10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2006
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from          to

Commission File No. 1-14164

SUN-TIMES MEDIA GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware	95-3518892
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
350 North Orleans Street, 10-S Chicago, Illinois (Address of principal executive offices)	60654 (Zip Code)

Registrant’s telephone number, including area code

(312) 321-2299

Former Address: 712 Fifth Avenue, New York, NY 10019

(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer  þ   Accelerated Filer  o  Non-accelerated Filer  o

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

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

Class	Outstanding at October 31, 2006
Class A Common Stock par value $.01 per share	64,994,088 shares
Class B Common Stock par value $.01 per share	14,990,000 shares

TABLE OF CONTENTS

INDEX

SUN-TIMES MEDIA GROUP, INC.

			Page
PART I FINANCIAL INFORMATION
	Item 1	Condensed Consolidated Financial Statements (Unaudited)		4
	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
	Item 3	Quantitative and Qualitative Disclosures about Market Risk		32
	Item 4	Controls and Procedures		33
PART II OTHER INFORMATION
	Item 1	Legal Proceedings		34
	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds		37
	Item 3	Defaults Upon Senior Securities		37
	Item 4	Submission of Matters to a Vote of Security Holders		37
	Item 5	Other Information		37
	Item 6	Exhibits		37
Signatures				39
Exhibits
Separation Agreement
Separation Agreement
Separation Agreement
Certification of Chief Executive Officer
Certification of Chief Financial Officer
Certification of Chief Executive Officer
Certification of Chief Financial Officer

2

FORWARD-LOOKING STATEMENTS

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

•  changes in prevailing economic conditions, particularly as they affect Chicago, Illinois and its metropolitan area;

•  actions of the Company’s controlling stockholder;

•  the impact of insolvency filings of The Ravelston Corporation Limited (“Ravelston”) and Ravelston Management, Inc. (“RMI”) and certain related entities;

•  adverse developments in pending litigation involving the Company and its affiliates, and current and former directors and officers;

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

•  the resolution of certain United States and foreign tax matters;

•  actions of competitors, including price changes and the introduction of competitive service offerings;

•  changes in the preferences of readers and advertisers, particularly in response to the growth of Internet-based media;

•  the effects of changing costs or availability of raw materials, including changes in the cost or availability of newsprint and magazine body paper;

•  changes in laws or regulations, including changes that affect the way business entities are taxed; and

•  changes in accounting principles or in the way such principles are applied.

The Company does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise except as required by federal securities laws. The Company does not, nor does any other person, assume responsibility for the accuracy and completeness of those statements. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under the caption “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005 (the “2005 10-K”).

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

3

PART I. FINANCIAL INFORMATION

Item 1.   Condensed Consolidated Financial Statements

SUN-TIMES MEDIA GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three and Nine Months Ended September 30, 2006 and 2005

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2006			2005			2006			2005
	(Unaudited)
	(Amounts in thousands, except per share data)
Operating revenue:
Advertising	$	76,371		$	88,918		$	238,880		$	265,513
Circulation		19,845			21,577			61,739			66,344
Job printing		2,267			2,438			6,600			6,813
Other		568			657			1,647			2,021
Total operating revenue		99,051			113,590			308,866			340,691
Operating costs and expenses:
Newsprint		15,076			17,201			47,220			50,745
Compensation		48,086			47,920			152,037			144,978
Other operating costs		48,937			48,402			144,647			149,866
Depreciation		6,229			4,693			16,577			14,016
Amortization		3,141			3,203			8,784			8,920
Total operating costs and expenses		121,469			121,419			369,265			368,525
Operating loss		(22,418	)		(7,829	)		(60,399	)		(27,834	)
Other income (expense):
Interest expense		(168	)		(80	)		(507	)		(596	)
Amortization of deferred financing costs		(7	)		(7	)		(20	)		(20	)
Interest and dividend income		4,086			2,428			12,825			8,834
Other income (expense), net		474			(2,500	)		593			(4,008	)
Total other income (expense)		4,385			(159	)		12,891			4,210
Loss from continuing operations before income taxes		(18,033	)		(7,988	)		(47,508	)		(23,624	)
Income tax expense (benefit)		16,832			2,771			(6,171	)		28,077
Loss from continuing operations		(34,865	)		(10,759	)		(41,337	)		(51,701	)
Discontinued operations (net of income taxes):
Earnings from operations of business segment disposed of		—			1,635			199			8,526
Gain from disposal of business segment		—			—			15,165			—
Earnings from discontinued operations		—			1,635			15,364			8,526
Net loss	$	(34,865	)	$	(9,124	)	$	(25,973	)	$	(43,175	)
Basic and diluted loss per share:
Loss from continuing operations	$	(0.43	)	$	(0.12	)	$	(0.48	)	$	(0.57	)
Earnings from discontinued operations	$	—		$	0.02		$	0.18		$	0.09
Net loss	$	(0.43	)	$	(0.10	)	$	(0.30	)	$	(0.48	)
Weighted average shares outstanding		80,853			90,878			85,679			90,871

See accompanying notes to condensed consolidated financial statements.

4

SUN-TIMES MEDIA GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

For the Three and Nine Months Ended September 30, 2006 and 2005

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2006			2005			2006			2005
	(Unaudited)
	(Amounts in thousands)
Net loss	$	(34,865	)	$	(9,124	)	$	(25,973	)	$	(43,175	)
Other comprehensive income (loss):
Foreign currency translation adjustment, net of income taxes		40			(23,107	)		(30,496	)		(17,500	)
Unrealized gain (loss) on securities available for sale, net of income taxes		24			(99	)		994			(3,355	)
Adjustment of minimum pension liability, net of income taxes		1			(263	)		(224	)		(176	)
Comprehensive loss	$	(34,800	)	$	(32,593	)	$	(55,699	)	$	(64,206	)

See accompanying notes to condensed consolidated financial statements.

5

SUN-TIMES MEDIA GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 2006 and December 31, 2005

	September 30,			December 31,
	2006			2005
	(Unaudited)
	(Amounts in thousands,
	except share data)
ASSETS
Current assets:
Cash and cash equivalents	$	205,246		$	198,388
Short-term investments		—			57,650
Accounts receivable, net of allowance for doubtful accounts of $10,361 in 2006 and $11,756 in 2005		73,400			90,951
Inventories		13,954			12,600
Escrow deposits and restricted cash		31,358			13,350
Assets of operations to be disposed of		—			21,418
Other current assets		8,405			6,785
Total current assets		332,363			401,142
Loan to affiliates		32,526			29,284
Investments		6,464			23,037
Property, plant and equipment, net of accumulated depreciation of $133,808 in 2006 and $117,360 in 2005		182,505			194,354
Intangible assets, net of accumulated amortization of $42,205 in 2006 and $38,933 in 2005		93,724			96,981
Goodwill		124,372			124,104
Prepaid pension benefit		105,361			95,346
Non-current assets of operations to be disposed of		—			73,391
Other assets		27,983			27,689
Total assets	$	905,298		$	1,065,328
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Current installments of long-term debt	$	928		$	7,148
Accounts payable and accrued expenses		97,899			125,007
Dividends payable		3,999			4,534
Amounts due to related parties		8,210			7,987
Income taxes payable and other tax liabilities		593,589			586,734
Liabilities of operations to be disposed of		—			12,531
Deferred revenue		10,915			11,684
Total current liabilities		715,540			755,625
Long-term debt, less current installments		6,050			919
Deferred income taxes and other tax liabilities		392,859			360,524
Non-current liabilities of operations to be disposed of		—			15,141
Other liabilities		112,877			102,970
Total liabilities		1,227,326			1,235,179
Stockholders’ deficit:
Class A common stock, $0.01 par value. Authorized 250,000,000 shares; 88,008,022 and 64,994,088 shares issued and outstanding, respectively, at September 30, 2006 and 88,008,022 and 75,687,055 shares issued and outstanding, respectively, at December 31, 2005		880			880
Class B common stock, $0.01 par value. Authorized 50,000,000 shares; 14,990,000 shares issued and outstanding at September 30, 2006 and December 31, 2005		150			150
Additional paid-in capital		494,396			493,385
Accumulated other comprehensive income (loss):
Cumulative foreign currency translation adjustment		(10,401	)		20,095
Unrealized gain (loss) on marketable securities		174			(820	)
Minimum pension liability adjustment		(19,001	)		(18,777	)
Accumulated deficit		(559,072	)		(515,955	)
		(92,874	)		(21,042	)
Class A common stock in treasury, at cost — 23,013,934 shares at September 30, 2006 and 12,320,967 shares at December 31, 2005		(229,154	)		(148,809	)
Total stockholders’ deficit		(322,028	)		(169,851	)
Total liabilities and stockholders’ deficit	$	905,298		$	1,065,328

See accompanying notes to condensed consolidated financial statements.

6

SUN-TIMES MEDIA GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT
For the Nine Months Ended September 30, 2006

						Accumulated
	Common		Additional			Other
	Stock		Paid-In			Comprehensive			Accumulated			Treasury
	Class A & B		Capital			Income (Loss)			Deficit			Stock			Total
	(Unaudited)
	(Amounts in thousands)
Balance at December 31, 2005	$	1,030	$	493,385		$	498		$	(515,955	)	$	(148,809	)	$	(169,851	)
Dividends declared, payable in cash — Class A and Class B, $0.15 per share		—		—			—			(12,678	)		—			(12,678	)
Stock-based compensation		—		1,367			—			—			—			1,367
Repurchase of common stock		—		—			—			—			(95,744	)		(95,744	)
Issuance of treasury stock in respect of stock options exercised and deferred stock units		—		(356	)		—			(4,466	)		15,399			10,577
Minimum pension liability adjustment		—		—			(224	)		—			—			(224	)
Foreign currency translation adjustment		—		—			(30,496	)		—			—			(30,496	)
Change in unrealized gain (loss) on securities, net		—		—			994			—			—			994
Net loss		—		—			—			(25,973	)		—			(25,973	)
Balance at September 30, 2006	$	1,030	$	494,396		$	(29,228	)	$	(559,072	)	$	(229,154	)	$	(322,028	)

See accompanying notes to condensed consolidated financial statements

7

SUN-TIMES MEDIA GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2006 and 2005

	Nine Months Ended
	September 30,
	2006			2005
	(Unaudited)
	(Amounts in thousands)
Cash Flows From Continuing Operating Activities:
Net loss	$	(25,973	)	$	(43,175	)
Earnings from discontinued operations		(15,364	)		(8,526	)
Loss from continuing operations		(41,337	)		(51,701	)
Adjustments to reconcile loss from continuing operations to net cash used in continuing operating activities:
Depreciation and amortization		25,361			22,936
Other		6,097			5,879
Changes in working capital accounts, net		(36,707	)		(181,744	)
Cash used in continuing operating activities		(46,586	)		(204,630	)
Cash Flows From Investing Activities:
Purchase of property, plant and equipment		(5,741	)		(12,669	)
Acquisition of investments and other non-current assets		(5,242	)		(6,929	)
Redemptions of short-term investments, net		57,650			474,650
Proceeds from the sale of newspaper operations, net of cash disposed		79,885			—
Proceeds from disposal of investments and other assets		18,237			4,549
Other		(50	)		—
Cash provided by investing activities		144,739			459,601
Cash Flows From Financing Activities:
Repayment of debt		(1,160	)		(6,198	)
Changes in escrow deposits and restricted cash		(870	)		(1,689	)
Changes in borrowings with related parties		(4,519	)		(4,996	)
Dividends paid		(13,213	)		(512,325	)
Repurchase of common stock		(95,744	)		—
Proceeds from stock options exercised		10,671			—
Other		(92	)		—
Cash used in financing activities		(104,927	)		(525,208	)
Cash Flows From Discontinued Operations:
Operating cash flows		(387	)		16,602
Investing cash flows		—			(4,475	)
Financing cash flows		7,143			73,197
Net cash provided by discontinued operations		6,756			85,324
Effect of exchange rate changes on cash		6,876			1,793
Net increase (decrease) in cash and cash equivalents		6,858			(183,120	)
Cash and cash equivalents at beginning of period		198,388			274,795
Cash and cash equivalents at end of period	$	205,246		$	91,675
Cash paid during the period for:
Interest	$	406		$	674
Taxes	$	23,156		$	182,470

See accompanying notes to condensed consolidated financial statements.

8

SUN-TIMES MEDIA GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1 — Unaudited Financial Statements

The accompanying condensed consolidated financial statements of Sun-Times Media Group, Inc. (formerly “Hollinger International Inc.”) and subsidiaries (the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and note disclosures normally included in comprehensive annual financial statements presented in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to Securities and Exchange Commission (“SEC”) rules and regulations.

Management believes that the accompanying condensed consolidated financial statements contain all adjustments (which include normal recurring adjustments, except as disclosed in Note 9 to these financial statements) that, in the opinion of management, are necessary to present fairly the Company’s consolidated financial condition, results of operations, stockholders’ equity, other comprehensive income and cash flows for the periods presented. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the full year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 filed with the SEC on March 31, 2006 and amended on May 1, 2006 (the “2005 10-K”).

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

Note 2 — Principles of Presentation and Consolidation

At September 30, 2006, Hollinger Inc., a Canadian corporation, held, directly or indirectly, approximately 19.7% of the combined equity and approximately 70.1% of the combined voting power of the outstanding common stock of the Company. Due to matters discussed in the 2005 10-K, particularly “Risk Factors,” Hollinger Inc. is not able to exercise control over the Company.

The condensed consolidated financial statements include the accounts of the Company and its majority owned subsidiaries.

All significant intercompany balances and transactions have been eliminated in consolidation. See Note 7 for a discussion of revisions in the 2005 financial statements related to discontinued operations.

Certain amounts in the 2005 financial statements have been reclassified to conform with the current year presentation.

Note 3 — Purchases and Re-issuance of Treasury Stock

On March 15, 2006 the Company announced that its Board of Directors authorized the repurchase of an aggregate value of $50.0 million of its common stock to begin following the filing of the 2005 10-K. The Company completed the repurchase of common stock on May 5, 2006, aggregating approximately 6.2 million shares for approximately $50.0 million, including related transaction fees.

9

SUN-TIMES MEDIA GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited) — (Continued)

On May 17, 2006, the Company announced that its Board of Directors authorized the repurchase of common stock utilizing approximately $8.2 million of proceeds from the sale of Hollinger Digital LLC (see Note 7) and $9.6 million of proceeds from stock options exercised in 2006. In addition, on June 13, 2006 the Company announced that its Board of Directors had authorized an additional $50.0 million for the repurchase of common stock. Through September 30, 2006, the Company repurchased approximately 6.0 million shares for approximately $45.7 million, including related transaction fees, out of the $67.8 million authorized subsequent to the program announced on March 15, 2006.

The Company issued approximately 1.5 million shares of its treasury stock in respect of options exercised or shares issued in respect of deferred stock units (“DSU’s”) vesting through September 30, 2006. Proceeds received from the exercise of options were then used to repurchase Treasury Stock as discussed above.

	Number of Shares			Value
				(In thousands)
Common stock repurchases from January 1, 2006 through September 30, 2006		12,188,915		$	95,744
Reissuance of treasury stock for stock-based awards		(1,495,948	)		(15,399	)
2006 common stock repurchases, net (through September 30, 2006)		10,692,967		$	80,345

Note 4 — Reorganization Activities

In January 2006, the Company announced a reorganization of its operations aimed at accelerating and enhancing its strategic growth and improving its operating results. The plan included a targeted 10% reduction in full-time staffing levels. Certain of the costs directly associated with the reorganization included voluntary and involuntary termination benefits. Such costs, amounting to $8.7 million for the nine months ended September 30, 2006 (and an additional $6.8 million in severance not related directly to the reorganization of which $1.6 million and $5.2 million are reflected in the Sun-Times News Group and the Investment and Corporate Group results of operations, respectively) are included in “Compensation” expenses in the accompanying Condensed Consolidated Statement of Operations and are included in the Sun-Times News Group operating segment. These estimated costs have been recognized in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 88 (as amended) “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits” related to incremental voluntary termination severance benefits and SFAS No. 112 “Employers’ Accounting for Postemployment Benefits” for the involuntary, or base, portion of termination benefits under the Company’s established termination plan and practices.

The reorganization targeted a net workforce reduction of approximately 260 full-time employees by the end of 2006. As of September 30, 2006, 160 employees had accepted voluntary termination and approximately 50 positions have been identified for involuntary termination to occur through December 31, 2006. The separation costs for these employees are included in the $8.7 million charge discussed above. The Company realized the remainder of the targeted workforce reduction through attrition.

Approximately $8.1 million of the $8.7 million total charges described above will be paid during 2006. The remaining $0.6 million is expected to be paid by December 31, 2007. Amounts to be paid in 2007 largely relate to certain involuntary terminations expected to occur in the fourth quarter of 2006 and the continuation of certain benefit coverage under the Company’s termination plan and practices. The reorganization accrual is included in “Accounts payable and accrued expenses” in the Condensed Consolidated Balance Sheet at September 30, 2006.

10

SUN-TIMES MEDIA GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited) — (Continued)

The following summarizes the termination benefits recorded and reconciles such charges to accrued expenses at September 30, 2006 (in thousands):

Charges for workforce reductions	$	9,027
Reduction to expense(1)		(319	)
Cash payments		(5,840	)
Accrued expenses	$	2,868

(1) In the second quarter of 2006, the Company reduced its original restructuring estimate to reflect the placement of 10 employees, originally identified for termination, into other positions that were vacated through attrition.

Incremental depreciation expense of approximately $0.7 million and $1.3 million has also been recognized in the three and nine month periods ended September 30, 2006 related to the printing facility the Company expects to close during the fourth quarter of 2006. The additional depreciation is expected to reduce the net book value of the related assets (largely building and improvements) to their expected salvage or net fair values at the time of the expected closing.

In the third quarter of 2006, the Company announced the closing of its New York corporate office by the end of 2006 and will relocate its three remaining New York-based corporate functions to its Chicago headquarters. The move reflects the actions taken over the past two years which have established Sun-Times News Group (“STNG”) as the sole operating division of the Company, as well as the expected completion of the reorganization and consolidation of STNG in the fourth quarter of this year.

To help facilitate the relocation of the remaining New York-based corporate functions to the Chicago headquarters, the current Chief Executive Officer (“CEO”) will transition out of his role at the end of the year. The Board of Directors has commenced a search for a replacement CEO to be based in Chicago. In addition, the Company’s New York-based Vice President, General Counsel and Secretary will leave at the end of the year and be succeeded by the current Assistant General Counsel, who has been based in Chicago since January 2005. The Company recognized expenses related to the closing of the New York office for severance and benefits of $4.0 million and $4.7 million for the three and nine months ended September 30, 2006, respectively, and $0.2 million of other costs for the three and nine months ended September 30, 2006.

Also in the third quarter, the Company developed a plan to close its printing plant, located in Gary, Indiana, in mid-2007 and move its printing operations to other STNG printing facilities in stages, beginning in late 2006. The Company has recognized a charge of approximately $0.1 million related to the facility and recorded incremental depreciation of approximately $0.7 million in the third quarter of 2006. Similar depreciation amounts are expected quarterly through June 2007. No significant separation costs are expected due to the closing.

Note 5 — Stock-based Compensation

Effective January 1, 2006, the Company adopted SFAS No. 123R, “Share-Based Payment” (“SFAS No. 123R”), requiring that stock-based compensation payments, including grants of employee stock options, be recognized in the consolidated financial statements over the service period (generally the vesting period) based on their fair value. The Company elected to use the modified prospective transition method. Therefore, prior results were not restated. Under the modified prospective method, stock-based compensation is recognized for new awards, the modification, repurchase or cancellation of awards and the remaining portion of service under previously granted, unvested awards outstanding as of adoption. The Company treats all stock-based awards as a single award for recognition and valuation purposes and recognizes compensation cost on a straight-line basis over the requisite service period.

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SUN-TIMES MEDIA GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited) — (Continued)

As a result of the adoption of SFAS No. 123R, the Company recognized pre-tax stock-based option compensation of $0.1 million expense and $0.5 million expense, or $nil and $0.01 per basic and diluted share for the three and nine months ended September 30, 2006, respectively, for the unvested portion of previously issued stock options that were outstanding at January 1, 2006, adjusted for the impact of estimated forfeitures. The Company recognized pre-tax stock-based compensation expense for options and DSU’s of $0.4 million and $1.4 million as a component of compensation costs for the three and nine months ended September 30, 2006, respectively.

