Document:

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                                                                    EXHIBIT 10.3

October 2, 2000

Stonebrook Structured Products, LLC
Attn.: Jerome D. Abernathy
17 State Street
4th Floor
New York, New York  10004

RE:      DENNIS FUND LIMITED PARTNERSHIP

Dear Mr. Abernathy:

We are writing this letter (the "Cover Letter") to confirm our understanding
that you will manage a portion of the assets of the above-captioned entity
pursuant to the Model Sub-Advisory Agreement, dated January 1, 1998 (the "Model
Agreement"), a copy of which is attached hereto and incorporated herein. In
addition, we have agreed to the following:

1.  Each  capitalized  term used in this  Cover  Letter  will  have the  meaning
assigned  to it in the Model Agreement.

2.  The Client and the Kenmar Pool is Dennis Fund Limited Partnership, a New
York limited partnership with a principal place of business located at c/o
Kenmar Advisory Corp., Two American Lane, Greenwich Connecticut 06831. You
acknowledge that you understand that the name of the limited partnership will
soon be changed. We will inform you of the new name as soon as it is effective.
The name change will in no way alter the rights and obligations of the parties
hereunder.

3.  The Sub-Advisor is Stonebrook Structured Products, LLC, a Delaware limited
liability company, with a principal place of business at 17 State Street, 4th
Floor, New York, New York, a telephone number of (212) 952-0500 and a facsimile
number of (212) 952-0522.

4.  The Sub-Advisor's Disclosure Document is dated April 30, 2000.

5.  The Commodity Broker is E.D.& F. Man, Inc.

6.  The Brokerage Commissions are $10.00 plus fees per roundturn transaction.

7.  The annualized Management Fee is 1%.

8.  The Incentive Fee is 10%, which you agree will be remitted to Kenmar
Advisory Corp. in its entirety.

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Stonebrook Structured Products LLC
October 2, 2000
Page 2

If this is acceptable, please sign both copies of the Cover Letter and return
one copy to Mark M. Rossow, Esq. The other copy if for your files.

DENNIS FUND LIMITED PARTNERSHIP

By: Kenmar Advisory Corp., General Partner

By:      /s/ Esther Eckerling Goodman
         -----------------------------------
         Esther Eckerling Goodman
         Chief Operating Officer and
         Senior Executive Vice President

ACCEPTED AND AGREED TO:

Stonebrook Structured Products, LLC

By:      /s/ Jerome D. Abernathy
         -----------------------------------
         Name:
         Title:

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                          MODEL SUB-ADVISORY AGREEMENT

                                 JANUARY 1, 1998

                                   WITNESSETH:

WHEREAS, Kenmar Pool is authorized to select, retain, remove and/or replace
commodity trading advisors on behalf of the Client and to allocate and
reallocate the assets of the Client (as defined below) among such advisors;

WHEREAS, Kenmar Pool has received, reviewed and understands the Sub-Advisor's
Disclosure Document dated as set forth in the Cover Letter;

WHEREAS, Kenmar Pool desires to allocate to the Sub-Advisor a portion of the
assets of the Client to manage upon the terms and subject to the conditions set
forth herein;

WHEREAS, the Sub-Advisor desires to serve as an advisor for the Client and to
trade the Subaccount (as defined below) upon the terms and subject to the
conditions set forth herein;

NOW, THEREFORE, in consideration of the premises and mutual covenants contained
herein and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto agree as follows:

                                    ARTICLE I

                                 INTERPRETATION

1.1 DEFINITIONS. As used in this Agreement, the following terms will have the
following meanings:

Affiliate. Any individual or entity that controls (directly or indirectly), is
controlled by (directly or indirectly), or is under common control with
(directly or indirectly), the individual or entity to which referred.

Agreement. This Sub-Advisory Agreement and the Cover Letter.

Allocation Date. The date on which funds are initially allocated to the
Subaccount.

Applicable Laws. (i) The provisions of all applicable statutes and laws of the
United States of America (including the states thereof) including the Commodity
Exchange Act of 1974, as amended, or of any other country, political subdivision
or jurisdiction in which a transaction is executed on behalf of the Client and
(ii) the constitution, by-laws, rules, regulations, orders, customs and usage of
(A) any market (and its clearing house, if any) on which a transaction is
executed on behalf of the Client and (B) the NFA or any other regulatory or
self-regulatory organization with jurisdiction over any market, clearing house
and/or member thereof and/or any bank, broker, advisor or other intermediary
dealing in Commodity Interests on behalf of the Client.

Brokerage Commissions. The brokerage commissions to be charged the Subaccount on
the roundturn basis set forth in the Cover Letter, plus floor brokerage,
exchange, clearing, clearinghouse, principal, NFA, and administrative "give-up"
fees and other transaction fees and expenses.

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CFTC. The Commodity Futures Trading Commission, or such other governmental
agency that performs the functions that are being performed as of the date of
this Agreement by the Commodity Futures Trading Commission.

Client. The Client, as set forth in the Cover Letter.

Commodity Broker. The Commodity Broker, as set forth in the Cover Letter.

Commodity Interests. (i) Commodities, futures contracts, forward contracts,
foreign exchange commitments, swap contracts, spot (cash) commodities and other
items, options on the foregoing, and any rights pertaining to the foregoing
contracts, instruments or investments throughout the world and (ii) securities
approved by the CFTC for investment of customer funds.

Cover Letter. The cover letter to which the Model Sub-Advisory Agreement is
attached.

Dealer. Such commodity dealer as the parties hereto may select.

Disclosure Document. The most current disclosure document of the Sub-Advisor as
it may be amended or supplemented from time to time.

Incentive Fee. A calendar quarterly incentive fee, payable to the Sub-Advisor,
equal to the percentage set forth on the Cover Letter of Net New Trading
Profits.

Kenmar Pool. The Kenmar entity set forth in the Cover Letter.

Management Fee. A monthly management fee payable to the Sub-Advisor, without
regard to whether the Subaccount is profitable, equal to one-twelfth of the
percentage set forth on the Cover Letter of the month-end Net Asset Value of the
Subaccount before reduction for the Management Fee and Incentive Fee, if any,
accrued with respect to such month, pro rated for the actual number of trading
days in the month for which the Sub-Advisor managed the Subaccount or, in the
case of mid-month additions or withdrawals, if any, the applicable portion
thereof.

NFA. The National Futures Association, or such other self-regulatory
organization that performs the functions that are being performed as of the date
of this Agreement by the National Futures Association.

Net Asset Value. The total assets of the Subaccount including, but not limited
to, all cash and cash equivalents, notional funds and open Commodity Interest
positions less total liabilities, including, but not limited to, Brokerage
Commissions that would be payable with respect to the closing of open Commodity
Interest positions, all as determined in accordance with the principles set
forth in this Agreement or, where no such principles are specified herein, in
accordance with United States generally accepted accounting principles applied
on a consistent basis. The value of all Commodity Interests will be the market
value thereof. The market value of a Commodity Interest traded on an exchange
will be the settlement price on the exchange on the date of determination;
provided, however, that if a Commodity Interest could not be liquidated on the
day with respect to which the assets of the Subaccount are being determined, the
settlement price on the first subsequent day on which the contract could be
liquidated will be deemed to be the market value thereof. The market value of a
forward contract, a swap contract, or other off-exchange contract, instrument,
or transaction will mean its market value as determined by Kenmar Pool on a
basis consistently applied.

