Hollinger Inc.

Hollinger Inc.

July 14, 2005 18:21 ET

Hollinger Inc. Status Update

TORONTO, ONTARIO--(CCNMatthews - July 14, 2005) - Hollinger Inc. ("Hollinger") (TSX: HLG.C)(TSX:HLG.PR.B) provides the following update in accordance with the guidelines pursuant to which the June 1, 2004 management and insider cease trade order, as amended, was issued. These guidelines contemplate that Hollinger will normally provide bi-weekly updates on its affairs until such time as it is current with its filing obligations under applicable Canadian securities laws. Reference should be made to Status Update Reports and other press releases that have been previously filed by Hollinger and which are available on SEDAR at www.sedar.com.

Recent Events

On July 8, 2005, Mr. Justice Colin J. Campbell of the Ontario Superior Court of Justice approved a consent Order effecting the realignment of the Board of Directors of Hollinger. The Board will increase from the current four members to a total of seven members. Five new members will be added to the Board when requisite consents have been obtained from the proposed candidates. Two existing members then will retire. Currently, the Board of Hollinger is composed of Paul A. Carroll, QC, President & CEO, Robert J. Metcalfe, Executive Vice-President and COO, Allan Wakefield and Gordon W. Walker, QC, Chairman. Messrs. Carroll and Walker have signaled their intention to stand down from the Board in order to give effect to the restructuring. The five new members coming onto the Board will be endorsed by Mr. Justice Campbell in the coming days and then will be appointed to the Board. The names of the new Board members will also be identified in the coming days upon their acceptance of their appointment. Each is a significant business person and well suited to the appointment. This restructuring will see the termination of litigation launched by certain minority shareholder groups of Hollinger respecting Board composition, resulting in substantial savings in litigation costs.

Financial Statements

As previously reported, Hollinger's 2003 annual financial statements cannot be completed and audited until Hollinger International Inc. ("Hollinger International") completes and files its 2003 annual financial statements. On January 18, 2005, Hollinger International filed its 2003 Form 10-K with the SEC, which included audited financial statements and related management discussion and analysis ("MD&A") for the year ended December 31, 2003 and restated audited financial results for the years ended December 31, 1999, 2000, 2001 and 2002. Hollinger International stated that the restated financial results were to correct accounting errors in prior periods and to reflect reclassifications arising from the adoption of a new accounting standard. On January 21, 2005, Hollinger International filed its audited financial statements, MD&A and renewal Annual Information Form ("AIF") for the year ended December 31, 2003 with the Canadian securities regulatory authorities. The foregoing were necessary but not sufficient conditions to permit Hollinger to complete and file its 2003 annual financial statements as the completion and audit of such financial statements will require a level of co-operation from Hollinger International, which is still in negotiation, and Hollinger International's auditors.

On May 19 and 20, 2005, Hollinger International filed with the United States Securities and Exchange Commission its quarterly reports on Form 10-Q for the three, six and nine month periods ended March 31, June 30 and September 30, 2004, respectively. These interim financial statements (and related MD&A) were also filed with the Canadian securities regulatory authorities on May 24, 2005.

Neither Hollinger International nor Hollinger has been able to file its annual financial statements, MD&A and AIF for the year ended December 31, 2004 on a timely basis as required by Canadian securities legislation. Hollinger International has not yet filed its interim financial statements for the fiscal quarter ended March 31, 2005 and Hollinger has not filed its interim financial statements for the fiscal quarters ended March 31, June 30 and September 30, 2004 and March 31, 2005. Hollinger International stated in its press release of July 12, 2005 that it anticipates filing its Annual Report on Form 10-K for the year ended December 31, 2004 prior to the end of August 2005. Hollinger International further stated that it expects to become current with its continuous disclosure obligations upon the filing of its third quarter interim financial statements in November 2005.

Hollinger has released financial information in the form of an unaudited consolidated balance sheet as at September 30, 2004, together with notes thereto, prepared on an alternative basis, as described below (the "Alternative Financial Information"). The Alternative Financial Information, which may be found as part of Hollinger's press release issued on March 4, 2005, was prepared by management of Hollinger and was not audited or reviewed by Hollinger's auditors. The Alternative Financial Information includes the accounts of Hollinger and those wholly-owned subsidiaries which carry out head office functions and which do not represent investments. Investments in other companies and subsidiaries, such as Hollinger International, are not consolidated but rather are carried as investments and are accounted for at their market value. The Alternative Financial Information has been prepared in accordance with Hollinger's traditional accounting policies with the exception that it has been prepared as though Hollinger had always accounted for its assets and liabilities at their market values.

It is Hollinger's intention to complete and publicly disclose as soon as practicable an unaudited consolidated balance sheet as at December 31, 2004, together with notes thereto, prepared on an alternative basis similar to that of the Alternative Financial Information described above along with unaudited consolidated statements of income, retained earnings and cash flows for the year then ended, all prepared on an alternative basis.


Ernst & Young Inc. (the "Inspector") is continuing the inspection of Hollinger's related party transactions pursuant to an Order of Mr. Justice Campbell of the Ontario Superior Court of Justice. The Inspector has provided nine interim reports with respect to its inspection of Hollinger, the ninth report being filed with the Court on July 7, 2005 and outlining the status of the inspection. Hollinger and its staff continue to give their full and unrestricted assistance to the Inspector in order that it may carry out its duties, including access to all files and electronic data.

To July 8, 2005, the cost to Hollinger of the inspection (including the costs associated with the Inspector and its legal counsel and Hollinger's legal counsel) is in excess of C$9.99 million.

