1 2 3 RIM PARK FINANCING 4 5 CITY OF WATERLOO JUDICIAL INQUIRY 6 7 8 9 10 11 HELD BEFORE: The Honourable Mr. Justice R.C. Sills 12 13 14 15 Held at: RIM Park, Manulife Financial Health and 16 Sports Complex, 2001 University Avenue, 17 Waterloo, Ontario. 18 19 20 21 22 23 24 December 9th, 2002 25

2
  1                        APPEARANCES
  2  
  3  James Caskey Q.C.          )Commission Counsel
  4  Stacey Hocking             )
  5  
  6  William McDowell           )MFP Financial Services LTD.
  7  Fraser Berrill   (np)      )
  8  
  9  Chris Paliare              )City of Waterloo
 10  Richard Stephenson         )
 11  Edward Majewski  (np)      )
 12  
 13  Wayne Bumstead   (np)      )John Ford
 14  
 15  Robert Fleming   (np)      )Coalition
 16  Paul Berger      (np)      )
 17  Barry MacCormack (np)      )
 18  
 19  Kirk Stevens               )Clarica
 20  Paul Alexander   (np)      )
 21  Melanie Schweizer (np)     )
 22  
 23  Elaine Nairne              )Registrar
 24  Wendy Warnock              )Court Reporter
 25

1 TABLE OF CONTENTS 2 Page No. 3 4 Exhibits 4 5 6 John McGrath, Sworn 7 Examination In-Chief by Mr. James Caskey 5 8 Cross-Examination by Mr. Kirk Stevens 115 9 Cross-Examination by Mr. Richard Stephenson 133 10 Cross-Examination by Mr. William McDowell 228 11 Re-direct Examination by Mr. James Caskey 253 12 Re-Cross-Examination by Mr. William McDowell 255 13 14 Certificate of Transcript 258 15 16 17 18 19 20 21 22 23 24 25

1 EXHIBITS 2 Page No. 3 4 69 Brief of documents for 5 Mr. McGrath, One volume. 37 6 7 70 MFP Annual Report for 1999. 138 8 9 71 The Canadian Finance and Leasing 10 Association Annual report, 11 2001/2002. 157 12 13 72 MFP Financial Services Limited 14 Annual Information Form for 15 Fiscal Year Ended March 31, 2000 158 16 17 18 19 20 21 22 23 24 25

1 --- Upon commencing at 10:02 a.m. 2 3 THE REGISTRAR: The City of Waterloo Judicial 4 Inquiry is now resumed. Please be seated. 5 MR. COMMISSIONER: Good morning. 6 MR. JAMES CASKEY: Good morning, Mr. 7 Commissioner. 8 MR. COMMISSIONER: Mr. Caskey...? 9 MR. JAMES CASKEY: Thank you, Mr. 10 Commissioner. Mr. McGrath, please? 11 MR. COMMISSIONER: Good morning, Mr. McGrath. 12 Just step up onto the platform, please, and stand by the 13 chair for a moment, and listen to the Clerk. 14 15 JOHN McGRATH, Sworn; 16 17 MR. COMMISSIONER: Okay. Mr. Caskey...? 18 MR. JAMES CASKEY: Thank you, Mr. 19 Commissioner. 20 21 EXAMINATION IN-CHIEF BY MR. JAMES CASKEY: 22 Q: Mr. McGrath, I understand that you live 23 in Toronto? 24 A: I do. 25 Q: And that your date of birth is March

1 26th, 1941? 2 A: It is. 3 Q: You are presently the Chancellor or the 4 Roman Catholic Episcopal Corporation known as the Arch 5 Diocese of Toronto? 6 A: Correct. Chancellor of Temple Affairs, 7 to be specific. 8 Q: Thank you. And prior to that, your -- 9 your occupation was that you were the -- a Vice-President of 10 RBC Dominion Securities as an investment banker? 11 A: Correct. 12 Q: I understand, sir, that you have never 13 been an employee of MFP Financial Services? 14 A: That is correct. 15 Q: Am I correct, at some time the late 16 1980's, MFP was a client of RBC Dominion Securities? 17 A: Yes. 18 Q: And it was in that connection that you 19 got to know people at MFP? 20 A: That's correct. 21 Q: You became a Director of -- of MFP in 22 1992, and that was the year prior to MFP going public? 23 A: Correct. 24 Q: Now, in 1993, when MFP went public, I 25 take it that -- that its shares were then listed on the

