<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-K

                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


                   FOR THE YEAR ENDED  COMMISSION FILE NUMBER
                   DECEMBER 31, 1999   333-46959


                         LIBERTY GROUP OPERATING, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


                         DELAWARE                           36-4197636
              (STATE OR OTHER JURISDICTION OF            (I.R.S. EMPLOYER
              INCORPORATION OR ORGANIZATION)            IDENTIFICATION NO.)

     3000 DUNDEE ROAD, SUITE 203, NORTHBROOK, ILLINOIS  60062
     (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)           (ZIP CODE)


        REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (847) 272-2244

        SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                   9 3/8% SENIOR SUBORDINATED NOTES DUE 2008

     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 (or for such shorter period that the
registrant was required to file such reports, and (2) has been subject to such
filing requirements for the past 90 days. Yes X No

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

     The number of shares outstanding of the Registrant's Common Stock, par
value $.01 per share, as of March 30, 2000 was 100. All Common Stock is owned by
affiliates of the Registrant and there is no public market for the Common Stock.

<PAGE>   2






                                TABLE OF CONTENTS

PART I


<TABLE>
<S>       <C>
Item 1.   Business.

Item 2.   Properties.

Item 3.   Legal Proceedings.

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

PART II

Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters

Item 6.   Selected Financial Data

Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operation

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk

Item 8.   Financial Statements and Supplementary Data

Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

PART III

Item 10.  Directors and Executive Officers of Registrant

Item 11.  Executive Compensation

Item 12.  Security Ownership of Certain Beneficial Owners and Management

Item 13.  Certain Relationships and Related Transactions

PART IV

Item 14.  Exhibits, Consolidated Financial Statement Schedule and Reports on Form 8-K

          (a) Consolidated Financial Statements, Consolidated Financial
          Statement Schedule and Exhibits

          (b) Reports on Form 8-K
</TABLE>



<PAGE>   3






                         LIBERTY GROUP OPERATING, INC.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-K contains certain "forward-looking statements" (as defined in
Section 21E of the Securities Exchange Act of 1934) that reflect the Company's
expectations regarding its future growth, results of operations, performance
and business prospects and opportunities. Words such as "anticipates,"
"believes," "plans," "expects," "estimates" and similar expressions have been
used to identify these forward-looking statements, but are not the exclusive
means of identifying these statements. These statements reflect the Company's
current beliefs and are based on information currently available to the
Company. Accordingly, these statements are subject to known and unknown risks,
uncertainties and other factors that could cause the Company's actual growth,
results, performance and business prospects and opportunities to differ from
those expressed in, or implied by, these statements. These risks, uncertainties
and other factors include the Company's ability to serve, and retain existing
customers as well as its ability to attract new advertising and subscription
customers; the Company's ability to continue its acquisition strategy; the
Company's ability to adjust to changes in technology, customer preferences,
enhanced competition and new competitors in its community markets; collection
of receivables; general economic and business conditions, which may reduce
demand for advertising and its ability to attract and retain key employees. The
Company is not obligated to update or revise these forward-looking statements
to reflect new events or circumstances.

ITEM 1. BUSINESS

OVERVIEW

The Company is a leading U.S. publisher of local newspapers and related
publications that are the dominant source of local news and print advertising in
their markets. At December 31, 1999, the Company owns and operates 301
publications in 15 states. The Company's total revenues are derived from
advertising (75% of 1999 total revenues), circulation (17%) and job printing and
other (8%).

The Company's primary costs and expenses are comprised of operating costs and
selling, general and administrative expenses. Salaries and employee benefits
are the Company's largest operating costs. The Company has been able to control
salaries and employee benefit expenses by realizing efficiencies from the
implementation of new technologies and the achievement of synergies from its
strategy of clustering its newspaper operations.

INITIAL ACQUISITION

Liberty Group Publishing, Inc. ("LGP") was formed for purposes of acquiring a
portion of the daily and weekly newspapers owned by American Publishing Company
or its subsidiaries ("APC"), a wholly-owned subsidiary of Hollinger
International Inc.("Hollinger"). LGP is a holding company for its wholly-owned
subsidiary, Liberty Group Operating, Inc ("Operating Company"). The consolidated
financial statements include the accounts of Operating Company and its
consolidated subsidiaries (the "Company").

On January 27, 1998, the Company's parent acquired from Hollinger virtually all
of the assets and assumed certain liabilities that were used primarily in the
business of publishing, marketing and distributing certain local newspapers (the
"Initial Acquisition"). The initial purchase price including fees and expenses
was $322.4 million. The effective date of the Initial Acquisition was January 1,
1998.  Revenues from the Initial Acquisition represented 76% and 54% of the
Company's total revenue in 1998 and 1999, respectively.

In the accompanying consolidated financial statements the terms "Liberty Group
Operating" or the "Company" when used with respect to periods prior to January
1, 1998 refer to the combined group of newspapers sold by APC (the Local
Newspaper Group of American Publishing Company) and when used with respect to
periods subsequent to January 1, 1998 refers to Liberty Group Operating, Inc.
and its consolidated subsidiaries. The combined historical financial information
of the newspapers


<PAGE>   4






acquired from APC prior to the Initial Acquisition on January 1, 1998 is
referred to as "Predecessor" while the consolidated financial information of
the newspapers subsequent to the date of the Initial Acquisition is referred to
as "Successor."

The Company has accounted for the Initial Acquisition using the purchase method
of accounting. Accordingly, the costs of the Initial Acquisition have been
allocated to the assets acquired and liabilities assumed based upon their
respective fair values using independent valuations. The fair values of certain
identifiable intangible assets acquired and goodwill are being amortized over
periods ranging from 5 to 40 years. Because of the purchase price allocation,
the accompanying consolidated financial statements of Successor are not
directly comparable to those of Predecessor.

Prior to the Initial Acquisition, the Company operated as a business unit of
APC and as such did not file separate tax returns. The income tax provision
included in the Predecessor's financial statements was computed as if the
Predecessor were a separate company. Subsequent to the Initial Acquisition, the
Company has been and anticipates that it will be, for the foreseeable future,
in a tax loss position. Given the uncertainty as to the timing of the Company's
ability to utilize such losses to offset future taxable income, the Company
does not presently anticipate recording any tax benefit associated with its
pre-tax losses. In addition, due to the acquisition of the Company's assets
from APC, the Company's asset values and capital structure are materially
different than those set forth in the Predecessor's financial statements for
periods preceding the Initial Acquisition and, accordingly, historical interest
expense is not indicative of the interest expense that the Company incurs as a
separate company.

The results of operations and cash flows of the Predecessor have been
consolidated with those of the Company from January 1, 1998, the effective date
upon which the Company and APC agreed as to the change of control of the
newspapers to the Company.

In addition, during 1999, the Company acquired 49 publications in 13
transactions for a total acquisition cost of $54.8 million (net of property
exchanges and divestitures).

INITIAL CAPITALIZATION - BORROWINGS

The Initial Acquisition, including the payment of related fees and expenses,
was financed in part by: (i) $180.0 million from the issuance and sale by the
Operating Company of $180.0 million aggregate principal amount of 9.375% Senior
Subordinated Notes (the "Notes") due February 1, 2008 and (ii) $50.5 million
from the issuance and sale by LGP of $89.0 million aggregate principal amount
of 11.625% Senior Discount Debentures (the "Debentures") due February 1, 2009.

The Notes were issued by the Operating Company and are general unsecured
obligations of the Operating Company. The Notes are irrevocably and
unconditionally joint and severally guaranteed by each of the Operating
Company's existing and future subsidiaries. The Notes are redeemable for cash
at the option of the Operating Company anytime after February 1, 2003 at
stipulated redemption amounts or, in certain limited circumstances, are
partially redeemable on or prior to February 1, 2001 at a redemption amount of
109.375% of their principal amount. In the event of a change in control of the
Operating Company or the Company, the Company must offer to repurchase the
Notes at 101% of their principal amount.

The Debentures issued by LGP are general unsecured obligations and pay no cash
interest until February 1, 2003. The Debentures will, however, accrete on a
semi-annual equivalent bonds basis to a full principal amount of $89.0 million
on February 1, 2003. Thereafter, cash interest on the Debentures will accrue and
be payable semi-annually on February 1 and August 1 of each year. The Debentures
are redeemable for cash at the option of LGP any time after February 1, 2003 at
stipulated redemption amounts or, in certain limited circumstances, are
partially redeemable on or prior to February 1, 2001 at a redemption amount of
111.625% of their accreted value. In the event of a change in control of LGP,
LGP must offer to

                                       2

<PAGE>   5






repurchase the Debentures at 101% of their accreted value. LGP is dependent
upon the cash flows of the Operating Company to service these debt repayment
requirements.

The Operating Company has in place a $175.0 million revolving credit facility
(the "Revolving Credit Facility").  The Revolving Credit Facility is secured by
substantially all of the tangible and intangible assets of the Operating
Company.  Borrowings under the Revolving Credit Facility bear interest at an
annual rate, at the Company's option equal to the Base Rate (as defined in the
credit agreement) or the Eurodollar Rate (as defined in the credit agreement)
plus a margin that varies based upon a ratio set forth in the credit agreement
(the "Applicable Margin").  Under the terms of the Revolving Credit Facility,
the Company pays a fee equal to the Applicable Margin for Eurodollar Rate
Advances (as defined in the credit agreement) per annum on the aggregate amount
of outstanding letters of credit.  The Operating Company also pays a fee on the
unused portion of the Revolving Credit Facility.  No principal payments are due
on the Revolving Credit Facility until the maturity date January 27, 2003.  At
December 31, 1999, the Operating Company had utilized $99.5 million of the
Revolving Credit Facility.

INITIAL CAPITALIZATION - EQUITY

LGP has the authority to issue up to 22,830,000 shares of capital stock, of
which 21,175,000 shares are designated as Preferred Stock, par value $0.01 per
share, and 1,655,000 shares are designated as Common Stock, par value $0.01 per
share. The Initial Acquisition, including the payment of related fees and
expenses, was financed in part from the proceeds of (i) $45.0 million from the
issuance and sale of 1,800,000 shares of 14.75% Senior Mandatory Redeemable
Exchangeable Cumulative Preferred Stock (the "Senior Preferred Stock"), (ii)
$49.0 million from the issuance and sale of 49,000 shares of 10% Junior
Mandatory Redeemable Cumulative Preferred Stock (the "Junior Preferred Stock"),
and (iii) $8.0 million from the issuance and sale of 1,600,000 shares of Common
Stock.

After giving effect to the stock split, 100% of the Junior Preferred Stock and
92% of the Common Stock is owned by Green Equity Investors II, L.P., the
controlling stockholder of the Company. 8% of the Common Stock is owned by the
Company's senior management team. These percentages are in effect as of
12/31/99.

In February 2000, the Company's parent effected a 20-to-1 stock split at its
common stock, bringing the total shares of common stock issued to 1,600,000. All
share and per share data included within this Registration Statement has been
retroactively restated to account for this stock split. The Company's parent
then authorized the issuance of 55,000 additional common shares to be made
available in the form of stock options to local publishers. Management investors
will also receive a small portion of these new shares to eliminate any dilution
of their original holdings that will result from the issuance of shares under
the LGP stock option plan.

All of the Operating Comany's issued and outstanding Capital Stock is owned by
LGP. The Operating Company has no outstanding capital stock other than common
stock, nor are there any outstanding options, warrants, or other rights to
purchase the Operating Company's capital stock.



                                       3

<PAGE>   6






RECENT ACQUISITIONS AND DISPOSITIONS

The following publications with a combined total circulation of 625,000 were
acquired by the Company during 1999:


<TABLE>
<CAPTION>
TITLE                                   LOCATION                             TYPE OF PUBLICATIONS
--------------------------------------  -----------------------------------  --------------------------------------

<S>                                     <C>                                  <C>
Suburban Life Printing & Publishing     Oak Brook, IL                        16 Weeklies
The Shopper                             Halstad, MN                          Shopper
Moberly Monitor Index                   Moberly, MO                          Daily
Big Nickel                              Joplin, MO                           Shopper
The Palladium Times                     Oswego, NY                           Daily
Beatrice Daily Sun                      Beatrice, NE                         Daily
Plug Nickel                             Beatrice, NE                         Weekly
Sunland                                 Beatrice, NE                         Weekly
Weekend Extra                           Beatrice, NE                         Weekly
The Donaldsonville Chief                Donaldsonville, LA                   Weekly
The Cajun Gazette                       Donaldsonville, LA                   Weekly
The Bayou Extra                         Donaldsonville, LA                   Shopper
The Bastrop Daily Enterprise            Bastrop, LA                          Daily
The Extra                               Bastrop, LA                          Shopper
The Pratt Tribune                       Pratt, KS                            Daily
Barber County Index                     Pratt, KS                            Weekly
St. Johns News                          Pratt, KS                            Weekly
Kiowa County Signal                     Pratt, KS                            Weekly
Daily Sun                               Beatrice, NE                         Daily
Penny Press 5                           Beatrice, NE                         Shopper
Plug Nickel                             Beatrice, NE                         Shopper
Weekender                               Beatrice, NE                         Weekly
Sunland                                 Beatrice, NE                         Shopper
Lake Area News Focus                    Lake Ozark, MO                       Shopper
Tube Tab                                Lake Ozark, MO                       Shopper
Lake of the Ozarks Boats                Lake Ozark, MO                       Shopper
Lake of the Ozarks Real Estate          Lake Ozark, MO                       Shopper
Batavia Republican                      Batavia, IL                          Weekly
Geneva Republican                       Geneva, IL                           Weekly
St. Charles Republican                  St. Charles, IL                      Weekly
Winfield Press                          Winfield, IL                         Weekly
Warrenville Free Press                  Warrenville, IL                      Weekly
Wayne Countryside Press                 Wayne, IL                            Weekly
West Chicago Press                      West Chicago, IL                     Weekly
Glen Ellyn News                         Glen Ellyn, IL                       Weekly
Warrenville Post                        Warrenville, IL                      Weekly
Wheaton Leader                          Wheaton, IL                          Weekly
Winfield Estate                         Winfield, IL                         Weekly
Maryville Daily Forum                   Maryville, MO                        Daily
</TABLE>


                                       4

<PAGE>   7




<TABLE>
<S>                                     <C>                                  <C>
Weekly Bargain Shopper                  Maryville, MO                        Shopper
Penny Press 2                           Maryville, MO                        Shopper
Gentry County Shopper                   Albany, MO                           Shopper
Star Courier                            Kewanee, IL                          Daily
Star Extra                              Kewanee, IL                          Shopper
Atkinson-Annawan News                   Kewanee, IL                          Weekly
Henry County Advertizer                 Geneseo, IL                          Shopper
Ottumwa Courier                         Ottumwa, IA                          Daily
Wapello County Shopper                  Ottumwa, IA                          Shopper
Forever Young                           Ottumwa, IA                          Publications
Area Visitors Guide                     Ottumwa, IA                          Publications
Neighbors                               Ottumwa, IA                          Magazine
Homes                                   Ottumwa, IA                          Magazine
Times Record                            Aledo, IL                            Weekly
Town Crier                              Aledo, IL                            Shopper
Eldora Herald-Ledger                    Eldora, IA                           Weekly
Hardin County Index                     Eldora, IA                           Weekly
Times-Plain Dealer                      Cresco, IA                           Weekly
The Extra                               Cresco, IA                           Shopper
Tri-County News                         Cottonwood, MN                       Weekly
The Wabasso Standard                    Wabasso, MN                          Weekly
</TABLE>


                                       5


<PAGE>   8







The following publications with a combined total circulation of 180,000 were
disposed of by the Company during 1999:


<TABLE>
<CAPTION>
TITLE                                   LOCATION                             TYPE OF PUBLICATION
--------------------------------------  -----------------------------------  --------------------------------------

<S>                                     <C>                                  <C>
Corry Journal                           Corry, PA                            Daily
Corry Journal TMC                       Corry, PA                            Shopper
Kane Republican                         Kane, PA                             Daily
The Punxsutawney Spirit                 Punxsutawney, PA                     Daily
The (Punxsutawney) Spirit TMC           Punxsutawney, PA                     Shopper
County Neighbors                        Punxsutawney, PA                     Shopper
The Ridgway Record                      Ridgway, PA                          Daily
Shop-Right                              Ridgway, PA                          Shopper
The Daily Press                         St. Mary's, PA                       Daily
The Daily Press TMC                     St. Mary's, PA                       Shopper
Titusville Herald                       Titusville, PA                       Daily
Titusville Herald TMC                   Titusville, PA                       Shopper
Warren County Guide                     Warren, PA                           Shopper
Daily Sun                               Beatrice, NE                         Daily
Penny Press 5                           Beatrice, NE                         Shopper
Plug Nickel                             Beatrice, NE                         Shopper
Weekender                               Beatrice, NE                         Weekly
Sunland                                 Beatrice, NE                         Shopper
The Atchison Daily Globe                Atchison, KS                         Daily
Atchison Area Advertiser                Atchison, KS                         Shopper
</TABLE>



SUBSEQUENT EVENTS:

In January 2000, the Company acquired the Elko (NV) Daily Free Press, a 7,000
circulation daily newspaper. The Company also acquired the New Hampton (IA)
Tribune, a 10,400 circulation weekly newspaper.

INDUSTRY BACKGROUND

Newspaper publishing is the oldest and largest segment of the media industry.
Due to a focus on local news, newspapers remain the dominant medium for local
advertising. Newspapers continue to be the best medium for retail advertising
which emphasizes the price of goods, in contrast to television which is
generally used for image advertising.

Readers of daily and Sunday newspapers tend to be more highly educated and have
higher incomes than non-newspaper readers. Management believes that newspapers
continue to be the most cost-effective means for advertisers to reach this
highly targeted demographic group.

Advertising revenues are the largest component of a newspaper's revenues
followed by circulation revenues. Advertising rates at each newspaper are based
upon market size, circulation, readership, demographic makeup of the market,
and the availability of alternative advertising media in the marketplace. While
circulation revenue is not as significant as advertising revenue, circulation
trends can impact the decisions of advertisers and advertising rates.

Newspaper advertising revenues are cyclical and are generally affected by
changes in national and regional economic conditions. Classified advertising,
which makes up approximately one-third of newspaper advertising revenues, is
the most sensitive to economic improvements or slowdowns as it is primarily
affected by the demand for employment, real estate transactions and automotive
sales.

OPERATING STRATEGY


                                       6

<PAGE>   9








The Company's strategy is to increase revenues and cash flows through local
news and other content leadership; revenue enhancement; strategic technological
investments; high quality editorial content and presentation; circulation
growth; geographic clustering; targeted marketing programs; and cost control,
as described below:

Local News and Other Content Leadership. The Company's newspapers generally
have the largest local news gathering resources in their markets. As a result
of emphasizing local content, including youth sports, community events,
business, politics, and entertainment, the Company's newspapers generate reader
loyalty and create franchise value. Because the Company's provision of local
news is a typically unique product in its markets, its newspapers differentiate
themselves from other forms of media and satisfy the demands of both its reader
and advertisers.