If the Company had used the fair value-based method of accounting, net earnings and earnings per share for the three and nine months ended September 30, 2005 would have been adjusted to the pro forma amounts listed in the table below.

	Three Months			Nine Months
	Ended			Ended
	September 30,			September 30,
	2005			2005
	(In thousands, except per
	share amounts)
Loss from continuing operations, as reported	$	(10,759	)	$	(51,701	)
Add: stock-based compensation expense, as reported		197			859
Deduct: pro forma stock-based compensation expense		(575	)		(1,816	)
Pro forma loss from continuing operations	$	(11,137	)	$	(52,658	)
Basic and diluted loss from continuing operations per share, as reported	$	(0.12	)	$	(0.57	)
Pro forma basic and diluted loss from continuing operations per share	$	(0.12	)	$	(0.58	)

Tax benefits with respect to the stock-based compensation expense are not material as, generally, either: (i) related compensation exceeds certain deductibility limits for income tax purposes; or, (ii) the grantees are non-U.S. former employees for which the Company cannot reliably determine the amount or timing of any earnings reported by the grantee to taxing authorities (which must be determined in order for the Company to derive a tax benefit).

Stock Options

In 1999, the Company adopted the Hollinger International Inc. 1999 Stock Incentive Plan (“1999 Stock Plan”) which provides for awards of up to 8,500,000 shares of Class A Common Stock. 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 Class A Common Stock on the date of grant of such option. The maximum term of the options granted under the 1999 Stock Plan is 10 years and the options vest ratably, over two or four years.

Effective May 1, 2004, the Company suspended option exercises under its stock option plans until such time that the Company’s SEC registration statement with respect to these shares would again become effective (the “Suspension Period”). The suspension did not affect the vesting schedule with respect to previously granted options. In addition, the terms of the option plans generally provide that participants have 30 days following the date of termination of employment with the Company to exercise options that are exercisable on the date of termination. Participants in the stock incentive plans whose employment had been terminated were provided with 30 days following the lifting of the Suspension Period to exercise options that were vested at the termination of their employment. The extension of the exercise period constituted a modification of the awards, but did not affect, or extend, the contractual life of the options.

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SUN-TIMES MEDIA GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited) — (Continued)

On April 27, 2006, the Company filed with the SEC a Form S-8 registering shares to be issued under the 1999 Stock Plan and the registration statements for the Company’s stock incentive plans were effective as of that date. The Company notified option grantees that the Suspension Period would end on May 1, 2006 related to vested options under the Company’s stock incentive plans.

Stock option activity with respect to the Company’s stock option plans was as follows:

				Weighted-			Weighted-
				Average			Average		Aggregate
	Number of			Exercise			Remaining		Intrinsic
	Options			Price			Term		Value
							(Months)		(In thousands)
Options outstanding at December 31, 2005		4,211,580		$	8.19
Options granted		—		$	—
Options exercised		(1,472,907	)	$	(7.25	)			$	1,047
Options forfeited		(1,661,916	)	$	(9.04	)
Options expired		(5,653	)	$	(6.87	)
Other adjustments		15,316		$	7.70
Options outstanding at September 30, 2006		1,086,420		$	8.16			54	$	—
Options exercisable at September 30, 2006		1,021,078		$	8.25			52	$	—

The fair value of stock options was estimated using the Black-Scholes option-pricing model and compensation expense is recognized on a straight-line basis over the remaining vesting period of such awards. As the Company has not granted any new stock options after 2003, the expense recognized for the three and nine months ended September 30, 2006 represents the service expense related to previously granted, unvested awards. At September 30, 2006, the Company had $0.1 million of total unrecognized compensation cost related to non-vested options. This cost is expected to be recognized through January 2007.

SFAS No. 123R requires the recognition of stock-based compensation for the number of awards that are ultimately expected to vest. Upon the adoption of SFAS No. 123R, the Company recognized an immaterial one-time gain based on SFAS No. 123R’s requirement to apply an estimated forfeiture rate to unvested awards. As a result, stock compensation expense was reduced for estimated forfeitures expected prior to vesting. Estimated forfeitures are based on historical forfeiture rates and approximated 8%. Estimated forfeitures will be reassessed in subsequent periods and the estimate may change based on new facts and circumstances. Prior to January 1, 2006, actual forfeitures were included in pro forma stock compensation disclosures as they occurred.

Prior to the adoption of SFAS No. 123R, the Company accounted for stock options and DSU’s granted to employees and directors using the intrinsic value-based method of accounting. Stock options granted to employees of The Ravelston Corporation Limited, the parent company of Hollinger, Inc., were accounted for in accordance with Financial Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation — an interpretation of APB Opinion No. 25”, using the fair-value based method and recorded as dividends in-kind.

Review of Past Stock Option Practices

The Company is conducting an investigation into stock option awards to executives and key employees through 2003, when the Company ceased granting stock options. The investigation is being conducted by the Special Committee of the Board of Directors. While the investigation is not yet complete, preliminary results indicate that the grant dates on some stock option awards were misdated between 1999 and 2002. Based upon the preliminary results, management believes that the amounts involved in these option awards will not have a material impact on the Company’s results of operations or financial position for the relevant periods. The Company has not

13

SUN-TIMES MEDIA GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited) — (Continued)

yet determined whether any of these instances of option misdating were intentional, which may also impact the determination as to whether restatement of affected prior year financial statements is required.

Deferred Stock Units

Pursuant to the 1999 Stock Plan, the Company issues DSU’s that are convertible into one share of Class A Common Stock at the holder’s option. The value of the DSU’s on the date of issuance is recognized as employee compensation expense over the vesting period or through the grantee’s eligible retirement date, if shorter. The DSU’s are reflected in the basic earnings per share computation upon vesting. As of September 30, 2006, 323,608 DSU’s are fully vested and the Company has approximately $2.2 million of unrecognized compensation cost related to non-vested DSU’s. All non-vested DSU’s have a contractual vesting period of four years and the remaining unrecognized compensation cost is expected to be recognized through 2009.

Non-vested DSU activity was as follows:

				Weighted-Average					Aggregate
	Number of			Grant Date			Weighted-Average		Intrinsic
	Units			Fair Value			Remaining Term		Value
							(Months)		(In thousands)
Unvested at December 31, 2005		357,000		$	9.50
DSU’s granted		43,484		$	7.59
DSU’s vested		(73,885	)	$	(9.15	)			$	676
DSU’s forfeited		(26,339	)	$	(10.01	)
Unvested at September 30, 2006		300,260		$	9.50			35	$	1,976

Note 6 — Earnings (Loss) Per Share

Basic earnings (loss) per share is calculated by dividing net earnings (loss) by the weighted average number of common stock equivalents outstanding during the period. Diluted earnings (loss) per share is calculated by dividing net earnings (loss) after assumed conversion of dilutive securities by the sum of the weighted average number of common shares outstanding plus all additional common shares that would have been outstanding if potentially dilutive common shares had been issued. In certain periods, diluted earnings (loss) per share is the same as basic net earnings (loss) per share because dilutive securities are not used in the calculation if to do so would have been anti-dilutive. The number of potentially dilutive securities comprised of shares issuable in respect of stock options and DSU’s at September 30, 2006 and 2005, was approximately 1.4 million and 4.6 million, respectively.

The following tables reconcile the numerator and denominator for the calculation of basic and diluted earnings (loss) per share from continuing operations for the three and nine month periods ended September 30, 2006 and 2005:

	Three Months Ended September 30, 2006
	Loss			Shares		Per-Share
	(Numerator)			(Denominator)		Amount
	(In thousands, except per share amounts)
Basic EPS
Loss from continuing operations	$	(34,865	)		80,853	$	(0.43	)
Effect of dilutive securities		—			—		—
Diluted EPS
Loss from continuing operations	$	(34,865	)		80,853	$	(0.43	)

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SUN-TIMES MEDIA GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited) — (Continued)

	Three Months Ended September 30, 2005
	Loss			Shares		Per-Share
	(Numerator)			(Denominator)		Amount
	(In thousands, except per share amounts)
Basic EPS
Loss from continuing operations	$	(10,759	)		90,878	$	(0.12	)
Effect of dilutive securities		—			—		—
Diluted EPS
Loss from continuing operations	$	(10,759	)		90,878	$	(0.12	)

	Nine Months Ended September 30, 2006
	Loss			Shares		Per-Share
	(Numerator)			(Denominator)		Amount
	(In thousands, except per share amounts)
Basic EPS
Loss from continuing operations	$	(41,337	)		85,679	$	(0.48	)
Effect of dilutive securities		—			—		—
Diluted EPS
Loss from continuing operations	$	(41,337	)		85,679	$	(0.48	)

	Nine Months Ended September 30, 2005
	Loss			Shares		Per-Share
	(Numerator)			(Denominator)		Amount
	(In thousands, except per share amounts)
Basic EPS
Loss from continuing operations	$	(51,701	)		90,871	$	(0.57	)
Effect of dilutive securities		—			—		—
Diluted EPS
Loss from continuing operations	$	(51,701	)		90,871	$	(0.57	)

Note 7 — Segment Information, Discontinued Operations and Dispositions

The Company operates principally in the business of publishing, printing and distributing newspapers and magazines. The Sun-Times News Group includes the Chicago Sun-Times, Post Tribune, Daily Southtown and other city and suburban newspapers in the Chicago metropolitan area. The Company’s business is organized and managed within a single operating segment, the Sun-Times News Group. In addition, the Company’s operating performance, results of operations and financial condition have been, and may in the future be, materially affected by two administrative functions, the Canadian Administrative Group and the Investment and Corporate Group. In particular, significant legal fees and other investigation and compliance related expenses are reflected in the administrative functions.

On December 19, 2005, the Company announced that its subsidiary, Hollinger Canadian Publishing Holdings Co. (“HCPH Co.”), entered into agreements to sell its 70% interest in Great West Newspaper Group Ltd. and its 50% interest in Fundata Canada Inc. (“Fundata”) for approximately $40.5 million. The transaction closed on December 30, 2005. Great West Newspaper Group Ltd. is a Canadian community newspaper publishing company which publishes 16 titles, mostly in Alberta. Fundata is a Toronto-based provider of mutual fund data and analysis.

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SUN-TIMES MEDIA GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited) — (Continued)

On February 6, 2006, the Company completed the sale of substantially all of its remaining Canadian operating assets, consisting of, among other things, approximately 87% of the outstanding equity units of Hollinger L.P. and all of the shares of Hollinger Canadian Newspapers GP Inc., Eco Log Environmental Risk Information Services Ltd. and KCN Capital News Company, for an aggregate sale price of $106.0 million, of which approximately $17.5 million was placed in escrow ($18.4 million including interest and currency translation adjustments as of September 30, 2006). A majority of the escrow may be held up to seven years, and will be released to either the Company, Glacier Ventures International Corp. (the purchaser) or CanWest Global Communications Corp. (“CanWest”) upon a final award, judgment or settlement being made in respect of certain pending arbitration proceedings involving the Company, its related entities and CanWest. In addition, the Company received $4.3 million in the second quarter of 2006, and received an additional $2.8 million in July 2006, related to working capital and other adjustments. The Company recognized a gain on sale of approximately $14.7 million, net of taxes, which is included in “Gain from disposal of business segment” in the Condensed Consolidated Statements of Operations for the nine month period ended September 30, 2006. For the one month ended January 31, 2006 and the nine months ended September 30, 2005, revenue for the disposal group was $5.6 million and $72.6 million, respectively, and income before taxes and minority interest was $0.2 million and $15.7 million, respectively.

In the second quarter of 2006, the Company recorded an additional gain of $0.5 million, net of taxes, on the sale of The Daily Telegraph, The Sunday Telegraph, The Weekly Telegraph, telegraph.co.uk, and The Spectator and Apollo magazines (collectively, the “Telegraph Group”) largely related to additional tax losses surrendered to the purchaser.

The Company has reflected the Canadian operating assets sold on December 19, 2005 and February 6, 2006, representing substantially all of the remaining Canadian newspaper assets, or the “Canadian Newspaper Operations”, as discontinued operations in accordance with SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”). Remaining administrative activities and assets and liabilities, largely related to pension, post-employment and post-retirement plans, are presented in continuing operations under the “Canadian Administrative Group” function.

In May 2006, the Company received $8.2 million from the sale of Hollinger Digital LLC and received $1.7 million in July 2006 from sales of additional investments identified in the agreement. The Company also may receive up to an additional $1.0 million in the future if certain conditions are satisfied. The Hollinger Digital LLC transaction resulted in a pre-tax gain of approximately $0.3 million and a pretax loss of $0.3 million for the three and nine months ended September 30, 2006, respectively, which is included in “Other income (expense)” in the Condensed Consolidated Statements of Operations.

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SUN-TIMES MEDIA GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited) — (Continued)

The following is a summary of the segmented financial data of the Company:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
Sun-Times News Group	2006			2005			2006			2005
	(In thousands)
Operating revenue:
Advertising	$	76,371		$	88,918		$	238,880		$	265,513
Circulation		19,845			21,577			61,739			66,344
Job printing and other		2,835			3,095			8,247			8,834
Total operating revenue		99,051			113,590			308,866			340,691
Operating costs and expenses:
Newsprint		15,076			17,201			47,220			50,745
Compensation		43,173			44,069			141,141			133,560
Other operating costs		33,117			32,654			97,967			96,815
Depreciation		6,041			4,595			16,258			13,604
Amortization		3,141			3,203			8,784			8,920
Total operating costs and expenses		100,548			101,722			311,370			303,644
Segment operating income (loss)		(1,497	)		11,868			(2,504	)		37,047
Administrative groups operating loss		(20,921	)		(19,697	)		(57,895	)		(64,881	)
Consolidated operating loss	$	(22,418	)	$	(7,829	)	$	(60,399	)	$	(27,834	)
Equity in loss of affiliates	$	(52	)	$	(75	)	$	(169	)	$	(1,030	)
Total assets							$	494,897		$	524,177
Capital expenditures							$	5,725		$	12,416

Note 8 — Other Income (Expense), Net

	Three Months						Nine Months
	Ended						Ended
	September 30,						September 30,
	2006			2005			2006			2005
	(In thousands)
Equity in losses of affiliates	$	(52	)	$	(75	)	$	(169	)	$	(1,030	)
Legal settlement		—			(800	)		—			(800	)
Gain (loss) on sale of investments		548			—			(75	)		2,549
Foreign currency gains (losses), net		(20	)		(1,660	)		1,003			(4,634	)
Other		(2	)		35			(166	)		(93	)
	$	474		$	(2,500	)	$	593		$	(4,008	)

Note 9 — Income Taxes

Income taxes were an expense of $16.8 million and $2.8 million for the three months ended September 30, 2006 and 2005, respectively. For the nine months ended September 30, 2006 and 2005, income taxes were a benefit of $6.2 million and an expense of $28.1 million, respectively. The Company’s income tax expense varies substantially from the U.S. Federal statutory rate primarily due to provisions or recoveries related to contingent liabilities including interest the Company may be required to pay in various tax jurisdictions. Provisions for interest

17

SUN-TIMES MEDIA GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited) — (Continued)

amounted to $18.7 million and $13.8 million for the three months ended September 30, 2006 and 2005, respectively, and $50.1 million and $38.9 million for the nine months ended September 30, 2006 and 2005, respectively. In addition, for the three and nine months ended September 30, 2006, the Company recorded a tax benefit of $0.2 million and $43.2 million, respectively, resulting from the reversal of certain contingent tax liabilities which were no longer deemed necessary as the relevant statute of limitations periods had lapsed. During the three months ended September 30, 2006, the Company recorded a provision of $3.5 million for additional tax contingencies.

The Company has recorded accruals to cover certain currently unresolved tax issues (both U.S. and foreign). Such contingent liabilities relate to additional taxes and interest the Company may be required to pay in various tax jurisdictions. At December 31, 2005 accruals to cover contingent liabilities aggregated approximately $920.5 million. During the course of examinations by various taxing authorities, adjustments or proposed adjustments may be asserted. The Company evaluates such items on a case by case basis and adjusts the accrual for contingent liabilities as deemed necessary.

A substantial portion of the accruals to cover contingent liabilities for income taxes relate to the tax treatment of gains on the sale of a portion of the Company’s non-U.S. operations. 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 condensed consolidated financial statements. The accruals to cover contingent tax liabilities also relate to management fees, “non-competition” payments and other items that have been deducted in arriving at taxable income that may be disallowed by taxing authorities.

Note 10 — Disputes, Investigations and Legal Proceedings with Former Executive Officers and Directors

The Company is involved in a series of disputes, investigations and legal proceedings relating to transactions between the Company and certain former executive officers and directors of the Company and their affiliates. The potential impact of these disputes, investigations and legal proceedings on the Company’s financial condition and results of operations cannot currently be estimated. Costs incurred as a result of the investigation by the Special Committee and related litigation involving Conrad M. Black (“Black”) and others are reflected in “Other operating costs” in the Condensed Consolidated Statements of Operations. These costs primarily consist of legal and other professional fees as summarized in the following table.

					Nine Months
	Three Months Ended				Ended				Incurred Since
	September 30,				September 30,				Inception through
	2006		2005		2006		2005		September 30, 2006(5)
	(In thousands)
Special Committee’s work(1)	$	1,633	$	4,749	$	3,076	$	15,821	$	55,798
Litigation costs(2)		896		976		5,100		3,714		25,669
Indemnification fees and costs(3)		4,216		3,662		12,422		12,282		55,411
Recoveries(4)		—		—		—		—		(32,375	)
	$	6,745	$	9,387	$	20,598	$	31,817	$	104,503

(1)

Costs and expenses arising from the Special Committee’s work. These amounts include the fees and costs of the Special Committee’s members, counsel, advisors and experts.

(2)

Largely represents legal and other professional fees to defend the Company in litigation that has arisen as a result of the issues the Special Committee has investigated, including costs to defend the counterclaims of Hollinger Inc. and Black in the Delaware litigation. Litigation costs include $3.5 million paid to Tweedy Browne Company, LLC in May 2006, in settlement for legal fees related to matters investigated by the Special Committee.

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SUN-TIMES MEDIA GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited) — (Continued)

(3)	Represents amounts the Company has been required to advance in fees and costs to indemnified parties, including the indirect controlling stockholders and their affiliates and associates who are defendants in the litigation largely brought by the Company.
(4)	Represents recoveries directly resulting from the Special Committee’s activities including approximately $30.3 million in a settlement with Torys LLP and $2.1 million in recoveries of indemnification payments from Black in 2005. Excludes settlements with former directors and officers, pursuant to a restitution agreement reached in November 2003, of approximately $1.7 million and $31.5 million in 2004 and 2003, respectively.
(5)	The Special Committee was formed on June 17, 2003. These amounts represent the cumulative costs of the Special Committee investigation.

Note 11 — Pension and Post-retirement Benefits

  (a)   Components of Net Periodic Benefit Cost

	Three Months Ended September 30,
	2006			2005			2006			2005
	Pension Benefits						Other Benefits
	(In thousands)
Service cost	$	413		$	529		$	5		$	9
Interest cost		4,543			4,410			341			339
Expected return on plan assets		(6,164	)		(5,346	)		—			—
Amortization of transition obligation		28			28			—			—
Amortization of prior service cost		49			48			—			—
Amortization of net (gain) loss		641			793			(26	)		(55	)
Net periodic cost (income)	$	(490	)	$	462		$	320		$	293

	Nine Months Ended September 30,
	2006			2005			2006			2005
	Pension Benefits						Other Benefits
	(In thousands)
Service cost	$	1,322		$	1,567		$	14		$	16
Interest cost		13,878			13,057			1,013			984
Expected return on plan assets		(18,782	)		(15,814	)		—			—
Amortization of transition obligation		84			84			—			—
Amortization of prior service cost		149			142			—			—
Amortization of net (gain) loss		1,885			2,355			(77	)		(160	)
Net periodic cost (income)	$	(1,464	)	$	1,391		$	950		$	840

  (b)   Employer Contributions

Defined Benefit Plans

For the nine months ended September 30, 2006, an aggregate of approximately $1.6 million of contributions have been made to the domestic and foreign defined benefit plans, all in cash. The Company contributed approximately $6.1 million to fund its defined benefit pension plans in 2005 and expects to contribute approximately $3.0 million in 2006.

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SUN-TIMES MEDIA GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited) — (Continued)

Defined Contribution Plans

For the nine months ended September 30, 2006, approximately $2.6 million of contributions have been made to the Company’s domestic defined contribution benefit plans, all in cash, with no further contributions expected in 2006. The Company contributed approximately $2.5 million to its domestic defined contribution plans in 2005.