Supplemental Financial Information

As of the close of business on July 8, 2005, Hollinger and its subsidiaries (other than Hollinger International and its subsidiaries) had approximately US$67.0 million of cash or cash equivalents on hand, including restricted cash, other than as described separately below. At that date, Hollinger owned, directly or indirectly, 782,923 shares of Class A Common Stock and 14,990,000 shares of Class B Common Stock of Hollinger International. Based on the July 8, 2005 closing price of the shares of Class A Common Stock of Hollinger International on the New York Stock Exchange of US$10.07, the market value of Hollinger's direct and indirect holdings in Hollinger International was US$158,833,334. All of Hollinger's direct and indirect interest in the shares of Class A Common Stock of Hollinger International are being held in escrow in support of future retractions of its Series II Preference Shares. All of Hollinger's direct and indirect interest in the shares of Class B Common Stock of Hollinger International are pledged as security in connection with Hollinger's outstanding 11.875% Senior Secured Notes due 2011 (the "Senior Notes") and 11.875% Second Priority Secured Notes due 2011 (the "Second Priority Notes"). In addition to the cash or cash equivalents on hand noted above, Hollinger has previously deposited: (a) approximately C$8.5 million in trust with the law firm of Aird & Berlis LLP, as trustee, in support of Hollinger's indemnification obligations to six current and former independent directors and two current officers; (b) approximately C$3.0 million with the law firm of Goodmans LLP to be available to satisfy Hollinger's aggregate severance obligations to its current independent directors; and (c) approximately US$5.5 million in cash with the trustee under the indenture (the "Senior Indenture") governing the Senior Notes as collateral in support of the Senior Notes (which cash collateral is also collateral in support of the Second Priority Notes, subject to being applied to satisfy future interest payment obligations on the outstanding Senior Notes). Consequently, there is currently in excess of US$156.4 million aggregate collateral securing the US$78 million principal amount of the Senior Notes and the US$15 million principal amount of the Second Priority Notes outstanding.

Ravelston Receivership and CCAA Proceedings

On April 20, 2005, Mr. Justice James Farley of the Ontario Superior Court of Justice issued two orders by which The Ravelston Corporation Limited ("Ravelston") and Ravelston Management Inc. ("RMI") were: (i) placed in receivership pursuant to the Courts of Justice Act (Ontario) (the "Receivership Order"); and (ii) granted protection pursuant to the Companies' Creditors Arrangement Act (Canada) (the "CCAA Order"). Pursuant thereto, RSM Richter Inc. (the "Receiver") was appointed receiver of all of the assets of Ravelston and RMI. On May 18, 2005, Mr. Justice Farley further ordered that the Receivership Order and the CCAA Order be extended to include Argus Corporation Limited and five of its subsidiary companies which collectively own, directly or indirectly, 61.8% of the outstanding retractable common shares of Hollinger (collectively such entities, including Ravelston and RMI are referred to as the "Ravelston Entities"). In addition, Mr. Justice Farley extended to July 20, 2005 the stay of proceedings against the Ravelston Entities that he had granted on April 20, 2005.

The Receiver stated in its press release of June 30, 2005 that, pursuant to the Receivership Order, it has taken possession and control of shares of Hollinger directly or indirectly held by Ravelston such that, as a result, it directly or indirectly exercises control or direction over 78.3% of the issued and outstanding Retractable Common Shares and 3.9% of the issued and outstanding Series II Preference Shares of Hollinger. The Receiver further stated that it took possession and control of these shares for the purposes of carrying out its responsibilities as court appointed officer.

On June 20, 2005, Hollinger filed a motion with the Ontario Superior Court of Justice in the context of the CCAA proceedings respecting the Ravelston Entities for an Order establishing a claims procedure in respect of such entities. Hollinger, being a significant secured and unsecured creditor of Ravelston and RMI, is a major stakeholder in the receivership proceedings and the CCAA proceedings. Hollinger filed its motion for the commencement of a claims procedure process in order that it and other key stakeholders of the Ravelston Entities (including Hollinger International) are in a position to review and consider all strategic alternatives and options to maximize recovery from the assets and property of the Ravelston Entities. On July 13, 2005, Hollinger filed a further motion with the Ontario Superior Court of Justice in the Receivership and CCAA proceedings respecting Ravelston and RMI for an Order that certain secured claims owing to Hollinger and its wholly-owned subsidiary, Domgroup Ltd., be satisfied, in full, with Retractable Common Shares of Hollinger and that the Receiver be authorized to enter into an agreement with Hollinger and Domgroup Ltd. as to the mechanics with respect to the number of shares to be delivered. The motions are scheduled to be heard on July 19, 2005.

Outstanding Notes

As previously announced, as a result of the Receivership Order, the CCAA Order and the related insolvency proceedings respecting the Ravelston Entities, an Event of Default has occurred under the terms of the indentures governing the Senior Notes and Second Priority Notes. With respect to both the Senior Notes and the Second Priority Notes, the relevant trustee under the indentures or the holders of at least 25 percent of the outstanding principal amount of the relevant Notes has the right to accelerate the maturity of the Notes. Until the Event of Default is remedied or a waiver is provided by holders of the Notes, the terms of the indentures prevent Hollinger from honouring retractions of its Series II Preference Shares. Hollinger is currently exploring alternative forms of financing for the Notes.

Company Background

Hollinger's principal asset is its approximately 66.8% voting and 17.4% equity interest in Hollinger International, which is a newspaper publisher, the assets of which include the Chicago Sun-Times, a large number of community newspapers in the Chicago area and a portfolio of news media investments. Hollinger also owns a portfolio of revenue-producing and other commercial real estate in Canada, including its head office building located at 10 Toronto Street, Toronto, Ontario.

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