Revenue Enhancement. The Company aggressively capitalizes on the good name and
reputation it has built in each of its local communities to reach out to
non-traditional newspaper customers through the development of milestone
programs, Internet activities and other successful marketing ideas that are
constantly shared by and among the Company's newspapers.

Strategic Technological Investments. The Company has committed to develop and
maintain Internet websites for all of its daily newspapers and certain of its
weekly papers. The websites provide an Internet editorial presence and full
Internet classified services for the Company's newspapers and will allow the
Company to take advantage of the increasing use of the Internet and the
potential advertising opportunities. Although the Company believes that
providing an Internet product is important to broadening the presence of its
newspapers in their respective communities and ultimately increasing the
Company's revenues through such value added services, the Company believes
almost all of its customers prefer the newspaper in a printed form. Management
believes that by being the leading provider of local news and other content in
most of its markets, its newspapers are well positioned to enhance and expand
their leadership position among local advertisers, whether in print or
electronic form.

High Quality Editorial Content and Presentation. The Company's newspapers are
committed to editorial excellence, providing the proper mix of local and
national news to effectively serve the needs of their local markets. The
Company's newspapers often receive awards for excellence in various areas in
their respective regions and categories. In addition, the Company's newspapers
are designed to attract readers through attractive layouts and color
enhancements. Geographic clustering allows for better quality personnel
equipment than smaller markets might otherwise warrant, resulting in a
significant increase in newspaper quality.

Circulation Growth. The Company believes that circulation growth is important
to the creation of long-term franchise value at its newspapers. Accordingly,
the Company has and will continue to invest in telemarketing and promotional
campaigns to increase circulation and readership.

Geographic Clustering. The Company has acquired and assembled newspapers, and
may continue to acquire newspapers, in contiguous markets ("clustering").
Clustering enables the Company to realize operating efficiencies and economic
synergies, such as the sharing of management, accounting and production
functions. In addition, the Company seeks to increase operating cash flows at
acquired newspapers through cost reductions, including labor and web width
reductions, as well as overall improved cost management. Clustering also
enables management to maximize revenues through the cross selling of
advertising among contiguous newspaper markets. As a result of clustering,
management believes that the Company's newspapers are able to obtain higher
operating margins than they would otherwise be able to achieve on a stand-alone
basis.

Cost Control. Each of the Company's newspapers emphasizes cost control with a
particular focus on managing staffing requirements. In addition, the Company
further controls labor costs through investments in state-of-the-art production
equipment that improves production efficiencies. Management is equally focused
on newsprint cost control.


                                       7
<PAGE>   10






The Company takes advantage of group discounts for its major operating and
capital costs including newsprint, ink, supplies, computers, software, and
printing equipment.

Management believes that successful implementation of the operating strategy
described above will position the Company to continue to increase its operating
cash flow. The Company also continues to seek strategic newspaper acquisitions
that would contribute to the Company's overall growth strategy, whether through
revenue growth and/or cost reduction opportunities that meet the Company's
acquisition criteria.


ADVERTISING, CIRCULATION AND PRINTING REVENUES.

Advertising revenue includes DISPLAY (local and national department stores,
specialty shops and other retailer), NATIONAL (national advertising accounts),
and CLASSIFIED advertising (employment, automotive, real estate and personals).
Management believes that classified and national advertising are more volatile
than other newspaper revenues. Classified and national advertising for the
Company represents a smaller portion of its revenues than other newspapers in
the industry. As a result, management believes its revenue stream is more
predictable than other newspaper companies. The contribution of Display,
National, Classified, Circulation, and Job Printing & Other revenue to total
revenues for fiscal years 1998 and 1999 were as follows:


<TABLE>
<CAPTION>
                                             YEARS ENDED DECEMBER 31,
                                            --------------------------
                                               1998          1999
                                            ------------  ------------
                <S>                         <C>           <C>

                Display                          56%           54%
                National                          2%            3%
                Classified                       15%           18%
                Circulation                      20%           17%
                Job Printing & Other              7%            8%
                                                100%          100%
</TABLE>


Newsprint.

Newsprint represents one of the largest costs of producing a newspaper. The
Company's newspapers buy newsprint from a number of suppliers, resulting in an
adequate supply of newsprint at market prices. In 1998 and 1999, the Company
consumed approximately 17,000 and 20,300 short tons of newsprint, respectively,
and, during the same periods, incurred newsprint expense of approximately $7.2
million in both periods. Newsprint expense as a percentage of revenue for 1998
and 1999 was 6.4% and 4.4%, respectively.  Newsprint expense as a percentage of
revenue declined in 1999 due to lower newsprint prices during the year.

Employee Relations. The Company employs approximately 2,300 full-time employees
and approximately 1,000 part-time employees. Less than 1% of its employees
belong to labor unions. There has never been a strike or work stoppage against
any of the Company's newspapers during the Company's ownership, and the Company
believes that its relations with its employees are generally good.

Seasonality.

Newspaper companies tend to follow a distinct and recurring seasonal pattern,
with high advertising revenues in months containing significant events or
holidays. Accordingly, due to generally poor weather and a lack of holidays,
the Company's first fiscal quarter is the Company's weakest revenue quarter of
the year.

Competition.

Each of the Company's newspapers competes to varying degrees with magazines,
radio, television and cable television, as well as with some weekly
publications and other advertising media, including electronic media, for
advertising and circulation


                                       8
<PAGE>   11






revenue. Competition for newspaper advertising is largely based upon
circulation, price and the content of the newspaper. LGP's newspapers are the
dominant source for local news and other content, with strong name recognition
in their market and minimal direct competition from similar daily newspapers
published in their markets. However, as with most suburban and smaller daily
newspapers, some circulation competition exists from larger daily newspapers
which are usually published in nearby metropolitan areas. Management believes
larger daily newspapers with circulation in LGP's newspaper markets generally
do not compete in any meaningful way for local advertising revenues, a
newspaper's main source of revenues. LGP's daily newspapers capture the largest
share of local advertising as a result of their direct coverage of the market.
In addition, management believes advertisers generally regard newspaper
advertising as the most effective method of advertising promotions and pricing
as compared to television, which is generally used to advertise image. The
Company may from time to time compete with other companies, which have greater
financial resources than the Company.

Electronic Media.

Many newspaper companies are now publishing news and other content on the
Internet. In addition, there are several companies which have developed sites
on the Internet which are, by design, advertising and/or subscription
supported. Many of these sites target specific types of advertising such as
employment and automotive classified.

The Company believes it has the most effective means to gather and distribute
its local news and other content.  All of the company's daily publications and
certain of the weeklies have their own web sites, numbering 70 in all.

The web sites have a consistent format providing a selection of local and other
news along with classified advertising, features and details of local events
and activities.

The Company has been able to expand the reach of its classified reader ads by
placing the ads on line as well as in the newspapers.  The Company also plans
to grow its revenues by providing other on line services such as selling banner
advertising on its sites and selling space in on line business directories.

The Company believes that its ability to self-promote its websites in its
printed newspapers as portals for the community and its focus on local content
limits the competitive threat to its core newspaper business from new media
businesses. Additionally, it considers its local display advertising revenues
to be less threatened by new media than larger metropolitan newspaper
classified advertising which lends itself more to sifting and searching.
Classified advertising represents a lower proportion of the Company's revenues
(18%) than is the case for larger market publications and represent 24% of
Liberty's advertising revenues compared with 41% for the U.S newspaper industry
as a whole.


                                       9

<PAGE>   12






ITEM 2. PROPERTIES

     The Company's executive offices are located in an office park in
Northbrook, Illinois, where the Company leases approximately 3,000 square feet
under a lease terminating in 2001. The Company also maintains locations and
offices at numerous locations throughout the United States for its publications
and printing operations. The Company does not believe an individual property is
material to the Company's consolidated financial position or results of
operations.

     The following table summarizes the publications owned by the Company as of
December 31 1999:

         (D=DAILY, W=WEEKLY, S=SHOPPER, T=TOTAL MARKET COVERAGE, F=FREE,
                     A=ANNUAL, BI-A=BI-ANNUAL, MAG=MAGAZINE)

ARIZONA
     GLOBE
       ARIZONA SILVER BELT (W)
       GILA COUNTY ADVANTAGE (S)
       MOCCASIN (W)

ARKANSAS
     HEBER SPRINGS
       THE SUN TIMES (W)
     HELENA
       THE DAILY WORLD (D)
       DAILY WORLD TMC (T)
     NEWPORT
       NEWPORT DAILY INDEPENDENT (D)
       NEWPORT DAILY INDEPENDENT TMC (T)
     STUTTGART
       STUTTGART DAILY LEADER (D)
       THE STUTTGART DAILY TMC (T)

CALIFORNIA
     GRIDLEY
       THE GRIDLEY HERALD (W)
       THE GRIDLEY SHOPPING NEWS (S)
     MOUNT SHASTA
       DUNSMUIR NEWS (W)
       MOUNT SHASTA HERALD (W)
       SUPERSAVER ADVERTISER (S)
       VOICE OF THE MOUNTAIN (T)
       WEED PRESS (W)
     TAFT
       DAILY MIDWAY DRILLER (D)
       THE WESTSIDE SHOPPING NEWS (T)
     YREKA
       SISKIYOU DAILY NEWS (D)
       SISKIYOU DAILY NEWS "EXTRA" (T)

IDAHO
     BURLEY
       SOUTH IDAHO PRESS (D)
       THE NEWS REVIEW (S)
     HAILEY
       WOOD RIVER JOURNAL (W)
       YOUR HOME MAGAZINE (M)
       WOOD RIVER JOURNAL DINING (BI-A)
       EXPLORER (A)
     MINODOKA
       MINIDOKA COUNTY NEWS (W)


                                       10

<PAGE>   13









ILLINOIS
     ALEDO
       TIMES RECORD (W)
       TOWN CRIER (S)
       THE RIDGE (S)
     BENTON
       BENTON EVENING NEWS (D)
       THE BENTON STANDARD (W)
     CANTON
       DAILY LEDGER (D)
       SPOON RIVER ADVERTISER (S)
     CARMI
       THE CARMI TIMES (D)
       THE WEEKLY TIMES (W)
       WHITE COUNTY SHOPPER NEWS (S)
     CHESTER
       CHESTER HERALD TRIBUNE (W)
     CHRISTOPHER
       CHRISTOPHER PROGRESS (W)
     DUQUOIN
       THE ASHLEY NEWS (W)
       DUQUOIN EVENING CALL (D)
       PERRY COUNTY EXTRA (S)
     DWIGHT
       DWIGHT STAR & HERALD (W)
       THE REGISTER (S)
       GARDNER CHRONICLE (W)
       COURIER PRESS (HERSCHER) (W)
     FAIRBURY
       THE BLADE (W)
     FLORA
       CCAP SPECIAL (T)
       DAILY ADVOCATE PRESS (D)
     GALATIA
       MONEY STRETCHER (S)
     GALESBURG
       PENNYSAVER PRESS (S)
     GENESEO
       HENRY COUNTY ADVERTIZER (S)
     HARRISBURG
       ELDORADO DAILY JOURNAL (D)
       HARRISBURG DAILY REGISTER (D)
     HERRIN
       THE SPOKESMAN (W)
       THE SPOKESMAN SUNDAY (T)
     KEWANEE
       STAR COURIER (D)
       ATKINSON-ANNAWAN NEWS (W)
       STAR EXTRA (T)
     MACOMB
       MACOMB JOURNAL (D)
       JOURNAL EXTRA (T)
     MARION
       MARION DAILY REPUBLICAN (D)
       MARION DAILY EXTRA (T)
     MONMOUTH
       DAILY REVIEW ATLAS (D)
       OQUAWKA CURRENT (W)
       PENNYSAVER (S)
     MURPHYSBORO
       MURPHYSBORO AMERICAN (W)
       AMERICAN MONDAY (T)
     NEWTON
       NEWTON PRESS-MENTOR (W)


                                       11

<PAGE>   14



     NORRIS CITY
       NORRIS CITY BANNER (W)
     OLNEY
       JASPER COUNTY NEWS EAGLE,
         ADVANTAGE (T)
       THE OLNEY DAILY MAIL (D)
       THE WEEKLY MAIL (W)
     PONTIAC
       DAILY LEADER (D)
       HOME TIMES (W)
       LIVINGSTON SHOPPING NEWS (S)
     SHAWNEETOWN
       GALLATIN DEMOCRAT (W)
       RIDGWAY NEWS (W)
     SPRINGFIELD
       SPRINGFIELD SHOPPER (S)
     SUBURBAN CHICAGO NEWSPAPERS
       BERWYN/STICKNEY/ FOREST VIEW LIFE(W)
       BROOKFIELD SUBURBAN LIFE CITIZEN(W)
       LAGRANGE/LAGRANGE PARK
         SUBURBAN LIFE CITIZEN(W)
       NORTH RIVERSIDE/RIVERSIDE
         SUBURBAN LIFE CITIZEN(W)
       WESTERN SPRINGS SUBURBAN LIFE
         CITIZEN(W)
       LAGRANGE PRESS(W)
       COUNTRYSIDE/HODGKINS/INDIAN HEAD
         PARK/WILLOW SPRINGS SUBURBAN
         LIFE CITIZEN(W)
       CICERO LIFE(W)
       LEMONT METROPOLITAN(W)
       LYONS/MCCOOK SUBURBAN LIFE
         CITIZEN(W)
       WESTCHESTER/BROADVIEW SUBURBAN
         LIFE CITIZEN(W)
       WESTCHESTER NEWS(W)
       HILLSIDE/BERKELEY PRESS(W)
       ADDISON PRESS (W)
       ELMHURST PRESS (W)
       OAK BROOK/OAKBROOK TERRACE
         PRESS (W)
       ELMHURST SUBURBAN LIFE (W)
       VILLA PARK SUBURBAN LIFE (W)
       DARIEN SUBURBAN LIFE (W)
       HINSDALE/CLARENDON HILLS SUBURBAN
         LIFE (W)
       WOODRIDGE/LISLE SUBURBAN LIFE (W)
       BARTLETT/HANOVER PARK/STREAMWOOD
         PRESS (W)
       WHEATON PRESS (W)
       DARIEN METROPOLITAN (W)
       WINFIELD PRESS (W)
       WAYNE COUNTRYSIDE PRESS (W)
       BENSENVILLE/ITASCA/WOODDALE PRESS (W)
       LOMBARD SPECTATOR (W)
       VILLA PARK ARGUS (W)
       LOMBARD SUBURBAN LIFE (W)
       BURR RIDGE/WILLOWBROOK SUBURBAN
         LIFE (W)
       DOWNERS GROVE SUBURBAN LIFE (W)
       WESTMONT SUBURBANLIFE (W)
       BLOOMINGDALE PRESS (W)
       CAROL STREAM/GLENDALE HEIGHTS
         PRESS (W)


                                       12

<PAGE>   15


       ROSELLE PRESS (W)
       NAPERVILLE MET (W)
       WEST CHICAGO PRESS (W)
       WARRENVILLE PRESS (W)
       LOCKPORT/HOMER TOWNSHIP
         METROPOLITAN (W)
       BOLINGBROOK/ROMEOVILLE
         METROPOLITAN (W)
       ELBURN REPUBLICAN (W)
       NORTH AURORA HERALD (W)
       SUGAR GROVE REPUBLICAN (W)
       BATAVIA REPUBLICAN (W)
       GENEVA REPUBLICAN (W)
       ST. CHARLES REPUBLICAN (W)
       HUNTLEY FARMSIDE (W)
       MARENGO/UNION PRESS (W)
       PRESS-REPUBLICAN HOMETOWN (W)
       THE GLEN ELLYN NEWS (W)
       THE WINFIELD ESTATE (W)
       THE WARRENVILLE POST (W)
       SELECT HOMES-COOK COUNTY (MAG)
       CAREER MOVES (MAG)
       PRIME TIMES (MAG)
       SELECT HOMES-DUPAGE COUNTY (MAG)
       LIFE'S EXTRA (MAG)
     TEUTOPOLIS
       TEUTOPOLIS PRESS (W)
     WEST FRANKFORT
       DAILY AMERICAN (D)
       TRADER (W)
       FRANKLIN PRESS (T)

IOWA
     CHARLES CITY
       CHARLES CITY PRESS (D)
       THE EXTRA (T)
       SIX COUNTY SHOPPER (T)
     CRESCO
       TIMES-PLAIN DEALER (W)
       THE EXTRA (S)
     ELDORA
       ELDORA HERALD-LEDGER (W)
       HARDIN COUNTY INDEX (S)
     OTTUMWA
       OTTUMWA COURIER(D)
       WAPELLO COUNTY SHOPPER (S)
       FOREVER YOUNG (MAG)
       AREA VISITORS GUIDE (MAG)
       NEIGHBORS (MAG)
       HOMES (MAG)

KANSAS
     AUGUSTA
       AUGUSTA DAILY GAZETTE (D)
       AUGUSTA ADVERTISER (T)
     DERBY
       DAILY REPORTER (D)
       THE RECORD (W)
       THE WICHITA JOURNAL (W)
       THE WEEKLY SHOPPER (S)
     EL DORADO
       THE EL DORADO TIMES (D)
       EL DORADO TIMES WEEKLY (T)
       SHOPPERS GUIDE (S)


                                       13

<PAGE>   16






     KANSAS CITY
       KANSAS CITY KANSAN (D)
       KANSAS CITY KANSAN "SUNDAY" (W)
       WYNADOTT COUNTY SHOPPER (S)
       LEAVENWORTH
     THE LEAVENWORTH TIMES (D)
       THE LEAVENWORTH TIMES SUNDAY (W)
       RIVER BEND JOURNAL (T)
       CHRONICLE SHOPPER (S)
     MCPHERSON
       MCPHERSON SENTINEL (D)
       THE SENTINEL AD-VISER (T)
       MAC SHOPPER (S)
     PRATT
       THE PRATT TRIBUNE (D)
       BARBER COUNTY INDEX (W)
       ST. JOHNS NEWS (W)
       KIOWA COUNTY SIGNAL (W)
       SUNFLOWER SHOPPER TMC (T)
     SHAWNEETOWN
       JOURNAL-HERALD (W)
     WELLINGTON
       DAILY NEWS (D)