Post-Retirement Plans

For the nine months ended September 30, 2006, approximately $1.8 million of contributions have been made to the Company’s post-retirement plans, all in cash. The Company contributed approximately $2.4 million to fund its post-retirement plans in 2005 and expects to contribute approximately $2.4 million in 2006.

Note 12 — Commitments and Contingencies

The Company becomes involved from time to time in various claims and lawsuits incidental to the ordinary course of business, including such matters as libel, defamation and privacy actions. In addition, the Company is involved from time to time in various governmental and administrative proceedings with respect to employee terminations and other labor matters, environmental compliance, tax and other matters. Management believes that the outcome of any such pending claims or proceedings incidental to the ordinary course of business will not have a material adverse effect on the Company taken as a whole.

As discussed in Note 10, the Company is also subject to numerous disputes, investigations and legal proceedings with former executive officers and certain current and former directors. For a detailed discussion of these legal proceedings, see “Item 3 — Legal Proceedings” of the Company’s 2005 10-K.

Primarily in connection with the Company’s insurance programs, letters of credit are required to support certain projected workers’ compensation obligations and reimbursement of claims paid by a third party administrator. At September 30, 2006, letters of credit in the amount of $9.6 million were outstanding for which the Company maintained compensating deposits with the issuer of $7.3 million.

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SUN-TIMES MEDIA GROUP, INC. AND SUBSIDIARIES

Item 2 — Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

OVERVIEW

The Company’s advertising revenue experiences seasonality with the first quarter typically being the lowest. Due to the recent decreasing revenue trend, advertising revenue for the third quarter of 2006 is lower than advertising revenue for the first quarter of 2006. The Company’s revenue is primarily derived from the sale of advertising space within the Company’s publications. Advertising revenue accounted for approximately 77% of the Company’s consolidated revenue for the nine months ended September 30, 2006. Advertising revenue is comprised of three primary sub-groups: retail, national and classified. Advertising revenue is subject to changes in the economy on both a national and local level and in individual business sectors. Advertising revenue is recognized upon publication of the advertisement.

Approximately 20% of the Company’s consolidated revenue for the nine months ended September 30, 2006 was generated by circulation of the Company’s publications. This includes sales of publications to individuals on a single copy or subscription basis and to sales outlets, which then re-sell the publications. The Company recognizes circulation revenue from subscriptions on a straight-line basis over the subscription term and single-copy sales at the time of distribution. The Company also generates revenue from job printing and other activities which are recognized upon delivery.

Significant expenses for the Company are compensation and newsprint. Compensation expense, which includes benefits, was approximately 41% of the Company’s total operating costs for the nine months ended September 30, 2006. Compensation costs are recognized as employment services are rendered. Newsprint costs represented approximately 13% of the Company’s total operating costs for the nine months ended September 30, 2006. Newsprint prices are subject to fluctuation as newsprint is a commodity. Newsprint costs are recognized upon consumption.

RECENT BUSINESS DEVELOPMENTS

Significant Developments in 2006

In January 2006, the Company announced a reorganization of its operations aimed at accelerating and enhancing its strategic growth and improving its operating results. The plan included a targeted 10% reduction in full-time staffing levels. Certain of the costs directly associated with the reorganization included voluntary and involuntary termination benefits. Such Sun-Times News Group costs, amounting to $8.7 million for the nine months ended September 30, 2006 (and an additional $6.8 million in severance not related directly to the reorganization of which $1.6 million and $5.2 million are reflected in the Sun-Times News Group and the Investment and Corporate Group results of operations, respectively) are included in “Compensation” expenses in the accompanying Condensed Consolidated Statement of Operations. These estimated costs have been recognized in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 88 (as amended) “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits” related to incremental voluntary termination severance benefits and SFAS No. 112 “Employers’ Accounting for Postemployment Benefits” for the involuntary, or base, portion of termination benefits under the Company’s established termination plan and practices.

The reorganization targeted a net workforce reduction of approximately 260 full-time employees by the end of 2006. As of September 30, 2006, 160 employees had accepted voluntary termination and approximately 50 positions have been identified for involuntary separation to occur through December 31, 2006. The Company realized the remainder of the targeted workforce reduction through attrition.

On February 6, 2006, the Company completed the sale of substantially all of its remaining Canadian operating assets (“Canadian Newspaper Operations”), consisting of, among other things, approximately 87% of the outstanding equity units of Hollinger L.P. and all of the shares of Hollinger Canadian Newspapers GP Inc., Eco Log Environmental Risk Information Services Ltd. and KCN Capital News Company, for an aggregate sale price of $106.0 million, of which approximately $17.5 million was placed in escrow ($18.4 million including

21

interest and foreign exchange effects as of September 30, 2006). A majority of the escrow may be held up to seven years, and will be released to either the Company, Glacier Ventures International Corp. (the purchaser) or CanWest GlobalCommunications Corp. (“CanWest”) upon a final award, judgment or settlement being made in respect of certain pending arbitration proceedings involving the Company, its related entities and CanWest. In addition, the Company received $4.3 million in the second quarter of 2006, and received an additional $2.8 million in July 2006, related to working capital and other adjustments. The Company recognized a gain on sale of approximately $14.7 million, net of taxes, which is included in “Gain from disposal of business segment” in the Condensed Consolidated Statements of Operations for the nine month period ended September 30, 2006.

On March 15, 2006, the Company announced that its Board of Directors had authorized the repurchase of up to an aggregate value of $50.0 million of the Company’s common stock in the open market and privately negotiated transactions. The stock purchase program began following the filing of the 2005 10-K on March 31, 2006. As of May 5, 2006, the Company completed this program, purchasing an aggregate of approximately 6.2 million shares for approximately $50.0 million, including related transaction fees.

On April 27, 2006, the Company filed with the SEC a Form S-8 registering shares to be issued under the 1999 Stock Plan and the registration statements for the Company’s stock incentive plans were effective as of that date. The Company notified option grantees that the suspension of option exercises that had been in effect since May 1, 2004 (the “Suspension Period”) would end on May 1, 2006 related to vested options under the Company’s stock incentive plans. Participants of the stock incentive plans whose employment had been terminated received 30 days following the lifting of the Suspension Period to exercise options that were vested at the termination of their employment. During this period, current and former employees and Directors exercised approximately 1.4 million options and approximately 1.6 million options expired after the 30 day period. The shares related to options exercised were issued from the Company’s treasury stock.

On May 17, 2006, the Company announced that its Board of Directors authorized the repurchase of common stock utilizing approximately $8.2 million of proceeds from the sale of Hollinger Digital LLC (see Note 7) and $9.6 million of proceeds from stock options exercised in 2006. In addition, on June 13, 2006 the Company announced that its Board of Directors had authorized an additional $50.0 million for the repurchase of common stock. Through September 30, 2006, the Company repurchased approximately 6.0 million shares for approximately $45.7 million, including related transaction fees, out of the $67.8 million authorized subsequent to the program announced on March 15, 2006.

On June 13, 2006, the shareholders approved the amendment of the Hollinger International Inc. Restated Certificate of Incorporation, changing the Company’s name to Sun-Times Media Group, Inc., which became effective on July 17, 2006. The Company’s stock symbol on the New York Stock Exchange changed from HLR to SVN.

On June 13, 2006, the Company announced Raymond G.H. Seitz was elected non-Executive Chairman of the Board of Directors. Gordon A. Paris, the previous Chairman, retained the position of President and Chief Executive Officer.

On July 13, 2006, Stanley M. Beck and Randall C. Benson submitted their resignations from the Company’s Board of Directors.

On September 13, 2006, the Company announced that it intends to close its New York corporate office by the end of 2006 and will relocate its three remaining New York-based corporate functions to its Chicago headquarters. The move reflects the actions taken over the past two years which have established Sun-Times News Group (“STNG”) as the sole operating division of the Company, as well as the expected completion of the reorganization and consolidation of STNG in the fourth quarter of this year. The current Chief Executive Officer (“CEO”) will transition out of his role at the end of the year. The Board of Directors has commenced a search for a CEO to be based in Chicago. Along with the CEO, the Company’s New York-based Vice President, General Counsel and Secretary will leave at the end of the year and be succeeded by the current Assistant General Counsel, who has been based in Chicago since January 2005. See Note 4 to the condensed consolidated financial statements.

Newspaper print advertising declined approximately 9.7% during the third quarter and 6.7% for the nine months ended September 30, 2006 for the greater Chicago market versus the comparable periods in 2005.

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Advertising revenue for the Sun-Times News Group declined approximately 14.1% and 10.0% for the three and nine months ended September 30, 2006, respectively, compared to the same periods in 2005. Based on these market conditions and the potential of these negative trends continuing, the Company is considering a range of options to address the resulting significant shortfall in performance and cash flow, including a review of the Company’s dividend policy.

Critical Accounting Policies and Estimates

There have been no significant changes in the Company’s critical accounting policies and estimates in the nine month period ended September 30, 2006. For a discussion of these policies and estimates, refer to the Company’s 2005 10-K.

CONSOLIDATED RESULTS OF OPERATIONS

General

During December 2005 and February 2006, the Company sold its Canadian Newspaper Operations. In this quarterly report, the Canadian Newspaper Operations are reported as discontinued operations. All amounts in this “Management’s Discussion And Analysis Of Financial Condition And Results Of Operations” relate to continuing operations, unless otherwise noted. See Note 7 to the condensed consolidated financial statements.

Loss from Continuing Operations

Loss from continuing operations in the third quarter of 2006 amounted to $34.9 million, or $0.43 per share, compared to a loss of $10.8 million in the third quarter of 2005, or $0.12 per share. The increase in loss from continuing operations for the quarter of $24.1 million is largely due to a decline in operating revenue of $14.5 million, increases in professional fees of $3.9 million and severance expense of $4.6 million, somewhat offset by lower costs of $2.6 million with respect to the Special Committee and its investigation and related litigation. Special Committee costs, which amounted to $6.7 million and $9.4 million during the three months ended September 30, 2006 and 2005, respectively, include: 1) costs and expenses arising from the Special Committee’s work; 2) legal and professional fees to defend the Company in litigation as a result of the Special Committee’s investigation; and 3) costs the Company has been required to advance to indemnified parties. See Note 10 to the condensed consolidated financial statements.

The loss from continuing operations for the nine months ended September 30, 2006 was $41.3 million, or $0.48 per share, compared with a loss of $51.7 million or $0.57 per share for the nine months ended September 30, 2005. The reduction of loss from continuing operations in the first nine months of 2006 as compared to 2005 is largely due to a $34.2 million reduction in income tax expense principally resulting from the reversal of certain contingent tax liabilities no longer deemed necessary amounting to $43.2 million, lower costs of $11.2 million with respect to the Special Committee and its investigation and related litigation, lower newsprint costs of $3.5 million and improved total other income (expense) of $8.7 million, largely offset by a decline in operating revenue of $31.8 million and severance expense of $15.5 million recorded in 2006, of which $8.7 million relates to reorganization activities (see Note 4 to the condensed consolidated financial statements). During the nine month periods ended September 30, 2006 and 2005, Special Committee and related litigation costs aggregated $20.6 million and $31.8 million, respectively.

Operating Revenue and Operating Loss

Operating revenue and operating loss in the third quarter of 2006 were $99.1 million and $22.4 million, respectively, compared with operating revenue of $113.6 million and an operating loss of $7.8 million in the third quarter of 2005. The decrease in operating revenue of $14.5 million compared with the prior year is largely due to a $12.5 million decrease in advertising revenue reflecting particular weakness in automotive and entertainment sectors, temporary disruptions in sales efforts resulting from the reorganization and reassignment of customers and sales territories and the lingering negative effects at the Chicago Sun-Times on pricing and volume related to lower reported circulation, largely attributable to the circulation misstatements in prior years. In addition, the Company

23

had lower circulation revenue of $1.7 million, and lower job printing and other revenue of $0.3 million in the third quarter. Slightly more than one-half of the circulation revenue decline is attributable to the Chicago Sun-Times.

The $14.6 million increase in operating loss in the third quarter of 2006 is primarily due to the decreased revenue described above and increased legal and professional fees of $3.9 million (largely internal audit and compliance related fees) and increased severance costs of $4.6 million, partially offset by lower costs incurred with respect to Special Committee and related litigation activities of $2.6 million, lower newsprint costs of $2.1 million, and lower wages and benefit costs of $4.3 million.

Operating revenue and operating loss for the nine months ended September 30, 2006 were $308.9 million and $60.4 million, respectively, compared with $340.7 million and $27.8 million, respectively, for the nine months ended September 30, 2005. The $31.8 million decrease in total revenue is due to lower advertising revenue of $26.6 million reflecting particular weakness in automotive and entertainment sectors, temporary disruptions in sales efforts resulting from the reorganization and reassignment of customers and sales territories and the lingering negative effects at the Chicago Sun-Times on pricing and volume related to lower reported circulation, largely attributable to the circulation misstatements in prior years. In addition, the Company had lower circulation revenue of $4.6 million, and lower job printing and other revenue of $0.6 million. Slightly more than one-half of the circulation revenue decline is attributable to the Chicago Sun-Times.

The increase in operating loss for the three months ended September 30, 2006 of $32.6 million is largely due to the above mentioned decrease in total revenue. Also reflected in the higher operating loss are increased separation costs of $15.5 million including $8.7 million related to the Company’s reorganization program, increased legal and professional fees of $7.5 million (largely internal audit and compliance related fees) and a $2.0 million expense to record an estimated liability for unclaimed property. These increases in expenses were partially offset by lower costs incurred with respect to the Special Committee and related litigation of $11.2 million, lower insurance premiums of $1.8 million, decreases in wages and benefits of $2.8 million at the Sun-Times News Group and $4.1 million in the Corporate and Investment Group reflective of the transition of the finance function from Toronto to Chicago resulting in retention and duplicative costs in 2005, lower newsprint costs of $3.5 million.

Operating Costs and Expenses

Total operating costs and expenses increased by $0.1 million to $121.5 million for the three months ended September 30, 2006 from $121.4 million for the same period in 2005. Newsprint decreased by $2.1 million due to 22% lower consumption, largely offset by a 13% increase in average cost per metric ton. Other operating costs increased by $0.5 million, reflecting higher legal and professional fees (largely internal audit and compliance related fees) of $3.9 million, partially offset by lower Special Committee and related litigation costs of $2.6 million, a decrease in bad debt expense of $0.6 million and lower insurance costs of $0.3 million, primarily directors and officers liability. Depreciation and amortization expense increased $1.5 million to $9.4 million in the third quarter of 2006 compared to $7.9 million in the same period in 2005 largely due to incremental depreciation related to the scheduled closing of two printing plants.

For the nine months ended September 30, 2006, total operating costs and expenses increased by $0.7 million to $369.3 million from $368.5 million in 2005, largely due to higher stock-based compensation of $0.5 million, reorganization costs of $8.7 million, non-reorganization separation costs of $6.8 million, increased marketing and advertising expense of $1.1 million, the write-off of fixed assets of $0.9 million, $2.0 million expense to record an estimated liability for unclaimed property, depreciation and amortization expense of $2.4 million, largely due to the closings mentioned above and increased legal and professional fees (largely internal audit and compliance related fees) of $7.5 million, partially offset by the decrease in Special Committee and related litigation costs of $11.2 million, lower newsprint costs of $3.5 million, lower bad debt expense of $2.1 million, lower distribution and circulation costs of $1.8 million, lower benefits and wages, other than reorganization costs, of $2.8 million for the Sun-Times News Group, $2.1 million for the Canadian Administration Group and $4.1 million for the Corporate and Investment Group, and lower insurance premiums of $1.8 million.

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Other Income (Expense)

Interest and dividend income for the three months ended September 30, 2006 was $4.1 million compared with $2.4 million for the same period in 2005. The $1.7 million increase in the third quarter of 2006 compared to the same period in 2005 is largely due to increased cash and cash-equivalent balances from investment of the proceeds from the sale of the Canadian Newspaper operations in late 2005 and early 2006 and increases in interest rates. For the nine months ended September 30, 2006, interest and dividend income was $12.8 million, compared with $8.8 million for the same period in 2005. The $4.0 million increase is reflective of the higher cash and cash-equivalent balances and increases in interest rates previously mentioned.

Other income (expense), net, in the third quarter of 2006 was income of $0.5 million compared to an expense of $2.5 million in the same period in 2005, with an improvement in legal settlements of $0.8 million and lower foreign currency losses of $1.6 million. For the nine months ended September 30, 2006, other income (expense) improved by $4.6 million to income of $0.6 million from an expense of $4.0 million in 2005. This $4.6 million improvement was due to a $5.6 million favorable variance in foreign currency gains (losses), an improvement in legal settlements of $0.8 million and lower losses in equity of affiliates of $0.9 million, partially offset by a $2.6 million unfavorable variance in gain (loss) on sale of investments compared to 2005.

Income Taxes

Income tax expense was $16.8 million and $2.8 million for the three months ended September 30, 2006 and 2005, respectively. For the nine months ended September 30, 2006 and 2005, income taxes were a benefit of $6.2 million and an expense of $28.1 million, respectively. The Company’s income tax expense varies substantially from the U.S. Federal statutory rate primarily due to provisions or recoveries related to contingent liabilities. Such provisions and recoveries include interest the Company may be required to pay in various tax jurisdictions in respect of the contingent liabilities. Provisions for interest amounted to $18.7 million and $13.8 million for the three months ended September 30, 2006 and 2005, respectively, and $50.1 million and $38.9 million for the nine months ended September 30, 2006 and 2005, respectively. In addition, for the three and nine months ended September 30, 2006, the Company recorded a tax benefit of $0.2 million and $43.2 million, respectively, resulting from the reversal of the accruals for certain contingent tax liabilities which were no longer deemed necessary. During the three months ended September 30, 2006, the Company recorded a provision of $3.5 million for additional tax contingencies.

SEGMENT RESULTS

The Company’s business is organized and managed within a single operating segment, the Sun-Times News Group. In addition, the Company’s operating performance, results of operations and financial condition have been, and may in the future be, materially affected by its two administrative functions, the Canadian Administrative Group and the Investment and Corporate Group. In particular, significant legal fees and other investigation and compliance related expenses are reflected in the administrative groups. Therefore, the Company has provided segment information, where applicable, for its single operating segment as well as selected information for its two administrative functions.

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Sun-Times News Group

The following table summarizes certain results of operations for the periods indicated.

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2006			2005		2006			2005
	(In thousands)
Operating revenue:
Advertising	$	76,371		$	88,918	$	238,880		$	265,513
Circulation		19,845			21,577		61,739			66,344
Job printing and other		2,835			3,095		8,247			8,834
Total operating revenue		99,051			113,590		308,866			340,691
Operating costs and expenses:
Newsprint		15,076			17,201		47,220			50,745
Compensation		43,173			44,069		141,141			133,560
Other operating costs		33,117			32,654		97,967			96,815
Depreciation		6,041			4,595		16,258			13,604
Amortization		3,141			3,203		8,784			8,920
Total operating costs and expenses		100,548			101,722		311,370			303,644
Operating income (loss)	$	(1,497	)	$	11,868	$	(2,504	)	$	37,047

Advertising revenue was $76.4 million in the third quarter of 2006 compared with $88.9 million in the third quarter of 2005. The $12.5 million decrease in advertising revenue for the three months ended September 30, 2006 primarily reflects decreases in classified advertising of $6.3 million, retail advertising of $4.1 million and national advertising of $3.5 million, partially offset by increased internet advertising. Advertising revenue was $238.9 million for the nine month period ended September 30, 2006, compared to $265.5 million for the same period in 2005. The $26.6 million decrease in advertising revenue primarily reflects decreases of $14.0 million in classified advertising, $10.4 million in retail advertising and $5.4 million in national advertising, partially offset by an increase in internet advertising. The automotive and entertainment sectors were particularly weak in the three and nine months ended September 30, 2006.

Circulation revenue decreased by approximately $1.7 million to $19.8 million for the three months ended September 30, 2006 from $21.6 million for the three months ended September 30, 2005, largely due to lower home delivery revenue of $1.2 million, reflecting competitive discounting of subscription rates, and lower single copy revenue of $0.5 million. Circulation revenue was $61.7 million and $66.3 million for the nine months ended September 30, 2006 and 2005, respectively, reflecting decreases of $2.2 million in lower single copy revenue and $2.4 million in home delivery revenue, again reflective of the competitive discounting of subscription rates. Slightly more than one-half of the circulation revenue decline is attributable to the Chicago Sun-Times.