Net New Trading Profits. The realized (as adjusted by change in unrealized) net
trading profits earned on the Subaccount (excluding interest or
interest-equivalent income), decreased by the Management Fee and Brokerage
Commissions (as adjusted by change in accrued Brokerage Commissions), with all
such items determined from the first day of the calendar quarter that
immediately follows the last calendar quarter for which an Incentive Fee was
earned by the Sub-Advisor (or, if no Incentive Fee was earned previously by

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the Sub-Advisor, from the Allocation Date) to the close of business on the last
day of the calendar quarter with respect to which such Incentive Fee calculation
is being made.

Position Limit.  The speculative position limit of a certain Commodity Interest.

Principal. (1) Any person including, but not limited to, a sole proprietor,
general partner, officer or director, or person occupying a similar status or
performing similar functions, having the power, directly or indirectly, through
agreement or otherwise, to exercise a controlling influence over the activities
of the entity; (2) any holder or any beneficial owner of ten percent or more of
the outstanding share of any class of stock of the entity; and (3) any person
who has contributed ten percent or more of the capital of the entity.

Subaccount. The trading subaccount of the Client to be opened at the Commodity
Broker or Dealer, in which the Sub-Advisor is to invest in Commodity Interests
pursuant to the Trading Methods upon the terms and subject to the conditions set
forth herein. The Subaccount will initially be funded as set forth in the Cover
Letter.

Sub-Advisor. The Sub-Advisor, as set forth in the Cover Letter.

Trading Manager Agreement. The agreement between the Client and Kenmar Advisory
Corp. ("KAC"), whereby KAC was retained to select, remove and/or replace
commodity trading advisors on behalf of the Client and to allocate and
reallocate the assets of the Client among such advisors.

Trading Methods. The trading program(s), system(s), method(s), model(s),
strategy(ies) and/or formula(e) of the Sub-Advisor as disclosed in its
Disclosure Document.

Withdrawal Ratio. The ratio created by dividing (x) the Net Asset Value of the
funds withdrawn or allocated from the Subaccount by (y) the Net Asset Value of
the Subaccount as of the close of business on the immediately preceding business
day.

1.2 HEADINGS. Headings herein are for the convenience of the parties only, and
are not intended to affect the meaning or interpretation of this Agreement.

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                                   ARTICLE II

                     DUTIES AND UNDERTAKINGS OF KENMAR POOL

2.1 SUBACCOUNT. Kenmar Pool will open and maintain the Subaccount and allocate
funds thereto and therefrom in accordance with this Agreement. Such funds will
be used to fulfill the margin requirements and other financial obligations of
the Subaccount. The Client, and not the Sub-Advisor, will have the sole and
exclusive authority and responsibility with regard to the investment,
maintenance and management of assets held in the Subaccount in securities (such
as U.S. Government securities) and in cash, whether held in accounts with
futures commission merchants, custodial accounts or otherwise.

2.2 POWER OF ATTORNEY. Pursuant to the power of attorney granted to it by the
Client, Kenmar Pool hereby constitutes, appoints, and authorizes the Sub-Advisor
as its agent and attorney-in-fact with respect to the Subaccount as such
Subaccount may be increased or decreased by trading profits or losses or
subsequent additions or withdrawals. The Sub-Advisor will trade, buy, sell,
spread, swap or otherwise acquire, hold, or dispose of Commodity Interests, on
margin or otherwise, all in accordance with the authority and terms and
conditions set forth in this Agreement. Kenmar Pool hereby gives and grants to
the Sub-Advisor full power and authority to act for the Subaccount and on the
Subaccount's behalf to do everything and anything whatsoever requisite,
necessary, and appropriate to be done in connection with this power of attorney
as fully and in the same manner and with the same force and effect as the Client
might or could do if personally present.

2.3 COLLECT FEES. Kenmar Pool will use its best efforts to collect the
Management and Incentive Fees due the Sub-Advisor from the Client and, provided
that Kenmar Pool has received such Fees from the Client, will pay such Fees to
the Sub-Advisor. In the event Kenmar Pool is not paid such fees on a timely
basis, Kenmar Pool will take all reasonable and appropriate action to collect
such fees.

                                   ARTICLE III

                   DUTIES AND UNDERTAKINGS OF THE SUB-ADVISOR

3.1 INVEST SUBACCOUNT.

(a) As of the Allocation Date, the Sub-Advisor will have sole authority and
responsibility for investing and reinvesting the Subaccount in Commodity
Interests pursuant to the Trading Methods, which investments and reinvestments
will be at and for the risk of the Client and the Subaccount.

(b) Notwithstanding Subsection 3.1(a) above, Kenmar Pool may override the
trading instructions of the Sub-Advisor to the extent that Kenmar Pool deems
advisable for the protection of the Client or as required by law. Kenmar Pool
will have the right orally, to be confirmed in writing: (i) to increase or
decrease (including decrease to $0) the amount of funds allocated to the
Subaccount by such date certain (including immediately) as Kenmar Pool deems
appropriate (in which case the Sub-Advisor will modify accordingly its positions
commensurate with its risk/money management parameters); and/or (ii) to instruct
the Sub-Advisor to liquidate all or a portion of the Client's positions by such
date certain (including immediately) as Kenmar Pool deems appropriate.

(c) The Sub-Advisor may, in its sole discretion, refine or modify the Trading
Methods; provided, however, that the Sub-Advisor will give Kenmar Pool at least
thirty (30) days' prior written notice of any

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proposed material change to the Trading Methods and will not trade the
Subaccount based upon such proposed material change without the prior written
approval of Kenmar Pool. Kenmar Pool may instruct the Sub-Advisor not to make
any material alteration in the trading strategy used for the Sub-Account, in
which case the Sub-Advisor may terminate this Agreement pursuant to Section
7.2(g) hereof.

Any notices of material changes in Trading Methods required hereunder shall be
subject to reasonable assurances of confidentiality and need not disclose any
proprietary information concerning the nature of such material change. The
addition and/or deletion of markets or Commodity Interests from the Subaccount
shall not be deemed a change in the Sub-Advisor's strategy, and prior written
notice to Kenmar Pool shall not be required therefor, unless the Sub-Advisor's
strategy used for the Subaccount is limited to a specific group of contracts or
a market sector in a manner inconsistent with such addition or deletion.

3.2 UNIFORMITY OF ACTS AND PRACTICES.

(a) The Sub-Advisor will treat Kenmar Pool in a fiduciary capacity; accordingly,
under no circumstance will the Sub-Advisor favor or prefer any client's
Commodity Interest account over the Subaccount. Subject to that standard, the
Sub-Advisor will be free (i) to advise other investors as to the purchase and
sale of Commodity Interests and to manage and trade for such other investors'
Commodity Interest accounts as well as trade for the Sub-Advisor's own Commodity
Interest accounts and (ii) to trade other accounts using the Trading Methods or,
subject to Subsection 3.2(b) below, using a trading system, method, model,
strategy or formula different from the Trading Methods. Notwithstanding anything
to the contrary in this Subsection 3.2(a), the Sub-Advisor will be deemed not to
be favoring or preferring another client's Commodity Interest account over the
Subaccount if the Sub-Advisor manages or trades such other client's Commodity
Interest account either (i) in accordance with specific written instructions of
a client, (ii) in accordance with the Sub-Advisor's money management approach
based upon the amount of equity and/or profits in such account, or (iii) in
accordance with another trading program, system, method, model, strategy and/or
formula disclosed in the Sub-Advisor's Disclosure Document.