LOUISIANA
     BASTROP
       THE BASTROP DAILY EXPRESS (D)
       THE EXTRA (T)
     DERIDDER
       BEAUREGARD DAILY NEWS (D)
     DONALDSONVILLE
       THE DONALDSONVILLE CHIEF (W)
       THE CAJUN GAZETTE (W)
       THE BAYOU EXTRA (T)
     GONZALES
       ASCENSION CITIZEN (W)
       NICKEL ADS (S)
       THE STAR WATCH (T)
     IOWA
       IOWA NEWS (W)
     LEESVILLE
       LEESVILLE DAILY LEADER (D)
     MOSS BLUFF
       MOSS BLUFF NEWS (W)
     SULPHUR
       SOUTHWEST DAILY NEWS (D)
       GUARDIAN (S)
     VINTON
       VINTON NEWS (W)
     WESTLAKE
       WESTLAKE NEWS (W)

MICHIGAN
     CHEBOYGAN
       CHEBOYGAN DAILY TRIBUNE (D)
       SHOPPERS FAIR (S)
     IONIA
       SENTINEL-STANDARD (D)
       SENTINEL STANDARD TMC (T)
     SAULT STE. MARIE
       THE EVENING NEWS (D)
       TRI COUNTY BUYERS GUIDE (T)


                                       14

<PAGE>   17




MINNESOTA
     COTTONWOOD
       TRI-COUNTY NEWS (W)
     CROOKSTON
       CROOKSTON DAILY TIMES (D)
       CROOKSTON VALLEY SHOPPER (S)
     GRANITE FALLS
       GRANITE FALLS/CLARKFIELD ADVOCATE-
         TRIBUNE (W)
     HALSTAD
       THE HALSTAD SHOPPER (S)
     MONTEVIDEO
       MONTEVIDEO AMERICAN NEWS (W)
       THE STAR ADVISOR (S)
     REDWOOD FALLS
       REDWOOD FALLS GAZETTE (W)
       REDWOOD FALLS LIVEWIRE (S)
     ST. JAMES
       ST. JAMES PLAIN DEALER (W)
       TOWN AND COUNTRY SHOPPER (S)
     SLEEPY EYE
       SLEEPY EYE HERALD DISPATCH (W)
       THE SLEEPY EYE REMINDER (S)
     WABASSO
       THE WABASSO STANDARD (W)

MISSOURI
     ALBANY
       GENTRY COUNTY SHOPPER (S)
     BOONVILLE
       BOONVILLE DAILY NEWS (D)
       THE RECORD (T)
     BROOKFIELD
       DAILY NEWS BULLETIN (D)
     CAMDENTON
       LAKE SUN LEADER (D)
     CARTHAGE
       THE CARTHAGE PRESS (D)
       THE CARTHAGE PRESS SCOPE (T)
     CHILLICOTHE
       C.T. EXTRA (S)
       CONSTITUTION TRIBUNE (D)
     GREENFIELD
       LAKE STOCKTON SHOPPER (S)
       MILLER PRESS (W)
       THE VEDETTE (W)
     JOPLIN
       BIG NICKEL (S)
     KIRKSVILLE
       KIRKSVILLE CRIER (S)
       KIRKSVILLE DAILY EXPRESS & NEWS (D)
     LAKE OZARKS
       LAKE AREA NEWS FOCUS (S)
       TUBE TAB (S)
       LAKE OF THE OZARKS BOATS (S)
       LAKE OF THE OZARKS REAL ESTATE (S)
     MACON
       CHRONICLE HERALD (D)
       MACON JOURNAL (T)
     MARCELINE
       MARCELINE PRESS (W)
       SHO-ME SHOPPER (T)
     MARYVILLE
       MARYVILLE DAILY FORUM (D)


                                       15

<PAGE>   18



       WEEKLY BARGAIN SHOPPER (S)
       PENNY PRESS 2 (S)
     MEXICO
       THE MEXICO LEDGER (D)
       THE MEXICO LEDGER TMC (T)
     MOBERLY
       MOBERLY MONITOR INDEX (D)
     MONROE CITY
       MARK TWAIN REGIONAL NEWS (F)
       MONROE CITY NEWS (W)
     NEOSHO
       NEOSHO DAILY NEWS (D)
       NEOSHO DAILY NEWS "ETC." (T)
       NEOSHO DAILY NEWS "SUNDAY" (W)
     OSAGE BEACH
       VACATION NEWS (F)
     ROLLA
       ROLLA DAILY NEWS (D)
       ROLLA DAILY NEWS "PLUS" (T)
     SAINT JAMES
       ADVERTISER (T)
       ST. JAMES LEADER JOURNAL (W)
     WAYNESVILLE
       THE DAILY GUIDE (D)
       DAILY GUIDE EXTRA (T)
       FORT WOOD CONSTITUTION (F)

NEW YORK
     BATH
       STEUBEN COURIER ADVOCATE (F)
     CANISTEO
       HORNELL CANSITEO PENN-E-SAVER (S)
     DANSVILLE
       GENESEE COUNTY EXPRESS (W)
       GENESEEWAY SHOPPER (S)
     FT. PLAIN
       MOHAWK VALLEY PENNYSAVER (S)
     HERKIMER
       THE EVENING TELEGRAM (D)
       IMAGES (F)
     HORNELL
       EVENING TRIBUNE (D)
       THE SPECTATOR (SUNDAY) (W)
       THE TRIBUNE EXTRA (T)
     HORSEHEADS
       THE SHOPPER (S)
     LIBERTY
       CATSKILL SHOPPER (S)
     LITTLE FALLS
       THE EVENING TIMES (D)
       TIMES-SAVER (T)
     OSWEGO
       THE PALLADIUM TIMES (D)
       COMMUNITY PREVIEW TMC (T)
     PAINTED POST
       CORNING-ELMIRA PENNYSAVER (S)
     PENN YAN
       CHRONICLE AD-VISER (S)
       THE CHRONICLE-EXPRESS (W)
     SAUGERTIES
       MOUNTAIN PENNYSAVER (F)
       SAUGERTIES PENNYSAVER (S)
       SAUGERTIES POST STAR (W)


                                       16

<PAGE>   19


     SYRACUSE
       THE BUSINESS RECORD(W)
     WELLSVILLE
       ALLEGANY CO. PENNYSAVER (S)
       WELLSVILLE DAILY REPORTER (D)
       WELLSVILLE DAILY TMC (T)

NORTH DAKOTA
     DEVILS LAKE
       DEVILS LAKE DAILY JOURNAL (D)
       THE COUNTY PEDDLER (W)

PENNSYLVANIA
     CARBONDALE
       THE CARBONDALE NEWS (W)
     HONESDALE
       THE INDEPENDENT EXTRA (T)
       THE WAYNE INDEPENDENT (D)
     MILTON
       LEWISBURG DAILY JOURNAL (D)
       MILTON DAILY STANDARD (D)
       THE STANDARD-JOURNAL (T)
     MOSCOW/HAMLIN
       THE VILLAGER (W)
     SAYRE
       THE EVENING TIMES (D)
       THE TIMES EXTRA (T)
     WAYNESBORO
       THE RECORD HERALD (D)
       RECORD HERALD SHOPPERS EXPRESS (S)

WEST VIRGINIA
     KEYSER
       MINERAL DAILY NEWS TRIBUNE (D)
       NEWS TRIBUNE & MOUNTAIN
         ECHO (W)
       TODAY'S SHOPPER (S)


                                       17

<PAGE>   20
ITEM 3. LEGAL PROCEEDINGS.

The Company is involved in a number of legal proceedings which have arisen in
the ordinary course of business. In the opinion of management, the outcome of
these legal proceedings will not have a material adverse impact on the
Company's financial position or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

There is no public market for the Company's Common Stock. All of the Company's
issued and outstanding common stock is owned by LGP. The Company has no
outstanding capital stock other than common stock nor are there any outstanding
options, warrants, or other rights to purchase the Operating Company's capital
stock.

ITEM 6. SELECTED FINANCIAL DATA.

The following table sets forth selected historical financial data of the
Company. The data presented below should be read in conjunction with the
consolidated financial statements, including the notes thereto, and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Form 10-K.


                                       18

<PAGE>   21
<TABLE>
<CAPTION>
                                                    YEAR ENDED DECEMBER 31,
                            --------------------------------------------------------------------
                                1995          1996          1997           1998         1999
                            ------------  ------------  ------------  ------------  ------------
                           (PREDECESSOR) (PREDECESSOR) (PREDECESSOR)   (SUCCESSOR)   (SUCCESSOR)
                                                    (DOLLARS IN THOUSANDS)
<S>                         <C>           <C>           <C>           <C>           <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
  Advertising                   $60,255       $67,756       $69,602      $ 81,554      $120,573
  Circulation                    19,058        21,064        21,451        22,844        27,543
  Job printing and other          8,054         8,722         7,666         8,133        13,239
                            ------------  ------------  ------------  ------------  ------------
Total Revenues                   87,367        97,542        98,719       112,531       161,355
Operating Costs                  36,429        39,660        39,309        45,976        68,351
Selling, general
  and administrative             27,482        29,919        29,171        32,329        45,631
                            ------------  ------------  ------------  ------------  ------------
Newspaper EBITDA                 23,456        27,963        30,240        34,226        47,373
                            ------------  ------------  ------------  ------------  ------------
Corporate Expenses                    -             -             -         3,736         5,668
Non Cash Compensation                 -             -             -           238           223
                            ------------  ------------  ------------  ------------  ------------
EBITDA                           23,456        27,963        30,240        30,252        41,482
Depreciation and
  amortization                    7,290         7,854         7,470        11,917        16,657
                            ------------  ------------  ------------  ------------  ------------
Income from operations           16,166        20,109        22,769        18,335        24,825
Interest expense                 11,195        10,968        10,551        19,300        25,216
Net Gain on Exchange
 and Disposition of
 Properties                           -             -             -             -         6,197
                            ------------  ------------  ------------  ------------  ------------
Income (Loss) before
 income taxes, and
 extraordinary item               4,971         9,141        12,218          (965)        5,806
Income taxes                      2,338         4,006         5,271             -           295
                            ------------  ------------  ------------  ------------  ------------
Income (Loss) before
 extraordinary item               2,633         5,135         6,947          (965)        5,511
                            ------------  ------------  ------------  ------------  ------------

Extraordinary Gain on
 insurance proceeds                   -             -             -             -           485
                            ------------  ------------  ------------  ------------  ------------
Net Income (loss)               $ 2,633       $ 5,135        $ 6,947      $  (965)     $  5,996
                            ============  ============  ============  ============  ============
</TABLE>


Newspaper EBITDA includes income from operations adjusted to exclude
depreciation and amortization expense, Corporate expenses, and non-cash
compensation.

<TABLE>
<CAPTION>
                                                     AS OF DECEMBER 31,
                            --------------------------------------------------------------------
                                1995          1996          1997          1998          1999
                            ------------  ------------  ------------  ------------  ------------
                           (PREDECESSOR) (PREDECESSOR) (PREDECESSOR)   (SUCCESSOR)   (SUCCESSOR)
                                                   (DOLLARS IN THOUSANDS)

    <S>                     <C>           <C>           <C>           <C>           <C>
    BALANCE SHEET DATA:
    Cash and cash
    equivalents                 $ 1,929       $ 1,768        $1,452        $1,025       $ 1,860
    Total assets                120,170       112,974       109,700       406,401       475,881
    Total debt                        -             -             -       227,834       281,418
    Stockholders' equity
      (deficit)                 106,945       102,980        99,139       147,696       150,985
    OTHER DATA:
    Ratio of earnings
      to fixed charges(1)          1.4x          1.8x          2.2x          1.0x          1.2x
</TABLE>



                                       19
<PAGE>   22
                        NOTES TO SELECTED FINANCIAL DATA

(1)  For purposes of computing the ratio of earnings to fixed charges,
     "earnings" consist of income before income taxes plus fixed charges.
     "Fixed charges" consist of interest on all indebtedness, amortization of
     deferred financing costs, and dividends on preferred stock. The ratio of
     earnings to fixed charges is helpful to investors as it provides a
     measure, generally calculated consistently by all companies, of a
     company's ability to meet its debt service requirements. For the year
     ended December 31, 1998 earnings were insufficient to cover fixed charges
     by $1.0 million.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the historical
financial statements of the Company, including the notes thereto. The historical
financial data of the Company for the period before January 1, 1998 refers to
the operations of the Company when it was owned by American Publishing Company
or its subsidiaries ("APC"), a wholly owned subsidiary of Hollinger
International, Inc. Effective January 1, 1998 the Company's parent purchased
substantially all of the assets and assumed certain liabilities that were used
in the business of publishing and distributing certain local newspapers ("the
Initial Acquisition"). The discussion and analysis below includes certain
forward-looking statements (as such terms are defined in Section 21E of the
Securities Exchange Act of 1934) pertaining to, among other things, competition
in its markets, availability of adequate acquisition opportunities, price and
availability of newsprint, significant use of leverage, general economic
conditions, and environmental matters. These statements are based on the
beliefs, assumptions made by, and information currently available to, the
Company's management. The Company's actual growth, results, performance and
business prospects in 2000, and beyond could differ materially from those
expressed in, or implied by, such forward-looking statements. See "Disclosure
Regarding Forward-Looking Statements" on page 1 for a discussion of features
that could cause or contribute to such material differences.

OVERVIEW

The Company is a leading U.S. publisher of local newspapers and related
publications that are the dominant source of local news and print advertising
in their markets. The Company's revenues are derived from advertising (75% of
1999 total revenues), circulation (17%) and job printing and other (8%).

The Company's primary costs and expenses are comprised of operating costs and
selling, general and administrative expenses. Salaries and employee benefits
are the Company's largest operating costs. The Company has been able to control
salaries and employee benefit expenses by realizing efficiencies from the
implementation of new technologies and the achievement of synergies from its
strategy of geographically clustering its newspaper operations.

Liberty Group Publishing, Inc. ("LGP") was formed for purposes of acquiring a
portion of the daily and weekly newspapers owned by American Publishing Company
or its subsidiaries ("APC"), a wholly-owned subsidiary of Hollinger
International Inc.("Hollinger"). LGP is a holding company for its wholly-owned
subsidiary, Liberty Group Operating, Inc ("Operating Company"). The consolidated
financial statements include the accounts of Operating Company and its
consolidated subsidiaries (the "Company").

On January 27, 1998, the Company's parent acquired from Hollinger virtually all
of the assets and assumed certain liabilities that were used primarily in the
business of publishing, marketing and distributing certain local newspapers (the
"Initial Acquisition"). The initial purchase price including fees and expenses
was $322.4 million. The effective date of the Initial Acquisition was January 1,
1998.


                                       20
<PAGE>   23






In the accompanying consolidated financial statements the terms "Liberty Group
Operating" or the "Company" when used with respect to periods prior to January
1, 1998 refer to the combined group of newspapers sold by APC and when used
with respect to periods subsequent to January 1, 1998 refers to Liberty Group
Operating, Inc. and its consolidated subsidiaries. The combined historical
financial information of the newspapers acquired from APC prior to the Initial
Acquisition on January 1, 1998 is referred to as "Predecessor" while the
consolidated financial information of the Company subsequent to the date of the
Initial Acquisition is referred to as "Successor."

The Company has accounted for the Initial Acquisition using the purchase method
of accounting. Accordingly, the costs of the Initial Acquisition have been
allocated to the assets acquired and liabilities assumed based upon their
respective fair values using independent valuations. The fair values of certain
identifiable assets acquired and goodwill of $296.5 million are being amortized
over periods ranging from 5 to 40 years. Because of the purchase price
allocation, the accompanying consolidated financial statements of Successor are
not directly comparable to those of Predecessor.

Certain administrative services, including accounting, payroll, administration,
tax services and financial reporting, were historically performed for the
Company by APC. The Company was charged directly by APC for certain of such
services and also paid a management fee to APC that was based upon a percentage
of total revenues. At the end of January 1998, the management fee to APC was
replaced by a Transitional Services Agreement that allowed for certain
administrative services to be provided by APC at cost until the Company was able
to establish capabilities to provide its administrative services in-house. The
Company terminated the Transitional Services Agreement effective March 31, 1999.

Prior to the Initial Acquisition, the Company operated as a business unit of
APC and as such did not file separate tax returns. The income tax provision
included in the Predecessor's financial statements was computed as if the
Predecessor were a separate company. Subsequent to the Initial Acquisition, the
Company has been and anticipates that it will be, for the foreseeable future,
in a tax loss position. Given the uncertainty as to the timing of the Company's
ability to utilize such losses to offset future taxable income, the Company
does not presently anticipate recording any tax benefit associated with its
pre-tax losses. In addition to the Initial Acquisition, due to the acquisition
of the Company's assets from APC, the Company's asset values and capital
structure are materially different than those set forth in the Predecessor's
financial statements for periods preceding the Initial Acquisition and,
accordingly, historical interest expense is not indicative of the interest
expense that the Company incurs as a separate company.

The results of operations and cash flows of the Predecessor have been
consolidated with those of the Company from January 1, 1998, the effective date
upon which the Company and APC agreed as to the change of control of the
newspapers to the Company.

During 1998 and 1999, the Company acquired 91 and 49 publications, respectively,
in 18 and 13 transactions, respectively, for a total acquisition cost of $61.8
and $54.8 million, respectively.

RESULTS OF OPERATIONS

The following table summarizes the Company's historical results of operations
as a percentage of total revenues for the years ended December 31, 1997, 1998
and 1999.


                                       21
<PAGE>   24
<TABLE>
<CAPTION>
                                                                                    YEAR TO YEAR
                                        YEAR ENDED DECEMBER 31,                   PERCENTAGE CHANGE
                             -------------------------------------------  ----------------------------
                                 1997           1998            1999           1998          1999
                             (PREDECESSOR)  (PREDECESSOR)    (SUCCESSOR)        TO            TO
                                                                               1997          1998
                             -------------  -------------  -------------  -------------  -------------
<S>                          <C>            <C>            <C>            <C>            <C>
Revenues:
Advertising                            70%            73%            75%            17%            48%
Circulation                            22             20             17              6             21
Job printing and other                  8              7              8              6             63
                             -------------  -------------  -------------  -------------  -------------
Total revenues                        100            100            100             14             43
Operating costs                        40             41             42             17             49
Selling, general
  and administrative                   29             32             32             24             41
Depreciation and
  amortization                          8             11             10             60             40
                             -------------  -------------  -------------  -------------  -------------
Income from Operations                 23             16             15             19             35
Interest expense                       11             17             16             83             31

Net gain on exchange
 and disposition of
 properties                             -              -              4              -              *
                             -------------  -------------  -------------  -------------  -------------

Income (Loss) before income
 taxes and extraordinary
 item                                  12             (1)             4           (108)           705

Income taxes                            5              -              -           (100)             -
                             -------------  -------------  -------------  -------------  -------------
Income (Loss) before
 extraordinary item                     7             (1)             4           (114)           721

Extraordinary gain on
 insurance proceeds                     -              -              *              -              *
                             -------------  -------------  -------------  -------------  -------------
Net Income (Loss)                       7             (1)             4           (114)           721
*-not meaningful
EBITDA                                 31%            27%            26%             0%            37%







</TABLE>

*-not meaningful
EBITDA includes income from operations adjusted to exclude income taxes,
depreciation and amortization expense.

