments
for trading purposes. None of the derivatives has been designated as a hedge.
All derivatives are recorded at their fair value with changes in fair value
reflected in the consolidated statements of earnings, other than Hollinger
International's forward share purchase contracts (described in note 24b)).

STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS

Effective January 1, 2002, the Company adopted the new CICA Handbook
Section 3870, "Stock-based Compensation and Other Stock-based Payments"
("Section 3870"). Under Section 3870, the Company is required to adopt, on a
prospective basis, the fair value-based method to account for all stock-based
payments made by the Company to non-employees, including employees of Ravelston,
the parent company, and employee awards that are direct awards of stock, call
for settlement in cash or other assets, or are stock appreciation rights that
call for settlement by the issuance of equity instruments, granted on or after
January 1, 2002. For all other stock-based payments, the Company has elected to
use the settlement method of accounting, whereby cash received on the exercise
of stock options is recorded as capital stock.

Under the fair value-based method, stock options granted to employees of
Ravelston by the Company and its subsidiaries are measured at the fair value of
the consideration received, or the fair value of the equity instruments issued,
or liabilities incurred, whichever is more reliably measurable. Such fair value
determined is recorded as a dividend-in-kind in the Company's financial
statements with no impact on the Company's net earnings. Section 3870 has been
applied prospectively to all stock-based payments to non-employees granted on or
after January 1, 2002.

EMPLOYEE BENEFIT PLANS

The Company accrues its obligations under employee benefit plans and the
related costs, net of plan assets. The following policies are applied in
accounting for employee benefit plans:

- The cost of pensions and other retirement benefits earned by employees
is actuarially determined using the projected benefit method pro-rated
on service and management's best estimate of expected plan investment
performance, salary escalation, retirement ages of employees and
expected health care costs.

- For the purpose of calculating the expected return on plan assets, those
assets are valued at fair value.

F-13

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

- Past service costs from plan amendments are amortized on a straight-line
basis over the average remaining service period of employees active at
the date of amendment.

- The excess of the net actuarial gain (loss) over 10% of the greater of
the benefit obligation and the fair value of plan assets is amortized
over the average remaining service period of active employees. The
average remaining service period of the active employees covered by the
plans ranges from 8 to 17 years.

INCOME TAXES

Future income tax assets and liabilities are recognized for the future
income tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Future income tax assets and liabilities are measured
using enacted or substantively enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. A valuation allowance is recorded against any future
income tax asset if it is more likely than not that the asset will not be
realized. Income tax expense is the sum of the Company's provision for current
income taxes and the difference between opening and ending balances of future
income tax assets and liabilities. The effect on future tax assets and
liabilities for change in tax rates is recognized in income in the period that
includes the enactment date.

REVENUE RECOGNITION

The Company's principal sources of revenue comprise advertising,
circulation and job printing. As a general principle, revenue is recognized when
the following criteria are met: (a) persuasive evidence of an arrangement
exists, (b) delivery has occurred and services have been rendered, (c) the price
to the buyer is fixed or determinable, and (d) collectibility is reasonably
assured or is probable. Advertising revenue, being amounts charged for space
purchased in the Company's newspapers, is recognized upon publication of the
advertisements. Circulation revenue from subscribers, billed to customers at the
beginning of a subscription period, is recognized on a straight-line basis over
the term of the related subscription. Deferred revenue represents subscription
receipts that have not been earned. Circulation revenue from single copy sales
is recognized at the time of distribution. In both cases, circulation revenue is
recorded net of fees or commissions paid to distributors and retailers and less
an allowance for returned copies. Job printing revenue, being charges for
printing services provided to third parties, is recognized upon delivery.

LOSS PER SHARE

Basic loss per share is computed by dividing the net loss by the weighted
average shares outstanding during the year. Diluted loss per share is computed
similar to the basic loss per share except that the weighted average shares
outstanding is increased to include additional shares from the assumed exercise
of stock options of Hollinger Inc., if dilutive and the net loss is increased to
reflect the impact of additional shares of Hollinger International being issued
from the exercise of its stock options and Series E preferred shares, if
dilutive. The number of additional shares is calculated by assuming that
outstanding stock options were exercised and that the proceeds from such
exercises were used by Hollinger International to acquire shares of common stock
of Hollinger International at the average market price during the year.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of consolidated financial statements requires the Company
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenue and expenses, and related disclosure of contingent assets
and liabilities. On an ongoing basis, the Company evaluates its estimates,
including those related to bad debts, investments, intangible assets, income
taxes, restructuring, pensions and other post-
F-14

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

retirement benefits, contingencies and litigation. The Company relies on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances in making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.

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

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

The Company holds minority interests in both publicly traded and not
publicly traded Internet-related companies. Some of the publicly traded
companies have highly volatile share prices. The Company records an investment
impairment charge when it believes an investment has experienced a decline in
value that is other than temporary. Future adverse changes in market conditions
or poor operating results of underlying investments may not be reflected in an
investment's current carrying value, thereby possibly requiring an impairment
charge in the future.

The Company has significant goodwill recorded in its accounts. Certain of
its newspapers operate in highly competitive markets. The Company is required to
determine annually whether or not there has been any impairment in the value of
these assets. Changes in long-term readership patterns and advertising
expenditures may affect the value and necessitate an impairment charge. Certain
indicators of potential impairment that could impact the Company's reporting
units include, but are not limited to, the following: a) a significant long-term
adverse change in the business climate that is expected to cause a substantial
decline in advertising spending, b) a permanent significant decline in a
reporting unit's newspaper readership, c) a significant adverse long-term
negative change in the demographics of a reporting unit's newspaper readership,
and d) a significant technological change that results in a substantially more
cost-effective method of advertising than newspapers.

The Company recognized a pension valuation allowance for any excess of the
prepaid benefit cost over the expected future benefit. Increases or decreases in
global capital markets and interest rate fluctuations could increase or decrease
any excess of the prepaid benefit cost over the expected future benefit
resulting in
F-15

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

an increase or decrease to the pension valuation allowance. Changes in the
pension valuation allowance are recognized in earnings immediately.

2. CHANGE IN ACCOUNTING POLICIES

a) Earnings per share

Effective January 1, 2001, the Company adopted, retroactively with
restatement, the recommendations of the CICA Section 3500 with respect
to earnings per share. Under the revised standard, the treasury stock
method is used instead of the imputed earnings approach for determining
the dilutive effect of options, issued warrants or other similar
instruments.

The change in the method of calculation of earnings per share did not
impact the previously reported basic earnings per share for 2000.
Diluted earnings per share for 2000 were increased from $4.49 per share
to $5.05 per share.

b) Income taxes

Effective January 1, 2000, the CICA changed the accounting standard
relating to the accounting for income taxes. The new standard adopted
the liability method of accounting for future income taxes. Prior to
January 1, 2000, income tax expense was determined using the deferral
method.

The Company adopted the new income tax accounting standard retroactively
on January 1, 2000, and did not restate the financial statements of any
prior periods. As a result, the Company has recorded an increase to
deficit of $291,004,000, an increase to the future tax liability of
$516,113,000 and a decrease to minority interest of $225,109,000 as at
January 1, 2000.

c) Goodwill and other intangible assets

Effective January 1, 2002, the Company adopted CICA Handbook Section
3062, "Goodwill and Other Intangible Assets" ("Section 3062") and
certain transitional provisions of CICA Handbook Section 1581, "Business
Combinations" ("Section 1581"). The new standards must be adopted
prospectively and require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead be tested
for impairment at least annually. The standards also specify criteria
that intangible assets must meet to be recognized and reported apart
from goodwill. The impact of this change in accounting policy is
discussed under "Goodwill and Other Intangible Assets" in note 1.

3. RESTRICTED CASH

Cash and cash equivalents at December 31, 2001 included US$7,500,000
($11,944,000) of restricted cash deposited with an escrow agent under the terms
of one of Hollinger International's forward share purchase contracts (note
24b)), which were terminated in 2002.

In addition, US$5,000,000 ($7,963,000) of cash was pledged as security at
December 31, 2001 for Hollinger International's US$5,000,000 Restated Credit
Facility (note 10f)) under which no amounts were permitted to be borrowed at
December 31, 2001. At December 31, 2002, restricted cash includes US$2,000,000
($3,160,000) deposited in connection with outstanding letters of credit.

4. ACQUISITIONS AND DISPOSITIONS

a) In January 2002, the Company sold 2,000,000 shares of Hollinger
International Class A common stock to third parties for total cash
proceeds of $38.6 million. This transaction, together with the
retraction of Series II preference shares of the Company for shares of
Hollinger International
F-16

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

Class A common stock (note 11a)), resulted in a pre-tax gain on the
effective sales of the Hollinger International shares of $20.1 million
(note 17).

b) In January 2001, Hollinger L.P. completed the sale of UniMedia Company
to Gesca Limited, a subsidiary of Power Corporation of Canada, for cash
consideration. The publications sold represented the French language
newspapers of Hollinger L.P., including three paid circulation dailies
and 15 weeklies published in Quebec and Ontario. A pre-tax gain of
approximately $75.1 million was recognized on this sale (note 17).

c) In two separate transactions in July and November 2001, the Company and
Hollinger L.P. completed the sale of most of its remaining Canadian
newspapers to Osprey Media Group Inc. ("Osprey") for total cash
proceeds of approximately $255.0 million plus closing adjustments
primarily for working capital. Included in these sales were community
newspapers in Ontario such as The Kingston Whig-Standard, The Sault
Star, the Peterborough Examiner, the Chatham Daily News and The
Observer (Sarnia). Pre-tax gains of approximately $1.5 million were
recognized on these sales (note 17). The former Chief Executive Officer
of Hollinger L.P. is a minority shareholder of Osprey. Hollinger
International's independent directors have approved the terms of these
transactions.

In connection with the two sales of Canadian newspaper properties to
Osprey in 2001, to satisfy a closing condition, the Company, Hollinger
International, Lord Black of Crossharbour, PC(C), OC, KCSG and three
senior executives entered into non-competition agreements with Osprey
pursuant to which each agreed not to compete directly or indirectly in
Canada with the Canadian businesses sold to Osprey for a five-year
period, subject to certain limited exceptions, for aggregate
consideration of $7.9 million. Such consideration was paid to Lord Black
and the three senior executives and has been approved by Hollinger
International's independent directors.

d) In August 2001, the Company entered into an agreement to sell to
CanWest Global Communications Corp. ("CanWest") its 50% interest in the
National Post. In accordance with the agreement, the Company's
representatives resigned from their executive positions at the National
Post effective September 1, 2001. Accordingly, from September 1, 2001,
the Company had no influence over the operations of the National Post
and the Company no longer consolidated or recorded on an equity basis
its share of earnings or losses. The results of operations of the
National Post are included in the consolidated results to August 31,
2001. A pre-tax loss of approximately $120.7 million was recognized on
the sale and is included in unusual items (note 17).

e) During 2001, Hollinger International converted all of its Series C
Preferred Stock which was held by the Company, at the conversion ratio
of 8.503 shares of Hollinger International Class A common stock per
share of Series C Preferred Stock into 7,052,464 shares of Hollinger
International Class A common stock. The 7,052,464 shares of Class A
common stock of Hollinger International were subsequently purchased for
cancellation by Hollinger International for a total of US$92.2 million
($143.8 million). The purchase price per share was 98% of the closing
price of the shares of Hollinger International Class A common stock and
was approved by Hollinger International's independent directors. The
Company used the proceeds to reduce its bank indebtedness by $142.0
million (note 9).

On September 27, 2001, Hollinger International redeemed 40,920 shares of
its Series E preferred stock held by the Company at their stated
redemption price of $146.63 per share for a total cash payment of $6.0
million.

F-17

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

In December 2001, the Company sold 2,000,000 shares of Hollinger
International Class A common stock to third parties for total cash
proceeds of $31.4 million and reduced its bank indebtedness by the same
amount (note 9).

The above transactions, together with the retraction of retractable
common shares of the Company in exchange for shares of Hollinger
International Class A common stock (note 13d)) and the retraction of
Series II preference shares of the Company for shares of Class A common
stock of Hollinger International (note 11a)), resulted in a total
pre-tax gain on the effective sales of the Hollinger International
shares of $59.4 million (note 17).

f) During 2001, Hollinger International transferred two publications to
Horizon Publications Inc. in exchange for net working capital. Horizon
Publications Inc. is managed by former Community Group executives and
controlled by certain members of the Board of Directors of Hollinger
International. The terms of these transactions were approved by the
independent directors of Hollinger International.

g) On November 16, 2000, Hollinger International and its affiliates,
Southam and Hollinger L.P. ("Hollinger Group") completed the sale of
most of its Canadian newspapers and related assets to CanWest. Included
in the sale were the following assets of the Hollinger Group:

- a 50% interest in National Post, with Hollinger International
continuing as managing partner;

- the operating Canadian Internet properties, including canada.com.

The sale resulted in the Hollinger Group receiving approximately $1.7
billion cash, approximately $425 million in voting and non-voting shares
of CanWest at fair value, and subordinated non-convertible debentures of
a holding company in the CanWest group with a fair value of
approximately $697 million. The aggregate sale price of these properties
at fair value was approximately $2.8 billion, plus closing adjustments
for working capital at August 31, 2000 and cash flow and interest for
the period September 1 to November 16, 2000 which in total was estimated
as an additional $63 million at December 31, 2000. The cash proceeds
were used to pay down outstanding debt on Hollinger International's Bank
Credit Facility (note 10). The sale resulted in a pre-tax gain of
approximately $566.0 million in 2000 which was included in unusual items
(note 17).

In 2001, certain of the closing adjustments were finalized, resulting in
an additional pre-tax gain in 2001 of approximately $29.1 million which
is included in unusual items (note 17). At December 31, 2002,
approximately $60.7 million (2001 -- $57.3 million) in respect of
closing adjustments remained due to the Company and is included in
accounts receivable. Certain closing adjustments have not yet been
finalized. Amounts due bear interest at a rate of approximately 9%. The
amount outstanding is subject to negotiation between CanWest and the
Company. Adjustments to the balance due, if any, resulting from further
negotiations will be recorded as an unusual item.

In connection with the sale to CanWest, The Ravelston Corporation
Limited ("Ravelston"), a holding company controlled by Lord Black,
entered into a management services agreement with CanWest and National
Post pursuant to which it agreed to continue to provide management
services to the Canadian businesses sold to CanWest in consideration for
an annual fee of $6 million payable by CanWest. In addition, CanWest
will be obligated to pay Ravelston a termination fee of $45 million, in
the event that CanWest chooses to terminate the management services
agreement or
F-18

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

$22.5 million, in the event that Ravelston chooses to terminate the
agreement (which cannot occur before December 31, 2002). Also, as
required by CanWest as a condition to the transaction, the Company,
Ravelston, Hollinger International, Lord Black and three senior
executives entered into non-competition agreements with CanWest pursuant
to which each agreed not to compete directly or indirectly in Canada
with the Canadian businesses sold to CanWest for a five-year period,
subject to certain limited exceptions, for aggregate consideration of
$80 million paid by CanWest in addition to the purchase price referred
to above, of which $38 million was paid to Ravelston and $42 million was
paid to Lord Black and the three senior executives. The independent
directors of Hollinger International have approved the terms of these
payments.

h) On November 1, 2000, Southam converted the convertible promissory note
in Hollinger L.P. in the principal amount of $225,753,000 into
22,575,324 limited partnership units of Hollinger L.P., thereby
increasing Hollinger International's interest in Hollinger L.P. to
87.0%.

i) During 2000, Hollinger International sold most of its remaining U.S.
community newspaper properties, including 11 paid dailies, three paid
non-dailies and 31 free distribution publications for total proceeds
of approximately US$215,000,000 ($325,166,000). Pre-tax gains
totalling $75,114,000 were recognized on these sales and were included
in unusual items in 2000 (note 17).

In connection with the sales of United States newspaper properties in
2000, to satisfy a closing condition, Hollinger International, Lord Black
and three senior executives entered into non-competition agreements with
the purchasers pursuant to which each agreed not to compete directly or
indirectly in the United States with the United States businesses sold to
the purchasers for a fixed period, subject to certain limited exceptions,
for aggregate consideration paid in 2001 of US$600,000 ($917,000). These
amounts were in addition to the aggregate consideration paid in respect
of these non-competition agreements in 2000 of US$15.0 million ($22.5
million). All such amounts were paid to Lord Black and the three senior
executives. The independent directors of Hollinger International have
approved the terms of these payments.

j) Included in the dispositions during 2000 described in note 4i),
Hollinger International sold four U.S. community newspapers for an
aggregate consideration of US$38.0 million ($56.5 million) to Bradford
Publishing Company, a Company formed by a former U.S. Community Group
executive and in which some of Hollinger International's directors are
shareholders. The terms of this transaction were approved by the
independent directors of Hollinger International.

k) On February 17, 2000, Interactive Investor International, in which
Hollinger International owned 51.7 million shares or a 47% equity
interest, completed its initial public offering ("IPO") issuing 52
million shares and raising L78,000,000 ($181,000,000). The IPO reduced
Hollinger International's equity ownership to 33% and resulted in a
dilution gain of $25,775,000 for accounting purposes. Subsequently,
Hollinger International sold five million shares of its holding,
reducing its equity interest to 28.5% and resulting in a pre-tax gain
in 2000 of $2,400,000. Both the dilution gain and gain on sale were
included in unusual items in 2000 (note 17). The balance of the
investment was sold in 2001 resulting in an additional pre-tax gain in
2001 of $14.7 million (note 17).

l) In December 2000, Hollinger International acquired four paid daily
newspapers, one paid non-daily and 12 free distribution publications
in the Chicago suburbs for total cash consideration of US$111,000,000
($166,744,000). Of the aggregate purchase price, $78,781,000 was
ascribed to circulation and $48,244,000 to goodwill.

All of the Company's acquisitions have been accounted for using the
purchase method with the results of operations included in these
consolidated financial statements from the dates of acquisition.
F-19

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

The details of the acquisitions including those detailed above are as
follows:

<Table>
<Caption>
2000 2001 2002
-------- ---- ----

Assets acquired, at fair value
Current assets............................................ $ 19,444 $-- $--
Fixed assets.............................................. 51,724 -- --
Circulation............................................... 78,781 -- --
Goodwill and other assets................................. 57,418 -- --
-------- -- --
207,367 -- --
-------- -- --
Less liabilities assumed
Current liabilities....................................... 16,269 -- --
Long-term liabilities..................................... 15,722 -- --
-------- -- --
31,991 -- --
-------- -- --
Net cost of investments..................................... $175,376 $-- $--
======== == ==
</Table>

5. INVESTMENTS

<Table>
<Caption>
2001 2002
-------- --------

ASSOCIATED COMPANIES, AT EQUITY
The Company
Cayman Free Press Ltd. -- 40% interest................. $ 11,245 $ 11,314
Telegraph
Trafford Park Printers Limited ("Trafford Park"), West
Ferry Printers Limited ("West Ferry"), Paper Purchase
Management Limited ("PPM") and handbag.com Limited
(handbag) joint ventures -- 50% interests............ 29,110 27,763
Internet-related investments.............................. 8,205 8,012
Other..................................................... 1,490 1,886
-------- --------
50,050 48,975
-------- --------
MARKETABLE INVESTMENTS, AT COST
CanWest debentures a)..................................... 72,259 85,664
Internet-related investments.............................. 6,680 5,812
-------- --------
78,939 91,476
-------- --------
OTHER NON-MARKETABLE INVESTMENTS, AT COST
Internet and telephony-related investments................ 78,272 36,282
Other..................................................... 52,174 33,412
-------- --------
130,446 69,694
-------- --------
$259,435 $210,145
======== ========
</Table>

a) The CanWest debentures were issued by a wholly owned subsidiary of
CanWest and are guaranteed by CanWest. The debentures were received on
November 16, 2000 as partial consideration for the operations sold to
CanWest. Interest on the CanWest debentures is calculated, compounded
and payable semi-annually in arrears at a rate of 12.125% per annum. At
any time prior to November 5, 2005, CanWest may elect to pay interest
on the debentures by way of non-voting shares of CanWest, debentures in
substantially the same form as the CanWest debentures, or cash.
Subsequent to November 5, 2005, interest is to be paid in cash. The
debentures are due November 15, 2010, but

F-20

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

are redeemable at any time prior to May 15, 2003 for cash at CanWest's
option at 100% of the principal amount.

CanWest debentures at December 31, 2002 had a principal face amount of
$93.0 million (2001 -- $77.2 million), including $15.8 million of
additional debentures received in 2002 (2001 -- $67.1 million) in
payment of the interest due on existing debentures held by the Company,
a portion of which related to 2001. These debentures have been recorded
at their fair value at the time they are received.

As part of Hollinger International's November 16, 2000 purchase and sale
agreement with CanWest, Hollinger International was prohibited from
selling CanWest debentures prior to May 15, 2003. In order to monetize
the debentures, Hollinger International entered into a participation
agreement in August 2001 pursuant to which it sold participation
interests in $540.0 million (US$350.0 million) principal amount of
CanWest debentures to a special purpose trust (the "Participation
Trust") administered by an arm's-length trustee. That sale of
participation interests was supplemented by a further sale of $216.8
million (US$140.5 million) in December 2001 for a total of $756.8
million (US$490.5 million). Both sales were conducted at a fixed rate of
exchange of US$0.6482 for each $1. Hollinger International remains the
record owner of the participated CanWest debentures and is required to
make payments to the Participation Trust with respect to those
debentures if and to the extent it receives payment in cash or in kind
on the debentures from CanWest. These payments are not reflected in the
Company's accounts.

Coincident with the Participation Trust's purchase of the participation
interests, the Participation Trust sold senior notes to arm's-length
third parties to finance the purchase of the participation interests.
These transactions resulted in net proceeds to Hollinger International
of $621.8 million and for accounting purposes have been accounted for as
sales of CanWest debentures. The net loss on the 2001 transactions,
including realized holding losses on the debentures, amounted to $97.4
million and has been included in unusual items (note 17). Hollinger
International believes that the participation arrangement does not
constitute a prohibited sale of debentures as legal title was not
transferred. CanWest has advised Hollinger International that it accepts
that position.

Hollinger International has not retained an interest in the
Participation Trust nor does it have any beneficial interest in the
assets of the Participation Trust. The Participation Trust and its
investors have no recourse to Hollinger International's other assets in
the event that CanWest defaults on its debentures. Under the terms of
the Participation Trust, the interest payments received by Hollinger
International in respect of the underlying CanWest debentures will be
paid to the Participation Trust. However, after May 15, 2003, Hollinger
International may be required to deliver to the Participation Trust
CanWest debentures with a face value equivalent to US$490.5 million
based on then current rates of exchange. The CanWest debentures are
denominated in Canadian dollars and, consequently, there is a currency
exposure on the debentures subject to the delivery provision. A
substantial portion of that exposure was previously hedged; however, the
hedge instrument (a forward foreign exchange contract) was terminated in
contemplation of and in conjunction with Publishing's placement of
Senior Notes (note 10a)) and amendment of Publishing's Senior Credit
Facilities (note 10b)). During 2001 and 2002, the net loss before tax,
realized on the mark to market of both the obligation to the
Participation Trust and the related hedge contract was $0.7 million and
$10.4 million, respectively, and has been included in net foreign
currency losses in the consolidated statement of earnings. In 2002, the
loss before tax is net of cash received on the termination of the hedge
of $9.9 million.

F-21

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

Pursuant to the terms of the Participation Trust, the Company is unable
to sell to an unaffiliated third party until at least November 4, 2010
the equivalent of US$50.0 million ($79.0 million at December 31, 2002)
principal amount of CanWest debentures.

b) CanWest shares at December 31, 2000 consisted of 2,700,000 multiple
voting preferred shares and 27,000,000 non-voting shares. The
non-voting shares were publicly traded and the multiple voting shares
were not publicly traded but were convertible into non-voting shares at
the rate of 0.15 non-voting share for each voting preferred share or a
total additional 405,000 non-voting shares. The non-voting shares and
voting preferred shares represented an approximate 15.6% equity
interest and 5.7% voting interest in CanWest. On November 28, 2001,
Hollinger International sold the 2,700,000 multiple voting preferred
shares and 27,000,000 non-voting shares in CanWest for total cash
proceeds of approximately $271.3 million. The sale resulted in a
realized pre-tax loss of $157.5 million which is included in unusual
items (note 17).

6. CAPITAL ASSETS

<Table>
<Caption>
2001 2002
---------- ----------

COST
Land...................................................... $ 54,878 $ 52,050
Buildings and leasehold interests......................... 326,449 340,886
Machinery and equipment................................... 803,345 848,576
---------- ----------
1,184,672 1,241,512
---------- ----------
ACCUMULATED DEPRECIATION AND AMORTIZATION
Buildings and leasehold interests......................... 58,680 66,373
Machinery and equipment................................... 459,491 514,638
---------- ----------
518,171 581,011
---------- ----------
NET BOOK VALUE.............................................. $ 666,501 $ 660,501
========== ==========
OWNED ASSETS
Cost...................................................... $ 898,007 $ 887,484
Accumulated depreciation and amortization................. 330,240 352,956
---------- ----------
Net book value............................................ $ 567,767 $ 534,528
========== ==========
LEASED ASSETS
Cost...................................................... $ 286,665 $ 354,028
Accumulated depreciation and amortization................. 187,931 228,055
---------- ----------
Net book value............................................ $ 98,734 $ 125,973
========== ==========
</Table>

Depreciation and amortization of capital assets totalled $116,760,000,
$78,450,000 and $74,352,000 in 2000, 2001 and 2002, respectively. Hollinger
International capitalized interest in 2000, 2001 and 2002 amounting to
$4,653,000, $129,000 and nil, respectively, related to the construction and
equipping of production facilities for its newspapers in Chicago.

7. GOODWILL AND OTHER INTANGIBLE ASSETS

As described in note 1 to the consolidated financial statements, the
Company adopted Section 3062 and certain transitional provisions of Section 1581
effective January 1, 2002.

F-22

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

The changes in the carrying amount of goodwill by reportable segment for
the year ended December 31, 2002 are as follows:

<Table>
<Caption>
U.K. CANADIAN
CHICAGO COMMUNITY NEWSPAPER NEWSPAPER CONSOLIDATED
GROUP GROUP GROUP GROUP TOTAL
-------- --------- --------- ---------- ------------

Balance as at January 1,
2002........................ $234,320 $31,975 $569,013 $70,333 $905,641
Transitional impairment loss
-- Jerusalem Post (note
1).......................... -- (31,975) -- -- (31,975)
-------- ------- -------- ------- --------
Revised balance as at January
1, 2002..................... 234,320 -- 569,013 70,333 873,666
Adjustment of excess
acquisition reserves........ (19,477) -- -- -- (19,477)
Repurchase of shares of
Hollinger International
Class A common stock by
Hollinger International
(note 24b))................. 3,344 -- 8,240 -- 11,584
Foreign exchange and other.... (1,534) -- 48,809 279 47,554
-------- ------- -------- ------- --------
Balance as at December 31,
2002........................ $216,653 $ -- $626,062 $70,612 $913,327
======== ======= ======== ======= ========
</Table>

Upon adoption of Section 3062, intangible assets totalling $978,569,000,
which were previously ascribed to circulation, net of $247,252,000 of deferred
taxes, were reclassified to goodwill. Intangible assets with a total net book
value at January 1, 2002 of $198,975,000 previously ascribed to circulation,
consisting of non-competition agreements of $12,195,000 net of accumulated
amortization of $8,360,000 and subscriber and advertiser relationships of
$186,780,000 net of accumulated amortization of $35,261,000 were recognized as
identifiable intangible assets apart from goodwill upon adoption of Section
3062.

The Company's amortizable other intangible assets consist of
non-competition agreements with former owners of acquired newspapers which are
amortized using the straight-line method over the term of the respective
non-competition agreements which range from three to five years, and subscribers
and advertiser relationships which are amortized using the straight-line method
over 30 years. The components of other amortizable intangible assets at December
31, 2002 are as follows:

<Table>
<Caption>
GROSS
CARRYING ACCUMULATED NET BOOK
AMOUNT AMORTIZATION VALUE
-------- ------------ --------

Amortizable other intangible assets:
Non-competition agreements........................ $ 22,120 $15,049 $ 7,071
Subscriber and advertiser relationships........... 220,485 42,413 178,072
-------- ------- --------
$242,605 $57,462 $185,143
======== ======= ========
</Table>

Amortization of non-competition agreements for the year ended December 31,
2002 was $6,689,000. Amortization of advertiser and subscriber relationships for
the year ended December 31, 2002 was $7,152,000. Future amortization of
amortizable intangible assets is as follows: 2003 -- $13,895,000, 2004 --
$7,483,000, 2005 -- $7,235,000, 2006 -- $7,195,300, and 2007 -- $7,195,000.

Amortization of goodwill and other intangible assets in total for the year
ended December 31, 2001 was $66,266,000 (2000 -- $103,172,000).

F-23

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

8. DEFERRED FINANCING COSTS AND OTHER ASSETS

<Table>
<Caption>
2001 2002
-------- --------

Deferred pension asset (note 22)............................ $ 83,459 $123,230
Deferred finance costs, net of amortization of $38,494,000
(2001 -- $36,512,000)..................................... 52,484 52,759
Deferred foreign exchange loss on exchangeable shares....... 1,446 1,234
Other assets................................................ 17,154 16,314
-------- --------
$154,543 $193,537
======== ========
</Table>

Amortization of deferred finance costs, included in other interest expense,
totalled $18,504,000, $18,648,000 and $11,347,000 in 2000, 2001 and 2002,
respectively.

9. BANK INDEBTEDNESS

<Table>
<Caption>
2001 2002
-------- -------

The Company................................................. $129,475 $90,810
======== =======
</Table>

At December 31, 2002, the Company has a bank operating line which provides
for up to $10.0 million of borrowings and a revolving bank credit facility which
provides for up to $80.8 million of borrowings. The Company's revolving bank
credit facility is secured by shares of Hollinger International Class A and
Class B common stock owned by the Company and bears interest at the prime rate
plus 2.5% or the banker's acceptance ('BA') rate plus 3.5%. Under the terms of
the revolving bank credit facility, the Company and its subsidiaries are subject
to restrictions on the incurrence of additional debt.

The revolving bank credit facility was amended and restated on August 30,
2002 and was to mature on December 2, 2002. A mandatory repayment of the
revolving bank credit facility in the amount of $50.0 million was required by
December 2, 2002 and if such payment was made, the lenders could have consented
to an extension of the maturity date to December 2, 2003 in respect of the
principal outstanding. On December 2, 2002, the lenders extended the $50.0
million principal repayment date to December 9, 2002. This repayment was not
made and on December 9, 2002, the bank credit facility was amended to require a
principal payment of $44.0 million on February 28, 2003 with the balance
maturing on December 2, 2003. As a result of the impending closing of the
Company's Senior Secured Note issue, the lenders further extended the due date
for the repayment of the $44.0 million to March 14, 2003. On March 10, 2003, the
revolving bank credit facility in the amount of $80.8 million and the bank
operating line of $10.0 million were repaid with part of the proceeds of the
Company's issue of Senior Secured Notes (note 29a)).

On October 3, 2002, Hollinger International entered into a term lending
facility and borrowed US$50.0 million ($79.6 million). As a result of Hollinger
International's borrowing under this term facility, the Company was in default
of a covenant under its revolving bank credit facility which, while in default,
resulted in the Company's borrowings being due on demand. The banks waived the
default and on December 23, 2002, Hollinger International repaid the full amount
borrowed under its term lending facility (note 10d)).

During 2001, the Company reduced its bank indebtedness by $142,000,000 with
proceeds from the sale, to Hollinger International for cancellation, of
7,052,464 million of its shares of Class A common stock (note 4e)). In December
2001, the Company sold 2,000,000 shares of Hollinger International Class A
common stock to third parties for total cash proceeds of $31,400,000 (note 4e))
and reduced bank indebtedness by the same amount. During January 2002, the
Company sold a further 2,000,000 shares of

F-24

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

Class A common stock of Hollinger International and reduced bank indebtedness by
an additional $38,600,000 (note 4a)).

10. LONG-TERM DEBT

<Table>
<Caption>
2001 2002
---------- ----------

Hollinger International
Senior Notes due 2010 (US$300,000,000).................... $ -- $ 474,000
Senior Credit Facility (US$265,000,000)................... -- 418,698
Senior Notes due 2005 (US$5,082,000) (2001 --
US$260,000,000)........................................ 414,050 8,030
Senior Subordinated Notes due 2006 (US$239,900,000) (2001
-- US$250,000,000)..................................... 398,125 379,051
Senior Subordinated Notes due 2007 (US$265,000,000) (2001
-- US$290,000,000)..................................... 461,825 418,700
Other..................................................... 16,933 5,103
Other....................................................... 15,346 20,152
Obligations under capital leases
Printing joint ventures................................... 37,914 60,096
Other..................................................... 7,433 5,491
---------- ----------
1,351,626 1,789,321
Less:
Current portion included in current liabilities........... 10,020 16,800
Senior Subordinated Notes (note 10a))..................... -- 797,751
---------- ----------
$1,341,606 $ 974,770
========== ==========
</Table>

a) On December 23, 2002, Publishing issued US$300,000,000 of 9% Senior
Notes due 2010 guaranteed by Hollinger International. Net proceeds of
the issue of US$291,700,000 plus cash on hand and borrowings under
Publishing's Senior Credit Facility (note 10b)) were used in December
2002 to retire Hollinger International's equity forward share purchase
contracts (Total Return Equity Swaps (note 24b)) and to repay amounts
borrowed under its term facility maturing December 31, 2003 (note 10d))
and in January 2003 to retire, in their entirety, Publishing's
outstanding Senior Subordinated Notes due 2006 and 2007 with the
balance available for general corporate purposes.

The Senior Notes bear interest at 9% payable semi-annually and mature on
December 15, 2010. The Senior Notes are redeemable at the option of
Publishing anytime after December 15, 2006 at 104.5% of the principal
amount, after December 15, 2007 at 102.25% of the principal amount and
after December 15, 2008 at 100% of the principal amount.

On December 23, 2002, Publishing gave notice of redemption to both the
holders of the Senior Subordinated Notes due 2006 with a principal
remaining outstanding of US$239.9 million and to the holders of the
Senior Subordinated Notes due 2007 with a principal remaining
outstanding of US$265.0 million. Such notes were retired in January 2003
with a payment of $859.1 million (US$543.8 million), including early
redemption premiums and accrued interest. At December 31, 2002, the
notes remained outstanding and have been disclosed as a current
liability. The proceeds from the December 2002 issue of Publishing's
Senior Notes and borrowings under the Senior Credit Facility used to
fund the redemption were held in escrow at December 31, 2002 and have
been disclosed as escrow deposits in current assets.

F-25

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

Unamortized deferred financing costs in the amount of $28.0 million and
the $31.1 million premium related to the retirement of the Senior
Subordinated Notes will be charged to earnings in 2003 on extinguishment
of the notes.

The Indentures relating to the 9% Senior Notes contain financial
covenants and negative covenants that limit Publishing's ability to,
among other things, incur indebtedness, pay dividends or make other
distributions on its capital stock, enter into transactions with related
companies, and sell assets, including stock of a restricted subsidiary.
The Indentures provide that upon a change of control (as defined in the
Indentures), each noteholder has the right to require Publishing to
purchase all or any portion of such noteholder's notes at a cash
purchase price equal to 101% of the principal amount of such notes, plus
accrued and unpaid interest. The Senior Credit Facility (note 10b))
restricts Publishing's ability to repurchase these notes even when
Publishing may be required to do so under the terms of the Indenture
relating to the 9% Senior Notes in connection with a change of control.

On January 22, 2003 and February 6, 2003, Publishing entered into
interest rate swaps to convert US$150.0 million and US$100.0 million,
respectively, of the 9% Senior Notes issued in December 2002 to floating
rates for the period to December 15, 2010, subject to early termination
notice.

The Trust Indenture in respect of the 9% Senior Notes contains customary
covenants and events of default, which are comparable to those under the
Senior Credit Facility.

b) On December 23, 2002, Publishing and certain of its subsidiaries
entered into a senior credit facility with an aggregate commitment of
US$310,000,000 (the "Senior Credit Facility").

The Senior Credit Facility consists of i) US$45,000,000 revolving credit
facility which matures on September 30, 2008 (the "Revolving Credit
Facility"), ii) a US$45,000,000 Term Loan A which matures on September
30, 2008 ("Term Loan A") and iii) a US$220,000,000 Term Loan B which
matures on September 30, 2009 ('Term Loan B'). Publishing and Telegraph
are the borrowers under the Revolving Credit Facility and First DT
Holdings Ltd. ("FDTH"), a wholly owned indirect U.K. subsidiary) is the
borrower under Term Loan A and Term Loan B. The Revolving Credit
Facility and Term Loans bear interest at either the Base Rate (U.S.) or
U.S. LIBOR, plus an applicable margin. Interest is payable quarterly.

At December 31, 2002, FDTH had a total US$265,000,000 of borrowings
outstanding under Term Loan A and Term Loan B.

On December 27, 2002, a United Kingdom subsidiary of the Company entered
into two cross-currency rate swap transactions to hedge principal and
interest payments on U.S. dollar borrowings under the December 23, 2002
Senior Credit Facility. The contracts have a total foreign currency
obligation notional value of US$265.0 million, fixed at a rate of
US$1.5922 to L1, convert the interest rate on such borrowing from
floating to fixed, and expire as to US$45.0 million on December 29, 2008
and as to US$220.0 million on December 29, 2009.

Publishing's borrowings under the Senior Credit Facility are guaranteed
by Publishing's material U.S. subsidiaries, while FDTH's and Telegraph's
borrowings under the Senior Credit Facility are guaranteed by Publishing
and its material U.S. and U.K. subsidiaries. Hollinger International is
also a guarantor of the Senior Credit Facility. Publishing's borrowings
under the Senior Credit Facility are secured by substantially all of the
assets of Publishing and its material U.S. subsidiaries, a pledge of all
of the capital stock of Publishing and its material U.S. subsidiaries
and a pledge of 65% of the capital stock of certain foreign
subsidiaries. FDTH's and Telegraph's borrowings under the Senior Credit
Facility are secured by substantially all of the assets of Publishing
and its material U.S. and U.K. subsidiaries and a pledge of all of the
capital stock of Publishing and its material U.S. and

F-26

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

U.K. subsidiaries. Hollinger International's assets in Canada have not
been pledged as security under the Senior Credit Facility.

The Senior Credit Facility agreement requires Publishing to comply with
certain covenants which include, without limitation and subject to
certain exceptions, restrictions on additional indebtedness; liens,
certain types of payments (including without limitation, capital stock
dividends and redemptions, payments on existing indebtedness and
intercompany indebtedness), and on incurring or guaranteeing debt of an
affiliate, making certain investments and paying management fees;
mergers, consolidations, sales and acquisitions; transactions with
affiliates; conduct of business except as permitted; sale and leaseback
transactions; changing fiscal year; changes to holding company status;
creating or allowing restrictions on taking action under the Senior
Credit Facility loan documentation; and entering into operating leases,
subject to certain basket calculations and exceptions. The Senior Credit
Facility loan agreement also contains customary events of default.

As of December 31, 2002, Hollinger International's aggregate annual
rental payments under operating leases exceeded the amounts permitted
under the covenants to the Senior Credit Facility. Hollinger
International has been advised by the Administrative Agent of the Senior
Credit Facility that the lenders have agreed to amend the Senior Credit
Facility effective March 28, 2003, to increase the amount permitted
under the operating lease covenant and have agreed to a waiver of any
default or event of default in connection therewith. Based on the
amended covenant, Hollinger International would have been in compliance
as of December 31, 2002.

c) On February 14, 2002, Publishing commenced a cash tender offer for any
and all of its outstanding 8.625% Senior Notes due 2005. The tender
offer was made upon the terms and conditions set forth in the Offer to
Purchase and Consent Solicitation Statement dated February 14, 2002.
Under the terms of the offer, Hollinger International offered to
purchase the outstanding notes at a price to be determined three
business days prior to the expiration date of the tender offer by
reference to a fixed spread of 87.5 basis points over the yield to
maturity of the 7.50% U.S. Treasury Notes due February 15, 2005, plus
accrued and unpaid interest up to, but not including the day of payment
for the notes. The purchase price totalled US$1,101.34 for each
US$1,000 principal amount of notes. Included in the purchase price was
a consent payment equal to US$40 per US$1,000 principal amount of the
notes, payable to those holders who validly consented to the proposed
amendments to the indenture governing the notes. In connection with the
tender offer, Publishing solicited consents from the holders of the
notes to amend the Indenture governing the notes by eliminating most of
the restrictive provisions. On March 15, 2002, $397.2 million (US$248.9
million) in the aggregate principal amount had been validly tendered
pursuant to the offer and on March 18, 2002, these noteholders were
paid out in full. In addition, during the year, Publishing purchased
for retirement an additional $9.6 million (US$6.0 million) in aggregate
principal amount of the 8.625% Senior Notes due 2005.

During 2002, Publishing purchased for retirement $16.1 million (US$10.1
million) in aggregate principal amount of the 9.25% Senior Subordinated
Notes due 2006 and $39.9 million (US$25.0 million) in the aggregate
principal amount of its 9.25% Senior Subordinated Notes due 2007.

The total principal amount of the above Publishing Senior and Senior
Subordinated Notes retired during 2002 was $462.8 million (US$290.0
million). The premiums paid to retire the debt totalled $43.0 million
which, together with a write-off of $13.3 million of related deferred
financing costs, have been presented as an unusual item (note 17).