1 Toronto Stock Exchange? 2 A: That is correct. 3 Q: And was that 100 percent of the company 4 owning that was put on the exchange, or a limited -- 5 A: Well, by definition, 100 percent. It -- 6 it -- there was -- I think the offering was about 3 million 7 shares out of about 10 million, but all the shares were 8 listed. 9 Q: All right. And by 1998, what was your 10 understanding of the composition and ownership of MFP? 11 A: 1998? 12 Q: 1998, some five (5) years later. 13 A: The -- the only question I'm having in my 14 own mind, is when Acktion Corporation, which acquired a 30 15 percent interest, whether that was 1998, specifically, it was 16 around that -- that period of time. 17 When we went public, we had two (2) major 18 shareholders, one was a leasing company, the other was a 19 large pension fund management company, on behalf of their 20 clients. I believe 1998 would be the date that Acktion 21 Corporation bought the leasing company shares, so we had two 22 (2) large shareholders at that point, owning approximately 60 23 to 65 percent of the shares. 24 Q: And, at what point in time did you become 25 the Chairman of the Board of MFP?

1 A: I believe that would have been 1998, the 2 same -- same year. 3 Q: About the same time? 4 A: Yes. 5 Q: And -- and, as Chairman of the Board of 6 MFP, what was your role and what were your duties? 7 A: My duties were to preside over the Board 8 of Directors, and to maintain contact with the company, 9 between Board meetings, to set up and preside at Board 10 committee meetings. I say, preside, we also had Chairs at 11 some of those committee meetings. 12 But generally, to participate at a Board 13 level, with matters effecting the company. 14 Q: All right. Throughout the time that you 15 were with the -- on the Board and as the Chairman, who was 16 the President and CEO? 17 A: Peter Wolfraim. 18 Q: And I take it, there were a number of 19 Vice-Presidents of different areas of endeavour? 20 A: Yes. 21 Q: Do you recall how many Vice-Presidents -- 22 A: No, I think there -- I'd take a guess and 23 say four (4) or five (5). One (1) Executive Vice-President 24 and the others would have been Vice-Presidents. 25 Q: And who was the Executive Vice-President?

1 A: Early on it was a gentleman named Mark 2 Liptok, who would have left the company in, I think, 1997, to 3 pick a date. 4 Q: Okay. How many Directors were there, of 5 MFP? And you say that number changed over a period of time, 6 if you could tell us, by 1998? 7 A: There would have been, and again I'm -- 8 didn't go through my homework on this, approximately eight 9 (8) Directors. We would have added one (1) about that period 10 of time. 11 Q: Did any of the Directors participate on 12 any of the committees of the company? 13 A: Oh, yes. Certainly, at Board committees. 14 Q: Yes. And -- and, was the Investment 15 Committee a Board committee? 16 A: It was. 17 Q: All right. And I take it, that as the 18 Chairman of the Board, you would also be, then, on the 19 Investment Committee? 20 A: That's correct. 21 Q: All right. The business of MFP, and I 22 understand it changed and broadened and what not, when you 23 first became a Director, what was the business of MFP? 24 A: Basically, financing through providing 25 lease -- lease financing to major customers, the largest

1 percentage would have been government customers, at various 2 levels. 3 Q: And did that -- did that change? Did it 4 evolve into more than just financing through leases -- 5 A: Of course. 6 Q: -- as time went on? 7 A: Yes. 8 Q: All right. 9 A: They had other divisions, some were 10 acquired, operating companies which complemented the 11 business. And -- but leasing was the main core of -- or the 12 main theme of their financing activities. 13 Q: All right. Now, at some point in time, 14 there was the creation of the asset based financing group. 15 Do you recall when that was, and how that came into being? 16 A: I would say it was probably about the 17 same time, that 1997, '98. It was not the creation of it as 18 much as the identification of it because asset based 19 financing is leasing but it was more of a trade marking of 20 particular activities. 21 Q: And the composition of that -- of that 22 group, if you will? Who was on it and who would really have 23 been in charge of it? 24 A: Well, the key person was David Robson and 25 as to who was on it, it was a bit of a, what would you say, a