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

Total revenues for the year ended December 31, 1999 increased by $48.8 million,
or 43%, to $161.4 million.  The increase in revenue was primarily due to
revenue from acquired properties and same store increases in advertising
partially offset by decreases in same store print revenue.  The increase in
total revenues for the year ended December 31, 1999, was comprised of a $39.0
million or 48% increase in advertising revenue, a $4.7 million or 21% increase
in circulation revenue, and a $5.1 million or 63% increase in job printing and
other revenue.

Operating costs for the year ended December 31, 1999 were $68.4 million or 42%
of revenue which was an increase of $22.4 million over the year ended December
31, 1998 when operating costs were $46.0 million or 41% of revenue.  The
increase in operating costs as a percentage of revenue for the year ended
December 31, 1999 was primarily due to higher cost structures of acquired
properties and higher labor costs, which is partially offset by lower newsprint
prices.

Selling, general and administrative expenses for the year ended December 31,
1999 increased by $15.2 million, to $51.5 million or 32% of revenues from $36.3
million for the year ended December 31, 1998 when expenses were 32% of
revenues.  The stability in selling, general, and administrative expenses as a
percentage of revenue for the year ended December 31, 1999 was primarily due to
the implementation of cost controls at the Company's publications.

EBITDA for the year ended December 31, 1999 increased by $11.2 million, to $41.5
million from $30.3 million for the year ended December 31, 1998. The increase
was primarily driven by acquisitions, same store growth in advertising revenue,
and lower newsprint prices, which was partially offset by same store reductions
in print revenue and rising labor costs. EBITDA as a percentage of revenue
declined from 27% to 26% due to lower margins at properties acquired during
1999.

Depreciation and amortization expenses for the year ended December 31, 1999
increased by $4.8 million to $16.7 million from $11.9 million for the year ended
December 31,


                                       22

<PAGE>   25
1998.  The increase was due to depreciation of assets acquired in 1999,
depreciation on capital expenditures made in 1999, and amortization of
intangibles from 1999 acquisitions.

Income from operations for the year ended December 31, 1999 increased by $6.5
million from $18.3 million or 16% of revenues to $24.8 million or 15% of
revenues.  The increase was primarily driven by acquisitions, and on a same
store basis, growth in advertising revenue, and lower newsprint prices, which
was offset by same store reductions in print revenue, higher labor costs and
higher depreciation and amortization expenses.

Total interest expense (including amortization of deferred financing fees)
increased by $5.9 million to $25.2 million from $19.3 million in 1998, primarily
due to higher debt balances borrowed to fund acquisitions and  higher interest
rates on bank debt.

For the year ended December 31, 1999, the Company recognized net income of $3.5
million compared to a net loss of $1.0 million for the same period in 1998. This
change, $4.5 million, was due primarily to a net gain from the exchange and
disposition of certain publications and an extraordinary gain on insurance
proceeds.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

Total revenue for the year ended December 31, 1998 increased by $13.8 million,
or 14%, to $112.5 million.  The increase in revenue was primarily due to
acquisitions with same store increases in advertising revenue offset by
declines in printing revenue.  The increase in total revenues for the year
ended December 31, 1998 was comprised of a $12.0 million or 17% increase in
advertising revenue and a $1.4 million or 6% increase in circulation revenue,
and a $0.5 million or 6% increase in job printing and other revenue.

Operating costs for the year ended December 31, 1998 were $46.0 million or 41%
of revenue which was an increase of $6.7 million over the year ended December
31, 1997 when operating costs were $39.3 million or 40% of revenue.  This
increase was primarily driven by higher newsprint prices, and the increase in
the minimum wage that went into effect in September of 1997.

Selling, general and administrative expenses for the year ended December 31,
1998 increased by $7.1 million, to $36.3 million or 32% of revenues from $29.2
million for the year ended December 31, 1997 when expenses were 29% of
revenues.  The increase in selling, general and administrative expenses as a
percentage of revenue for the year ended December 31, 1998 was primarily due to
increases in management costs associated with becoming an independent company
including management fees paid to the controlling stockholder, and by the
increase in the minimum wage that went into effect in September of 1997.

Depreciation and amortization expense for the year ended December 31, 1998
increased by $4.4 million, to $11.9 million from $7.5 million for the year
ended December 31, 1997, as a result of the write-up in basis of assets
acquired in the Initial Acquisitions as well as subsequent acquisitions.

Income from operations for the year decreased by $4.5 million from $22.8
million or 23% of revenues to $18.3 million or 16% of revenues primarily due to
higher depreciation and amortization charges as a result of the write-up in
basis of assets acquired in the Initial Acquisition as well as subsequent
acquisitions.

EBITDA for the year ended December 31, 1998 increased by $0.1 million, to $30.3
million from $30.2 million for the year ended December 31, 1997. The decrease in
EBITDA as a percentage of revenue during the year ended December 31, 1998 was
due to higher administrative expenses, increased newsprint costs, and the effect
of the increase in the minimum wage in September of 1997.


                                       23

<PAGE>   26
EBITDA includes income from operations adjusted to exclude income taxes,
depreciation and amortization expenses.  The Company believes that EBITDA
provides additional information for determining its ability to meet future debt
service requirements.  However, EBITDA is not a defined term under Generally
Accepted Accounting Principles ("GAAP") and is not indicative of operating
income or cash flow from operations as determined under GAAP.

For the year ended December 31, 1998, the Company incurred a net loss of $1.0
million which is not directly comparable to the prior year due primarily to
higher depreciation and amortization expenses, increased interest expense, and
higher administrative expenses associated with the Initial Acquisition and
subsequent acquisitions.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows From Operating Activities. Cash flows provided by operating
activities for the year ended December 31, 1999 decreased by $12.9 million to
$8.5 million compared with cash provided of $21.4 million for the year ended
December 31, 1998.  The decrease is primarily due to the non-cash gain on
exchange of properties, only one payment of semi-annual interest on Operating
Company's 9.375% Subordinated notes in 1998 versus two payments in 1999, an
increase in receivables and decreases in accounts payable and accrued expenses
(net of acquisitions).

Cash Flows From Investing Activities. Net cash used in investing activities for
the year ended December 31, 1999 reflects the acquisition of an additional 49
publications (net of exchanges and divestitures) during 1999 for $54.8 million.
Acquisitions are key part of the Company's strategy and will fluctuate over
time due to the availability of publications that meet the Company's
acquisition strategy. The Company's capital expenditures consist of the
purchase of machinery, equipment, furniture and fixtures relating to its
publishing operations. The Company has no material commitments for capital
expenditures, but will continue to pursue its strategy of opportunistically
purchasing local newspapers in contiguous markets and clusters of local
newspapers in new markets. The Company will only pursue acquisitions that it
believes would contribute to the Company's overall cash flow growth.

Cash Flows From Financing Activities. Net cash flows from financing activities
for the year ended December 31, 1999 primarily reflect borrowings made under
the Company's Revolving Credit Facility to fund acquisition costs.

Liquidity. The Company's principal sources of funds will be cash provided by
operating activities and borrowings under its Revolving Credit Facility. The
Company believes that such funds will provide the Company with sufficient
liquidity and capital resources to meet its current and financial obligations
for the foreseeable future. See Note 7 to the Consolidated Financial Statements
for a summary of the terms of the Revolving Credit Facility. The Company's
parent, LGP, is dependent upon the cash flows of the Operating Company to fund
the repayment of its borrowings and the redemption requirements under its
respective preferred stock agreements.

The Company is highly leveraged and has indebtedness that is substantial in
relation to its stockholders' deficit, tangible equity and cash flow. Total
interest expense for the year ended December 31, 1999 was $25.2 million
including amortization of debt issuance costs of $1.1 million. The degree to
which the Company is leveraged could have important consequences, including the
following: (i) for the fiscal year ending December 31, 2000, a substantial
portion of the Company's cash flow from operations must be dedicated to the
payment of interest on the Notes and interest on its other indebtedness, thereby
reducing the funds available to the Company for other purposes; (ii)
indebtedness under the Revolving Credit Facility is


                                       24

<PAGE>   27
at variable rates of interest, which causes the Company to be vulnerable to
increases in interest rates; (iii) the Company is substantially more leveraged
than certain of it competitors, which might place the Company at a competitive
disadvantage; (iv) the Company may be hindered in its ability to adjust rapidly
to changing market conditions; (v) the Company's substantial degree of leverage
could make it more vulnerable in the event of a downturn in general economic
condition or other adverse events in its business; and (vi) the Company's
ability to obtain additional financing for working capital, capital
expenditures, acquisitions or general corporate purposes may be impaired.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company has a $175.0 million Revolving Credit Facility that matures in
January of 2003. Borrowings under the Revolving Credit Facility bear interest at
an annual rate, at the Company's option equal to the Base Rate (as defined in
the Credit Agreement) or the Eurodollar Rate (as defined in the Credit
Agreement) plus a margin that varies based upon a ratio set forth in the Credit
Agreement. As a result the Company's interest expense will be affected by
changes in the Base Rate or in the Eurodollar Rate. At December 31, 1999, the
Company had borrowed $99.5 million under this Revolving Credit Facility.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information in response to this item is included in the consolidated
financial statements and notes thereto, and related Independent Auditors'
Report, appearing on pages F-1 to F-17 of this Form 10-K.


ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE.

None



                                       25
<PAGE>   28





ITEM 10.  DIRECTORS AND OFFICERS OF REGISTRANT


     The following table sets forth the name, age and position of individuals
who serve as directors of the Company and executive officers of the Company.
Each director of LGP will hold office until the next annual meeting of the
stockholders or until his successor has been elected. Qualified officers of LGP
and the Company are elected by their respective Boards of Directors and serve at
the discretion of such Boards.


<TABLE>
<CAPTION>
Name               Age  Position
----               ---  --------
<S>                <C>  <C>
Kenneth L. Serota  38   President, CEO, and Director
Scott T. Champion  40   Executive Vice President - Operations, and Director
Kevin O'Shea       40   Executive Vice President, CFO, and Director
Larry K. Randa     51   Executive Vice President - Suburban Chicago
Gene A. Hall       48   Senior Vice President - Midwestern Region
Joseph Armenia     54   Vice President - Controller
Randy Cope         39   Vice President - Missouri, Kansas, Arkansas
Kelly Luvison      40   Vice President - Western New York Region
Ted Mike           53   Vice President - Eastern Region
Leonard I. Green   65   Chairman of the Board of Directors
Gregory J. Annick  36   Director
John G. Danhakl    44   Director
Peter J. Nolan     41   Director
</TABLE>

     Kenneth L. Serota is President and Chief Executive Officer. Mr. Serota is
also a director of LGP. He served as Vice President - Law & Finance and
Secretary of Hollinger from May 1995 to December 1997 and as a director of its
APC Division, which owned the publications initially acquired by the Company,
from 1996 to 1997. Prior thereto, Mr. Serota served as Senior Vice President of
a privately held frozen food manufacturer from June 1992 through March 1995.
Previously, Mr. Serota served as an attorney and a certified public accountant
in private practice. Mr. Serota has significant experience negotiating and
closing acquisitions of newspaper publications and primarily focuses his
efforts on executing the Company's acquisition program and overseeing all
administrative functions of LGP.

     Scott T. Champion is Executive Vice President - Operations and has primary
responsibility for all community newspaper publications. Prior to 1998, he
served as a Senior Vice President, Regional Manager, and District Manager of
APC and had been employed at APC since 1988. Prior to his employment at APC,
Mr. Champion served as the publisher of a group of privately owned newspaper
publications. Mr. Champion served as the publisher of the Daily Review Atlas
and Pennysaver in Monmouth, Illinois, which publications were acquired by the
Company in the Initial Acquisition, from 1984 to January 1999. Mr. Champion has
more than 18 years' experience in the newspaper industry.

     Kevin O'Shea is Executive Vice President and the Chief Financial Officer.
Mr. O'Shea served as Vice President and Corporate Treasurer of Bell & Howell
Company from February 1996 to March 1998. From 1989 to 1996, Mr. O'Shea served
as Vice President and Corporate Treasurer of Spencer Stuart, a global consulting
firm. Prior thereto, Mr. O'Shea served as Vice President and treasurer/group
controller for The Pritzker Organization, a large and diversified family holding
company.

     Larry K. Randa has been Executive Vice President - Chicago Suburban Group
since January 1999. Prior to that, Mr. Randa was an owner and held numerous
progressively more responsible positions including Vice President of Operations
for Life Printing & Publishing from 1974 until Life Printing & Publishing was
acquired by the Company in January 1999. Mr. Randa is currently the publisher of
55 community newspapers serving the western suburbs of Chicago.


                                       26
<PAGE>   29






     Gene A. Hall is Senior Vice President and has primary responsibility for
newspaper publications in the Midwestern region of the United States. He served
as a Senior Vice President of APC from 1992 to 1998. Prior thereto, he served
as a regional manager and had been employed at APC since 1988. Prior to his
employment at APC, Mr. Hall was the owner and publisher of the Charles City
Press, Six County Shopper and The Extra in Charles City, Iowa. Mr. Hall
currently serves as the publisher of the Charles City Press, Six County Shopper
and The Extra, which publications were acquired by the Company in the Initial
Acquisition, and has served in such positions since 1986. Mr. Hall has more
than 28 years of experience in the newspaper industry. Mr. Hall is also a
director of First Security Bank & Trust.

     Joseph P. Armenia is Vice President and Controller since August of 1998.
From 1981 to 1995 and from 1996 to 1998, Mr. Armenia served as Publisher of the
Tonawanda NEWS, Kenmore Record, Grand Island Record, Wheatfield Record and the
Tonawanda NEWS Extra and Regional Manager for Liberty Group Publishing Company.
From 1995 to 1996 Mr. Armenia served as Vice President of Operations for the
Chicago Sun Times. From 1975 to 1981 he served as Business Manager, General
Manager, Publisher and Corporate Controller for Ingersoll Publications Company.
Prior to his 25 years in the newspaper industry, he served as Medicare
Statistician and Accountant for DeGraff Memorial Hospital.

     Randy Cope is Vice President responsible for newspaper operations in
Missouri, Arkansas, and Kansas since December of 1998. Mr. Cope also oversees
the Company's national classified advertising network.  From 1991 to 1998, Mr.
Cope was regional manager and publisher of the Northwest Arkansas Times in
Fayetteville, Arkansas, which was owned by American Publishing Company.  Mr.
Cope has 19 years of experience covering all areas of newspaper operations.

     Kelly M. Luvison is Vice President responsible for newspaper operations in
western New York, Pennsylvania and West Virginia, as well as Liberty Business
Development Group. Mr. Luvison has served as regional manager for the Company
since the Initial Acquisition and was appointed a Vice President in January
2000.  Prior to this, was a regional manager for APC.  A 17-year newspaperman,
Luvison began his career in Pennsylvania as a reporter and editor.  From 1987
to 1996 he was publisher of the Company's property in Waynesboro, Pa., and
served as district manager for two other Pennsylvania newspapers. Since 1996 he
has been publisher of the Evening Tribune in Hornell, NY, in addition to his
duties as a regional manager and vice president.

     Ted Mike is Vice President and has primary responsibility for many the
Company's newspaper operations in the eastern region of the United States. Mr.
Mike served as regional manager for the Company since the Initial Acquisition
and was appointed as Vice President in January 1999.  Mr. Mike served as a
regional manager for American Publishing Company since 1991. Mr. Mike currently
serves as the publisher of The Evening Times and The Evening Times Extra in
Sayre, Pennsylvania, publications which were acquired by the Company in the
Initial Acquisition, and has served in such position since 1991.  Mr. Mike has
more than 30 years of experience in the newspaper industry.

     Leonard Green is the Chairman of the Board of Leonard Green & Partners,
L.P. ("Leonard Green Partners"), a merchant banking firm that manages Green
Equity Investors II, L.P. ("GEI") since the inception of Leonard Green Partners
and GEI in 1994.  Since 1989, Mr. Green has been individually, or through a
corporation, a partner in a merchant banking firm affiliated with Leonard Green
Partners. Prior to 1989, Mr. Green had been a partner at Gibbons, Green, van
Amorongen for more than five years.  Mr Green is also a director of Rite Aid
Corporation and several private companies.

     Gregory J. Annick serves as a Director of the Company. He has been an
executive officer of Leonard Green Partners since the formation of Leonard Green
Partners and GEI in 1994. He joined a merchant-banking firm affiliated with
Leonard Green Partners as an associate in 1989, became a principal in 1993, and
through a corporation became a partner in 1994. From 1988 to 1989, he was an
associate with the merchant banking firm of Gibbons, Green, van Amerongen.
Before that time, Mr.

                                       27
<PAGE>   30
Annick was a financial analyst in mergers and acquisitions with Goldman, Sachs
& Co. Mr. Annick is also a director of several private companies.

     John G. Danhakl serves as a Director of the Company.  He has been an
executive officer of Leonard Green Partners since 1995.  Mr. Danhakl had
previously been a Managing Director at Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") and had been with DLJ since 1990. Prior to joining DLJ, Mr.
Danhakl was a Vice President at Drexel Burnham Lambert Incorporated ("Drexel").
Mr. Danhakl is also a director of Twinlab Corporation, The Arden Group, Inc.,
and several private companies.

     Peter J. Nolan is a director of the Company. He has been an executive
officer and an equity owner of Leonard Green & Partners, L.P., a merchant
banking firm that manages GEI, since April 1997. Mr. Nolan had previously been
a Managing Director of DLJ and Co-Head of DLJ's Los Angeles Investment Banking
Division and had been with DLJ since 1990. Prior to joining DLJ, Mr. Nolan was
a First Vice President at Drexel. Mr. Nolan is also a director of several
private companies.


ITEM 11. EXECUTIVE COMPENSATION.