F-27

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

As at December 31, 2001, Hollinger International did not meet a
financial test set out in the Trust Indentures for Publishing's Senior
Notes due 2005 and Senior Subordinated Notes. As a result, Publishing
and its subsidiaries were unable to incur additional indebtedness, make
restricted investments, make advances, pay dividends or make other
distributions on their capital stock.

d) In October 2002, Hollinger International borrowed on an unsecured basis
$79,600,000 (US$50,000,000) at 10.5% under a term facility maturing
December 31, 2003. Proceeds from Publishing's aforementioned Senior
Credit Facility and the issue of 9% Senior Notes were used, in part, to
repay these borrowings in December 2002.

e) Amounts borrowed under a former short-term credit facility of
$191,100,000 (US$120,000,000) entered into by Hollinger International
in 2001 were repaid during that year.

f) In June 2000, Publishing, HCPH, Telegraph, Southam, HIF Corp., a wholly
owned subsidiary of Publishing, and a group of financial institutions
increased the term loan component of the Fourth Amended and Restated
Credit Facility ("Restated Credit Facility") by US$100,000,000 to
US$975,000,000. On November 16, 2000, using the proceeds from the
CanWest transaction (note 4(g)) US$972,000,000 of borrowings were
repaid and the Restated Credit Facility was reduced to US$5,000,000.
The Restated Credit Facility was secured by the collateralization of
US$5,000,000 of Hollinger International's positive cash balance (note
3). At December 31, 2001, no amounts were owing under the Restated
Credit Facility. During 2002, the Restated Credit Facility was
terminated.

g) Principal amounts payable on long-term debt, excluding obligations
under capital leases, for each of the five years subsequent to December
31, 2002 are as follows:

<Table>

2003 (including the extinguishment of Senior Subordinated
Notes).................................................... $802,637
2004........................................................ $ 20,268
2005........................................................ $ 27,776
2006........................................................ $ 22,109
2007........................................................ $ 23,103
Subsequent.................................................. $827,841
</Table>

h) Minimum lease commitments, together with the present value of
obligations under capital leases, are as follows:

<Table>

2003........................................................ $ 15,044
2004........................................................ 12,245
2005........................................................ 9,454
2006........................................................ 9,084
2007........................................................ 6,379
Subsequent.................................................. 28,913
--------
Total future minimum lease payments......................... 81,119
Less imputed interest and executory costs................... (15,532)
--------
Present value of minimum lease payments discounted at an
average rate of 6.9%...................................... 65,587
Less current portion included in current liabilities........ (11,914)
--------
$ 53,673
========
</Table>

F-28

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

11. RETRACTABLE PREFERENCE SHARES

<Table>
<Caption>
2001 2002
-------- --------

4,580,979 Series II preference shares (2001 -- 5,366,979)... $ 46,000 $ 33,827
10,147,225 Series III preference shares 2001 --
10,147,225)............................................... 101,472 101,472
-------- --------
$147,472 $135,299
======== ========
</Table>

<Table>
<Caption>
HCPH
SPECIAL
SERIES II SERIES III SHARES TOTAL
--------- ---------- -------- ---------

Balance, January 1, 2000.................. $129,168 $104,622 $ 51,421 $ 285,211
Redeemed/retracted........................ (69,502) (3,150) (54,482) (127,134)
Accretion................................. -- -- 3,061 3,061
Unrealized loss........................... 28,815 -- -- 28,815
-------- -------- -------- ---------
Balance, January 1, 2001.................. 88,481 101,472 -- 189,953
Redeemed/retracted........................ (27,135) -- -- (27,135)
Unrealized gain........................... (15,346) -- -- (15,346)
-------- -------- -------- ---------
Balance, December 31, 2001................ 46,000 101,472 -- 147,472
Redeemed/retracted........................ (7,860) -- -- (7,860)
Unrealized gain........................... (4,313) -- -- (4,313)
-------- -------- -------- ---------
Balance, December 31, 2002................ $ 33,827 $101,472 $ -- $ 135,299
======== ======== ======== =========
</Table>

a) The Series II preference shares are exchangeable non-voting preference
shares issued at $10.00 per share. On May 12, 1999, the Series II
preference shares became redeemable at the holder's option for 0.46 of
a share of Class A common stock of Hollinger International for each
Series II preference share. The Company has the option to make a cash
payment of equivalent value on the redemption of any of the Series II
preference shares. Each Series II preference share entitles the holder
to a dividend equal to the amount of any dividend on 0.46 of a share of
Class A common stock of Hollinger International (less any U.S.
withholding tax thereon payable by the Company or any subsidiary). In
2002, these retractable preference shares are included in current
liabilities since they are retractable at any time at the option of the
holder.

During 2002, 750,000 Series II preference shares were retracted in
exchange for 345,000 shares of Hollinger International Class A common
stock which, together with the Hollinger International share sale
described in note 4a), resulted in a gain on effective sale of Hollinger
International shares of $20,103,000 (note 17). In addition, 36,000
Series II preference shares were retracted for the cash equivalent value
of 0.46 of a Class A common share of Hollinger International at the time
of retraction, which totalled $277,000.

During 2001, 2,685,465 Series II preference shares were retracted in
exchange for 1,235,312 of shares of Hollinger International Class A
common stock which, together with the retraction of retractable common
shares in exchange for shares of Hollinger International Class A common
stock (note 13d)) and Hollinger International share redemptions and
sales described in note 4e), resulted in a gain on effective sale of
Hollinger International shares of $59,449,000 (note 17). In addition,
28,038 Series II preference shares were retracted for the cash
equivalent value of 0.46 of a share of Class A common stock of Hollinger
International at the time of retraction, which totalled $317,000.

During 2000, a total of 6,710,817 Series II preference shares were
retracted in exchange for 3,086,971 shares of Hollinger International
Class A common stock which, together with the

F-29

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

retraction of retractable common shares in exchange for shares of
Hollinger International common stock (note 13e)), resulted in a gain on
effective sale of Hollinger International shares of $28,450,000 (note
17). In addition, 239,435 Series II preference shares were retracted for
the cash equivalent value of 0.46 of a share of Class A common stock of
Hollinger International at the time of retraction, which totalled
$2,385,000.

The Series II preference shares represent a financial liability and are
recorded in the accounts at their fair value, being the market value of
the shares of Class A common stock of Hollinger International for which
they are exchangeable. At December 31, 2002, the market value of the
shares of Class A common stock of Hollinger International into which the
4,580,979 Series II preference shares were exchangeable was $33,827,000
or $11,983,000 less than the issue price. At December 31, 2001, the
market value of the shares of Class A common stock of Hollinger
International into which the 5,366,979 Series II preference shares are
exchangeable was $46,000,000 or $7,670,000 less than issue price.

As at December 31, 2002, the cumulative deferred unrealized gains of
$11,983,000 have been deferred as the Series II preference shares are
hedged by the Company's investment in shares of Hollinger International
Class A common stock, which it intends to deliver in future Series II
preference share retractions, if any. Delivery of shares of Hollinger
International Class A common stock on such retractions would result in a
dilution gain to the Company which would be included in unusual items.

b) The Series III preference shares provide for a mandatory redemption on
the fifth anniversary of issue being April 30, 2004 for $10.00 cash per
share (plus unpaid dividends) and an annual cumulative dividend,
payable quarterly, of $0.70 per share per annum (or 7%) during the
five-year term. The Company has the right at its option to redeem all
or any part of the Series III preference shares at any time after April
30, 2002, for $10.00 cash per share (plus unpaid dividends). Holders
have the right at any time to retract Series III preference shares for
a retraction price payable in cash which, until April 30, 2003,
fluctuates by reference to two benchmark Government of Canada bonds
having a comparable yield and term to the Series III preference shares,
and during the year ending April 30, 2004, the retraction price will be
$9.50 per share (plus unpaid dividends in each case).

During 2000, 315,000 Series III preference shares were retracted for
cash of $2,748,000. The resulting gain of $402,000 was included in
unusual items (note 17).

c) Certain of the HCPH Special shares, issued in 1997, represented a
financial liability of the Company which was hedged by the Company's
investment in shares of Class A common stock of Hollinger
International. In June 2000, the Company exercised its option to pay
cash on the mandatory exchange of these Special shares in the amount of
US$36.8 million. The previously deferred foreign exchange loss arising
from translating the U.S. dollar obligation was written off to unusual
items (note 17).

In addition, in connection with the acquisition of Southam shares in
1997, HCPH issued 6,552,425 Special shares valued at $10.00 per share at
the time of issue. In accordance with the terms of these shares,
Hollinger International was required to deliver cash or common shares of
Hollinger International upon the exchange of the Special shares and
accordingly, they did not represent a financial liability of the Company
and were presented as minority interest. These shares were exchangeable
at the option of the holder at any time prior to June 26, 2000, into
newly issued Class A subordinate voting shares of Hollinger
International. On June 12, 2000, Hollinger International exercised its
option to pay cash on the mandatory exchange of the HCPH Special shares.
Pursuant to the terms of the indenture governing the Special shares,
each Special share was

F-30

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

exchanged for cash of US$8.88 resulting in a payment to Special
shareholders by Hollinger International of US$58.2 million.

12. OTHER LIABILITIES AND DEFERRED CREDITS

<Table>
<Caption>
2001 2002
-------- --------

Deferred gains.............................................. $ 3,189 $ 2,536
Pension obligations (note 22)............................... 8,182 12,863
Accrued post-retirement cost (note 22)...................... 62,092 60,506
Other benefit obligations................................... 35,607 18,824
Liability for amounts due to Participation Trust (notes 5a)
and 24d))................................................. 691 21,444
Liability for cross currency swap (note 24d))............... -- 14,475
-------- --------
$109,761 $130,648
======== ========
</Table>

Deferred gains represent a lease inducement, which is being recognized in
income over the term of the lease, and a portion of the gain arising on the
Telegraph's transfer of certain equipment to the Trafford Park joint venture,
which is being recognized in income as the assets are depreciated and/or sold by
the joint venture.

13. CAPITAL STOCK

<Table>
<Caption>
2001 2002
-------- --------

AUTHORIZED
Unlimited number of retractable common shares and an
unlimited number of preference shares
ISSUED AND FULLY PAID
PREFERENCE SHARES
4,580,979 Series II (2001 -- 5,366,979) (note 11)......... $ -- $ --
10,147,225 Series III (2001 -- 10,147,225) (note 11)...... -- --
RETRACTABLE COMMON SHARES
32,352,047 (2001 -- 32,068,937)........................... 271,774 273,759
-------- --------
$271,774 $273,759
======== ========
</Table>

a) The retractable common shares have terms equivalent to common shares,
except that they are retractable at any time by the holder for their
retraction price, which is fixed from time to time, in exchange for the
Company's shares of Hollinger International Class A common stock of
equivalent value or, at the Company's option, cash. The retraction
price each quarter (or, in certain specific cases more frequently) is
between 90% and 100% of the Company's current value, as determined by
the Retraction Price Committee in accordance with the share conditions.

b) During 2002, 141,000 and 1,148 retractable common shares were retracted
for cash of $7.50 per share and $5.50 per share, respectively. The
total retractions in 2002 of 142,148 retractable common shares resulted
in a gain on retraction of $141,000, which has been included in the
consolidated statements of deficit.

c) In December 2002, the Company paid a stock dividend of 10 cents per
retractable common share, resulting in 425,258 retractable common
shares being issued for $3,189,000 with a corresponding amount booked
to dividends paid.

F-31

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

d) During 2001, 20,015 retractable common shares were retracted for cash
amounts ranging between $8.00 and $14.50 per share for total cash
consideration of $273,000. In addition, a further 1,809,500 and
2,476,035 retractable common shares were retracted for $14.50 and
$13.00 per share, respectively, and were settled with the delivery of
an aggregate of 2,570,002 shares of Hollinger International Class A
common stock. This, together with the retraction of Series II
preference shares for Hollinger International Class A common stock
(note 11a)) and the Hollinger International share redemptions and sales
described in note 4e), resulted in a gain on effective sale of the
Hollinger International shares of $59,449,000 (note 17). The total
retractions in 2001 of 4,305,550 retractable common shares resulted in
a premium on retraction of $22,211,000, which has been charged to
deficit.

e) During 2000, 13,210 and 33,918 retractable common shares were retracted
for cash of $10.00 per share and $16.75 per share, respectively. In
addition, a further 51,100 and 723,700 retractable common shares were
retracted for $11.50 and $16.75, respectively, and were settled with
the delivery of 554,927 shares of Hollinger International Class A
common stock. This, together with the retraction of Series II
preference shares for Hollinger International shares (note 11a)),
resulted in a gain on effective sale of the Hollinger International
shares of $28,450,000 (note 17). The total retractions in 2000 of
821,928 retractable common shares resulted in premium on retraction of
$6,448,000 which has been charged to deficit.

f) The Company and certain of its subsidiaries have stock option plans for
their employees.

i) Details of the Hollinger Inc. stock option plan are as follows:

The Company has one Executive Share Option Plan ("Plan"), under which
the Company may grant options to certain key executives of the
Company, its subsidiary or affiliated companies or its parent
company, for up to 5,560,000 retractable common shares.

These options give the holder the right to purchase, subject to the
executives' entitlement to exercise, one retractable common share of
the Company for each option held. The options are exercisable to the
extent of 25% thereof at the end of each of the first through fourth
years following granting, on a cumulative basis. Options expire six
years after the date of grant. Unexercised options expire one month
following the date of termination of the executives' employment,
except in the case of retirement at normal retirement age, death or
certain offers made to all or substantially all of the holders of
retractable common shares of the Company, in which events, all
unexercised options become exercisable in full.

Stock option activity with respect to the Company's stock options is
as follows

<Table>
<Caption>
NUMBER
OF EXERCISE
SHARES PRICE
------- --------

Options outstanding as at December 31, 1999, 2000 and
2001.................................................... 928,000 $13.72
Options expired in 2002................................... (15,000) 13.72
------- ------
Options outstanding as at December 31, 2002............... 913,000 $13.72
======= ======
Options exercisable at December 31, 2000.................. 464,000 $13.72
======= ======
Options exercisable at December 31, 2001.................. 696,000 $13.72
======= ======
Options exercisable at December 31, 2002.................. 913,000 $13.72
======= ======
</Table>

Options outstanding at December 31, 2000, 2001 and 2002 had a
remaining contractual life of four, three and two years,
respectively.

F-32

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

ii) Details of Hollinger International's stock option plan are as
follows:

Hollinger International's Incentive Plan is administered by its
independent committee ("Committee") of its Board of Directors. The
Committee has the authority to determine the employees to whom awards
will be made, the amount and type of awards, and the other terms and
conditions of the awards. In 1999, the Company adopted the 1999 Stock
Incentive Plan ("1999 Stock Plan") which superseded its previous two
plans.

The 1999 Stock Plan authorizes the grant of incentive stock options
and nonqualified stock options. The exercise price for stock options
must be at least equal to 100% of the fair market value of the shares
of Hollinger International Class A common stock on the date of grant
of such option.

Under Section 3870, stock options granted to employees of Ravelston,
the parent company of the Company, must be measured at fair value and
recorded as a dividend-in-kind by Hollinger International. On
February 5, 2002, Hollinger International granted 1,309,000 stock
options to employees of Ravelston with an exercise price of US$11.13
per share. The aggregate fair value of these options was $9,594,000
(US$6,111,000) and this has been recorded by Hollinger International
as an in-kind dividend (with no impact on the accounts of the
Company) during the year. On April 2, 2001, Hollinger International
granted 1,402,500 stock options to employees of Ravelston with an
exercise price of US$14.37 per share. The aggregate fair value of
these options was $12,090,000 (US$7,800,000) and was recorded by
Hollinger International as an in-kind dividend in 2001.

For all other series of stock options, no compensation cost has been
recognized by Hollinger International.

Stock option activity with respect to Hollinger International's stock
options is as follows:

<Table>
<Caption>
NUMBER WEIGHTED
OF AVERAGE
SHARES EXERCISE PRICE
---------- --------------
(IN US$)

Options outstanding at December 31, 1999............ 5,149,500 $11.88
Options granted..................................... 2,559,250 10.57
Options exercised................................... (471,063) 11.67
Options cancelled................................... (536,374) 12.11
---------- ------
Options outstanding at December 31, 2000............ 6,701,313 11.38
Options granted..................................... 2,418,000 14.40
Options exercised................................... (624,162) 11.01
Options cancelled................................... (82,750) 12.33
---------- ------
Options outstanding at December 31, 2001............ 8,412,401 12.26
Options granted..................................... 2,227,000 11.14
Options exercised................................... (75,375) 10.81
Options cancelled................................... (168,688) 12.64
---------- ------
Options outstanding at December 31, 2002............ 10,395,338 $12.03
========== ======
Options exercisable at December 31, 2000............ 1,989,548 $11.51
========== ======
Options exercisable at December 31, 2001............ 3,032,682 $11.48
========== ======
Options exercisable at December 31, 2002............ 4,739,994 $11.85
========== ======
</Table>

F-33

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

iii) Had the Company determined compensation expense based on the fair
value method at the grant date for stock options granted to
employees, consistent with the method prescribed under Section
3870, the Company's net earnings (loss) for the year and the
earnings (loss) per share would have been reported as the pro forma
amounts indicated below. This compensation expense takes into
account all options granted by the Company and Hollinger
International, including those granted prior to January 1, 2002.
The fair value of the options is amortized over the vesting period.

<Table>
<Caption>
2000 2001 2002
-------- --------- --------

Net earnings (loss), as reported............ $189,373 $(131,898) $(88,640)
Stock-based compensation expense --
Hollinger Inc............................. (478) (239) (72)
Stock-based compensation expense --
Hollinger International Inc............... (4,712) (4,711) (3,985)
-------- --------- --------
Pro forma net earnings (loss)............... $184,183 $(136,848) $(92,697)
======== ========= ========
Net earnings (loss) per share:
As reported............................... $ 5.11 $ (3.91) $ (2.76)
Effect of stock-based compensation
expense................................ (0.14) (0.15) (0.13)
-------- --------- --------
Pro forma basic net earnings (loss) per
share..................................... $ 4.97 $ (4.06) $ (2.89)
======== ========= ========
Diluted net earnings (loss) per share, as
reported.................................. $ 5.05 $ (4.17) $ (2.79)
Pro forma diluted net earnings (loss) per
share..................................... $ 4.91 $ (4.32) $ (2.92)
======== ========= ========
</Table>

The fair value of each Hollinger International stock option granted
during 2000, 2001 and 2002 was estimated on the date of grant for pro
forma disclosure purposes using the Black-Scholes option-pricing
model with the following weighted average assumptions used for grants
in fiscal 2000, 2001 and 2002, respectively: dividend yield of 3.4%,
4.6% and 3.6%, expected volatility of 43.3%, 55.2% and 68.3%,
risk-free interest rates of 5.1%, 5.0% and 4.5% and expected lives of
10 years. Weighted average fair value of options granted by Hollinger
International during 2000, 2001 and 2002 was $6.12 (US$4.12), $8.79
(US$5.67) and $8.87 (US$5.65), respectively.

14. EQUITY ADJUSTMENT FROM FOREIGN CURRENCY TRANSLATION

As described in note 1 under "Foreign currency translation", this amount
results principally from the accounting treatment for self-sustaining foreign
subsidiaries. The change in the amount from December 31, 2001 to December 31,
2002 primarily reflects the weakening of the Canadian dollar against the British
pound partly offset by the strengthening of the Canadian dollar against the U.S.
dollar and the recognition in unusual items (note 17) of a realized foreign
exchange gain arising on the reduction of net investments in foreign
subsidiaries. The amount at December 31, 2002 is unrealized and bears no
relationship to the underlying value of the Company's investment in foreign
subsidiaries.

F-34

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

15. COMMITMENTS

a) Future minimum lease payments subsequent to December 31, 2002 under
operating leases are as follows:

<Table>

2003........................................................ $ 27,095
2004........................................................ $ 23,976
2005........................................................ $ 21,614
2006........................................................ $ 18,229
2007........................................................ $ 16,896
2008 and subsequent......................................... $149,441
</Table>

b) In connection with certain of its cost and equity investments (note 5),
Hollinger International and its subsidiaries are committed to fund
approximately $1.9 million to those investees in 2003.

16. CONTINGENCIES

a) The Telegraph has guaranteed to third parties, the joint venture
partners' share of operating lease obligations of both the West Ferry
and Trafford Park joint ventures, which amounted to $948,000 (L372,000)
at December 31, 2002. These obligations are also guaranteed jointly and
severally by each joint venture partner.

b) In connection with the Company's insurance program, letters of credit
are required to support certain projected workers' compensation
obligations. At December 31, 2002, letters of credit in the amount of
$4,384,500 were outstanding.

c) A number of libel and legal actions against the Company and its
subsidiaries are outstanding. The Company believes there are valid
defences to these proceedings or sufficient insurance to protect it
from material loss.

d) In special circumstances, the Company's newspaper operations may engage
freelance reporters to cover stories in locales that carry a high risk
of personal injury or death. Subsequent to December 31, 2002, the
Telegraph has engaged a number of journalists and photographers to
report from the Middle East. As a term of their engagement, the
Telegraph has agreed to provide a death benefit which, in the aggregate
for all freelancers engaged, amounts to $13,100,000 (L5,153,000). This
exposure is uninsured. Precautions have been taken to avoid a
concentration of the journalists and photographers in any one location.
The uninsured exposure was reduced to $3,820,000 (L2,600,000) as of
March 31, 2003.

F-35

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

17. UNUSUAL ITEMS

<Table>
<Caption>
2000 2001 2002
-------- --------- --------

Net gain on dilution of investments......................... $ 25,775 $ -- $ --
Gain (loss) on sale of investments.......................... 47,921 (240,060) --
Gain on sales of interest in Hollinger International (notes
4a), 4e), 11a) and 13d)).................................. 28,450 59,449 20,103
Net gain (loss) on sales of Publishing interests............ 697,871 (22,963) --
Loss on retirement of Senior Notes (note 10c)).............. -- -- (56,287)
New Chicago plant pre-operating costs....................... (10,097) (7,237) (661)
Write-off of financing fees................................. (16,088) -- --
Write-off of investments.................................... (31,381) (79,943) (63,609)
Decrease in pension valuation allowance (note 22)........... -- 58,704 34,402
Realized loss on Total Return Equity Swap (note 24b))....... -- (29,646) (43,313)
Pension and post-retirement plan liability adjustment....... -- (16,823) --
Net foreign exchange gain on reduction of net investment in
foreign subsidiaries...................................... -- -- 44,548
Other income (expense), net................................. (41,506) (16,915) 2,187
-------- --------- --------
$700,945 $(295,434) $(62,630)
======== ========= ========
</Table>

The income tax expense related to unusual items amounted to $229,812,000 in
2000, and an income tax recovery of $76,849,000 and $8,043,000 in 2001 and 2002,
respectively. The minority interest expense in unusual items after income taxes
amounted to $251,628,000 in 2000, and a minority interest recovery of
$144,634,000 and $48,570,000 in 2001 and 2002, respectively, resulting in net
earnings (loss) from unusual items after income taxes and minority interest of
$219,505,000, ($73,951,000) and ($6,017,000) in 2000, 2001 and 2002,
respectively.

18. INCOME TAXES

Income tax expense (recovery) attributable to income from continuing
operations consists of:

<Table>
<Caption>
2000 2001 2002
-------- --------- --------

Current............................................. $617,694 $ 56,304 $ (2,615)
Future.............................................. (357,603) (145,781) 126,640
-------- --------- --------
$260,091 $ (89,477) $124,025
======== ========= ========
</Table>

F-36

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

The income tax expense (recovery) in the consolidated statements of
earnings varies from the amount that would be computed by applying the basic
federal and provincial income tax rates to loss before income taxes and minority
interest as shown in the following table:

<Table>
<Caption>
2000 2001 2002
-------- --------- --------

Earnings (loss) before income taxes and minority
interest.......................................... $780,522 $(454,883) $(89,511)
======== ========= ========
Basic income tax rate............................... 43.95% 41.75% 41.00%
======== ========= ========
Computed income tax expense (recovery).............. $343,039 $(189,914) $(36,700)
Decrease (increase) in income tax expenses
(recovery) resulting from:
Different tax rate on earnings of
subsidiaries................................. (83,949) 22,075 17,834
Tax gain in excess of book gain................ (244,030) 24,293 949
Potential tax benefit of current year's losses
not recorded................................. 29,255 -- --
Large Corporations Tax......................... 15,531 940 1,079
Loss on Total Return Equity Swap............... -- 12,377 17,758
Change in valuation allowance.................. -- 42,841 74,043
Minority interest in earnings of Hollinger
L.P.......................................... (26,669) (2,001) (1,214)
Permanent differences.......................... 226,914 (88) 50,276
-------- --------- --------
Income tax expense (recovery)....................... $260,091 $ (89,477) $124,025
======== ========= ========
Effective tax rate.................................. 33.32% 19.67% 138.56%
======== ========= ========
</Table>

The Company's Canadian subsidiaries have operating losses carried forward
for tax purposes of approximately $76,892,000, the tax benefit of which has not
been reflected in the accounts. These losses expire as follows:

<Table>

2004........................................................ $ 5
2005........................................................ 586
2006........................................................ 7,452
2007........................................................ 3,365
2008........................................................ 40,112
2009........................................................ 25,372
-------
$76,892
=======
</Table>

The Company has recorded a valuation allowance of $74,043,000 in the
current year related to net operating loss carryforwards and other deferred tax
assets in the Canadian group. The valuation allowance in the prior year related
entirely to net operating losses of N.P. Holdings Company, a subsidiary of the
Company. As described in note 23c), this subsidiary was sold to an affiliate
during the year. The tax losses were sold at their carrying value.

F-37

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

The tax effects of temporary differences that give rise to significant
portions of the future tax assets and future tax liabilities are presented
below:

<Table>
<Caption>
2001 2002
--------- ---------

Future tax assets:
Net operating loss carryforwards.......................... $ 127,753 $ 37,283
Compensation and accrued pension.......................... 7,459 6,952
Investments............................................... 20,717 51,676
Post-retirement benefit obligations....................... 28,044 28,050
Other..................................................... 86,046 30,933
--------- ---------
Gross future tax assets..................................... 270,019 154,894
Less valuation allowance.................................... (28,539) (74,043)
--------- ---------
Net future tax assets....................................... 241,480 80,851
--------- ---------
Future tax liabilities:
Property, plant and equipment, principally due to
differences in depreciation............................ 94,037 107,671
Intangible assets, principally due to differences in basis
and amortization....................................... 469,564 189,365
Pension assets............................................ 7,746 47,266
Long-term advances under joint venture printing
contract............................................... 20,801 20,290
Deferred gain on exchange of assets....................... 56,009 40,342
Other..................................................... 80,260 51,396
--------- ---------
Gross future tax liabilities................................ 728,417 456,330
--------- ---------
Future income tax liabilities............................... $(486,937) $(375,479)
========= =========
</Table>

19. LOSS AND CASH FLOWS PER RETRACTABLE COMMON SHARE

The following tables reconcile the numerator and denominator for the
calculation of basic and diluted loss per share for the years ended December 31,
2000, 2001 and 2002:

<Table>
<Caption>
YEAR ENDED DECEMBER 31, 2000
---------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Basic EPS
Net earnings available to common shareholders.... $189,373 37,041 $5.11
Effect of dilutive securities
Stock options of subsidiary.................... (2,161) -- (0.06)
-------- ------ -----
Diluted EPS
Net earnings available to common shareholders.... $187,212 37,041 $5.05
======== ====== =====
</Table>

F-38

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

<Table>
<Caption>
YEAR ENDED DECEMBER 31, 2001
---------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Basic EPS
Net loss available to common shareholders........ $(131,898) 33,740 $(3.91)
Effect of dilutive securities
Stock options of subsidiary.................... (8,651) -- (0.26)
--------- ------ ------
Diluted EPS
Net loss available to common shareholders........ $(140,549) 33,740 $(4.17)
========= ====== ======
</Table>

<Table>
<Caption>
YEAR ENDED DECEMBER 31, 2002
---------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Basic EPS
Net loss available to common shareholders........ $(88,640) 32,064 $(2.76)
Effect of dilutive securities
Stock options of subsidiary.................... (885) -- (0.03)
-------- ------ ------
Diluted EPS
Net loss available to common shareholders........ $(89,525) 32,064 $(2.79)
======== ====== ======
</Table>

For 2000, 2001 and 2002, the effect of potentially dilutive options of the
Company were excluded from the computation of diluted loss per share as their
effect is anti-dilutive.

<Table>
<Caption>
YEAR ENDED DECEMBER 31
----------------------
2000 2001 2002
----- ------ -----

Cash flows provided by (used for) operations per retractable
common share
Basic..................................................... $4.15 $(3.56) $1.86
Diluted................................................... $4.09 $(3.82) $1.83
</Table>

Cash flows provided by (used for) operations per retractable common share
is based on the cash flows provided by (used for) operations as computed in note
20. Diluted cash flows provided by (used for) operations utilize the effect of
dilutive securities on income, as disclosed in note 19. Cash flows provided by
(used for) operations per retractable common share calculations utilize the
weighted average number of retractable common shares outstanding during the year
of 37,040,670, 33,740,182 and 32,064,151, in 2000, 2001 and 2002, respectively.

F-39

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

20. CASH FLOWS

a) Cash flows provided by (used for) operations is before any increase or
decrease in non-cash operating working capital and other costs. These
items are included in the consolidated statements of cash flows. Cash
flows provided by (used for) operations is determined as follows:

<Table>
<Caption>
2000 2001 2002
-------- --------- --------

Net earnings (loss)................................. $189,373 $(131,898) $(88,640)
Unusual items (note 17)............................. (700,945) 295,434 62,630
Current income taxes related to unusual items....... 459,831 (15,155) 149
Items not involving cash:
Depreciation and amortization..................... 219,932 144,716 88,193
Amortization of deferred financing costs.......... 18,504 18,648 11,347
Future income taxes............................... (357,603) (145,781) 126,640
Minority interest................................. 307,079 (249,439) (131,187)
Net earnings in equity-accounted companies, net of
dividends received............................. 14,115 36,789 1,233
Non-cash interest income on CanWest debentures.... 11,463 (67,517) (9,239)
Miscellaneous..................................... (8,170) (6,008) (1,498)
-------- --------- --------
$153,579 $(120,211) $ 59,628
======== ========= ========
</Table>

b) The change in non-cash operating working capital is determined as
follows:

<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------
2000 2001 2002
--------- -------- --------

Changes in current assets and current liabilities,
net of acquisitions and dispositions:
Accounts receivable............................... $ (77,880) $ 23,666 $ 1,061
Inventory......................................... (11,152) (3,886) 14,704
Prepaid expenses.................................. 903 (2,594) (4,337)
Amounts due to related parties.................... (5,897) -- 14,775
Accounts payable and accrued expenses............. (38,678) 55,373 (26,223)
Income taxes payable.............................. 53,466 (77,980) 31,821
Deferred revenue.................................. (933) (11,726) (1,307)
Bank indebtedness................................. 10,340 (150,813) 1,094
Other............................................. (12,625) 23,531 9,740
--------- -------- --------
$ (82,456) $(144,429) $ 41,328
========= ======== ========
</Table>

21. SEGMENTED INFORMATION

The Company operates principally in the business of publishing, printing
and distribution of newspapers and magazines and holds investments principally
in companies which operate in the same business as the Company. Other
investments held by the Company either do not represent a business segment or
are not sufficiently significant to warrant classification as a separate segment
and are included within Corporate and Other. HCPH Co., Hollinger L.P. and, until
August 31, 2001, National Post make up the Canadian Newspaper Group. The U.S.
Community Group includes the results of the Jerusalem Post and the last
remaining U.S. Community paper until it was sold in August 2001. The following
is a summary of the reportable segments of the Company.

F-40

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

<Table>
<Caption>
UNITED STATES
-------------------- U.K. CANADIAN
YEAR ENDED CHICAGO COMMUNITY NEWSPAPER NEWSPAPER CORPORATE CONSOLIDATED
DECEMBER 31, 2000 GROUP GROUP GROUP GROUP AND OTHER TOTAL
- ----------------- -------- --------- --------- ---------- --------- ------------

Sales revenue............. $596,759 $100,104 $882,196 $1,579,200 $ 21 $3,158,280
Cost of sales and
expenses................ 504,079 85,702 684,900 1,294,975 16,527 2,586,183
-------- -------- -------- ---------- -------- ----------
Sales revenue less cost of
sales and expenses...... 92,680 14,402 197,296 284,225 (16,506) 572,097
Depreciation and
amortization............ 37,328 7,653 58,148 110,112 6,691 219,932
-------- -------- -------- ---------- -------- ----------
Operating income (loss)... $ 55,352 $ 6,749 $139,148 $ 174,113 $(23,197) $ 352,165
======== ======== ======== ========== ======== ==========
Expenditures on capital
assets.................. $ 38,177 $ 5,038 $ 24,039 $ 42,812 $ 2,595 $ 112,661
======== ======== ======== ========== ======== ==========
</Table>

<Table>
<Caption>
UNITED STATES
-------------------- U.K. CANADIAN
YEAR ENDED CHICAGO COMMUNITY NEWSPAPER NEWSPAPER CORPORATE CONSOLIDATED
DECEMBER 31, 2001 GROUP GROUP GROUP GROUP AND OTHER TOTAL
- ----------------- -------- --------- ---------- --------- --------- ------------

Sales revenue............. $686,266 $29,619 $ 801,053 $305,073 $ 49 $1,822,060
Cost of sales and
expenses................ 622,974 31,950 703,296 337,383 34,505 1,730,108
-------- ------- ---------- -------- -------- ----------
Sales revenue less cost of
sales and expenses...... 63,292 (2,331) 97,757 (32,310) (34,456) 91,952
Depreciation and
amortization............ 53,537 2,962 63,855 18,134 6,228 144,716
-------- ------- ---------- -------- -------- ----------
Operating income (loss)... $ 9,755 $(5,293) $ 33,902 $(50,444) $(40,684) $ (52,764)
======== ======= ========== ======== ======== ==========
Total assets.............. $973,279 $85,291 $1,257,805 $691,568 $648,173 $3,656,116
======== ======= ========== ======== ======== ==========
Expenditures on capital
assets.................. $ 19,343 $ 463 $ 48,788 $ 4,405 $ 18,407 $ 91,406
======== ======= ========== ======== ======== ==========
</Table>

<Table>
<Caption>
UNITED STATES
-------------------- U.K. CANADIAN
YEAR ENDED CHICAGO COMMUNITY NEWSPAPER NEWSPAPER CORPORATE CONSOLIDATED
DECEMBER 31, 2002 GROUP GROUP GROUP GROUP AND OTHER TOTAL
- ----------------- -------- --------- ---------- --------- ---------- ------------

Sales revenue............ $693,690 $20,781 $ 804,584 $109,121 $ 22 $1,628,198
Cost of sales and
expenses............... 591,628 25,259 693,895 112,723 30,389 1,453,894
-------- ------- ---------- -------- ---------- ----------
Sales revenue less cost
of sales and
expenses............... 102,062 (4,478) 110,689 (3,602) (30,367) 174,304
Depreciation and
amortization........... 42,378 3,682 35,939 1,713 4,481 88,193
-------- ------- ---------- -------- ---------- ----------
Operating income
(loss)................. $ 59,684 $(8,160) $ 74,750 $ (5,315) $ (34,848) $ 86,111
======== ======= ========== ======== ========== ==========
Total assets............. $895,917 $59,173 $1,120,023 $411,891 $1,152,857 $3,639,861
======== ======= ========== ======== ========== ==========
Expenditures on capital
assets................. $ 24,344 $ 7,888 $ 27,680 $ 3,575 $ 116 $ 63,603
======== ======= ========== ======== ========== ==========
</Table>

Corporate and Other includes results of miscellaneous operations.

22. EMPLOYEE BENEFIT PLANS

DEFINED CONTRIBUTION PENSION PLANS

F-41

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

Hollinger International contributed $2,372,000, $2,402,000 and $3,330,000,
respectively. Hollinger International sponsors 11 defined contribution plans in
Canada and contributed $3,069,000, $261,500 and $241,000 to the plans in 2000,
2001 and 2002, respectively.

The Telegraph sponsors a defined contribution plan for the majority of its
employees, as well as a defined contribution plan to provide pension benefits
for senior executives. For 2000, 2001 and 2002, contributions to the defined
contribution plan are included as part of the service cost of the defined
benefit plan. For the years ended December 31, 2000, 2001 and 2002, the
Telegraph contributed $874,000, $803,000 and $835,000, respectively, to the
Telegraph Executive Pension Scheme. The Telegraph plan's assets consist
principally of U.K. and overseas equities, unit trusts and bonds.

DEFINED BENEFIT PENSION PLANS

The Company's subsidiaries have ten foreign and seven domestic
single-employer defined benefit plans and contribute to various union-sponsored,
collectively bargained multi-employer pension plans. The Company's subsidiaries'
contributions to these plans for the years ended December 31, 2000, 2001 and
2002 were:

<Table>
<Caption>
2000 2001 2002
------- ------- -------

Single-employer plans................................... $20,010 $15,737 $20,166
======= ======= =======
Multi-employer plans.................................... $ 9,324 $ 1,938 $ --
======= ======= =======
</Table>

The Telegraph has a defined benefit plan that was closed to new
participants on July 1, 1991 and provides only benefits accrued up to that date.
The liabilities of the plan have been actuarially valued as at December 31,
2002. At that date, the market value of the plan assets was $191,742,000,
representing 91% of the estimated cost of purchasing the plan's benefits from an
insurance company. The actuary assumed a discount rate of 5.6%. Increases to
pension payments are discretionary and are awarded by the trustees, with the
Telegraph's consent, from surpluses arising in the fund from time to time.
Contributions to the plan were $9,900,000 $10,034,000 and $10,616,000 in 2000,
2001 and 2002, respectively.

West Ferry and Trafford Park have defined benefit plans, the West Ferry
Printers Pension Scheme and the Trafford Park Printers Pension Scheme,
respectively, of which 50%, being the Telegraph's share in the joint venture, of
the pension costs and obligations are included in the Company's financial
statements. Pursuant to the West Ferry joint venture agreement, the Telegraph
has a commitment to fund 50% of the obligation under West Ferry's defined
benefit plan.

SINGLE-EMPLOYER PENSION PLANS

The benefits under the subsidiary companies' single-employer pension plans
are based primarily on years of service and compensation levels. These companies
fund the annual provisions which are deductible for income tax purposes. The
plans' assets consist principally of marketable equity securities and corporate
and government debt securities.

F-42

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

The components of the net period cost (benefit) for the years ended
December 31, 2000, 2001 and 2002 are as follows:

<Table>
<Caption>
2000 2001 2002
-------- -------- --------

Service cost......................................... $ 22,076 $ 15,308 $ 15,930
Interest cost........................................ 64,590 49,433 49,541
Expected return on plan assets....................... (90,011) (56,133) (52,422)
Amortization of prior service costs.................. 900 583 782
Settlement and curtailment........................... 6,487 2,272 --
Amortization of net (gain) loss...................... (304) 1,516 6,200
Change in valuation allowance against prepaid benefit
cost............................................... 97,258 (59,106) (34,729)
-------- -------- --------
Net period cost (benefit)............................ $100,996 $(46,127) $(14,698)
======== ======== ========
</Table>

The table below sets forth the reconciliation of the benefit obligation as
of December 31, 2001 and 2002:

<Table>
<Caption>
2001 2002
--------- --------

Benefit obligation at the beginning of the year............. $ 864,839 $780,138
Adjustments to opening balance.............................. 7,243 --
Service cost................................................ 15,308 15,930
Interest cost............................................... 49,433 49,541
Participant contributions................................... 9,027 7,539
Divestitures................................................ (122,131) --
Plan amendments............................................. 28 9,629
Settlement gain............................................. (12,973) --
Exchange rate differences................................... 17,860 33,314
Changes in assumptions...................................... -- (1,000)
Actuarial loss (gain)....................................... 17,402 (21,064)
Benefits paid............................................... (65,898) (69,670)
--------- --------
Benefit obligation at the end of the year................... $ 780,138 $804,357
========= ========
</Table>

The 2001 settlement gain was related to the sale of Canadian newspapers.
The 2000 curtailment and settlement gains were related to the sale of Canadian
and Community Group newspapers.

The table below sets forth the change in plan assets for the years ended
December 31, 2001 and 2002:

<Table>
<Caption>
2001 2002
--------- --------

Fair value of plan assets at the beginning of the year...... $ 971,208 $757,751
Adjustment to opening balance............................... -- 4,897
Actual return on plan assets................................ (37,943) (67,865)
Exchange rate differences................................... 16,969 27,529
Employer contributions...................................... 15,737 20,166
Participant contributions................................... 9,027 7,539
Settlement gain............................................. (15,245) --
Divestitures................................................ (136,104) --
Benefits paid............................................... (65,898) (69,670)
--------- --------
Fair value of plan assets at the end of the year............ $ 757,751 $680,347
========= ========
</Table>

F-43

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

The following table provides the amounts recognized in the consolidated
balance sheet as of December 31, 2001 and 2002:

<Table>
<Caption>
2001 2002
-------- ---------

Plan deficit................................................ $(22,387) $(124,010)
Unrecognized net actuarial loss............................. 133,110 233,369
Unrecognized prior service cost............................. 3,699 3,039
Unrecognized net transition obligation...................... (331) 2,054
-------- ---------
Prepaid benefit cost........................................ 114,091 114,452
Valuation allowance......................................... (38,814) (4,085)
-------- ---------
Prepaid benefit cost, net of valuation allowance............ $ 75,277 $ 110,367
======== =========
</Table>

The above prepaid benefit cost is classified in the consolidated balance
sheet as follows:

<Table>
<Caption>
2001 2002
------- --------

Deferred pension asset (note 8)............................. $83,459 $123,230
Pension obligations (note 12)............................... (8,182) (12,863)
------- --------
Prepaid benefit cost, net of valuation allowance............ $75,277 $110,367
======= ========
</Table>

The ranges of assumptions on the Company's foreign plans were as follows:

<Table>
<Caption>
2000 2001 2002
----------- ----------- ------------

Discount rate.............................. 6.0% - 8.0% 6.0% - 8.0% 5.6% - 6.75%
Expected return on plan assets............. 6.0% - 9.0% 6.0% - 9.0% 5.6% - 8.25%
Compensation increase...................... 3.0% - 3.5% 2.5% - 3.5% 2.5% - 3.30%
----------- ----------- ------------
</Table>

The ranges of assumptions used for the Company's domestic plans were as
follows:

<Table>
<Caption>
2000 2001 2002
----------- ----------- ------------

Discount rate.............................. 7.0% 6.5% 7.00%
Long-term rate of return on plan assets.... 7.0% - 9.0% 7.0% - 9.0% 6.5% - 7.00%
Compensation increase...................... 3.5% - 4.0% 4.0% - 4.5% 4.0% - 4.50%
----------- ----------- ------------
</Table>

VALUATION ALLOWANCE

As a result of the 2000 sale of Canadian newspapers to CanWest, the
expected future benefits to be derived from the plan surplus at that time were
significantly reduced and a valuation allowance of $97.9 million was provided
for. Due to the reduction in the plan surplus in 2001 and 2002 as a result of a
decline in the market value of the assets in the plan, the valuation allowance
required against the pension asset has been reduced by $58.7 million and $34.4
million, respectively. This change in the valuation allowance, in respect of the
HCPH Co. pension plans, has been recognized in income in 2001 and 2002 as an
unusual item (note 17).