Newsprint expense in the third quarter of 2006 was $15.1 million compared with $17.2 million in the third quarter of 2005. Total newsprint consumption for the three month period ended September 30, 2006 decreased approximately 22%, with the average cost per metric ton of newsprint approximately 13% higher in the quarter. Suppliers instituted newsprint increases of approximately $30 per metric ton during each of June and September 2005, and approximately $25 per metric ton in each of February and June 2006. For the nine months ended September 30, 2006 and 2005, newsprint expense was $47.2 million and $50.7 million, respectively. For the nine months ended September 30, 2006, newsprint consumption decreased 18% and the average cost per metric ton increased approximately 14% compared to the same period in 2005. Declines in consumption reflect the volume declines and implementation of planned reductions in the size of certain newspapers.

Compensation costs decreased $0.9 million to $43.2 million in the third quarter of 2006 from $44.1 million in the third quarter of 2005 largely due to decreases in wage costs of $1.3 million, primarily from the reorganization program and lower incentive compensation due to lower revenue and operating results, partially offset by additional

26

severance costs of $0.5 million. For the nine months ended September 30, 2006, compensation costs increased $7.6 million to $141.1 million from $133.6 million, compared to the same period in 2005, largely due to separation costs of $8.7 million related to the reorganization program, increased workers’ compensation costs of $0.8 million (reflecting a larger number of large claims) and non-reorganization severance costs of $1.7 million, partially offset by lower wage costs of $2.3 million and other benefit costs of $1.4 million. Annual wage increases were generally more than offset by lower headcount reflecting the reorganization effort and attrition.

Other operating costs were $33.1 million for the three months ended September 30, 2006, compared with $32.7 million for the same period in 2005, an increase of $0.5 million. The increase in other operating costs for the quarter was largely due to increased professional fees, primarily to support the reorganization effort, of $1.3 million and increased advertising and marketing expense of $0.5 million, partially offset by lower bad debt expense of $0.5 million. For the nine months ended September 30, 2006 other operating costs were $98.0 million, compared to $96.8 million for the same period in 2005, resulting in an increase of $1.2 million. This increase reflects increases in professional fees primarily to support the reorganization effort, of $2.7 million, $0.9 million largely for the write-off of fixed assets related to system development projects, increased insurance costs of $0.3 million and increased advertising and marketing expense of $1.1 million, partially offset by lower bad debt expense of $2.1 million and lower distribution and circulation costs of $1.8 million.

Depreciation and amortization expense in the third quarter of 2006 was $9.2 million compared with $7.8 million in 2005. The $1.4 million increase in depreciation and amortization expense reflects incremental depreciation costs of $1.3 million related to two facilities the Company expects to close in the fourth quarter of 2006 and the second quarter of 2007. See Note 4 to the condensed consolidated financial statements. For the nine months ended September 30, 2006, depreciation and amortization expense was $25.0 million, compared to $22.5 million for the same period in 2005. The increase of $2.5 million reflects incremental depreciation costs of $1.9 million for the scheduled facility closings and $0.4 million of incremental depreciation related to information technology projects largely placed in service in 2006.

Operating loss in the third quarter of 2006 totaled $1.5 million compared with an operating income of $11.9 million in the third quarter of 2005, a decline of $13.4 million. The decline primarily results from the lower revenue and higher professional fees, partially offset by lower newsprint costs associated with the lower volume. For the nine months ended September 30, 2006, the operating loss was $2.5 million compared with operating income of $37.0 million for the same period in 2005. The decrease of $39.6 million reflects the lower revenue, costs associated with the reorganization program, including incremental depreciation expense, the write-off of fixed assets and increased professional fees, partially offset by lower newsprint, bad debt expense and distribution and circulation costs.

ADMINISTRATIVE ACTIVITIES

Canadian Administrative Group

The following table summarizes certain results of operations for the periods indicated.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2006			2005			2006			2005
	(In thousands)
Operating costs and expenses:
Compensation	$	(392	)	$	869		$	(263	)	$	1,878
Other operating costs		1,641			741			2,874			2,388
Depreciation		—			30			—			108
Total operating costs and expenses		1,249			1,640			2,611			4,374
Operating loss	$	(1,249	)	$	(1,640	)	$	(2,611	)	$	(4,374	)

The operating loss of the Canadian Administrative Group was $1.2 million in the third quarter of 2006 compared with an operating loss of $1.6 million in 2005, an improvement of $0.4 million. The improvement is

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largely due to lower pension and post-retirement expense in 2006 reflecting an improvement in expected returns on plan assets, partially offset by provincial business taxes recorded as other operating costs in the third quarter of $0.9 million. See Note 11 to the condensed consolidated financial statements. For the nine months ended September 30, 2006 operating loss was $2.6 million, compared to a loss of $4.4 million for the same period in 2005, an improvement of $1.8 million. Compensation decreased approximately $2.1 million due to an improvement in pension and post-retirement expense in 2006. The pension and post-retirement obligations largely relate to retired employees not assumed by the purchasers of the related businesses in prior years.

Investment and Corporate Group

The following table summarizes certain results of operations for the periods indicated.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2006			2005			2006			2005
	(In thousands)
Operating costs and expenses:
Compensation	$	5,305		$	2,982		$	11,159		$	9,540
Other operating costs		14,179			15,007			43,806			50,663
Depreciation		188			68			319			304
Total operating costs and expenses		19,672			18,057			55,284			60,507
Operating loss	$	(19,672	)	$	(18,057	)	$	(55,284	)	$	(60,507	)

Operating costs and expenses of the Investment and Corporate Group were $19.7 million in the third quarter of 2006 compared with $18.1 million in 2005, an increase of $1.6 million. The increase of $2.3 million in compensation is reflective of severance costs of $4.1 million, largely related to the closing of the New York office, partially offset by a $1.7 million reduction in wages and benefits, largely due to lower wage and incentive costs related to the New York office. The decrease in other operating costs of $0.8 million in the quarter is largely a result of a $2.6 million decrease related to Special Committee activities and lower insurance costs of $0.4 million, partially offset by an increase in other legal and professional fees of $2.6 million, largely reflecting increases in internal audit and other compliance activity.

For the nine months ended September 30, 2006, total operating costs and expenses decreased $5.2 million to $55.3 million for 2006 from $60.5 million in 2005. The increase of $1.6 million in compensation is reflective of severance costs of $5.2 million, including $4.7 million related to the closing of the New York office and an increase in stock-based compensation of $0.5 million, partially offset by lower wage and incentive costs related to the New York office and in part, reflecting the elimination of duplicative personnel costs in 2005 related to the transition of the finance function from Toronto to Chicago. The decrease in other operating costs and expenses of $6.9 million is largely a result of the $11.2 million decrease related to the Special Committee investigation and lower insurance costs of $2.0 million, partially offset by an increase in other legal and professional fees of $5.0 million, largely reflecting increases in internal and external audit and other compliance activity and an expense related to the estimated liability for unclaimed property of $2.0 million.

LIQUIDITY AND CAPITAL RESOURCES

The Company is a 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 is dependent upon the availability of cash flows from its United States and foreign subsidiaries through dividends, intercompany advances, and other payments. The Company’s right to participate in the distribution of assets of any subsidiary or affiliated company in the event of 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.

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The following table outlines the Company’s cash and cash equivalents, short-term investment and debt positions as of the dates indicated. Such amounts exclude escrow deposits and restricted cash of $31.4 million and $13.4 million at September 30, 2006 and December 31, 2005, respectively.

	September 30,		December 31,
	2006		2005
	(In thousands)
Cash and cash equivalents	$	205,246	$	198,388
Short-term investments		—		57,650
Total cash and cash equivalents and short-term investments	$	205,246	$	256,038
9% Senior Notes due 2010	$	6,000	$	6,000
Other debt		978		2,067
Total debt	$	6,978	$	8,067

Cash and cash equivalents and short-term investments decreased $50.8 million to $205.2 million at September 30, 2006 from $256.0 million at December 31, 2005. This decrease was primarily the result of $13.2 million in dividend payments, $24.6 million in income tax payments, the $95.7 million repurchase of common stock, the purchase of property, plant and equipment of $5.7 million and other non-current assets of $5.2 million and the loss from continuing operations, largely offset by cash received from the sale of the remaining Canadian Newspaper Operations (net of restricted cash) of $79.9 million, $10.7 million of proceeds from stock options exercised and the proceeds from the sale of investments of $18.2 million.

The Company has the following income tax liabilities recorded in its Condensed Consolidated Balance Sheets:

	September 30,		December 31,
	2006		2005
	(In thousands)
Income taxes payable and other tax liabilities	$	593,589	$	586,734
Deferred income taxes and other tax liabilities		392,859		360,524
	$	986,448	$	947,258

The Company has recorded accruals to cover contingent liabilities related to additional taxes and interest it may be required to pay in various tax jurisdictions. Such accruals, included in the amounts listed above, reflect additional interest and penalties that may become payable in respect to the contingent liabilities. At December 31, 2005 accruals to cover contingent liabilities aggregated approximately $920.5 million.

A substantial portion of the accruals to cover contingent liabilities for income taxes relate to the tax treatment of gains on the sale of a portion of the Company’s non-U.S. operations. 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 condensed consolidated financial statements. See “Recent Accounting Pronouncements.” The accruals to cover contingent tax liabilities also relate to management fees, “non- competition” payments and other items that have been deducted in arriving at taxable income that may be disallowed by taxing authorities. If those deductions were to be disallowed, the Company would be required to pay additional taxes and interest from the dates such taxes would have been paid had the deductions not been taken, and the Company may be subject to penalties.

There may be significant cash requirements in the future regarding these currently unresolved U.S. and foreign tax issues. Although the Company is attempting to resolve a significant portion of the contingent liabilities with the relevant taxing authorities, the timing and amounts of any payments the Company may be required to make remain uncertain.

In addition, the Company is currently involved in several legal actions as both plaintiff and defendant. These actions are in various stages and it is not yet possible to determine their ultimate outcome. At this time the Company cannot estimate the impact these actions and the related legal and other fees may have on its future cash position.

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The Company is heavily dependent upon the Sun-Times News Group for cash flow. That cash flow in turn is dependent on the Sun-Times News Group’s ability to sell advertising in its market. The Company’s cash flow is expected to continue to be cyclical, reflecting changes in economic conditions. Newspaper print advertising declined approximately 9.7% during the third quarter and 6.7% for the nine months ended September 30, 2006 for the greater Chicago market versus the comparable periods in 2005. Advertising revenue for the Sun-Times News Group declined approximately 14.1% and 10.0% for the three and nine months ended September 30, 2006, respectively, compared to the same periods in 2005. Based on these market conditions and the potential of these negative trends continuing, the Company is considering a range of options to address the resulting significant shortfall in performance and cash flow, including a review of the Company’s dividend policy.

The Company does not currently have a credit facility in place. The recent decline in revenue and operating performance in the Sun-Times News Group may have a detrimental impact on the amount of debt and/or terms available to the Company in bank and bond markets. Moreover, the operating performance of the Company continues to result in the use of cash to fund continuing operations rather than the generation of cash from continuing operations.

The Company is currently reviewing potential sources of additional liquidity. However, the Company may be required to make significant payments regarding its contingent liabilities for income taxes or its ongoing legal actions and continue to use cash to fund continuing operations before the Company is able to improve its access to liquidity.

Cash Flows and Working Capital

Working capital consists of current assets less current liabilities. At September 30, 2006, working capital, excluding current debt obligations and restricted cash and escrow deposits and assets and liabilities of operations to be disposed of, was a deficiency of $413.6 million compared to a deficiency of $369.6 million at December 31, 2005. The $44.0 million decline is primarily due to the repurchase of common stock of $95.7 million and a payment of taxes of $12.5 million, partially offset by net proceeds and receivables from the sale of the remaining Canadian Newspaper Operations of $79.9 million and $10.7 million received from the exercise of stock options.

Cash used in continuing operating activities was $46.6 million for the nine months ended September 30, 2006, compared with $204.6 million used by continuing operating activities for the nine month period ended September 30, 2005. The use of cash for the nine months ended September 30, 2006 is largely due to the loss from continuing operations before income taxes. During the nine months ended September 30, 2005, the use of cash as reflected in net changes in working capital was $181.7 million, principally due to income tax payments of $182.5 million. Loss from continuing operations improved by $10.4 million to a loss of $41.3 million for the nine months ended September 30, 2006 compared to $51.7 million for the same period in 2005, largely due to a tax benefit resulting from the reversal of certain tax contingencies no longer deemed necessary of $43.2 million, partially offset by a larger loss from continuing operations before taxes of $23.9 million.

Cash provided by investing activities was $144.7 million in 2006 compared with $459.6 million in 2005. The cash provided in 2006 largely reflects the cash received of $79.9 million from the sale of the Canadian Newspaper Operations, the redemption of short-term investments of $57.7 million and proceeds of $18.2 million from the sale of investments. In 2005, the redemption of short-term investments, net of $474.7 million was used to fund a large portion of the special dividends and tax payments.

Cash used in financing activities was $104.9 million in 2006, compared to $525.2 million in 2005. Cash used in financing activities in 2006 largely reflects the repurchase of common stock of $95.7 million and dividends paid of $13.2 million, somewhat offset by the $10.7 million cash received from the exercise of stock options. In 2005, cash used in financing activities largely related to the payment of the dividends of $512.3 million and repayment of 8.625% Senior Notes of $6.1 million.

Debt

Long-term debt, including the current portion, was $7.0 million at September 30, 2006 compared with $8.1 million at December 31, 2005.

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During the third quarter, the Company reclassified its $6.0 million Senior Notes from a current liability to a long-term liability, as it is no longer pursuing note holders to negotiate early retirement of the outstanding debt.

Capital Expenditures

The Company does not have material commitments to acquire capital assets and expects its cash on hand and future cash flow provided by its operating subsidiaries to be sufficient to fund its recurring capital expenditures.

Dividends and Other Commitments

The Company is currently reconsidering its dividend policy. See “Significant Developments in 2006.”

Commercial Commitments and Contractual Obligations

Primarily in connection with the Company’s insurance programs, letters of credit are required to support certain projected workers’ compensation obligations and reimbursement of claims paid by a third party claims administrator. At September 30, 2006, letters of credit in the amount of $9.6 million were outstanding for which the Company maintained compensating balances with the issuer of $7.3 million.

Set out below is a summary of the amounts due and committed under contractual cash obligations at September 30, 2006 (unless otherwise noted):

			Due in		Due Between		Due Between		Due Over
	Total		1 Year or Less		1 and 3 Years		4 and 5 Years		5 Years
	(In thousands)
9% Senior Notes	$	6,000	$	—	$	—	$	6,000	$	—
Other long-term debt		978		928		50		—		—
Interest on long-term debt		2,408		650		1,083		675		—
Operating leases(1)		55,653		5,935		9,449		7,818		32,451
Total contractual cash obligations	$	65,039	$	7,513	$	10,582	$	14,493	$	32,451

(1) Commitments as of December 31, 2005.

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 and disposition of businesses. The Company is also involved in various matters in litigation. For more information on the Company’s litigation and contingent obligations, see Notes 10 and 12 to the Company’s condensed consolidated financial statements.

Recent Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 defines the threshold for the recognition and measurement of uncertain income tax positions in the financial statements (generally referred to as contingent tax liabilities by the Company) as the amount “more likely than not” to be sustained by the relevant taxing authority. The tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company has not yet determined the impact that FIN 48 will have on its financial position and results of operations and expects to adopt FIN 48 on January 1, 2007. However, due to the significance of the Company’s contingent tax liabilities and that the “more likely than not” criterion per FIN 48 is lower than that historically used by the Company, the adoption of FIN 48 may have a material impact on the Company’s financial condition and results of operations.

In September 2006, the SEC released Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 provides guidance on how the effects of the carryover or reversal of prior year financial statements

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misstatements should be considered in quantifying a current year misstatement. Prior practice allowed the evaluation of materiality on the basis of (1) the error quantified as the amount by which the current year income statement was misstated (“rollover method“) or (2) the cumulative error quantified as the cumulative amount by which the current year balance sheet was misstated (“iron curtain method”). Reliance on either method in prior years could have resulted in misstatement of the financial statements. The guidance provided in SAB 108 requires both methods to be used in evaluating materiality. Immaterial prior year errors may be corrected with the first filing of prior year financial statements after adoption. The cumulative effect of the correction would be reflected in the opening balance sheet with appropriate disclosure of the nature and amount of each individual error corrected and that the error had been deemed to be immaterial in the past. The Company does not expect the adoption of SAB 108 to have a material impact on its financial position or results of operations and is effective for the Company on January 1, 2007.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS No. 157”). This Statement defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”) and expands disclosure related to the use of fair value measures in financial statements. SFAS No. 157 does not expand the use of fair value measures in financial statements, but standardizes its definition and guidance in GAAP. The Standard emphasizes that fair value is a market-based measurement and not an entity-specific measurement based on an exchange transaction in which the entity sells an asset or transfers a liability (exit price). SFAS No. 157 establishes a fair value hierarchy from observable market data as the highest level to fair value based on an entity’s own fair value assumptions as the lowest level. The Statement is to be effective for the Company’s financial statements issued after November 15, 2007; however, earlier application is encouraged. The Company is currently evaluating the timing of adoption but does not expect such adoption to have a material impact on its financial position and results of operations.

Also in September 2006, the FASB released Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS No. 158”). Under the new standard, companies must recognize a net liability or asset to report the funded status of their defined benefit pension and other postretirement benefit plans on their balance sheets. The recognition and disclosure provisions of SFAS No. 158 will be required to be adopted by the Company as of December 31, 2006. Additionally, SFAS No. 158 requires companies to measure plan assets and obligations at their year-end balance sheet date. This requirement is not effective until December 31, 2008. The Company is currently reviewing the requirements of SFAS No. 158 to determine the impact on its financial position and results of operations.

Item 3.   Quantitative and Qualitative Disclosures about Market Risk

Newsprint.  Newsprint expense amounted to $47.2 million in the first nine months of 2006 and $50.7 million during the same period in 2005. Management believes that newsprint prices may continue to show significant price variation in the future. Suppliers implemented newsprint price increases of $30 per metric ton in each of June and September 2005 and approximately $25 per metric ton in each of February and June 2006. The Company takes steps to ensure that it has sufficient supply of newsprint and has mitigated cost increases by adjusting pagination and page sizes and printing and distribution practices. Based on levels of usage during the nine months ended September 30, 2006, a change in the price of newsprint of $50 per metric ton would have increased or decreased the loss from continuing operations before income taxes for the nine months ended September 30, 2006 by approximately $2.1 million. The average price per metric ton of newsprint was approximately $672 for the nine months ended September 30, 2006 versus approximately $590 for the same period in 2005.

Labor Relations.  As of September 30, 2006, approximately 35% of the Company’s employees are covered by collective bargaining agreements. Contracts covering approximately 46% of union employees will expire or are being negotiated during the next twelve months. There have been no strikes or work stoppages at any of the Sun-Times News Group’s newspapers in the past 5 years.

Inflation.  During the past three years, inflation has not had a material effect on the Company’s newspaper businesses.

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Interest Rates.  At September 30, 2006, the Company has no debt that is subject to interest calculated at floating rates and a change in interest rates would not have a material effect on the Company’s results of operations.

Foreign Exchange Rates.  A portion of the Company’s results are generated outside of the United States in currencies other than the United States dollar (primarily the Canadian dollar). As a result, the Company’s operations are subject to changes in foreign exchange rates. Increases in the value of the United States dollar against other currencies can reduce net earnings and declines can result in increased earnings. Based on earnings and ownership levels for the nine months ended September 30, 2006, a $0.05 change in the Canadian dollar exchange rate of $0.8828/Cdn. would affect the Company’s reported net loss for the nine months ended September 30, 2006 by approximately $0.8 million, largely related to income taxes.

Reference should be made to “Risk Factors” in the Company’s 2005 10-K for a discussion on the potential impact changes in foreign exchange rates may have related to taxes that may be paid to foreign jurisdictions.

Item 4.   Controls and Procedures

(a) Disclosure Controls and Procedures.  The Company maintains a system of disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls are also designed to reasonably assure that such information is accumulated and communicated to management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate to allow timely decisions regarding required disclosure. Disclosure controls include components of internal control over financial reporting, which consists of control processes designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles.