<TABLE>
<CAPTION>
                                            -----------------------------------------
                                                      ANNUAL COMPENSATION
        NAME AND                            -----------------------------------------
        PRINCIPAL POSITION         YEAR      SALARY    BONUS       OTHER      TOTAL
        -------------------       ------    --------  --------  -----------  --------
        <S>                        <C>      <C>       <C>       <C>          <C>

        Kenneth L. Serota          1998     $338,242  $150,000  $380,175(1)  $868,417
        President and CEO          1999      375,000   400,000   121,013(2)   896,013

        Kevin O'Shea               1998      116,923    75,000     5,106      197,029
        Executive V.P. - CFO       1999      171,429   200,000    18,656      390,085

        Scott T. Champion          1998       58,344    94,455    26,680      179,479
        Executive V.P.             1999      125,000    75,000    18,520      218,520

        Gene A. Hall               1998       45,538    83,751    30,386      159,672
        Senior V.P.                1999      125,000    50,000    18,723      193,723

        Randy Cope                 1998       10,000         0         0       10,000
        Vice President             1999      120,000    45,750     5,154      170,904

        Kenneth Cope               1998      184,615    30,000    23,459      238,574
        Executive V.P.             1999      200,000    30,000    93,336(3)   323,336
</TABLE>

(1)  Mr. Serota's 1998 other compensation consists of a transfer of 1,600 common
     shares from the controlling shareholder valued at $160,000, plus the
     related tax gross-up of $132,237, upon the commencement of his employment,
     plus $77,169 in loan forgiveness pursuant to his employment agreement, plus
     a $5,000 contribution to a deferred compensation plan and a car allowance
     of $5,769.

(2)  Mr. Serota's 1999 other compensation consists of $110,013 in loan
     forgiveness, plus a $5,000 contribution to a deferred compensation plan and
     a car allowance of $6,000.

(3)  Mr. Cope terminated his employment with the Company on November
     30, 1999. His other compensation consists of $3,336 in life insurance,
     $40,000 in loan forgiveness, and $50,000 in finders fees related to certain
     properties acquired by the Company.

     The following table sets forth the number of stock options granted to the
Named Executive Officers during 1999 and information regarding stock option
exercises and exercisable and unexercisable stock options held by the Named
Executive Officers as of December 31, 1999.

                       OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>

                                                                             POTENTIAL
                                                                          REALIZABLE VALUE
                                    INDIVIDUAL GRANTS                        AT ASSUMED
             -----------------------------------------------------------    ANNUAL RATES
                         % OF TOTAL                                        OF STOCK PRICE
                NUMBER OF            OPTIONS        EXERCISE                 APPRECIATION
                SECURITIES          GRANTED TO       OR BASE               FOR OPTION TERM(3)
                UNDERLYING         EMPLOYEES IN       PRICE    EXPIRATION  ------------------
NAME         OPTIONS GRANTED(1)   FISCAL YEAR(2)     ($/SH)       DATE        5%        10%
-----       ------------------   --------------    --------   ----------  --------   -------
<S>          <C>                 <C>               <C>       <C>          <C>       <C>
RANDY COPE         400                 5%            $100      01/31/09    $25,156    $63,750
</TABLE>

(1) Options become exercisable one year after the date the options are granted.
    The term of the option is ten years from the original grant date.

(2) Based on 8,000 total options granted to employees, including the Named
    Executive Officers, in 1999.

(3) The potential realizable value is calculated based on the term of the option
    at its time of grant (ten years). It is calculated by assuming the stock
    price on the date of grant appreciates at the indicated annual rate
    compounded annually for the entire term of the option and that the option
    is exercised and sold on the last day of its term for the appreciated stock
    price.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

<TABLE>
<CAPTION>
                                                           NO.
                                               % OWNED  OF SHARES
                                               -------  ---------
              <S>                              <C>      <C>

              Common Stock:

              Liberty Group Publishing, Inc.      100%        100
              3000 Dundee Rd., Suite #203
              Northbrook, IL 60062

</TABLE>



                                       28
<PAGE>   31
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

EMPLOYMENT AGREEMENT

     LGP and Kenneth Serota have entered into an employment agreement, dated as
of November 21, 1997 (the "Employment Agreement"), whereby Mr. Serota has
agreed to serve as President and Chief Executive Officer of the Company for a
period of three years commencing January 1, 1998 and for additional successive
one-year periods thereafter, unless either party gives timely notice to the
other that the employment term shall not be so extended.

     The Employment Agreement provides for a base salary of $350,000, $375,000
and $400,000 for the years 1998, 1999 and 2000, respectively, and those
benefits generally available to the employees of the Company, including life
insurance, health insurance, deferred compensation and profit sharing. In
addition to receiving a base salary, Mr. Serota is eligible to receive a bonus
based on the attainment of applicable performance standards agreeable to the
Company and Mr. Serota, including standards based on annual revenue growth,
EBITDA growth, completion of reasonably acceptable acquisitions and growth of
acquired properties. The Employment Agreement also provides, subject to certain
exceptions, that upon a termination of Mr. Serota's employment during the term
thereof (other than for "cause" as defined therein or voluntary resignation),
the Company is generally obligated to pay Mr. Serota the greater of one year's
salary or an amount equal to his base salary for the remaining term under the
Employment Agreement plus, in either case, a portion of his bonus for the year
of termination. The Company has also loaned to Mr. Serota $250,000 pursuant to
an Unsecured Promissory Note dated January 27, 1998. The amount of the loan
will be forgiven by the Company pro rata on a daily basis during the initial
three-year term of the Employment Agreement and shall be forgiven in its
entirety if Mr. Serota is terminated by the Company without cause, if Mr.
Serota terminates his employment for good reason (as defined therein), death or
disability, or upon the consummation of an initial public offering of
securities of the Company.

     On January 27, 1998, in satisfaction of the Company's obligations under the
terms of the Employment Agreement, GEI transferred to Mr. Serota 2% of the
fully-diluted equity of LGP and, in addition, Mr. Serota purchased from GEI an
additional 2% of the fully-diluted equity of the Company for the price and on
the terms and conditions such equity was purchased by GEI. The Company loaned to
Mr. Serota 50% of the purchase price of such shares pursuant to a Secured
Recourse Promissory Note dated January 27, 1998. Such loan bears interest at a
rate equal to the applicable federal rate for loans of the same maturity as of
the date of the loan. The outstanding principal amount of the loan, together
with all interest accrued thereon, will be due and payable in full upon the
earlier of (i) a change in

                                       29

<PAGE>   32
control (as defined in the Employment Agreement) or (ii) January 1, 2001. The
Employment Agreement provides certain "call" rights to the Company, which are
generally exercisable upon Mr. Serota's termination of employment with the
Company.

MANAGEMENT SHARES

     On January 27, 1998, GEI transferred an aggregate of 64,000 shares of
Common Stock ("Management Shares") to the Chief Executive Officer of the
Company, Mr. Serota, pursuant to a management stockholders agreement (the
"Management Stockholders Agreement"). The Management Stockholders Agreement
contains a "call" option exercisable by LGP upon termination of Mr. Serota's
employment with LGP or Liberty Group Operating, a right of first refusal in
favor of Mr. Serota, certain "piggyback" registration rights, "tag-along" sale
rights and "drag-along" sale obligations consistent with the terms of the
Employment Agreement. In addition, LGP or GEI may sell shares of LGP Common
Stock to other current or prospective officers and employees of Liberty Group
Operating (together with the Senior Management Investors, the "Management
Investors"). As of the date hereof, a total of 96,000 Management Shares have
been transferred to employees other than Mr. Serota at a price of $5 per share,
for total consideration of $480,000.

     Shares of LGP Common Stock were sold to Management Investors pursuant to
Management Subscription and Stockholders Agreements among LGP, GEI and the
respective Management Investor (each such agreement, a "Management Share
Agreement"). Pursuant to the Management Share Agreements, transfers of the
Management Shares (other than transfers to certain related transferees) are
subject to various restrictions, including a right of first refusal in favor of
LGP. Each Management Share Agreement also contains a "call" option exercisable
by LGP upon termination of the Management Investor's employment with LGP,
Liberty Group Operating and their subsidiaries. The Management Share Agreements
also contain certain "piggyback" registration rights, "tag-along" sale rights
and "drag-along" sale obligations. These rights and obligations lapse upon the
occurrence of certain events. Each Management Share Agreement contains a
noncompetition provision which prohibits a Management Investor from competing,
directly or indirectly, with the Company's publications located within certain
designated communities for a period of three years from the termination date of
such Management Investor's employment with the Company or its subsidiaries.

During 1999, the Company's parent repurchased 32,000 outstanding common shares
for a total of $250,000 from management shareholders who terminated their
employment with the Company.

In February 2000, the Company's parent effected a 20-to-1 stock split of its
common stock, bringing the total shares of common stock issued to 1,600,000. The
Company's parent then authorized the issuance of 55,000 additional common
shares, of which 49,500 shares will be made available in the form of stock
options for local publishers.  Members of the management team will also receive
5,500 of these new shares to eliminate any dilution of their original holdings
that will result from the issuance of shares under the LGP stock option plan.

COMPENSATION OF DIRECTORS AND MANAGEMENT FEES

     Individuals who are officers of Liberty Group Operating and LGP, as well as
Messrs. Green, Annick, Danhakl and Nolan, do not receive any compensation
directly for their service on LGP's and Liberty Group Operating's Boards of
Directors. Liberty Group Operating has agreed, however, to pay Leonard Green and
Partners an annual management fee of $1.0 million. Such fee is payable in equal
monthly installments, but is subordinated in right of payment to the Senior
Discount Debentures and the Senior Subordinated Notes for various management,
consulting and financial planning services, including assistance in strategic
planning, providing


                                       30
<PAGE>   33
market and financial analyses, negotiating and structuring financing and
exploring expansion opportunities. Leonard Green and Partners also received
acquisition finders' fees of $375 in 1999 and is owed $1,264 at December 31,
1999. See "Certain Relationships and Related Transactions - Management Fees".

                                       31
<PAGE>   34
ITEM 14.  EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
          FORM 8-K

(a)  1.       Consolidated Financial Statements, Consolidated Financial
              Statement Schedules and Exhibits.

              Independent Auditors' Report.

              Consolidated Balance Sheets as of December 31, 1998 and 1999.

              Consolidated Statements of Operations for the years ended
              December 31, 1997, 1998, and 1999.

              Consolidated Statements of Stockholders' Equity (Deficit)
              for the years ended December 31, 1997, 1998, and 1999.

              Consolidated Statements of Cash Flows for the years ended
              December 31, 1997, 1998, and 1999.

              Notes to Consolidated Financial Statements.

2.            The following consolidated financial statement schedule of the
              Company and the related independent auditors' report are included
              in this Form 10-K on pages S-1 and S-2: Independent Auditors'
              Report - Schedule II - Valuation and Qualifying Accounts. All
              other financial statement schedules are omitted because such
              schedules are not required or the information required has been
              presented in the aforementioned financial statements.


3.            The exhibits filed as a part of this report are listed in the
              accompanying Index to Exhibits.


                                       32


<PAGE>   35
<TABLE>
<CAPTION>

<S>     <C>                                                                                 <C>
2.1      Asset Purchase Agreement, dated as of November 21, 1997, among Liberty Group        Incorporated by reference to exhibits
         Publishing, Inc., Green Equity Investors II, L.P. (as guarantor), Liberty Group     included on the Company's
         Operating, Inc., Hollinger International Inc., APAC-90 Inc., American Publishing    Registration Statement on Form S-4
         (1991) Inc. and APAC-95 Inc.                                                        (Registration No.: 333-46959)

2.2      Asset Purchase Agreement, dated as of November 21, 1997, among Liberty Group        Incorporated by reference to exhibits
         Publishing, Inc., Green Equity Investors II, L.P. (as guarantor), Liberty Group     included on the Company's
         Operating, Inc., Hollinger International Inc., American Publishing Company of       Registration Statement on Form S-4
         Illinois, APAC-90 Inc., American Publishing (1991) Inc. and APAC-95 Inc.            (Registration No.: 333-46959)

2.3      Exchange Agreement, dated as of November 21, 1997, between American                 Incorporated by reference to exhibits
         Publishing Company of Illinois and Chicago Deferred Exchange Corporation.           included on the Company's
                                                                                             Registration Statement on Form S-4
                                                                                             (Registration No.: 333-46959)

2.4      Qualified Exchange Trust Agreement, dated as of November 21, 1997, among the        Incorporated by reference to exhibits
         Chicago Trust Company, as Trustee under Trust No. 38347501, Chicago Deferred        included on the Company's
         Exchange Corporation and American Publishing Company of Illinois.                   Registration Statement on Form S-4
                                                                                             (Registration No.: 333-46959)

2.5      Amendment to Asset Purchase Agreement, dated as of January 14, 1998, among          Incorporated by reference to exhibits
         Liberty Group Publishing, Inc., Green Equity Investors II, L.P. (as guarantor),     included on the Company's
         Liberty Group Operating, Inc., Hollinger International Inc., APAC-90 Inc.,          Registration Statement on Form S-4
         American Publishing (1991) Inc. and APAC-95 Inc.                                    (Registration No.: 333-46959)

2.6      Amendment to Asset Purchase Agreement, dated as of January 14, 1998, among          Incorporated by reference to exhibits
         Liberty Group Publishing, Inc., Green Equity Investors II, L.P. (as guarantor),     included on the Company's
         Liberty Group Operating, Inc., Hollinger International Inc., American Publishing    Registration Statement on Form S-4
         Company of Illinois, APAC-90 Inc., American Publishing (1991) Inc. and APAC-        (Registration No.: 333-46959)
         95 Inc.
</TABLE>


                                       33
<PAGE>   36




<TABLE>
<S>     <C>                                                                                 <C>
2.7      Amendment to Exchange Agreement, dated as of January 14, 1998, between              Incorporated by reference to exhibits
         American Publishing Company of Illinois and Chicago Deferred Exchange               included on the Company's
         Corporation.                                                                        Registration Statement on Form S-4
                                                                                             (Registration No.: 333-46959)

2.8      Amendment to Qualified Exchange Trust Agreement, dated as of January 14, 1998,      Incorporated by reference to exhibits
         among The Chicago Trust Company, as Trustee under Trust No. 38347501,               included on the Company's
         Chicago Deferred Exchange Corporation and American Publishing Company of            Registration Statement on Form S-4
         Illinois.                                                                           (Registration No.: 333-46959)

2.9      Agreement, dated as of January 15, 1998, among Liberty GroupPublishing,             Incorporated by reference to exhibits
         Equity Investors II, L.P. (as guarantor), Liberty Group Operating, Inc.,            included on the Company's
         Hollinger International Inc., American Publishing Company of Illinois,              Registration Statement on Form S-4
         APAC-90 Inc.,  American Publishing (1991) Inc. and APAC-95 Inc.                     (Registration No.: 333-46959)

2.10     Agreement, dated as of January 23, 1998, among American Publishing Company of       Incorporated by reference to exhibits
         Illinois, Chicago Deferred Exchange Corporation and The Chicago Trust Company.      included on the Company's
                                                                                             Registration Statement on Form S-4
                                                                                             (Registration No.: 333-46959)

2.11     Agreement, dated as of January 26, 1998, among Liberty Group Publishing, Inc.,      Incorporated by reference to exhibits
         Green Equity Investors II, L.P. (as guarantor), Liberty Group Operating, Inc.,      included on the Company's
         Hollinger International Inc., American Publishing Company of Illinois,              Registration Statement on Form S-4
         APAC-90 Inc., American Publishing (1991) Inc. and APAC-95 Inc.                      (Registration No.: 333-46959)

3.1      Certificate of Incorporation of Liberty Group Operating, Inc.                       Incorporated by reference to exhibits
                                                                                             included on the Company's
                                                                                             Registration Statement on Form S-4
                                                                                             (Registration No.: 333-46959)

</TABLE>




                                       34
<PAGE>   37


<TABLE>

<S>     <C>                                                                                 <C>
3.2      By-Laws of Liberty Group Operating, Inc.                                             Incorporated by reference to exhibits
                                                                                              included on the Company's
                                                                                              Registration Statement on Form S-4
                                                                                              (Registration No.: 333-46959)

4.1      Indenture, dated as of January 27, 1998, among Liberty Group Operating, Inc., the    Incorporated by reference to exhibits
         Subsidiary Guarantors named therein and State Street Bank and Trust Company, as      included on the Company's
         Trustee, including form of 9-3/8% Senior Discount Debentures due 2008.               Registration Statement on Form S-4
                                                                                              (Registration No.: 333-46959)

*10.1    Employment Agreement, dated as of November 21, 1997, among Liberty Group             Incorporated by reference to exhibits
         Publishing, Inc., Liberty Group Operating, Inc. and Kenneth                          included on the Company's
         L. Serota.                                                                           Registration Statement on Form S-4
                                                                                              (Registration No.: 333-46959)

*10.2    Management Stockholders Agreement, dated as of January 27, 1998, among Liberty       Incorporated by reference to exhibits
         Group Publishing, Inc., Green Equity Investors II, L.P. and Kenneth L. Serota.       included on the Company's
                                                                                              Registration Statement on Form S-4
                                                                                              (Registration No.: 333-46959)

*10.3    Amended and Restated Management Subscription and Stockholders Agreement,             Included herewith.
         dated as of February 1, 2000, by and between Liberty Group Publishing, Inc.,
         Green Equity Investors II, L.P. and Scott T. Champion.

*10.4    Amended and Restated Management Subscription and Stockholders Agreement,             Included herewith.
         dated as of February 1, 2000, by and between Liberty Group Publishing, Inc.,
         Green Equity Investors II, L.P. and Kevin O'Shea.
</TABLE>



                                       35
<PAGE>   38

<TABLE>

<S>     <C>                                                                                 <C>
*10.5    Amended and Restated Management Subscription and Stockholders Agreement,            Included herewith.
         dated as of February 1, 2000, by and between Liberty Group Publishing, Inc.,
         Green Equity Investors II, L.P. and Gene A. Hall.

10.6     Non-Competition Agreement, dated as of January 27, 1998, between Liberty Group      Incorporated by reference to exhibits
         Operating, Inc. and Hollinger International Inc.                                    included on the Company's
                                                                                             Registration Statement on Form S-4
                                                                                             (Registration No.: 333-46959)

10.7     Credit Agreement, dated as of January 27, 1998, among Liberty Group Operating,      Incorporated by reference to exhibits
         Inc. (as borrower), Liberty Group Publishing, Inc. (as parent guarantor), the       included on the Company's
         Subsidiary Guarantors named therein, Citicorp USA, Inc.(as administrative agent     Registration Statement on Form S-4
         and swingline lender), Citibank, N.A. (as issuing bank), Wells Fargo Bank, N.A.     (Registration No.: 333-46959)
         (as documentation agent), BT Alex. Brown Incorporated (as syndication agent),
         Bank of America, NT & SA and Citicorp Securities, Inc. (as arranger).

10.8     First Amendment to Credit Agreement, dated as of May 20, 1999, by and among         Included herewith.
         Liberty Group Operating, Inc. (as borrower), Liberty Group Publishing, Inc. (as
         parent guarantor), the Lenders (as defined therein), Citibank, N.A. (as issuing
         bank) and Citicorp USA, Inc. (as administrative agent and as swingline lender).