Approval by the various provincial pension regulatory bodies has not yet
been granted for the transfer of pension assets related to the operations
previously sold. To the extent pension surpluses are required to be transferred
for the CanWest properties, the Company is entitled to a cash payment from
CanWest for a portion of that amount. The Company anticipates that these
transfers will be made in 2003.

F-44

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

MULTI-EMPLOYER PENSION PLANS

Certain U.S. employees were covered by union-sponsored multi-employer
pension plans, all of which are defined benefit plans. Contributions were
determined in accordance with the provisions of negotiated labour contracts and
are generally based on the number of man-hours worked. Pension expense for these
plans was $1,828,000, nil and nil for the years ended December 31, 2000, 2001
and 2002, respectively. The newspaper properties participating in these
multi-employer plans were sold in 2000. The passage of the Multi-employer
Pension Plan Amendments Act of 1980 (the "Act") may, under certain
circumstances, cause Hollinger International to become subject to liabilities in
excess of the amounts provided for in the collective bargaining agreements.
Generally, liabilities are contingent upon withdrawal or partial withdrawal from
the plans. Hollinger International has not undertaken to withdraw or partially
withdraw from any of the plans as of December 31, 2002. Under the Act,
withdrawal liabilities would be based upon Hollinger International's
proportional share of each plan's unfunded vested benefits. As of the date of
the latest actuarial valuations, Hollinger International's share of the unfunded
vested liabilities of each plan was zero.

POST-RETIREMENT BENEFITS

The Company's subsidiaries sponsor two post-retirement plans that provide
post-retirement benefits to certain employees in Canada.

The components of net period post-retirement cost (benefit) for the years
ended December 31, 2000, 2001 and 2002 are as follows:

<Table>
<Caption>
2000 2001 2002
-------- ------- ------

Service cost............................................ $ 1,021 $ 186 $ 133
Interest cost........................................... 4,044 2,966 2,801
Amortization of gains................................... (199) (3,700) (500)
Settlement/curtailment.................................. (18,250) (2,671) --
-------- ------- ------
Net period post-retirement cost (benefit)............... $(13,384) $(3,219) $2,434
======== ======= ======
</Table>

The table below sets forth the reconciliation of the accumulated
post-retirement benefit obligation as of December 31, 2001 and 2002:

<Table>
<Caption>
2001 2002
------- -------

Accumulated post-retirement benefit obligation at the
beginning of the year..................................... $65,766 $65,160
Adjustment to opening balance............................... 9,580 4,461
Service cost................................................ 186 133
Interest cost............................................... 2,966 2,801
Actuarial gains............................................. (2,192) (1,152)
Benefits paid............................................... (2,860) (3,103)
Divestitures................................................ (8,286) --
------- -------
Accumulated post-retirement benefit obligation at the end of
the year.................................................. $65,160 $68,300
======= =======
</Table>

The fair value of plan assets was $1,200,000 and $5,449,000 at December 31,
2001 and 2002, respectively.

F-45

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

The table below sets forth the plan's funded status reconciled to the
amounts recognized in the Company's financial statements:

<Table>
<Caption>
2001 2002
-------- --------

Unfunded status............................................. $(63,960) $(62,851)
Unrecognized net loss....................................... 1,868 2,345
-------- --------
Accrued post-retirement liability (note 12)................. $(62,092) $(60,506)
======== ========
</Table>

The weighted average discount rate used in determining the accumulated
post-retirement benefit obligation was 6.75%, 6.5% and 6.25% for 2000, 2001 and
2002, respectively. All benefits under the plans are paid for by contributions
to the plans. For measuring the expected post-retirement benefit obligation of
former Southam employees, an 8% annual rate of increase in the per capita claims
was assumed for 2002, 9% for 2001, and 10% for 2000.

Assumed health care cost trend rates have a significant effect on the
amounts reported for health care plans. If the health care cost trend rate was
increased 1%, the accumulated post-retirement benefit obligation as of December
31, 2001 and 2002 would have increased $3,390,000 and $2,846,000, respectively,
and the effect of this change on the aggregate of service and interest cost for
2001 and 2002 would have been an increase of $220,000 and $260,000,
respectively. If the health care cost trend rate was decreased 1%, the
accumulated post-retirement benefit obligation as of December 31, 2001 and 2002
would have decreased by $2,098,000 and $2,556,000, respectively, and the effect
of this change on the aggregate of service and interest cost for 2001 and 2002
would have been a decrease of $160,000 and $233,000, respectively.

23. RELATED PARTY TRANSACTIONS

a) Lord Black controls Ravelston and, through Ravelston and its
subsidiaries, together with his associates, he exercises control or
direction over 78.2% (2000 -- 68.6%; 2001 -- 77.8%) of the outstanding
retractable common shares of the Company.

Ravelston has rights of first refusal in respect of any retractable
common shares of the Company that may be issued on exercise of options
held to acquire retractable common shares should the holders decide to
exercise their options and dispose of the retractable common shares.

Hollinger International and its subsidiaries have entered into a
services agreement with Ravelston, whereby Ravelston acts as manager of
the Company and carries out head office and executive responsibilities.
The services agreement was assigned on July 5, 2002 to RMI, a wholly
owned subsidiary of Ravelston. Ravelston and RMI billed to Hollinger
International and its subsidiaries fees totalling $49,943,000,
$44,853,000 and $37,272,000 for 2000, 2001 and 2002, respectively,
pursuant to this agreement.

Similarly, Ravelston carries out head office and executive
responsibilities for the Company and its subsidiaries, other than
Hollinger International and its subsidiaries. In 2001 and 2002, no
amounts were charged by Ravelston for such services. In 2000, the
Company received $10.7 million, net, from Ravelston pursuant to a
services agreement which was terminated on December 31, 2000.

Expenses of the Company are net of $2.0 million and $2.4 million in 2001
and 2002, respectively, received from Ravelston and RMI as a
reimbursement of certain head office expenses incurred on behalf of
Ravelston and RMI. Such expenses were not incurred on behalf of
Ravelston in 2000.

F-46

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

agreements were $5,436,000, $2,629,000 and $2,976,000 for 2000, 2001 and
2002, respectively. The fees under Ravelston's and RMI's services
agreement and the fees paid directly to executives and affiliates of
Ravelston, in aggregate, are negotiated with and approved by Hollinger
International's independent committee.

In addition to all of the amounts referred to above, during 2000 and
2001, there was further remuneration paid directly by subsidiaries of
Hollinger International to certain Ravelston executives of $6,293,000
and $2,592,000, respectively (2002 -- nil).

b) On July 11, 2000, Hollinger International loaned US $36,817,000 to a
subsidiary of the Company in connection with the cash purchase by the
Company of HCPH Co. Special shares. The loan is payable on demand and
to December 31, 2001 interest was payable at the rate of 13% per annum.
Effective January 1, 2002, the interest rate was adjusted to LIBOR plus
3% per annum. This loan, together with accrued interest, totalled US
$45,848,000 at December 31, 2002. On March 10, 2003, a portion of this
loan has been settled and the terms of the loan have been amended as
described in note 29c).

c) On July 3, 2002, N.P. Holdings Company ("NP Holdings"), a subsidiary of
Hollinger International, was sold for cash consideration of $5.75
million to RMI. The net assets of NP Holdings primarily included
Canadian tax losses. The tax losses, only a portion of which was
previously recognized for accounting purposes, were effectively sold at
their carrying value. Due to the inability of NP Holdings to utilize
its own tax losses prior to their expiry, as a result of its disposing
of its interest in the National Post, it sold these losses to a company
which would be able to utilize the losses. The only other potential
purchaser for these losses, CanWest, declined the opportunity to
acquire the losses. The terms of the sale of the tax losses to RMI were
approved by the independent directors of Hollinger International.

d) The Company and its subsidiaries have unsecured demand loans and
advances, including accrued interest owing to Ravelston totalling $59.1
million and $75.8 million at December 31, 2001 and 2002, respectively.
At December 31, 2000, the Company and its subsidiaries have unsecured
demand loans and advances receivable of $1.0 million. The Company has
borrowed the majority of these funds from Ravelston to partially fund
its operating costs, including interest and preference share dividend
obligations. The loans bear interest at the bankers' acceptance rate
plus 3.75% per annum or 6.68% as at December 31, 2002.

Hollinger International owes $11.6 million, $13.7 million and $5.0
million at December 31, 2000, 2001 and 2002, respectively, to Ravelston
or RMI in connection with fees payable pursuant to the services
agreement. As at December 31, 2002, HCPH Co. also owes RMI $22.5 million
in connection with the assumption by RMI, as a result of its purchase of
NP Holdings (note 23c)), of a liability of $22.5 million owing to
CanWest. This amount is due on demand, is unsecured and is stated to
bear interest at an annual rate of the banker's acceptance rate plus 4%.

e) In response to the 1998 issuer bid, all options held by executives were
exercised. As at December 31, 2000, 2001 and 2002, included in accounts
receivable is $5,866,000, $5,843,000 and $5,892,000, respectively, due
from executives, which bears interest at the prime rate plus 1/2%. The
receivables are fully secured by a pledge of the shares held by the
executives.

f) In 1999, executive-controlled companies invested in Hollinger L.P. As
at December 31, 2000, 2001 and 2002, included in accounts receivable is
$681,000, $436,000 and $373,000 due from these companies, which bears
interest at the prime rate plus 1/2%. The receivables are partially
secured by a pledge of the units held in Hollinger L.P.

F-47

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

g) During 2000 and 2001, in connection with the sales of properties
described in note 4c), 4g) and 4i), the Company, Ravelston, Hollinger
International, Lord Black and three senior executives entered into
non-competition agreements with the purchasers in return for cash
consideration paid.

h) As described in note 4c), 4f) and 4j), during 2001, the Company sold
newspaper properties to certain related parties.

i) As described in note 4e), during 2001, Hollinger International
redeemed certain of its shares held by the Company and converted
preference shares held by the Company into shares of Hollinger
International Class A common stock. The shares of Class A common stock
were subsequently purchased by Hollinger International from the
Company for cancellation.

j) Included in Other Assets at December 31, 2002 is $6,525,000
(US$4,130,000), owing to Hollinger International from Bradford
Publishing Company ('Bradford'), a company in which certain of the
Company's and Hollinger International's directors are significant
shareholders. Such amount represents the present value of the
remaining amounts owing under a non-interest bearing note receivable
granted to Hollinger International in connection with a
non-competition agreement entered into on the sale of certain
operations to Bradford during 2000. The note receivable is unsecured,
due over the period to 2010 and is subordinated to Bradford's lenders.

k) Included in Other Assets at December 31, 2002 is $7,677,000
(US$4,859,000) owed by Horizon Publications Inc. ("Horizon"), a company
controlled by certain members of the Board of Directors of Hollinger
International and the Company. Such amount represents the unpaid
purchase price payable to Hollinger International in connection with
the sale of certain operations to Horizon during 1999. The loan
receivable is unsecured, bears interest at the lower of LIBOR plus 2%
and 8% per annum and is due in 2007.

l) During 2002, the Company paid to Horizon a management fee in the
amount of $256,000 in connection with certain administrative services
provided by Horizon. Such fee was approved by Hollinger
International's independent directors.

m) Additional related party transactions occurring subsequent to year end
are described in note 29.

24. FINANCIAL INSTRUMENTS

a) Risk management activities

i) Credit risk

The Company does not have a significant exposure to any individual
customer or counterparty. The Company is exposed to credit risk in
the event of non-performance by counterparties in connection with its
foreign currency contracts and interest rate swap agreements. The
Company does not obtain collateral or other security to support
financial instruments subject to credit risk but mitigates this risk
by dealing only with financially sound counterparties and,
accordingly, does not anticipate loss due to non-performance.

ii) Interest rate and currency risk

The Company and its subsidiaries have entered into interest rate
swaps, forward foreign exchange contracts and cross-currency rate
swaps, as described in detail in notes 24c) and 24d) below.

F-48

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

iii) Market risk

During 1999, the Company's Series II exchangeable preference shares
became exchangeable for a fixed number of shares of Hollinger
International Class A common stock. As a result, such shares are
valued at an amount equivalent to the market price of the underlying
shares of Hollinger International Class A common stock for which they
are exchangeable. While the carrying value of these exchangeable
shares will fluctuate with the market price of the shares of
Hollinger International Class A common stock, this market risk is
mitigated by the Company's holding of such Hollinger International
shares.

b) Forward share purchase contracts

At December 31, 2000, Hollinger International had arrangements with four
banks pursuant to which the banks had purchased 14,109,905 shares of
Hollinger International's Class A common stock at an average price of
US$14.17. Hollinger International had the option, quarterly, up to and
including September 30, 2000, to buy the shares from the banks at the
same cost or to have the banks resell those shares in the open market.
These arrangements were extended from time to time for periods
ultimately ending between February 28, 2003 and June 30, 2003. In the
event the banks resold the shares, any gain or loss realized by the
banks would be for Hollinger International's account. Under the
arrangements, until Hollinger International purchased the shares or the
banks resold the shares, dividends paid on shares belonged to Hollinger
International and Hollinger International paid interest to the banks,
based on their purchase price at the rate of LIBOR plus a spread.

In August 2001, Hollinger International purchased for cancellation from
one of the banks 3,602,305 shares of Class A common stock for
US$50,000,000 or US$13.88 per share. The market value of these shares on
the date of purchase was US$47,000,000 or US$13.05 per share.

In November 2001, one of the banks sold in the open market 3,556,513
shares of Hollinger International Class A common stock for US$34,200,000
or an average price of US$9.62 per share. This resulted in a loss to the
bank of US$15,800,000, which, in accordance with the arrangement, was
paid in cash by Hollinger International.

At December 31, 2001, Hollinger International had two forward equity
swap arrangements remaining with banks for a total of US$100,000,000. Of
that total, US$10,000,000 was prepaid during the course of 2002 from
available cash on hand. In October 2002, a further US$50,000,000 was
prepaid using the proceeds from borrowings in that month referred to in
note 10d). In December 2002, the forward equity swap arrangements were
terminated when Hollinger International purchased for cancellation from
the banks approximately 7.0 million shares of Class A common stock of
Hollinger International for a total cost of US$100,000,000 (including
the US$60,000,000 prepaid during 2002). The additional US$40,000,000
payment was paid from a portion of the proceeds received in December
2002 from Publishing's Senior Credit Facility and 9% Senior Notes (note
10). This resulted in a realized loss of $43,313,000, on the 2002
termination of the contracts, which has been included in unusual items
(note 17). During 2001, a realized loss of $29,646,000 on contracts
terminated in 2001 was included in unusual items (note 17).

The Total Return Equity Swaps were originally entered into as a
structure for the repurchase of Hollinger International's shares over an
extended time frame based on a price fixed at the outset of the
arrangement. Hollinger International does not presently intend to enter
into further similar arrangements.

F-49

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

c) Fair values of financial instruments

The Company has entered into various types of financial instruments in
the normal course of business. Fair value estimates are made at a
specific point in time, based on assumptions concerning the amount and
timing of estimated future cash flows and assumed discount rates
reflecting the country of origin and varying degrees of perceived risk.
The estimates are subjective in nature and involve uncertainties and
matters of significant judgment and, therefore, may not accurately
represent future realizable values.

The carrying value and estimated fair value of the Company's financial
instruments at December 31, 2001 and 2002 are as follows:

<Table>
<Caption>
2001 2002
----------------------- -----------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ----------

Marketable securities (note 5)... $ 78,939 $ 65,871 $ 91,476 $ 90,032
Long-term debt (note 10)......... 1,351,626 1,288,199 1,789,321 1,651,150
Retractable preference shares
(note 11)...................... 147,472 147,472 135,299 135,299
Liability for interest rate
swaps.......................... 1,567 1,567 -- --
Foreign currency obligation (note
12)............................ 25,442 25,442 21,444 21,444
Forward foreign exchange contract
-- asset (note 12)............. 24,751 24,751 -- --
Forward share purchase contracts
-- liability (note 24b))....... -- 29,735 -- --
Cross-currency swap -- liability
(note 12)...................... -- -- 14,475 14,475
</Table>

The carrying values of cash and cash equivalents, escrow deposits,
accounts receivable, bank indebtedness, accounts payable and accrued
expenses and amounts due to related parties approximate their fair
values, due to the relatively short periods to maturity of the
instruments.

The fair value of marketable securities is based on the closing market
value of such securities at the year end.

Fair values for long-term debt have been determined based on the future
contractual cash payments at the respective operation's current
borrowing rate. The fair value of the long-term debt related to the
Senior Subordinated Notes at December 31, 2002 is the value at which
they were retired in January 2003. Fair value of the retractable
preference shares is based on the market value of the shares of
Hollinger International Class A common stock or the cash proceeds for
which they are retractable or redeemable.

The fair value of the cross-currency swaps, interest rate swaps, forward
share purchase contracts, and forward foreign exchange contracts is the
estimated amount that the Company would pay or receive to terminate the
agreements. Interest rate swaps were considered a hedge until the hedged
debt was repaid in 2000. Subsequent to the debt repayment, the estimated
cost to terminate the swap has been included in income. Such swaps were
terminated in 2002. The foreign currency obligation and forward foreign
exchange contract are in connection with the sale of participations in
the CanWest debentures, which is described in note 5. The cross-currency
swap is in connection with the Service Credit Facility, as described in
note 10b). The carrying values of all other financial instruments at
December 31, 2002 and 2001 approximate their estimated fair values.

F-50

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

d) Derivative instruments

The Company may enter into various swaps, options and forward contracts
from time to time when management believes conditions warrant. Such
contracts are limited to those that relate to the Company's actual
exposure to commodity prices, interest rates and foreign currency risks.
If, in management's view, the conditions that made such arrangements
worthwhile no longer exist, the contracts may be closed. At the end of
2001, there were no material contracts or arrangements of these types,
other than the forward exchange contract related to the Participation
Trust as described in note 5. The contract was terminated as at
September 30, 2002. The contract was marked to market and the related
gains and losses included in foreign exchange losses during the year.
The cumulative loss on the Company's obligation under the Participation
Trust as at December 31, 2002 is $21,444,000 (2001 -- $691,000) and is
included in the consolidated balance sheet in other liabilities and
deferred credits (note 12).

As described in note 10b), the Company entered into two cross-currency
rate swaps to offset principal and interest payments on U.S. dollar
borrowings by a U.K. subsidiary under Publishing's December 2002 Senior
Credit Facility. The fair value of the contracts as of December 31, 2002
of $14,475,000 million is included in the consolidated balance sheet in
other liabilities and deferred credits (note 12).

25. RECENT ACCOUNTING PRONOUNCEMENTS

a) Foreign currency and hedging

In November 2001, the CICA issued Accounting Guideline 13, "Hedging
Relationships" ("AcG 13"). AcG 13 establishes new criteria for hedge
accounting and will apply to all hedging relationships in effect on or
after July 1, 2003. On January 1, 2004, the Company will reassess all
hedging relationships to determine whether the criteria are met or not
and will apply the new guidance on a prospective basis. To qualify for
hedge accounting, the hedging relationship must be appropriately
documented at the inception of the hedge and there must be reasonable
assurance, both at the inception and throughout the term of the hedge,
that the hedging relationship will be effective. The Company is in the
process of formally documenting all hedging relationships and has not
yet determined whether any of their current hedging relationships will
not meet the new hedging criteria.

b) Impairment of long-lived assets

In December 2002, the CICA issued Handbook Section 3063, "Impairment of
Long-Lived Assets" and revised Section 3475, "Disposal of Long-Lived
Assets and Discontinued Operations". These sections supersede the
write-down and disposal provision of Section 3061, "Property, Plant and
Equipment", and Section 3475, "Discontinued Operations". The new
standards are consistent with U.S. GAAP. Section 3063 establishes
standards for recognizing, measuring and disclosing impairment of
long-lived assets held for use. An impairment is recognized when the
carrying amount of an asset to be held and used exceeds the projected
future net cash flows expected from its use and disposal and is measured
as the amount by which the carrying amount of the asset exceeds its fair
value. Section 3475 provides specific criteria for and requires separate
classification for assets held for sale and for these assets to be
measured at the lower of their carrying amounts and fair value, less
costs to sell. Section 3475 also broadens the definition of discontinued
operations to include all distinguishable components of an entity that
will be eliminated from operations. Section 3063 is effective for the
Company's 2004 fiscal year; however, early application is permitted.
Revised Section 3475 is applicable to disposal activities committed to
by the Company after May 1, 2003;

F-51

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

however, early application is permitted. The Company expects that the
adoption of these standards will have no material impact on its
financial position, results of operations or cash flow at this time.

c) Disclosure of guarantees

In February 2003, the CICA issued Accounting Guideline 14, "Disclosure
of Guarantees" ("AcG 14"). AcG 14 requires certain disclosures to be
made by a guarantor in its interim and annual financial statements for
periods beginning after January 1, 2003. AcG 14 is generally consistent
with the disclosure requirements for guarantees in the U.S. (Financial
Accounting Standards Board ("FASB") Interpretation No. 45) but, unlike
the FASB's guidance, does not encompass recognition and measurement
requirements. The Company has evaluated the impact of adoption of AcG 14
and the disclosures are included in note 27h).

26. SCHEDULE OF RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP)

The following represents additional information to the consolidated
financial statements of the Company that were prepared in accordance with
Canadian GAAP. Set out below are the material adjustments (net of deferred
income taxes, minority interest and foreign exchange rate adjustments where
applicable) to net earnings (loss) for the years ended December 31, 2000, 2001
and 2002 and to shareholders' deficiency at December 31, 2001 and 2002 in order
to conform to accounting principles generally accepted in the United States
("U.S. GAAP").

<Table>
<Caption>
YEAR ENDED DECEMBER 31,
------------------------------------------
2000 2001
(RESTATED-(V)) (RESTATED-(V)) 2002
-------------- -------------- --------

NET EARNINGS (LOSS)
Net earnings (loss) for the year based on Canadian
GAAP................................................. $ 189,373 $(131,898) $(88,640)
Capitalization of betterments, net of related
amortization(a)...................................... (4,633) 5,230 --
Gain on sale of shares, gain on subsidiary's issue of
shares or sale of assets(c)(v)....................... 13,868 30,920 4,505
Foreign exchange(d).................................... 6,406 10,086 (7,293)
Cost of acquisitions, net of amortization(e)........... 42 42 42
Compensation to employees(f)........................... (1,127) 918 --
Net earnings (loss) in equity accounted companies(g)... (7,882) 7,882 --
Adjustment to tax provision(h)(v)...................... (162,764) (41,893) --
Business combinations(i)(v)............................ 29,932 56,932 --
Financial instruments(j)............................... 2,421 9,294 8,185
Total return equity swap(k)(v)......................... (9,112) (15,316) 17,789
Valuation allowance against prepaid pension
asset(l)(v).......................................... 29,757 (14,244) (6,277)
--------- --------- --------
Net earnings (loss) for the year based on U.S. GAAP,
before accounting change, as restated(v)............. 86,281 (82,047) (71,689)
Cumulative effect of accounting change for
goodwill(q).......................................... -- -- (12,071)
--------- --------- --------
Net earnings (loss) for the year based on U.S. GAAP, as
restated(v).......................................... $ 86,281 $ (82,047) $(83,760)
========= ========= ========
</Table>

F-52

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

<Table>
<Caption>
DECEMBER 31,
---------------------------------
2001 2002
--------------- ---------------
(RESTATED-26V)) (RESTATED-26V))

SHAREHOLDERS' DEFICIENCY
Shareholders' deficiency based on Canadian GAAP............. $(263,470) $(351,331)
Capitalization of betterments, net of related
amortization(a)........................................... (182,807) (195,166)
Amortization of intangible assets(b)........................ (24,175) (24,175)
Gain on sale of shares, gain on subsidiary's issue of shares
or sale of assets(c)(v)................................... 117,854 122,359
Foreign exchange(d)......................................... (1,569) (1,404)
Cost of acquisitions, net of amortization(e)................ (1,890) (1,848)
Compensation to employees(f)................................ (2,764) (2,764)
Net loss in equity accounted companies(g)................... (1,389) (1,389)
Income taxes(h)(v).......................................... 63,699 63,699
Business combinations(i)(v)................................. 4,603 4,603
Financial instruments(j).................................... 18,707 23,019
Total return equity swap(k)(v).............................. (17,789) --
Valuation allowance against prepaid pension asset(l)(v)..... 8,513 2,236
Capital stock(m)............................................ (271,774) (273,759)
Investments(n).............................................. (3,755) (839)
Minimum pension liability adjustment(o)..................... (11,552) (25,612)
--------- ---------
Shareholders' deficiency based on U.S. GAAP, as
restated(v)............................................... $(569,558) $(662,371)
========= =========
</Table>

<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2002
------------

U.S. GAAP shareholders' deficiency, beginning of year....... $(569,558)
U.S. GAAP net loss for the year............................. (83,760)
Dividends -- retractable common shares...................... (19,220)
Dividends -- Series II and Series III preference
shares(j)................................................. (8,185)
Premium on retraction of retractable common shares.......... 141
Net increase in deferred marked to market adjustment in
respect of the Series II preference shares(j)............. 4,312
Movement in deferred foreign exchange loss on Series II and
Series III preference shares
presented outside of shareholders' deficiency for Canadian
GAAP purposes(j).......................................... 172
Share issue costs........................................... (42)
OTHER COMPREHENSIVE INCOME ITEMS:
Change in equity adjustment from foreign currency
translation(d)............................................ 24,914
Net unrealized loss on investments held for sale(c)......... 2,915
Net minimum pension liability adjustment(o)................. (14,060)
---------
U.S. GAAP shareholders' deficiency, end of year............. $(662,371)
=========
</Table>

F-53

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

BALANCE SHEET DIFFERENCES:

The following material balance sheet differences exist between Canadian and
U.S. GAAP.

1) Other intangible assets:

<Table>
<Caption>
DECEMBER 31,
---------------------
2001 2002
---------- --------

Canadian GAAP............................................... $1,177,544 $185,143
Adjustment for capitalization of betterments, net of related
amortization(a)........................................... (394,246) --
Adjustment for amortization(b).............................. (24,175) --
Adjustment for cost of acquisitions(e)...................... (1,876) --
Adjustment for business combinations(i)(v).................. 4,603 --
---------- --------
U.S. GAAP................................................... $ 761,850 $185,143
========== ========
</Table>

2) Goodwill:

<Table>
<Caption>
DECEMBER 31,
-------------------
2001 2002
-------- --------

Canadian GAAP............................................... $174,324 $913,327
Adjustment for capitalization of betterments, net of related
amortization(a)........................................... -- (424,589)
Adjustment for amortization(b).............................. -- (24,175)
Adjustment for cost of acquisitions(e)...................... -- (1,809)
Adjustment for income taxes(h)(v)........................... 63,699 63,699
Adjustment for business combinations(i)(v).................. -- 4,603
-------- --------
U.S. GAAP................................................... $238,023 $531,056
======== ========
</Table>

3) Minority interest:

<Table>
<Caption>
DECEMBER 31,
---------------------
2001 2002
--------- ---------

Canadian GAAP............................................... $ 725,928 $ 473,272
Adjustment for minority interest(v)......................... (252,886) (235,969)
--------- ---------
U.S. GAAP................................................... $ 473,042 $ 237,303
========= =========
</Table>

4) Future income tax liabilities:

<Table>
<Caption>
DECEMBER 31,
---------------------
2001 2002
--------- ---------

Canadian GAAP............................................... $ 486,937 $ 375,479
Adjustment for income taxes................................. (107,399) (122,637)
--------- ---------
U.S. GAAP................................................... $ 379,538 $ 252,842
========= =========
</Table>

F-54

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

5) Deferred pension asset:

<Table>
<Caption>
DECEMBER 31,
-------------------
2001 2002
-------- --------

Canadian GAAP............................................... $ 83,459 $123,230
Adjustment for change in valuation allowance against prepaid
asset(l)(v)............................................... 38,487 3,758
-------- --------
U.S. GAAP................................................... $121,946 $126,988
======== ========
</Table>

6) Total return equity swap liability:

<Table>
<Caption>
DECEMBER 31,
-------------------
2001 2002
-------- --------

Canadian GAAP............................................... $ -- $ --
Adjustment for unrealized losses(k)(v) 55,912 --
-------- --------
U.S. GAAP................................................... $ 55,912 $ --
======== ========
</Table>

7) Capital stock:

<Table>

Canadian GAAP............................................... $ 271,774 $ 273,759
Adjustment to reclassify retractable common shares(m)....... (271,774) (273,759)
--------- ---------
U.S. GAAP................................................... $ -- $ --
========= =========
</Table>

SUMMARY OF ACCOUNTING POLICY DIFFERENCES:

The areas of material difference between Canadian and U.S. GAAP and their
impact on the consolidated financial statements of the Company are set out
below:

a) Capitalization of betterments

Effective January 1, 1990, the Company capitalized as circulation the
costs incurred to increase the long-term readership of its publications
("betterments"). U.S. GAAP does not permit capitalization of these
costs. As a result of new Canadian accounting standards, effective
January 1, 2002, the Company no longer capitalizes these costs under
Canadian GAAP.

b) Amortization of intangible assets

Prior to the adoption on January 1, 2002 of new U.S. and Canadian
accounting standards for goodwill described below, U.S. GAAP required
the amortization of all intangible assets acquired on a straight-line
basis over a period not exceeding 40 years. Under Canadian GAAP, prior
to December 31, 1990, there was no requirement to amortize intangible
assets, such as circulation, that were considered to have an indefinite
life. Effective January 1, 1991, Canadian GAAP required that all
intangible assets be amortized. As a result, commencing January 1, 1990
under Canadian GAAP, the Company amortized the cost of circulation on a
straight-line basis over periods ranging from 10 to 40 years.

Effective January 1, 2002, the Company adopted new Canadian accounting
standards for Goodwill and Other Intangible Assets and certain
transitional provisions for Business Combinations. These new Canadian
standards are substantially consistent with the new U.S. accounting
standards SFAS 141 and SFAS 142, except that under U.S. GAAP, any
transitional impairment charge is recognized in earnings as a cumulative
effect of a change in accounting principle. The new standards require
that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but

F-55

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

instead be tested for impairment at least annually. The standards also
specify criteria that intangible assets must meet to be recognized and
reported apart from goodwill. In addition, the standard requires that
intangible assets with estimable useful lives be amortized over their
respective estimated useful lives to their estimated residual values,
and that such assets are reviewed for impairment by assessing the
recoverability of the carrying value.

Effective January 1, 2002, the Company has discontinued amortization of
all existing goodwill, evaluated existing intangible assets and has made
the necessary reclassifications in order to conform with the new
criteria for recognition of intangible assets apart from goodwill.
Amounts previously ascribed to circulation, including costs capitalized
to increase long-term readership and certain other intangible assets
have now been reclassified to goodwill, net of the related deferred
income taxes, effective January 1, 2002.

This change in accounting policy cannot be applied retroactively and the
amounts presented for prior periods have not been restated for this
change. If this change in accounting policy were applied to the reported
net earnings (loss) under U.S. GAAP for the years ended December 31,
2000 and 2001, the impact of the change, in respect of the U.S. GAAP
goodwill and intangible assets with indefinite useful lives not being
amortized, would be as follows:

<Table>
<Caption>
DECEMBER 31,
-------------------------
2000 2001
----------- -----------
(IN THOUSANDS, EXCEPT PER
SHARE)

U.S. GAAP net earnings (loss), as reported.................. $ 86,281 $(82,047)
Add U.S. GAAP amortization, net of income tax and minority
interest.................................................. 38,668 17,548
-------- --------
Adjusted U.S. GAAP net earnings (loss)...................... $124,949 $(64,499)
======== ========
U.S. GAAP basic net earnings (loss) per share, as
reported.................................................. $ 1.52 $ (2.33)
Adjusted U.S. GAAP basic net earnings (loss) per share...... $ 2.56 $ (1.81)
U.S. GAAP diluted net earnings (loss) per share, as
reported.................................................. $ 1.42 $ (2.62)
Adjusted U.S. GAAP diluted net earnings (loss) per share.... $ 2.46 $ (2.10)
</Table>

Adjusted net earnings (loss), noted above, reflects only the reduction
in amortization expense in respect of intangibles now classified as
goodwill and does not give effect to the impact that this change in
accounting policy would have had on the gains and losses resulting from
the disposal of operations during 2001 and 2000.

c) Gain on sale of shares, gain on subsidiary's issue of shares or sale of
assets

As a result of the adjustments in a) and b) above, and for periods
subsequent to January 1, 2002, as a result of adjustments (h) and (i),
the carrying value of the investments in Hollinger L.P., Southam and
Hollinger International are lower under U.S. GAAP, resulting in the gain
on sale of properties by Hollinger International, Southam and Hollinger
L.P., gains on the sale by the Company of shares of Hollinger
International, and gains on dilution of investments in Hollinger
International and Hollinger L.P., being higher under U.S. GAAP.

d) Foreign exchange

F-56

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

complete liquidation. While there may be differences in the timing of
the recognition of such foreign exchange gains and losses under Canadian
and U.S. GAAP, this difference in accounting has no effect on total
shareholders' deficiency.

e) Cost of acquisitions

Under Canadian GAAP, the Company previously had a policy of including
certain internal acquisition costs as part of the purchase price of
businesses acquired. U.S. GAAP does not permit capitalization of these
costs.

f) Compensation to employees

The Company and Hollinger International have various stock option and
stock purchase plans for executives. Under Canadian GAAP, compensation
is not recognized on the grant or modification of any employee option.
In accordance with U.S. GAAP, options granted to employees of the parent
company are measured using the fair value based method and treated as a
dividend in kind with no resulting impact on either net earnings (loss)
or shareholders' deficiency. For all other employee options, the
compensation element is measured under U.S. GAAP using the intrinsic
value based method of accounting and is apportioned over the period of
service to which the compensation is related. As a result of a previous
reduction in the exercise price of Hollinger International's options,
compensation expense was recorded under U.S. GAAP in 2000 and a reversal
of compensation was recorded under U.S. GAAP in 2001.

g) Equity accounted companies

Under U.S. GAAP the compensation element of executive stock options
related to equity accounted companies is measured and apportioned over
the period of service to which the compensation is related. Under
Canadian GAAP, compensation is not recognized for stock options. In
addition, betterments, net of related amortization, related to equity
accounted companies were capitalized under Canadian GAAP until January
1, 2002. This is not permitted under U.S. GAAP.

As a result of the above adjustments, the carrying value of equity
accounted investments is lower under U.S. GAAP, resulting in the gain on
the disposition of these investments in 2001 being higher under U.S.
GAAP. The adjustments for 2000 and 2001 are in respect of the Company's
investment in Interactive Investor International.

h) Income taxes

Effective January 1, 2000, the Company adopted, on a retroactive basis,
new Canadian accounting standards for income taxes, which now require
income taxes to be accounted for using the asset and liability method,
consistent with U.S. GAAP. Previously, under Canadian GAAP, the deferral
method of providing for income taxes was used.

Under Canadian accounting standards for income taxes, the Company is not
required to restate its comparative figures for prior years and the
cumulative effect of this change in accounting policy of $291,004,000
(net of related minority interest) has been charged directly to retained
earnings as at January 1, 2000. Of this adjustment, $276,215,000 was
attributable to future income tax liabilities established in respect of
amounts ascribed to circulation on business acquisitions which are
largely not deductible for income tax purposes. Under U.S. GAAP, the
establishment of such future tax liabilities on business acquisitions
would have resulted in additional goodwill being recorded for an
equivalent amount. Under U.S. GAAP, the deferred tax recovery recorded
in respect of circulation amortization is fully offset by the related
goodwill amortization, with no net impact on U.S. GAAP net earnings.
Effective January 1, 2002, on the adoption of the new Canadian and U.S.
accounting

F-57

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

standards for Goodwill and Business combinations (note b)), amounts
ascribed to circulation have been reclassified to goodwill, which is no
longer being amortized.

The new Canadian accounting standard for income taxes adopted January 1,
2000 does not require the restatement of prior years' business
acquisitions and permits the adjustment, otherwise made to goodwill
under U.S. GAAP, to be made directly to retained earnings (net of
related minority interest). As a result of not restating comparative
figures, the $276,215,000 net deferred tax impact of circulation
recorded on January 1, 2000 as a charge against retained earnings under
Canadian GAAP would have been recorded as goodwill under U.S. GAAP. This
difference, in turn, resulted in higher goodwill amortization or
write-off charges under U.S. GAAP in the amount of $162,764,000 and
$41,893,000 for the years ended December 31, 2000 and 2001,
respectively.

Accordingly, while there may not be any new material differences between
Canadian and U.S. GAAP with respect to income taxes for periods
subsequent to January 1, 2000, there will continue to be a difference
between Canadian and U.S. GAAP in respect of the remaining $63.7 million
of deferred taxes which will eliminate subsequent to January 1, 2002
only when the underlying operation is sold or the Company's interest in
the underlying operations is diluted.

U.S. GAAP income tax expense would have differed from the amounts
computed by applying the basic federal and provincial income tax rates
to U.S. GAAP earnings (loss) before income taxes, minority interest and
cumulative effect of change in accounting principle as shown in the
following table:

<Table>
<Caption>
2000 2001 2002
-------- --------- ---------

Earnings (loss) before income taxes, minority
interest and cumulative effect of change in
accounting principle............................. $896,205 $(417,688) $(140,394)
======== ========= =========
Basic income tax rate.............................. 43.95% 41.75% 41.00%
======== ========= =========
Computed income tax expense (recovery)............. $393,882 $(174,385) $ (57,562)
Change in income tax expense (recovery) resulting
from:
Different tax rate on earnings of subsidiaries..... (89,178) 19,565 15,144
Tax gain in excess of book gain.................... (82,350) 52,158 949
Potential tax benefit of current year's losses not
recorded......................................... 29,255 -- --
Large Corporations Tax............................. 15,531 940 1,079
Loss on total return equity swap................... 8,013 27,134 (4,844)
Change in valuation allowance...................... -- 42,841 74,043
Minority interest earnings in Hollinger L.P........ (26,669) (2,001) (1,214)
Permanent differences.............................. 208,778 (35,810) 56,983
-------- --------- ---------
Income tax expense (recovery)...................... $457,262 $ (69,558) $ 84,578
======== ========= =========
Effective tax rate................................. 51.02% 16.65% 60.24%
======== ========= =========
</Table>

Canadian and foreign components of earnings (loss) before income taxes,
minority interest and cumulative effect of change in accounting
principle are presented below:

<Table>
<Caption>
2000 2001 2002
-------- --------- ---------

Canadian........................................... $886,301 $(255,352) $ 10,020
Foreign............................................ 9,904 (162,336) (150,414)
-------- --------- ---------
$896,205 $(417,688) $(140,394)
======== ========= =========
</Table>

F-58

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

Income tax expense (recovery) for the periods shown below consists of:

<Table>
<Caption>
CURRENT DEFERRED TOTAL
-------- --------- ---------

Year ended December 31, 2000:
Canadian......................................... $529,497 $(167,453) $ 362,044
Foreign.......................................... 88,198 7,020 95,218
-------- --------- ---------
$617,695 $(160,433) $ 457,262
======== ========= =========
Year ended December 31, 2001:
Canadian......................................... $ 7,153 $(147,773) $(140,620)
Foreign.......................................... 49,151 21,911 71,062
-------- --------- ---------
$ 56,304 $(125,862) $ (69,558)
======== ========= =========
Year ended December 31, 2002:
Canadian......................................... $ (5,503) $ 92,301 $ 86,798
Foreign.......................................... 2,888 (5,108) (2,220)
-------- --------- ---------
$ (2,615) $ 87,193 $ 84,578
======== ========= =========
</Table>

i) Business combinations

Under Canadian GAAP, the Company was required to treat the transfer in
1997 of the Canadian newspapers to Hollinger International as a
disposition at fair value. This resulted in the recognition of a gain to
the extent there is a minority interest in Hollinger International.

U.S. GAAP requires that the transfer of the Canadian Newspapers to a
subsidiary company be accounted for at historical values using "as-if"
pooling of interest accounting. As a result, the revenues and expenses
for the periods prior to January 1, 1997 would be restated to give
effect to the transfer of the Canadian Newspapers to Hollinger
International and the gross gain, prior to deducting expenses, of
$114,000,000 on the sale of the properties and the increase in
intangible assets of an equivalent amount would not have been recorded
for U.S. GAAP purposes. However, such gain would be recognized for U.S.
GAAP purposes as the underlying Canadian newspaper operations were sold
to third parties, or there was a further dilution in the Company's
interest in Hollinger International.

In addition, because the consideration received by the Company in 1997
included shares of Hollinger International, the Company was required to
treat this as an acquisition of an additional interest in Hollinger
International, which resulted in $20,500,000 being ascribed to
circulation and additional annual amortization expense of $932,000.
Effective January 1, 2002, upon adoption of the new Canadian and U.S.
accounting standards for Goodwill and Business Combinations (note 26b)),
amounts ascribed to circulation have been reclassified to goodwill,
which is no longer being amortized. Accordingly, there would be no
difference between Canadian and U.S. GAAP with respect to this item for
periods subsequent to January 1, 2002 unless the underlying operation is
sold, or the Company's interest in the underlying operations is diluted.

j) Financial instruments

Canadian GAAP requires the value ascribed to certain subsidiary Special
shares outstanding during 2000 to be increased over the life of the
shares to the Company's optional cash settlement amount through a
periodic charge to earnings. Under U.S. GAAP, the shares are recorded at
their fair value on the date of issue and such a charge to increase
their carrying amount is not required, until the shares were settled in
2000.

F-59

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

Under Canadian GAAP, the $11,054,000, $9,294,000, $8,185,000 of
dividends on mandatory redeemable preferred stock in 2000, 2001 and
2002, respectively, must be recorded as interest expense. Under U.S.
GAAP, such dividends are charged against shareholders' deficiency.