As reported in the 2005 10-K, as of December 31, 2005, the Company’s management identified material weaknesses in its internal control over financial reporting relating to 1) an ineffective control environment that did not sufficiently promote effective internal control over financial reporting throughout the organization, 2) ineffectively designed information technology general controls over program development, program changes, computer operations, and access to programs and data, 3) ineffective information and communication controls that did not sufficiently promote effective internal control over financial reporting throughout the organization, and 4) ineffective policies and procedures relating to the preparation of current and deferred income tax provisions and related balance sheet accounts. Largely as a result of material weaknesses in these areas, management concluded in its 2005 Form 10-K that the Company’s disclosure controls and procedures were ineffective as of December 31, 2005.

During 2006, and as discussed further below, the Company has taken actions to remediate the material weaknesses discussed above, and it is continuing to assess additional controls that may be required to remediate these weaknesses. The Company’s management, under the supervision of and with the participation of the CEO and CFO, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2006, pursuant to Exchange Act Rule 13a-15(e) and 15d-15(e). As part of its evaluation, management has evaluated whether the control deficiencies related to the reported material weaknesses in internal control over financial reporting continue to exist. As of September 30, 2006, the Company has not completed implementation and testing of the changes in controls and procedures that it believes are necessary to conclude that the material weaknesses have been remediated and therefore, the Company’s management has concluded that it cannot assert that the control deficiencies relating to the reported material weaknesses have been effectively remediated. As a result, the Company’s CEO and CFO have concluded that the Company’s disclosure controls and procedures were ineffective as of September 30, 2006.

Procedures were undertaken in order that management could conclude that reasonable assurance exists regarding the reliability of financial reporting and the preparation of the condensed consolidated financial statements contained in this filing. Accordingly, management believes that the condensed consolidated financial statements included in this Form 10-Q fairly present, in all material respects, the Company’s financial position, results of operations and cash flows for the periods presented.

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(b) Changes in Internal Control Over Financial Reporting.  During 2006, management has taken the following actions that materially affect, or are reasonably likely to materially affect, the Company’s internal control over financial reporting and to remediate the material weaknesses described in the Company’s 2005 Form 10-K.

During the nine months ended September 30, 2006:

•  A significant reorganization of the Company’s operations was initiated, which includes a planned redesign of key operational processes in the Company.

•  An internal audit plan has been approved by the Audit Committee, and the execution has commenced.

•  A vice-president of information technology has been hired to oversee and restructure all areas of the Company’s information technology function. Certain key managers were also hired to enhance the capabilities and improve general controls within this function.

•  The Company engaged an outside service provider to perform an assessment of current anti-fraud activities and to review the methods of communication related to anti-fraud measures.

•  The Company’s Audit Committee was reconstituted and all three members of the Committee possess significant financial expertise.

•  A director of internal audit has been hired to oversee the internal audit function staffed by an outside service provider. This function reports directly to the Audit Committee.

•  The Company has chosen an outside provider to service its “whistleblower” hotline, assuring confidential reporting if requested, and including internet based reporting and tracking capabilities.

In addition to the above changes in internal control over financial reporting, management believes that inadequate staffing in the accounting, finance and tax departments, which contributed to the material weaknesses described above, will abate with the passage of time in part due to decreasing complexity as a result of the sale of significant components of the Company’s operations, the completion or winding down of investigations, the resolution of certain complex tax matters, the expected simplification of the Company’s corporate structure, and the progression of legal matters into phases that are less time consuming for Company personnel.

Other than as discussed above, there have not been any changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2006 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.   Legal Proceedings

The following is a discussion of developments in the legal proceedings the Company has reported in its 2005 10-K. For a detailed discussion of these legal proceedings see “Item 3 — Legal Proceedings” in the Company’s 2005 10-K.

Stockholder Derivative Litigation

As previously reported in the 2005 10-K, on December 9, 2003, Cardinal Value Equity Partners, L.P., a stockholder of the Company, initiated a purported derivative action on behalf of the Company against certain current and former executive officers and directors, including Black and certain entities affiliated with them, and against the Company as a “nominal” defendant. This action asserts causes of action that include breach of fiduciary duty, misappropriation of corporate assets and self-dealing in connection with certain “non-competition” payments, the payment of allegedly excessive management and services fees, and other alleged misconduct. On May 3, 2005, certain of the Company’s current and former independent directors agreed to settle claims brought against them in this action. The settlement provides for $50.0 million to be paid to the Company. The settlement is conditioned upon

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funding of the settlement amount by proceeds from certain of the Company’s directors and officers liability insurance policies, and is also subject to court approval.

The Delaware Court of Chancery has scheduled a hearing to be held on November 13, 2006 regarding whether to approve the settlement with the Company’s former independent directors.

In connection with and ancillary to the Company’s claims in the U.S. District Court for the Northern District of Illinois, the Company has commenced proceedings in Ontario that seek to preserve the assets of Black and Barbara Amiel Black (“Amiel Black”) for the satisfaction of any judgment rendered in the Illinois proceedings.

Stockholder Class Actions

As previously reported in the 2005 10-K, in February and April 2004, three alleged stockholders of the Company initiated purported class action suits in the United States District Court for the Northern District of Illinois against the Company, Black, certain former executive officers and certain former directors of the Company, Hollinger Inc., Ravelston and certain affiliated entities and KPMG LLP, the Company’s independent accounting firm. The suit asserts claims under federal and Illinois securities laws and claims of breach of fiduciary duty and aiding and abetting in breaches of fiduciary duty.

On September 13, 2006, plaintiffs filed a Third Consolidated Amended Class Action Complaint. The new complaint adds an additional named plaintiff, Cardinal Mid-Cap Value Equity Partners, L.P., but is otherwise identical to the prior complaint and asserts the same claims. On October 27, 2006, the Company moved to dismiss the Third Consolidated Amended Class Action Complaint. The Company’s motion is pending.

Black v. Hollinger International Inc., filed on May 13, 2005

As previously reported in the 2005 10-K, on May 13, 2005, Black filed an action against the Company in the Court of Chancery of the State of Delaware in regard to the advancement of fees and expenses in connection with his engagement of Williams & Connolly LLP to represent him in the investigations of Black by the U.S. Department of Justice and the SEC. In its response, filed on June 8, 2005, the Company brought counterclaims against Black for breach of contract in failing to repay money advanced to him in connection with Hollinger International Inc. v. Conrad M. Black, Hollinger Inc., and 504468 N.B. Inc. In connection with this claim, the Company also filed a third-party claim against Hollinger Inc. seeking equitable contribution from Hollinger Inc. for fees that the Company has advanced to Black, Amiel Black, F. David Radler (“Radler”) and J.A. Boultbee (“Boultbee”). In March 2006, Black and the Company reached an agreement to settle the claims asserted against each other. On July 21, 2005, Hollinger Inc. moved to dismiss the Company’s third-party claims.

On June 8, 2006, the Company filed an amended third-party complaint against Hollinger Inc., expanding its allegations regarding the Court’s personal jurisdiction over Hollinger Inc. On June 19, 2006, Hollinger Inc. moved to dismiss or stay the amended complaint. The Court denied Hollinger Inc.’s motion on November 6, 2006. The Count ruled that it had personal jurisdiction over Hollinger Inc. and it declined to dismiss the Company’s claim in regard to actions in which the Company had paid or is paying more than 50% of the legal fees submitted for advancement by Black and others with whom Hollinger Inc. has indemnification and advancement agreements.

Litigation Involving Controlling Stockholders, Senior Management and Directors

As previously reported in the 2005 10-K, the Company, through the Special Committee, filed a civil complaint in the United States District Court for the Northern District of Illinois asserting breach of fiduciary duty and other claims against Hollinger Inc., Ravelston, RMI, Black, and other former officers and directors. The Company’s second amended complaint seeks to recover approximately $542.0 million in damages, including prejudgment interest of approximately $117.0 million, and punitive damages. In April 2005, Hollinger Inc. answered the Company’s second amended complaint without asserting any counterclaims against the Company.

As previously reported, on July 6, 2006, Hollinger Inc. filed a motion seeking permission to file a counterclaim against the Company. The Company opposed Hollinger Inc.’s request, and the motion is now fully briefed.

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In connection with and ancillary to the Special Committee Action, on October 12, 2006, the Company commenced an action in the Ontario Superior Court of Justice against Black, Amiel Black, Black-Amiel Management Inc., Conrad Black Capital Corporation, 1269940 Ontario Limited, and 2753421 Canada Limited (the “Ontario Injunctive Action”). The Ontario Injunctive Action seeks, among other things, a temporary and permanent injunction restraining Black and Amiel Black and any persons controlled by them, from transferring, removing, or otherwise disposing of any of Black or Amiel Black’s assets except with leave of the Ontario court. The Ontario Injunctive Action does not seek any damages.

The Company has brought a motion for an interim order restraining the disposition of assets, subject to certain exceptions. Black and Amiel Black were served with subpoenas to testify on October 26 and 27, 2006, respectively, in connection with the motion for a temporary order. Neither Black nor Amiel Black attended on those examinations. On November 1, 2006, the Ontario Superior Court of Justice ordered that the Company’s motion to compel Black and Amiel Black to testify, along with a motion brought by the defendants to strike the Ontario Injunctive Action, will be heard on January 19, 2007. The motion for an interim order restraining the disposition of assets will be heard on a date to be fixed by the court after the January 19, 2007 motion, assuming that the defendants’ motion to strike the Ontario Injunctive Action is dismissed.

Federal Indictment of Ravelston and Former Company Officials

As previously reported in the 2005 10-K, on August 18, 2005, a federal grand jury in Chicago indicted Radler, the Company’s former President and Chief Operating Officer, Mark S. Kipnis (“Kipnis”), the Company’s former Vice President, Corporate Counsel and Secretary, and Ravelston on federal fraud charges for allegedly diverting $32.2 million from the Company through a series of self-dealing transactions between 1999 and May 2001. On November 17, 2005, the federal grand jury in Chicago returned an expanded indictment naming new defendants and adding additional fraud charges. The new defendants named in the expanded indictment are Black, as well as Boultbee and Peter Y. Atkinson (“Atkinson”), both of whom are former executive vice presidents of the Company. The new indictment alleges two new fraud schemes in addition to realleging the scheme in the initial indictment.

On August 17, 2006, the grand jury returned another expanded indictment adding two new counts against Black, Boultbee, Atkinson, and Kipnis for willfully causing the Company to file false tax returns. The new indictment also adds another claim against Black for forfeiture of a diamond ring and other antiques. On September 8, 2006, the defendants entered not guilty pleas to the additional charges.

Receivership and CCAA Proceedings in Canada involving the Ravelston Entities

As previously reported in the 2005 10-K, on April 20, 2005, Ravelston and RMI were placed in receivership. The court appointed RSM Richter Inc. as the Receiver to monitor all assets of Ravelston and RMI. On May 18, 2005, the court extended the orders to include Argus Corporation and five of its subsidiaries and provided that nothing in the receivership order should stay or prevent the Special Committee’s action in the United States District Court for the Northern District of Illinois, including as against Ravelston and RMI.

On March 28, 2006, the Ontario Superior Court of Justice issued an Order approving the Receiver’s statement of receipts and disbursements for the period from April 20, 2005 to March 9, 2006, which included legal fees and disbursements of approximately $939,151 and Cdn$3,049,356 paid to various legal firms and approximately Cdn$1,211,086 in respect of the Receiver’s fees and disbursements. Aggregate disbursements paid by the Receiver from the Ravelston, RMI and Argus estates during this period, according to the 14th Report of the Receiver, were approximately Cdn$5,481,670 and $1,242,907.

On April 4, 2006, the Ontario Superior Court of Justice ordered and directed the Receiver to provide to the Office of the US Attorney and the US Internal Revenue Service certain documents and information relating to Argent News Inc. (“Argent”) in the possession of the Receiver, including but not limited to, Argent’s balance sheets, accounting documents, correspondence from Argent’s agents and copies of the balance sheets and financial records of Ravelston and RMI showing balances due to and from Argent and records of the Hollinger entities containing similar information. In that same Order, the Court also ordered and directed the Receiver to remit the amount of $1,748.62, relating to employee pension contributions deducted from April 14, 2005 and April 29, 2005 payrolls,

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together with interest as prescribed under the Pension Benefits Act (Ontario), to Ravelston’s registered pension plan.

On June 12, 2006, the Ontario Superior Court of Justice appointed the Receiver as receiver and manager and interim receiver of Argent and ordered and directed that the provisions of the Receivership Order dated April 20, 2005 in respect of the Ravleston entities also apply to Argent. On that date, the Court also extended the stay of proceedings under the Companies’ Creditors Arrangement Act (Canada) (the “CCAA”) to September 29, 2006 and adjourned the return date for the hearing of the bankruptcy applications filed on March 2, 2006 to September 29, 2006. On September 28, 2006, the Ontario Superior Court of Justice further extended the stay of proceedings under the CCAA to January 19, 2007 and adjourned the return date for the hearing of the bankruptcy applications to January 19, 2007.

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

On March 15, 2006, May 17, 2006 and June 13, 2006 the Company announced that its Board of Directors had authorized the repurchase of up to an aggregate value of approximately $50.0 million, $17.8 million and $50.0 million, respectively, of the Company’s common stock in the open market and privately negotiated transactions. The stock purchase program began following the filing of the 2005 10-K. During the three months ended September 30, 2006, the Company completed the following repurchases of its Class A Common Stock.

					Total Number of		Approximate Dollar
					Shares Purchased as		Value of Shares that
					Part of Publicly		May Yet Be Purchased
	Total Number of		Average Price Paid		Announced Plans or		Under the Plans or
Period	Shares Purchased		per Share(1)		Programs		Programs(2)
							(In thousands)
7/1/06-7/31/06		2,820,315	$	7.99		2,820,315	$	22,007
8/1/06-8/31/06		—	$	—		—	$	22,007
9/1/06-9/30/06		—	$	—		—	$	22,007

(1)	Excluding related transaction fees.
(2)	Based on the aggregate value of authorized repurchase programs in effect as of the respective periods.

Item 3.   Defaults Upon Senior Securities

None.

Item 4.   Submission of Matters to a Vote of Security Holders

None.

Item 5.   Other Information

As reported in the Company’s Current Report on Form 8-K dated September 14, 2006, the Company entered into a separation agreement with Robert T. Smith, the Company’s Treasurer. After such date, the Company and Mr. Smith agreed to extend Mr. Smith’s employment with the Company until October 31, 2006. As such, the Company and Mr. Smith agreed to amend the terms of Mr. Smith’s separation agreement to reflect Mr. Smith’s new separation date.

Item 6.   Exhibits

10	.1	Separation Agreement between the Company and Gordon A. Paris, dated September 13, 2006.
10	.2	Separation Agreement between the Company and James R. Van Horn, dated September 13, 2006.
10	.3	Separation Agreement, as amended, between the Company and Robert T. Smith, dated September 13, 2006.
31	.1	Certification of Chief Executive Officer pursuant to Rule 13a-14
31	.2	Certification of Chief Financial Officer pursuant to Rule 13a-14

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32	.1	Certificate of Chief Executive Officer pursuant to Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code
32	.2	Certificate of Chief Financial Officer pursuant to Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SUN-TIMES MEDIA GROUP, INC.
Registrant

By:  /s/  Gordon A. Paris

Gordon A. Paris

President and Chief Executive Officer

Date: November 9, 2006

By:  /s/  Gregory A. Stoklosa

Gregory A. Stoklosa

Vice President and Chief Financial Officer

Date: November 9, 2006

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EX-10.1

EXHIBIT 10.1

EXECUTION COPY

September 13, 2006

VIA HAND DELIVERY
PERSONAL AND CONFIDENTIAL

Gordon A. Paris
[address]

Re: Termination of Employment from Sun-Times Media Group, Inc.

Dear Gordon:

     This letter agreement (this “Agreement”) sets forth certain terms and conditions in connection with your termination of employment from Sun-Times Media Group, Inc. (“Sun-Times”) and its subsidiaries and affiliates, effective as of December 29, 2006 (the “Effective Date”). Upon the Effective Date, the Amended and Restated Employment Agreement, dated as of March 2, 2006, between you and Hollinger International Inc. (the “Employment Agreement”) shall terminate and be of no further force and effect, except as otherwise specifically provided herein. In consideration of the mutual covenants set forth below and other valuable consideration, including Sun-Times’s agreement to provide you with certain payments and benefits to which you are not otherwise entitled, the receipt and sufficiency of which Sun-Times (together with its parent corporations, affiliates, past and present officers, directors, stockholders, agents, employees, publications, legal representatives, successors, and assigns, hereinafter collectively referred to as, the “Company”) and you hereby acknowledge, Sun-Times and you hereby agree as follows:

     1. Termination of Employment.

     You have agreed to resign as of the Effective Date from employment with Sun-Times and its subsidiaries and affiliates to facilitate the relocation of the position of Chief Executive Officer of Sun-Times to Chicago, Illinois. As of the Effective Date, you will no longer be an employee of Sun-Times or any of its subsidiaries or affiliates. You shall continue to perform your regular duties and responsibilities through the Effective Date. Except as otherwise agreed by Sun-Times, following the Effective Date you shall relinquish all titles, positions and authorities that you held during your employment, with respect to Sun-Times and each and every subsidiary or affiliate of Sun-Times with which you have held positions as an officer and/or director, provided that you shall continue following the Effective Date as a member of the board of directors of Sun-Times (the “Board”) and the Chairman of the Special Committee of the Board until your termination or resignation from those positions in accordance with the Articles of Incorporation and By-laws of Sun-Times. You agree to execute any and all documents necessary to effect your resignation from all such positions. It is understood that there are some indirect subsidiaries of Sun-Times with respect to which it may be difficult to effect a change in membership of the board of directors by the Effective Date. In such circumstances, you agree to remain as a member of the board of directors and to cooperate with Sun-Times and each such subsidiary until such time as Sun-Times determines it appropriate for you to resign from such position.

     2.  Separation Benefits.

     You have the right to receive a lump sum payment for any accrued, unused vacation time, reduced by all applicable withholding taxes, regardless of whether you sign this Agreement. In

addition, in consideration of your full cooperation with Sun-Times and its subsidiaries and affiliates as described in Paragraph 3, and your agreement to the terms of the waivers and releases (as described in Paragraph 6), and to the other obligations set forth in this Agreement, Sun-Times shall provide you with the following:

     (a) Cash Severance Payment. You shall receive a cash lump sum payment in an amount equal to Two Million Seven Hundred Thousand Dollars ($2,700,000.00), determined in accordance with Paragraph 7B of the Employment Agreement as the amount of one year’s base salary and target bonus, plus a bonus for 2006 at target level. Such lump sum payment shall be payable within 10 business days following the Effective Date, subject to the last sentence of this Paragraph 2.

      (b) Treatment of Outstanding Cash Incentive Awards and Equity-Based Awards. Subject to the last sentence of this Paragraph 2, for purposes of the Cash Incentive Award (within the meaning of the Hollinger International Inc. 2006 Long-Term Incentive Plan (“LTIP”)) granted under the LTIP on December 9, 2005, including for the avoidance of doubt, the terms of Section 6(c)(x) of the LTIP (providing 6-month protection relating to certain awards following a Change in Control (as defined in the LTIP)), your employment shall not be deemed terminated until the later of (i) the Effective Date and (ii) the date on which you cease to be a member of the Board. On the date of such deemed termination of employment, such Cash Incentive Award shall become immediately vested and payable (if applicable) as and to the extent provided in the LTIP (if such Cash Incentive Award has not already been settled as a result of the prior expiration of the scheduled performance period), except that such Cash Incentive Award shall not be subject to proration as provided in the LTIP. Subject to the last sentence of this Paragraph 2, all equity-based awards (excluding the Cash Incentive Award referred to in the previous sentence) previously granted to you under the LTIP or otherwise shall become immediately fully vested and payable (if applicable) as of the Effective Date, and Sun-Times shall cause the underlying shares to be distributed to you on December 29, 2006.

     (c) Health and Welfare Benefits Continuation. If you so elect, Sun-Times will continue to provide you, at Sun-Times’s expense, subject to the last sentence of this Paragraph 2, with health and welfare benefits in which you were enrolled as of the Effective Date (including group medical, dental, vision, life insurance and disability insurance, individual supplemental life insurance and, if applicable, any individual supplemental disability insurance in effect) at a level consistent with that provided to employees of Sun-Times (or to you, in the case of the individual supplemental life and disability insurance coverages) until December 31, 2007. With respect to any such health and welfare benefits subject to COBRA (as defined in Paragraph 5), Sun-Times may satisfy its obligations under this Paragraph 2(c) by providing you such coverages under COBRA and paying 100% of the cost of your COBRA premiums.