10.9     Second Amendment to Credit Agreement, dated as of September 30, 1999, by and        Included herewith.
         among Liberty Group Operating, Inc. (as borrower), Liberty Group Publishing, Inc.
         (as parent guarantor), the Lenders (as defined therein), Citibank, N.A. (as
         issuing bank) and Citicorp USA, Inc. (as administrative agent and as swingline
         lender).

10.10    Pledge Agreement, dated as of January 27, 1998, from Liberty Group Publishing,      Incorporated by reference to exhibits
         Inc., Liberty Group Arizona Holdings, Inc., Liberty Group Arkansas Holdings,        included on the Company's
         Inc., Liberty Group California Holdings, Inc., Liberty Group Illinois Holdings,     Registration Statement on Form S-4
         Inc., Liberty Group Iowa Holdings, Inc., Liberty Group Kansas Holdings, Inc.,       (Registration No.: 333-46959)
         Liberty Group Michigan Holdings, Inc., Liberty Group Minnesota Holdings, Inc.,
         Liberty Group Missouri Holdings, Inc., Liberty Group New York Holdings, Inc.,
         Liberty Group Pennsylvania Holdings, Inc., Liberty Group Management Services,
         Inc. to the lenders under the Credit Agreement.
</TABLE>

                                       36
<PAGE>   39


<TABLE>
<S>     <C>                                                                                 <C>
10.11    Pledge Agreement, dated as of January 27, 1998, from Liberty Group Operating,       Incorporated by reference to exhibits
         Inc. to the lenders under the Credit Agreement.                                     included on the Company's
                                                                                             Registration Statement on Form S-4
                                                                                             (Registration No.: 333-46959)

*10.12   Liberty Group Publishing, Inc.'s Publishers Deferred Compensation Plan.             Incorporated by reference to exhibits
                                                                                             included on the Company's Annual Report
                                                                                             on Form 10-K for the period ended
                                                                                             December 31, 1999.

*10.13   Liberty Group Publishing, Inc.'s Executive Benefit Plan.                            Incorporated by reference to exhibits
                                                                                             included on the Company's Annual Report
                                                                                             on Form 10-K for the period ended
                                                                                             December 31, 1999.

*10.14   Liberty Group Publishing, Inc.'s Executive Deferral Plan.                           Incorporated by reference to exhibits
                                                                                             included on the Company's Annual Report
                                                                                             on Form 10-K for the period ended
                                                                                             December 31, 1999.

*10.15   1999 Stock Option Plan                                                              Included herewith.

21       Subsidiaries of Liberty Group Operating, Inc.                                       Included herewith.
</TABLE>


                                       37
<PAGE>   40

<TABLE>
<S>     <C>                                                                                 <C>
27       Financial Data Schedule.                                                            Included herewith.
</TABLE>

---------------
* Management Contract/Compensatory Plan or Arrangement

The Company has agreed to furnish to the Commission, upon request, a copy of
each agreement defining the rights of holders of long-term debt not filed
herewith in reliance upon the exemption from filing applicable to any such
agreement pursuant to which the total amount of securities authorized does not
exceed 10% of the total consolidated assets of the Company.

(b)          Reports on Form 8-K.

             On October 15, 1999, the Company filed Form 8-K to report its
             exchange of assets with Lee Enterprises, Incorporated. As part of
             the Asset Exchange Agreement, the Company transferred the assets
             used in, and the liabilities related to, the publication, marketing
             and distribution of six local newspapers and related publications
             in Nebraska, together with $8.4 million in cash. In exchange, the
             Company accepted the assets used in, and the liabilities related
             to, the publication, marketing and distribution of ten local
             newspapers and related publications in Illinois and Iowa. On
             December 14, 1999, the Company filed Form 8-K/A on which it
             included the required financial statements in connection with the
             exchange of assets.

             On January 18, 2000, the Company filed Form 8-K to report its
             acquisition of all of the issued and outstanding shares of capital
             stock of Elko Daily Free Press, Inc. ("Elko"), a Nevada
             corporation, and for its acquisition of certain real property from
             Free Press Properties, LLC, a Nevada limited liability company. By
             acquiring the Elko shares the Company acquired substantially all
             of the assets owned by Elko. On March 20, 2000, the Company filed
             Form 8-K/A on which it included the required financial statements
             in connection with the acquisition of shares and real property.



                                       38
<PAGE>   41







                          INDEPENDENT AUDITORS' REPORT

The Stockholder and Board of Directors
Liberty Group Operating, Inc.:

We have audited the accompanying consolidated balance sheets of Liberty Group
Operating, Inc. and subsidiaries (Successor) as of December 31, 1998 and 1999,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for the years then ended (Successor periods), and the combined
statements of operations and changes in net assets and cash flows of the Local
Newspaper Group of American Publishing Company (Predecessor) for the year ended
December 31, 1997 (Predecessor period). These consolidated and combined
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these consolidated and combined
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used in and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the aforementioned Successor consolidated financial statements
present fairly, in all material respects, the financial position of Liberty
Group Operating, Inc. and subsidiaries as of December 31, 1998 and 1999, and the
results of their operations and their cash flows for the Successor periods, in
conformity with generally accepted accounting principles. Further, in our
opinion, the aforementioned Predecessor combined financial statements present
fairly, in all material respects, the results of their operations and their cash
flows for the Predecessor period, in conformity with generally accepted
accounting principles.

As discussed in note 1 to the consolidated financial statements, effective
January 1, 1998, Liberty Group Operating, Inc. and subsidiaries acquired the
assets and assumed certain liabilities of the Local Newspaper Group of American
Publishing Company in a business combination accounted for as a purchase. As a
result of the acquisition, the consolidated financial information for the
periods after the acquisition is presented on a different cost basis than for
the periods before the acquisition and, therefore, is not comparable.



                                  /s/ KPMG LLP


Chicago, Illinois
March 27, 2000












                                      F-1

<PAGE>   42
                 LIBERTY GROUP OPERATING, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
            (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                            ------------------
                                                              1998      1999
                                                            --------  --------
<S>                                                         <C>       <C>
Assets
Current Assets:
      Cash and cash equivalents                               $1,025    $1,860
      Accounts receivable, net of allowance
          for doubtful accounts of $1,182 and $1,141
          in 1998 and 1999, respectively                      15,021    19,561
      Inventory                                                2,200     2,130
      Prepaid expenses                                           240       507
      Other current assets                                       144       306
                                                            --------  --------
  Total current assets                                        18,630    24,364
  Property, plant and equipment, net                          29,283    39,356
  Intangible assets, net                                     350,754   402,748
  Deferred financing costs, net                                7,680     7,196
  Other assets                                                    54     2,217
                                                            --------  --------
  Total assets                                              $406,401  $475,881
                                                            --------  --------
  Liabilities and stockholders' equity
  Current Liabilities:
      Borrowings under revolving credit facility             $46,000   $99,500
      Current portion of long-term liabilities                   388       419
      Accounts payable                                         2,157     1,744
      Accrued expenses                                        14,482    14,445
      Deferred revenue                                         5,777     7,801
                                                            --------  --------

  Total current liabilities                                   68,804   123,909

  Long-term liabilities:
      Senior subordinated notes                              180,000   180,000
      Long-term liabilities, less current portion              1,446     1,499
      Deferred income taxes                                    8,455    19,488
                                                            --------  --------

  Total liabilities                                          258,705   324,896

  Stockholders' equity
      Common stock, $0.01 par value, 1,000 shares
          authorized, 100 shares issued and outstanding
          at December 31, 1998 and 1999                            -         -
      Additional paid in capital                             148,661   148,661
      Accumulated deficit                                       (965)    2,324
                                                            --------  --------
  Total stockholders' equity                                 147,696   150,985
                                                            --------  --------
  Total liabilities and stockholders' equity                $406,401  $475,881
                                                            --------  --------
</TABLE>



          See accompanying notes to consolidated financial statements.


                                      F-2

<PAGE>   43
                 LIBERTY GROUP OPERATING, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                               YEARS ENDED DECEMBER 31,
                                        -------------  ----------   -----------
                                            1997          1998         1999
                                        (PREDECESSOR)  (SUCCESSOR)  (SUCCESSOR)
<S>                                     <C>            <C>          <C>

REVENUES:
   Advertising                                $69,602    $ 81,554      $120,573
   Circulation                                 21,451      22,844        27,543
   Job printing and other                       7,666       8,133        13,239
                                              -------    --------      --------
Total revenues                                 98,719     112,531       161,355
OPERATING COSTS AND EXPENSES:
   Operating costs                             39,309      45,976        68,351
   Selling, general and administrative         29,171      36,303        51,522
   Depreciation and amortization                7,470      11,917        16,657
                                              -------    --------      --------

Income from operations                         22,769      18,335        24,825
Interest expense                               10,551      19,300        25,216
Net gain on exchange and
   disposition of properties                        -           -         6,197
                                              -------    --------      --------

Income (loss) before income taxes,
   and extraordinary item                      12,218        (965)        5,806
Income taxes                                    5,271           -         2,752
                                              -------    --------      --------
Income (loss) before extraordinary item         6,947        (965)        3,054
Extraordinary gain on insurance proceeds            -           -           485
                                              -------    --------      --------
Net income (loss)                             $ 6,947    $   (965)     $  3,539
                                              =======    ========      ========
</TABLE>



          See accompanying notes to consolidated financial statements.



                                      F-3
<PAGE>   44







                 LIBERTY GROUP OPERATING, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


<TABLE>
<CAPTION>
                                     COMMON    COMMON    ADDITIONAL
                                     STOCK     STOCK      PAID-IN       NET      ACCUMULATED
                                     SHARES    AMOUNT     CAPITAL      ASSETS      DEFICIT      TOTAL
                                    --------  ---------  ----------   --------   -----------    -----
<S>                                 <C>       <C>       <C>          <C>           <C>          <C>
Balances at 12/31/96                       -    $    -         -       102,980           -     102,980
Net income                                 -         -         -         6,947           -       6,947
Transfers to APC, net                      -         -         -       (10,788)          -     (10,788)
                                      ------    ------   -------       -------      ------     -------
Balances at 12/31/97                       -         -         -        99,139           -      99,139
Reorganization of company                  -         -         -       (99,139)          -     (99,139)
Issuance of common stock                 100         -   148,501             -           -     148,501
Common stock issued in
  exchange for services                    -         -       160             -           -         160
Net loss                                   -         -         -             -        (965)       (965)
                                      ------    ------   -------       -------      ------     -------
Balances at 12/31/98                     100         -   148,661             -        (965)    147,696
Dividend paid
  to Company's parent                      -         -         -             -        (250)       (250)
Net loss                                   -         -         -             -       3,539       3,539
                                      ------    ------   -------       -------      ------     -------
Balances at 12/31/99                     100    $    -   148,411             -       2,324     150,985
                                      ======    ======   =======       =======      ======     =======
</TABLE>




          See accompanying notes to consolidated financial statements.


                                      F-4

<PAGE>   45
                 LIBERTY GROUP OPERATING, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                     YEARS ENDED DECEMBER 31,
                                              ---------------------------------------
                                                  1997          1998         1999
                                              (PREDECESSOR)  (SUCCESSOR)  (SUCCESSOR)

<S>                                           <C>            <C>          <C>
Cash flows from operating activities:
   Net income (loss)                                 $6,947    $    (965)    $  5,996
Adjustments to reconcile net
   earnings to net cash provided
   by operating activities:
       Depreciation and amortization                  7,470       11,917       16,657
       Amortization of debt issue costs                   -          928        1,109
       Noncash compensation                               -          238          223
       Net gain on exchange and
           disposition of properties                      -            -       (6,197)
       Extraordinary gain                                 -            -         (485)
   Changes in assets and liabilities,
       net of acquisitions and dispositions:
       Accounts receivable, net                         311         (805)      (1,325)
       Inventory                                       (336)         103          139
       Prepaid expenses and other assets                (19)         972       (2,552)
       Accounts payable                                 (85)        (209)      (2,338)
       Accrued expenses                                 207        9,072       (3,173)
       Deferred revenue                                  82          113          445
                                                    -------     --------      -------
Net cash flows provided by
   operating activities                              14,577       21,364        8,499
                                                    -------     --------      -------
Cash flows from investing activities:
   Purchases of property, plant
       and equipment                                 (1,713)      (2,232)      (5,687)
   Acquisitions, net of cash
       acquired                                      (1,657)    (386,446)     (54,822)
                                                    -------     --------      -------
Net cash flows used in investing
   activities                                        (3,370)    (388,678)     (60,509)
                                                    -------     --------      -------
Cash flows from financing activities:
   Net proceeds from issuing
       long-term debt                                     -      172,464            -
   Net borrowings (repayments) under
       revolving credit facility                          -       46,000       53,500
   Net proceeds from issuing common
       stock                                              -      148,423            -
   Repurchase of common stock                             -            -         (250)
   Payments on long term liabilities                   (735)           -         (405)
   Transfers to APC, net                            (10,788)           -            -
                                                    -------     --------      -------
Net cash provided by (used in)
   financing activities                             (11,523)     366,887       52,845
                                                    -------     --------      -------
Net decrease in cash and cash
   equivalents                                         (316)        (427)         835
Cash and cash equivalents, at
   beginning of period                                1,768        1,452        1,025
Cash and cash equivalents, at
   end of period                                     $1,452       $1,025       $1,860
Supplemental cash flow disclosure -
   Non-cash gain on exchange of properties                -            -        7,899
   Common Stock issued in exchange
       for services                                       -          160            -
   Cash interest paid                                     -       10,913       24,107
   Income taxes paid                                      -            -          130
Repayment of stock subscription through                   -            -            -
</TABLE>


                                      F-5

<PAGE>   46




<TABLE>
<S>                                                      <C>          <C>         <C>
   forgiveness of debt                                    -           78          223
</TABLE>


          See accompanying notes to consolidated financial statements.


                                      F-6

<PAGE>   47
                 LIBERTY GROUP OPERATING, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     (A) DESCRIPTION OF BUSINESS

     The Company is a leading U.S. publisher of local newspapers and related
publications that are the dominant source of local news and print advertising
in their markets. The Company owns and operates 301 publications in 15 states.
The Company's total revenues are derived from advertising (75% of 1999 total
revenues), circulation (17%) and job printing and other (8%). Raw materials,
mainly newsprint and ink, are readily available from a number of suppliers. No
single customer accounts for a significant percentage of revenues.

     (B) BASIS OF PRESENTATION

     Liberty Group Operating, Inc. was formed for purposes of acquiring a
portion of the daily and weekly newspapers owned by American Publishing Company
or its subsidiaries ("APC"), a wholly-owned subsidiary of Hollinger
International Inc. ("Hollinger"). Its parent, Liberty Group Publishing, Inc.
(LGP), is a holding company for its wholly-owned subsidiary Liberty Group
Operating, Inc. ("Operating Company"). The consolidated financial statements
include the accounts of Operating Company and its consolidated subsidiaries (the
"Company").

     On January 27, 1998, the Company's parent acquired from Hollinger virtually
all of the assets and assumed certain liabilities that were used primarily in
the business of publishing, marketing and distributing certain local newspapers
(the "Initial Acquisition"). The initial purchase price including fees and
expenses was $322,378. The effective date of the Initial Acquisition was January
1, 1998.

     Prior to the Initial Acquisition, the Company's operations represented a
portion of APC and the Company's operations were financed through APC. The
accompanying consolidated financial statements represent all of the assets and
associated revenues, expenses, and cash flows of the Company, assuming that the
Company was organized for all periods as a separate legal entity. Intercompany
transactions between newspapers owned by the Company have been eliminated in
consolidation.

     The historical interest expense represents an allocation of APC's interest
expense (calculated as APC's weighted average interest rate of 10.64% for the
year ended December 31, 1997, applied to the average balance of the net assets
of the Business for the period). Because the Company's capital structure
changed significantly as a result of the Initial Acquisition, historical
interest expense is not necessarily indicative of the interest expense that the
Company would have incurred as a separate independent entity.

     In the accompanying consolidated financial statements the terms "Liberty
Group Operating" or the "Company" when used with respect to periods prior to
January 1, 1998 refer to the combined group of newspapers sold by APC (the Local
Newspaper Group of American Publishing Company) and when used with respect to
periods subsequent to January 1, 1998 refers to Liberty Group Operating, Inc.
and its consolidated subsidiaries. The combined historical financial information
of the newspapers acquired from APC prior to the Initial Acquisition on January
1, 1998 is referred to as "Predecessor" while the consolidated financial
information of the Company subsequent to the date of the Initial Acquisition is
referred to as "Successor."

     The Company has accounted for the Initial Acquistion using the purchase
method of accounting. Accordingly, the costs of the Initial Acquisition have
been allocated to the assets acquired and liabilities assumed based upon their
respective fair values using independent valuations. The costs of certain
intangible assets acquired of $296,500 are being amortized over periods
ranging from 5 to 40 years. Because of the purchase price allocation, the
accompanying consolidated financial statements of Successor are not directly
comparable to those of Predecessor.


                                      F-7

<PAGE>   48






     (C) USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

     (D) INVENTORIES

     Inventories consist principally of newsprint, which is valued at the lower
of cost or net realizable value. Cost is determined using the first-in,
first-out (FIFO) or moving-average method.

     (E) PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment is recorded at cost. Routine maintenance and
repairs are expensed as incurred.

     Depreciation is calculated under the straight-line method over the
estimated useful lives, principally 25 years for buildings and improvements and
5 to 10 years for machinery and equipment. Leasehold improvements are amortized
using the straight-line method over the shorter of the lease term or estimated
useful life of the asset.

     (F) INTANGIBLE ASSETS

     Intangible assets consist principally of circulation-related assets,
noncompetition  agreements with former owners of acquired newspapers, and the
excess of acquisition costs over estimated fair value of net assets acquired
(goodwill). The fair market value of intangible assets purchased is determined
primarily through the use of independent appraisals. Amortization is calculated
using the straight-line method over the respective estimated useful lives
ranging from 33 years for circulation related assets, up to 10 years for
noncompetition agreements depending upon the specifics of the agreement, and 40
years for advertiser lists and goodwill.

     The Company assesses the recoverability of its long-lived assets, such as
property, plant and equipment and intangible assets, whenever events or changes
in business circumstances indicate the carrying amount of the assets, or
related group of assets, may not be fully recoverable. Factors leading to
impairment include a combination of historical losses, anticipated future
losses and inadequate cash flow. The assessment of recoverability is based on
management's estimate. If undiscounted operating cash flows do not exceed the
net book value of the long-lived assets, then a permanent impairment has
occurred. The Company would record the difference between the net book value of
the long-lived asset and the fair value of such asset as a charge against
income in the consolidated statement of operations if such a difference arose.