(b) In addition to, and not in lieu of Section 3.1 above, the Sub-Advisor will
consult with Kenmar Pool from time to time regarding modified or different
trading programs, systems, methods, models, strategies and/or formulas that the
Sub-Advisor has developed and tested and deems suitable for trading client
Commodity Interest accounts, and, if both the Sub-Advisor and Kenmar Pool deem
it appropriate, the Sub-Advisor will trade the Subaccount pursuant to such
strategy. In no event will the Sub-Advisor employ any such modified or different
trading system, method, model, strategy or formula on behalf of any other
client's Commodity Interest account unless the Sub-Advisor has also offered such
modified or different trading system, method, model, strategy or formula to
Kenmar Pool for trading on behalf of the Subaccount (subject to capacity
constraints).

(c) At the reasonable request of Kenmar Pool and at the Sub-Advisor's expense,
the Sub-Advisor will promptly provide Kenmar Pool with an explanation of the
differences, if any, in performance between the Subaccount and any other client
Commodity Interest account for which the Sub-Advisor is responsible for trading
(in whole or in part) pursuant to the Trading Methods (subject to the need to
preserve the secrecy of proprietary information concerning the Trading Advisor's
strategies and the identity of the Sub-Advisor's clients).

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3.3 PLACEMENT OF TRADES.

(a) The Sub-Advisor will cause all Commodity Interest transactions for the
Subaccount to be cleared through the Commodity Broker.

(b) Notwithstanding Subsection 3.3(a) above, the Sub-Advisor may arrange for the
execution of orders for the Subaccount through floor brokers selected by the
Sub-Advisor, provided that such floor brokers "give-up" such transactions to the
Commodity Broker for clearance and carrying in the Subaccount, and provided
further that Kenmar Pool will have given its prior written consent to the
brokerage and floor commissions and fees and other transaction costs to be
charged by such floor broker.

3.4 SPECULATIVE POSITION LIMITS.

(a) The Sub-Advisor will not enter into or own, hold or control (either alone or
together with any other individual or entity) any position in any Commodity
Interest, or control any other Commodity Interest account, or render commodity
trading advice to any other individual or entity, or otherwise engage in any
activity that would cause the Sub-Advisor to knowingly cause the Client to be in
violation of any applicable Position Limits.

(b) If the positions in any Commodity Interest owned, held or controlled by the
Sub-Advisor (either alone or aggregated with the positions of any other
individual or entity to the extent such aggregation is required by Applicable
Law) equals or exceeds the Position Limits thereof, the Sub-Advisor will
promptly notify Kenmar Pool of that fact and will take the action set forth in
Subsection 3.4(c) below.

(c) If the Sub-Advisor reaches a Position Limit, thereby necessitating the
reduction of positions in that Commodity Interest, the Sub-Advisor will reduce
the contracts of all those so participating in that Commodity Interest on an
equitable basis, taking into consideration the size of each account and the
leverage at which it is traded.

3.5 INFORMATION.

(a) The Sub-Advisor, at its own expense, will provide Kenmar Pool with (i)
copies of all amendments and supplements to the Sub-Advisor's Disclosure
Document and (ii) monthly reports presenting the updated actual performance data
of the Sub-Advisor, in form and substance consistent with the Applicable Laws
for the preceding month.

(b) At the reasonable request of Kenmar Pool or the Client and to the extent
that they are available without undue expense or burden, the Sub-Advisor shall
make available to Kenmar Pool or the Client copies of the daily, monthly,
quarterly, and annual, as the case may be, written reports and/or account
statements prepared by the Sub-Advisor in the ordinary course, reflecting the
performance of all other Commodity Interest accounts advised, managed, owned, or
controlled by the Sub-Advisor, in each case which implement the same Trading
Methods used for the Client (with the names of clients deleted).

(c) The Sub-Advisor acknowledges its obligation to review the Subaccount's
positions on a daily basis and promptly to notify Kenmar Pool of any errors
committed by the Sub-Advisor or any trade which the Sub-Advisor believes was not
executed in accordance with its instructions.

The Sub-Advisor will send Kenmar Pool copies of all trades made by the
Sub-Advisor on behalf of the Subaccount, by facsimile transmission or other
means, by 4:30 p.m. (New York time) on the day such trades are made.

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3.6 BOOKS AND RECORDS. Upon 24 hours' notice to the Sub-Advisor by Kenmar Pool
or the Client, Kenmar Pool or the Client or their respective accountants or
agents shall have the right, during normal business hours at the Sub-Advisor's
offices, to have access to and to inspect and copy such books and records
relating to the Sub-Advisor and its trading as are reasonably necessary to
verify (i) the completeness and accuracy of any performance data provided
pursuant to this Agreement, (ii) that the Subaccount is being treated equitably
by the Sub-Advisor or (iii) otherwise to verify compliance with the terms of
this Agreement (subject to the need to preserve the secrecy of such information
and of the identity of the Sub-Advisor's clients). Such right of inspection
shall terminate upon the termination of this Agreement and shall not include any
right to access computer programs, records or other information used in
determining trading decisions.

The Sub-Advisor shall not be required to disclose the actual trading results of
the proprietary accounts of the Sub-Advisor or its principals except upon the
request of the Client or Kenmar Pool for good cause given.

3.7 NOTICES. The Sub-Advisor will notify Kenmar Pool orally (to be confirmed in
writing) promptly following the occurrence of any of the following events:

 (a) The Sub-Advisor modifies or revises its performance numbers so that there
is a material difference between the previous numbers and the revised numbers.

(b) An error is committed with respect to the Subaccount or an order or trade on
behalf of the Subaccount was executed other than in accordance with the
Sub-Advisor's instructions.

(c) The Sub-Advisor merges, consolidates with, or sells or otherwise transfers
its advisory business, all or any portion of its assets, all or any portion of
its Trading Method or its goodwill.

(d) The Sub-Advisor becomes bankrupt or insolvent.

(e) The Sub-Advisor is unable to use any material part or aspect of its Trading
Method.

(f) The Sub-Advisor's registration with the CFTC or membership with the NFA is
revoked, suspended, terminated or not renewed, or limited, conditioned,
restricted or qualified in any respect.

(g) Any material change in the management, ownership, personnel, organizational
structure or control of the Sub-Advisor or a material adverse change in the
financial condition of the Sub-Advisor that, in the reasonable judgment of the
Sub-Advisor, could adversely impact its ability to perform its obligations
hereunder.

(h) The Sub-Advisor becomes aware of (i) any misleading statement or any untrue
statement of a material fact or any omission to state a material fact necessary
to make the statements contained in the Sub-Advisor's Disclosure Document, in
light of the circumstances under which such statements were made, not
misleading, or (ii) the occurrence of any event or change in circumstances which
shall have resulted or could reasonably be expected to result in there being any
such misleading or untrue statement or omission.

3.8 DELIVERY OF SUB-ADVISOR'S DISCLOSURE DOCUMENT. The Sub-Advisor shall, during
the term of this Agreement, deliver to Kenmar Pool copies of all Disclosure
Documents filed by the Sub-Advisor with any governmental authority, promptly
following such filing.

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                                   ARTICLE IV

                                      FEES

4.1 MANAGEMENT FEE. For services rendered by the Sub-Advisor under this
Agreement and provided that the Client has paid Kenmar Pool the Sub-Advisor's
Management Fee, Kenmar Pool will pay the Sub-Advisor its Management Fee within
ten (10) business days following Kenmar Pool's receipt of such Fee from the
Client.

4.2 INCENTIVE FEE. In addition to the Management Fee, for services rendered by
the Sub-Advisor under this Agreement and provided that the Client has paid
Kenmar Pool the Sub-Advisor's Incentive Fee, Kenmar Pool will pay the
Sub-Advisor its Incentive Fee within ten (10) business days following Kenmar
Pool's receipt of such Fee from the Client.