     (d) 401(k) Plan. Subject to the last sentence of this Paragraph 2, Sun-Times will make an additional cash payment to you in an amount equal to the portion of your account balance under, or any company matching contributions to, the 401(k) plan of Sun-Times and its subsidiaries in which you participate on the Effective Date, in each case that you will forfeit or not otherwise receive solely by reason of your employment termination date being December 29, 2006 instead of December 31, 2006 (including any company matching contribution that you would have otherwise been entitled to receive for 2006 and the portion of your account balance that would have vested had you remained employed through December 31, 2006). Such payment shall be payable at the time the company matching contribution would be made by Sun-Times and its subsidiaries under the 401(k) plan to other 401(k) plan participants, but in no event later than March 15, 2007.

     Notwithstanding the foregoing, subject to the last sentence of this Paragraph 2, in the event a Change in Control (as defined in the Employment Agreement) occurs on or prior to December 31, 2006, then you shall be entitled to receive the payments and benefits set forth in Paragraph 7C of the

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Employment Agreement (the “Change in Control Benefits”) (in lieu of the payments and benefits set forth in Paragraphs 2(a), 2(b) and 2(c) of this Agreement) to the extent the Change in Control Benefits are greater then the payments and benefits set forth in Paragraphs 2(a), 2(b) and 2(c) of this Agreement.

     Notwithstanding the foregoing, payments under Paragraphs 2(a) (or the corresponding Change in Control Benefit, as applicable) and 2(d) shall not be payable until you execute and deliver a waiver and release of claims in favor of the Company (that contains provisions substantially identical to the provisions of Sections 6 , 7, 8(b), 8(c) and 11 of this Agreement, but which is dated as of the Effective Date) that becomes fully effective and enforceable in accordance with its terms (i.e., upon the eighth day following the date you have signed such waiver and release so long as you have not previously revoked such waiver and release), and your entitlement to the benefits under Paragraphs 2(b) and (c) (or the corresponding Change in Control Benefits, as applicable) shall be void ab initio if you do not execute and deliver such waiver and release or revoke such waiver and release before it becomes fully effective and enforceable in accordance with its terms (it being understood that in order to receive the distribution of shares under Paragraph 2(b) (or the corresponding Change in Control Benefit, as applicable) on December 29, 2006, you shall be required to provide an additional substantially identical waiver and release as of December 21, 2006).

     3. Cooperation.

     (a) You further agree that, upon reasonable notice and without the necessity of the Company obtaining a subpoena or court order, you shall provide reasonable cooperation in connection with any suit, action or proceeding (or any appeal from any suit, action or proceeding), and any investigation and/or defense of any claims asserted against the Company, which relates to events occurring during your employment with Sun-Times and its subsidiaries and affiliates (and their predecessors and successors) as to which you may have relevant information (including but not limited to furnishing relevant information and materials to the Company or its designee and/or providing testimony at depositions and at trial).

     (b) Sun-Times agrees to reimburse you for all reasonable out-of-pocket expenses associated with the provision of such reasonable cooperation, subject to the provision of detailed invoices for all expenses so incurred. In requesting your services from time to time and such reasonable cooperation, Sun-Times shall make reasonable efforts to accommodate your schedule and the requirements of your employer.

     4. Return of Confidential Information; Nondisparagement; Return of Company Property.

     (a) Without limiting the provisions of Section 8 of the Employment Agreement (which shall survive the termination of the Employment Agreement and continue in effect in accordance with its terms), you agree to return to Sun-Times and its subsidiaries and affiliates following the date on which you cease to be a member of the Board any and all confidential and proprietary information you have acquired regarding Sun-Times and its subsidiaries and affiliates, including information about their personnel, policies, publications, business practices, strategic plans, advertisers, customers, suppliers, distributors, readers, financial forecasts, production data, marketing techniques, promotional plans, and financial information, and to hold in the strictest confidence, except as required by applicable law, and not to disclose any of said information to anyone, and to refrain from making any statements or representations to any employee of Sun-Times and its subsidiaries and affiliates or to their customers, suppliers, competitors or the public at large which might disparage or have a detrimental effect on Sun-Times’s and its subsidiaries’s and affiliates’s business, operations, public image, reputation or their relations with advertisers, customers, suppliers, employees, lenders, competitors, or other business associates.

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     (b) Sun-Times agrees that you shall be entitled to retain any personal computing equipment provided to you by Sun-Times and its subsidiaries and affiliates, including any PCs and laptops, subject to the condition that, following the date on which you cease to be a member of the Board, Sun-Times be permitted to remove from such equipment all proprietary software and documents. You may also retain the Blackberry provided to you by Sun-Times and its subsidiaries and affiliates, subject to the same condition set forth immediately above. All other property of Sun-Times and its subsidiaries and affiliates which you have in your possession including, but not limited to, all access cards, facility keys and credit cards, shall be returned to Sun-Times and its subsidiaries and affiliates following the date on which you cease to be a member of the Board, except as otherwise agreed to between you and Sun-Times.

     5. COBRA Generally.

     The Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) requires that, in certain cases, terminated employees be allowed to continue their medical and dental insurance beyond their separation date at their own expense. An explanation of your rights under COBRA will be sent to you under separate cover at a future date.

     6. Release.

     (a) You hereby agree to WAIVE any and all rights in connection with, and to fully RELEASE and forever discharge the Company from, any and all torts, contracts, claims, suits, actions, causes of action, demands, rights, damages, costs, expenses, attorneys fees, and compensation in any form whatsoever, whether now known or unknown, in law or in equity, which you have or ever had (from the beginning of time through and including the date hereof) against the Company, including without limitation on account of or in any way arising out of, relating to or in connection with your employment by or separation of employment from Sun-Times and its subsidiaries and affiliates (and their predecessors and successors), and any and all claims for damages or injury to any entity, person, property or reputation arising therefrom, claims for wages, employment benefits, tort claims and claims under Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Civil Rights Act of 1866, the Employee Retirement Income Security Act of 1974, the National Labor Relations Act, the Fair Labor Standards Act, the Rehabilitation Act of 1973, the Family and Medical Leave Act of 1993, the Americans with Disabilities Act of 1990, the Illinois Human Rights Act, the Illinois Wage Payment and Collection Act, the Cook County Human Rights Ordinance, the Chicago Human Rights Ordinance and any other federal, state or local law, statute, ordinance, guideline, regulation, order or common-law principle of any state relating to employment, employment contracts, wrongful discharge or any other matter; provided, however, that the foregoing waiver and release shall not apply to your rights in respect of any benefit or claim to which you are entitled under employee pension or welfare benefit plans and programs of Sun-Times and its subsidiaries and affiliates in which you are a participant prior to the Effective Date, or to your rights to enforce this Agreement.

     (b) Release of Age Discrimination Claims. In further consideration of the promises made by the Company in this Agreement, you specifically WAIVE any and all rights in connection with, and fully RELEASE and forever discharge the Company from, any and all torts, contracts, claims, suits, actions, causes of action, demands, rights, damages, costs, expenses, attorneys fees, and compensation in any form whatsoever, whether now known or unknown, in law or in equity, which you have or ever had (from the beginning of time through and including the date hereof) against the Company, arising under the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. Sec. 621, et seq. (“ADEA”). You further agree that:

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(i)	your waiver of rights under this release is knowing and voluntary and in compliance with the Older Workers Benefit Protection Act of 1990;
(ii)	you understand the terms of this release;
(iii)	the consideration provided in Paragraph 2 represents consideration over and above that to which you otherwise would be entitled, that the consideration would not have been provided had you not signed this release, and that the consideration is in exchange for the signing of this release;
(iv)	the Company is hereby advising you in writing to consult with your attorney prior to executing this release;
(v)	the Company is giving you a period of twenty-one days within which to consider this release;
(vi)	following your execution of this release you have seven (7) days in which to revoke this release by written notice. To be effective, the revocation must be made in writing and delivered to and received by Pamela A. Davidson, Assistant Corporate Counsel, Sun-Times Media Group, Inc., 350 North Orleans, 10 South, Chicago, Illinois 60654, no later than 4:00 p.m. on the seventh day after you execute this release. An attempted revocation not actually received by Ms. Davidson before the revocation deadline will not be effective; and
(vii)	this entire Agreement shall be void and of no force and effect if you choose to so revoke, and if you choose not to so revoke this Agreement shall then become fully effective and enforceable.

     This Paragraph 6(b) does not waive rights or claims that may arise under the ADEA after the date you sign this Agreement. In addition, nothing in this Agreement shall in any way affect your right to the indemnification and expense advancement to the extent provided by Sun-Times’s bylaws and Restated Certificate of Incorporation, as amended; provided, however, that the Company shall not be liable, and shall not provide a defense and indemnification for any claim wherein you have not satisfied the applicable standard of conduct set forth in such by-laws and Restated Certificate of Incorporation, or wherein you have committed any acts of fraud, embezzlement or gross misconduct.

     7. Proceedings; No Admissions.

     (a) You hereby represent and warrant that: (i) you have no pending claims against the Company with any municipal, state, federal or other governmental or nongovernmental entity; and (ii) you will not file any claims with respect to any events occurring on or before the date hereof. You also acknowledge and agree that by entering into this Agreement you can never make claim or demand upon or sue the Company for any reason whatsoever relating to anything that has happened through the date hereof. Notwithstanding the foregoing, this Agreement shall not prevent you from (A) initiating or causing to be initiated on your behalf any complaint, charge, claim or proceeding against Sun-Times or its subsidiaries and affiliates before any local, state or federal agency, court or other body challenging the validity of the waiver of your claims under the ADEA contained in this Agreement (but no other portions of the waivers and releases described in Paragraph 6); or (B) initiating or participating in an investigation or proceeding conducted by the Equal Employment Opportunity Commission with respect to the ADEA.

     (b) Both parties acknowledge and agree that this Agreement does not constitute, is not intended to be, and shall not be construed, interpreted or treated in any respect as, and shall not be

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admissible in any proceeding as, an admission of liability, error, violation, omission or wrongdoing by either party for any purpose whatsoever. Further, both parties acknowledge and agree that there has been no determination that either party has violated any federal, state or local law, statute, ordinance, guideline, regulation, order or common-law principle. You further acknowledge that no precedent, practice, policy or usage shall be established by this Agreement or the offer to you of compensation and benefits herein.

     8. Continuing Obligations; Remedies.

     (a) Should you damage the reputation, goodwill or competitive position of Sun-Times or its subsidiaries or affiliates, or if you cause, directly or indirectly, any key executive employee of Sun-Times or its subsidiaries or affiliates to terminate his or her employment with Sun-Times or its subsidiaries or affiliates (except that you shall be permitted to respond to unsolicited requests for references), then Sun-Times will be entitled to reimbursement from you of the full amount of separation pay and other compensation and benefits that you have received under this Agreement through the date of such action by you, and Sun-Times will also be entitled to obtain injunctive relief against your continuing any such action.

     (b) You also understand and agree that in the event you, your heirs, spouse, family members, executors, or administrators attempt to institute or do institute any charge, claim, suit or action against the Company in violation of this Agreement, you shall be obligated, as an express condition of bringing such action, to tender back to Sun-Times the full amount of separation pay and other compensation and benefits that you have received under this Agreement; and you further agree that you will pay all of the Company’s costs, expenses and fees of defending against such action, including among other things, reasonable attorney’s fees. This paragraph does not grant you an option to return the money and institute an action. Instead this paragraph merely creates an additional term and condition precedent to bringing an action regardless of the fact that such action is expressly barred by this Agreement, and is without merit.

     (c) Should you breach any other term of this Agreement, including but not limited to filing any claim which you have agreed to release and waive under this Agreement or breaching any of the provisions of this Agreement, the Company will be entitled to recover damages for such breach and also to obtain injunctive relief against further breach by you. If Sun-Times or you at any time believe that the other party has breached any term of this Agreement, the party claiming a breach shall promptly notify the other in writing (if to you, at your address set forth on page 1 hereof; if to Sun-Times, to the contact person at the address specified in Paragraph 6(b)(vi)) of the specific basis for that belief, and the other party will have a period of ten (10) days within which to cure any breach (if cure is possible) or to otherwise respond to the claim of breach.

     (d) Notwithstanding anything to the contrary in this Agreement, the parties acknowledge and agree that the provisions of Sections 7D, 9, 17 and 18 of the Employment Agreement shall survive the termination of the Employment Agreement and continue in full force and effect in accordance with their terms.

     9. Arbitration of Disputes; Payment of Expenses.

     Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration proceedings conducted in accordance with the commercial rules of the American Arbitration Association (“AAA”) as then in effect. Any arbitration shall be held in Chicago, Illinois. The arbitrator shall be selected by joint agreement of the Company and you, but if such agreement is not reached within seven (7) days of the date of the request for arbitration, the selection shall be made by the AAA in accordance with its commercial rules. Judgment upon any award rendered by the arbitrator may be entered in any court having jurisdiction. The costs and

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expenses of the arbitrator and all costs and expenses of experts, attorneys, witnesses and other parties reasonably incurred by the prevailing party shall be borne by the party that does not prevail in such arbitration or in any court proceeding relating to enforcement of this Agreement.

     10. Governing Law.

     This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York without regard to principles of conflicts of laws.

     11. Acknowledgments; Revocation of Release.

     You hereby acknowledge (a) that the Company has given you a period of at least twenty one (21) days in which to review and consider this Agreement; (b) that the Company has advised, and does hereby in writing advise, you to consult with an attorney before signing this Agreement; (c) that you have read this Agreement in its entirety; (d) that you have had at least twenty one (21) days in which to confer with your own attorney for assistance and advice concerning this Agreement; (e) that you understand the terms of this Agreement; (f) that you understand that the terms of this Agreement are legally enforceable; (g) that you have entered into this Agreement freely, voluntarily, knowingly and willingly and were in no manner coerced into signing it; (h) that neither this Agreement nor the discussion and negotiation leading to it are or were, in any manner, discriminatory; (i) that you were, and hereby are, encouraged to discuss any questions, problems, or issues concerning this Agreement with the Company before signing it; (j) that you are waiving rights and claims you may have in exchange for consideration in addition to things of value to which you are already entitled; and (k) that after signing this Agreement you have a period of seven (7) days in which to revoke this Agreement, however, any such revocation must be in writing and must be addressed to Pamela A. Davidson, Assistant Corporate Counsel, Sun-Times Media Group, Inc., 350 North Orleans, 10 South, Chicago, Illinois 60654.

     12. Withholding.

     The Company may deduct and withhold from any amounts payable under this Agreement such Federal, state, local, non-U.S. or other taxes as are required or permitted to be withheld pursuant to any applicable law or regulation.

     13. Amendment; No Waiver; Interpretation.

     No provisions of this Agreement may be amended, modified, waived or discharged except by a written document signed by you and a duly authorized officer of Sun-Times (other than you). The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver of such party’s rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. No failure or delay by either party in exercising any right or power hereunder will operate as a waiver thereof, nor will any single or partial exercise of any such right or power, or any abandonment of any steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. No provision of this Agreement or any related document will be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured or drafted such provision.

     14. Severability.

     If any term or provision of this Agreement is invalid, illegal or incapable of being enforced by any applicable law or public policy, all other conditions and provisions of this Agreement shall nonetheless remain in full force and effect to the fullest extent permitted by law. You agree that in

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the event that any court of competent jurisdiction shall finally hold that any provision of this Agreement (whether in whole or in part) is void or constitutes an unreasonable restriction against you, such provision shall not be rendered void but shall be deemed to be modified to the minimum extent necessary to make such provision enforceable for the longest duration and the greatest scope as such court may determine constitutes a reasonable restriction under the circumstances.

     15. Entire Agreement.

     This Agreement constitutes the entire agreement and understanding between the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings (whether written or oral), between you and the Company relating to such subject matter. None of the parties shall be liable or bound to any other party in any manner by any representations and warranties or covenants relating to such subject matter except as specifically set forth herein.

     16. Binding on Successors.

     This Agreement shall be binding on, and shall inure to the benefit of, the parties to it and their respective heirs, legal representatives, successors and permitted assigns (including, without limitation, in the event of your death, your estate and heirs in the case of any payments due to you hereunder).

     17. No Other Benefits.

     You agree that you are not entitled to any other compensation or benefits in connection with your termination of employment (other than pursuant to the terms of the employee benefit plans and programs of Sun-Times and its subsidiaries and affiliates in which you participated prior to the Effective Date, provided that you explicitly waive any right to receive any severance or similar benefits under such plans and programs (including without limitation any benefits under the Key Employee Severance Plan)).

     18. Counterparts.

     This Agreement may be executed in one or more counterparts (including via facsimile and electronic image scan (pdf)), each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties.

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     Gordon, please indicate your understanding and acceptance of this Agreement by executing both copies below, and retaining one fully executed original for your files and returning one fully executed original to me.

Very truly yours,
	SUN-TIMES MEDIA GROUP, INC
	By:
	Name:	Cyrus F. Freidheim, Jr.
	Title:	Chairman of Compensation Committee

I hereby accept the terms of this
Agreement and agree to abide by the provisions hereof:

 Gordon A. Paris

Date:

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EX-10.2

EXHIBIT 10.2

EXECUTION COPY

September 13, 2006

VIA HAND DELIVERY
PERSONAL AND CONFIDENTIAL

James R. Van Horn
[address]

Re: Termination of Employment from Sun-Times Media Group, Inc.

Dear Jim:

     This letter agreement (this “Agreement”) sets forth certain terms and conditions in connection with your termination of employment from Sun-Times Media Group, Inc. (“Sun-Times”) and its subsidiaries and affiliates, effective as of December 29, 2006 (the “Effective Date”). Upon the Effective Date, the Amended and Restated Employment Agreement, dated as of January 1, 2006, between you and Hollinger International Inc. (the “Employment Agreement”) shall terminate and be of no further force and effect, except as otherwise specifically provided herein. In consideration of the mutual covenants set forth below and other valuable consideration, including Sun-Times’s agreement to provide you with certain payments and benefits to which you are not otherwise entitled, the receipt and sufficiency of which Sun-Times (together with its parent corporations, affiliates, past and present officers, directors, stockholders, agents, employees, publications, legal representatives, successors, and assigns, hereinafter collectively referred to as, the “Company”) and you hereby acknowledge, Sun-Times and you hereby agree as follows:

     1. Termination of Employment.

     You have agreed to resign as of the Effective Date from employment with Sun-Times and its subsidiaries and affiliates to facilitate the relocation of the positions of Vice President, General Counsel and Secretary to Chicago, Illinois. As of the Effective Date, you will no longer be an employee of Sun-Times or any of its subsidiaries or affiliates. You shall continue to perform your regular duties and responsibilities through the Effective Date. Except as otherwise agreed by Sun-Times, following the Effective Date you shall relinquish all titles, positions and authorities that you held during your employment, with respect to Sun-Times and each and every subsidiary or affiliate of Sun-Times with which you have held positions as an officer and/or director. You agree to execute any and all documents necessary to effect your resignation from all such positions. It is understood that there are some indirect subsidiaries of Sun-Times with respect to which it may be difficult to effect a change in membership of the board of directors by the Effective Date. In such circumstances, you agree to remain as a member of the board of directors and to cooperate with Sun-Times and each such subsidiary until such time as Sun-Times determines it appropriate for you to resign from such position.

     2. Separation Benefits.

     You have the right to receive a lump sum payment for any accrued, unused vacation time, reduced by all applicable withholding taxes, regardless of whether you sign this Agreement. In addition, in consideration of your full cooperation with Sun-Times and its subsidiaries and affiliates as described in Paragraph 3, and your agreement to the terms of the waivers and releases (as described in Paragraph 6), and to the other obligations set forth in this Agreement, Sun-Times shall provide

you with the following:

     (a) Cash Severance Payment. You shall receive a cash lump sum payment in an amount equal to Eight Hundred Seventy-Five Thousand Dollars ($875,000.00), determined in accordance with Paragraph 7B of the Employment Agreement as the amount of one year’s base salary and target bonus, plus a bonus for 2006 at target level. Such lump sum payment shall be payable within 10 business days following the Effective Date, subject to the last sentence of this Paragraph 2.

      (b) Treatment of Outstanding Cash Incentive Awards and Equity-Based Awards. Subject to the last sentence of this Paragraph 2, on the Effective Date, (i) all unvested cash Incentive Awards (within the meaning of the Hollinger International Inc. 2006 Long-Term Incentive Plan (“LTIP”)) shall become immediately vested and payable (if applicable) as and to the extent provided in the LTIP, and (ii)(A) all unvested equity-based awards under the LTIP or otherwise that would have vested under the original vesting schedule for such awards at any time during 2007 shall become immediately fully vested and payable (if applicable) and (B) all other unvested equity-based awards under the LTIP or otherwise shall immediately terminate.