     (G) REVENUE RECOGNITION

     Circulation revenue, which is billed to the customers at the beginning of
the  subscription period, is recognized on a straight-line basis over the term
of the related subscription. Advertising revenue is recognized upon publication
of the advertisements. The revenue for job printing is recognized upon
delivery.

     (H) INCOME TAXES

     Subsequent to the Initial Acquisition, the Company's parent has been, and
anticipates that it will be for the foreseeable future, in a tax loss position.
Given the uncertainty as to the timing of the Company's parent's ability to
utilize such losses to offset future taxable income, the Company's parent does
not presently anticipate recording any tax benefit associated with its pre-tax
losses. Prior to the Initial Acquisition, the Company represented a business
unit of APC and as such did not file separate income tax returns. The income tax
provision included in the accompanying consolidated statements of operations has
been computed as if the Company were a separate company.

                                   F-8

<PAGE>   49
     Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to the difference between financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Historical results of the
Predecessor reflect current income taxes as transfers to APC as APC is
responsible for the payment of income tax liabilities. State income taxes were
computed utilizing a blended state rate of 6%, which is net of Federal income
tax benefit.

     (I) FAIR VALUE OF FINANCIAL INSTRUMENTS AND LONG-LIVED ASSETS

     The Company has reviewed the following financial instruments and
determined that their fair values approximated their carrying values as of
December 31, 1999: cash equivalents; borrowings under line of credit; accounts
receivable; accounts payable and accrued expenses; Senior Subordinated Notes;
and long-term liabilities,

     (J) CASH EQUIVALENTS

     Cash equivalents represent highly liquid certificates of deposit with a
maximum term at origination of three months or less.

     (K) RECLASSIFICATIONS

     Certain amounts in prior years' financial statements and related notes
have been reclassified to conform to the 1999 presentation.

     (L) STOCK OPTIONS

     The Company accounts for its stock options under the provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (Statement 123).  Statement 123 permits entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant.  Alternatively, Statement 123 also allows entities
to apply the provisions of Accounting Principles Board Opinion No. 25,
'Accounting for Stock Issued to "Employees" (APB 25) and provide pro forma net
income (loss) disclosures for employee stock option grants made as if the fair
value-based method defined in Statement 123 had been applied.  Under APB 25,
compensation expense would be recorded on the date of the grant only if the
current market price of the underlying stock exceeded the exercise price.  The
Company has elected to apply the provisions of APB 25 and provide the pro forma
disclosures of Statement 123.



(2) ACQUISITIONS

     During 1998, the Company acquired substantially all of the assets of 166
newspapers for $322,378. The Company also acquired certain other newspapers for
an aggregate purchase price of approximately $61,787. The purchase prices were
allocated to the assets using the purchase method of accounting. The excess of
the purchase prices over the estimated fair value of the tangible and
identifiable intangible assets acquired (goodwill) was $125,496. Results of the
acquired newspaper businesses have been included in consolidated statements of
operations since the dates of acquisition.

     During 1999, the Company acquired (net of exchanges and divestitures) 49
newspapers for an aggregate purchase price of approximately $54,822. The
purchase prices were allocated to the assets using the purchase method of
accounting. The excess of the purchase prices over the estimated fair value of
the tangible and identifiable intangible assets acquired (goodwill) was
approximately $48,195. Results of the acquired newspaper businesses have been
included in consolidated statements of operations since the dates of
acquisition.

     The following unaudited pro forma summary presents the Company's results
of operations as if the acquisitions accounted for as purchases had occurred at
the beginning of the respective years. This summary is provided for
informational purposes only. It does not


                                      F-9

<PAGE>   50
necessarily reflect the actual results that would have occurred had the
acquisitions been made as of the beginning of the respective years or of results
that may occur in the future.



<TABLE>
<CAPTION>
                                           1998              1999

<S>                                    <C>               <C>
Revenues                                  $139,800           $172,926
Net income (loss)                           (1,297)             4,583
</TABLE>


In 1998, the Company acquired 91 publications in 16 transactions for a total
cash purchase cost of $61.8 million.

In 1999, the Company acquired 49 publications in 13 transactions for a total
cash purchase cost of $54.8 million, including the following acquisitions that
had a material impact on the Company's results:

<TABLE>
                                                        Purchase
                                              Date       Price              Description
                                           ----------------------------------------------------------
<S>                                         <C>         <C>         <C>
Suburban Life Printing and Publishing       01/17/99    $ 29.3      Purchase of stock and real estate
Asset exchange with CNHI (1)                07/01/99      49.0      Trade of assets
Asset exchange with Lee Enterprises (2)     10/01/99      22.0      Trade of assets plus cash
Other publications                          various       16.3      Purchases of stock and assets
                                                        ------
                                                        $116.6
Total purchase price including proceeds
received from divestitures less:                        $(61.8)
                                                        ------
Book value of assets exchanged                          $ 54.8
Net cash purchase price
</TABLE>

(1)  The Company traded six dailies and a shopper located in northwestern
     Pennsylvania to Community News Holdings, Inc. ("CNHI") for 4 dailies in
     Beatrice, NE; Moberly, MO; Pratt, KS; Oswego, NY and 2 weeklies in
     Donaldsonville, LA; and Pierre Part, LA; and a shopper in Joplin, MO. The
     properties received by the Company had a fair market value of $49.0 and the
     properties divested had a book value of $41.1. As a result, the Company
     recorded a non-cash gain of $7.9 on this transaction.

(2)  The Company traded a daily newspaper and a shopper in Beatrice, NE, plus
     $9.3 in cash for 2 dailies in Ottumwa, IA and Kewanee, IL; and a weekly in
     Aledo, IL; and a shopper in Geneseo, IL. The fair value of the properties
     received was equal to the fair value of the property paid. No gain or loss
     was recognized on this transaction.

These acquisitions have been accounted for using the purchase method of
accounting, and accordingly, the purchase price has been allocated to the assets
purchased and the liabilities assumed according to their fair market values at
the dates of acquisition and amortized the results of operations are included
in the consolidated financial statements since the dates of acquisition.


                                      F-10

<PAGE>   51
(3) PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment consisted of the following:

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                         ------------------
                                                           1998      1999
                                                         --------  --------

     <S>                                             <C>           <C>
     Land                                                  $5,032    $6,891
     Buildings and improvements                            14,558    16,840
     Machinery and equipment                                9,106    17,646
     Furniture and fixtures                                 1,905     1,832
                                                         --------  --------
                                                           30,601    43,209
     Less accumulated depreciation and amortization        (1,318)   (3,853)
                                                         --------  --------
                                                          $29,283   $39,356
                                                         ========  ========
</TABLE>

(4) INTANGIBLE ASSETS

     Intangible assets consisted of the following:

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                         ------------------
                                                           1998      1999
                                                         --------  --------

     <S>                                                 <C>       <C>
     Non-compete agreements                               $18,423   $16,902
     Subscriber lists                                      41,100    46,058
     Advertiser lists                                     162,220   173,691
     Archives                                              14,114    15,492
     Goodwill                                             125,496   172,456
                                                         --------  --------
                                                          361,353   424,599
     Less accumulated amortization                        (10,599)  (21,851)
                                                         --------  --------
                                                         $350,754  $402,748
                                                         ========  ========
</TABLE>

(5) ACCRUED EXPENSES

     Accrued expenses consisted of the following:

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                         ------------------
                                                           1998      1999
                                                         --------  --------
     <S>                                                 <C>       <C>

     Accrued payroll                                       $1,184    $1,182
     Accrued vacation                                         312       476
     Accrued bonus                                          5,452     2,458
     Accrued interest                                       7,459     7,654
     Accrued other                                             75     2,675
                                                         --------  --------
                                                          $14,482   $14,445
                                                         ========  ========
</TABLE>

(6) LONG-TERM DEBT

     Long-term debt at December 31, 1999 consists of the following:

     1999


<TABLE>
     <S>                                                           <C>
     Liberty Group Operating, Inc.
     9.37% Senior Subordinated Notes
     Due February 1, 2008                                          $180,000

     Less current installments                                          -0-
     Long-term debt, excluding current installments
     Total                                                         $180,000
                                                                   ========
</TABLE>



                                      F-11

<PAGE>   52






The aggregate maturities of long-term debt for each of the five years
subsequent to December 31, 1999 are as follows:; 2000, $0; 2001,$0; 2002, $0;
2003, $0; 2004, $0 and thereafter $180,000.

The Initial Acquisition, including the payment of related fees and expenses,
was financed in part by: (i) $180,000 from the issuance and sale by the
Operating Company of $180,000 aggregate principal amount of 9.375% Senior
Subordinated Notes (the "Notes") due February 1, 2008 and (ii) $50,500 from the
issuance and sale by LGP of $89,000 aggregate principal amount of 11.625%
Senior Discount Debentures (the "Debentures") due February 1, 2009.

The Notes were issued by the Operating Company and are general unsecured
obligations of the Operating Company. The Notes are irrevocably and
unconditionally joint and severally guaranteed by each of the Operating
Company's existing and future subsidiaries. The Notes are redeemable for cash
at the option of the Operating Company anytime after February 1, 2003 at
stipulated redemption amounts or, in certain limited circumstances, are
partially redeemable on or prior to February 1, 2001 at a redemption amount of
109.375% of their principal amount. In the event of a change in control of the
Operating Company or the Company, the Company must offer to repurchase the
Notes at 101% of their principal amount.

(7) REVOLVING CREDIT FACILITY

The Operating Company has in place a $175.0 million revolving credit facility
(the "Revolving Credit Facility").  The Revolving Credit Facility is secured by
substantially all of the tangible and intangible assets of the Operating
Company.  Borrowings under the Revolving Credit Facility bear interest at an
annual rate, at the Company's option equal to the Base Rate (as defined in the
credit agreement) or the Eurodollar Rate (as defined in the credit agreement)
plus a margin that varies based upon a ratio set forth in the credit agreement
(the "Applicable Margin").  Under the terms of the Revolving Credit Facility,
the Company pays a fee equal to the Applicable Margin for Eurodollar Rate
Advances (as defined in the credit agreement) per annum on the aggregate amount
of outstanding letters of credit.  The Operating Company also pays a fee on the
unused portion of the Revolving Credit Facility.  No principal payments are due
on the Revolving Credit Facility until the maturity date January 27, 2003.  At
December 31, 1999, the Operating Company had utilized $99.5 million of the
Revolving Credit Facility. The average interest rate on these borrowings was
8.94% at December 31, 1999.

(8) LONG-TERM LIABILITIES

     Long-term liabilities principally represents amounts due under
non-interest-bearing non-compete agreements through 2008.

     The aggregate amount of principal payments at December 31, 1999 are as
follows:


<TABLE>
                         <S>               <C>
                         2000              419
                         2001              461
                         2002              368
                         2003              310
                         2004              193
                         Thereafter        167
                                        ------
                                        $1,918
                                        ======

</TABLE>



(9) ISSUANCE OF COMMON STOCK


                                      F-12

<PAGE>   53
On the date of the Initial Acquisition, the Company issued 100 shares of
Common Stock, par value $0.01 per share, to LGP. No other common shares were
issued in 1998 or 1999.


                                      F-13

<PAGE>   54
(10) INCOME TAXES

Income taxes for the periods shown below consisted of:


<TABLE>
<CAPTION>
                               CURRENT   DEFERRED     TOTAL
                               --------  --------  --------
<S>                            <C>       <C>       <C>

Year ended December 31, 1997:
  U.S. Federal                   4,009       659     4,668
  State and local                  603         -       603
                                ------    ------    ------
                                $4,612    $  659    $5,271

Year ended December 31, 1998:
  U.S. Federal                       -         -         -
  State and local                    -         -         -
                                ------    ------    ------
                                     -         -         -

Year ended December 31, 1999:
  U.S. Federal                  $    -    $2,089    $2,089
  State and local                  295       368       663
                                ------    ------    ------
                                   295     2,457     2,752
                                ======    ======    ======
</TABLE>


     Income tax expense (benefit) differed from the amounts computed by applying
the U.S. Federal income tax rate of 35% in 1997 and 34% in 1998 and 1999 to
income (loss) before income tax expense as a result of the following:


<TABLE>
<CAPTION>
                                           YEARS ENDED DECEMBER 31,
                                         ----------------------------
                                           1997      1998      1999
                                         --------  --------  --------
<S>                                      <C>       <C>       <C>

Computed "expected" tax expense
  (benefit)                               $4,276   $  (328)   $2,139
Increase (decrease) in income taxes
  resulting from:
  Amortization of nondeductible
     goodwill                                344        89       233
  State and local income taxes               651         -       438

  Nondeductible meals and entertainment        -        12        40
  Nondeductible expenses                       -         -         3
  Other                                        -         -       125
  Change in Federal valuation allowance        -       227      (226)
                                         --------  --------  --------
                                         $ 5,271   $     -    $2,752
                                         ========  ========  ========
</TABLE>




                                      F-14

<PAGE>   55
     The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at 1998 and 1999 are
presented below:


<TABLE>
<CAPTION>
                                              1998     1999
                                            --------  -------
<S>                                         <C>       <C>
Deferred tax assets:
  Accounts receivable, principally
    due to allowance for doubtful accounts  $   473      $456
  Accrued expenses                            1,643     2,579
  Net operating losses                        3,198     4,016
                                            -------   -------
Gross deferred tax assets                     5,314     7,051
less: valuation allowance                      (266)       --
                                            -------   -------
Net deferred tax assets                       5,048     7,051
                                            -------   -------
Deferred tax liabilities:
Long-lived assets, principally due
  to differences in depreciation and
  amortization                                5,082     6,534
Intangible assets, principally
  due to differences in amortization          8,421    20,005
                                            -------   -------
                                             13,503    26,539
                                            -------   -------
  Net deferred tax liability                $ 8,455   $19,488
                                            =======   =======
</TABLE>

The Company is included in the consolidated income tax return of its
parent, LGP. At December 31, 1999, the Company's proportionate share of the net
operating  loss carry-forwards for Federal and state income tax purposes
amounted to $10,040 are available to offset future taxable income of LGP, if
any. These federal and state operating losses begin to expire in 2018 and 2003,
respectively. The Company's tax position is computed as if it filed a separate
return.

In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Accordingly, the Company
has recorded no valuation allowance against certain Federal and state deferred
tax assets as of December 31,1999.

The Company acquired deferred tax liabilities of $8,455 and $8,575 in 1998 and
1999 respectively through corporate acquisitions.

(11) EMPLOYEE BENEFIT PLANS

     The Company's Parent maintains certain benefit plans for employees of the
Company and its subsidiaries.

     The Company maintains a defined contribution plan conforming to IRS rules
for 401(k) plans, for all of its employees satisfying minimum service
requirements as set forth under the plan. The plan allows for a discretionary
matching contribution.  The Company recorded $129 in matching contributions in
1999.

     LGP maintains three non-qualified deferred compensation plans, as described
below, for certain employees of the Company and its subsidiaries.

     LGP maintains the Liberty Group Publishing, Inc. Publishers' Deferred
Compensation Plan ("Publishers Plan"), a non-qualified deferred compensation
plan for the benefit of certain designated publishers of the Company's
newspapers. Under the Publishers' Plan, the Company credits an amount to a
bookkeeping account established for each participating publisher pursuant to a
pre-determined formula which is based upon the gross operating profits of each
such publisher's newspaper. The bookkeeping account is credited with earnings
and losses based upon the investment choices selected by the participant. The
amounts credited to the bookkeeping account on behalf of each participating
publisher vest on an installment basis over a period of 15 years. A
participating publisher forfeits all amounts under the Publishers' Plan in the
event that the publisher's employment with the Company is terminated for "cause"
as defined in the Publishers' Plan. Amounts credited to a participating
publisher's bookkeeping account are distributable upon termination of the


                                      F-15

<PAGE>   56
publisher's employment with the Company, and will be made in a lump sum or
installments as elected by the publisher.  The Company recorded $111 and $133
of compensation expense related to the plan in 1998 and 1999, respectively.

     LGP maintains the Liberty Group Publishing, Inc. Executive Benefit Plan
("Executive Benefit Plan"), a non-qualified deferred compensation plan for the
benefit of certain key employees of the Company. Under the Executive Benefit
Plan, the Company credits an amount, determined by the Company's sole
discretion, to a bookkeeping account established for each participating key
employee. The bookkeeping account is credited with earnings and losses based
upon the investment choices selected by the participant. The amounts credited to
the bookkeeping account on behalf of each participating key employee vest on an
installment basis over a period of 5 years. A participating key employee
forfeits all amounts under the Executive Benefit Plan in the event that the key
employee's employment with the Company is terminated for "cause" as defined in
the Executive Benefit Plan. Amounts credited to a participating key employee's
bookkeeping account are distributable upon termination of the key employee's
employment with the Company, and will be made in a lump sum or installments as
elected by the key employee.  The Company recorded $35 and $65 of compensation
expense related to the plan in 1998 and 1999, respectively.

     LGP maintains the Liberty Group Publishing, Inc. Executive Deferral Plan
("Executive Deferral Plan"), a non-qualified deferred compensation plan for the
benefit of certain key employees of the Company. Under the Executive Deferral
Plan, eligible key employees may elect to defer a portion of their compensation
for payment at a later date. Currently, the Executive Deferral Plan allows a
participating key employee to defer up to 100% of his or her annual compensation
until termination of employment or such earlier period as elected by the
participating key employee. Amounts deferred are credited to a bookkeeping
account established by the Company for this purpose. The bookkeeping account is
credited with earnings and losses based upon the investment choices selected by
the participant. Amounts deferred under the Executive Deferral Plan are fully
vested and nonforfeitable. The amounts in the bookkeeping account are payable to
the key employee at the time and in the manner elected by the key employee.

(12) STOCK OPTION PLAN

In February 1999, LGP adopted an Incentive Stock Option Plan, a Non-Qualified
Stock Option Plan (for Publishers), and a Non-Qualified Stock Option Plan (for
Corporate employees) (Collectively, the "Plans") under which certain employees
may be granted the right to purchase shares of common stock. LGP has reserved an
aggregate of 49,480 shares of common stock for issuance under the Plans. Stock
options may be exercised only to the extent they have vested in accordance with
the provisions described in the Plans. Options vest under the Incentive Stock
Option Plan on the first anniversary of the grant date. Options vest under the
Non-Qualified Stock Option Plan (for Publishers) on the eighth anniversary of
the grant date, however, the vesting period may be accelerated if certain
financial targets are met. Options vest under the Non-Qualified Stock Option
Plan (for Corporate employees) on the third anniversary of the grant date. Stock
options in the Plans, may be exercised only to the extent they have vested in
accordance with the provisions in the plans.