If the Sub-Advisor has a loss when funds are withdrawn or allocated away from
the Subaccount (other than for the payment of Brokerage Commissions, Management
and Incentive Fees and other proper charges or expenses), for the purpose of
calculating subsequent Incentive Fees, such loss will be reduced by an amount
equal to the product of (x) such loss and (y) the Withdrawal Ratio (as defined
herein). If funds are subsequently reallocated to the Sub-Advisor, for the
purpose of calculating subsequent Incentive Fees, Net New Trading Profits will
be reduced by an amount equal to the product of (x) the amount of such earlier
loss reduction(s) and (y) the lesser of (i) 1 and (ii) the ratio created by
dividing (A) the amount of assets reallocated to the Sub-Advisor by (B) the
amount of assets previously withdrawn or allocated from the Sub-Advisor.

4.3 COMMISSIONS. The Sub-Advisor will not receive any share of the Brokerage
Commissions paid to any commodity broker, whether in the form of rebates or
otherwise.

4.4 SURVIVAL. Fees due the Sub-Advisor under this Article IV at the expiration
or termination of this Agreement will survive such expiration or termination and
Kenmar Pool will pay such Fees to the Sub-Advisor within ten (10) business days
of Kenmar Pool's receipt of such Fees from the Client.

                                    ARTICLE V

                         REPRESENTATIONS AND WARRANTIES

5.1 BY THE SUB-ADVISOR. The Sub-Advisor hereby represents and warrants to Kenmar
Pool and the Client as follows:

(a) If the Sub-Advisor is a corporation or partnership, it is duly organized,
validly existing, and in good standing under the laws of its state of
incorporation or formation with full power and authority to execute, deliver and
perform its obligations under this Agreement. This Agreement has been duly and
validly authorized, executed and delivered by the Sub-Advisor and is a legal,
valid and binding agreement of the Sub-Advisor enforceable against the
Sub-Advisor in accordance with its terms. The individual executing and
delivering this Agreement for and on behalf of the Sub-Advisor is of full legal
age in the jurisdiction in which he resides and is legally competent and has
full power and authority and is permitted by Applicable Law to do so on behalf
of the Sub-Advisor.

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(b) The Sub-Advisor's Disclosure Document and the reports provided to Kenmar
Pool pursuant to Subsection 3.5(a) above are true, accurate and complete in all
material respects. Such Disclosure Document complies in all material respects
with all Applicable Laws. Except as otherwise disclosed in the Disclosure
Document, the actual performance of all accounts managed or directed by the
Sub-Advisor and required to be disclosed is reflected therein in accordance with
the requirements of the Applicable Laws and such information is fairly presented
and is true, correct and complete in all material respects.

(c) The performance of the obligations under this Agreement by the Sub-Advisor
will not conflict with, violate the terms of or constitute a default under: (i)
if the Sub-Advisor is a corporation or partnership, the organizational documents
of the Sub-Advisor; (ii) any agreement or instrument to which the Sub-Advisor is
a party or by which the Sub-Advisor is bound or to which any of the property
(including but not limited to the Trading Method) or assets of the Sub-Advisor
is subject; or (iii) any order, rule, law, regulation or other legal requirement
applicable to the Sub-Advisor or to the property or assets of the Sub-Advisor.

(d) The Sub-Advisor is currently registered as a commodity trading advisor with
the CFTC and is a member in such capacity with the NFA, and such registration
and membership have not expired or been revoked, suspended, terminated or not
renewed, or limited, conditioned, restricted, or qualified in any respect. The
Sub-Advisor and each Principal have all required governmental, regulatory, and
self-regulatory licenses, registrations and memberships necessary to carry out
its obligations under this Agreement and to act as described in this Agreement.

(e) The Sub-Advisor and each Principal thereof is in material compliance with
all Applicable Laws, the non-compliance with which will materially effect the
Sub-Advisor's ability to performs its obligations under this agreement.

(f) There is neither pending nor, to the knowledge of the Sub-Advisor,
threatened any material investigation, action, suit or proceeding by or before
any court or governmental, regulatory, or self-regulatory authority or other
body to which the Sub-Advisor is a party, or to which any assets of the
Sub-Advisor is subject that may adversely affect the Sub-Advisor's business. The
Sub-Advisor has not received any notice of an investigation regarding
non-compliance by the Sub-Advisor with the Applicable Laws that may adversely
affect the Sub-Advisor's business.

(g) The answer of the Sub-Advisor's Principals to each question of Part G of
Form 8-R is "no".

(h) Neither the Sub-Advisor nor any of its Affiliates or subsidiaries has any
arrangement or relationships with any futures commission merchant or
broker-dealer pursuant to which the Sub-Advisor or any of its Affiliates is or
may become entitled to receive any portion of the commissions or fees paid to
such entities by the Client.

5.2 BY KENMAR POOL. Kenmar Pool represents and warrants to the Sub-Advisor as
follows:

(a) Kenmar Pool is duly organized and validly existing in its jurisdiction of
formation with full power and authority to execute, deliver and perform its
obligations under this Agreement. This Agreement has been duly and validly
authorized, executed and delivered by or on behalf of Kenmar Pool and is a
legal, valid and binding agreement of Kenmar Pool enforceable against Kenmar
Pool in accordance with its terms. The individual executing and delivering this
Agreement for and on behalf of Kenmar Pool is of full legal age in the
jurisdiction in which he resides and is legally competent and has full power and
authority and is permitted by applicable law to do so on behalf of Kenmar Pool.

(b) The performance of the obligations under this Agreement by Kenmar Pool will
not conflict with, violate the terms of or constitute a default under: (i)
Kenmar Pool's organizational documents; (ii) any other agreement or instrument
to which Kenmar Pool is a party or by which Kenmar Pool is bound or to which

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any of the property or assets of Kenmar Pool is subject; or (iii) any order,
rule, law, regulation or other legal requirement applicable to Kenmar Pool or to
the property or assets of Kenmar Pool.

(c) There is neither pending nor, to the knowledge of Kenmar Pool, threatened
any investigation, action, suit or proceeding before or by any court or
governmental, regulatory or self-regulatory authority or other body to which
Kenmar Pool is a party, or to which any of its assets are subject that may
adversely affect Kenmar Pool's business. Kenmar Pool has not received any notice
of any investigation regarding its non-compliance with the Applicable Laws that
may adversely affect Kenmar Pool's business.

(d) Kenmar Pool is in material compliance with all Applicable Laws, the
non-compliance with which will materially effect Kenmar Pool's ability to
performs its obligations under this agreement.

(e) Kenmar Pool has all required governmental, regulatory, and self-regulatory
licenses, registrations and memberships necessary to carry out its obligations
under this Agreement and to act as described in this Agreement.

(f) The Trading Manager Agreement pursuant to which Kenmar Pool was retained by
the Client authorizes Kenmar Pool to retain the Sub-Advisor on behalf of the
Client and to allocate the Subaccount to the Sub-Advisor.

(g) Kenmar Pool has received, reviewed, and furnished the Client with a copy of
the Sub-Advisor's current Disclosure Document.

5.3 REPRESENTATIONS CONTINUING. The foregoing representations and warranties
will be continuing during the term of this Agreement and, if at any time any
event will occur that could make any of the foregoing incomplete or inaccurate,
the party whose representation and warranty would become incomplete or
inaccurate will promptly notify the other party of the occurrence of the event
causing such incompleteness or inaccuracy.