     (c) Health and Welfare Benefits Continuation. If you so elect, Sun-Times will continue to provide you, at Sun-Times’s expense, subject to the last sentence of this Paragraph 2, with health and welfare benefits in which you were enrolled as of the Effective Date (including group medical, dental, vision, life insurance and disability insurance, individual supplemental life insurance and, if applicable, any individual supplemental disability insurance in effect) at a level consistent with that provided to employees of Sun-Times (or to you, in the case of the individual supplemental life and disability insurance coverages) until December 31, 2007. With respect to any such health and welfare benefits subject to COBRA (as defined in Paragraph 5), Sun-Times may satisfy its obligations under this Paragraph 2(c) by providing you such coverages under COBRA and paying 100% of the cost of your COBRA premiums.

     (d) Outplacement Services. Subject to the last sentence of this Paragraph 2, Sun-Times shall provide outplacement services to you for twelve months following the Effective Date through Kensington International or another nationally recognized outplacement services firm selected by the Company, at the highest executive-level outplacement product offered by Kensington International or such other firm, provided that the costs of such outplacement services shall not exceed 10% of your base salary in effect as of the Effective Date. The Company agrees to use its reasonable efforts to facilitate the provision of such services at a location within New Jersey within a reasonable distance from your primary residence.

     (e) 401(k) Plan. Subject to the last sentence of this Paragraph 2, Sun-Times will make an additional cash payment to you in an amount equal to the portion of your account balance under, or any company matching contributions to, the 401(k) plan of Sun-Times and its subsidiaries in which you participate on the Effective Date, in each case that you will forfeit or not otherwise receive solely by reason of your employment termination date being December 29, 2006 instead of December 31, 2006 (including any company matching contribution that you would have otherwise been entitled to receive for 2006 and the portion of your account balance that would have vested had you remained employed through December 31, 2006). Such payment shall be payable at the time the company matching contribution would be made by Sun-Times and its subsidiaries under the 401(k) plan to other 401(k) plan participants, but in no event later than March 15, 2007.

     Notwithstanding the foregoing, subject to the last sentence of this Paragraph 2, in the event a Change in Control (as defined in the Employment Agreement) occurs on or prior to December 31, 2006, then you shall be entitled to receive the payments and benefits set forth in Paragraph 7C of the Employment Agreement (the “Change in Control Benefits”) (in lieu of the payments and benefits set forth in Paragraphs 2(a), 2(b) and 2(c) of this Agreement) to the extent the Change in Control Benefits are greater then the payments and benefits set forth in Paragraphs 2(a), 2(b) and 2(c) of this Agreement.

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     Notwithstanding the foregoing, payments under Paragraphs 2(a) (or the corresponding Change in Control Benefit, as applicable) and 2(e) shall not be payable until you execute and deliver a waiver and release of claims in favor of the Company (that contains provisions substantially identical to the provisions of Sections 6 , 7, 8(b), 8(c) and 11 of this Agreement, but which is dated as of the Effective Date) that becomes fully effective and enforceable in accordance with its terms (i.e., upon the eighth day following the date you have signed such waiver and release so long as you have not previously revoked such waiver and release), and your entitlement to the benefits under Paragraphs 2(b) and 2(c) (or the corresponding Change in Control Benefits, as applicable) and 2(d) shall be void ab initio if you do not execute and deliver such waiver and release or revoke such waiver and release before it becomes fully effective and enforceable in accordance with its terms.

     3. Consulting; Cooperation.

     (a) During the six-month period following the Effective Date, you agree to provide to Sun-Times and its subsidiaries and affiliates, on an as-needed basis, consulting services including, but not limited to, assisting your successor in the assumption of your prior responsibilities, making introductions as needed for a successful transition, and providing such additional reasonable assistance to ensure a smooth transition of responsibilities. As consideration for your agreement to provide such consulting services, Sun-Times shall pay you an additional cash lump sum payment in the amount of $200,000 at the same time the cash severance payment in Paragraph 2(a) is paid to you.

     (b) You further agree that, upon reasonable notice and without the necessity of the Company obtaining a subpoena or court order, you shall provide reasonable cooperation in connection with any suit, action or proceeding (or any appeal from any suit, action or proceeding), and any investigation and/or defense of any claims asserted against the Company, which relates to events occurring during your employment with Sun-Times and its subsidiaries and affiliates (and their predecessors and successors) as to which you may have relevant information (including but not limited to furnishing relevant information and materials to the Company or its designee and/or providing testimony at depositions and at trial).

     (c) Sun-Times agrees to reimburse you for all reasonable out-of-pocket expenses associated with the provision of such consulting services and reasonable cooperation, subject to the provision of detailed invoices for all expenses so incurred. In requesting your services from time to time and such reasonable cooperation, Sun-Times shall make reasonable efforts to accommodate your schedule and the requirements of your employer.

     4. Return of Confidential Information; Nondisparagement; Return of Company Property.

     (a) Without limiting the provisions of Section 8 of the Employment Agreement (which shall survive the termination of the Employment Agreement and continue in effect in accordance with its terms), you agree to return to Sun-Times and its subsidiaries and affiliates any and all confidential and proprietary information you have acquired regarding Sun-Times and its subsidiaries and affiliates, including information about their personnel, policies, publications, business practices, strategic plans, advertisers, customers, suppliers, distributors, readers, financial forecasts, production data, marketing techniques, promotional plans, and financial information, and to hold in the strictest confidence, except as required by applicable law, and not to disclose any of said information to anyone, and to refrain from making any statements or representations to any employee of Sun-Times and its subsidiaries and affiliates or to their customers, suppliers, competitors or the public at large which might disparage or have a detrimental effect on Sun-Times’s and its subsidiaries’s and affiliates’s business, operations, public image, reputation or their relations with advertisers,

3

customers, suppliers, employees, lenders, competitors, or other business associates.

     (b) Sun-Times agrees that you shall be entitled to retain any personal computing equipment provided to you by Sun-Times and its subsidiaries and affiliates, including any PCs and laptops, subject to the condition that Sun-Times be permitted to remove from such equipment all proprietary software and documents. You may also retain the Blackberry provided to you by Sun-Times and its subsidiaries and affiliates, subject to the same condition set forth immediately above. All other property of Sun-Times and its subsidiaries and affiliates which you have in your possession including, but not limited to, all access cards, facility keys and credit cards, shall be returned to Sun-Times and its subsidiaries and affiliates by the Effective Date, except as otherwise agreed to between you and Sun-Times.

     5. COBRA Generally.

     The Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) requires that, in certain cases, terminated employees be allowed to continue their medical and dental insurance beyond their separation date at their own expense. An explanation of your rights under COBRA will be sent to you under separate cover at a future date.

     6. Release.

     (a) You hereby agree to WAIVE any and all rights in connection with, and to fully RELEASE and forever discharge the Company from, any and all torts, contracts, claims, suits, actions, causes of action, demands, rights, damages, costs, expenses, attorneys fees, and compensation in any form whatsoever, whether now known or unknown, in law or in equity, which you have or ever had (from the beginning of time through and including the date hereof) against the Company, including without limitation on account of or in any way arising out of, relating to or in connection with your employment by or separation of employment from Sun-Times and its subsidiaries and affiliates (and their predecessors and successors), and any and all claims for damages or injury to any entity, person, property or reputation arising therefrom, claims for wages, employment benefits, tort claims and claims under Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Civil Rights Act of 1866, the Employee Retirement Income Security Act of 1974, the National Labor Relations Act, the Fair Labor Standards Act, the Rehabilitation Act of 1973, the Family and Medical Leave Act of 1993, the Americans with Disabilities Act of 1990, the Illinois Human Rights Act, the Illinois Wage Payment and Collection Act, the Cook County Human Rights Ordinance, the Chicago Human Rights Ordinance and any other federal, state or local law, statute, ordinance, guideline, regulation, order or common-law principle of any state relating to employment, employment contracts, wrongful discharge or any other matter; provided, however, that the foregoing waiver and release shall not apply to your rights in respect of any benefit or claim to which you are entitled under employee pension or welfare benefit plans and programs of Sun-Times and its subsidiaries and affiliates in which you are a participant prior to the Effective Date, or to your rights to enforce this Agreement.

     (b) Release of Age Discrimination Claims. In further consideration of the promises made by the Company in this Agreement, you specifically WAIVE any and all rights in connection with, and fully RELEASE and forever discharge the Company from, any and all torts, contracts, claims, suits, actions, causes of action, demands, rights, damages, costs, expenses, attorneys fees, and compensation in any form whatsoever, whether now known or unknown, in law or in equity, which you have or ever had (from the beginning of time through and including the date hereof) against the Company, arising under the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. Sec. 621, et seq. (“ADEA”). You further agree that:

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(i)	your waiver of rights under this release is knowing and voluntary and in compliance with the Older Workers Benefit Protection Act of 1990;
(ii)	you understand the terms of this release;
(iii)	the consideration provided in Paragraph 2 represents consideration over and above that to which you otherwise would be entitled, that the consideration would not have been provided had you not signed this release, and that the consideration is in exchange for the signing of this release;
(iv)	the Company is hereby advising you in writing to consult with your attorney prior to executing this release;
(v)	the Company is giving you a period of twenty-one days within which to consider this release;
(vi)	following your execution of this release you have seven (7) days in which to revoke this release by written notice. To be effective, the revocation must be made in writing and delivered to and received by Pamela A. Davidson, Assistant Corporate Counsel, Sun-Times Media Group, Inc., 350 North Orleans, 10 South, Chicago, Illinois 60654, no later than 4:00 p.m. on the seventh day after you execute this release. An attempted revocation not actually received by Ms. Davidson before the revocation deadline will not be effective; and
(vii)	this entire Agreement shall be void and of no force and effect if you choose to so revoke, and if you choose not to so revoke this Agreement shall then become fully effective and enforceable.

     This Paragraph 6(b) does not waive rights or claims that may arise under the ADEA after the date you sign this Agreement. In addition, nothing in this Agreement shall in any way affect your right to the indemnification and expense advancement to the extent provided by Sun-Times’s bylaws and Restated Certificate of Incorporation, as amended; provided, however, that the Company shall not be liable, and shall not provide a defense and indemnification for any claim wherein you have not satisfied the applicable standard of conduct set forth in such by-laws and Restated Certificate of Incorporation, or wherein you have committed any acts of fraud, embezzlement or gross misconduct.

     7. Proceedings; No Admissions.

     (a) You hereby represent and warrant that: (i) you have no pending claims against the Company with any municipal, state, federal or other governmental or nongovernmental entity; and (ii) you will not file any claims with respect to any events occurring on or before the date hereof. You also acknowledge and agree that by entering into this Agreement you can never make claim or demand upon or sue the Company for any reason whatsoever relating to anything that has happened through the date hereof. Notwithstanding the foregoing, this Agreement shall not prevent you from (A) initiating or causing to be initiated on your behalf any complaint, charge, claim or proceeding against Sun-Times or its subsidiaries and affiliates before any local, state or federal agency, court or other body challenging the validity of the waiver of your claims under the ADEA contained in this Agreement (but no other portions of the waivers and releases described in Paragraph 6); or (B) initiating or participating in an investigation or proceeding conducted by the Equal Employment Opportunity Commission with respect to the ADEA.

     (b) Both parties acknowledge and agree that this Agreement does not constitute, is not intended to be, and shall not be construed, interpreted or treated in any respect as, and shall not be

5

admissible in any proceeding as, an admission of liability, error, violation, omission or wrongdoing by either party for any purpose whatsoever. Further, both parties acknowledge and agree that there has been no determination that either party has violated any federal, state or local law, statute, ordinance, guideline, regulation, order or common-law principle. You further acknowledge that no precedent, practice, policy or usage shall be established by this Agreement or the offer to you of compensation and benefits herein.

     8. Continuing Obligations; Remedies.

     (a) Should you damage the reputation, goodwill or competitive position of Sun-Times or its subsidiaries or affiliates, or if you cause, directly or indirectly, any key executive employee of Sun-Times or its subsidiaries or affiliates to terminate his or her employment with Sun-Times or its subsidiaries or affiliates (except that you shall be permitted to respond to unsolicited requests for references), then Sun-Times will be entitled to reimbursement from you of the full amount of separation pay and other compensation and benefits that you have received under this Agreement through the date of such action by you, and Sun-Times will also be entitled to obtain injunctive relief against your continuing any such action.

     (b) You agree that for a period of one (1) year following the Effective Date, you will not, directly or indirectly, on behalf of yourself or any third party, induce or attempt to induce any employee of Sun-Times or its subsidiaries or affiliates to leave the employ of Sun-Times or its subsidiaries or affiliates or hire or attempt to hire any employees of Sun-Times or its subsidiaries or affiliates. You acknowledge that this non-solicitation agreement constitutes a material inducement to Sun-Times to enter into this Agreement, and any violation of this provision by you will constitute a material breach of this Agreement.

     (c) You also understand and agree that in the event you, your heirs, spouse, family members, executors, or administrators attempt to institute or do institute any charge, claim, suit or action against the Company in violation of this Agreement, you shall be obligated, as an express condition of bringing such action, to tender back to Sun-Times the full amount of separation pay and other compensation and benefits that you have received under this Agreement; and you further agree that you will pay all of the Company’s costs, expenses and fees of defending against such action, including among other things, reasonable attorney’s fees. This paragraph does not grant you an option to return the money and institute an action. Instead this paragraph merely creates an additional term and condition precedent to bringing an action regardless of the fact that such action is expressly barred by this Agreement, and is without merit.

     (d) Should you breach any other term of this Agreement, including but not limited to filing any claim which you have agreed to release and waive under this Agreement or breaching any of the provisions of this Agreement, the Company will be entitled to recover damages for such breach and also to obtain injunctive relief against further breach by you. If Sun-Times or you at any time believe that the other party has breached any term of this Agreement, the party claiming a breach shall promptly notify the other in writing (if to you, at your address set forth on page 1 hereof; if to Sun-Times, to the contact person at the address specified in Paragraph 6(b)(vi)) of the specific basis for that belief, and the other party will have a period of ten (10) days within which to cure any breach (if cure is possible) or to otherwise respond to the claim of breach.

     (e) Notwithstanding anything to the contrary in this Agreement, the parties acknowledge and agree that the provisions of Sections 7D, 16 and 17 of the Employment Agreement shall survive the termination of the Employment Agreement and continue in full force and effect in accordance with their terms.

     9. Arbitration of Disputes; Payment of Expenses.

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     Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration proceedings conducted in accordance with the commercial rules of the American Arbitration Association (“AAA”) as then in effect. Any arbitration shall be held in Chicago, Illinois. The arbitrator shall be selected by joint agreement of the Company and you, but if such agreement is not reached within seven (7) days of the date of the request for arbitration, the selection shall be made by the AAA in accordance with its commercial rules. Judgment upon any award rendered by the arbitrator may be entered in any court having jurisdiction. The costs and expenses of the arbitrator and all costs and expenses of experts, attorneys, witnesses and other parties reasonably incurred by the prevailing party shall be borne by the party that does not prevail in such arbitration or in any court proceeding relating to enforcement of this Agreement.

     10. Governing Law.

     This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York without regard to principles of conflicts of laws.

     11. Acknowledgments; Revocation of Release.

     You hereby acknowledge (a) that the Company has given you a period of at least twenty one (21) days in which to review and consider this Agreement; (b) that the Company has advised, and does hereby in writing advise, you to consult with an attorney before signing this Agreement; (c) that you have read this Agreement in its entirety; (d) that you have had at least twenty one (21) days in which to confer with your own attorney for assistance and advice concerning this Agreement; (e) that you understand the terms of this Agreement; (f) that you understand that the terms of this Agreement are legally enforceable; (g) that you have entered into this Agreement freely, voluntarily, knowingly and willingly and were in no manner coerced into signing it; (h) that neither this Agreement nor the discussion and negotiation leading to it are or were, in any manner, discriminatory; (i) that you were, and hereby are, encouraged to discuss any questions, problems, or issues concerning this Agreement with the Company before signing it; (j) that you are waiving rights and claims you may have in exchange for consideration in addition to things of value to which you are already entitled; and (k) that after signing this Agreement you have a period of seven (7) days in which to revoke this Agreement, however, any such revocation must be in writing and must be addressed to Pamela A. Davidson, Assistant Corporate Counsel, Sun-Times Media Group, Inc., 350 North Orleans, 10 South, Chicago, Illinois 60654.

     12. Withholding.

     The Company may deduct and withhold from any amounts payable under this Agreement such Federal, state, local, non-U.S. or other taxes as are required or permitted to be withheld pursuant to any applicable law or regulation.

     13. Amendment; No Waiver; Interpretation.

     No provisions of this Agreement may be amended, modified, waived or discharged except by a written document signed by you and a duly authorized officer of Sun-Times (other than you). The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver of such party’s rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. No failure or delay by either party in exercising any right or power hereunder will operate as a waiver thereof, nor will any single or partial exercise of any such right or power, or any abandonment of any steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. No provision of this Agreement or any related document will be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial

7

authority by reason of such party having or being deemed to have structured or drafted such provision.

     14. Severability.

     If any term or provision of this Agreement is invalid, illegal or incapable of being enforced by any applicable law or public policy, all other conditions and provisions of this Agreement shall nonetheless remain in full force and effect to the fullest extent permitted by law. You agree that in the event that any court of competent jurisdiction shall finally hold that any provision of this Agreement (whether in whole or in part) is void or constitutes an unreasonable restriction against you, such provision shall not be rendered void but shall be deemed to be modified to the minimum extent necessary to make such provision enforceable for the longest duration and the greatest scope as such court may determine constitutes a reasonable restriction under the circumstances.

     15. Entire Agreement.

     This Agreement constitutes the entire agreement and understanding between the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings (whether written or oral), between you and the Company relating to such subject matter. None of the parties shall be liable or bound to any other party in any manner by any representations and warranties or covenants relating to such subject matter except as specifically set forth herein.

     16. Binding on Successors.

     This Agreement shall be binding on, and shall inure to the benefit of, the parties to it and their respective heirs, legal representatives, successors and permitted assigns (including, without limitation, in the event of your death, your estate and heirs in the case of any payments due to you hereunder).

     17. No Other Benefits.

     You agree that you are not entitled to any other compensation or benefits in connection with your termination of employment (other than pursuant to the terms of the employee benefit plans and programs of Sun-Times and its subsidiaries and affiliates in which you participated prior to the Effective Date, provided that you explicitly waive any right to receive any severance or similar benefits under such plans and programs (including without limitation any benefits under the Key Employee Severance Plan)).

     18. Counterparts.

     This Agreement may be executed in one or more counterparts (including via facsimile and electronic image scan (pdf)), each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties.

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     Jim, please indicate your understanding and acceptance of this Agreement by executing both copies below, and retaining one fully executed original for your files and returning one fully executed original to me.

Very truly yours,
	SUN-TIMES MEDIA GROUP, INC
	By:
	Name:	Cyrus F. Freidheim, Jr.
	Title:	Chairman of Compensation Committee

I hereby accept the terms of this
Agreement and agree to abide by the
provisions hereof:

James R. Van Horn

Date:

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EX-10.3

EXHIBIT 10.3

September 13, 2006

VIA HAND DELIVERY
PERSONAL AND CONFIDENTIAL

Mr. Robert T. Smith
[address]

Re: Termination of Employment from Sun-Times Media Group, Inc.

Dear Bob:

     This letter agreement (this “Agreement”) sets forth certain terms and conditions in connection with your termination of employment from Sun-Times Media Group, Inc. (“Sun-Times”) and its subsidiaries and affiliates, effective as of September 30, 2006 (the “Effective Date”). In consideration of the mutual covenants set forth below and other valuable consideration, including Sun-Times’s agreement to provide you with certain payments and benefits to which you are not otherwise entitled, the receipt and sufficiency of which Sun-Times (together with its parent corporations, affiliates, past and present officers, directors, stockholders, agents, employees, publications, legal representatives, successors, and assigns, hereinafter collectively referred to as, the “Company”) and you hereby acknowledge, Sun-Times and you hereby agree as follows:

     1. Termination of Employment.

     As of the Effective Date, you will no longer be an employee of Sun-Times or any of its subsidiaries or affiliates. You shall continue to perform your regular duties and responsibilities through the Effective Date. Except as otherwise agreed by Sun-Times, you shall relinquish all titles, positions and authorities that you held during your employment, with respect to Sun-Times and each and every subsidiary or affiliate of Sun-Times with which you have held positions as an officer and/or director. You agree to provide execute any and all documents necessary to effect your resignation from all such positions. It is understood that there are some indirect subsidiaries of Sun-Times with respect to which it may be difficult to effect a change in membership of the board of directors by the Effective Date. In such circumstances, you agree to remain as a member of the board of directors and to cooperate with Sun-Times and each such subsidiary until such time as Sun-Times determines it appropriate for you to resign from such position.