The Company applies APB 25 in accounting for the Plans. All options under the
Plans have been granted at exercise prices not less than the market value at the
date of grant. Accordingly, no compensation expense has been recognized in the
financial statements for the Plans. Had the Company determined compensation cost
based on the fair value at the grant date for its stock option plan under
Statement 123, the Company's net income (loss) for the year ended December 31,
1999 would have been the pro forma amounts indicated below:


<TABLE>
<CAPTION>
<S>                <C>          <C>
Net income (loss)  As reported   $  3,539
                   Pro forma     $  3,470
</TABLE>

In February 2000, Company's parent effected a 20 for 1 stock split of the
Company's parent's common stock (see note 15.) All share data has been
retroactively restated to account for this stock split. Under the Plans, the
exercise price of each option equals the market value of the Company's parent's
stock on the date of grant. The per share weighted-average fair value of stock
options granted during 1999 was $2.34 on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: expected dividend yield of 0%, expected volatility of approximately
0%, risk-free interest rate of 6.43%, and an expected life of 10 years. Stock
option activity for the year ended December 31, 1999 is as follows:

<TABLE>
<CAPTION>
                                          exercise
                                  Shares     price
                                --------  --------
<S>                             <C>       <C>
Outstanding at date of adoption     --      $  --

    Granted                       59,075     5.00
</TABLE>


                                      F-16

<PAGE>   57
<TABLE>
<S>                             <C>       <C>
    Canceled                        (400)     5.00
                                --------  --------

Outstanding on December 31, 1999  58,675     $5.00
                                ========  ========
</TABLE>

The following table summarized information about stock options outstanding at
December 31, 1999:

<TABLE>
<CAPTION>
                             Weighted-
                             average       Weighted-                 Weighted
                             remaining     average                   average
 Exercise    Options         contractual   exercise    Options       exercise
 price       outstanding     life          price       exercisable    price
---------    -----------    ------------   ---------   -----------   ---------
<S>          <C>            <C>             <C>          <C>         <C>
  $5.00        58,675        9.1 years       $5.00        4,396        $5.00
=========    ===========    ============   =========   ===========   =========
</TABLE>




(13) RELATED PARTY TRANSACTIONS

     Executive Stock Investments

During 1998, the majority common stockholder transferred 32,000 common shares
to the Chief Executive Officer upon the commencement of his employment. This
transaction was treated as a compensation expense and an additional
contribution to paid in capital.

Upon the commencement of his employment in January of 1998 the Company loaned
the Chief Executive Officer $250 pursuant to an Unsecured Promissory Note. The
Loan will be forgiven on a pro rata Daily Basis from January 28, 1998 to
January 28, 2001. The Loan will be forgiven in its entirety if the Chief
Executive Officer is terminated by the Company without cause or if the Chief
Executive Officer terminates his employment for good reason (as defined in the
agreement) death, disability, or upon the consummation of an initial public
offering of securities of the Company.

In addition, certain other executives were given the opportunity to purchase
common stock in the Company. Under the plan, each executive paid cash for 50%
of their stock investment and executed a five year note for the remaining 50%.
The Company has the right to repurchase the common stock at the original cost
if the executive terminates his employment or is terminated for cause.

     Management Fees

In each of 1998 and 1999, the Company paid $1.0 million in management fees and
paid $0 and $375 in 1998 and 1999, respectively in acquisition finders fees to
the majority common stockholder of its parent, and is obligated to pay
acquisition finders fees of $850,000 at December 31, 1999.


                                      F-17


<PAGE>   58
(14) Extraordinary Item

The Company's facility in Pratt, Kansas was damaged by a severe flood. The cost
of the machinery and equipment and furniture and fixtures destroyed was $235,
net of accumulated depreciation of $18. The Company received insurance
proceeds sufficient to replace these assets in the amount of $702, and reported
the resulting gain of $485 as an extraordinary item.


(15) SUBSEQUENT EVENTS

In January 2000, the Company acquired all the issued and outstanding shares of
capital stock of Elko Daily Free Press, Inc., a 7,000 circulation daily
newspaper and certain real property from Free Press Properties, LLC. The total
cash consideration for the Nevada properties was $13,128. The Company also
acquired the New Hampton (IA) Tribune, a 10,400 circulation weekly newspaper.

In March 2000, the Company effected a 20-to-1 stock split for its common
stock, bringing the total shares of common stock authorized and issued to
1,655,000 and 1,600,000, respectively. All share and per share data has been
retroactively restated to account for this stock split. A total of 55,000
additional common shares have been made available in the form on stock options
for local publishers. Members of the management team will also receive a small
portion of these new shares to eliminate any dilution of their original holdings
that will result from the issuance of shares under the company's stock option
plan.

                                      F-18
<PAGE>   59
                          INDEPENDENT AUDITORS' REPORT

The Stockholder and Board of Directors
Liberty Group Operating, Inc.:

Under date of March 27, 2000, we reported on the consolidated balance sheets of
Liberty Group Operating, Inc. and subsidiaries (Successor) as of December 31,
1998 and 1999, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years then ended (Successor
periods), and the combined statements of operations and changes in net assets
and cash flows of the Local Newspaper Group of American Publishing Company
(Predecessor) for the year ended December 31, 1997 (Predecessor period), as
contained in the 1999 Form 10-K. In connection with our audits of the
aforementioned consolidated and combined financial statements, we also audited
the related financial statement schedule. The financial statement schedule is
the responsibility of the Companies' management. Our responsibility is to
express an opinion on the financial statement schedule based on our audits.

In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated and combined financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.

                                  /s/ KPMG LLP

Chicago, Illinois
March 30, 2000


                                      S-1

<PAGE>   60
                                   SCHEDULE II

                 LIBERTY GROUP OPERATING, INC. AND SUBSIDIARIES

                        VALUATION AND QUALIFYING ACCOUNTS


<TABLE>
<CAPTION>
            ALLOWANCE FOR
               DOUBTFUL            BEGINNING  BAD DEBT              ENDING
               ACCOUNTS             BALANCE   EXPENSE   WRITE-OFFS  BALANCE
     ----------------------------  ---------  --------  ----------  -------
     <S>                           <C>        <C>       <C>         <C>


     Year ended December 31, 1997     $1,022      $763      $(771)   $1,014
     Year ended December 31, 1998     $1,014      $694      $(526)   $1,182
     Year ended December 31, 1999     $1,182      $912      $(953)   $1,141
</TABLE>



                                      S-2

<PAGE>   61
                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) 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.


Dated: March 30, 2000         LIBERTY GROUP OPERATING, INC. (Registrant)

                              By /s/ KENNETH L. SEROTA
                              Kenneth L. Serota,
                              President and
                              Chief Executive Officer


     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant in the capacities on the dates indicated.


Dated: March 30, 2000         /s/ KENNETH L. SEROTA
                              Kenneth L. Serota,
                              President and
                              Chief Executive Officer
                              and Director


Dated: March 30, 2000         /s/ KEVIN O'SHEA
                              Kevin O'Shea,
                              Executive Vice President,
                              Chief Financial Officer,
                              Secretary and Director

Dated: March 30, 2000         /s/ LEONARD GREEN
                              Leonard Green, Director

Dated: March 30, 2000         /s/ PETER NOLAN
                              Peter Nolan, Director

Dated: March 30, 2000         /s/ GREG ANNICK
                              Greg Annick, Director

Dated: March 30, 2000         /s/ JOHN DANHAKL
                              John Danhakl, Director

Dated: March 30, 2000         /s/ SCOTT T. CHAMPION
                              Scott T. Champion, Director


<PAGE>   62

<TABLE>
<CAPTION>
                                                         INDEX TO EXHIBITS
                                                         -----------------
<S>     <C>                                                                                 <C>
2.1      Asset Purchase Agreement, dated as of November 21, 1997, among Liberty Group        Incorporated by reference to exhibits
         Publishing, Inc., Green Equity Investors II, L.P. (as guarantor), Liberty Group     included on the Company's
         Operating, Inc., Hollinger International Inc., APAC-90 Inc., American Publishing    Registration Statement on Form S-4
         (1991) Inc. and APAC-95 Inc.                                                        (Registration No.: 333-46959)

2.2      Asset Purchase Agreement, dated as of November 21, 1997, among Liberty Group        Incorporated by reference to exhibits
         Publishing, Inc., Green Equity Investors II, L.P. (as guarantor), Liberty Group     included on the Company's
         Operating, Inc., Hollinger International Inc., American Publishing Company of       Registration Statement on Form S-4
         Illinois, APAC-90 Inc., American Publishing (1991) Inc. and APAC-95 Inc.            (Registration No.: 333-46959)

2.3      Exchange Agreement, dated as of November 21, 1997, between American                 Incorporated by reference to exhibits
         Publishing Company of Illinois and Chicago Deferred Exchange Corporation.           included on the Company's
                                                                                             Registration Statement on Form S-4
                                                                                             (Registration No.: 333-46959)

2.4      Qualified Exchange Trust Agreement, dated as of November 21, 1997, among the        Incorporated by reference to exhibits
         Chicago Trust Company, as Trustee under Trust No. 38347501, Chicago Deferred        included on the Company's
         Exchange Corporation and American Publishing Company of Illinois.                   Registration Statement on Form S-4
                                                                                             (Registration No.: 333-46959)

2.5      Amendment to Asset Purchase Agreement, dated as of January 14, 1998, among          Incorporated by reference to exhibits
         Liberty Group Publishing, Inc., Green Equity Investors II, L.P. (as guarantor),     included on the Company's
         Liberty Group Operating, Inc., Hollinger International Inc., APAC-90 Inc.,          Registration Statement on Form S-4
         American Publishing (1991) Inc. and APAC-95 Inc.                                    (Registration No.: 333-46959)

2.6      Amendment to Asset Purchase Agreement, dated as of January 14, 1998, among          Incorporated by reference to exhibits
         Liberty Group Publishing, Inc., Green Equity Investors II, L.P. (as guarantor),     included on the Company's
         Liberty Group Operating, Inc., Hollinger International Inc., American Publishing    Registration Statement on Form S-4
         Company of Illinois, APAC-90 Inc., American Publishing (1991) Inc. and APAC-        (Registration No.: 333-46959)
         95 Inc.
</TABLE>


<PAGE>   63




<TABLE>
<S>     <C>                                                                                 <C>
2.7      Amendment to Exchange Agreement, dated as of January 14, 1998, between              Incorporated by reference to exhibits
         American Publishing Company of Illinois and Chicago Deferred Exchange               included on the Company's
         Corporation.                                                                        Registration Statement on Form S-4
                                                                                             (Registration No.: 333-46959)

2.8      Amendment to Qualified Exchange Trust Agreement, dated as of January 14, 1998,      Incorporated by reference to exhibits
         among The Chicago Trust Company, as Trustee under Trust No. 38347501,               included on the Company's
         Chicago Deferred Exchange Corporation and American Publishing Company of            Registration Statement on Form S-4
         Illinois.                                                                           (Registration No.: 333-46959)

2.9      Agreement, dated as of January 15, 1998, among Liberty Group Publishing             Incorporated by reference to exhibits
         Inc., Equity Investors II, L.P. (as guarantor), Liberty Group Operating, Inc.,      included on the Company's
         Hollinger International Inc., American Publishing Company of Illinois,              Registration Statement on Form S-4
         APAC-90 Inc., American Publishing (1991) Inc. and APAC-95 Inc.                      (Registration No.: 333-46959)

2.10     Agreement, dated as of January 23, 1998, among American Publishing Company of       Incorporated by reference to exhibits
         Illinois, Chicago Deferred Exchange Corporation and The Chicago Trust Company.      included on the Company's
                                                                                             Registration Statement on Form S-4
                                                                                             (Registration No.: 333-46959)

2.11     Agreement, dated as of January 26, 1998, among Liberty Group Publishing, Inc.,      Incorporated by reference to exhibits
         Green Equity Investors II, L.P. (as guarantor), Liberty Group Operating, Inc.,      included on the Company's
         Hollinger International Inc., American Publishing Company of Illinois,              Registration Statement on Form S-4
         APAC-90 Inc., American Publishing (1991) Inc. and APAC-95 Inc.                      (Registration No.: 333-46959)

3.1      Certificate of Incorporation of Liberty Group Operating, Inc.                       Incorporated by reference to exhibits
                                                                                             included on the Company's
                                                                                             Registration Statement on Form S-4
                                                                                             (Registration No.: 333-46959)

</TABLE>



<PAGE>   64


<TABLE>

<S>     <C>                                                                                 <C>
3.2      By-Laws of Liberty Group Operating, Inc.                                             Incorporated by reference to exhibits
                                                                                              included on the Company's
                                                                                              Registration Statement on Form S-4
                                                                                              (Registration No.: 333-46959)

4.1      Indenture, dated as of January 27, 1998, among Liberty Group Operating, Inc., the    Incorporated by reference to exhibits
         Subsidiary Guarantors named therein and State Street Bank and Trust Company, as      included on the Company's
         Trustee, including form of 9-3/8% Senior Discount Debentures due 2008.               Registration Statement on Form S-4
                                                                                              (Registration No.: 333-46959)

*10.1    Employment Agreement, dated as of November 21, 1997, among Liberty Group             Incorporated by reference to exhibits
         Publishing, Inc., Liberty Group Operating, Inc. and Kenneth                          included on the Company's
         L. Serota.                                                                           Registration Statement on Form S-4
                                                                                              (Registration No.: 333-46959)

*10.2    Management Stockholders Agreement, dated as of January 27, 1998, among Liberty       Incorporated by reference to exhibits
         Group Publishing, Inc., Green Equity Investors II, L.P. and Kenneth L. Serota.       included on the Company's
                                                                                              Registration Statement on Form S-4
                                                                                              (Registration No.: 333-46959)

*10.3    Amended and Restated Management Subscription and Stockholders Agreement,             Included herewith.
         dated as of February 1, 2000, by and between Liberty Group Publishing, Inc.,
         Green Equity Investors II, L.P. and Scott T. Champion.

*10.4    Amended and Restated Management Subscription and Stockholders Agreement,             Included herewith.
         dated as of February 1, 2000, by and between Liberty Group Publishing, Inc.,
         Green Equity Investors II, L.P. and Kevin O'Shea.
</TABLE>



<PAGE>   65

<TABLE>

<S>     <C>                                                                                 <C>
*10.5    Amended and Restated Management Subscription and Stockholders Agreement,            Included herewith.
         dated as of February 1, 2000, by and between Liberty Group Publishing, Inc.,
         Green Equity Investors II, L.P. and Gene A. Hall.

10.6     Non-Competition Agreement, dated as of January 27, 1998, between Liberty Group      Incorporated by reference to exhibits
         Operating, Inc. and Hollinger International Inc.                                    included on the Company's
                                                                                             Registration Statement on Form S-4
                                                                                             (Registration No.: 333-46959)

10.7     Credit Agreement, dated as of January 27, 1998, among Liberty Group Operating,      Incorporated by reference to exhibits
         Inc. (as borrower), Liberty Group Publishing, Inc. (as parent guarantor), the       included on the Company's
         Subsidiary Guarantors named therein, Citicorp USA, Inc.(as administrative agent     Registration Statement on Form S-4
         and swingline lender), Citibank, N.A. (as issuing bank), Wells Fargo Bank, N.A.     (Registration No.: 333-46959)
         (as documentation agent), BT Alex. Brown Incorporated (as syndication agent),
         Bank of America, NT & SA and Citicorp Securities, Inc. (as arranger).

10.8     First Amendment to Credit Agreement, dated as of May 20, 1999, by and among         Included herewith.
         Liberty Group Operating, Inc. (as borrower), Liberty Group Publishing, Inc. (as
         parent guarantor), the Lenders (as defined therein), Citibank, N.A. (as issuing
         bank) and Citicorp USA, Inc. (as administrative agent and as swingline lender).

10.9     Second Amendment to Credit Agreement, dated as of September 30, 1999, by and        Included herewith.
         among Liberty Group Operating, Inc. (as borrower), Liberty Group Publishing, Inc.
         (as parent guarantor), the Lenders (as defined therein), Citibank, N.A. (as
         issuing bank) and Citicorp USA, Inc. (as administrative agent and as swingline
         lender).

10.10    Pledge Agreement, dated as of January 27, 1998, from Liberty Group Publishing,      Incorporated by reference to exhibits
         Inc., Liberty Group Arizona Holdings, Inc., Liberty Group Arkansas Holdings,        included on the Company's
         Inc., Liberty Group California Holdings, Inc., Liberty Group Illinois Holdings,     Registration Statement on Form S-4
         Inc., Liberty Group Iowa Holdings, Inc., Liberty Group Kansas Holdings, Inc.,       (Registration No.: 333-46959)
         Liberty Group Michigan Holdings, Inc., Liberty Group Minnesota Holdings, Inc.,
         Liberty Group Missouri Holdings, Inc., Liberty Group New York Holdings, Inc.,
         Liberty Group Pennsylvania Holdings, Inc., Liberty Group Management Services,
         Inc. to the lenders under the Credit Agreement.
</TABLE>

                                       5
<PAGE>   66


<TABLE>
<S>     <C>                                                                                 <C>
10.11    Pledge Agreement, dated as of January 27, 1998, from Liberty Group Operating,       Incorporated by reference to exhibits
         Inc. to the lenders under the Credit Agreement.                                     included on the Company's
                                                                                             Registration Statement on Form S-4
                                                                                             (Registration No.: 333-46959)

*10.12   Liberty Group Publishing, Inc.'s Publishers Deferred Compensation Plan.             Incorporated by reference to exhibits
                                                                                             included on the Company's Annual Report
                                                                                             on Form 10-K for the period ended
                                                                                             December 31, 1999.

*10.13   Liberty Group Publishing, Inc.'s Executive Benefit Plan.                            Incorporated by reference to exhibits
                                                                                             included on the Company's Annual Report
                                                                                             on Form 10-K for the period ended
                                                                                             December 31, 1999.

*10.14   Liberty Group Publishing, Inc.'s Executive Deferral Plan.                           Incorporated by reference to exhibits
                                                                                             included on the Company's Annual Report
                                                                                             on Form 10-K for the period ended
                                                                                             December 31, 1999.

*10.15   1999 Stock Option Plan                                                              Included herewith.

21       Subsidiaries of Liberty Group Operating, Inc.                                       Included herewith.
</TABLE>


<PAGE>   67

<TABLE>
<S>     <C>                                                                                 <C>
27       Financial Data Schedule.                                                            Included herewith.

---------------------------------
* Management Contract/Compensatory Plan or Arrangement

The Company has agreed to furnish to the Commission, upon request, a copy of
each agreement defining the rights of holders of long-term debt not filed
herewith in reliance upon the exemption from filing applicable to any such
agreement pursuant to which the total amount of securities authorized does not
exceed 10% of the total consolidated assets of the Company.

 </TABLE>