Under U.S. GAAP, the mark to market and foreign exchange adjustments
totalling a gain of $7,670,000 at December 31, 2001 and a gain of
$11,983,000 at December 31, 2002 to the carrying value of the Series II
preference shares, which reflect the value of the underlying Hollinger
International shares for which they are exchangeable, must be recorded
within shareholders' deficiency. Under Canadian GAAP, such adjustments
are deferred and recorded on the balance sheet outside of shareholders'
deficiency.

k) Total return equity swap

During 2000, U.S. GAAP clarified the accounting for certain derivative
financial instruments indexed to, and potentially settled, in a
company's own stock, that require a cash payment by the issuer upon the
occurrence of future events outside the control of the issuer. This new
U.S. GAAP guidance applies to new contracts entered into after September
30, 2000. Consequently, the extension of Hollinger International's
forward share purchase contracts on October 1, 2000 resulted in such
contracts being accounted for using the asset and liability method after
that date. Under this method, the derivative forward contract was marked
to market subsequent to October 1, 2000. The unrealized loss during the
period, October 1 to December 31, 2000, net of minority interest,
totalled $9,112,000 and was charged to earnings for U.S. purposes.

During 2001, the mark to market losses for the contracts totalled
$95,267,000 of which $59,920,000 of losses were realized when certain
forward share purchase contracts were settled, resulting in a U.S. GAAP
difference, net of related minority interest, of $15,316,000.

In December 2002, the total return equity swaps were settled and the
losses realized.

For Canadian GAAP, no adjustment was required to reflect the mark to
market adjustment for such forward purchase contracts and losses were
recognized only when realized upon the settlement of the contract.

l) Valuation allowance against prepaid pension asset

Canadian GAAP requires recognition of a pension valuation allowance for
any excess of the prepaid benefit expense over the expected future
benefit. Changes in the pension valuation allowance are recognized in
earnings under Canadian GAAP immediately. U.S. GAAP does not permit the
recognition of pension valuation allowances.

m) Capital stock

U.S. GAAP requires that common shares which are retractable at the
option of the holder be presented in the consolidated balance sheet
outside of shareholders' deficiency. Canadian GAAP permits these
retractable common shares to be shown as equity.

n) Unrealized holding gains (losses) on investments available for sale

Under Canadian GAAP, the Company accounts for all of its investments,
which consist of corporate debt and equity securities, at historical
cost. U.S. GAAP requires those investments in marketable securities
which are available for sale, other than those investments accounted for
on an equity basis, to be recorded at fair value. Unrealized holding
gains and losses, net of the related tax and minority interest effect,
on available for sale securities are excluded from earnings and are
reported as a separate component of other comprehensive income and
shareholders' equity until realized. Realized

F-60

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

gains and losses from the sale of available-for-sale securities are
determined on a specific identification basis.

o) Minimum pension liability adjustment

Under U.S. GAAP, the Company is required to record an additional minimum
pension liability for certain of its defined benefit pension plans to
reflect the excess of the accumulated benefit obligations over the fair
value of the plan assets with a corresponding charge against other
comprehensive income included in shareholders' deficiency (note 26u)).
No such adjustment is required under Canadian GAAP.

p) Interest in joint ventures

Canadian GAAP requires the proportionate consolidation of interests in
joint ventures. Proportionate consolidation is not permitted under U.S.
GAAP and interests in joint ventures are accounted for on the equity
basis.

Although the adoption of proportionate consolidation has no impact on
net earnings (loss) or shareholders' deficiency, it does increase
assets, liabilities, revenues, expenses and cash flows from operations
from those amounts otherwise reported under U.S. GAAP.

q) Change in accounting principle

Under U.S. GAAP, the transitional provisions of SFAS 142 require the
write-down resulting from the impairment test upon adoption on January
1, 2002 to be reflected in the consolidated statement of earnings as a
cumulative effect of a change in accounting principle. However, Canadian
GAAP requires the same loss to be recorded as a charge to the opening
deficit as at January 1, 2002. As described in note 1, goodwill
attributable to Jerusalem Post was written down in its entirety upon
adoption of SFAS 142.

r) Unusual items

Included in Unusual items on the consolidated statements of earnings
under Canadian GAAP are certain items which under U.S. GAAP must be
classified as either operating costs, non-operating income or
non-operating expenses. In particular, the unusual items (note 17) would
have been classified as follows: net gain on dilution of investments as
non-operating expenses, gains and losses on sale of investments and
publishing interests as non-operating income or expenses, net, gain on
effective sale of interest in Hollinger International as non-operating
income and partially non-operating expense, loss on retirement of Senior
Notes as non-operating expenses, new Chicago plant pre-operating costs
as operating costs, write-off of financing fees as non-operating
expenses, write-off of investments as non-operating expenses, realized
loss on total return equity swap as non-operating costs, pension and
post-retirement plan liability adjustment as operating costs and
redundancy, rationalization and other costs as operating costs.

F-61

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

s) Net earnings (loss) per retractable common share

<Table>
<Caption>
YEARS ENDED DECEMBER 31
-----------------------
2000 2001 2002
----- ------ ------
(DOLLARS PER SHARE)

Basic net earnings (loss) per retractable common share:
Earnings (loss) before cumulative effect of change in
accounting principles.................................. $1.52 $(2.33) $(2.32)
Net earnings (loss) for the year.......................... $1.52 $(2.33) $(2.70)
Diluted earnings (loss) per retractable common share:
Earnings (loss) before cumulative effect of change in
accounting principles.................................. $1.42 $(2.62) $(2.35)
Net earnings (loss) for the year.......................... $1.42 $(2.62) $(2.73)
</Table>

Earnings (loss) per retractable common share amounts in accordance with
U.S. GAAP are based on U.S. GAAP net earnings. The weighted average
number of outstanding shares for purposes of calculating basic and
diluted net earnings (loss) per share is the same under both Canadian
and U.S. GAAP (note 19).

Under U.S. GAAP, the change in the unrealized mark to market gain (loss)
on the Series II preference shares of ($19,048,000), $12,759,000 and
$5,431,000 as at December 31, 2000, 2001 and 2002 must be treated as an
adjustment to dividends paid for purposes of calculating basic and
diluted net earnings (loss) per share. Such adjustment is not required
under Canadian GAAP.

t) Statement of cash flows

Canadian GAAP permits the disclosure of the amount of funds provided by
operations before changes in non-cash operating working capital and
certain other items to be included in the consolidated statements of
cash flows as a subtotal.

In addition, Canadian GAAP permits the disclosure of cash flows provided
by operations per retractable common share. U.S. GAAP does not permit
disclosure of these items.

Canadian GAAP requires proportionate consolidation of interests in joint
ventures, which is not permitted under U.S. GAAP. As a result, under
U.S. GAAP, the total funds provided by operations (including the changes
in non-cash working capital and other items) for the years ended
December 31, 2000, 2001 and 2002 would have decreased by $25,280,000,
$25,102,000 and $6,282,000, respectively.

F-62

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

u) Comprehensive income (loss)

Total comprehensive income (loss) in accordance with U.S. GAAP is as
follows:

<Table>
<Caption>
YEARS ENDED DECEMBER 31
------------------------------
2000 2001 2002
-------- -------- --------

Net earnings (loss) based on U.S. GAAP, as restated (v)..... $ 86,281 $(82,047) $(83,760)
Other comprehensive net earnings (loss), net of tax, being:
Unrealized gain (loss) on investments held for sale, net
of related tax recovery of $20,390, $29,002 and $2,372
and minority interest of $38,990, $77,542 and $5,701 in
2000, 2001 and 2002, respectively...................... (35,244) (54,066) 2,256
Reclassification adjustment for realized loss reclassified
out of accumulated comprehensive income, net of related
tax recovery of nil, $47,102 and $832 and minority
interest of nil, $118,041 and $1,384 in 2000, 2001 and
2002, respectively..................................... -- 83,005 659
-------- -------- --------
(35,244) 28,939 2,915
Change in the equity adjustment from foreign currency
translation............................................... (64,559) 10,527 24,914
Minimum pension liability adjustment, net of a related tax
recovery of nil, $11,726 and $24,897 and minority interest
of $1,570, $13,055 and $29,504 in 2000, 2001 and 2002,
respectively.............................................. (1,570) (9,982) (14,060)
-------- -------- --------
Comprehensive loss based on U.S. GAAP....................... $(15,092) $(52,563) $(69,991)
======== ======== ========
</Table>

v) Restatements

Shareholder's deficiency and net earnings (loss) based on U.S. GAAP as
at December 31, 2000 and 2001 and for the years ended December 31, 2000
and 2001 differ from the amounts previously reported as follows:

i) In 2001, adjustments described in note 26k), were previously
computed without giving effect to the full amount of the realized
losses, which would have already been recognized in the net loss
for Canadian GAAP purposes. The dilution gain adjustment recorded
in 2001 (note 26c)) has also been effected as a consequence of this
adjustment. This restatement reduced the previously reported U.S.
GAAP net loss in fiscal 2001 by $20,098,000.

ii) In 2000, the Company recorded a valuation allowance against the
excess of the prepaid benefit expense for certain of its Canadian
operations, over the expected future benefit. U.S. GAAP does not
specifically address pension valuation allowances and the Company
had believed that such valuation allowance was appropriate under
U.S. GAAP. Recently U.S. regulators have interpreted there to be a
difference between Canadian and U.S. GAAP in this area. In light of
these recent developments, the Company retroactively adjusted for
the changes in the valuation allowance and the related impact on
the dilution gain, which resulted in an increase to reported U.S.
GAAP net earnings for fiscal 2000 of $29,757,000 and an increase to
reported U.S. GAAP net loss for fiscal 2001 of $5,670,000, each net
of related income tax and minority interest.

iii) In addition to giving effect to the matters noted above, certain
basic and diluted earnings per share figures for 2000, and 2001
have been restated from amounts previously reported due to an error
in the computation of the unrealized mark to market adjustment on
the Series II preference shares (note 26s)) as well as a
restatement of the dilutive effect of certain dilutive securities
of International.

F-63

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

iv) As described in note 26i), in 1997 the Company recorded for Canadian
GAAP purposes, a gain on the sale of certain Canadian newspapers to
Hollinger International. Under U.S. GAAP, no gain could be
recognized in 1997. However, such gain should have been recognized
as the underlying Canadian newspaper operations were sold to third
parties, or there was a further dilution in the Company's interest
in Hollinger International.

In the years 1998 through 2001, the Company did not appropriately
recognize such gains for U.S. GAAP purposes and has restated its U.S.
GAAP results for these years to reflect such gains. In addition, as a
result of this matter, the Company has also retroactively restated the
adjustment to the income tax provision for U.S. GAAP purposes. As a
result of these two items, the Company has retroactively decreased the
previously reported U.S. GAAP shareholder's deficiency as at December
31, 1999 by a net $21.1 million and increased reported U.S. GAAP net
earnings for fiscal 2000 by $21.1 million and increased reported U.S.
GAAP net earnings for fiscal 2001 by $40.8 million.

v) In 2001 and 2002, the Company originally presented its retractable
common shares as part of shareholders' deficiency. Under U.S. GAAP
the retractable common shares do not qualify as permanent equity due
to the retractable features being effective at the option of the
holder. As a result, the retractable common shares are required to
be reclassified outside of shareholders' deficiency.

In addition, under U.S. GAAP loans receivable from employees relating
to share purchases were originally presented in the consolidated
balance sheet as a deduction from capital stock. As a result of the
presentation of retractable common shares outside of shareholders'
deficiency for U.S. GAAP purposes, the loans receivable from
employees relating to share purchases are no longer required to be
deducted from capital stock.

The Company has retroactively restated its U.S. GAAP shareholders'
deficiency in respect of these changes in presentation, the net
impact of which was to increase to the shareholders' deficiency in
2001 by $265,931 to $569,558.

The net effect of all these restatements to basic and diluted net
earnings (loss) for the years ended December 31, 2000 and 2001 is
summarized below:

<Table>
<Caption>
YEARS ENDED
DECEMBER 31
-------------------
2000 2001
-------- --------
(DOLLARS PER SHARE)

U.S. GAAP basic earnings (loss) per retractable common
share:
As previously reported.................................... $(0.12) $(3.89)
Restated.................................................. $ 1.52 $(2.33)
U.S. GAAP diluted loss per retractable common share:
As previously reported.................................... $(0.49) $(4.11)
Restated.................................................. $ 1.42 $(2.62)
</Table>

w) Recent pronouncements

F-64

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

result from the acquisition, construction, development and/or normal use
of the assets. The fair value of the liability is added to the carrying
amount of the associated asset and this additional carrying amount is
depreciated over the life of the asset. Subsequent to the initial
measurement of the asset retirement obligation, the obligation will be
adjusted at the end of each period to reflect the passage of time and
changes in the estimated future cash flows underlying the obligation. If
the obligation is settled to other than the carrying amount of the
liability, the Company will recognize a gain or loss on settlement. The
Company is required to adopt the provisions of FAS 143 for the quarter
ending March 31, 2003. To accomplish this, the Company must identify all
legal obligations for asset retirement obligations, if any, and
determine the fair value of these obligations on the date of adoption.
The determination of fair value is complex and will require the Company
to gather market information and develop cash flow models. Additionally,
the Company will be required to develop processes to track and monitor
these obligations. The Company has determined that the adoption of FAS
143 does not have a material impact on its financial statements.

In April 2002, the FASB issued FAS 145 which rescinded FAS 4, "Reporting
Gains and Losses from Extinguishment of Debt" ("FAS 145"). FAS 145
addresses, among other things, the income statement treatment of gains
and losses related to debt extinguishments, requiring that such expenses
no longer be treated as extraordinary items, unless the items meet the
definition of extraordinary per APB Opinion No. 30, "Reporting the
Results of Operations -- Reporting the Effects of Disposal of a Segment
of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions". Upon adoption, any gain or loss on
extinguishment of debt that was classified as an extraordinary item, in
prior periods presented, that does not meet the criteria in Opinion 30
for classification as an extraordinary item, is required to be
reclassified to non-operating expense. The Company retroactively adopted
the new presentation requirements of FAS 145 effective January 1, 2002.
The adoption of such accounting standard did not impact the Company's
U.S. GAAP net earnings as information regarding extraordinary losses
under U.S. GAAP on debt extinguishment was presented for disclosure
purposes only.

In July 2002, the FASB issued FAS 146, "Accounting for Costs Associated
with Exit or Disposal Activities" ("FAS 146"), which is effective for
exit or disposal activities that are initiated after December 31, 2002.
FAS 146 nullifies Emerging Issues Task Force Issue No. 94-3 ("EITF
94-3"), "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in
Restructuring)". The principal difference between FAS 146 and EITF 94-3
related to the recognition of a liability for a cost associated with an
exit or disposal activity. FAS 146 requires that a liability be
recognized for exit or disposal costs only when the liability is
incurred, whereas under EITF 94-3, the liability was recognized when a
company commits to an exit plan, and that the liability be initially
measured at fair value. The Company is currently assessing the impact of
the new standards.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities" ("VIE'S") ("FIN 46"), which requires the
companies that control another entity through interests other than
voting interest should consolidate the controlled entity. In the absence
of clear control through a voting equity interest, a company's exposure
(variable interests) to the economic risk and the potential rewards from
a VIE's assets and activities are the best evidence of a controlling
financial interest. VIE's created after January 31, 2003 must be
consolidated immediately. VIE's existing prior to February 1, 2003 must
be consolidated by the Company commencing with its third quarter 2003
financial statements. The Company has not yet determined whether it has
any VIE's which will require consolidation.

F-65

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation -- Transition and Disclosure", an amendment of
FASB Statement No. 123. This Statement amends SFAS No. 123, "Accounting
for Stock-Based Compensation", to provide alternative methods of
transition for a voluntary change to the fair value method of accounting
for stock-based employee compensation. The Company plans to continue to
use the intrinsic value method for U.S. GAAP purposes. In addition, this
Statement amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements.
Certain of the disclosure modifications are required for fiscal years
ending after December 15, 2002 and are included in note 27e).

27. ADDITIONAL DISCLOSURES REQUIRED UNDER U.S. GAAP

a) Accounting policy

Issuance of a Subsidiary's Stock

The Company accounts for the issuance of a subsidiary's stock as a
dilution gain or loss which is included in the statement of earnings.

b) Marketable equity and debt securities

All marketable equity and debt securities are classified as available
for sale, recorded at fair value, and presented as non-current assets.
Available for sale securities consist of the following:

<Table>
<Caption>
GROSS
AMORTIZED UNREALIZED FAIR
COST LOSS VALUE
--------- ----------- -------

December 31, 2001
Internet-related securities........................... $ 6,680 $ (4,873) $ 1,807
Can-West debentures................................... 72,259 (9,931) 62,328
------- -------- -------
$78,939 $(14,804) $64,135
======= ======== =======
</Table>

<Table>
<Caption>
GROSS
AMORTIZED UNREALIZED FAIR
COST GAIN (LOSS) VALUE
--------- ----------- -------

December 31, 2002
Internet-related equity securities.................... $ 5,812 $ 940 $ 6,752
Can-West debentures................................... 85,664 (2,384) 83,280
------- ------- -------
$91,476 $(1,444) $90,032
======= ======= =======
</Table>

During 2001, the Company disposed of certain available-for-sale
securities resulting in gross realized losses of $139,586,000. In
computing the realized losses, cost was determined based on average
cost.

F-66

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

c) Accounts receivable

Accounts receivable consist of the following:

<Table>
<Caption>
2001 2002
-------- --------

Customer trade receivables.................................. $255,336 $272,537
Other....................................................... 107,240 115,167
-------- --------
Gross accounts receivable................................... 362,576 387,704
Allowance for doubtful accounts............................. (26,138) (32,673)
-------- --------
Accounts receivable......................................... $336,438 $355,031
======== ========
</Table>

d) Accounts payable and accrued expenses

Accounts payable and accrued expenses consist of the following:

<Table>
<Caption>
2001 2002
-------- --------

Trade payables.............................................. $175,418 $173,236
Accrued payroll and benefits................................ 32,205 40,297
Accrued interest............................................ 41,116 28,102
Other accrued expenses...................................... 109,705 95,451
-------- --------
$358,444 $337,086
======== ========
</Table>

e) Stock based compensation

Under U.S. GAAP, FIN 44, "Accounting for Certain Transactions involving
Stock Compensation" was effective July 1, 2000 and required repriced
options to be treated as variable stock option awards. As a result, the
Company has recorded, net of minority interest, $1,127,000 of
compensation expense for 2000 and a reversal of compensation expense of
$918,000 for 2001, in respect of certain repriced options of Hollinger
International. For all other stock options granted by the Company and
its subsidiaries, no compensation cost has been recognized. Had the
Company determined compensation costs based on the fair value at the
grant date of its stock options under Statement of Financial Accounting
Standards No. 123 ("FAS 123") "Accounting for Stock-Based Compensation",
the Company's U.S. GAAP net earnings (loss) and earnings (loss) per
share would have been reduced to the pro forma amounts indicated in the
following table:

<Table>
<Caption>
2000 2001 2002
-------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE)

Net earnings (loss) as restated (note 26v))........... $86,281 $(82,047) $(83,760)
Add compensation expense, as reported................. 1,071 (763) --
Deduct pro forma compensation expense................. (5,190) (4,950) (4,057)
------- -------- --------
Pro forma U.S. GAAP net earnings (loss)............... $82,162 $(87,760) $(87,817)
======= ======== ========
U.S. GAAP basic net earnings (loss) per share as
reported............................................ $ 1.52 $ (2.33) $ (2.70)
U.S. GAAP diluted net earnings (loss) per share as
reported............................................ $ 1.42 $ (2.62) $ (2.70)
U.S. GAAP pro forma basic net earnings (loss) per
share............................................... $ 1.41 $ (2.50) $ (2.82)
U.S. GAAP pro forma diluted net earnings (loss) per
share............................................... $ 1.30 $ (2.79) $ (2.82)
</Table>

The Company has not granted any options since 1998. The weighted average
fair value of stock options granted during 2000, 2001 and 2002 by
Hollinger International was estimated to be US$4.12, US $5.67 and
US$5.65, respectively, on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions:
dividend yield 3.4%, 4.6% and 3.6%,

F-67

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

expected volatility 43.3%, 55.2% and 68.3%, risk free interest rates of
5.1%, 5.0% and 4.5%, and expected lives of 10 years in each of those
same years.

f) Rent expense

Rent expense was $28,440,000, $22,589,000, and $26,790,000 for 2000,
2001 and 2002, respectively.

g) Derivatives

For U.S. GAAP reporting purposes, the Company adopted SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as
amended by SFAS No. 137 and SFAS No. 138 ("SFAS No. 133") on January 1,
2001. There was no impact on results of operations or financial position
upon adoption.

The Company may enter into various swap, option and forward contracts
from time to time when management believes conditions warrant, as
described in note 24d). Such derivative contracts have not been
designated as effective hedges, and therefore the changes in their fair
value are recorded in earnings under both Canadian and U.S. GAAP.

On December 27, 2002, a United Kingdom subsidiary of the Company entered
into two cross-currency rate swap transactions to hedge principal and
interest payments on U.S. dollar borrowings under Publishing's December
2002 Senior Credit Facility. The contracts have a total foreign currency
obligation notional value of U.S.$265 million, fixed at a rate
U.S.$1.5922 to L1, convert the interest rate on such borrowing from
floating to fixed, and expire as to of U.S.$45 million on December 29,
2008 and as to U.S.$220 million on December 29, 2009.

On January 22, 2003 and February 6, 2003, Publishing entered into
interest rate swaps to convert U.S.$150 million and U.S.$100 million,
respectively, of the Publishing Notes issued in December 2002 to
floating rates for the period to December 15, 2010, subject to early
termination notice.

Changes in the value of derivatives comprising the forward exchange
contract described in note 5a) and cross-currency swaps described above
amounted to a gain of $24.3 million and a loss of $28.5 million in 2001
and 2002, respectively. The fair values of all derivative contracts are
disclosed in note 24c).

h) Guarantees

In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others", which
establishes and clarifies requirements for disclosure of most guarantees
and the recognition of an initial liability for the fair value of
obligations a guarantor assumes under guarantees. The initial liability
recognition and measurement provisions are effective in respect of
guarantees entered into or modified after December 31, 2002. FIN 45
provides guidance regarding the identification of guarantees and
requires a guarantor to disclose the significant details of guarantees
that have been given regardless of whether it will have to make payments
under the guarantees.

Senior Secured Notes

In connection with the issuance in 2003 of 11 7/8% Senior Secured Notes
due 2011, the Company and certain of its subsidiaries have agreed to
indemnify its lenders against any losses or damages resulting from
inaccuracy of financial statements, environmental matters, taxes and
compliance with Securities Act. The Company and its subsidiaries also
indemnified the Noteholders against any related tax liabilities arising
from payments made with respect to the Notes, except taxes on

F-68

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

Noteholder's income. These indemnifications generally extend for the
term of the Senior Secured Notes and do not provide for any limit on the
maximum potential liability.

The Company is unable to estimate the maximum potential liability for
these types of indemnifications as the Notes indenture does not specify
a maximum amount and the amounts are dependent upon future contingent
events, the nature and likelihood of which cannot be determined at this
time. No amount has been accrued in the interim consolidated financial
statements with respect to these indemnifications and the Company is
unable to estimate amounts due for withholding taxes, if any, at this
time. Any such amounts will increase the future effective cost of
borrowing.

The Company has indemnified the lenders and their affiliates from and
against all losses as a result of any obligations of any of the
borrowers and guarantors under the Company's Senior Secured Notes.

Property Leases

A subsidiary of the Company has agreed to indemnify lessors of its
operating leases against liabilities, damages, costs, claims and actions
resulting from damaged property, violations of any lease covenants or
any accident or injury occurring on the leased premises.

The Company is unable to estimate the maximum exposure for these types
of indemnifications as the operating leases do not specify a maximum
amount and the amounts are dependent upon future contingent events, the
nature and likelihood of which cannot be determined at this time. No
amount has been accrued in the interim consolidated financial statements
with respect to these indemnifications.

Joint Ventures

The Telegraph Group Limited ("Telegraph") has guaranteed the printing
joint venture partners' share of equipment leasing obligations to third
parties, which amounted to approximately $948,000 (L372,000) at December
31, 2002. These obligations are guaranteed jointly and severally by each
joint venture partner.

Land leased by the Telegraph under a Head Lease under which the property
is held until July 2183 has been sublet to West Ferry Printers, one of
the Telegraph's printing joint ventures. The sublease is for a term of
34 years from 1987. Although the sublease has been consented to by the
landlord, it has not released Telegraph from its obligation under the
lease and, accordingly, Telegraph is contingently liable for performance
by West Ferry Printers. Annual rents under the lease are based on a
percentage of immoveable assets, currently L600,000 per year.

Pursuant to a joint venture agreement in the United Kingdom, the
Telegraph has agreed to guarantee up to L0.5 million, if required, in
connection with borrowing by the joint venture. To date, the joint
venture has made no request for the supporting guarantee.

Pursuant to the West Ferry joint venture agreement, the Telegraph has a
commitment to fund 50% of the obligation under West Ferry's defined
benefit plan.

Dispositions

F-69

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

purchasers in the event that a third party asserts a claim against the
purchaser that relates to a liability retained by the Company. These
types of indemnification guarantees typically extend for a number of
years.

The Company is unable to estimate the maximum potential liability for
these indemnifications as the underlying agreements do not always
specify a maximum amount and the amounts are dependent upon the outcome
of future contingent events, the nature and likelihood of which cannot
be determined at this time.

Historically, the Company has not made any significant indemnification
payments under such agreements and no amount has been accrued in the
accompanying interim consolidated financial statements with respect to
these indemnification guarantees. The Company continues to monitor the
conditions that are subject to guarantees and indemnifications to
identify whether it is probable that a loss has occurred, and would
recognize any such losses under any guarantees or indemnifications when
those losses are probable and estimable.

Amended and Restated Credit Agreement

The Company and its subsidiaries also indemnified the Borrower against
any related tax liabilities arising from payments made with respect to
the revolving bank credit facility, except taxes on Borrower's income.
These indemnifications generally extended for the term of the revolving
bank credit facility and did not provide for any limit on the maximum
potential liability. The revolving bank credit facility was repaid in
March 2003.

Credit Facilities

Under Hollinger International's Senior Credit Facility, Hollinger
International has agreed to indemnify its lenders under that facility
against certain costs or losses resulting from changes in laws and
regulations which would increase the lenders' costs or reduce the rate
of return otherwise available to them in respect of the loans to
Hollinger International. Hollinger International has further agreed to
indemnify certain lenders against existing loans to the extent that such
loans impose an obligation for withholding tax or similar charge on
interest, should such tax or charge not be recoverable by the lenders.
These indemnifications generally extend for the term of the credit
facilities and do not provide for any limit on the maximum potential
liability.

Hollinger International is unable to estimate the maximum potential
liability for these types of indemnifications as the credit agreements
do not specify a maximum amount and the amounts are dependent upon
future contingent events, the nature and likelihood of which cannot be
determined at this time.

No amount has been accrued in the accompanying interim consolidated
financial statements with respect to these indemnifications.
International is unable to estimate amounts due for withholding taxes at
this time. Any such amounts will increase the future effective cost of
borrowing.

Hollinger International has indemnified the lenders and their affiliates
from and against all losses as a result of any obligations of any of the
borrowers and guarantors under its Senior Credit Facility.

Participation Trust

In connection with the participation agreement, International has agreed
to indemnify the Participation Trust and its trustee, in the event the
participation agreement entitles the issuer to fail to make payments
with respect to the debentures. Although the indemnity has not been
capped, the Company estimates the liability is limited to the amount of
participation interests sold, totalling US$490.5 million, plus accrued
interest and any further debentures received as paid-in-kind interest.
F-70

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

Other

The Company licenses some of the content it publishes for use by third
parties. In doing so, the Company warrants that it is entitled to
license that content and indemnifies the licensee against claims against
improper use. The number of quantum of such claims cannot be reasonably
estimated. Historically, claims of this nature have not been
significant.

In special circumstances, the Company's newspaper operations may engage
freelance reporters to cover stories in locales that carry a high risk
of personal injury or death. Telegraph has engaged a number of
journalists and photographers to report from the Middle East. As a term
of engagement, Telegraph has agreed to provide a death benefit which, in
the aggregate for all freelancers engaged, amounts to L2,600,000. This
exposure is uninsured. Precautions have been taken to avoid a
concentration of the freelancers in any one location.

28. COMPARATIVE FIGURES

Certain comparative figures have been reclassified to conform with the
financial statement presentation adopted in the current period.

29. SUBSEQUENT EVENTS

a) On March 10, 2003, the Company issued US$120,000,000 aggregate
principal amount of 11 7/8% Senior Secured Notes due 2011. These notes
are secured by 10,108,302 shares of Hollinger International Class A
common stock and all 14,990,000 shares of Hollinger International Class
B common stock. The total net proceeds were used to repay existing bank
indebtedness, to repay amounts due to Ravelston and make an advance to
Ravelston. The Senior Secured Notes are fully and unconditionally
guaranteed by RMI, a wholly owned subsidiary of Ravelston. The Company
and RMI entered into a support agreement, under which RMI is required
to make an annual support payment in cash to the Company on a periodic
basis by way of contributions to the capital of the Company (without
receiving any shares of the Company) or subordinated debt. The amount
of the annual support payment will be equal to the greater of a) the
non-consolidated negative net cash flow of the Company (which does not
include outlays for retractions or redemptions) and b) US$14.0 million
per year (less any future payments of services agreements fees NB Inc.
and any excess in the net dividend amount received by the Company or
any of the Company's wholly owned restricted subsidiaries, as they are
defined in the indenture governing the Company's Senior Secured Notes
due 2011, on the shares of Hollinger International that the Company and
NB Inc. own that is over US$4.65 million per year), in either case,
reduced by any permanent repayment of debt owing by Ravelston to the
Company. Initially, the support amount to be contributed by RMI is
expected to be satisfied through the permanent repayment by Ravelston
of its approximate $16.4 million of advances from the Company, which
resulted from the use of proceeds of the Company's offering of its
Senior Secured Notes. Thereafter, all support amount contributions by
RMI will be made through contributions to the capital of the Company,
without receiving any additional shares of the Company, except that, to
the extent that the minimum payment exceeds the negative net cash flow
of the Company, the amounts will be contributed through an
interest-bearing, unsecured, subordinated loan to the Company. The
support agreement terminates upon the repayment of the Senior Secured
Notes, which mature in 2011.

All aspects of this transaction have been reviewed and approved by a
special committee of the Board of Directors of the Company, comprised
entirely of independent directors.

F-71

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

b) On March 10, 2003, prior to the closing of the above offering, NB Inc.
sold its shares of Class A common stock and Series E redeemable
preferred stock of Hollinger International to RMI. Such shares were in
turn sold back to NB Inc. from RMI at the same price with a resulting
increase in the tax basis of the shares of Hollinger International and
a taxable gain to RMI. As the exchange of the Hollinger International
shares with RMI represents a transfer between companies under common
control, NB Inc. will record in 2003, contributed surplus of
approximately $1.4 million, being the tax benefit associated with the
increase in the tax value of the shares of Hollinger International.

c) On March 10, 2003, Hollinger International repurchased shares of its
Class A common stock and redeemed shares of Series E preferred stock
from the Company and has revised certain debt arrangements it had in
place with the Company. These transactions were completed in
conjunction with the Company closing a private placement of Senior
Secured Notes (note 29a)).

Contemporaneously with the closing of the issue of Senior Secured Notes,
Hollinger International:

i) repurchased for cancellation, from NB Inc., 2,000,000 shares of
Class A common stock of Hollinger International at US$8.25 per
share for total proceeds of $24.2 million (US$16.5 million); and

ii) redeemed, from NB Inc., pursuant to a redemption request, all of
the 93,206 outstanding shares of Series E redeemable convertible
preferred stock of Hollinger International at the fixed redemption
price of $146.63 per share being a total of $13.6 million (US$9.3
million).

As a result, the Company's equity and voting interest in Hollinger
International is 30.3% and 72.6%, respectively. The dilution gain
arising on this effective sale will be recorded in 2003.

Proceeds from the repurchase and redemption were offset against debt due
to Hollinger International from NB Inc. (note 23b)), resulting in net
outstanding debt due to Hollinger International of approximately $29.9
million (US$20.4 million) as of March 10, 2003. The remaining debt bears
interest at 14.25% or, if paid in additional notes, 16.5% and is
subordinated to the Company's Senior Secured Notes (so long as the Notes
are outstanding), guaranteed by Ravelston and secured by certain assets
of Ravelston.

Following a review by a special committee of the Board of Directors of
Hollinger International, comprised entirely of independent directors, of
all aspects of the transaction relating to the changes in the debt
arrangements with NB Inc. and the subordination of this remaining debt,
the special committee approved the new debt arrangements, including the
subordination.

d) On April 21, 2003, the Company made an offer to exchange its Series III
preference shares into Series IV preference shares on a share-for-share
basis. The terms of the new Series IV preference shares will provide
for a mandatory redemption on April 30, 2008 for $10.00 cash per share
(plus unpaid dividends) and an annual cumulative dividend, payable
quarterly, of $0.80 per share per annum (or 8%) during the five-year
term. As with the Series III preference shares, i) the Company will
have the right at its option to redeem all or part of the Series IV
preference shares at any time after three years for $10.00 cash per
share (plus unpaid dividends) and ii) holders will have the right at
any time to retract the Series IV preference shares for a retraction
price payable in cash which, during the first four years, will be
calculated by reference to Government of Canada bonds having a
comparable yield and term to the shares, and during the fifth year, the
retraction price will be $9.50 per share (plus unpaid dividends in each
case). The offer was conditional upon acceptance by holders of at least
50% of the outstanding Series III preference shares. The bid originally
expired on May 27, 2003 and was extended until June 9, 2003. This
condition was not met and, accordingly, the offer was terminated.

F-72

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

e) Effective April 30, 2003, US$15.7 million principal amount of
subordinated debt owing to Hollinger International by NB Inc. was
transferred by Hollinger International to HCPH Co., a subsidiary of
Hollinger International, and subsequently transferred to RMI by HCPH
Co. in satisfaction of a loan due from HCPH Co. to RMI (note 23d)).
International and the Company previously reported that the committee of
independent directors of International had agreed to the US$15.7
million offset to the remaining US$20.4 million of debt against amounts
owed by International to RMI, and further stated that the offset was
effected April 30, 2003. Although management of International and the
Company believed final approval had been given to the offset by the
committee of independent directors of International, the committee has
advised that final approval of any offset remains subject to
appropriate due diligence and receipt of a further independent fairness
opinion. The due diligence process has not yet been concluded and
accordingly, the offset has not been completed as at August 25, 2003.
The debt owing by NB Inc. to Hollinger International of US$20.4 million
bears interest at the rate of 14.25% if interest is paid in cash and
16.50% if it is paid in kind. The debts is subordinated to the Senior
Secured Notes for so long as the Senior Secured Notes are outstanding,
and is guaranteed by RCL and the Company. Hollinger International
entered into a subordination agreement with the Company and NB Inc.
pursuant to which Hollinger International has subordinated all payments
of principal, interest and fees on the debt owed to it by NB Inc. to
the payment in full of principal, interest and fees on the Senior
Secured Notes, provided that payments with respect to principal and
interest can be made to International to the extent permitted in the
indenture governing the Senior Secured Notes.

f) During the period April 1, 2003 to May 16, 2003, holders of 3,651,784
Series III preference shares, holders of 504,989 Series II preference
shares and holders of 22,500 retractable common shares submitted
retraction notices to the Company. As of May 20, 2003, the Company
completed or announced that it was able to complete the retraction of
504,989 Series II preference shares for 232,293 shares of Hollinger
International Class A common stock, 876,050 Series III preference
shares for approximately $7.7 million in cash and 22,500 retractable
common shares for cash of $124,000. This completed all retraction
notices received up to and including April 30, 2003.

On May 20, 2003, after careful deliberation, the Company concluded that
it was not able to complete the retractions of shares submitted after
April 30, 2003 without unduly impairing its liquidity. Since April 30,
2003 and up to and including June 19, 2003, the Company has received
retraction notices from holders of 2,939,593 Series III preference
shares, of which 1,281,239 retraction notices were subsequently
withdrawn, leaving retraction notices from the holders of 1,658,354
Series III preference shares, for aggregate retraction proceeds of $15.8
million, which were unable to be completed at the current time. In
addition, during the same time period, retraction notices were received
from the holders of 357,958 Series II preference shares for aggregate
retraction proceeds of 164,660 shares of Hollinger International Class A
common stock or cash of $2.5 million, which were unable to be completed
at the current time.

The Company will periodically review its liquidity position to determine
if and when further retractions can be completed. The Company will not
complete the retractions or redemptions if to do so would unduly impair
its liquidity. Retractions of Series II preferences shares and Series
III preference shares will be processed on a combined basis in order
determined by their retraction date (with equal ranking of the series)
in advance of any retractable common shares that are submitted for
retraction. Following the satisfaction of all pending retracted Series
II preference shares and Series III preference shares, retractions of
the retractable common shares will be processed in order determined by
their retraction date. Accordingly, retractions of retractable common
shares cannot be completed as long as there are pending and unsatisfied
retractions of Series II preference shares and Series III preference
shares.
F-73

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

g) On May 11, 2003, 3815668 Canada Inc., a subsidiary of CanWest (the
Issuer of the 12 1/8% Subordinated Debentures due 2010 received by the
Company in partial consideration on sale of the Company's Canadian
newspaper operations to CanWest in November 2000) redeemed $265.0
million principal amount of the 12 1/8% debentures, exclusive of
interest accrued to the redemption date of $8.8 million. Of the total
amount received, US$159.8 million has been delivered to the
Participation Trust and the balance of US$27.6 million has been
received by Hollinger International and Hollinger LP., a portion of
which must be retained until November 4, 2010.

h) On May 19, 2003, a shareholder of Hollinger International filed a
Schedule 13D with the U.S. Securities and Exchange Commission (the
"SEC") and amongst other things, served a demand letter on the Board of
Directors of Hollinger International (the "Board") requesting that the
Board investigate and, if determined to be advisable, take corrective
action in respect of payments made to senior executives of Hollinger
International in respect of non-competition agreements, that had been
disclosed in the financial statements. On June 11, 2003, the same
shareholder filed an Amendment to the Schedule 13D with the SEC
reiterating the earlier demands as well as requesting that the Board
investigate and, if determined to be advisable, take corrective action
in respect of i) an asset sale by Hollinger International to an entity
affiliated with certain officers and directors of Hollinger
International, and (ii) the payment of fees by Hollinger International
pursuant to various affiliated management services agreements. On June
17, 2003, in response to these requests, the Board established a
special committee to conduct an independent review and investigation of
those allegations. The potential impact of filing and the demand
letters, on the financial statements of Hollinger International and the
Company, is not known at the current time.

i) On May 22, 2003, Hollinger International and the Company announced
that they had reached an agreement in principle, regarding a proposed
transaction with Southeastern Asset Management Inc. ("Southeastern").
Under the proposed transaction, Southeastern would purchase from the
Company between five to ten million shares (as determined by the
Company) of Hollinger International Class A common stock at a purchase
price of US$11.60 per share. The terms of the shares of Class B common
stock of Hollinger International, which currently have ten votes per
share and represent approximately 67% of the voting power of Hollinger
International, would be amended to allocate 35% of the voting power of
Hollinger International to the shares of Class B common stock for a
period of 3 1/2 years. The voting power of the shares of Class B
common stock would then be reduced to two votes per share for 18
months thereafter, after which time, the shares of Class B common
stock would be converted on a share-for-share basis into shares of
Class A common stock. Going forward, Ravelston management would be
employed and paid directly by Hollinger International. An aggregate
annual compensation level of US$20 million has received the support of
Southeastern which would have the right to nominate three directors to
the Board of Hollinger International.

Completion of the transaction is subject to various conditions,
including approval of the Board of Directors of Hollinger International
and the Company, approval by the shareholders of Hollinger International
and the execution of definitive agreements. If the requisite approvals
are obtained, it is contemplated that the transaction would close on or
before September 30, 2003.

Since the proposed transaction is in its preliminary stages and has not
yet been finalized, the Company has not yet determined the potential
impact on its financial statements.

j) In 2003, Hollinger International made a venture capital investment of
US$2.5 million in a corporation in which a director of Hollinger
International has a minority interest.

F-74

HOLLINGER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

k) Commencing April 3, 2003, Hollinger International began purchasing its
own shares through the public market and holding the shares acquired as
treasury stock. During the period April 3, 2003 to May 5, 2003,
Hollinger International acquired 1,000,000 shares of its Class A common
stock at an average price of U.S.$8.79 per share for total cash
consideration of U.S.$8.8 million.

F-75

HOLLINGER INC.

SCHEDULE 1 -- CONDENSED UNCONSOLIDATED FINANCIAL
INFORMATION OF THE COMPANY

CONDENSED NON-CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
DECEMBER 31
---------------------
2001 2002
--------- ---------
(IN THOUSANDS OF
CANADIAN DOLLARS)

ASSETS
CURRENT ASSETS
Prepaid expenses and other assets........................... $ 978 $ 1,751
Due from subsidiaries....................................... 22,620 26,616
--------- ---------
23,598 28,367
Equity investments in subsidiaries and affiliates........... 130,460 115,612
Other assets................................................ 1,446 1,234
--------- ---------
$ 155,504 $ 145,213
========= =========
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness........................................... $ 129,475 90,810
Accounts payable and accrued expenses....................... 3,003 2,278
Retractable preference shares............................... -- 135,299
Deferred unrealized gain on retractable preference shares... -- 11,983
Due to subsidiaries (note 5)................................ 107,174 210,085
Due to The Ravelston Corporation Limited.................... 23,500 46,089
--------- ---------
263,152 496,544
Retractable preference shares............................... 147,472 --
Deferred unrealized gain on retractable preference shares... 7,670 --
Future income taxes......................................... 680 --
--------- ---------
418,974 496,544
--------- ---------
SHAREHOLDERS' DEFICIENCY
Capital stock............................................... 271,774 273,759
Contributed surplus (note 2)................................ 51,797 51,797
Deficit (note 3)............................................ (537,110) (656,942)
--------- ---------
(213,539) (331,386)
Equity adjustment from foreign currency translation......... (49,931) (19,945)
--------- ---------
(263,470) (351,331)
--------- ---------
$ 155,504 $ 145,213
========= =========
</Table>

See accompanying notes to condensed non-consolidated financial statements.

F-76

HOLLINGER INC.