12
<PAGE>   13

                                   ARTICLE VI

                    STANDARD OF LIABILITY AND INDEMNIFICATION

6.1 STANDARD OF LIABILITY. The Sub-Advisor will not be liable to Kenmar Pool,
the Client or any Principal, Affiliate or beneficiary thereof, for any loss,
liability, claim, demand, damage, cost and expense except those arising out of
or based upon an act, omission, conduct or activity of the Sub-Advisor under
this Agreement arising out of or based upon: (i) any violation of any Applicable
Law caused by the Sub-Advisor or its Principals, Affiliates, employees or
agents, (ii) a breach of any representation, warranty, covenant or material term
of this Agreement by the Sub-Advisor or its Principals, Affiliates, employees or
agents, or (iii) an act of, or omission to act due to, breach of fiduciary duty
under Applicable Law, bad faith, misconduct or negligence by the Sub-Advisor or
its Principals, Affiliates, employees or agents.

6.2 SUB-ADVISOR'S AGREEMENT TO INDEMNIFY. The Sub-Advisor will indemnify, hold
harmless and defend Kenmar Pool and its Principals and Affiliates and the
employees thereof from and against, any loss, liability, claim, demand, damage,
cost and expense (including reasonable attorneys' and accountants' fees and cost
of investigation) arising out of or based upon an act, omission, conduct or
activity of the Sub-Advisor under this Agreement arising out of or based upon:
(i) any violation of any Applicable Law caused by the Sub-Advisor or its
Principals, Affiliates, employees or agents, (ii) a breach of any
representation, warranty, covenant or material term of this Agreement by the
Sub-Advisor or its Principals, Affiliates, employees or agents or, (iii) an act
of, or omission to act due to, breach of fiduciary duty, bad faith, misconduct
or negligence by the Sub-Advisor or its Principals, Affiliates, employees or
agents.

6.3 KENMAR POOL'S AGREEMENT TO INDEMNIFY. Kenmar Pool will indemnify, hold
harmless, and defend the Sub-Advisor and its Principals and employees from and
against any loss, liability, claim, demand, damage, cost and expense (including
reasonable attorneys' and accountants' fees and cost of investigation) arising
out of or based upon an act, omission, conduct or activity of Kenmar Pool under
this Agreement arising from: (i) any violation of any Applicable Law caused by
Kenmar Pool, (ii) a breach of any representation, warranty, covenant or material
term of this Agreement by Kenmar Pool or (iii) an act of, or omission to act due
to, breach of fiduciary duty, bad faith, misconduct or negligence by Kenmar
Pool.

6.4 INDEMNITY PROCEDURE.

(a) Promptly after receipt by an indemnified party under Section 6.2 or 6.3 of
notice of the commencement of an action or claim to which either such Section
may apply, the indemnified party will notify the indemnifying party in writing
of the commencement of such action or claim. The omission so to notify the
indemnifying party will not relieve the indemnifying party of any liability that
the indemnifying party may have to the indemnified party under either such
Section except to the extent such omission will have materially prejudiced the
indemnifying party. The indemnity obligations herein will be in addition to any
rights or remedies a party may have under Applicable Law.

(b) In case any such action or claim will be brought against an indemnified
party and the indemnified party will notify the indemnifying party of the
commencement of such action or claim, the indemnifying party will be entitled to
participate in such action or claim and, to the extent that the indemnifying
party may desire, to assume the defense of such action or claim at its own
expense with counsel selected by the indemnifying party and approved by the
indemnified party. After notice from the indemnifying party to the indemnified
party of the indemnifying party's election so to assume the defense of such
action or claim, the indemnifying party will not be liable to the indemnified
party under either such Section for any legal, accounting, and other expenses
subsequently incurred by the indemnified party in connection with the
defense of such action or claim other than reasonable costs of investigation.

13
<PAGE>   14

(c) Notwithstanding any provision of this Section 6.4 to the contrary, if in any
action or claim as to which indemnity is or may be available an indemnified
party will reasonably determine that its interests are or may be adverse, in
whole or in part, to the interests of the indemnifying party or that there may
be legal defenses available to the indemnified party that are or may be
different from, in addition to, or inconsistent with the defenses available to
the indemnifying party, the indemnified party may retain its own counsel in
connection with such action or claim and will be indemnified by the indemnifying
party for any legal, accounting and other expenses reasonably incurred by or on
behalf of it in connection with investigating or defending such action or claim.

6.5 SETTLEMENT. If an indemnified party takes over the defense, an indemnifying
party will not be liable for a settlement of any such action or claim effected
without its written consent, but if any such action or claim will be settled
with the written consent of an indemnifying party or if there will be a final
judgment for the plaintiff in any such action or claim, the indemnifying party
will indemnify, hold harmless, and defend the indemnified party from and against
any loss, liability, expense in accordance with this Article VI by reason of
such settlement or judgment. Neither party will consent to entry of any judgment
or enter into any settlement that requires the payment of money, or imposes any
other material obligation on the other party, or that does not include an
unqualified release for the other party, without the other party's written
consent.

6.6 EFFECT OF EXPIRATION OR TERMINATION. This Article VI will survive expiration
or termination of this Agreement.

                                   ARTICLE VII

                              TERM AND TERMINATION

7.1 TERM. This Agreement will commence on the date hereof and will continue in
full force and effect until terminated pursuant to Section 7.2 below.

7.2 TERMINATION. This Agreement will terminate as follows:

(a) Upon ninety (90) days prior written notice from one party to the other
party, which notice will include the effective date of termination, which may
only be the last day of any month and the Sub-Advisor may not terminate
hereunder earlier than two (2) full years from the date hereof.

(b) Upon thirty (30) days prior written notice from one party to the other party
if there is a material breach of any representation, warranty, covenant or
material term of this Agreement by the other party and the other party has
failed to cure such material breach prior to ten (10) days before the effective
date of termination.

(c) Upon five (5) days prior written notice from the Sub-Advisor to Kenmar Pool
if the Sub-Advisor has not received its Management Fee or Incentive Fee within
twenty (20) business days after the Client has paid Kenmar Pool the
Sub-Advisor's Management Fee and Incentive Fee.

(d) Immediately, upon the dissolution or insolvency of Kenmar Pool or the
Sub-Advisor.

14
<PAGE>   15

(e) Immediately, upon Kenmar Pool's or the Sub-Advisor's registration with the
CFTC or membership with the NFA as a commodity trading advisor being revoked,
suspended, terminated or not renewed, or limited, conditioned, restricted or
qualified in any respect.

(f) Immediately, upon termination of the Trading Manager Agreement pursuant to
which KAC is authorized to allocate the assets of the Subaccount to the
Sub-Advisor.

(g) At the discretion of the Sub-Advisor, (a) immediately should the Sub-Advisor
notify Kenmar Pool pursuant to Section 3.2(c) of a proposed material change to
the strategies to be used in managing the Subaccount and either (i) the Kenmar
Pool has instructed the Sub-Advisor not to implement such changes or (ii) the
thirty (30) day period set forth in Section 3.2(c) has lapsed; or (b) upon
thirty (30) days' notice to Kenmar Pool, as of any month-end if the Sub-Advisor
has determined to cease managing any customer accounts pursuant to the same
strategy as the Sub-Advisor has been retained to employ on behalf of the Client.

                                  ARTICLE VIII

                                  MISCELLANEOUS

8.1 STATUS.

(a) The Sub-Advisor is, and for all purposes will be deemed to be, an
independent contractor, and unless otherwise expressly provided herein or with
the prior written authorization of Kenmar Pool or the Client, the Sub-Advisor
will have no authority to act for or represent Kenmar Pool or the Client in any
way and will not otherwise be deemed to be an agent of Kenmar Pool or the
Client.

(b) Unless otherwise expressly provided herein or with the prior written
authorization of the Sub-Advisor, neither Kenmar Pool nor the Client will have
any authority to act for or represent the Sub-Advisor in any way and will not
otherwise be deemed to be an agent of the Sub-Advisor.