     2. Separation Benefits.

     You have the right to receive a lump sum payment for any accrued, unused vacation time, reduced by all applicable withholding taxes, regardless of whether you sign this Agreement. In addition, in consideration of your full cooperation with Sun-Times and its subsidiaries and affiliates as described in Paragraph 3, and your agreement to the terms of the Release (as defined in Paragraph 6), and to the other obligations set forth in this Agreement, Sun-Times shall provide you with the following:

     (a) Cash Severance Payments. (i) You shall receive a cash lump sum payment in an amount equal to Two Hundred Thirty-Five Thousand Dollars ($235,000.00), which shall be payable within 10 business days following the Effective Date, subject to the last sentence of this Paragraph

2.

     (ii) You shall receive cash payments in the aggregate amount of Three Hundred Ten Thousand Dollars ($310,000.00), 25% of which shall be payable during the period commencing on the Effective Date and ending on December 31, 2006, in bi-weekly installments in accordance with Sun-Times’s customary payroll practices, and the remaining 75% of which shall be payable on January 5, 2007, subject in each case to the last sentence of this Paragraph 2.

     (b) Treatment of Outstanding Stock Options. Any and all unvested and unexpired options to acquire common stock of Sun-Times that had been previously granted to you shall terminate on the Effective Date, provided that your outstanding options to purchase 6,536 shares of Sun-Times common stock at an exercise price of $6.69 per share, that would otherwise have vested on February 6, 2007, shall be deemed to have vested as of the Effective Date. Your ability to exercise vested options shall expire on October 31, 2007, unless otherwise agreed by Sun-Times.

     (c) Treatment of Outstanding Deferred Stock Units (“DSUs”). Your previously granted DSUs with respect to 7,146 shares of Sun-Times common stock that have not yet vested by reason of elapsed time from the date of grant shall be vested as of the Effective Date in accordance with the plans under which the DSUs were granted. In order to comply with Section 409A of the Internal Revenue Code of 1986, as amended, distribution of shares of Sun-Times common stock in satisfaction of all of your vested DSUs shall not be made until immediately following the expiration of the six-month period following the Effective Date (i.e., on April 1, 2007).

     (d) Health and Dental Insurance. If you so elect, Sun-Times will continue to provide you, at Sun-Times’s expense, subject to the last sentence of this Paragraph 2, with health and dental insurance at a level consistent with that provided to employees of Sun-Times until March 31, 2008 (the “COBRA Period”) unless you earlier attain substantially comparable insurance coverage through a new job position. You agree to notify Sun-Times upon the event that you obtain such replacement insurance coverages. You will be responsible during the COBRA Period for the amount that active employees are then required to contribute for such health and dental insurance coverages. Subject to the last sentence of this Paragraph 2, if you have not yet obtained such replacement insurance coverages as of the expiration of the COBRA Period, Sun-Times shall extend such insurance coverages, if permitted under the terms of its insurance plans, for up to an additional 18 months; provided, however, that if such additional coverage is not permitted under the terms of the applicable insurance plans, Sun-Times and you shall negotiate in good faith a substantially equivalent arrangement (which may include cash payments to you by Sun-Times in an amount equal to an amount sufficient to permit to you acquire substantially comparable insurance coverage (on a community-rated basis), less any amount that active employees are then required to contribute for such health and dental insurance coverages).

     Notwithstanding the foregoing, payments under Paragraph 2(a) shall not be payable (or otherwise commence) until this Agreement becomes fully effective and enforceable in accordance with Paragraph 6 (i.e., upon the eighth day following the date you have signed this Agreement so long as you have not previously revoked this Agreement), and your entitlement to the benefits under Paragraphs 2(b), (c) and (d) shall be void ab initio if you revoke this Agreement before it becomes fully effective and enforceable in accordance with Paragraph 6.

     3. Consulting; Cooperation.

     (a) During the 12-month period following the Effective Date, you agree to provide to Sun-Times and its subsidiaries and affiliates, on an as-needed basis, consulting services relating to their Treasury department activities. The services that shall be required of you shall include, but not be limited to, assisting your successor in the assumption of your prior responsibilities, making introductions as needed for a successful transition, and providing such additional reasonable

2

assistance to ensure a smooth transition of responsibilities.

     (b) You further agree that, upon reasonable notice and without the necessity of the Company obtaining a subpoena or court order, you shall provide reasonable cooperation in connection with any suit, action or proceeding (or any appeal from any suit, action or proceeding), and any investigation and/or defense of any claims asserted against the Company, which relates to events occurring during your employment with Sun-Times and its subsidiaries and affiliates (and their predecessors and successors) as to which you may have relevant information (including but not limited to furnishing relevant information and materials to the Company or its designee and/or providing testimony at depositions and at trial).

     (c) Sun-Times agrees to reimburse you for all reasonable out-of-pocket expenses associated with the provision of these consulting services and such reasonable cooperation, subject to the provision of detailed invoices for all expenses so incurred. In requesting your services from time to time and such reasonable cooperation, Sun-Times shall make reasonable efforts to accommodate your schedule and the requirements of your employer.

     4. Return of Confidential Information; Nondisparagement; Return of Company Property.

     (a) You agree to return to Sun-Times and its subsidiaries and affiliates any and all confidential and proprietary information you have acquired regarding Sun-Times and its subsidiaries and affiliates, including information about their personnel, policies, publications, business practices, strategic plans, advertisers, customers, suppliers, distributors, readers, financial forecasts, production data, marketing techniques, promotional plans, and financial information, and to hold in the strictest confidence, except as required by applicable law, and not to disclose any of said information to anyone, and to refrain from making any statements or representations to any employee of Sun-Times and its subsidiaries and affiliates or to their customers, suppliers, competitors or the public at large which might disparage or have a detrimental effect on Sun-Times’s and its subsidiaries’s and affiliates’s business, operations, public image, reputation or their relations with advertisers, customers, suppliers, employees, lenders, competitors, or other business associates.

     (b) Sun-Times agrees that you shall be entitled to retain any personal computing equipment provided to you by Sun-Times and its subsidiaries and affiliates, including any PCs and laptops, subject to the condition that Sun-Times be permitted to remove from such equipment all proprietary software and documents. You may also retain the Blackberry provided to you by Sun-Times and its subsidiaries and affiliates, subject to the same condition set forth immediately above. All other property of Sun-Times and its subsidiaries and affiliates which you have in your possession including, but not limited to, all access cards, facility keys and credit cards, shall be returned to Sun-Times and its subsidiaries and affiliates by the Effective Date, except as otherwise agreed to between you and Sun-Times.

     5. COBRA Generally.

     The Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) requires that, in certain cases, terminated employees be allowed to continue their medical and dental insurance beyond their separation date at their own expense. An explanation of your rights under COBRA will be sent to you under separate cover at a future date.

     6. Release.

     (a) You hereby agree to WAIVE any and all rights in connection with, and to fully RELEASE and forever discharge the Company from, any and all torts, contracts, claims, suits,

3

actions, causes of action, demands, rights, damages, costs, expenses, attorneys fees, and compensation in any form whatsoever, whether now known or unknown, in law or in equity, which you have or ever had (from the beginning of time through and including the date hereof) against the Company, including without limitation on account of or in any way arising out of, relating to or in connection with your employment by or separation of employment from Sun-Times and its subsidiaries and affiliates (and their predecessors and successors), and any and all claims for damages or injury to any entity, person, property or reputation arising therefrom, claims for wages, employment benefits, tort claims and claims under Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Civil Rights Act of 1866, the Employee Retirement Income Security Act of 1974, the National Labor Relations Act, the Fair Labor Standards Act, the Rehabilitation Act of 1973, the Family and Medical Leave Act of 1993, the Americans with Disabilities Act of 1990, the Illinois Human Rights Act, the Illinois Wage Payment and Collection Act, the Cook County Human Rights Ordinance, the Chicago Human Rights Ordinance and any other federal, state or local law, statute, ordinance, guideline, regulation, order or common-law principle of any state relating to employment, employment contracts, wrongful discharge or any other matter; provided, however, that the foregoing waiver and release shall not apply to your rights in respect of any benefit or claim to which you are entitled under employee pension or welfare benefit plans and programs of Sun-Times and its subsidiaries and affiliates in which you are a participant prior to the Effective Date, or to your rights to enforce this Agreement.

     (b) Release of Age Discrimination Claims. In further consideration of the promises made by the Company in this Agreement, you specifically WAIVE any and all rights in connection with, and fully RELEASE and forever discharge the Company from, any and all torts, contracts, claims, suits, actions, causes of action, demands, rights, damages, costs, expenses, attorneys fees, and compensation in any form whatsoever, whether now known or unknown, in law or in equity, which you have or ever had (from the beginning of time through and including the date hereof) against the Company, arising under the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. Sec. 621, et seq. (“ADEA”). You further agree that:

(i)	your waiver of rights under this release is knowing and voluntary and in compliance with the Older Workers Benefit Protection Act of 1990;
(ii)	you understand the terms of this release;
(iii)	the consideration provided in Paragraph 2 represents consideration over and above that to which you otherwise would be entitled, that the consideration would not have been provided had you not signed this release, and that the consideration is in exchange for the signing of this release;
(iv)	the Company is hereby advising you in writing to consult with your attorney prior to executing this release;
(v)	the Company is giving you a period of twenty-one days within which to consider this release;
(vi)	following your execution of this release you have seven (7) days in which to revoke this release by written notice. To be effective, the revocation must be made in writing and delivered to and received by Pamela A. Davidson, Assistant Corporate Counsel, Sun-Times Media Group, Inc., 350 North Orleans, 10 South, Chicago, Illinois 60654, no later than 4:00 p.m. on the seventh day after you execute this release. An

4

	attempted revocation not actually received by Ms. Davidson before the revocation deadline will not be effective; and
(vii)	this entire Agreement shall be void and of no force and effect if you choose to so revoke, and if you choose not to so revoke this Agreement shall then become fully effective and enforceable.

     This Paragraph 6(b) does not waive rights or claims that may arise under the ADEA after the date you sign this Agreement. In addition, nothing in this Agreement shall in any way affect your right to the indemnification and expense advancement to the extent provided by the Company’s bylaws and Articles of Incorporation; provided, however, that the Company shall not be liable, and shall not provide a defense and indemnification for any claim wherein you have not satisfied the applicable standard of conduct set forth in such by-laws and Articles, or wherein you have committed any acts of fraud, embezzlement or gross misconduct.

     7. Proceedings; No Admissions.

     (a) You hereby represent and warrant that: (i) you have no pending claims against the Company with any municipal, state, federal or other governmental or nongovernmental entity; and (ii) you will not file any claims with respect to any events occurring on or before the date hereof. You also acknowledge and agree that by entering into this Agreement you can never make claim or demand upon or sue the Company for any reason whatsoever relating to anything that has happened through the date hereof. Notwithstanding the foregoing, this Agreement shall not prevent you from (A) initiating or causing to be initiated on your behalf any complaint, charge, claim or proceeding against Sun-Times or its subsidiaries and affiliates before any local, state or federal agency, court or other body challenging the validity of the waiver of your claims under the ADEA contained in this Agreement (but no other portions of the Release); or (B) initiating or participating in an investigation or proceeding conducted by the Equal Employment Opportunity Commission with respect to the ADEA.

     (b) Both parties acknowledge and agree that this Agreement does not constitute, is not intended to be, and shall not be construed, interpreted or treated in any respect as, and shall not be admissible in any proceeding as, an admission of liability, error, violation, omission or wrongdoing by either party for any purpose whatsoever. Further, both parties acknowledge and agree that there has been no determination that either party has violated any federal, state or local law, statute, ordinance, guideline, regulation, order or common-law principle. You further acknowledge that no precedent, practice, policy or usage shall be established by this Agreement or the offer to you of compensation and benefits herein.

     8. Continuing Obligations; Remedies.

     (a) Should you damage the reputation, goodwill or competitive position of Sun-Times or its subsidiaries or affiliates, or if you cause, directly or indirectly, any key executive employee of Sun-Times or its subsidiaries or affiliates to terminate his or her employment with Sun-Times or its subsidiaries or affiliates (except that you shall be permitted to respond to unsolicited requests for references), then Sun-Times will be entitled to reimbursement from you of the full amount of separation pay and other compensation and benefits that you have received under this Agreement through the date of such action by you, and Sun-Times will also be entitled to obtain injunctive relief against your continuing any such action.

     (b) You also understand and agree that in the event you, your heirs, spouse, family members, executors, or administrators attempt to institute or do institute any charge, claim, suit or action against the Company in violation of this Agreement, you shall be obligated, as an express condition of bringing such action, to tender back to Sun-Times the full amount of separation pay and other compensation and benefits that you have received under this Agreement; and you further agree that

5

you will pay all of the Company’s costs, expenses and fees of defending against such action, including among other things, reasonable attorney’s fees. This paragraph does not grant you an option to return the money and institute an action. Instead this paragraph merely creates an additional term and condition precedent to bringing an action regardless of the fact that such action is expressly barred by this Agreement, and is without merit.

     (c) Should you breach any other term of this Agreement, including but not limited to filing any claim which you have agreed to release and waive under this Agreement or breaching any of the provisions of this Agreement, the Company will be entitled to recover damages for such breach and also to obtain injunctive relief against further breach by you. If Sun-Times or you at any time believe that the other party has breached any term of this Agreement, the party claiming a breach shall promptly notify the other in writing (if to you, at your address set forth on page 1 hereof; if to Sun-Times, to the contact person at the address specified in Paragraph 6(b)(vi)) of the specific basis for that belief, and the other party will have a period of ten (10) days within which to cure any breach (if cure is possible) or to otherwise respond to the claim of breach.

     9. Arbitration of Disputes; Payment of Expenses.

     Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration proceedings conducted in accordance with the commercial rules of the American Arbitration Association (“AAA”) as then in effect. Any arbitration shall be held in Chicago, Illinois. The arbitrator shall be selected by joint agreement of the Company and you, but if such agreement is not reached within seven (7) days of the date of the request for arbitration, the selection shall be made by the AAA in accordance with its commercial rules. Judgment upon any award rendered by the arbitrator may be entered in any court having jurisdiction. The costs and expenses of the arbitrator and all costs and expenses of experts, attorneys, witnesses and other parties reasonably incurred by the prevailing party shall be borne by the party that does not prevail in such arbitration or in any court proceeding relating to enforcement of this Agreement.

     10. Governing Law.

     This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York without regard to principles of conflicts of laws.

     11. Acknowledgments; Revocation of Release.

     You hereby acknowledge (a) that the Company has given you a period of at least twenty one (21) days in which to review and consider this Agreement; (b) that the Company has advised, and does hereby in writing advise, you to consult with an attorney before signing this Agreement; (c) that you have read this Agreement in its entirety; (d) that you have had at least twenty one (21) days in which to confer with your own attorney for assistance and advice concerning this Agreement; (e) that you understand the terms of this Agreement; (f) that you understand that the terms of this Agreement are legally enforceable; (g) that you have entered into this Agreement freely, voluntarily, knowingly and willingly and were in no manner coerced into signing it; (h) that neither this Agreement nor the discussion and negotiation leading to it are or were, in any manner, discriminatory; (i) that you were, and hereby are, encouraged to discuss any questions, problems, or issues concerning this Agreement with the Company before signing it; (j) that you are waiving rights and claims you may have in exchange for consideration in addition to things of value to which you are already entitled; and (k) that after signing this Agreement you have a period of seven (7) days in which to revoke this Agreement, however, any such revocation must be in writing and must be addressed to Pamela A. Davidson, Assistant Corporate Counsel, Sun-Times Media Group, Inc., 350 North Orleans, 10 South, Chicago, Illinois 60654.

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     12. Withholding.

     The Company may deduct and withhold from any amounts payable under this Agreement such Federal, state, local, non-U.S. or other taxes as are required or permitted to be withheld pursuant to any applicable law or regulation.

     13. Amendment; No Waiver; Interpretation.

     No provisions of this Agreement may be amended, modified, waived or discharged except by a written document signed by you and a duly authorized officer of Sun-Times (other than you). The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver of such party’s rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. No failure or delay by either party in exercising any right or power hereunder will operate as a waiver thereof, nor will any single or partial exercise of any such right or power, or any abandonment of any steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. No provision of this Agreement or any related document will be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured or drafted such provision.

     14. Severability.

     If any term or provision of this Agreement is invalid, illegal or incapable of being enforced by any applicable law or public policy, all other conditions and provisions of this Agreement shall nonetheless remain in full force and effect to the fullest extent permitted by law. You agree that in the event that any court of competent jurisdiction shall finally hold that any provision of this Agreement (whether in whole or in part) is void or constitutes an unreasonable restriction against you, such provision shall not be rendered void but shall be deemed to be modified to the minimum extent necessary to make such provision enforceable for the longest duration and the greatest scope as such court may determine constitutes a reasonable restriction under the circumstances.

     15. Entire Agreement.

     This Agreement constitutes the entire agreement and understanding between the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings (whether written or oral), between you and the Company relating to such subject matter. None of the parties shall be liable or bound to any other party in any manner by any representations and warranties or covenants relating to such subject matter except as specifically set forth herein.

     16. Binding on Successors.

     This Agreement shall be binding on, and shall inure to the benefit of, the parties to it and their respective heirs, legal representatives, successors and permitted assigns (including, without limitation, in the event of your death, your estate and heirs in the case of any payments due to you hereunder).

     17. No Other Benefits.

     You agree that you are not entitled to any other compensation or benefits in connection with your termination of employment (other than pursuant to the terms of the employee benefit plans and programs of Sun-Times and its subsidiaries and affiliates in which you participated prior

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to the Effective Date, provided that you explicitly waive any right to receive any severance or similar benefits under such plans and programs (including without limitation any benefits under the Key Employee Severance Plan)).

     18. Counterparts.

     This Agreement may be executed in one or more counterparts (including via facsimile and electronic image scan (pdf)), each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties.

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     Bob, please indicate your understanding and acceptance of this Agreement by executing both copies below, and retaining one fully executed original for your files and returning one fully executed original to me.

Very truly yours,
	SUN-TIMES MEDIA GROUP, INC
	By:
	Name:	Gordon Paris
	Title:	Chairman and CEO

I hereby accept the terms of this
Agreement and agree to abide by the
provisions hereof:

Robert T. Smith

Date:

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EX-31.1

Exhibit 31.1

Certification Pursuant To
Rule 13a-14(a) of the Securities Exchange Act of 1934

I, Gordon A. Paris, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Sun-Times Media Group, Inc. (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

/s/  Gordon A. Paris

Name: Gordon A. Paris

Title:  President and Chief Executive Officer

Date: November 9, 2006

EX-31.2

Exhibit 31.2

Certification Pursuant To
Rule 13a-14(a) of the Securities Exchange Act of 1934

I, Gregory A. Stoklosa, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Sun-Times Media Group, Inc. (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

/s/  Gregory A. Stoklosa

Name: Gregory A. Stoklosa

Title:  Vice President and Chief Financial Officer

Date: November 9, 2006

EX-32.1

Exhibit 32.1

Sun-Times Media Group, Inc.

Certification Pursuant to 18 U.S.C. Section 1350
As Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002

In connection with the quarterly report of Sun-Times Media Group, Inc. (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gordon A. Paris, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Gordon A. Paris

Name: Gordon A. Paris

Title:  President and Chief Executive Officer

Date: November 9, 2006

A signed original of this written statement required by Section 906 has been provided to Sun-Times Media Group, Inc. and will be retained by Sun-Times Media Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

Sun-Times Media Group, Inc.

Certification Pursuant to 18 U.S.C. Section 1350
As Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002

In connection with the quarterly report of Sun-Times Media Group, Inc. (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gregory A. Stoklosa, Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Gregory A. Stoklosa

Name: Gregory A. Stoklosa

Title:  Vice President and Chief Financial Officer

Date: November 9, 2006

A signed original of this written statement required by Section 906 has been provided to Sun-Times Media Group, Inc. and will be retained by Sun-Times Media Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.