SCHEDULE 1 -- CONDENSED UNCONSOLIDATED FINANCIAL
INFORMATION OF THE COMPANY -- (CONTINUED)

CONDENSED NON-CONSOLIDATED STATEMENTS OF EARNINGS (LOSSES)

<Table>
<Caption>
YEARS ENDED DECEMBER 31
----------------------------------
2000 2001 2002
--------- ---------- ---------
(IN THOUSANDS OF CANADIAN DOLLARS)

REVENUE
Interest income............................................. $ 183 $ 388 $ 26
-------- --------- --------
EXPENSES
General and administrative expenses......................... 1,900 2,591 3,259
Amortization of deferred finance costs...................... 1,177 1,963 2,560
Interest on exchangeable shares............................. 11,054 9,294 8,185
Interest on amounts due to The Ravelston Corporation
Limited................................................... -- -- 2,045
Other interest.............................................. 14,386 11,626 5,614
-------- --------- --------
28,517 25,474 21,663
-------- --------- --------
Net earnings (loss) in equity accounted companies........... 185,740 (165,899) (66,773)
-------- --------- --------
Net foreign currency gains (losses)......................... 74 (16) 15
-------- --------- --------
Earnings (loss) before the undernoted....................... 157,480 (191,001) (88,395)
Unusual gains (losses), net (note 4)........................ 32,969 54,670 (293)
Income tax recovery (expense)............................... (1,076) 4,433 48
-------- --------- --------
Net earnings (loss)......................................... $189,373 $(131,898) $(88,640)
======== ========= ========
</Table>

See accompanying notes to condensed non-consolidated financial statements.

F-77

HOLLINGER INC.

SCHEDULE 1 -- CONDENSED UNCONSOLIDATED FINANCIAL
INFORMATION OF THE COMPANY -- (CONTINUED)

CONDENSED NON-CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
YEARS ENDED DECEMBER 31
----------------------------------
2000 2001 2002
--------- ---------- ---------
(IN THOUSANDS OF CANADIAN DOLLARS)

CASH PROVIDED BY (USED FOR):
OPERATING ACTIVITIES
Net earnings (loss)......................................... $189,373 $(131,898) $(88,640)
Unusual gains (losses), net................................. (32,969) (54,670) 293
Other income (costs)........................................ 1,444 (1,964) 212
-------- --------- --------
157,848 (188,532) (88,135)
Items not involving cash:
Amortization of deferred finance costs...................... 1,177 1,963 2,560
Net (earnings) loss in equity accounted companies, net of
amounts received.......................................... (96,193) 245,738 74,472
Change in non-cash operating working capital................ (343) 23,144 (1,499)
Other....................................................... 1,677 -- --
Future income taxes......................................... -- (5,239) (680)
-------- --------- --------
64,166 77,074 (13,282)
FINANCING ACTIVITIES
Redemption and cancellation of capital stock................ (700) (273) (1,064)
Redemption and cancellation of exchangeable shares.......... (5,133) (317) (277)
Increase (decrease) in short-term borrowings................ 4,039 (32,525) (38,665)
Increase in amount due to Ravelston......................... 2,267 21,233 22,589
Change in amounts due to subsidiaries....................... 12,728 (63,713) 49,203
Dividends paid on retractable common shares................. (22,177) (20,216) (16,031)
Redemption of HCPH special shares........................... (54,482) -- --
Other....................................................... -- -- (2,473)
-------- --------- --------
(63,458) (95,811) 13,282
INVESTING ACTIVITIES
Proceeds on disposal of investments......................... -- 19,892 --
Additions to investments.................................... -- (1,155) --
Increase in other assets.................................... (708) -- --
-------- --------- --------
(708) 18,737 --
-------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ -- $ -- $ --
======== ========= ========
SUPPLEMENTAL DISCLOSURE
Dividends received from subsidiaries...................... $ 89,547 $ 79,839 $ 7,699
======== ========= ========
</Table>

See accompanying notes to condensed non-consolidated financial statements.

F-78

NOTES TO CONDENSED NON-CONSOLIDATED FINANCIAL STATEMENTS

SCHEDULE 1 -- CONDENSED UNCONSOLIDATED FINANCIAL
INFORMATION OF THE COMPANY
YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002

1. BASIS OF PRESENTATION:

The accompanying condensed non-consolidated financial statements include
the accounts of Hollinger Inc. and, on an equity basis, its subsidiaries and
affiliates. These financial statements should be read in conjunction with the
consolidated financial statements of the Company.

The Company is a holding company and its assets consist primarily of
investments in its wholly owned subsidiaries, including Hollinger International
and Publishing. As a result, the Company's ability to meet its future financial
obligations, including the retraction and redemption of shares, is dependent
upon the availability of cash flows from its United States and foreign
subsidiaries through dividends, intercompany advances, management fees and other
payments, as well as on the ongoing support of RMI. This is fully described in
note 1 to the Company's consolidated financial statements. As further described
in note 9 to the Company's consolidated financial statements, Publishing and its
principal United States and foreign subsidiaries are subject to statutory
restrictions and restrictions in debt agreements that limit their ability, among
other things, to incur indebtedness, pay dividends or make other distributions
on its capital stock, enter into transactions with related companies, and sell
assets, including stock of a restricted subsidiary. As a result, substantially
all of the net assets of the Company's subsidiaries are restricted.

As further described in note 9 to the Company's consolidated financial
statements, on December 23, 2002, Publishing issued senior unsecured notes and
certain of Publishing's subsidiaries entered into a Senior Credit Facility.
These debt agreements also restrict Publishing's ability and the ability of
Publishing's restricted subsidiaries, to, among other things, incur additional
debt, make advances, pay dividends or distributions on, redeem or repurchase
capital stock, make investments, enter into transactions with affiliates, issue
stock of restricted subsidiaries, engage in unrelated lines of business, create
liens to secure debt; and transfer or sell assets or merge with or into other
companies.

2. CONTRIBUTED SURPLUS:

During 2000 and 2001, the Company sold certain of its investments in its
wholly-owned subsidiaries to other wholly-owned subsidiaries, for cash,
promissory notes and share consideration. The excess of or shortfall in the cash
and promissory notes received over the historical carrying value of the
Company's investment in the wholly-owned subsidiaries sold has been reflected as
contributed surplus.

3. DEFICIT:

As described in note 1 "Significant Accounting Policies -- Goodwill and
Other Intangible Assets" to the Company's consolidated financial statements, on
adoption of new accounting standards, Hollinger International has determined
that the carrying amount of the Jerusalem Post was in excess of the estimated
fair value at January 1, 2002. The impairment write down of goodwill, net of
related minority interest has been charged to opening deficit as at January 1,
2002.

4. UNUSUAL GAINS (LOSSES), NET:

In 2000 and 2001, unusual gains (losses), net are principally comprised of
the dilution gain arising on the sale of shares of Hollinger International and
gains resulting from the delivery of shares of Hollinger International on the
exchange of Series II preference shares.

5. DUE TO SUBSIDIARIES:

The amount due to subsidiaries includes $198,311,000 at December 31, 2002
($96,195,000 at December 31, 2001) to 504468 N.B. Inc., which results from
advances made to the Company from the
F-79

SCHEDULE I

HOLLINGER INC.

NOTES TO CONDENSED NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

SCHEDULE 1 -- CONDENSED UNCONSOLIDATED FINANCIAL
INFORMATION OF THE COMPANY -- (CONTINUED)

proceeds from sales of shares of Hollinger International Class A common stock
and from dividends received by 504468 N.B. Inc. on its shares of Hollinger
International common stock. 504468 N.B. Inc. will declare a dividend to settle
the amount receivable from the Company and declare regular dividends in the
future to settle future funds advanced to the Company.

F-80

AUDITORS' REPORT

To the Board of Directors of 504468 N.B. Inc.

We have audited the consolidated balance sheets of 504468 N.B. Inc. as at
December 31, 2001 and 2002 and the consolidated statements of earnings (losses),
retained earnings (deficit) and cash flows for each of the years in the
three-year period ended December 31, 2002. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

Toronto, Canada

April 1, 2003, except

as to note 25 which is

as of June 19, 2003, other than note 25d), /s/ KPMG LLP

which is as of August 25, 2003 Chartered Accountants

F-81

COMMENTS BY AUDITORS FOR U.S. READERS
ON CANADA -- U.S. REPORTING DIFFERENCES

In the United States, reporting standards for auditors require the addition
of an explanatory paragraph (following the opinion paragraph) when there is a
change in accounting principles that has a material effect on the comparability
of the Company's financial statements, such as the changes described in note 2
to the consolidated financial statements as at December 31, 2001 and 2002 and
for each of the years in the three-year period ended December 31, 2002. Our
report to the shareholders dated April 1, 2003 is expressed in accordance with
Canadian reporting standards, which do not require a reference to such changes
in accounting principles in the auditors' report when the change is properly
accounted for and adequately disclosed in the financial statements.

Toronto, Canada /s/ KPMG LLP
April 1, 2003 Chartered Accountants

F-82

504468 N.B. INC.

CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
DECEMBER 31
-----------------------
2001 2002
---------- ----------
(IN THOUSANDS OF
CANADIAN DOLLARS)

ASSETS
CURRENT ASSETS
Cash and cash equivalents (note 3).......................... $ 804,949 $ 188,115
Escrow deposits (note 9a)).................................. -- 859,128
Accounts receivable......................................... 333,938 348,472
Prepaid expenses............................................ 18,383 29,444
Inventory................................................... 36,506 22,058
---------- ----------
1,193,776 1,447,217
AMOUNTS DUE FROM RELATED PARTIES (note 20).................. 102,277 199,854
INVESTMENTS (note 5)........................................ 239,972 191,837
CAPITAL ASSETS (note 6)..................................... 645,379 643,995
GOODWILL (note 7)........................................... 170,189 924,915
OTHER INTANGIBLE ASSETS (note 7)............................ 1,200,634 185,143
DEFERRED FINANCING COSTS AND OTHER ASSETS (note 8).......... 152,298 192,303
---------- ----------
$3,704,525 $3,785,264
========== ==========
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued expenses....................... $ 359,781 $ 342,868
Amounts due to related parties (note 20d)).................. 20,950 40,963
Income taxes payable........................................ 470,936 475,784
Deferred revenue............................................ 65,623 67,612
Senior Subordinated Notes due 2006 and 2007 (note 9a))...... -- 797,751
Current portion of long-term debt (note 9).................. 10,020 16,800
---------- ----------
927,310 1,741,778
LONG-TERM DEBT (note 9)..................................... 1,330,341 972,769
FUTURE INCOME TAXES (note 16)............................... 498,352 381,258
OTHER LIABILITIES AND DEFERRED CREDITS (note 10)............ 86,577 117,888
---------- ----------
2,842,580 3,213,693
---------- ----------
MINORITY INTEREST........................................... 797,339 532,642
---------- ----------
SHAREHOLDERS' EQUITY
Capital stock (note 11)..................................... 106,832 106,832
Deficit..................................................... (25,930) (78,749)
---------- ----------
80,902 28,083
Equity adjustment from foreign currency translation (note
12)....................................................... (16,296) 10,846
---------- ----------
64,606 38,929
---------- ----------
$3,704,525 $3,785,264
========== ==========
Commitments (note 13)
Contingencies (note 14)
Subsequent events (notes 1, 9a), 14d) and 25)
</Table>

F-83

504468 N.B. INC.

CONSOLIDATED STATEMENTS OF EARNINGS (LOSSES)

<Table>
<Caption>
YEAR ENDED DECEMBER 31
------------------------------------
2000 2001 2002
---------- ---------- ----------
(IN THOUSANDS OF CANADIAN DOLLARS)

REVENUE
Sales.................................................. $3,158,258 $1,822,141 $1,628,815
Investment and other income............................ 26,245 95,133 27,756
---------- ---------- ----------
3,184,503 1,917,274 1,656,571
---------- ---------- ----------
EXPENSES
Cost of sales and expenses............................. 2,593,744 1,725,889 1,452,413
Depreciation and amortization.......................... 217,154 141,899 87,805
Interest on long-term debt............................. 208,916 113,406 84,440
Other interest......................................... 24,476 30,382 18,750
---------- ---------- ----------
3,044,290 2,011,576 1,643,408
---------- ---------- ----------
NET LOSS IN EQUITY-ACCOUNTED COMPANIES................... (15,685) (18,704) (1,408)
---------- ---------- ----------
NET FOREIGN CURRENCY LOSSES.............................. (11,527) (7,553) (19,702)
---------- ---------- ----------
EARNINGS (LOSS) BEFORE THE UNDERNOTED.................... 113,001 (120,559) (7,947)
Unusual items (note 15)................................ 674,960 (336,439) (61,008)
Income tax (expense) recovery (note 16)................ (290,159) 74,196 (123,767)
Minority interest recovery (expense)................... (433,972) 284,363 147,478
---------- ---------- ----------
NET EARNINGS (LOSS)...................................... $ 63,830 $ (98,439) $ (45,244)
========== ========== ==========
</Table>

F-84

504468 N.B. INC.

CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT)

<Table>
<Caption>
YEAR ENDED DECEMBER 31
----------------------------------
2000 2001 2002
---------- --------- ---------
(IN THOUSANDS OF CANADIAN DOLLARS)

RETAINED EARNINGS (DEFICIT) AT BEGINNING OF YEAR............ $ 151,421 $ 76,778 $(25,930)
Adjustment to prior years retained earnings (note 2b))...... (138,473) -- --
--------- -------- --------
12,948 76,778 (25,930)
Net earnings (loss)......................................... 63,830 (98,439) (45,244)
Adjustment to deficit related to transitional impairment
charge, net of minority interest (note 1)................. -- -- (7,575)
Dividends................................................... -- (4,269) --
--------- -------- --------
RETAINED EARNINGS (DEFICIT) AT END OF YEAR.................. $ 76,778 $(25,930) $(78,749)
========= ======== ========
</Table>

F-85

504468 N.B. INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
YEAR ENDED DECEMBER 31
------------------------------------
2000 2001 2002
----------- ---------- ---------
(IN THOUSANDS OF CANADIAN DOLLARS)

CASH PROVIDED BY (USED FOR):
OPERATING ACTIVITIES
CASH FLOWS PROVIDED BY (USED FOR) OPERATIONS BEFORE THE
UNDERNOTED (note 17a))................................ $ 182,485 $ (85,748) $ 67,115
Change in non-cash operating working capital (note
17b))................................................. 15,746 (33,023) 25,954
Other costs............................................. (41,610) (70,112) 45,699
----------- ---------- ---------
156,351 (188,883) 138,768
----------- ---------- ---------
FINANCING ACTIVITIES
Dividends............................................... -- (4,269) --
Premium on retirement of senior notes................... -- -- (56,287)
Capital stock of subsidiaries purchased for cancellation
by subsidiaries....................................... -- (200,281) (157,056)
Issuance of partnership units and common shares of
subsidiaries.......................................... 8,166 10,637 6,667
Due from/to related parties............................. (17,042) (53,497) (47,513)
Redemption of HCPH Special shares....................... (127,407) -- --
Decrease in long-term debt.............................. (1,401,767) (144,783) (543,613)
Proceeds from long-term debt............................ -- 152,778 514,342
Proceeds from issuance of notes......................... -- -- 474,000
Payment of debt issue costs............................. -- (4,667) (24,666)
Escrow deposits and restricted cash..................... -- -- (859,128)
Dividends and distributions paid by subsidiaries to
minority interest..................................... (152,224) (135,636) (54,986)
Other................................................... -- (254) 8,860
----------- ---------- ---------
(1,690,274) (379,972) (739,380)
----------- ---------- ---------
INVESTING ACTIVITIES
Proceeds on disposal of fixed assets.................... 12,648 157 15,849
Purchase of fixed assets................................ (112,479) (91,226) (63,571)
Proceeds on sale of investment in subsidiary............ -- 31,417 38,637
Proceeds on disposal of investments..................... 87,152 919,567 7,188
Additions to investments................................ (92,735) (99,040) (17,636)
Additions to circulation................................ (37,667) (3,920) --
Decrease (increase) in other assets..................... 678 (8,320) --
Investment in newspaper operations...................... (174,009) -- --
Proceeds on disposal of newspaper and magazine
operations............................................ 2,016,885 376,865 --
----------- ---------- ---------
1,700,473 1,125,500 19,533
----------- ---------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS........................................... (6,376) 14,249 3,311
----------- ---------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 160,174 570,894 (616,834)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.......... 73,881 234,055 804,949
----------- ---------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR................ $ 234,055 $ 804,949 $ 188,115
=========== ========== =========
SUPPLEMENTAL DISCLOSURE OF FINANCING AND INVESTING
ACTIVITIES
Interest paid......................................... $ 219,935 $ 132,382 $ 102,632
Income taxes paid..................................... $ 69,203 $ 121,717 $ 13,705
</Table>

F-86

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

1. SIGNIFICANT ACCOUNTING POLICIES

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

BASIS OF PREPARATION

These consolidated financial statements have been prepared in accordance
with Canadian generally accepted accounting principles using a basis of
presentation which assumes that the Company will continue in operation for the
foreseeable future and be able to realize its assets and discharge its
liabilities and commitments in the normal course of business. The Company is an
international holding company and its assets consist primarily of investments in
its subsidiaries and affiliated companies principally its investment in
Hollinger International Inc. ("Hollinger International"). The Company is 100%
indirectly owned by Hollinger Inc. ("Hollinger"). Hollinger's ultimate parent
company is The Ravelston Corporation Limited ("Ravelston"), a company controlled
by Lord Black of Crossharbour. On a non-consolidated basis during 2002,
Hollinger experienced a shortfall between the dividends and fees received from
its subsidiaries and its obligations to pay its operating costs, including
interest and dividends on its preference shares and such shortfalls were
expected to continue in the future. Accordingly, Hollinger is dependent upon the
continuing financial support of Ravelston Management Inc. ("RMI") to fund such
shortfalls and, therefore, pay its liabilities as they fall due. RMI is a wholly
owned subsidiary of Ravelston.

On March 10, 2003, Hollinger issued US $120,000,000 aggregate principal
amount of Senior Secured Notes due 2011. The Company has pledged substantially
all of its shares of Hollinger International common stock as security for the
Senior Secured Notes and has fully and unconditionally guaranteed the Senior
Secured Notes together with RMI. Also on March 10, 2003, RMI entered into a
Support Agreement with Hollinger under which RMI has agreed to make annual
support payments in cash to Hollinger on a periodic basis by way of
contributions to the capital of Hollinger (without receiving any shares of
Hollinger) or subordinated debt. The amount of the annual support payments will
be equal to the greater of a) the non-consolidated negative net cash flow of
Hollinger and b) US $14.0 million per year (less any future payments of services
agreements fees directly to Hollinger or to any of Hollinger's wholly owned
restricted subsidiaries, as they are defined in the indenture governing
Hollinger's Senior Secured Notes, and any excess in the net dividend amount
received by Hollinger and the Company on the shares of Hollinger International
that Hollinger and the Company own that is over US $4.65 million per year), in
either case, reduced by any permanent repayment of debt owing by Ravelston to
Hollinger. The Support Agreement terminates upon the repayment of the Senior
Secured Notes, which mature in 2011.

RMI currently derives all of its income and operating cash flow from the
fees paid pursuant to services agreements with Hollinger International and its
subsidiaries. RMI's ability to provide the required financial support under the
Support Agreement with Hollinger is dependent on RMI continuing to receive
sufficient fees pursuant to those services agreements. The services agreements
may be terminated by either party by giving 180 days notice. The fees in respect
of the services agreements are negotiated annually with and approved by the
audit committee of Hollinger International. The fees to be paid to RMI for the
year ending December 31, 2003 amount to approximately US $22.0 million to
US $24.0 million and were approved in February 2003. The fees in respect of the
periods after December 31, 2003 have not yet been negotiated or approved. If, in
any quarterly period after April 1, 2003, Hollinger fails to receive in cash a
minimum aggregate amount of at least US $4.7 million from a) payments made by
RMI pursuant to the Support Agreement and b) dividends paid by Hollinger
International on its shares held by Hollinger, Hollinger would
F-87

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

be in default under Hollinger's Senior Secured Notes. Based on Hollinger's
current investment in Hollinger International and the current quarterly dividend
paid by Hollinger International of US $0.05 per share, the minimum support
payment required to be made by RMI to avoid such a default is approximately
US $3.5 million per quarter or US $14.0 million annually. This default could
cause Hollinger's Senior Secured Notes to become due and payable immediately
which could result in the Trustee for the Senior Secured Noteholders requiring
the Company to honour its guarantee of the Senior Securited Notes which could
result in the Company being required to sell all or part of its investment in
Hollinger International.

GENERAL BUSINESS

The Company publishes, prints and distributes newspapers and magazines in
Canada, the United Kingdom, the United States of America, and Israel through
subsidiaries and associates. In addition, the Company. has developed related
websites on the Internet. The consolidated financial statements include the
accounts of the Company, its subsidiaries, other controlled entities and its pro
rata share of assets, liabilities, revenue and expenses of joint ventures
(collectively, the "Company"). The Company's significant subsidiaries and
controlled entities are set out below:

<Table>
<Caption>
PERCENTAGE OWNED AS AT DECEMBER 31,
-----------------------------------
2000 2001 2002
------- ------- -------

Hollinger International Inc. ("Hollinger International").... 23.9%(3) 21.3%(3) 20.6%(3)
Hollinger International Publishing Inc. ("Publishing")...... 100.0%(1) 100.0%(1) 100.0%(1)
The Sun-Times Company....................................... 100.0%(1) 100.0%(1) 100.0%(1)
Jerusalem Post Publications Limited ("Jerusalem Post")...... 100.0%(1) 100.0%(1) 100.0%(1)
Hollinger Canadian Publishing Holdings Co. ("HCPH
Co.")(2).................................................. 100.0%(1) 100.0%(1) 100.0%(1)
The National Post Company ("National Post") (note 5c))...... 50.0%(1) -- --
Telegraph Group Limited ("Telegraph")....................... 100.0%(1) 100.0%(1) 100.0%(1)
Hollinger Canadian Newspapers, Limited Partnership
("Hollinger L.P.")........................................ 87.0%(1) 87.0%(1) 87.0%(1)
</Table>

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

(1) Percent owned by Hollinger International.

(2) During 2001 HCPH Co. (formerly Hollinger Canadian Publishing Holdings Inc.
("HCPH")) became the successor to the operations of XSTM Holdings (2000)
Inc. (formerly Southam Inc. ("Southam")).

(3) Represents the Company's equity interest in Hollinger International. The
Company's voting percentage at December 31, 2002 is 71.3% (2001 -- 70.1% and
2000 -- 71.2%).

FOREIGN CURRENCY TRANSLATION

F-88

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

CASH EQUIVALENTS

Cash equivalents consist of certain highly liquid investments with original
maturities of three months or less.

INVENTORY

Inventory, principally printing material, is valued at the lower of cost
and net realizable value. Cost is determined using the first-in, first-out
(FIFO) method.

CAPITAL ASSETS

Capital assets are stated at cost. Cost represents the cost of acquisition
or construction, including the direct costs of financing until the asset is
ready for use.

Capital assets, including assets under capital leases, are depreciated over
their estimated useful lives as follows:

<Table>

GOODWILL AND OTHER INTANGIBLE ASSETS

F-89

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

lives be amortized over their respective estimated useful lives to their
estimated residual values and reviewed for impairment by assessing the
recoverability of the carrying value.

In connection with the Section 3062 transitional impairment evaluation, the
Company was required to assess whether goodwill was impaired as of January 1,
2002. The fair values of the Company's reporting units were 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
has determined that the carrying amount of the Jerusalem Post was in excess of
the estimated fair value at January 1, 2002. Accordingly, the value of goodwill
attributable to the Jerusalem Post of $32.0 million has been written down in its
entirety. Such loss, net of related minority interest amounted to $7.6 million
and has been recorded as a charge to the opening deficit as at January 1, 2002.
The Company has determined that the fair value of all other reporting units is
in excess of the respective carrying amounts, both on adoption and at year end
for purposes of the annual impairment test.

In addition to the transitional goodwill impairment test as of January 1,
2002, the Company is required to test goodwill for impairment on an annual basis
for each of its reporting units. The Company is also required to evaluate
goodwill for impairment between annual tests if an event occurs or circumstances
change that would more likely than not reduce the fair value of a reporting unit
below its carrying amount. Certain indicators of potential impairment that could
impact the Company's reporting units include, but are not limited to, the
following: a) a significant long-term adverse change in the business climate
that is expected to cause a substantial decline in advertising spending, b) a
permanent significant decline in a reporting unit's newspaper readership, c) a
significant adverse long-term negative change in the demographics of a reporting
unit's newspaper readership and d) a significant technological change that
results in a substantially more cost-effective method of advertising than
newspapers.

Effective January 1, 2002, the Company had unamortized goodwill in the
amount of $892.6 million, which is no longer being amortized. This amount
reflects the transitional impairment loss of $32.0 million relating to the
Jerusalem Post.

This change in accounting policy cannot be applied retroactively and the
amounts presented for prior periods have not been restated for this change. If
this change in accounting policy were applied to the reported consolidated
statement of earnings for the years ended December 31, 2000 and 2001, the impact
of the change, in respect of goodwill and intangible assets not being amortized,
would be as follows:

<Table>
<Caption>
2000 2001
------- --------

Net earnings (loss) -- as reported.......................... $63,830 $(98,439)
Add goodwill and intangible asset amortization, net of
income taxes and minority interest........................ 21,548 8,976
------- --------
Adjusted net earnings (loss)................................ $85,378 $(89,463)
======= ========
</Table>

F-90

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

INVESTMENTS

DEFERRED FINANCING COSTS

Deferred financing costs consist of certain costs incurred in connection
with debt financings. Such costs are amortized on a straight-line basis over the
term of the related debt.

DERIVATIVES

STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS

Certain of the Company's subsidiaries have employee stock-based
compensation plans. Until December 31, 2001, compensation expense was not
recognized on the grant or modification of options under these plans.

Effective January 1, 2002, the Company adopted the new CICA Handbook
Section 3870, "Stock-based Compensation and Other Stock-based Payments"
("Section 3870"). Under Section 3870, the Company is required to adopt, on a
prospective basis, the fair value-based method to account for all stock-based
payments made by the Company and its subsidiaries to non-employees, including
employees of Ravelston, the parent company, and employee awards that are direct
awards of stock, call for settlement in cash or other assets, or are stock
appreciation rights that call for settlement by the issuance of equity
instruments, granted on or after January 1, 2002. For all other stock-based
payments, the Company has elected to use the settlement method of accounting,
whereby cash received on the exercise of stock options is recorded as capital
stock.

Under the fair value-based method, stock options granted to employees of
Ravelston by the Company's subsidiaries are measured at the fair value of the
consideration received, or the fair value of the equity instruments issued, or
liabilities incurred, whichever is more reliably measurable. Such fair value
determined is recorded as a dividend-in-kind by the subsidiaries with no impact
on the Company's net earnings and financial position. Section 3870 has been
applied prospectively to all stock-based payments to non-employees granted on or
after January 1, 2002.

F-91

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

EMPLOYEE BENEFIT PLANS

The Company accrues its obligations under employee benefit plans and the
related costs, net of plan assets. The following policies are applied in
accounting for employee benefit plans:

- For the purpose of calculating the expected return on plan assets, those
assets are valued at fair value.

- Past service costs from plan amendments are amortized on a straight-line
basis over the average remaining service period of employees active at
the date of amendment.

INCOME TAXES

REVENUE RECOGNITION

The Company's principal sources of revenue comprise advertising,
circulation and job printing. As a general principle, revenue is recognized when
the following criteria are met: a) persuasive evidence of an arrangement exists,
b) delivery has occurred and services have been rendered, c) the price to the
buyer is fixed or determinable, and d) collectibility is reasonably assured or
is probable. Advertising revenue, being amounts charged for space purchased in
the Company's newspapers, is recognized upon publication of the advertisements.
Circulation revenue from subscribers, billed to customers at the beginning of a
subscription period, is recognized on a straight-line basis over the term of the
related subscription. Deferred revenue represents subscription receipts that
have not been earned. Circulation revenue from single copy sales is recognized
at the time of distribution. In both cases, circulation revenue is recorded net
of fees or commissions paid to distributors and retailers and less an allowance
for returned copies. Job printing revenue, being charges for printing services
provided to third parties, is recognized upon delivery.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

F-92

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

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

The Company has significant intangible assets with indefinite useful lives
recorded in its accounts. Certain of the Company's newspapers operate in highly
competitive markets. Future adverse changes in long-term readership patterns in
its newspapers and other factors could result in a material impairment of its
intangible assets in the future.

Certain of the Company's subsidiaries sponsor 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 evaluated, 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.

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

depending on several factors, including whether such losses exceed the corridor
in accordance with CICA Section 3461, "Employee Future Benefits".

2. CHANGE IN ACCOUNTING POLICIES

a) Goodwill and other intangible assets

b) Income taxes

The Company adopted the new income tax accounting standard retroactively
on January 1, 2002, and did not restate the financial statements of any
prior periods. As a result, the Company has recorded an increase to
deficit of $138,473,000, an increase to the future tax liability of
$480,062,000 and a decrease to minority interest of $341,589,000 as at
January 1, 2002.

3. RESTRICTED CASH

Cash and cash equivalents at December 31, 2001 included US $7,500,000
($11,944,000) of restricted cash deposited with an escrow agent under the terms
of one of Hollinger International's forward share purchase contracts (note
21b)), which were terminated in 2002.

In addition, US $5,000,000 ($7,963,000) of cash was pledged as security at
December 31, 2001 for Hollinger International's US $5,000,000 Restated Credit
Facility (note 9f)) under which no amounts were permitted to be borrowed at
December 31, 2001. At December 31, 2002, restricted cash includes US $2,000,000
($3,160,000) deposited in connection with outstanding letters of credit.

4. ACQUISITIONS AND DISPOSITIONS

a) In January 2002, the Company sold 2,000,000 shares of Hollinger
International Class A common stock to third parties for total cash
proceeds of $38.6 million. This transaction resulted in a pre-tax gain
on the effective sales of the Hollinger International shares of $15.0
million (note 15).

F-94

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

dailies and 15 weeklies published in Quebec and Ontario. A pre-tax gain
of approximately $75.1 million was recognized on this sale (note 15).

c) In two separate transactions in July and November 2001, the Company and
Hollinger L.P. completed the sale of most of its remaining Canadian
newspapers to Osprey Media Group Inc. ("Osprey") for total cash
proceeds of approximately $255.0 million plus closing adjustments
primarily for working capital. Included in these sales were community
newspapers in Ontario such as The Kingston Whig-Standard, The Sault
Star, the Peterborough Examiner, the Chatham Daily News and The
Observer (Sarnia). Pre-tax gains of approximately $1.5 million were
recognized on these sales (note 15). The former Chief Executive Officer
of Hollinger L.P. is a minority shareholder of Osprey. Hollinger
International's independent directors have approved the terms of these
transactions.

e) During 2001, Hollinger International converted all of its Series C
Preferred Stock which was held by the Company, at the conversion ratio
of 8.503 shares of Hollinger International Class A common stock per
share of Series C Preferred Stock into 1,384,807 shares of Hollinger
International Class A common stock. 3,935,072 shares of Class A common
stock of Hollinger International were subsequently purchased for
cancellation by Hollinger International for a total of US $29.4 million
($45.8 million). The purchase price per share was 98% of the closing
price of the shares of Hollinger International Class A common stock and
was approved by Hollinger International's independent directors. The
Company advanced the proceeds to Hollinger.

In December 2001, the Company sold 730,000 shares of Hollinger
International Class A common stock to third parties for total cash
proceeds of $11.5 million which were advanced to Hollinger.

The above transactions resulted in a total pre-tax gain on the effective
sales of the Hollinger International shares of $15.0 million (note 15).

F-95

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

International. The terms of these transactions were approved by the
independent directors of Hollinger International.

- a 50% interest in National Post, with Hollinger International
continuing as managing partner;

- the operating Canadian Internet properties, including canada.com.

The sale resulted in the Hollinger Group receiving approximately $1.7
billion cash, approximately $425 million in voting and non-voting shares
of CanWest at fair value, and subordinated non-convertible debentures of
a holding company in the CanWest group with a fair value of
approximately $697 million. The aggregate sale price of these properties
at fair value was approximately $2.8 billion, plus closing adjustments
for working capital at August 31, 2000 and cash flow and interest for
the period September 1 to November 16, 2000 which in total was estimated
as an additional $63.0 million at December 31, 2000. The cash proceeds
were used to pay down outstanding debt on Hollinger International's Bank
Credit Facility (note 9). The sale resulted in a pre-tax gain of
approximately $566 million in 2000 which was included in unusual items
(note 15).

In 2001, certain of the closing adjustments were finalized, resulting in
an additional pre-tax gain in 2001 of approximately $29.1 million which
is included in unusual items (note 15). At December 31, 2002,
approximately $60.7 million (2001 -- $57.3 million) in respect of
closing adjustments remained due to the Company and is included in
accounts receivable. Certain closing adjustments have not yet been
finalized. Amounts due bear interest at a rate of approximately 9%. The
amount outstanding is subject to negotiation between CanWest and
Hollinger International. Adjustments to the balance due, if any,
resulting from further negotiations will be recorded as an unusual item.

In connection with the sale to CanWest, Ravelston entered into a
management services agreement with CanWest and National Post pursuant to
which it agreed to continue to provide management services to the
Canadian businesses sold to CanWest in consideration for an annual fee
of $6 million payable by CanWest. In addition, CanWest will be obligated
to pay Ravelston a termination fee of $45 million, in the event that
CanWest chooses to terminate the management services agreement or $22.5
million, in the event that Ravelston chooses to terminate the agreement
(which cannot occur before December 31, 2002). Also, as required by
CanWest as a condition to the transaction, the Company, Ravelston,
Hollinger International, Lord Black and three senior executives entered
into non-competition agreements with CanWest pursuant to which each
agreed not to compete directly or indirectly in Canada with the Canadian
businesses sold to CanWest for a five-year period, subject to certain
limited exceptions, for aggregate consideration of $80 million paid by
CanWest in addition to the purchase price referred to above, of which
$38.0 million was paid to Ravelston and $42.0 million was paid to Lord
Black and the three senior executives. The independent directors of
Hollinger International have approved the terms of these payments.

F-96

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

i) During 2000, Hollinger International sold most of its remaining U.S.
community newspaper properties, including 11 paid dailies, three paid
non-dailies and 31 free distribution publications for total proceeds
of approximately US $215,000,000 ($325,166,000). Pre-tax gains
totalling $75,114,000 were recognized on these sales and were included
in unusual items in 2000 (note 15).

In connection with the sales of United States newspaper properties in
2000, to satisfy a closing condition, Hollinger International, Lord
Black and three senior executives entered into non-competition
agreements with the purchasers pursuant to which each agreed not to
compete directly or indirectly in the United States with the United
States businesses sold to the purchasers for a fixed period, subject to
certain limited exceptions, for aggregate consideration paid in 2001 of
US $600,000 ($917,000). These amounts were in addition to the aggregate
consideration paid in respect of these non-competition agreements in
2000 of US $15.0 million ($22.5 million). All such amounts were paid to
Lord Black and the three senior executives. The independent directors of
Hollinger International have approved the terms of these payments.

j) Included in the dispositions during 2000 described in note 4i),
Hollinger International sold four U.S. community newspapers for an
aggregate consideration of US $38.0 million ($56.5 million) to
Bradford Publishing Company, a Company formed by a former U.S.
Community Group executive and in which some of Hollinger
International's directors are shareholders. The terms of this
transaction were approved by the independent directors of Hollinger
International.

k) On February 17, 2000, Interactive Investor International, in which
Hollinger International owned 51.7 million shares or a 47% equity
interest, completed its initial public offering ("IPO") issuing 52
million shares and raising L78,000,000 ($181,000,000). The IPO reduced
Hollinger International's equity ownership to 33% and resulted in a
dilution gain of $25,775,000 for accounting purposes. Subsequently,
Hollinger International sold five million shares of its holding,
reducing its equity interest to 28.5% and resulting in a pre-tax gain
in 2000 of $2,400,000. Both the dilution gain and gain on sale were
included in unusual items in 2000 (note 15). The balance of the
investment was sold in 2001 resulting in an additional pre-tax gain in
2001 of $14.7 million (note 15).

l) In December 2000, Hollinger International acquired four paid daily
newspapers, one paid non-daily and 12 free distribution publications
in the Chicago suburbs for total cash consideration of US $111,000,000
($166,744,000). Of the aggregate purchase price, $78,781,000 was
ascribed to circulation and $48,244,000 to goodwill.

All of the Company's acquisitions have been accounted for using the
purchase method with the results of operations included in these
consolidated financial statements from the dates of acquisition.

F-97

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

The details of the acquisitions including those detailed above are as
follows:

<Table>
<Caption>
2000 2001 2002
-------- ----- -----

Assets acquired, at fair value
Current assets............................................ $ 19,444 $ -- $ --
Fixed assets.............................................. 51,724 -- --
Circulation............................................... 78,781 -- --
Goodwill and other assets................................. 57,418 -- --
-------- ----- -----
207,367 -- --
-------- ----- -----
Less liabilities assumed
Current liabilities....................................... 16,269 -- --
Long-term liabilities..................................... 15,722 -- --
-------- ----- -----
31,991 -- --
-------- ----- -----
Net cost of investments..................................... $175,376 $ -- $ --
======== ===== =====
</Table>

5. INVESTMENTS

<Table>
<Caption>
2001 2002
-------- --------

ASSOCIATED COMPANIES, AT EQUITY
Telegraph
Trafford Park Printers Limited ("Trafford Park"), West
Ferry Printers Limited ("West Ferry"), Paper Purchase
Management Limited ("PPM") and handbag.com Limited
(handbag) joint ventures -- 50% interests............ $ 29,110 $ 27,763
Internet-related investments.............................. 8,205 8,012
Other..................................................... 1,490 1,886
-------- --------
38,805 37,661
-------- --------
MARKETABLE INVESTMENTS, AT COST
CanWest debentures a)..................................... 72,259 85,664
Internet-related investments.............................. 6,680 5,812
-------- --------
78,939 91,476
-------- --------
OTHER NON-MARKETABLE INVESTMENTS, AT COST
Internet and telephony-related investments................ 77,115 36,282
Other..................................................... 45,113 26,418
-------- --------
122,228 62,700
-------- --------
$239,972 $191,837
======== ========
</Table>

F-98

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

As part of Hollinger International's November 16, 2000 purchase and sale
agreement with CanWest, Hollinger International was prohibited from
selling CanWest debentures prior to May 15, 2003. In order to monetize
the debentures, Hollinger International entered into a participation
agreement in August 2001 pursuant to which it sold participation
interests in $540.0 million (US $350.0 million) principal amount of
CanWest debentures to a special purpose trust (the "Participation
Trust") administered by an arm's-length trustee. That sale of
participation interests was supplemented by a further sale of $216.8
million (US $140.5 million) in December 2001 for a total of $756.8
million (US $490.5 million). Both sales were conducted at a fixed rate
of exchange of US $0.6482 for each $1. Hollinger International remains
the record owner of the participated CanWest debentures and is required
to make payments to the Participation Trust with respect to those
debentures if and to the extent it receives payment in cash or in kind
on the debentures from CanWest. These payments are not reflected in the
Company's accounts.

Coincident with the Participation Trust's purchase of the participation
interests, the Participation Trust sold senior notes to arm's-length
third parties to finance the purchase of the participation interests.
These transactions resulted in net proceeds to Hollinger International
of $621.8 million and for accounting purposes have been accounted for as
sales of CanWest debentures. The net loss on the 2001 transactions,
including realized holding losses on the debentures, amounted to $97.4
million and has been included in unusual items (note 15). Hollinger
International believes that the participation arrangement does not
constitute a prohibited sale of debentures as legal title was not
transferred. CanWest has advised Hollinger International that it accepts
that position.

Hollinger International has not retained an interest in the
Participation Trust nor does it have any beneficial interest in the
assets of the Participation Trust. The Participation Trust and its
investors have no recourse to Hollinger International's other assets in
the event that CanWest defaults on its debentures. Under the terms of
the Participation Trust, the interest payments received by Hollinger
International in respect of the underlying CanWest debentures will be
paid to the Participation Trust. However, after May 15, 2003, Hollinger
International may be required to deliver to the Participation Trust
CanWest debentures with a face value equivalent to US $490.5 million
based on then current rates of exchange. The CanWest debentures are
denominated in Canadian dollars and, consequently, there is a currency
exposure on the debentures subject to the delivery provision. A
substantial portion of that exposure was previously hedged; however, the
hedge instrument (a forward foreign exchange contract) was terminated in
contemplation of and in conjunction with Publishing's placement of
Senior Notes (note 9a)) and amendment of Publishing's Senior Credit
Facilities (note 9b)). During 2001 and 2002, the net loss before tax,
realized on the mark to market of both the obligation to the
Participation Trust and the related hedge contract was $0.7 million and
$10.4 million, respectively, and has been included in net foreign
currency losses in the consolidated statement of earnings. In 2002, the
loss before tax is net of cash received on the termination of the hedge
of $9.9 million.

Pursuant to the terms of the Participation Trust, Hollinger is unable to
sell to an unaffiliated third party until at least November 4, 2010 the
equivalent of US $50.0 million ($79.0 million at December 31, 2002)
principal amount of CanWest debentures.

F-99

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

6. CAPITAL ASSETS

<Table>
<Caption>
2001 2002
---------- ----------

COST
Land...................................................... $ 46,967 $ 44,139
Buildings and leasehold interests......................... 313,345 328,443
Machinery and equipment................................... 783,494 844,022
---------- ----------
1,143,806 1,216,604
---------- ----------
ACCUMULATED DEPRECIATION AND AMORTIZATION
Buildings and leasehold interests......................... 53,724 61,484
Machinery and equipment................................... 444,703 511,125
---------- ----------
498,427 572,609
---------- ----------
NET BOOK VALUE.............................................. $ 645,379 $ 643,995
========== ==========
OWNED ASSETS
Cost...................................................... $ 857,141 $ 862,576
Accumulated depreciation and amortization................. 310,496 344,554
---------- ----------
Net book value............................................ $ 546,645 $ 518,022
========== ==========
LEASED ASSETS
Cost...................................................... $ 286,665 $ 354,028
Accumulated depreciation and amortization................. 187,931 228,055
---------- ----------
Net book value............................................ $ 98,734 $ 125,973
========== ==========
</Table>

Depreciation and amortization of capital assets totalled $116,059,000,
$77,649,000 and $73,950,000 in 2000, 2001 and 2002, respectively. Hollinger
International capitalized interest in 2000, 2001 and 2002 amounting to
$4,653,000, $129,000 and nil, respectively, related to the construction and
equipping of production facilities for its newspapers in Chicago.