(c) Nothing contained in this Agreement will create a partnership, joint
venture, association, syndicate, unincorporated business or other separate
entity between or among Kenmar Pool, the Client and/or the Sub-Advisor.

(d) The Sub-Advisor is neither a sponsor nor a promoter of the Client.

8.2 CONFIDENTIALITY.

(a) The Trading Methods (including Commodity Interest positions established
pursuant to the Trading Methods) are the sole and exclusive property of the
Sub-Advisor, and Kenmar Pool will keep confidential and not disseminate the
Trading Method or any other information with respect to the Sub-Advisor that is
known by Kenmar Pool to be confidential and proprietary to the Sub-Advisor.
Nothing herein will require the Sub-Advisor to disclose any proprietary or
confidential information concerning its Trading Methods or any customer names.

(b) The obligations of the parties in relation to confidentiality will not apply
to the extent that any information (i) is required to be disclosed in accordance
with any law (including any Applicable Law), rule, regulation or order of any
court, arbitration panel, governmental, regulatory or self-regulatory authority
or any audit requirement or (ii) has entered into the public domain other than
by a breach of duty on the part of any party hereto.

15
<PAGE>   16

8.3 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between
the parties hereto with respect to the matters referred to herein, and no other
agreement, verbal or otherwise, will be binding between the parties hereto with
respect to the matters referred to herein unless in writing and signed by the
parties.

8.4 AMENDMENT. This Agreement may not be amended except by a writing signed by
the parties hereto.

8.5 ASSIGNMENT. This Agreement may not be assigned by either party hereto
without the prior written consent of the other party, except that Kenmar Pool
may assign this Agreement or transfer all or a portion of its assets or goodwill
to, Kenneth A. Shewer and/or Marc S. Goodman and/or any entity controlled by
either or both of them and may merge or consolidate with any entity controlled
by either or both of them.

8.6 SUCCESSORS. This Agreement will be binding upon and inure to the benefit of
the parties hereto, their successors and permitted assigns, and no other person
will have any right or obligation under this Agreement.

8.7 WAIVER. No waiver of any provision of this Agreement will be implied from
any course of dealing between the parties hereto or from any failure by either
party hereto to assert its rights hereunder on any occasion or series of
occasions.

8.8 SEVERABILITY. If any provision of this Agreement, or the application of any
provision to any person or circumstance, will be held to be inconsistent with
any present or future law, ruling, rule or regulation of any court or
governmental, regulatory, or self-regulatory authority having jurisdiction over
the subject matter hereof, such provision will be deemed to be rescinded or
modified in accordance with such law, ruling, rule or regulation, and the
remainder of this Agreement, or the application of such provision to any person
or circumstance other than those as to which it will be held inconsistent, will
not be affected thereby.

8.9 GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CONNECTICUT WITHOUT REFERENCE TO CHOICE
OF LAW DOCTRINE.

8.10 CONSENT TO ARBITRATION. ANY ACTION OR PROCEEDING BROUGHT BY ANY PARTY
HERETO TO ENFORCE ANY RIGHT, ASSERT ANY CLAIM OR OBTAIN ANY RELIEF WHATSOEVER
ARISING FROM, IN CONNECTION WITH OR RELATING TO THIS AGREEMENT, ANY BREACH
HEREOF, OR THE ENFORCEMENT HEREOF, OR ANY TRANSACTION COVERED HEREBY WILL BE
BROUGHT AND MAINTAINED BY SUCH PARTY EXCLUSIVELY IN, AND THE OTHER PARTIES
HEREBY CONSENT AND SUBMIT TO THE EXCLUSIVE JURISDICTION OF, AN APPROPRIATE
ARBITRATION BODY LOCATED WITHIN THE COUNTY OF FAIRFIELD, STATE OF CONNECTICUT.

16
<PAGE>   17

8.11 COUNTERPARTS. This Agreement may be executed in counterparts, each of which
will be deemed an original but all of which together will constitute one and the
same instrument.

8.12 SURVIVAL. The provisions of this Agreement shall survive the termination
hereof with respect to any matter arising while this Agreement shall be in
effect.

8.13 NOTICES. Any notice required or desired to be delivered pursuant to this
Agreement will be in writing and will be delivered by courier service, postage
prepaid mail, telex, facsimile transmission, telegram or other similar means and
will be effective, if by mail, 7 days after mailing, or if notified otherwise,
when actually received by the party to whom such notice will be directed,
addressed as set forth in Cover Letter.

17<PAGE>   1
                                                                    EXHIBIT 10.2

                        AMENDMENT TO EMPLOYMENT AGREEMENT

         This AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment"), dated as of
August 11, 2000, is by and between Liberty Group Operating, Inc., a Delaware
corporation (the "Company"), Kenneth L. Serota ("Executive"), Liberty Group
Publishing, Inc., a Delaware corporation (the "Parent"), Green Equity Investors
II, L.P. and Green Equity Investors III, L.P. ("Green III"). Capitalized terms
used but not defined herein shall have the meanings ascribed to them in the
Employment Agreement referred to below.

                                    RECITALS

         A. The parties have previously entered into an Employment Agreement
dated as of November 21, 1997 (the "Employment Agreement").

         B. The parties desire to amend the Employment Agreement as set forth in
Section 1 hereof, and Executive desires to purchase, and parent desires to sell,
shares of capital stock of Parent on the terms set forth in Sections 2 and 3
hereof.

                                   AGREEMENTS

         In consideration of the recitals and the mutual promises, covenants and
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:

         1. Amendments to Employment Agreement

         (a) The first two sentences of Section 1.1 of the Employment Agreement
are hereby amended to read in their entirety as follows:

                  "Subject to the terms hereof, the Company agrees to employ
                  Executive as its President and Chief Executive Officer, and
                  Executive agrees to accept such employment, for the period
                  beginning on January 1, 1998 (the "Commencement Date") and
                  ending on the sixth anniversary of the Commencement Date
                  subject to extension as hereinafter provided or earlier
                  termination pursuant to Section 3 hereof (the "Term"). After
                  the expiration of the initial six year term, the Term shall be
                  automatically extended or re-extended on each anniversary of
                  the Commencement Date, commencing on January 1, 2004, for
                  successive one-year periods, subject to earlier termination
                  pursuant to Section 3 hereof, unless the Company or Executive
                  delivers to the other party a notice specifying such party's
                  intent not to extend or re-extend the Term for an additional
                  one-year period, at least 90 days prior to the end of the then
                  current Term."

         (b) The first sentence of Section 2.1 of the Employment Agreement is
hereby amended to read in its entirety as follows:
<PAGE>   2
                  "As compensation for services rendered hereunder, Executive
                  shall receive an annual salary of not less than (i) $350,000
                  for the period beginning on the Commencement Date and ending
                  on the first anniversary thereof, (ii) $375,000 for the period
                  beginning on the first anniversary of the Commencement Date
                  and ending on the second anniversary thereof, (iii) $400,000
                  for the period beginning on the second anniversary of the
                  Commencement Date and ending on the third anniversary thereof,
                  (iv) 450,000 for the period beginning on the third anniversary
                  of the Commencement Date and ending on the fourth anniversary
                  thereof, (v) 475,000 for the period beginning on the fourth
                  anniversary of the Commencement Date and ending on the fifth
                  anniversary thereof and (vi) 500,000 for the period beginning
                  on the fifth anniversary of the Commencement Date until the
                  end of the Term, to be paid in accordance with the Company's
                  customary payroll practices but in no event less frequently
                  than monthly."