7. GOODWILL AND OTHER INTANGIBLE ASSETS

As described in note 1 to the consolidated financial statements, the
Company adopted Section 3062 and certain transitional provisions of Section 1581
effective January 1, 2002.

F-100

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

The changes in the carrying amount of goodwill by reportable segment for
the year ended December 31, 2002 are as follows:

<Table>
<Caption>
U.K. CANADIAN
CHICAGO COMMUNITY NEWSPAPER NEWSPAPER CONSOLIDATED
GROUP GROUP GROUP GROUP TOTAL
-------- --------- --------- --------- -------------

Balance as at January 1,
2002........................ $240,817 $ 31,975 $580,700 $71,096 $924,588
Transitional impairment loss
-- Jerusalem Post (note
1).......................... -- (31,975) -- -- (31,975)
-------- -------- -------- ------- --------
Revised balance as at January
1, 2002..................... 240,817 -- 580,700 71,096 892,613
Adjustment of excess
acquisition reserves........ (19,477) -- -- -- (19,477)
Repurchase of shares of
Hollinger International
Class A common stock by
Hollinger International
(note 21b))................. 2,162 -- 5,328 -- 7,490
Foreign exchange and other.... (1,534) -- 45,544 279 44,289
-------- -------- -------- ------- --------
Balance as at December 31,
2002........................ $221,968 $ -- $631,572 $71,375 $924,915
======== ======== ======== ======= ========
</Table>

Upon adoption of Section 3062, intangible assets totalling $1,001,651,000,
which were previously ascribed to circulation, net of $247,252,000 of deferred
taxes, were reclassified to goodwill. Intangible assets with a total net book
value at January 1, 2002 of $198,975,000 previously ascribed to circulation,
consisting of non-competition agreements of $12,195,000 net of accumulated
amortization of $8,360,000 and subscriber and advertiser relationships of
$186,780,000 net of accumulated amortization of $35,261,000 were recognized as
identifiable intangible assets apart from goodwill upon adoption of Section
3062.

<Table>
<Caption>
GROSS
CARRYING ACCUMULATED NET BOOK
AMOUNT AMORTIZATION VALUE
-------- ------------ --------

Amortization of goodwill and other intangible assets in total for the year
ended December 31, 2001 was $64,253,000 (2000 -- $101,096,000).

F-101

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

8. DEFERRED FINANCING COSTS AND OTHER ASSETS

<Table>
<Caption>
2001 2002
-------- --------

Deferred pension asset (note 19)............................ $ 83,459 $123,230
Deferred finance costs, net of amortization of $38,494,000
(2001 -- $32,380,000)..................................... 52,484 52,759
Other assets................................................ 16,355 16,314
-------- --------
$152,298 $192,303
======== ========
</Table>

Amortization of deferred finance costs, included in other interest expense,
totalled $15,928,000, $16,686,000 and $8,787,000 in 2000, 2001 and 2002,
respectively.

9. LONG-TERM DEBT

<Table>
<Caption>
2001 2002
---------- ----------

Hollinger International
Senior Notes due 2010 (US $300,000,000)................... $ -- $ 474,000
Senior Credit Facility (US $265,000,000).................. -- 418,698
Senior Notes due 2005 (US $5,082,000) (2001 --
US $260,000,000)....................................... 414,050 8,030
Senior Subordinated Notes due 2006 (US $239,900,000) (2001
-- US $250,000,000).................................... 398,125 379,051
Senior Subordinated Notes due 2007 (US $265,000,000) (2001
-- US $290,000,000).................................... 461,825 418,700
Other..................................................... 16,933 5,103
Other....................................................... 4,081 18,151
Obligations under capital leases
Printing joint ventures................................... 37,914 60,096
Other..................................................... 7,433 5,491
---------- ----------
1,340,361 1,787,320
Less:
Current portion included in current liabilities........... 10,020 16,800
Senior Subordinated Notes (note 9a))...................... -- 797,751
---------- ----------
$1,330,341 $ 972,769
========== ==========
</Table>

a) On December 23, 2002, Publishing issued US $300,000,000 of 9% Senior
Notes due 2010 guaranteed by Hollinger International. Net proceeds of
the issue of US $291,700,000 plus cash on hand and borrowings under
Publishing's Senior Credit Facility (note 9b)) were used in December
2002 to retire Hollinger International's equity forward share purchase
contracts (Total Return Equity Swaps (note 21b)) and to repay amounts
borrowed under its term facility maturing December 31, 2003 (note 9d))
and in January 2003 to retire, in their entirety, Publishing's
outstanding Senior Subordinated Notes due 2006 and 2007 with the
balance available for general corporate purposes.

F-102

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

On December 23, 2002, Publishing gave notice of redemption to both the
holders of the Senior Subordinated Notes due 2006 with a principal
remaining outstanding of US $239.9 million and to the holders of the
Senior Subordinated Notes due 2007 with a principal remaining
outstanding of US $265.0 million. Such notes were retired in January
2003 with a payment of $859.1 million (US $543.8 million), including
early redemption premiums and accrued interest. At December 31, 2002,
the notes remained outstanding and have been disclosed as a current
liability. The proceeds from the December 2002 issue of Publishing's
Senior Notes and borrowings under the Senior Credit Facility used to
fund the redemption were held in escrow at December 31, 2002 and have
been disclosed as escrow deposits in current assets.

The Indentures relating to the 9% Senior Notes contain financial
covenants and negative covenants that limit Publishing's ability to,
among other things, incur indebtedness, pay dividends or make other
distributions on its capital stock, enter into transactions with related
companies, and sell assets, including stock of a restricted subsidiary.
The Indentures provide that upon a change of control (as defined in the
Indentures), each noteholder has the right to require Publishing to
purchase all or any portion of such noteholder's notes at a cash
purchase price equal to 101% of the principal amount of such notes, plus
accrued and unpaid interest. The Senior Credit Facility (note 9b))
restricts Publishing's ability to repurchase these notes even when
Publishing may be required to do so under the terms of the Indenture
relating to the 9% Senior Notes in connection with a change of control.

On January 22, 2003 and February 6, 2003, Publishing entered into
interest rate swaps to convert US $150.0 million and US $100.0 million,
respectively, of the 9% Senior Notes issued in December 2002 to floating
rates for the period to December 15, 2010, subject to early termination
notice.

The Trust Indenture in respect of the 9% Senior Notes contains customary
covenants and events of default, which are comparable to those under the
Senior Credit Facility.

b) On December 23, 2002, Publishing and certain of its subsidiaries
entered into a senior credit facility with an aggregate commitment of
US $310,000,000 (the "Senior Credit Facility").

The Senior Credit Facility consists of i) US $45,000,000 revolving
credit facility which matures on September 30, 2008 (the "Revolving
Credit Facility"), ii) a US $45,000,000 Term Loan A which matures on
September 30, 2008 ("Term Loan A") and iii) a US $220,000,000 Term Loan
B which matures on September 30, 2009 ('Term Loan B'). Publishing and
Telegraph are the borrowers under the Revolving Credit Facility and
First DT Holdings Ltd. ("FDTH"), a wholly owned indirect U.K.
subsidiary) is the borrower under Term Loan A and Term Loan B. The
Revolving Credit Facility and Term Loans bear interest at either the
Base Rate (U.S.) or U.S. LIBOR, plus an applicable margin. Interest is
payable quarterly.

At December 31, 2002, FDTH had a total US $265,000,000 of borrowings
outstanding under Term Loan A and Term Loan B.

F-103

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

interest rate on such borrowing from floating to fixed, and expire as to
US $45.0 million on December 29, 2008 and as to US $220.0 million on
December 29, 2009.

c) On February 14, 2002, Publishing commenced a cash tender offer for any
and all of its outstanding 8.625% Senior Notes due 2005. The tender
offer was made upon the terms and conditions set forth in the Offer to
Purchase and Consent Solicitation Statement dated February 14, 2002.
Under the terms of the offer, Hollinger International offered to
purchase the outstanding notes at a price to be determined three
business days prior to the expiration date of the tender offer by
reference to a fixed spread of 87.5 basis points over the yield to
maturity of the 7.50% U.S. Treasury Notes due February 15, 2005, plus
accrued and unpaid interest up to, but not including the day of
payment for the notes. The purchase price totalled US $1,101.34 for
each US $1,000 principal amount of notes. Included in the purchase
price was a consent payment equal to US $40 per US $1,000 principal
amount of the notes, payable to those holders who validly consented to
the proposed amendments to the indenture governing the notes. In
connection with the tender offer, Publishing solicited consents from
the holders of the notes to amend the Indenture governing the notes by
eliminating most of the restrictive provisions. On March 15, 2002,
$397.2 million (US $248.9 million) in the aggregate principal amount
had been validly tendered pursuant to the offer and on March 18, 2002,
these noteholders were paid out in full. In addition, during the year,
Publishing purchased for

F-104

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

retirement an additional $9.6 million (US $6.0 million) in aggregate
principal amount of the 8.625% Senior Notes due 2005.

During 2002, Publishing purchased for retirement $16.1 million (US $10.1
million) in aggregate principal amount of the 9.25% Senior Subordinated
Notes due 2006 and $39.9 million (US $25.0 million) in the aggregate
principal amount of its 9.25% Senior Subordinated Notes due 2007.

The total principal amount of the above Publishing Senior and Senior
Subordinated Notes retired during 2002 was $462.8 million (US $290.0
million). The premiums paid to retire the debt totalled $43.0 million
which, together with a write-off of $13.3 million of related deferred
financing costs, have been presented as an unusual item (note 15).

d) In October 2002, Hollinger International borrowed on an unsecured
basis $79,600,000 (US $50,000,000) at 10.5% under a term facility
maturing December 31, 2003. Proceeds from Publishing's aforementioned
Senior Credit Facility and the issue of 9% Senior Notes were used, in
part, to repay these borrowings in December 2002.

e) Amounts borrowed under a former short-term credit facility of
$191,100,000 (US $120,000,000) entered into by Hollinger International
in 2001 were repaid during that year.

f) In June 2000, Publishing, HCPH, Telegraph, Southam, HIF Corp., a
wholly owned subsidiary of Publishing, and a group of financial
institutions increased the term loan component of the Fourth Amended
and Restated Credit Facility ("Restated Credit Facility") by
US $100,000,000 to US $975,000,000. On November 16, 2000, using the
proceeds from the CanWest transaction (note 4g)) US $972,000,000 of
borrowings were repaid and the Restated Credit Facility was reduced
to US $5,000,000. The Restated Credit Facility was secured by the
collateralization of US $5,000,000 of Hollinger International's
positive cash balance (note 3). At December 31, 2001, no amounts were
owing under the Restated Credit Facility. During 2002, the Restated
Credit Facility was terminated.

g) Principal amounts payable on long-term debt, excluding obligations
under capital leases, for each of the five years subsequent to
December 31, 2002 are as follows:

<Table>

2003 (including the extinguishment of Senior Subordinated
Notes).................................................... $801,237
2004........................................................ $ 19,667
2005........................................................ $ 27,776
2006........................................................ $ 22,109
2007........................................................ $ 23,103
Subsequent.................................................. $827,841
</Table>

F-105

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

h) Minimum lease commitments, together with the present value of
obligations under capital leases, are as follows:

<Table>

10. OTHER LIABILITIES AND DEFERRED CREDITS

<Table>
<Caption>
2001 2002
------- --------

Deferred gains.............................................. $ 3,189 $ 2,536
Pension obligations (note 19)............................... 6,153 10,957
Accrued post-retirement cost (note 19)...................... 52,219 51,549
Other benefit obligations................................... 24,325 16,927
Liability for amounts due to Participation Trust (notes 5a)
and 21d))................................................. 691 21,444
Liability for cross currency swap (note 21d))............... -- 14,475
------- --------
$86,577 $117,888
======= ========
</Table>

a) Deferred gains represent a lease inducement, which is being recognized
in income over the term of the lease, and a portion of the gain arising
on the Telegraph's transfer of certain equipment to the Trafford Park
joint venture, which is being recognized in income as the assets are
depreciated and/or sold by the joint venture.

Certain of the HCPH Special shares, issued in 1997, represented a
financial liability of the Company which was hedged by the Company's
investment in shares of Class A common stock of Hollinger International.
In June 2000, the Company exercised its option to pay cash on the
mandatory exchange of these Special shares in the amount of US $36.8
million. The previously deferred foreign exchange loss arising from
translating the U.S. dollar obligation was written off to unusual items
(note 15).

b) In connection with the acquisition of Southam shares in 1997, HCPH
issued 6,552,425 Special shares valued at $10.00 per share at the time
of issue. In accordance with the terms of these shares, Hollinger
International was required to deliver cash or common shares of
Hollinger International upon the exchange of the Special shares and
accordingly, they did not represent a financial liability of the
Company and, prior to their redemption, were included in minority
interest. These shares were exchangeable at the option of the holder at
any time prior to June 26, 2000, into newly issued Class A subordinate
voting shares of Hollinger International. On June 12, 2000, Hollinger
International exercised its option to pay cash on the mandatory
exchange of the HCPH Special shares. Pursuant to the terms of the
indenture governing the Special shares, each Special share was
exchanged for cash of US $8.88 resulting in a payment to Special
shareholders of US $58.2 million.

F-106

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

11. CAPITAL STOCK

<Table>
<Caption>
2001 2002
-------- --------

AUTHORIZED
Unlimited number of common shares
ISSUED AND FULLY PAID
COMMON SHARES
111 (2001 -- 111)......................................... $106,832 $106,832
======== ========
</Table>

a) In June 2000, the Company made a return of capital distribution to its
immediate parent, Sugra Limited ("Sugra"), satisfied by transferring
its 4,146,007 HCPH Special shares with a fair market value of
$54,433,000 (note 20b)).

b) Certain of the Company's subsidiaries have stock option plans for their
employees.

i) Details of Hollinger International's stock option plan are as
follows:

Hollinger International's Incentive Plan is administered by its
independent committee ("Committee") of its Board of Directors. The
Committee has the authority to determine the employees to whom awards
will be made, the amount and type of awards, and the other terms and
conditions of the awards. In 1999, Hollinger International adopted
the 1999 Stock Incentive Plan ("1999 Stock Plan") which superseded
its previous two plans.

Under Section 3870, stock options granted to employees of Ravelston,
the parent company of the Company, must be measured at fair value and
recorded as a dividend-in-kind by Hollinger International. On
February 5, 2002, Hollinger International granted 1,309,000 stock
options to employees of Ravelston with an exercise price of US $11.13
per share. The aggregate fair value of these options was $9,594,000
(US $6,111,000) and this has been recorded by Hollinger International
as an in-kind dividend (with no impact on the accounts of the
Company) during the year. On April 2, 2001, Hollinger International
granted 1,402,500 stock options to employees of Ravelston with an
exercise price of US $14.37 per share. The aggregate fair value of
these options was $12,090,000 (US $7,800,000) and was recorded by
Hollinger International as an in-kind dividend in 2001.

For all other series of stock options, no compensation cost has been
recognized by Hollinger International.

F-107

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

Stock option activity with respect to Hollinger International's stock
options is as follows:

<Table>
<Caption>
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
---------- --------------
(IN US $)

Options outstanding at December 31, 1999.................... 5,149,500 $11.88
Options granted............................................. 2,559,250 10.57
Options exercised........................................... (471,063) 11.67
Options cancelled........................................... (536,374) 12.11
---------- ------
Options outstanding at December 31, 2000.................... 6,701,313 11.38
Options granted............................................. 2,418,000 14.40
Options exercised........................................... (624,162) 11.01
Options cancelled........................................... (82,750) 12.33
---------- ------
Options outstanding at December 31, 2001.................... 8,412,401 12.26
Options granted............................................. 2,227,000 11.14
Options exercised........................................... (75,375) 10.81
Options cancelled........................................... (168,688) 12.64
---------- ------
Options outstanding at December 31, 2002.................... 10,395,338 $12.03
========== ======
Options exercisable at December 31, 2000.................... 1,989,548 $11.51
========== ======
Options exercisable at December 31, 2001.................... 3,032,682 $11.48
========== ======
Options exercisable at December 31, 2002.................... 4,739,994 $11.85
========== ======
</Table>

ii) Had the Company determined compensation expense based on the fair
value method at the grant date for stock options granted to
employees, consistent with the method prescribed under Section
3870, the Company's net earnings (loss) for the year would have
been reported as the pro forma amounts indicated below. This
compensation expense takes into account all options granted by
Hollinger International, including those granted prior to January
1, 2002. The fair value of the options is amortized over the
vesting period.

<Table>
<Caption>
2000 2001 2002
------- --------- --------

Net earnings (loss), as reported..................... $63,830 $ (98,439) $(45,244)
Stock-based compensation expense -- Hollinger
International...................................... (2,708) (3,128) (2,356)
------- --------- --------
Pro forma net earnings (loss)........................ $61,122 $(101,567) $(47,600)
======= ========= ========
</Table>

The fair value of each Hollinger International stock option granted
during 2000, 2001 and 2002 was estimated on the date of grant for pro
forma disclosure purposes using the Black-Scholes option pricing
model with the following weighted average assumptions used for grants
in fiscal 2000, 2001 and 2002, respectively: dividend yield of 3.4%,
4.6% and 3.6%, expected volatility of 43.3%, 55.2% and 68.3%,
risk-free interest rates of 5.1%, 5.0% and 4.5% and expected lives of
10 years. Weighted average fair value of options granted by Hollinger
International during 2000, 2001 and 2002 was $6.12 (US $4.12), $8.79
(US $5.67) and $8.87 (US $5.65), respectively.

12. EQUITY ADJUSTMENT FROM FOREIGN CURRENCY TRANSLATION

F-108

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

2001 to December 31, 2002 primarily reflects the weakening of the Canadian
dollar against the British pound partly offset by the strengthening of the
Canadian dollar against the U.S. dollar and the recognition in unusual items
(note 15) of a realized foreign exchange gain arising on the reduction of net
investments in foreign subsidiaries. The amount at December 31, 2002 is
unrealized and bears no relationship to the underlying value of the Company's
investment in foreign subsidiaries.

13. COMMITMENTS

a) Future minimum lease payments subsequent to December 31, 2002 under
operating leases are as follows:

<Table>

2003........................................................ $ 26,832
2004........................................................ $ 23,775
2005........................................................ $ 21,463
2006........................................................ $ 18,100
2007........................................................ $ 16,849
2008 and subsequent......................................... $149,346
</Table>

b) In connection with certain of its cost and equity investments (note 5),
Hollinger International and its subsidiaries are committed to fund
approximately $1.9 million to those investees in 2003.

14. CONTINGENCIES

c) A number of libel and legal actions against the Company's subsidiaries
are outstanding. The Company believes there are valid defences to these
proceedings or sufficient insurance to protect it from material loss.

e) At December 31, 2002, Hollinger had a bank operating line which
provides for up to $10.0 million of borrowings and a revolving bank
credit facility which provides for up to $80.8 million of borrowings.
Hollinger's revolving bank credit facility is secured by shares of
Hollinger International Class A and Class B common stock owned by
Hollinger and the Company. Under the terms of the revolving bank credit
facility Hollinger, the Company and its subsidiaries are subject to
restrictions on the incurrence of additional debt.

F-109

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

The revolving bank credit facility was amended and restated on August 30,
2002 and was to mature on December 2, 2002. A mandatory repayment of the
revolving bank credit facility in the amount of $50.0 million was required by
December 2, 2002 and if such payment was made, the lenders could have consented
to an extension of the maturity date to December 2, 2003 in respect of the
principal outstanding. On December 2, 2002, the lenders extended the $50.0
million principal repayment date to December 9, 2002. This repayment was not
made and on December 9, 2002, the bank credit facility was amended to require a
principal payment of $44.0 million on February 28, 2003 with the balance
maturing on December 2, 2003. As a result of the impending closing of
Hollinger's Senior Secured Notes issue, the lenders further extended the due
date for the repayment of the $44.0 million to March 14, 2003. On March 10,
2003, the revolving bank credit facility in the amount of $80.8 million and the
bank operating line of $10.0 million were repaid with part of the proceeds of
Hollinger's issue of Senior Secured Notes (note 25).

15. UNUSUAL ITEMS

<Table>
<Caption>
2000 2001 2002
-------- --------- --------

Net gain on dilution of investments......................... $ 25,775 $ -- $ --
Gain (loss) on sale of investments.......................... 47,921 (240,060) --
Gain on sales of interest in Hollinger International (note
4a) and e))............................................... 377 15,014 14,999
Net gain (loss) on sales of Publishing interests............ 695,905 (22,963) --
Loss on retirement of Senior Notes (note 9c))............... -- -- (56,287)
New Chicago plant pre-operating costs....................... (10,097) (7,237) (661)
Write-off of financing fees................................. (16,088) -- --
Write-off of investments.................................... (31,381) (79,943) (62,450)
Decrease in pension valuation allowance (note 19)........... -- 58,704 34,402
Realized loss on Total Return Equity Swap (note 21b))....... -- (29,646) (43,313)
Pension and post-retirement plan liability adjustment....... -- (16,823) --
Net foreign exchange gain on reduction of net investment in
foreign subsidiaries...................................... -- -- 44,548
Other income (expense), net................................. (37,452) (13,485) 7,754
-------- --------- --------
$674,960 $(336,439) $(61,008)
======== ========= ========
</Table>

16. INCOME TAXES

Income tax expense (recovery) attributable to income from continuing
operations consists of:

<Table>
<Caption>
2000 2001 2002
--------- --------- --------

Current............................................ $ 615,570 $ 55,925 $ 6,673
Future............................................. (325,411) (130,121) 117,094
--------- --------- --------
$ 290,159 $ (74,196) $123,767
========= ========= ========
</Table>

F-110

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

<Table>
<Caption>
2000 2001 2002
--------- --------- --------

Earnings (loss) before income taxes and minority
interest......................................... $ 787,961 $(456,998) $(68,955)
========= ========= ========
Basic income tax rate.............................. 43.95% 41.75% 41.00%
========= ========= ========
Computed income tax expense (recovery)............. $ 346,309 $(190,797) $(28,272)
Change in income tax expenses (recovery) resulting
from:
Different tax rate on earnings of subsidiaries... (64,577) 16,249 17,710
Tax gain in excess of book gain.................. (250,530) 24,293 949
Potential tax benefit of current year's losses
not recorded.................................. 27,057 -- --
Large Corporations Tax........................... 15,531 940 1,079
Loss on Total Return Equity Swap................. -- 12,377 17,758
Change in valuation allowance.................... -- 28,539 61,300
Minority interest in earnings of Hollinger
L.P. ......................................... (26,669) (2,001) (1,214)
Permanent differences............................ 243,038 36,204 54,457
--------- --------- --------
Income tax expense (recovery)...................... $ 290,159 $ (74,196) $123,767
========= ========= ========
Effective tax rate................................. 36.82% 16.24% 179.49%
========= ========= ========
</Table>

The Company's Canadian subsidiaries have operating losses carried forward
for tax purposes of approximately $60,096,000, the tax benefit of which has not
been reflected in the accounts. These losses expire as follows:

<Table>

2004........................................................ $ 5
2005........................................................ 586
2006........................................................ 7,452
2007........................................................ 554
2008........................................................ 30,366
2009........................................................ 21,133
-------
$60,096
=======
</Table>

The Company has recorded a valuation allowance of $61,300,000 in the
current year related to net operating loss carryforwards and other deferred tax
assets in the Canadian group. The valuation allowance in the prior year related
entirely to net operating losses of N.P. Holdings Company, a subsidiary of the
Company. As described in note 20c), this subsidiary was sold to an affiliate
during the year. The tax losses were sold at their carrying value.

F-111

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

The tax effects of temporary differences that give rise to significant
portions of the future tax assets and future tax liabilities are presented
below:

<Table>
<Caption>
2001 2002
--------- ---------

Future tax assets:
Net operating loss carryforwards.......................... $ 111,184 $ 26,742
Compensation and accrued pension.......................... 7,459 6,952
Investments............................................... 20,717 51,676
Post-retirement benefit obligations....................... 28,044 28,050
Other..................................................... 77,132 23,901
--------- ---------
Gross future tax assets..................................... 244,536 137,321
Less valuation allowance.................................... (28,539) (61,300)
--------- ---------
Net future tax assets....................................... 215,997 76,021
--------- ---------
Future tax liabilities:
Property, plant and equipment, principally due to
differences in depreciation............................ 93,196 107,878
Intangible assets, principally due to differences in basis
and amortization....................................... 456,746 181,223
Pension assets............................................ 7,746 47,266
Long-term advances under joint venture printing
contract............................................... 20,801 20,290
Deferred gain on exchange of assets....................... 56,009 49,226
Other..................................................... 79,851 51,396
--------- ---------
Gross future tax liabilities................................ 714,349 457,279
--------- ---------
Future income tax liabilities............................... $(498,352) $(381,258)
========= =========
</Table>

17. CASH FLOWS

<Table>
<Caption>
2000 2001 2002
--------- --------- ---------

Net earnings (loss)............................... $ 63,830 $ (98,439) $ (45,244)
Unusual items (note 15)........................... (674,960) 336,439 61,008
Current income taxes related to unusual items..... 459,394 (15,337) 764
Items not involving cash:
Depreciation and amortization................... 217,154 141,899 87,805
Amortization of deferred financing costs........ 15,928 16,686 8,787
Future income taxes............................. (325,411) (130,121) 117,094
Minority interest............................... 409,583 (300,295) (153,769)
Net earnings in equity-accounted companies, net
of dividends received........................ 15,685 36,945 1,408
Non-cash interest income on CanWest
debentures................................... 11,463 (67,517) (9,239)
Miscellaneous................................... (10,181) (6,008) (1,499)
--------- --------- ---------
$ 182,485 $ (85,748) $ 67,115
========= ========= =========
</Table>

F-112

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

b) The change in non-cash operating working capital is determined as
follows:

<Table>
<Caption>
YEAR ENDED DECEMBER 31
------------------------------
2000 2001 2002
-------- -------- --------

Changes in current assets and current liabilities,
net of acquisitions and dispositions:
Accounts receivable................................ $(94,205) $ 32,423 $ 2,110
Inventory.......................................... (11,165) (3,886) 14,704
Prepaid expenses................................... 1,323 (3,962) (3,894)
Accounts payable and accrued expenses.............. (61,505) 19,187 (35,851)
Income taxes payable............................... 183,124 (74,326) 27,975
Deferred revenue................................... (933) (11,730) (1,307)
Other.............................................. (1,163) 9,271 22,217
-------- -------- --------
$ 15,476 $(33,023) $ 25,954
======== ======== ========
</Table>

18. SEGMENTED INFORMATION

Sales revenue............. $596,759 $100,104 $882,196 $1,579,200 $ (1) $3,158,258
Cost of sales and
expenses................ 504,079 85,702 684,900 1,294,975 24,088 2,593,744
-------- -------- -------- ---------- -------- ----------
Sales revenue less cost of
sales and expenses...... 92,680 14,402 197,296 284,225 (24,089) 564,514
Depreciation and
amortization............ 37,328 7,653 58,148 110,112 3,913 217,154
-------- -------- -------- ---------- -------- ----------
Operating income (loss)... $ 55,352 $ 6,749 $139,148 $ 174,113 $(28,002) $ 347,360
======== ======== ======== ========== ======== ==========
Expenditures on capital
assets.................. $ 38,177 $ 5,038 $ 24,039 $ 42,812 $ 2,413 $ 112,479
======== ======== ======== ========== ======== ==========
</Table>

F-113

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

Sales revenue............. $686,266 $29,619 $ 801,053 $305,073 $ 130 $1,822,141
Cost of sales and
expenses................ 622,974 31,950 703,296 337,383 30,286 1,725,889
-------- ------- ---------- -------- -------- ----------
Sales revenue less cost of
sales and expenses...... 63,292 (2,331) 97,757 (32,310) (30,156) 96,252
Depreciation and
amortization............ 53,537 2,962 63,855 18,134 3,411 141,899
-------- ------- ---------- -------- -------- ----------
Operating income (loss)... $ 9,755 $(5,293) $ 33,902 $(50,444) $(33,567) (45,647)
======== ======= ========== ======== ======== ==========
Total assets.............. $973,279 $85,291 $1,257,805 $691,568 $696,582 $3,704,525
======== ======= ========== ======== ======== ==========
Expenditures on capital
assets.................. $ 19,343 $ 463 $ 48,788 $ 4,405 $ 18,227 $ 91,226
======== ======= ========== ======== ======== ==========
</Table>

Sales revenue............ $693,690 $20,781 $ 804,584 $109,121 $ 639 $1,628,815
Cost of sales and
expenses............... 591,628 25,259 693,895 112,723 28,908 1,452,413
-------- ------- ---------- -------- ---------- ----------
Sales revenue less cost
of sales and
expenses............... 102,062 (4,478) 110,689 (3,602) (28,269) 176,402
Depreciation and
amortization........... 42,378 3,682 35,939 1,713 4,093 87,805
-------- ------- ---------- -------- ---------- ----------
Operating income
(loss)................. $ 59,684 $(8,160) $ 74,750 $ (5,315) $ (32,362) $ 88,597
======== ======= ========== ======== ========== ==========
Total assets............. $895,917 $59,173 $1,120,023 $411,891 $1,298,260 $3,785,264
======== ======= ========== ======== ========== ==========
Expenditures on capital
assets................. $ 24,344 $ 7,888 $ 27,680 $ 3,575 $ 84 $ 63,571
======== ======= ========== ======== ========== ==========
</Table>

19. EMPLOYEE BENEFIT PLANS

DEFINED CONTRIBUTION PENSION PLANS

Hollinger International sponsors six defined contribution plans, three of
which have provisions for Hollinger International matching contributions. For
the years ended December 31, 2000, 2001 and 2002, Hollinger International
contributed $2,372,000, $2,402,000 and $3,330,000, respectively. Hollinger
International sponsors 11 (2000 -- 12) defined contribution plans in Canada and
contributed $3,069,000, $261,500 and $241,000 to the plans in 2000, 2001 and
2002, respectively.

The Telegraph sponsors a defined contribution plan for the majority of its
employees, as well as a defined contribution plan to provide pension benefits
for senior executives. For 2000, 2001 and 2002, contributions to the defined
contribution plan are included as part of the service cost of the defined
benefit plan. For the years ended December 31, 2000, 2001 and 2002, the
Telegraph contributed $874,000, $803,000 and $835,000 and $803,000,
respectively, to the Telegraph Executive Pension Scheme. The Telegraph plan's
assets consist principally of U.K. and overseas equities, unit trusts and bonds.

F-114

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

DEFINED BENEFIT PENSION PLANS

The Company's subsidiaries have ten foreign and six domestic
single-employer defined benefit plans and contribute to various union-sponsored,
collectively bargained multi-employer pension plans. The Company's subsidiaries'
contributions to these plans for the years ended December 31, 2000, 2001 and
2002 were:

<Table>
<Caption>
2000 2001 2002
------- ------- -------

Single-employer plans................................... $19,835 $15,560 $19,992
Multi-employer plans.................................... $ 9,324 $ 1,938 $ --
</Table>

SINGLE-EMPLOYER PENSION PLANS

The components of the net period cost (benefit) for the years ended
December 31, 2000, 2001 and 2002 are as follows:

<Table>
<Caption>
2000 2001 2002
-------- -------- --------

Service cost......................................... $ 22,076 $ 15,308 $ 15,930
Interest cost........................................ 64,490 49,327 49,448
Expected return on plan assets....................... (90,011) (56,133) (52,422)
Amortization of prior service costs.................. 900 583 782
Settlement and curtailment........................... 6,487 2,272 --
Amortization of net (gain) loss...................... (345) 1,557 6,200
Change in valuation allowance against prepaid benefit
cost............................................... 97,258 (59,106) (34,729)
-------- -------- --------
Net period cost (benefit)............................ $100,855 $(46,192) $(14,791)
======== ======== ========
</Table>

F-115

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

The table below sets forth the reconciliation of the benefit obligation as
of December 31, 2001 and 2002:

<Table>
<Caption>
2001 2002
-------- --------

Benefit obligation at the beginning of the year............. $863,049 $778,579
Adjustments to opening balance.............................. 7,243 --
Service cost................................................ 15,308 15,930
Interest cost............................................... 49,327 49,449
Participant contributions................................... 9,027 7,539
Divestitures................................................ (122,131) --
Plan amendments............................................. 28 9,629
Settlement gain............................................. (12,973) --
Exchange rate differences................................... 17,860 33,314
Changes in assumptions...................................... -- (1,000)
Actuarial loss (gain)....................................... 17,562 (21,096)
Benefits paid............................................... (65,721) (69,496)
-------- --------
Benefit obligation at the end of the year................... $778,579 $802,848
======== ========
</Table>

The 2001 settlement gain was related to the sale of Canadian newspapers.
The 2000 curtailment and settlement gains were related to the sale of Canadian
and Community Group newspapers.

The table below sets forth the change in plan assets for the years ended
December 31, 2001 and 2002:

<Table>
<Caption>
2001 2002
-------- --------

Fair value of plan assets at the beginning of the year...... $971,208 $757,751
Adjustment to opening balance............................... -- 4,897
Actual return on plan assets................................ (37,943) (67,865)
Exchange rate differences................................... 16,969 27,529
Employer contributions...................................... 15,560 19,992
Participant contributions................................... 9,027 7,539
Settlement gain............................................. (15,245) --
Divestitures................................................ (136,104) --
Benefits paid............................................... (65,721) (69,496)
-------- --------
Fair value of plan assets at the end of the year............ $757,751 $680,347
======== ========
</Table>

The following table provides the amounts recognized in the consolidated
balance sheet as of December 31, 2001 and 2002:

<Table>
<Caption>
2001 2002
-------- ---------

Plan deficit................................................ $(20,828) $(122,501)
Unrecognized net actuarial loss............................. 133,249 233,476
Unrecognized prior service cost............................. 3,699 3,039
Unrecognized net transition obligation...................... -- 2,344
-------- ---------
Prepaid benefit cost........................................ 116,120 116,358
Valuation allowance......................................... (38,814) (4,085)
-------- ---------
Prepaid benefit cost, net of valuation allowance............ $ 77,306 $ 112,273
======== =========
</Table>

F-116

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

The above prepaid benefit cost is classified in the consolidated balance
sheet as follows:

<Table>
<Caption>
2001 2002
------- --------

Deferred pension asset (note 8)............................. $83,459 $123,230
Pension obligations (note 10)............................... (6,153) (10,957)
------- --------
Prepaid benefit cost, net of valuation allowance............ $77,306 $112,273
======= ========
</Table>

The ranges of assumptions on the Company's foreign plans were as follows:

<Table>
<Caption>
2000 2001 2002
----------- ----------- ------------

The ranges of assumptions used for the Company's domestic plans were as
follows:

<Table>
<Caption>
2000 2001 2002
----------- ----------- ------------

VALUATION ALLOWANCE

MULTI-EMPLOYER PENSION PLANS

F-117

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

POST-RETIREMENT BENEFITS

The Company's subsidiaries sponsor a post-retirement plan that provides
post-retirement benefits to certain employees in Canada.

The components of net period post-retirement cost (benefit) for the years
ended December 31, 2000, 2001 and 2002 are as follows:

<Table>
<Caption>
2000 2001 2002
-------- ------- ------

The table below sets forth the reconciliation of the accumulated
post-retirement benefit obligation as of December 31, 2001 and 2002:

<Table>
<Caption>
2001 2002
------- -------

Accumulated post-retirement benefit obligation at the
beginning of the year..................................... $51,873 $54,087
Adjustment to opening balance............................... 9,580 4,461
Service cost................................................ 186 133
Interest cost............................................... 2,966 2,801
Actuarial gains............................................. 628 (236)
Benefits paid............................................... (2,860) (3,103)
Divestitures................................................ (8,286) --
------- -------
Accumulated post-retirement benefit obligation at the end of
the year.................................................. $54,087 $58,143
======= =======
</Table>

The fair value of plan assets was $1,200,000 and $5,449,000 at December 31,
2001 and 2002, respectively.

The table below sets forth the plan's funded status reconciled to the
amounts recognized in the Company's financial statements:

<Table>
<Caption>
2001 2002
-------- --------

Unfunded status............................................. $(54,087) $(53,894)
Unrecognized net loss....................................... 1,868 2,345
-------- --------
Accrued post-retirement liability (note 10)................. $(52,219) $(51,549)
======== ========
</Table>

F-118

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

$2,098,000 and $2,556,000, respectively, and the effect of this change on the
aggregate of service and interest cost for 2001 and 2002 would have been a
decrease of $160,000 and $233,000, respectively.

20. RELATED PARTY TRANSACTIONS

<Table>
<Caption>
2001 2002
-------- --------

Due from related parties:
Hollinger Inc. (note 20k))................................ $ 96,634 $199,570
Other..................................................... 5,643 284
-------- --------
$102,277 $199,854
======== ========
Due to related parties:
Ravelston and RMI (note 20d))............................. $ 13,740 $ 27,489
Other..................................................... 7,210 13,474
-------- --------
$ 20,950 $ 40,963
======== ========
</Table>

The amounts due to and from related parties are non-interest bearing and
due on demand. They are measured at the exchange amount of consideration
established and agreed to by the related parties.

Hollinger International and its subsidiaries have entered into a
services agreement with Ravelston, whereby Ravelston acts as manager of
Hollinger and carries out head office and executive responsibilities.
The services agreement was assigned on July 5, 2002 to RMI, a wholly
owned subsidiary of Ravelston. Ravelston and RMI billed to Hollinger
International and its subsidiaries fees totalling $49,943,000,
$44,853,000 and $37,272,000 for 2000, 2001 and 2002, respectively,
pursuant to this agreement.

Certain executives of Ravelston and Moffat Management and Black-Amiel
Management, affiliates of Ravelston and RMI, have separate services
agreements with certain subsidiaries of Hollinger International. Amounts
paid directly by subsidiaries of Hollinger International pursuant to
such agreements were $5,436,000, $2,629,000 and $2,976,000 for 2000,
2001 and 2002, respectively. The fees under Ravelston's and RMI's
services agreement and the fees paid directly to executives and
affiliates of Ravelston, in aggregate, are negotiated with and approved
by Hollinger International's independent committee.

Similarly, Ravelston carried out head office and executive
responsibilities for the Company. In 2000, 2001 and 2002, no amounts
were charged by Ravelston for such services.

b) On July 11, 2000, Hollinger International loaned US $36,817,000 to the
Company in connection with the cash purchase by the Company of
4,146,007 HCPH Co. Special shares. The loan is payable on demand and
to December 31, 2001 interest was payable at the rate of 13% per
annum. Effective January 1, 2002, the interest rate was adjusted to
LIBOR plus 3% per annum. This loan, together with accrued interest,
totalled US $45,848,000 at December 31, 2002. On March 10, 2003,

F-119

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

a portion of this loan has been settled and the terms of the loan have been
amended as described in note 25c).

c) On July 3, 2002, N.P. Holdings Company ("NP Holdings"), a subsidiary
of Hollinger International, was sold for cash consideration of $5.75
million to RMI. The net assets of NP Holdings primarily included
Canadian tax losses. The tax losses, only a portion of which was
previously recognized for accounting purposes, were effectively sold
at their carrying value. Due to the inability of NP Holdings to
utilize its own tax losses prior to their expiry, as a result of its
disposing of its interest in the National Post, it sold these losses
to a company which would be able to utilize the losses. The only other
potential purchaser for these losses, CanWest, declined the
opportunity to acquire the losses. The terms of the sale of the tax
losses to RMI were approved by the independent directors of Hollinger
International.

d) Hollinger International owes $11.6 million, $13.7 million and $5.0
million at December 31, 2000, 2001 and 2002, respectively, to
Ravelston or RMI in connection with fees payable pursuant to the
services agreement. As at December 31, 2002, HCPH Co. also owes RMI
$22.5 million in connection with the assumption by RMI, as a result of
its purchase of NP Holdings (note 20c)), of a liability of $22.5
million owing to CanWest. This amount is due on demand, is unsecured
and is stated to bear interest at an annual rate of the bankers'
acceptance rate plus 4%.

e) During 2000 and 2001, in connection with the sales of properties
described in note 4c), 4g) and 4i), the Company, Ravelston, Hollinger
International, Lord Black and three senior executives entered into
non-competition agreements with the purchasers in return for cash
consideration paid.

f) As described in note 4c), 4f) and 4j), during 2001, the Company sold
newspaper properties to certain related parties.

g) As described in note 4e), during 2001, Hollinger International
redeemed certain of its shares held by the Company and converted
preference shares held by the Company into shares of Hollinger
International Class A common stock. The shares of Class A common stock
were subsequently purchased by Hollinger International from the
Company for cancellation.

h) Included in Other Assets at December 31, 2002 is $6,525,000
(US $4,130,000), owing to Hollinger International from Bradford
Publishing Company ("Bradford"), a company in which certain of the
Company's and Hollinger International's directors are significant
shareholders. Such amount represents the present value of the
remaining amounts owing under a non-interest bearing note receivable
granted to Hollinger International in connection with a
non-competition agreement entered into on the sale of certain
operations to Bradford during 2000. The note receivable is unsecured,
due over the period to 2010 and is subordinated to Bradford's lenders.

i) Included in Other Assets at December 31, 2002 is $7,677,000
(US $4,859,000) owed by Horizon Publications Inc. ("Horizon"), a
company controlled by certain members of the Board of Directors of
Hollinger International and the Company. Such amount represents
unpaid purchase price payable to Hollinger International in
connection with the sale of certain operations to Horizon during
1999. The loan receivable is unsecured, bears interest at the lower
of LIBOR plus 2% and 8% per annum and is due in 2007.

j) During 2002, the Company paid to Horizon a management fee in the
amount of $256,000 in connection with certain administrative services
provided by Horizon. Such fee was approved by Hollinger
International's independent directors.

k) The amount due from Hollinger results from advances made from the
proceeds from sales of shares of Hollinger International Class A
common stock and from dividends received by the Company on its shares
of Hollinger International common stock. The Company will declare a
dividend to settle

F-120

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

the amount receivable and declare regular dividends in the future to
settle future funds advanced to Hollinger.

l) As described in note 11a), during 2000 the Company transferred
4,146,007 HCPH special shares valued at $54,433,257 to its parent,
Sugra, as a return of capital distribution and repayment of non-
interest bearing promissory note.

m) Additional related party transactions occurring subsequent to year end
are described in note 25.

21. FINANCIAL INSTRUMENTS

a) Risk management activities

i) Credit risk

ii) Interest rate and currency risk

The Company and its subsidiaries have entered into interest rate
swaps, forward foreign exchange contracts and cross-currency rate
swaps, as described in detail in notes 21c) and 21d) below.

b) Forward share purchase contracts

At December 31, 2000, Hollinger International had arrangements with four
banks pursuant to which the banks had purchased 14,109,905 shares of
Hollinger International's Class A common stock at an average price of
US $14.17. Hollinger International had the option, quarterly, up to and
including September 30, 2000, to buy the shares from the banks at the
same cost or to have the banks resell those shares in the open market.
These arrangements were extended from time to time for periods
ultimately ending between February 28, 2003 and June 30, 2003. In the
event the banks resold the shares, any gain or loss realized by the
banks would be for Hollinger International's account. Under the
arrangements, until Hollinger International purchased the shares or the
banks resold the shares, dividends paid on shares belonged to Hollinger
International and Hollinger International paid interest to the banks,
based on their purchase price at the rate of LIBOR plus a spread.

In August 2001, Hollinger International purchased for cancellation from
one of the banks 3,602,305 shares of Class A common stock for
US $50,000,000 or US $13.88 per share. The market value of these shares
on the date of purchase was US $47,000,000 or US $13.05 per share.

In November 2001, one of the banks sold in the open market 3,556,513
shares of Hollinger International Class A common stock for
US $34,200,000 or an average price of US $9.62 per share. This resulted
in a loss to the bank of US $15,800,000, which, in accordance with the
arrangement, was paid in cash by Hollinger International.

F-121

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

prepaid during 2002). The additional US $40,000,000 payment was paid
from a portion of the proceeds received in December 2002 from
Publishing's Senior Credit Facility and 9% Senior Notes (note 9). This
resulted in a realized loss of $43,313,000, on the 2002 termination of
the contracts, which has been included in unusual items (note 15).
During 2001, a realized loss of $29,646,000 on contracts terminated in
2001 was included in unusual items (note 15).

c) Fair values of financial instruments

The carrying value and estimated fair value of the Company's financial
instruments at December 31, 2001 and 2002 are as follows:

<Table>
<Caption>
2001 2002
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------

Marketable securities (note 5).......... $ 78,939 $ 65,871 $ 91,476 $ 90,032
Long-term debt (note 9)................. 1,340,361 1,276,934 1,787,320 1,649,149
Liability for interest rate swaps....... 1,567 1,567 -- --
Foreign currency obligation (note 10)... 25,442 25,442 21,444 21,444
Forward foreign exchange contract --
asset (note 10)....................... 24,751 24,751 -- --
Forward share purchase contracts --
liability (note 21b))................. -- 29,735 -- --
Cross-currency swap -- liability (note
10)................................... -- -- 14,475 14,475
</Table>

The carrying values of cash and cash equivalents, escrow deposits,
accounts receivable, accounts payable and accrued expenses and amounts
due to related parties approximate their fair values, due to the
relatively short periods to maturity of the instruments.

The fair value of marketable securities is based on the closing market
value of such securities at the year end.

F-122

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

included in income. Such swaps were terminated in 2002. The foreign
currency obligation and forward foreign exchange contract are in
connection with the sale of participations in the CanWest debentures,
which is described in note 5. The cross-currency swap is in connection
with the Senior Credit Facility, as described in note 9b). The carrying
values of all other financial instruments at December 31, 2002 and 2001
approximate their estimated fair values.

d) Derivative instruments

As described in note 9b), the Company entered into two cross-currency
rate swaps to offset principal and interest payments on U.S. dollar
borrowings by a U.K. subsidiary under Publishing's December 2002 Senior
Credit Facility. The fair value of the contracts as of December 31, 2002
of $14,475,000 is included in the consolidated balance sheet in other
liabilities and deferred credits (note 10).

22. RECENT ACCOUNTING PRONOUNCEMENTS

a) Foreign currency and hedging

In November 2001, the CICA issued Accounting Guideline 13, "Hedging
Relationships" ("AcG 13"). AcG 13 establishes new criteria for hedge
accounting and will apply to all hedging relationships in effect on or
after July 1, 2003. On January 1, 2004, the Company will reassess all
hedging relationships to determine whether the criteria are met or not
and will apply the new guidance on a prospective basis. To qualify for
hedge accounting, the hedging relationship must be appropriately
documented at the inception of the hedge and there must be reasonable
assurance, both at the inception and throughout the term of the hedge,
that the hedging relationship will be effective. The Company is in the
process of formally documenting all hedging relationships and has not
yet determined whether any of their current hedging relationships will
not meet the new hedging criteria.

b) Impairment of long-lived assets

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

costs to sell. Section 3475 also broadens the definition of discontinued
operations to include all distinguishable components of an entity that
will be eliminated from operations. Section 3063 is effective for the
Company's 2004 fiscal year; however, early application is permitted.
Revised Section 3475 is applicable to disposal activities committed to
by the Company after May 1, 2003; however, early application is
permitted. The Company expects that the adoption of these standards will
have no material impact on its financial position, results of operations
or cash flow at this time.

c) Disclosure of guarantees

In February 2003, the CICA issued Accounting Guideline 14, "Disclosure
of Guarantees" ("AcG 14"). AcG 14 requires certain disclosures to be
made by a guarantor in its interim and annual financial statements for
periods beginning after January 1, 2003. AcG 14 is generally consistent
with the disclosure requirements for guarantees in the U.S. (Financial
Accounting Standards Board ("FASB") Interpretation No. 45) but, unlike
the FASB's guidance, does not encompass recognition and measurement
requirements. The Company has evaluated the impact of adoption of AcG 14
and the disclosures are included in note 24h).

23. SCHEDULE OF RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES ("GAAP")

<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------
2000 2001 2002
-------- --------- --------

NET EARNINGS (LOSS)
Net earnings (loss) for the year based on Canadian GAAP..... $ 63,830 $ (98,439) $(45,244)
Capitalization of betterments, net of related
amortization(a)........................................... (2,487) 3,209 --
Gain on sale of shares, gain on subsidiary's issue of shares
or sale of assets(c)...................................... 3,025 7,230 3,688
Foreign exchange(d)......................................... 1,534 (1,180) (6,447)
Compensation to employees(e)................................ (617) 564 --
Net earnings (loss) in equity accounted companies(f)........ (4,313) 4,313 --
Adjustment to tax provision(g).............................. (82,798) (8,738) --
Financial instruments(h).................................... (2,059) -- --
Total return equity swap(i)................................. (4,987) (9,397) 10,752
Valuation allowance against prepaid pension asset(j)........ 14,889 (9,555) (4,077)
-------- --------- --------
Net loss for the year based on U.S. GAAP, before
accounting change...................................... (13,983) (111,993) (41,328)
Cumulative effect of accounting change for goodwill(n).... -- -- (7,575)
-------- --------- --------
Net loss for the year based on U.S. GAAP.................. $(13,983) $(111,993) $(48,903)
======== ========= ========
</Table>

F-124

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

<Table>
<Caption>
DECEMBER 31,
---------------------
2001 2002
--------- ---------

SHAREHOLDERS' EQUITY
Shareholders' equity based on Canadian GAAP................. $ 64,606 $ 38,929
Capitalization of betterments, net of related
amortization(a)........................................... (111,940) (123,302)
Amortization of intangible assets(b)........................ (24,175) (24,175)
Gain on sale of shares, gain on subsidiary's issue of shares
or sale of assets(c)...................................... 15,161 18,849
Compensation to employees(e)................................ (1,267) (1,267)
Income taxes(g)............................................. 31,464 31,464
Total return equity swap(i)................................. (10,752) --
Valuation allowance against prepaid pension asset(j)........ 5,334 1,257
Investments(k).............................................. (2,728) (835)
Minimum pension liability adjustment(l)..................... (7,185) (16,316)
--------- ---------
Shareholders' deficiency based on U.S. GAAP................. $ (41,482) $ (75,396)
========= =========
</Table>

BALANCE SHEET DIFFERENCES:

The following material balance sheet differences exist between Canadian and
U.S. GAAP.

1) Other intangible assets:

<Table>
<Caption>
DECEMBER 31,
---------------------
2001 2002
---------- --------

Canadian GAAP............................................... $1,200,634 $185,143
Adjustment for capitalization of betterments, net of related
amortization(a)........................................... (394,246) --
Adjustment for amortization(b).............................. (24,175) --
---------- --------
U.S. GAAP................................................... $ 782,213 $185,143
========== ========
</Table>

2) Goodwill:

<Table>
<Caption>
DECEMBER 31,
--------------------
2001 2002
-------- ---------

Canadian GAAP............................................... $170,189 $ 924,915
Adjustment for capitalization of betterments, net of related
amortization(a)........................................... -- (424,589)
Adjustment for amortization(b).............................. -- (24,175)
Adjustment for income taxes(g).............................. 31,464 31,464
-------- ---------
U.S. GAAP................................................... $201,653 $ 507,615
======== =========
</Table>

3) Minority interest:

<Table>
<Caption>
DECEMBER 31,
---------------------
2001 2002
--------- ---------

Canadian GAAP............................................... $ 797,339 $ 532,642
Adjustment for minority interest............................ (175,836) (186,786)
--------- ---------
U.S. GAAP................................................... $ 621,503 $ 345,856
========= =========
</Table>

F-125

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

4) Future income tax liabilities:

<Table>
<Caption>
DECEMBER 31,
---------------------
2001 2002
--------- ---------

Canadian GAAP............................................... $ 498,352 $ 381,258
Adjustment for income taxes................................. (128,010) (122,740)
--------- ---------
U.S. GAAP................................................... $ 370,342 $ 258,518
========= =========
</Table>

5) Deferred pension asset:

<Table>
<Caption>
DECEMBER 31,
-------------------
2001 2002
-------- --------

Canadian GAAP............................................... $ 83,459 $123,230
Adjustment for change in valuation allowance against prepaid
asset(j).................................................. 38,487 3,758
-------- --------
U.S. GAAP................................................... $121,946 $126,988
======== ========
</Table>

6) Total return equity swap liability:

<Table>
<Caption>
DECEMBER 31,
--------------
2001 2002
------- ----

Canadian GAAP............................................... $ -- $--
Adjustment for unrealized losses(k)......................... 55,912 --
------- ---
U.S. GAAP................................................... $55,912 $--
======= ===
</Table>

SUMMARY OF ACCOUNTING POLICY DIFFERENCES:

The areas of material difference between Canadian and U.S. GAAP and their
impact on the consolidated financial statements of the Company are set out
below:

a) Capitalization of betterments

b) Amortization of intangible assets

F-126

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

SFAS 141 and SFAS 142, except that under U.S. GAAP, any transitional
impairment charge is recognized in earnings as a cumulative effect of a
change in accounting principle. The new standards require that goodwill
and intangible assets with indefinite useful lives no longer be
amortized, but instead be tested for impairment at least annually. The
standards also specify criteria that intangible assets must meet to be
recognized and reported apart from goodwill. In addition, the standard
required that intangible assets with estimable useful lives be amortized
over their respective estimated useful lives to their estimated residual
values, and that such assets are reviewed for impairment by assessing
the recoverability of the carrying value.

c) Gain on sale of shares, gain on subsidiary's issue of shares or sale of
assets

As a result of the adjustments in a) and b) above, the carrying value of
the investments in Hollinger L.P., Southam and Hollinger International
are lower under U.S. GAAP resulting in the gain on sale of properties by
Hollinger International, Southam and Hollinger L.P., gains on the sale
by the Company of shares of Hollinger International, and gains on
dilution of investments in Hollinger International and Hollinger L.P.,
being higher under U.S. GAAP.

d) Foreign exchange

Under Canadian GAAP, a portion of the equity adjustment from foreign
currency translation, included in shareholders' deficiency, is required
to be transferred to income whenever there is a reduction in the net
investment in a foreign entity or repayment of foreign currency
denominated long-term intercompany loans. U.S. GAAP requires the
transfer of a portion of this account to income only when the reduction
in net investment is due to a sale or complete or substantially complete
liquidation. While there may be differences in the timing of the
recognition of such foreign exchange gains and losses under Canadian and
U.S. GAAP, this difference in accounting has no effect on total
shareholders' deficiency.

e) Compensation to employees

Hollinger International has various stock option for executives. Under
Canadian GAAP, compensation is not recognized on the grant or
modification of any employee option. In accordance with U.S. GAAP,
options granted to employees of the parent company are measured using
the fair value based method and treated as a dividend in kind with no
resulting impact on either net earnings (loss) or shareholders'
deficiency. For all other employee options, the compensation element is
measured under U.S. GAAP using the intrinsic value based method of
accounting and is apportioned over the period of service to which the
compensation was related. As a result of a previous reduction in the
exercise price of Hollinger International's options, compensation
expense was recorded under U.S. GAAP in 2000 and a reversal of
compensation was recorded under U.S. GAAP in 2001.

f) Equity accounted companies

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

betterments, net of related amortization, related to equity accounted
companies were capitalized under Canadian GAAP until January 1, 2002.
This is not permitted under U.S. GAAP.

g) Income taxes

Under Canadian accounting standards for income taxes, the Company is not
required to restate its comparative figures for prior years and the
cumulative effect of this change in accounting policy of $138,500,000
(net of related minority interest) has been charged directly to retained
earnings as at January 1, 2000. Of this adjustment, $123,000,000 was
attributable to future income tax liabilities established in respect of
amounts ascribed to circulation on business acquisitions which are
largely not deductible for income tax purposes. Under U.S. GAAP, the
establishment of such future tax liabilities on business acquisitions
would have resulted in additional goodwill being recorded for an
equivalent amount. Under U.S. GAAP, the deferred tax recovery recorded
in respect of circulation amortization is fully offset by the related
goodwill amortization, with no net impact on U.S. GAAP net earnings.
Effective January 1, 2002, on the adoption of the new Canadian and U.S.
accounting standards for Goodwill and Business combinations (note 23b)),
amounts ascribed to circulation have been reclassified to goodwill,
which is no longer being amortized.

The new Canadian accounting standard for income taxes adopted January 1,
2000 does not require the restatement of prior years' business
acquisitions and permits the adjustment, otherwise made to goodwill
under U.S. GAAP, to be made directly to retained earnings (net of
related minority interest). As a result of not restating comparative
figures, the $123,000,000 net deferred tax impact of circulation
recorded on January 1, 2000 as a charge against retained earnings under
Canadian GAAP would have been recorded as goodwill under U.S. GAAP. This
difference, in turn, resulted in higher goodwill amortization or
write-off charges under U.S. GAAP in the amount of $82,798,000 and
$8,738,000 for the years ended December 31, 2000 and 2001, respectively.

Accordingly, while there may not be any new material differences between
Canadian and U.S. GAAP with respect to income taxes for periods
subsequent to January 1, 2000, there will continue to be a difference
between Canadian and U.S. GAAP in respect of the remaining $31,464,000
of deferred taxes which will eliminate subsequent to January 1, 2002
only when the underlying operation is sold or the Company's interest in
the underlying operations is diluted.

F-128

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

<Table>
<Caption>
2000 2001 2002
-------- --------- ---------

Earnings (loss) before income taxes, minority
interest and cumulative effect of change in
accounting principle........................... $857,918 $(525,297) $(131,421)
======== ========= =========
Basic income tax rate............................ 43.95% 41.75% 41.00%
======== ========= =========
Computed income tax expense (recovery)........... $377,055 $(219,311) $ (53,883)
Change in income tax expense (recovery) resulting
from:
Different tax rate on earnings of
subsidiaries................................ (69,806) 13,739 15,020
Tax gain in excess of book gain................ (208,453) 32,002 949
Potential tax benefit of current year's losses
not recorded................................ 27,057 -- --
Large Corporations Tax......................... 15,531 940 1,079
Loss on total return equity swap............... 8,013 27,134 (4,844)
Change in valuation allowance.................. -- 28,539 61,300
Minority interest earnings in Hollinger L.P.... (26,669) (2,001) (1,214)
Permanent differences.......................... 250,974 31,525 65,912
-------- --------- ---------
Income tax expense (recovery).................... $373,702 $ (87,433) $ 84,319
======== ========= =========
Effective tax rate............................... 43.56% 16.64% 64.16%
======== ========= =========
</Table>

Canadian and foreign components of earnings (loss) before income taxes,
minority interest and cumulative effect of change in accounting
principle are presented below:

<Table>
<Caption>
2000 2001 2002
-------- --------- ---------

Canadian........................................... $843,656 $(359,397) $ 19,528
Foreign............................................ 14,262 (165,900) (150,949)
-------- --------- ---------
$857,918 $(525,297) $(131,421)
======== ========= =========
</Table>

F-129

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

Income tax expense (recovery) for the periods shown below consists of:

<Table>
<Caption>
CURRENT DEFERRED TOTAL
-------- --------- ---------

Year ended December 31, 2000:
Canadian......................................... $527,372 $(248,888) $ 278,484
Foreign.......................................... 88,198 7,020 95,218
-------- --------- ---------
$615,570 $(241,868) $ 373,702
======== ========= =========
Year ended December 31, 2001:
Canadian......................................... $ 6,774 $(165,269) $(158,495)
Foreign.......................................... 49,151 21,911 71,062
-------- --------- ---------
$ 55,925 $(143,358) $ (87,433)
======== ========= =========
Year ended December 31, 2002:
Canadian......................................... $ 3,785 $ 82,755 $ 86,540
Foreign.......................................... 2,888 (5,109) (2,221)
-------- --------- ---------
$ 6,673 $ 77,646 $ 84,319
======== ========= =========
</Table>

h) Financial instruments

i) Total return equity swap

During 2000, U.S. GAAP clarified the accounting for certain derivative
financial instruments indexed to, and potentially settled, in a
company's own stock, that require a cash payment by the issuer upon the
occurrence of future events outside the control of the issuer. This new
U.S. GAAP guidance applies to new contracts entered into after September
30, 2000. Consequently, the extension of Hollinger International's
forward share purchase contracts on October 1, 2000 resulted in such
contracts being accounted for using the asset and liability method after
that date. Under this method, the derivative forward contract was marked
to market subsequent to October 1, 2000. The unrealized loss during the
period, October 1 to December 31, 2000, net of minority interest,
totalled $4,987,000 and was charged to earnings for U.S. purposes.

In December 2002, the total return equity swaps were settled and the
losses realized.

For Canadian GAAP, no adjustment was required to reflect the mark to
market adjustment for such forward purchase contracts, and gains and
losses were recognized only when realized upon the settlement of the
contract.

j) Valuation allowance against prepaid pension asset

Canadian GAAP requires recognition of a pension valuation allowance for
any excess of the prepaid benefit expense over the expected future
benefit. Changes in the pension valuation allowance are

F-130

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

recognized in earnings under Canadian GAAP immediately. U.S. GAAP does
not permit the recognition of pension valuation allowances.

k) Unrealized holding gains (losses) on investments available for sale

l) Minimum pension liability adjustment

Under U.S. GAAP, the Company is required to record an additional minimum
pension liability for certain of its defined benefit pension plans to
reflect the excess of the accumulated benefit obligations over the fair
value of the plan assets with a corresponding charge against other
comprehensive income included in shareholders' deficiency (note 23q)).
No such adjustment is required under Canadian GAAP.

m) Interest in joint ventures

n) Change in accounting principle

o) Unusual items

Included in Unusual items on the consolidated statements of earnings
under Canadian GAAP are certain items which under U.S. GAAP must be
classified as either operating costs, non-operating income or
non-operating expenses. In particular, the unusual items (note 15) would
have been classified as follows: net gain on dilution of investments as
non-operating expenses, gains and losses on sale of investments and
publishing interest as non-operating income or expenses, net, gain on
effective sale of interest in Hollinger International as non-operating
income and partially non-operating expense, loss on retirement of Senior
Notes as non-operating expenses, new Chicago plant pre-operating costs
as operating costs, write-off of financing fees as non-operating
expenses, write-off of investments as non-operating expenses, realized
loss on total return equity swap as non-operating costs, pension and
post-retirement plan liability adjustment as operating costs and
redundancy, rationalization and other costs as operating costs.
F-131

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

p) Statement of cash flows

q) Comprehensive income (loss)

Total comprehensive income (loss) in accordance with U.S. GAAP is as
follows:

<Table>
<Caption>
YEARS ENDED DECEMBER 31
--------------------------------
2000 2001 2002
--------- --------- --------

Net loss based on U.S. GAAP........................ $ (13,983) $(111,993) $(48,903)
Other comprehensive income (loss):
Unrealized gain (loss) on investments held for
sale, net of related tax recovery of $20,390,
$29,002 and $2,372 and minority interest of
$54,949, $98,443 and $6,491 in 2000, 2001 and
2002, respectively............................ (19,286) (33,166) 1,465
Reclassification adjustment for realized loss
reclassified out of accumulated comprehensive
income, net of related tax recovery of nil,
$47,102 and $832 and minority interest of nil,
$150,128 and $1,615 in 2000, 2001 and 2002,
respectively.................................. -- 50,919 428
--------- --------- --------
(19,286) 17,753 1,893
Change in the equity adjustment from foreign
currency translation............................. (82,161) 156 22,227
Minimum pension liability adjustment, net of a
related tax recovery of nil, $11,726 and $24,897
and minority interest of $2,280, $16,914, $34,433
in 2000, 2001 and 2002, respectively............. (860) (6,123) (9,131)
--------- --------- --------
Comprehensive loss based on U.S. GAAP.............. $(116,290) $(100,207) $(33,914)
========= ========= ========
</Table>

r) Recent pronouncements

In June 2001, the FASB issued FAS 143, "Accounting for Asset Retirement
Obligations" ("FAS 143"), which addresses financial accounting and
reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. FAS 143
requires the Company to record the fair value of an asset retirement
obligation as a liability in the period in which it incurs a legal
obligation associated with the retirement of tangible long-lived assets
that result from the acquisition, construction, development and/or
normal use of the assets. The fair value of the liability is added to
the carrying amount of the associated asset and this additional carrying
amount is depreciated over the life of the asset. Subsequent to the
initial measurement of the asset retirement obligation, the obligation
will be adjusted at the end of each

F-132

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

period to reflect the passage of time and changes in the estimated
future cash flows underlying the obligation. If the obligation is
settled to other than the carrying amount of the liability, the Company
will recognize a gain or loss on settlement. The Company is required and
plans to adopt the provisions of FAS 143 for the quarter ending March
31, 2003. To accomplish this, the Company must identify all legal
obligations for asset retirement obligations, if any, and determine the
fair value of these obligations on the date of adoption. The
determination of fair value is complex and will require the Company to
gather market information and develop cash flow models. Additionally,
the Company will be required to develop processes to track and monitor
these obligations. The Company has determined that the adoption of FAS
143 does not have a material impact on its financial statements.

In April 2002, the FASB issued FAS 145 which rescinded FAS 4, "Reporting
Gains and Losses from Extinguishment of Debt" ("FAS 145"). FAS 145
addresses, among other things, the income statement treatment of gains
and losses related to debt extinguishments, requiring that such expenses
no longer be treated as extraordinary items, unless the items meet the
definition of extraordinary per APB Opinion No. 30, "Reporting the
Results of Operations -- Reporting the Effects of Disposal of a Segment
of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions". Upon adoption, any gain or loss on
extinguishment of debt that was classified as an extraordinary item, in
prior periods presented, that does not meet the criteria in Opinion 30
for classification as an extraordinary item, is required to be
reclassified to non-operating expense. The Company retroactively adopted
the new presentation requirements of FAS 145 effective January 1, 2002.
The adoption of such accounting standard did not impact the Company's
U.S. GAAP net earnings as information regarding extraordinary losses on
the debt extinguishment was recorded for disclosure purposes only.

F-133

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

economic risk and the potential rewards from a VIE's assets and
activities are the best evidence of a controlling financial interest.
VIE's created after January 31, 2003 must be consolidated immediately.
VIE's existing prior to February 1, 2003 must be consolidated by the
Company commencing with its third quarter 2003 financial statements. The
Company has not yet determined whether it has any VIE's which will
require consolidation.

24. ADDITIONAL DISCLOSURES REQUIRED UNDER U.S. GAAP

a) Accounting policies

Issuance of a Subsidiary's Stock

The Company accounts for the issuance of a subsidiary's stock as a
dilution gain or loss which is included in the statement of earnings.

b) Marketable equity and debt securities

All marketable equity and debt securities are classified as available
for sale, recorded at fair value and presented as non-current assets.
Available for sale securities consist of the following:

<Table>
<Caption>
GROSS
AMORTIZED UNREALIZED FAIR
DECEMBER 31, 2001 COST LOSS VALUE
- ----------------- --------- ---------- -------

Internet-related securities............................ $ 6,680 $ (4,873) $ 1,807
Can-West debentures.................................... 72,259 (9,931) 62,328
------- -------- -------
$78,939 $(14,804) $64,135
======= ======== =======
</Table>

<Table>
<Caption>
GROSS
AMORTIZED UNREALIZED FAIR
DECEMBER 31, 2002 COST GAIN (LOSS) VALUE
- ----------------- --------- ----------- -------

Internet-related equity securities.................... $ 5,812 $ 940 $ 6,752
Can-West debentures................................... 85,664 (2,384) 83,280
------- ------- -------
$91,476 $(1,444) $90,032
======= ======= =======
</Table>

c) Accounts receivable

Accounts receivable consist of the following:

<Table>
<Caption>
2001 2002
-------- --------

Customer trade receivables.................................. $251,822 $266,637
Other....................................................... 108,178 114,503
-------- --------
Gross accounts receivable................................... 360,000 381,140
Allowance for doubtful accounts............................. (26,062) (32,668)
-------- --------
Net accounts receivable..................................... $333,938 $348,472
======== ========
</Table>

F-134

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

d) Accounts payable and accrued expenses

Accounts payable and accrued expenses consist of the following:

<Table>
<Caption>
2001 2002
-------- --------

Trade payables.............................................. $169,342 $172,041
Accrued payroll and benefits................................ 32,205 40,297
Accrued interest............................................ 41,116 28,102
Other accrued expenses...................................... 117,118 102,428
-------- --------
$359,781 $342,868
======== ========
</Table>

e) Stock based compensation

Under U.S. GAAP, FIN 44, "Accounting for Certain Transactions involving
Stock Compensation" was effective July 1, 2000 and required repriced
options to be treated as variable stock option awards. As a result, the
Company has recorded, net of minority interest, $615,000 of compensation
expense for 2000 and a reversal of compensation expense of $506,000 for
2001, in respect of certain repriced options of Hollinger International.
For all other stock options granted by the Company and its subsidiaries,
no compensation cost has been recognized. Had the Company determined
compensation costs based on the fair value at the grant date of its
stock options under Statement of Financial Accounting Standards No. 123
("FAS 123"), "Accounting for Stock-Based Compensation", the Company's
U.S. GAAP net earnings (loss) share would have been reduced to the pro
forma amounts indicated in the following table:

<Table>
<Caption>
2000 2001 2002
-------- --------- --------

Net loss............................................ $(13,983) $(111,993) $(48,903)
Add: Compensation expense, as reported.............. 615 (506) --
Deduct: Pro forma compensation expense.............. (2,571) (2,585) (2,541)
-------- --------- --------
Pro forma U.S. GAAP net earnings (loss)............. $(15,939) $(115,084) $(51,444)
======== ========= ========
</Table>

The Company has not granted any options since 1998. The weighted average
fair value of stock options granted during 2000, 2001 and 2002 by
Hollinger International was estimated to be US $4.12, US $5.67 and
US $5.65, respectively, on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions:
dividend yield 3.4%, 4.6% and 3.6%, expected volatility 43.3%, 55.2% and
68.3%, risk free interest rates of 5.1%, 5.0% and 4.5%, and expected
lives of 10 years in each of those same years.

f) Rent expense

Rent expense of $24,728,000, $18,692,000 and $24,776,000 for 2000, 2001
and 2002, respectively.

g) Derivatives

For U.S. GAAP reporting purposes, the Company adopted FAS No. 133,
"Accounting for Derivatives Instruments and Hedging Activities," as
amended by SFAS No. 137 and SFAS No. 138 ("SFAS No. 133") on January 1,
2001. There was no impact on results of operations or financial position
upon adoption.

The Company may enter into various swap, option and forward contracts
from time to time when management believes conditions warrant, as
described in note 21d). Such derivative contracts have not been
designated as effective hedges and, therefore, the changes in their fair
value are recorded in earnings under both Canadian and U.S. GAAP.

F-135

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

On December 27, 2002, a United Kingdom subsidiary of the Company entered
into two cross-currency rate swap transactions to hedge principal and
interest payments on U.S. dollar borrowings under Publishing's December
2002 Senior Credit Facility. The contracts have a total foreign currency
obligation notional value of U.S.$265 million, fixed at a rate of
U.S. $1.5922 to L1, convert the interest rate on such borrowing from
floating to fixed, and expire as to US $45 million on December 29, 2008
and as to US $220 million on December 29, 2009.

On January 22, 2003 and February 6, 2003, Publishing entered into
interest rate swaps to convert US $150 million and U.S.$100 million,
respectively, of the Publishing Notes issued in December 2002 to
floating rates for the period to December 15, 2010, subject to early
termination notice.

h) Guarantees

Senior Secured Notes

In connection with the issuance in 2003 of 11 7/8% Senior Secured Notes
due 2011, Hollinger has agreed to indemnify its lenders against any
losses or damages resulting from inaccuracy of financial statements,
environmental matters, taxes and compliance with Securities Act.
Hollinger has also indemnified the Noteholders against any related tax
liabilities arising from payments made with respect to the Notes, except
taxes on Noteholder's income. These indemnifications generally extend
for the term of the Senior Secured Notes and do not provide for any
limit on the maximum potential liability.

The Company and RMI, together with certain of the subsidiaries of
Hollinger, have guaranteed Hollinger's Senior Secured Notes and
Hollinger's performance under its indemnifications. Hollinger is unable
to estimate the maximum potential liability for these types of
indemnifications as the Notes indenture does not specify a maximum
amount and the amounts are dependent upon future contingent events, the
nature and likelihood of which cannot be determined at this time. No
amount has been accrued in the consolidated financial statements with
respect to these indemnifications.

Joint Ventures

The Telegraph Group Limited ("Telegraph") has guaranteed the printing
joint venture partners' share of equipment leasing obligations to third
parties, which amounted to approximately $948,000

F-136

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

(L372,000) at December 31, 2002. These obligations are guaranteed
jointly and severally by each joint venture partner.

Pursuant to the West Ferry joint venture agreement, the Telegraph has a
commitment to fund 50% of the obligation under West Ferry's defined
benefit plan.

Dispositions

In connection with certain dispositions of assets and/or businesses, the
Company has provided customary representations and warranties whose
terms range in duration and may not be explicitly defined. The Company
has also retained certain liabilities for events occurring prior to
sale, relating to tax, environmental, litigation and other matters.
Generally, the Company has indemnified the purchasers in the event that
a third party asserts a claim against the purchaser that relates to a
liability retained by the Company. These types of indemnification
guarantees typically extend for a number of years.

Credit Facilities

Hollinger International is unable to estimate the maximum potential
liability for these types of indemnifications as the credit agreements
do not specify a maximum amount and the amounts are

F-137

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

dependent upon future contingent events, the nature and likelihood of
which cannot be determined at this time.

Participation Trust

In connection with the participation agreement, International has agreed
to indemnify the Participation Trust and its trustee, in the event the
participation agreement entitles the issuer to fail to make payments
with respect to the debentures. Although the indemnity has not been
capped, the Company estimates the liability is limited to the amount of
participation interests sold, totalling US $490.5 million, plus accrued
interest and any further debentures received as paid-in-kind interest.

Other

25. SUBSEQUENT EVENTS

a) On March 10, 2003, Hollinger issued US $120,000,000 aggregate principal
amount of 11 7/8% Senior Secured Notes due 2011. These notes are
secured by 10,108,302 shares of Hollinger International Class A common
stock and all 14,990,000 shares of Hollinger International Class B
common stock of which 3,427,9053 shares of Hollinger International
Class A stock and 12,990,000 shares of Hollinger International Class B
stock are owned by the Company. The total net proceeds were used to
repay Hollinger's bank indebtedness, to repay amounts due to Ravelston
from Hollinger and make an advance to Ravelston. The Senior Secured
Notes are fully and unconditionally guaranteed by RMI, a wholly owned
subsidiary of Ravelston and the Company. Hollinger and RMI entered into
a Support Agreement, under which RMI is required to make an annual
support payment in cash to Hollinger on a periodic basis by way of
contributions to the capital of Hollinger (without receiving any shares
of Hollinger) or subordinated debt. The amount of the annual support
payment will be equal to the greater of a) the non-consolidated
negative net cash flow of Hollinger (which does not include outlays for
retractions or redemptions) and b) US $14.0 million per year (less any
future payments of services agreements fees directly to Hollinger or
the Company and any excess in the net dividend amount received by
Hollinger, the Company or any of Hollinger's wholly owned restricted
subsidiaries, as they are defined in the indenture governing
Hollinger's Senior Secured Notes due 2011, on the shares of Hollinger
International that Hollinger and the Company own that is over

F-138

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

US $4.65 million per year), in either case, reduced by any permanent
repayment of debt owing by Ravelston to Hollinger. Initially, the
support amount to be contributed by RMI is expected to be satisfied
through the permanent repayment by Ravelston of its approximate $16.4
million of advances from Hollinger, which resulted from the use of
proceeds of Hollinger's offering of its Senior Secured Notes.
Thereafter, all support amount contributions by RMI will be made
through contributions to the capital of Hollinger, without receiving
any additional shares of Hollinger, except that, to the extent that the
minimum payment exceeds the negative net cash flow of Hollinger, the
amounts will be contributed through an interest-bearing, unsecured,
subordinated loan to Hollinger. The Support Agreement terminates upon
the repayment of the Senior Secured Notes, which mature in 2011.

All aspects of this transaction have been reviewed and approved by a
special committee of the Board of Directors of Hollinger, comprised
entirely of independent directors.

b) On March 10, 2003, prior to the closing of the above offering, the
Company sold its shares of Class A common stock and Series E redeemable
preferred stock of Hollinger International to RMI. Such shares were in
turn sold back to the Company from RMI at the same price with a
resulting increase in the tax basis of the shares of Hollinger
International and a taxable gain to RMI. As the exchange of the
Hollinger International shares with RMI represents a transfer between
companies under common control, the Company will record in 2003,
contributed surplus of approximately $1.4 million, being the tax
benefit associated with the increase in the tax value of the shares of
Hollinger International.

Contemporaneously with the closing of the issue by Hollinger of Senior
Secured Notes, Hollinger International:

i) repurchased for cancellation, from the Company, 2,000,000 shares of
Class A common stock of Hollinger International at US $8.25 per
share for total proceeds of $24.2 million (US $16.5 million); and

ii) redeemed, from the Company, pursuant to a redemption request, all
of the 93,206 outstanding shares of Series E redeemable convertible
preferred stock of Hollinger International at the fixed redemption
price of $146.63 per share being a total of $13.6 million (US $9.3
million).

As a result, the Company's equity and voting interest in Hollinger
International is 18.8% and 81.2%, respectively. The dilution gain
arising on this effective sale will be recorded in 2003.

Proceeds from the repurchase and redemption were offset against debt due
to Hollinger International from the Company (note 20c)), resulting in
net outstanding debt due to Hollinger International of approximately
$29.9 million (US $20.4 million) as of March 10, 2003. The remaining
debt bears interest at 14.25% or, if paid in additional notes, 16.5% and
is subordinated to Hollinger's Senior Secured Notes (so long as the
Senior Secured Notes are outstanding), guaranteed by Ravelston and
secured by certain assets of Ravelston.

Following a review by a special committee of the Board of Directors of
Hollinger International, comprised entirely of independent directors, of
all aspects of the transaction relating to the changes in the debt
arrangements with the Company and the subordination of this remaining
debt, the special committee approved the new debt arrangements,
including the subordination.
F-139

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

d) The debt owing by the Company to Hollinger International bears interest
at the rate of 14.25% if interest is paid in cash and 16.50% if it is
paid in kind. The debt is subordinated to the Senior Secured Notes for
so long as the Senior Secured Notes are outstanding, and the debt due
by the company to Hollinger International is guaranteed by RCL and
Hollinger. Hollinger International entered into a subordination
agreement with the Hollinger and the Company pursuant to which
Hollinger International has subordinated all payments of principal,
interest and fees on the debt owed to it by the Company to the payment
in full of principal, interest and fees on the Senior Secured Notes,
provided that payments with respect to principal and interest can be
made to Hollinger International to the extent permitted in the
indenture governing the Senior Secured Notes.

International and Hollinger previously reported that the committee of
independent directors of International Hollinger had agreed to a partial
offset to the remaining US$20.4 million of debt against amounts owed by
International to RMI, and further stated that the offset was effected
April 30, 2003. Although management of International and Hollinger
believed final approval had been given to the offset by the committee of
independent directors of International, the committee had advised that
final approval of any offset remains subject to appropriate due
diligence and receipt of a further independent fairness opinion. The due
diligence process has not yet been concluded and accordingly, the offset
has not been completed as at August 25, 2003.

e) On May 11, 2003, 3815668 Canada Inc., a subsidiary of CanWest (the
Issuer of the 12 1/8% Subordinated Debentures due 2010 received by the
Company in partial consideration on sale of the Company's Canadian
newspaper operations to CanWest in November 2000) redeemed $265.0
million principal amount of the 12 1/8% debentures, exclusive of
interest accrued to the redemption date of $8.8 million. Of the total
amount received, US $159.8 million has been delivered to the
Participation Trust and the balance of US $27.6 million has been
received by Hollinger International and Hollinger LP., a portion of
which must be retained until November 4, 2010.

f) On May 19, 2003, a shareholder of Hollinger International filed a
Schedule 13D with the U.S. Securities and Exchange Commission (the
"SEC") and amongst other things, served a demand letter on the Board of
Directors of Hollinger International (the "Board") requesting that the
Board investigate and, if determined to be advisable, take corrective
action in respect of payments made to senior executives of Hollinger
International in respect of non-competition agreements, that had been
disclosed in the financial statements. On June 11, 2003, the same
shareholder filed an Amendment to the Schedule 13D with the SEC
reiterating the earlier demands as well as requesting that the Board
investigate and, if determined to be advisable, take corrective action
in respect of (i) an asset sale by Hollinger International to an entity
affiliated with certain officers and directors of Hollinger
International, and (ii) the payment of fees by Hollinger International
pursuant to various affiliated management services agreements. On June
17, 2003, in response to these requests, the Board established a
special committee to conduct an independent review and investigation of
these allegations. The potential impact of the filing and the demand
letter, on the financial statements of Hollinger International and the
Company, is not known at the current time.

g) On May 22, 2003, Hollinger International and Hollinger announced that
they had reached an agreement in principle, regarding a proposed
transaction with Southeastern Asset Management Inc. ("Southeastern").
Under the proposed transaction, Southeastern would purchase from
Hollinger and the Company between five to ten million shares (as
determined by Hollinger and the Company) of Hollinger International
Class A common stock at a purchase price of US $11.60 per share. The
terms of the shares of Class B common stock of Hollinger International,
which currently have ten votes per share and together with Hollinger's
holding represents approximately 67% of the voting

F-140

504468 N.B. INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)

power of Hollinger International, would be amended to allocate 35% of
the voting power of Hollinger International to the shares of Class B
common stock for a period of 3 1/2 years. The voting power of the
shares of Class B common stock would then be reduced to two votes per
share for 18 months thereafter, after which time, the shares of Class B
common stock would be converted on a share-for-share basis into shares
of Class A common stock. Going forward, Ravelston management would be
employed and paid directly by Hollinger International. An aggregate
annual compensation level of US $20 million has received the support of
Southeastern which would have the right to nominate three directors to
the Board of Hollinger International.

Completion of the transaction is subject to various conditions,
including approval of the Board of Directors of Hollinger International
and Hollinger, approval by the shareholders of Hollinger International
and the execution of definitive agreements. If the requisite approvals
are obtained, it is contemplated that the transaction would close on or
before September 30, 2003.

Since the proposed transaction is in its preliminary stages and has not
yet been finalized, the Company has not yet determined the potential
impact on its financial statements.

h) In 2003, Hollinger International made a venture capital investment of
US $2.5 million in a corporation in which a director of Hollinger
International has a minority interest.

i) Commencing April 3, 2003, Hollinger International began purchasing its
own shares through the public market and holding the shares acquired
as treasury stock. During the period April 3, 2003 to May 5, 2003,
Hollinger International acquired 1,000,000 shares of its Class A
common stock at an average price of US $8.79 per share for total cash
consideration of US $8.8 million.

F-141

AUDITORS' REPORT

To the Board of Directors of Ravelston Management Inc.

We have audited the balance sheets of Ravelston Management Inc. as at December
31, 2001 and 2002 and the statements of income and cash flows for each of the
years in the three-year period ended December 31, 2002 and retained earnings for
the period from date of incorporation on February 28, 2002 to December 31, 2002.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

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

In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 2001 and 2002
and the results of its operations and its cash flows for each of the years in
the three-year period ended December 31, 2002 in accordance with Canadian
generally accepted accounting principles.

Toronto, Canada

May 30, 2003, except as to note 10(d), /s/ KPMG LLP

which is as of September 5, 2003 Chartered Accountants

F-142

RAVELSTON MANAGEMENT INC.

BALANCE SHEETS

<Table>
<Caption>
DECEMBER 31,
-----------------
2001 2002
------- -------
(IN THOUSANDS OF
CANADIAN DOLLARS)

ASSETS
Current assets:
Cash and cash equivalents................................. $ -- $ 3,271
Management fees receivable from related parties (note
3(a)).................................................. 38,171 2,795
Due from The Ravelston Corporation Limited (note 3(d)).... -- 10,565
Note receivable from Hollinger Canadian Publishing
Holdings Co. (note 4).................................. -- 22,500
Future income tax asset (note 8).......................... -- 12,817
------- -------
38,171 51,948
Future income tax asset (note 8)............................ -- 8,525
------- -------
$38,171 $60,473
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accrued liabilities....................................... $ 11 $ 37
Income taxes payable...................................... -- 1,112
Due to related parties (note 3)........................... 23,579 --
Due to CanWest Global Communications Corp. (note 5)....... -- 22,500
------- -------
23,590 23,649
Shareholder's equity:
Shareholder's interest (note 6)........................... 14,581 --
Capital stock (note 7).................................... -- 5,750
Contributed surplus (notes 3(c) and 10(b))................ -- 22,178
Retained earnings......................................... -- 8,896
------- -------
14,581 36,824
------- -------
$38,171 $60,473
======= =======
Subsequent events (notes 1 and 10)
Commitments (notes 1 and 10(a))
Contingency (note 10(d))
</Table>

See accompanying notes to financial statements.