                  (c) The second sentence of Section 2.6 of the Employment
Agreement is hereby amended to read in its entirety as follows:

                  "The Company shall also pay Executive an automobile allowance
                  of $500 per month for each month during the Term ending on or
                  prior to December 31, 2000, and $800 per month for each month
                  thereafter, which automobile allowance shall be payable
                  monthly in arrears."

                  (d) The first sentence of Section 4.3 of the Employment
Agreement is hereby amended to read in its entirety as follows:

                  "In addition to the Company's obligations under Section 4.1,
                  if (a) Executive's employment is terminated by the Company
                  without Cause or (b) Executive's employment is terminated by
                  Executive for Good Reason in accordance with the provisions of
                  Section 3.4, the Company shall pay Executive, within thirty
                  (30) days of the Date of Termination, an amount equal to
                  eighteen (18) months base salary at the Executive's then
                  current annual salary."

         2. Purchase of Loan Equity.

                  (a) Parent agrees to issue and sell to Executive, and
Executive agrees to purchase from Parent, on the date hereof, 4,372 shares of
common stock of Parent, par value $0.01 per share ("Common Stock"), and 184.42
shares of Series B 10% Junior Redeemable Cumulative Preferred Stock of Parent,
par value $0.01 per share ("Junior Preferred Stock," and together with the
Common Stock, the "Loan Equity"), for an aggregate purchase price equal to
$250,000. Against payment of the aggregate purchase price for the Loan Equity,
Parent will deliver to Executive stock certificates, duly executed and
registered in Executive's name, representing the Loan Equity. The Loan Equity
shall be issued and sold to Executive free and

                                       2
<PAGE>   3
clear of all liens, other than restrictions and legends pursuant to federal or
state securities laws and the Management Stockholders Agreement dated as of
January 27, 1998, by and among Executive, Parent and Green, as amended by that
certain Master Amendment dated as of April 18, 2000 pursuant to which Green III
became a party to such agreement (the "Stockholders Agreement"). For avoidance
of doubt, the Loan Equity shall be considered to be "Common Stock" and "Common
Stock acquired by the Management Investor pursuant to the Employment Agreement"
for all purposes of the Stockholders Agreement, including, without limitation:
Section 1(b) (Purchase for Investment); Section 3 (Transfer of Stock); Section 8
(Piggyback Registration Rights); Section 9 (Tag-Along Rights) and Section 10
(Drag-Along Sales) except that the provisions of Section 4 (Company "Call"
Option) shall not apply to the Loan Equity.

                  (b) Executive may pay the aggregate purchase price for the
Loan Equity by issuing to Parent a full recourse promissory note in the
principal amount of $250,000 and in the form attached hereto as EXHIBIT A (the
"Loan Note"). The outstanding principal amount of the Loan Note, together with
all outstanding interest accrued thereon, shall be due and payable in full (x)
thirty days after the earlier of (i) the date on which Executive's employment
with the Company is terminated by the Company for Cause and (ii) the date on
which Executive's employment with the Company is terminated by Executive without
Good Reason, (y) subject to the last sentence of this paragraph, immediately
upon consummation of a Sale Event (as hereinafter defined) and (z) December 31,
2025. Parent shall forgive an equal principal amount of the Loan Note, and all
interest accrued on such principal amount of the Loan Note, as of each of
December 31, 2001, December 31, 2002 and December 31, 2003 (i.e., a principal
amount of $83,333, and all accrued interest on such principal amount, will be
forgiven on each such date) if the performance standards for the fiscal year of
the Company ending on such date that are established in accordance with Section
2.2 of the Employment Agreement are achieved. Parent shall forgive the entire
principal amount of the Loan Note, and all accrued interest on the Loan Note,
upon a Liquidity Event, so long as Executive is employed by the Company
immediately prior to such Liquidity Event. A "Sale Event" shall mean any sale of
all or a portion of the Loan Equity by Executive. In the event of a sale of less
than all of the Loan Equity then held by Executive, the percentage of the
principal and accrued interest under the Loan Note equal to the percentage of
the Loan Equity held by Executive and sold in such sale shall become due.

                  (c) In the event that, prior to January 1, 2004, Executive's
employment with the Company is terminated by the Company for Cause or by
Executive without Good Reason, any of Green, Green III or Parent (or any
combination of the foregoing, collectively the "Optionee") shall have the option
to repurchase the Loan Equity at a price of $15.00 per share of Common Stock and
$1,000 per share of Junior Preferred Stock to be repurchased plus accrued and
unpaid dividends on such share through the date of such repurchase (the "Loan
Equity Repurchase Right"). The Loan Equity Repurchase Right shall terminate with
respect to one-third of the Common Stock and one-third of the Junior Preferred
Stock purchased pursuant to Paragraph 2(a) on each of January 1, 2002 and
January 1, 2003 and with respect to the balance of such Common Stock and Junior
Preferred Stock on January 1, 2004, so long as Executive is employed by the
Company on such date, and with respect to all of such Common Stock and Junior
Preferred Stock on a Liquidity Event, so long as Executive is employed by the
Company immediately prior to such Liquidity Event.

                                       3
<PAGE>   4
                  (d) The Optionee must exercise its option under Paragraph
2(c), if at all, by written notice to Executive within thirty (30) days after
Executive's employment with the Company is terminated. To the extent not
exercised within such thirty (30) day period, the Optionee's option shall
terminate. The repurchase option, if exercised by the Optionee, must be
exercised proportionately as between Common Stock and Junior Preferred Stock
(i.e., if 50% of the Common Stock subject to repurchase is to be repurchased,
50% of the Junior Preferred Stock subject to repurchase must be repurchased).

                  (e) For purposes of this Amendment, a "Liquidity Event" shall
mean the earliest of (i) the consummation of a Change of Control, (ii) the
consummation of an initial public offering in which gross proceeds to the
Company equal or exceed $35,000,000 and (iii) the commencement of the public
trading of Parent's Common Stock on any national securities exchange, including,
but not limited to, the NASDAQ National Market System.

         3. Purchase of Additional Equity.

                  (a) Parent agrees to issue and sell to Executive, and
Executive agrees to purchase from Parent, on the date hereof, 23,174 shares of
Common Stock (the "Additional Equity") for a purchase price of $15.00 per share.
The Additional Equity shall be issued and sold to Executive free and clear of
all liens other than restrictions and legends pursuant to federal or state
securities laws, the Stockholders Agreement and the Pledge Agreement referred to
below. Against payment of the aggregate purchase price for the Additional
Equity, Parent will deliver to Executive stock certificates, duly executed and
registered in Executive's name representing the Additional Equity. For avoidance
of doubt, the Additional Loan Equity shall be considered to be "Common Stock"
and "Common Stock acquired by the Management Investor pursuant to the Employment
Agreement" for all purposes of the Stockholders Agreement, including, without
limitation: Section 1(b) (Purchase for Investment); Section 3 (Transfer of
Stock); Section 8 (Piggyback Registration Rights); Section 9 (Tag-Along Rights)
and Section 10 (Drag-Along Sales) except that the provisions of Section 4
(Company "Call" Option) shall not apply to the Additional Equity.

                  (b) Executive may pay 65% of the aggregate purchase price for
the Additional Equity by issuing to Parent a non-recourse promissory note in the
form attached hereto as EXHIBIT B and the balance of the aggregate purchase
price for the Additional Equity by issuing to Parent a full recourse promissory
note in the form attached hereto as EXHIBIT C (collectively, the "Additional
Equity Notes"). The percentage of the principal and accrued interest under the
Additional Equity Notes equal to the percentage of the Additional Equity held by
Executive and sold in any Sales Event shall become due and payable upon the
consummation of such Sale Event. The entire principal amount and accrued
interest under the Additional Equity Notes shall become due and payable on
December 31, 2025. The Additional Equity Notes shall be secured by a pledge of
the Additional Equity pursuant to the Pledge Agreement in the form attached
hereto as EXHIBIT D.