F-143

RAVELSTON MANAGEMENT INC.

STATEMENTS OF INCOME

<Table>
<Caption>
YEARS ENDED DECEMBER 31
2000 2001 2002
---------- ---------- ----------
(IN THOUSANDS OF CANADIAN DOLLARS)

Management services revenue (note 3(a))..................... $49,367 $44,041 $37,272
Interest income............................................. -- -- 3
------- ------- -------
49,367 44,041 37,275
Operating expenses:
Salaries and benefits (note 3(b))......................... 1,812 1,944 2,405
Allocated costs........................................... 26,068 19,109 11,696
Other..................................................... -- -- 17
Foreign exchange gain (loss).............................. (4) (6) 180
------- ------- -------
27,876 21,047 14,298
------- ------- -------
Income before income taxes.................................. 21,491 22,994 22,977
Income taxes (note 8)....................................... 9,444 9,685 10,162
------- ------- -------
Net income.................................................. $12,047 $13,309 $12,815
======= ======= =======
</Table>

STATEMENT OF RETAINED EARNINGS
(IN THOUSANDS OF CANADIAN DOLLARS)

<Table>

Period from date of incorporation on February 28, 2002 to December
31, 2002
Retained earnings, beginning of period...................... $ --
Net income(1)............................................... 8,896
------
Retained earnings, end of period............................ $8,896
======
</Table>

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

(1) The Company was incorporated on February 28, 2002 and commenced operations
on July 5, 2002 (note 1). The Company's retained earnings represent the net
income from operations for the period from July 5, 2002 to December 31,
2002.

See accompanying notes to financial statements.

F-144

RAVELSTON MANAGEMENT INC.

STATEMENTS OF CASH FLOWS

<Table>
<Caption>
YEARS ENDED DECEMBER 31
2000 2001 2002
---------- ---------- ----------
(IN THOUSANDS OF CANADIAN DOLLARS)

Cash provided by (used in):
Operations:
Net income................................................ $ 12,047 $ 13,309 $ 12,815
Future income taxes which does not involve cash........... -- -- 6,586
Change in non-cash operating working capital:
Unpaid management fees receivable from related
parties.............................................. 3,616 (35,694) (9,320)
Due from The Ravelston Corporation Limited............. -- -- (10,565)
Due to related parties................................. 664 22,915 393
Accrued liabilities.................................... -- 11 26
Income taxes payable................................... -- -- 1,112
-------- -------- --------
16,327 541 1,047
Financing:
Issue of capital stock.................................... -- -- 5,750
Net transactions with shareholder......................... (16,327) (541) 2,224
-------- -------- --------
(16,327) (541) 7,974
Investments:
Acquisition of NP Holdings Company (note 3(c))............ -- -- (5,750)
-------- -------- --------
Increase in cash and equivalents, being cash and cash
equivalents, end of year.................................. $ -- $ -- $ 3,271
======== ======== ========
Supplemental cash flow information:
Income taxes paid......................................... $ -- $ -- $ --
======== ======== ========
</Table>

See accompanying notes to financial statements.

F-145

RAVELSTON MANAGEMENT INC.

NOTES TO FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS)

1. BASIS OF PRESENTATION:

Ravelston Management Inc. (the "Company") was incorporated under the
Ontario Business Corporations Act on February 28, 2002. The Company provides
advisory, consultative, procurement and administrative services to Hollinger
International Inc. ("International") and its subsidiaries and to Hollinger
Canadian Publishing Holdings Co. ("HCPH Co.") under the terms of management
services agreements (collectively, the "Management Services Agreements"). The
fees earned under the Management Services Agreements are negotiated annually
with and approved by the independent committee of International. The Management
Services Agreements are renewed automatically on an annual basis and may be
terminated by either party to the agreements by giving 180 days notice. The
Company has pledged its Management Services Agreements in connection with its
guarantee of Hollinger Inc.'s ("Hollinger") issuance of Senior Secured Notes
(note 10(a)). The Company is economically dependent on the continued renewal of
the Management Services Agreements as they currently are the Company's sole
source of revenue and operating cash flow. The fees to be paid to the Company
under the Management Services Agreements for the year ending December 31, 2003
amount to approximately U.S.$22.0 million to U.S.$24.0 million and were approved
in February 2003. The fees in respect of periods after December 31, 2003 have
not yet been negotiated or approved.

On March 10, 2003, the Company entered into a Support Agreement with
Hollinger, under which the Company has agreed to make annual support payments in
cash to Hollinger on a periodic basis by way of contributions to the capital of
Hollinger (without receiving any shares of Hollinger) or subordinated debt. The
amount of the annual support payments will be equal to the greater of (a) the
non-consolidated negative net cash flow of Hollinger (excluding any outlay by
Hollinger for retractions and redemptions of Hollinger's shares) and (b)
U.S.$14.0 million per year (less any future payments of Management Services
Agreements fees directly to Hollinger or 504468 N.B. Inc. ("NB Inc.") and any
excess in the net dividend amount received by Hollinger or any of Hollinger's
wholly owned restricted subsidiaries, as they are defined in the indenture
governing Hollinger's Senior Secured Notes, due 2011, on the shares of
International that Hollinger and NB Inc. own that is over U.S.$4.65 million per
year) (note 10(a)). If in the future, fees received by the Company under the
Management Services Agreements are not sufficient, the Company may not be able
to satisfy its obligations under its Support Agreement with Hollinger.

On July 5, 2002, the Company issued 100 common shares to Ravelston as
consideration for the transfer of the Management Services Agreements to the
Company. Ravelston owns all of the outstanding shares of the Company. Ravelston
has a controlling interest in International and HCPH Co. (which is an indirect
subsidiary of International). As the transaction was completed between parties
under common control, the transfer of the Management Services Agreements has
been accounted for at the historical carrying value in Ravelston's accounts,
being nil. The Company has also entered into an agreement with Ravelston
whereby, on January 1, 2003, certain Ravelston employees become employees of the
Company. Under this agreement, during the period from July 5, 2002 to December
31, 2002, the employees fulfilled the Company's obligations under the Management
Services Agreements and the Company agreed to reimburse Ravelston for all
related costs associated with their employment. Certain senior executives of
Ravelston who are also directly involved in providing services under the
Management Services Agreements will continue to be compensated by Ravelston. The
services of these senior executives are required in order to fulfill the
Company's obligations under the Management Services Agreements. The Company may
make payments to Ravelston, to contribute to Ravelston's operating costs, after
making the required support payments to Hollinger pursuant to the Support
Agreement. Such payments, if made, may take the form of dividends,
distributions, debt or otherwise.

These financial statements have been prepared to reflect the assets and
liabilities for the year ended December 31, 2001 and the results of operations
and cash flows for each of the years in the two-year period ended December 31,
2001 and the period from January 1, 2002 to July 4, 2002 of the Company (using
the

F-146

RAVELSTON MANAGEMENT INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS)

1. BASIS OF PRESENTATION: (CONTINUED)

continuity-of-interests basis of accounting) as if the Management Services
Agreements and their related assets and liabilities were transferred to the
Company as at January 1, 1998. For these periods, revenue reflect the historical
amounts earned under the Management Services Agreements and operating expenses
reflect allocations of those direct costs incurred to provide the services under
the Management Services Agreements as well as an allocation of corporate
overhead expenses using a specific cost allocation method. No interest expense
has been recorded in connection with the funding position in the shareholder's
interest account with Ravelston. It is management's opinion that the methods
used are practical and reasonable methods of allocation of assets, liabilities,
revenue and common expenses to the operations of the Company.

Prior to July 5, 2002, these financial statements represent the operations
of the Company as a component of Ravelston and, accordingly, there is no share
capital or retained earnings for those periods. Shareholder's interest
represents the net investment in the Company by Ravelston. A description of the
movements in shareholder's interest is presented in note 6 to these financial
statements.

The results of operations for the year ended December 31, 2002 have been
prepared on a basis consistent with that described above and for the period from
July 5, 2002 to December 31, 2002, reflect the results of operations of the
Company as a separate legal entity.

The Company's financial statements are prepared in accordance with Canadian
generally accepted accounting principles which differ in certain respects from
those generally accepted in the United States as detailed in note 11.

2. SIGNIFICANT ACCOUNTING POLICIES:

(a) Revenue recognition:

The Management Services Agreements provide for the Company to earn
revenue on a fixed fee basis and on a variable basis. Management
services revenue for fixed fee arrangements is recognized on a
straight-line basis over the term of the respective agreement as it most
closely matches the period in which the services are provided.
Variable-based management services are calculated monthly as a
percentage of revenue of the respective business to which the Company is
providing services. The annual fixed fee is billed monthly to closely
match the period in which the services are provided. Variable-based
management services are recognized monthly as earned. Amounts billed in
excess of amounts recognized as revenue under the above policies are
reflected as deferred revenue.

(b) Pension and other post employment benefits:

Pension and other post employment benefits are included in the
allocation of expenses from Ravelston as described in note 1 for the
years ended December 31, 2000 and 2001 and for the period from January
1, 2002 to July 4, 2002. Subsequent to July 4, 2002, the Company
accounts for its participation in the Ravelston Pension Plans as a
defined contribution plan and, accordingly, pension expense for the
period subsequent to July 4, 2002 would be recognized to the extent of
contributions made to the Ravelston Pension Plans. No such contributions
were made during the period from July 5, 2002 to December 31, 2002.

Ravelston accrues its obligations under employee benefit plans and the
related costs, net of plan assets. Ravelston has adopted the following
policies:

(i) The cost of pensions and other retirement benefits earned by
employees is actuarially determined using the projected benefit
method prorated on service and management's best

F-147

RAVELSTON MANAGEMENT INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS)

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

estimate of expected plan investment performance, salary
escalation, retirement ages of employees and expected health care
costs.

(ii) For the purpose of calculating the expected return on plan assets,
those assets are valued at fair value.

(iii) Past service costs from plan amendments are amortized on a
straight-line basis over the average remaining service period of
employees active at the date of amendment.

(iv) The excess of the net actuarial gain (loss) over 10% of the greater
of the benefit obligation and the fair value of plan assets is
amortized over the average remaining service period of active
employees. The average remaining service period of the active
employees covered by the plans is 8.7 to 9.5 years.

The Company earns revenue and incurs expenses in foreign currencies.
Monetary items denominated in foreign currency are translated to
Canadian dollars at exchange rates in effect at the balance sheet date
and non-monetary items are translated at rates of exchange in effect
when the assets were acquired or obligations incurred. Revenue and
expenses are translated at rates in effect at the time of the
transactions. Foreign exchange gains and losses are included in income.

(d) Income taxes:

The results of operations, prior to July 5, 2002, are included in the
income tax returns of Ravelston. Income tax expense has been computed as
if the Company filed its own income tax returns for all periods
presented. Future and current tax liabilities for the periods prior to
July 5, 2002 are included in shareholder's interest, as such amounts are
being settled by Ravelston.

Future tax assets and liabilities are recognized for the future tax
consequences attributable to the difference between financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Future tax assets and liabilities are measured using enacted
tax rates expected to apply to income in the years in which those
temporary differences are expected to be recovered or settled. The
effect on future tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.

In assessing the realizability of future tax assets, management
considers whether it is more likely than not that some portion or all of
the future tax assets will be realized. The ultimate realization of
future tax assets is dependent upon the generation of future taxable
income during the year in which the temporary differences are
deductible. Management considers the scheduled reversals of future tax
liabilities, the nature of the income tax assets, and the tax planning
strategies in making this assessment. To the extent that management
believes that the realization of future tax assets does not meet the
more likely than not realization criterion, a valuation allowance is
recorded against the future tax assets.

In determining the estimates of the realizable amounts of the future tax
assets, the Company has made the assumption that Management Services
Agreements with International and HCPH Co. will continue to be renewed
at comparable rates during the period in which the non-capital losses
are able to be used and that operating expenses will continue at amounts
consistent with those experienced in the period from July 5, 2002 to
December 31, 2002. Should the underlying assumptions change, the
estimated carrying value of the future tax assets may change, and that
change may be material.
F-148

RAVELSTON MANAGEMENT INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS)

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

(e) Stock-based compensation:

The Company uses the fair value method of accounting for options issued
by International to employees of the Company for options granted
subsequent to January 1, 2002. Under this method, the Company recognizes
the fair value of the options granted to its employees as other paid in
capital and deferred stock-based compensation at fair value and
amortizes this amount as compensation expense as the related options
vest.

(f) Use of estimates:

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the years. On an ongoing basis, the Company evaluates its
estimates, including those related to income taxes. The Company bases
its estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances. Actual
results could differ from those estimates under different assumptions or
conditions.

(g) Cash and cash equivalents:

Cash and cash equivalents consist of highly liquid investments with
remaining maturities at date of acquisition of three months or less.

3. RELATED PARTY TRANSACTIONS:

(a) During all periods presented all of the Company's management fees were
earned from International and its subsidiaries. Amounts due to the
Company in respect of such services are due on demand and are
non-interest bearing.

International, together with its subsidiaries, has entered into services
agreements with Ravelston, whereby Ravelston acts as manager of
International and its subsidiaries and carries out head office and
executive responsibilities. These service agreements were assigned to the
Company on July 5, 2002. All of the amounts included in due to related
parties represent amounts owing in connection with the Management
Services Agreements. In addition, certain executives and affiliates of
Ravelston have separate services agreements with certain subsidiaries of
International. The fees charged under such agreements are not reflected
in the accounts of the Company. During the years ended December 31, 2000,
2001 and 2002, the amounts paid directly by subsidiaries of International
pursuant to such agreements were $5,436,000, $2,654,000 and $2,976,000,
respectively.

The aggregate fees under the Company's services agreements and the
services agreements with executives and affiliates of Ravelston are
negotiated with and approved by the Independent committee of
International.

(b) Prior to July 5, 2002, salaries and benefits reflect the salary and
benefit costs incurred by Ravelston with respect to employees who
became employees of the Company on January 1, 2003 (note 1). In
addition, allocated costs represent an allocation of Ravelston's costs
in providing services under the Management Services Agreements. During
the period July 5, 2002 to December 31, 2002, the Company reimbursed
the actual costs of the employees provided by Ravelston in the amount
of $1,114,000.

F-149

RAVELSTON MANAGEMENT INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS)

3. RELATED PARTY TRANSACTIONS (CONTINUED):

(c) On July 3, 2002, the Company acquired 100% of the issued and
outstanding shares of NP Holdings Company ("NP Holdings") from HCPH
Co., an indirect subsidiary of International, for total cash
consideration of $5,750,000. The terms of the purchase of NP Holdings
were negotiated with and approved by the Independent committee of
International. As this transaction is between companies under common
control, the excess of the value assigned to the net assets acquired
over the consideration paid has been accounted for as contributed
surplus. In July 2002, NP Holdings and the Company were amalgamated
and continued under the name Ravelston Management Inc.

Details of the net assets acquired were as follows:

<Table>

Future tax assets........................................... $ 27,928
Note receivable from HCPH Co................................ 22,500
--------
50,428
Amounts due to CanWest...................................... (22,500)
--------
Net assets acquired......................................... 27,928
Cash consideration paid..................................... (5,750)
--------
Excess amount allocated to contributed surplus.............. $ 22,178
========
</Table>

The purchase price may be subject to adjustment in the future.

(d) The amounts due from Ravelston arise from management fees received on
behalf of the Company net of allocated costs, compensation charges
incurred by Ravelston and additional advances made by the Company to
Ravelston. The amounts due are non-interest bearing and due on demand.

4. NOTE RECEIVABLE FROM HOLLINGER CANADIAN PUBLISHING HOLDINGS CO.:

The note receivable from HCPH Co., an indirect subsidiary of International,
is due on demand, is unsecured, and is stated to bear interest at an annual rate
of the bankers' acceptance rate plus 4%.

5. DUE TO CANWEST GLOBAL COMMUNICATIONS CORP.:

The amount due to CanWest is due on demand. The timing of the settlement of
the amount is subject to negotiations, between International and CanWest, which
will coincide with the receipt of a note receivable due to International by
CanWest. The note receivable is in respect of closing adjustments related to the
November 2000 sale by International of properties to CanWest. Payment of the
amount due to CanWest has been subsequently demanded by CanWest as described in
note 10(d). Hollinger International may have a continuing direct exposure to
CanWest in respect of this $22.5 million obligation.

While there is no stated interest rate in respect of the obligation to
CanWest, Hollinger International will likely be required to pay interest on the
amount owing at a reasonable rate of interest. The receivable from HCPH Co. was
intended to offset the $22.5 million owing to CanWest, which in fact may be
settled by HCPH Co. on the Company's behalf.

6. SHAREHOLDER'S INTEREST:

Prior to the assignment of the Management Services Agreements (July 5,
2002), the Company did not maintain its own cash accounts. All cash transactions
were funded and distributed through the shareholder's interest account.

F-150

RAVELSTON MANAGEMENT INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS)

6. SHAREHOLDER'S INTEREST: (CONTINUED)

On July 5, 2002, immediately prior to the transfer of the Management
Services Agreements as described in note 1, the Company recorded a distribution
of the net assets of the Company to Ravelston as settlement of the shareholder's
interest account.

The activity in shareholder's interest can be summarized as follows:

<Table>
<Caption>
2000 2001 2002
-------- ------- --------

Shareholder's interest, beginning of year............. $ 6,093 $ 1,813 $ 14,581
Net income............................................ 12,047 13,309 3,919
Net transactions with Ravelston....................... (16,327) (541) 2,224
Distribution of net assets as settlement of
shareholder's interest account...................... -- -- (20,724)
-------- ------- --------
Shareholder's interest, end of year................... $ 1,813 $14,581 $ --
======== ======= ========
</Table>

7. CAPITAL STOCK:

<Table>
<Caption>
2001 2002
---- ------

Authorized:
Unlimited common shares
Issued:
200 common shares......................................... $-- $5,750
</Table>

(a) On July 3, 2002, the Company issued 100 common shares for total cash
consideration of $5,750,000.

(b) On July 5, 2002, the Company issued 100 common shares to Ravelston in
exchange for the transfer of the Management Services Agreements (note
1).

8. INCOME TAXES:

The income tax expense in the statements of income for the years ended
December 31, 2000, 2001 and 2002 does not vary materially from the amount that
would be computed by applying the basic federal and provincial income tax rates
of 44.0%, 42.1% and 38.6%, respectively, to income before income taxes.

The tax effects of temporary differences that give rise to significant
portions of the future tax assets and future tax liabilities are presented
below:

<Table>
<Caption>
2001 2002
------ --------

Future tax asset:
Non-capital income tax loss carryforwards................. $ -- $ 21,342
Capital income tax loss carryforwards..................... -- 15,959
------ --------
-- 37,301
Valuation allowance....................................... -- (15,959)
------ --------
$ -- $ 21,342
====== ========
</Table>

F-151

RAVELSTON MANAGEMENT INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS)

8. INCOME TAXES: (CONTINUED)

As at December 31, 2002, the Company has operating losses carried forward
for tax purposes of approximately $60,745,000, the tax benefit of which has been
reflected in the accounts. These losses expire as follows:

<Table>

2004........................................................ $ 4,712
2005........................................................ 19,437
2006........................................................ 31,581
2007........................................................ 5,015
-------
$60,745
=======
</Table>

In addition, at December 31, 2002, the Company has capital losses available
of $96,369,000 to offset against capital gains in future years. In March 2003,
$10,936,000 of the capital losses were utilized to offset a capital gain
realized on the sale of International shares (note 10(b)). The benefit of the
remaining capital losses has not been reflected in the financial statements, as
it is more likely than not that the income tax assets will not be realized.

9. FINANCIAL INSTRUMENTS:

(a) Fair values:

The carrying values of cash and cash equivalents, management fees
receivable from related parties, accrued liabilities, due to related
parties and the amount due to CanWest approximate their fair values due
to the relatively short periods to maturity of the instruments. The fair
value of note receivable from HCPH Co. is not readily determinable.

(b) Credit risk:

The Company is exposed to credit risk in the event of non-payment of
management fees receivable from related parties. The Company assesses
the credit risk and provides for any potential uncollectable amounts, if
any.

10. SUBSEQUENT EVENTS:

(a) (i) On March 10, 2003, Hollinger issued U.S.$120 million aggregate
principal amount of 11 7/8% Senior Secured Notes, due 2011. In
connection with this offering by Hollinger, the Company has
agreed to unconditionally guarantee the obligations of Hollinger
in connection with the offering, including but not limited to
the principal and interest payments thereon, and has agreed to
provide the support payments described below. The Company has
pledged its Management Services Agreements (note 3), which
currently represent its sole source of operating cash flow, to
the Trustee for Hollinger's Senior Secured Notes.

(ii) In respect of the issuance of Senior Secured Notes noted in (i)
above, the Company entered into a support agreement with
Hollinger, under which the Company has agreed to make an annual
support payments in cash to Hollinger on a periodic basis by way
of contributions to the capital of Hollinger (without receiving
any shares of Hollinger) or subordinated debt. The amount of the
annual support payments will be equal to the greater of (a) the
non-consolidated negative net cash flow of Hollinger (excluding
any outlay by Hollinger for retractions and redemptions of
Hollinger's shares) and (b) U.S.$14.0 million per year (less any
future payments of Management Services Agreements fees directly to
Hollinger or NB Inc. and any excess in the net dividend amount
received by Hollinger or any of

F-152

RAVELSTON MANAGEMENT INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS)

10. SUBSEQUENT EVENTS (CONTINUED):

Hollinger's wholly owned restricted subsidiaries, as they are
defined in the indenture governing Hollinger's Senior Secured
Notes, due 2011, on the shares of International that Hollinger and
NB Inc. own that is over U.S.$4.65 million per year), in either
case, as reduced by any permanent repayment of debt owing by
Ravelston to Hollinger. Initially, the support amount to be
contributed by the Company is expected to be satisfied through the
permanent repayment by Ravelston of its approximate $16.4 million
of advances from Hollinger, which resulted from the use of
proceeds of the Hollinger's offering of its Senior Secured Notes.
Thereafter, all support amount contributions by the Company will
be made through contributions to the capital of Hollinger, without
receiving any additional shares of Hollinger, except that, to the
extent that the minimum payment exceeds the negative net cash flow
of Hollinger, the amounts will be contributed through an interest
bearing, unsecured, subordinated loan to Hollinger. The support
agreement terminates upon the repayment of the Senior Secured
Notes, which mature in 2011, or upon release of the guarantee.

An event of default with respect to the Senior Secured Notes will
occur if in any quarterly period after April 1, 2003, Hollinger
fails to receive in cash a minimum aggregate amount of at least
U.S.$4.7 million from (a) payments made by the Company during such
quarter pursuant to the terms of the Support Agreement, (b) any
management fees paid by International and its subsidiaries directly
to Hollinger or its wholly owned restricted subsidiaries during
such quarter, and (c) the net dividend amount paid by International
on its capital stock held by Hollinger and its wholly owned
restricted subsidiaries during such quarter.

All aspects of this transaction have been reviewed by a special
committee of the Board of Directors of Hollinger, comprised
entirely of independent directors.

In addition, the Company and Ravelston entered into a contribution
agreement with Hollinger. The contribution agreement sets out the
manner in which the Company will make the support payments
described above to Hollinger, and provides that such payments will
be made by way of contributions to the capital of the Company
(without the issuance of additional shares) or by way of loan
representing subordinated debt, depending on specified
circumstances. In the event that, in any fiscal year (a) the Board
of Directors of Hollinger resolves to declare a cash dividend on
the retractable common shares of Hollinger and (b) after giving
effect to the annual support payment described above, Hollinger
does not have sufficient cash to pay that dividend, the Company
will contribute the amount of that shortfall to Hollinger. The
Company will make that contribution to Hollinger (a) with respect
to a predetermined percentage of that shortfall (corresponding to
Ravelston's ownership of Hollinger), by way of contributions of
capital, without receiving any additional shares of Hollinger and
(b) with respect to the balance of that shortfall, through an
interest bearing, unsecured, subordinated loan to Hollinger. The
contribution agreement will terminate upon the repayment in full of
the Senior Secured Notes, due 2011, and the termination of the
Support Agreement or if Hollinger ceases to be a public company.

(b) On March 10, 2003, prior to the closing of the above offering, NB Inc.
sold its shares of Class A common stock and Series E redeemable
preferred stock of International to the Company. Such shares were in
turn sold back to NB Inc. by the Company at the same price with an
increase in the tax basis of the shares of International and a
resulting capital gain to the Company of $10,936,000. As the exchange
of the International shares between the Company and NB Inc. represents
a transfer between companies under common control, the Company will
record a distribution to
F-153

RAVELSTON MANAGEMENT INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS)

10. SUBSEQUENT EVENTS (CONTINUED):

NB Inc. of $1,373,500 in 2003, being the tax benefit associated with
the utilization of capital losses. The Company will also record an
offsetting increase to contributed surplus of $1,373,500 as the
acquisition of these losses by the Company was also from a company
under common control with no value assigned to the capital losses on
acquisition (note 3(c)).

(c) International and the Company previously reported that the committee
of independent directors of International had agreed to the transfer
of U.S.$15.7 million principal subordinated debt owing to
International by NB Inc. to HCPH Co. and subsequently transferred to
the Company by HCPH Co. in satisfaction of the Company's outstanding
note receivable from HCPH Co. The transfer was effected April 30,
2003. Although management of International and the Company believed
final approval had been given to the transfer by the committee of
independent directors of International, the committee has advised that
final approval of any transfer remains subject to appropriate due
diligence and receipt of a further independent fairness opinion. The
due diligence process has not yet been concluded and accordingly, the
transfer was not completed at this time.

International entered into a subordination agreement with Hollinger and
NB Inc. pursuant to which International has subordinated all payments of
principal, interest and fees on the debt owed to it by NB Inc. to the
payment in full of principal, interest and fees on the Senior Secured
Notes, provided that payments with respect to principal and interest can
be made to International to the extent permitted in the indenture
governing the Senior Secured Notes. The Company has agreed to be bound
by these subordination arrangements with respect to the debt owed from
NB Inc. to the Company.

(d) On September 5, 2003, CanWest formally demanded repayment by Hollinger
International of the $22.5 million due to CanWest.

Although CanWest has formally demanded repayment of the $22.5 million,
it still asserts that additional amounts are owed by the Company and/or
Hollinger International in respect of other closing adjustments arising
on the sale to CanWest of the Company's 50% interest in National Post.
These closing adjustments are currently in dispute and are to be
resolved with CanWest. Inability to resolve disagreements of amounts
owing may result in matters being referred to arbitration or formal
court adjudication. Adjustments to amounts due to CanWest as a
consequence of negotiation or otherwise, may be material. If such
amounts are owed by the Company, the Company will attempt to seek
recovery of such amounts from Hollinger International and they will be
recorded when the amounts, if any, are reasonably determinable.

11. SCHEDULE OF RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES ("GAAP"):

The following represents additional information to the financial statements
of the Company that were prepared in accordance with Canadian GAAP. Set out
below are material adjustments to net income for the years ended December 2000,
2001 and 2002 and to shareholder's equity as at December 31, 2001 and 2002 in
order to conform to accounting principles generally accepted in the United
States:

<Table>
<Caption>
2000 2001 2002
------- ------- -------

Net income, based on Canadian GAAP...................... $12,047 $13,309 $12,815
Stock-based compensation(a)............................. -- (2,305) (1,537)
------- ------- -------
Net income, based on U.S. GAAP.......................... $12,047 $11,004 $11,278
======= ======= =======
</Table>

F-154

RAVELSTON MANAGEMENT INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS)

11. SCHEDULE OF RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES ("GAAP") (CONTINUED):

Summary of accounting policy differences:

The areas of material difference between Canadian and U.S. GAAP and their
impact on the financial statements of the Company are set out below:

(a) Stock-based compensation:

Under U.S. GAAP, the Company measures compensation expense relating to
stock options received by its employees from International using the fair
value method for options issued between November 16, 2000 and December
31, 2001, which was not required under Canadian GAAP. An amount
equivalent to the compensation expense is included in other paid-in
capital under U.S. GAAP, resulting in no difference between shareholder's
interest under U.S. GAAP as compared to Canadian GAAP.

Subsequent to January 1, 2002, the Company adopted the new Canadian
accounting standards relating to stock-based compensation which
eliminated any prospective difference between Canadian GAAP and U.S. GAAP
in connection with options received by employees of the Company (after
January 1, 2002) from International.

The Company has estimated the fair value of the stock options granted by
International in 2001 using the Black-Scholes option pricing model with
the following weighted-average assumptions: dividend yield of 4.6%;
expected volatility of 55.2%; risk-free interest rates of 5.0%; and
expected lives of 10 years. The weighted average fair value of options
granted by International during 2001 was $8.94.

(b) Disclosure of guarantees:

In November 2002, the FASB issued FIN 45, which requires certain
disclosures to be made by a guarantor in its interim and annual financial
statements for periods ending after December 15, 2002 about its
obligations under guarantees. FIN 45 also requires the recognition of a
liability by a guarantor at the inception of certain guarantees entered
into or modified after December 31, 2002. FIN 45 requires the guarantor
to recognize a liability for the non-contingent component of certain
guarantees, that is, it requires the recognition of a liability for the
obligation to stand ready to perform in the event that specified
triggering events or conditions occur. The initial measurement of this
liability is the fair value of the guarantee at inception.

At December 31, 2002, the Company did not have any outstanding
guarantees. On March 10, 2003, the Company guaranteed the Senior Secured
Notes issued by Hollinger (note 10(a)(i)).

F-155

RAVELSTON MANAGEMENT INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS)

11. SCHEDULE OF RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES ("GAAP") (CONTINUED):

Company will recognize a gain or loss on settlement. The Company adopted
the provisions of FAS 143 during the quarter ended March 31, 2003 with
no impact to the results of operations or financial position of the
Company.

In April 2002, the FASB issued FAS 145, which rescinded FAS 4,
"Reporting Gains and Losses from Extinguishment of Debt" ("FAS 145").
FAS 145 addresses, among other things, the income statement treatment of
gains and losses related to debt extinguishments, requiring that such
expenses no longer be treated as extraordinary items, unless the items
meet the definition of extraordinary per APB Opinion No. 30, "Reporting
the Results of Operations -- Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions". Upon adoption, any gain or loss on
extinguishment of debt that was classified as an extraordinary item in
prior periods presented that does not meet the criteria in APB Opinion
No. 30 for classification as an extraordinary item is required to be
reclassified to non-operating expense. The new presentation requirements
was adopted by the Company on January 1, 2003.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities" ("VIE's") ("FIN 46"), which requires the
companies that control another entity through interests other than
voting interest to consolidate the controlled entity. In the absence of
clear control through a voting equity interest, a company's exposure
(variable interests) to the economic risk and the potential rewards from
a VIE's assets and activities are the best evidence of a controlling
financial interest. VIE's created after January 31, 2003 must be
consolidated immediately. VIE's existing prior to February 1, 2003 must
be consolidated by the Company commencing with its third quarter 2003
financial statements. The Company has not yet determined whether it has
any VIE's which will require consolidation.

F-156

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Under the Canada Business Corporations Act (CBCA), a corporation may
indemnify a director or officer of the corporation, a former director or officer
of the corporation or another individual who acts or acted at the corporation's
request as a director or officer or an individual acting in a similar capacity,
of another entity, and his or her heirs and legal representatives (an
"indemnifiable person"), against all costs, charges and expenses, including an
amount paid to settle an action or satisfy a judgment, reasonably incurred by
him or her in respect of any civil, criminal, administrative, investigative or
other proceeding in which he or she is involved by reason of being or having
been a director or officer of such corporation or such other entity, if: (i) he
or she acted honestly and in good faith with a view to the best interests of
such corporation or such other entity, as the case may be; and (ii) in the case
of a criminal or administrative action or proceeding that is enforced by a
monetary penalty, he or she had reasonable grounds for believing that his or her
conduct was lawful. An indemnifiable person is entitled under the CBCA to such
indemnity from the corporation if he or she was not judged by the court or other
competent authority to have committed any fault or omitted to do anything that
the individual ought to have done and fulfilled the conditions set out in (i)
and (ii) above. A corporation may, with the approval of a court, also indemnify
an indemnifiable person in respect of an action by or on behalf of the
corporation or other entity to procure a judgment in its favor, to which such
person is made a party by reason of being or having been a director or an
officer of the corporation or other entity, if he or she fulfills the conditions
set out in (i) and (ii), above. Hollinger's by-laws provide for indemnification
of directors and officers to the fullest extent authorized by the CBCA.

Insofar as indemnification for liabilities under the United States
Securities Act of 1933 may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, the Company has
been advised that in the opinion of the U.S. Securities and Exchange Commissions
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable.

Under the CBCA, a corporation is entitled to purchase and maintain
insurance for the benefit of an indemnifiable person against any liability
incurred by such individual in his or her capacity as a director or officer of
the corporation or similar capacity of another entity, if the individual acts in
that capacity at the corporation's request. During 2002, Hollinger maintained
directors' and officers' liability insurance that covered the entire Hollinger
group of companies and had a policy limit of US$130,000,000 aggregate per policy
year. Under this insurance coverage, Hollinger would be reimbursed for indemnity
payments made on behalf of its directors and officers subject to a deductible of
US$2,500,000 per occurrence. Individual directors and officers would also be
reimbursed for losses arising during the performance of their duties for which
they are not indemnified by Hollinger. The total premium paid by Hollinger for
such directors' and officers' liability insurance in respect of 2002 was
US$698,000 and was not allocated to directors as a group or to officers as a
group.

II-1

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

<Table>

3.1a Certificate of Amalgamation and Articles Incorporated by reference to Exhibit
of Amalgamation amalgamating Argcen 1.1a to the Annual Report on Form 20-F
Holdings Inc., Hollinger Argus Limited dated June 27, 2003.
and Labmin Resources Limited, dated
September 17, 1985
3.1b Amalgamation Agreement between Argcen Incorporated by reference to Exhibit
Holdings Inc., Hollinger Argus Limited 1.1b to the Annual Report on Form 20-F
and Labmin Resources Limited, dated dated June 27, 2003.
August 23, 1985
3.1c Certificate of Amendment and Articles of Incorporated by reference to Exhibit
Amendment, dated June 14, 1989 1.1c to the Annual Report on Form 20-F
dated June 27, 2003.
3.1d Certificate of Amendment and Articles of Incorporated by reference to Exhibit
Amendment, dated May 30, 1996 1.1d to the Annual Report on Form 20-F
dated June 27, 2003.
3.1e Certificate of Amendment and Articles of Incorporated by reference to Exhibit
Amendment, dated September 11, 1997 1.1e to the Annual Report on Form 20-F
dated June 27, 2003.
3.1f Certificate of Amendment and Articles of Incorporated by reference to Exhibit
Amendment, dated November 7, 1997 1.1f to the Annual Report on Form 20-F
dated June 27, 2003.
3.1g Certificate of Amendment and Articles of Incorporated by reference to Exhibit
Amendment, dated June 3, 1998 1.1g to the Annual Report on Form 20-F
dated June 27, 2003.
3.1h Certificate of Amendment and Articles of Incorporated by reference to Exhibit
Amendment, dated April 28, 1999 1.1h to the Annual Report on Form 20-F
dated June 27, 2003.
3.1i Certificate of Amendment and Articles of Incorporated by reference to Exhibit
Amendment, dated April 22, 2003 1.1i to the Annual Report on Form 20-F
dated June 27, 2003.
3.2a By-Law Number A24, dated March 14, 1984 Incorporated by reference to Exhibit
1.2a to the Annual Report on Form 20-F
dated June 27, 2003.
3.2b By-Law Number A25, dated June 28, 1984 Incorporated by reference to Exhibit
1.2b to the Annual Report on Form 20-F
dated June 27, 2003.
3.2c By-Law Number A26, dated February 27, Incorporated by reference to Exhibit
2002 1.2c to the Annual Report on Form 20-F
dated June 27, 2003.
4.1 Trust Indenture, dated as of March 10, Incorporated by reference to Exhibit 4.1
2003, among Hollinger Inc., Ravelston to the Annual Report on Form 20-F dated
Management Inc., 504468 N.B. Inc. and June 27, 2003.
Wachovia Trust Company, National
Association, Ravelston Corporation
Limited and Sugra Limited
4.2 Registration Rights Agreement, dated as Incorporated by reference to Exhibit 4.2
of March 5, 2003 among Hollinger Inc., to the Annual Report on Form 20-F dated
Ravelston Management Inc., 504468 N.B. June 27, 2003.
Inc., and Wachovia Securities, Inc.
</Table>

II-2

4.3 Form of Note Incorporated by reference to Exhibit 4.3
to the Annual Report on Form 20-F dated
June 27, 2003.
4.4 Hollinger Inc. Non-Competition, Non-
Solicitation and Confidentiality
Agreement, dated as of November 15,
2000, between CanWest Global
Communications Corporation, 3815668
Canada Inc. and Hollinger Inc.
4.5 Contribution Agreement, dated as of
March 10, 2003, between The Ravelston
Corporation Limited, Ravelston
Management Inc. and Hollinger Inc.
4.6 Support Agreement, dated as of March 10,
2003, between Ravelston Management Inc.
and Hollinger Inc.
5 Opinion of Torys LLP dated September
, 2003 regarding the legality of the
notes and guarantees.
12 Computation of Ratio of Earnings to
Fixed Charges
12.1 Computation of Proforma Ratio of
Earnings to Fixed Charges
23.1 Consent of KPMG LLP to the Board of
Directors of Hollinger Inc. dated
September 17, 2003 (see F-2).
23.2 Consent of KPMG LLP to the Board of
Directors of 504468 NB Inc. dated
September 17, 2003 (see F-81).
23.3 Consent of KPMG LLP to the Board of
Directors of Ravelston Management Inc.
dated September 17, 2003 (see F-142).
23.4 Consent of Torys LLP (included in
Exhibit 5)
24 Powers of Attorney (included on
signature page)
25.1* Statement of Eligibility of Trustee on
Form T-1
99.1 Form of Letter of Transmittal of
Hollinger Inc. pursuant to the
Prospectus
99.2* Form of Letter to Brokers, Dealers,
Commercial Banks, Trust Companies and
other Nominees from Hollinger Inc. with
respect to the Exchange Offering
99.3* Form of Guidelines for Certification of
Taxpayer Identification Number on
Substitute Form W-9
</Table>

II-3

<Table>

99.4* Form of Letter to Clients from Hollinger
Inc. with respect to the Exchange
Offering
99.5* Form of Notice of Guaranteed Delivery
with respect to the Exchange Offering
</Table>

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

* Previously filed

II-4

UNDERTAKINGS

The undersigned registrant hereby undertakes as follows:

1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low
or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the SEC pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement; and

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;

provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the SEC
by the registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the registration
statement.

2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

3. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

4. If the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement, to include
any financial statements required by Item 8.A of Form 20-F at the
start of any delayed offering or throughout a continuous offering.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to any charter provision, by-law, contract, arrangement,
statute, or otherwise, the registrant has been advised that in the opinion of
the SEC such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted against the registrant by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.

The undersigned registrant hereby undertakes:

1. to file an application for the purpose of determining the eligibility
of the trustee to act under Subsection (a) of Section 310 of the
Trust Indenture Act in accordance with the rules and regulations
prescribed by the SEC under Section 305(b)(2) of the Act;

II-5

2. to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13
of this Form, within one business day of receipt of such request, and
to send the incorporated documents by first class mail or other
equally prompt means; and

3. to arrange or provide for a facility in the U.S. for the purpose of
responding to such requests. The undertaking in subparagraph 2 above
includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of
responding to the request.

II-6

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Toronto,
State of Ontario, on the 15th day of September, 2003.

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

By: /s/ CONRAD M. BLACK
------------------------------------
Lord Black of Crossharbour, PC(C),
OC, KCSG
Chairman and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities indicated and on September 15th, 2003:

<Table>
<Caption>
SIGNATURE TITLE
--------- -----

* Executive Vice-President and Director
- --------------------------------------
Peter Y. Atkinson

* Vice-President, Editorial and Director
- --------------------------------------
Barbara Amiel Black

* Chairman of the Board, Chief Executive Officer and
- -------------------------------------- Director
The Lord Black of Crossharbour,
PC(C), OC, KCSG

* Executive Vice-President and Director
- --------------------------------------
J.A. Boultbee

* Vice-Chairman and Director
- --------------------------------------
Daniel W. Colson

* Vice-President and Secretary and Director
- --------------------------------------
Charles G. Cowan, CD, QC

/s/ FREDERICK A. CREASEY Vice-President and Chief Financial Officer
- -------------------------------------- (Principal Financial Offer)
Frederick A. Creasey

Director
- --------------------------------------
Fredrik S. Eaton, OC

* Controller
- -------------------------------------- (Principal Accounting Officer)
Claire F. Duckworth

Director
- --------------------------------------
Douglas G. Bassett, OC
</Table>

II-7

<Table>
<Caption>
SIGNATURE TITLE
--------- -----

Director
- --------------------------------------
Allan E. Gotlieb, CC

Director
- --------------------------------------
Henry H. Ketcham III

* Deputy Chairman, President and
- -------------------------------------- Chief Operating Officer and Director
F. David Radler

* Director
- --------------------------------------
Maureen J. Sabia

* Director
- --------------------------------------
Peter G. White

*By /s/ FREDERICK A. CREASEY Vice-President and Chief Financial Officer
------------------------------ (Principal Financial Officer)
Name: Frederick A. Creasey
Title: Attorney-in-Fact
</Table>

II-8

AUTHORIZED REPRESENTATIVE

Pursuant to the requirements of Section 6(a) of the Securities Act of 1933,
as amended, the Authorized Representative has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, solely in
its capacity as the duly authorized representative of Hollinger Inc. in the
United States, on September 15, 2003.

HOLLINGER INTERNATIONAL INC.

By: /s/ MARK KIPNIS
------------------------------------
Mark Kipnis
Vice President and Secretary

II-9