                  (c) The Optionee shall have the option to repurchase the
Additional Equity, at a price of $15.00 per share of Common Stock to be
repurchased, if the aggregate internal rate of return ("IRR") realized by Green
III on the Common Stock and Junior Preferred Stock purchased by Green III
pursuant to that certain Stock Purchase Agreement, dated as of April 18, 2000,

                                       4
<PAGE>   5
between Parent and Green III (the "Green III Equity") does not equal or exceed
twenty-five percent (25%) (the "IRR Threshold") under the circumstances
described below (the "Investment Performance Repurchase Right").

                      (i) General. The Investment Performance Repurchase Right
        will be available to the Optionee (x) upon each occasion on which it
        disposes (including by way of a distribution to its partners) of a
        portion (or all) of the Common Stock included in the Green III Equity
        prior to the eighth anniversary of the date hereof and (y) with respect
        to any Additional Equity for which the Investment Performance Repurchase
        Right has not terminated prior to the eighth anniversary of the date
        hereof, upon the eighth anniversary of the date hereof.

                      (ii) Valuation. Each time the Investment Performance
        Repurchase Right is available to the Optionee, all of the Green III
        Equity (Common Stock and Junior Preferred Stock) will be valued for
        purposes of determining whether the IRR Threshold has been achieved. In
        the case of an event described in clause (x), the shares disposed of by
        Green III will be valued at the price received by Green III in the
        disposition (or, in the case of a disposition to Green III's partners,
        at the price attributed to it in such distribution). If Preferred Stock
        is not disposed of in the transaction, it will be valued at an amount
        equal to its liquidation preference plus accrued and unpaid dividends.
        In the event the Investment Performance Repurchase Right is exercised at
        the eighth anniversary instead of upon a disposition event, for purposes
        of calculating the IRR, the value of the Green III Equity shall be the
        same as the valuation most recently used by Green III pursuant to its
        governing documents.

                      (iii) Partial or Total Extinguishment of Investment
        Performance Repurchase Right. If and to the extent the IRR Threshold is
        achieved in the disposition, the Investment Performance Repurchase Right
        shall terminate as to the percentage of the Additional Equity equal to
        the percentage of the Common Stock included in the Green III Equity sold
        in the disposition event, and if such IRR Threshold is not achieved,
        such percentage of the Additional Equity will be subject to repurchase.
        All of the Additional Equity as to which the Investment Performance
        Repurchase Right has not theretofore terminated in accordance with this
        paragraph will remain subject to the Investment Performance Repurchase
        Right.

                      (iv) Time Repurchase Right. In the event that, prior to
        January 1, 2004, Executive's employment with the Company is terminated
        by the Company for Cause or by Executive without Good Reason, the
        Optionee shall have the option to repurchase the Additional Equity at a
        price of $15.00 per share of Common Stock (the "Time Repurchase Right").
        The Time Repurchase Right shall terminate with respect to one-third of
        the Additional Equity on each of January 1, 2002 and January 1, 2003 and
        with respect to the balance of such Additional Equity on January 1,
        2004, so long as Executive is employed by the Company on such date, and
        with respect to all of the Additional Equity on a Liquidity Event, so
        long as Executive is employed by the Company immediately

                                       5
<PAGE>   6
        prior to such Liquidity Event. The partial or complete extinguishment
        of the Time Repurchase Right will not affect the Investment Performance
        Repurchase Right, which will only expire as set forth above.

                  (d) The Optionee must exercise the Investment Performance
Repurchase Right, if at all, by written notice to Executive within thirty (30)
days after a triggering event described above. To the extent not exercised
within such thirty (30) day period, the Investment Performance Repurchase Right
shall terminate with respect to such triggering event. The Optionee must
exercise its Time Repurchase Right, if at all, by written notice to Executive
within thirty (30) days after Executive's employment with the Company is
terminated. To the extent not exercised within such thirty (30) day period, the
Time Repurchase Right shall terminate.

                  (e) Executive agrees that until the repurchase rights set
forth above have expired or been exercised, he shall in no event dispose of the
Additional Equity subject to such repurchase rights without the prior written
consent of the Parent.

         4. Representations of Executive.

                  (a) Executive will acquire the Loan Equity and the Additional
Equity for investment and not with a view for distributing all or any part
thereof in any transaction which would constitute a "distribution" within the
meaning of the Securities Act of 1933, as amended (the "Securities Act").
Executive acknowledges that the Loan Equity and the Additional Equity have not
been registered under the Securities Act and, except as set forth in the
Stockholders Agreement, Parent is under no obligation to file a registration
statement with the Securities and Exchange Commission with respect to the Loan
Equity or the Additional Equity.

                  (b) Executive (i) has such knowledge and experience in
financial and business matters that he is capable of evaluating the merits and
risks of its investment in the Loan Equity and Additional Equity; (ii) is able
to bear the complete loss of its investment in the Loan Equity and Additional
Equity; (iii) has had the opportunity to ask questions of, and receive answers
from, Parent and its management concerning the terms and conditions of the
offering of the Loan Equity and Additional Equity and to obtain additional
information; and (iv) is an "accredited investor" as that term is defined in
Rule 501(a)(3) under the Securities Act.

         5. Legal Fees. The Company shall pay, or reimburse Executive for, the
reasonable legal fees and expenses of counsel to Executive in connection with
the preparation, negotiation, execution and delivery of this Amendment.

         6. Reference to and Effect on the Employment Agreement.

                  (a) Upon the effectiveness of this Amendment, each reference
in the Employment Agreement to "this Agreement," "hereunder," "hereof,"
"herein," or words of like import shall mean and be a reference to such
Employment Agreement as amended hereby, and each reference to the Employment
Agreement in any other document, instrument or agreement shall mean and be a
reference to such Employment Agreement as amended hereby.

                                       6
<PAGE>   7
                  (b) Except as specifically amended above, the Employment
Agreement and Stockholders Agreement shall remain in full force and effect and
is hereby ratified and confirmed.

                  (c) The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or remedy of any
party hereto under the Employment Agreement nor constitute a waiver of any
provision contained therein, except as specifically set forth herein.

         7. Counterpart Execution. This Amendment may be executed in two or more
counterparts, each of which shall be fully effective as an original and all of
which together shall constitute one and the same instrument.

                                       7
<PAGE>   8
         IN WITNESS WHEREOF, this Amendment to Employment Agreement is executed
the date first written above.

                                          LIBERTY GROUP OPERATING, INC.

                                          By:          /s/  Kenneth L. Serota
                                             ----------------------------------
                                          Its:
                                              ---------------------------------

                                          LIBERTY GROUP PUBLISHING, INC.

                                          By:          /s/  Kenneth L. Serota
                                             ----------------------------------
                                          Its:
                                              ---------------------------------

                                                       /s/  Kenneth L. Serota
                                          -------------------------------------
                                                          KENNETH L. SEROTA

AGREED TO AND ACCEPTED:

GREEN EQUITY INVESTORS II, L.P.

    By:  Grand Avenue Capital Partners, L.P.,
         its General Partner

         By: Grand Avenue Capital Corporation,
             its General Partner

             By:       /s/  Peter J. Nolan
                -----------------------------------
             Its:
                 ----------------------------------

GREEN EQUITY INVESTORS III, L.P.

    By:  GEI Capital III, LLC,
         its General Partner

         By:          /s/  Peter J. Nolan
             --------------------------------------
         Its:
             --------------------------------------

                                       8

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