11
  1  matrix situation.  Where it wasn't a department, per se, as
  2  much as a function and a -- and a service.  
  3                 So others might have been involved with
  4  David's direction, to an extent. 
  5                 Q:   And Mr. Robson, I take it, was a vice-
  6  president of the company? 
  7                 A:   That is correct. 
  8                 Q:   And had he been a vice-president since
  9  you -- all the time that you were a director or was he -- 
 10                 A:   No.  He wouldn't have been.  Again, I'm
 11  not quite sure when he was made a director but probably
 12  around that 1997, '98 period. 
 13                 Q:   What I was wondering, was he specifically
 14  elevated to the position of vice-president in order to run
 15  this asset based financing group? 
 16                 A:   No. 
 17                 Q:   And what was your understanding of -- of
 18  the function that this asset based financing group was going
 19  to perform for MFP that -- that hadn't been performed before? 
 20                 A:   The main change in focus would have been
 21  to look at assets other than just technology leases which was
 22  the mainstay of the company's business and this, you know,
 23  would have been things like this complex here or water
 24  treatment facilities; assets -- same customer base but
 25  different assets.

1 Q: Now, I take it that you'd had some 2 experience with Mr. Robson before the creation of this asset 3 based financing group -- some interplay with him, as a 4 director? 5 A: Certainly familiarity with him. I 6 wouldn't say interplay. 7 Q: Right. And -- and in what way had you 8 had any experience with Mr. Robson before? 9 A: No. As I say, I would have known him as 10 a Vice-President and as a -- a top producer just as I would 11 have known the other -- who the other key sales people were. 12 Q: All right. And I take it that in saying 13 a top producer and a key sales person I guess he was that; 14 was he, at MFP? 15 A: He was a -- he was a top producer. There 16 would have been, you know, a handful of people who were 17 recognized for their productivity. 18 Q: Now, and I take it that Mr. Robson was 19 the one that was put in charge of this asset based financing 20 group because of -- of the fact that he was a top producer 21 with the company? 22 A: And because he had the perceived skill 23 set or ability to -- to do it. 24 Q: Now, you've indicated that there were 25 various levels of government, I take it that would be all the

1 way, federal, provincial, regional, municipal? 2 A: Primarily provincial and municipal. 3 Q: Now, we've heard an expression in this 4 Hearing to date, appetite. Appetite for -- for the type of 5 project. Was there -- was there any direction from the board 6 or from the president in relation to what the appetite would 7 be? How much or the extent to which this group would be 8 permitted to go into the marketplace? Limitations upon it? 9 A: In the context of the asset based 10 financing group? 11 Q: Yes. 12 A: No. 13 Q: None at all? What about MFP generally? 14 A: All right. Certainly. In terms of any 15 capital constraints, we -- the board would be quite aware of 16 where we stood vis-a-vis our balance sheet and our risk 17 levels. 18 Q: Right. Now, what was the -- what was it 19 that MFP was offering in the marketplace that -- that allowed 20 them to be successful? 21 A: They would be offering knowledgeable, 22 skilled people to develop solutions -- financing solutions 23 for their clients. They would offer, in the technology 24 leasing, obviously, a keen awareness of the market for new 25 technology and what opportunities existed for MFP and for

1 their clients to -- to trade and lease equipment like that. 2 In the asset based financing, it would be a 3 knowledge of the -- of the specific projects and people and 4 the characteristics of the projects. There were, as I think 5 I've indicated before, these were highly-tailored sorts of 6 opportunities; these weren't cookie-cutter. 7 Q: Right. I take it these, because of the 8 nature of the institutions, would tend to be longer in term 9 than -- than most leases? 10 A: Possibly. I mean, that's not a necessary 11 ingredient but it would be a characteristic for a number of 12 them, yeah. 13 Q: Would they be larger transactions than -- 14 than most transactions? 15 A: Again, possibly. You know, large 16 computer leases would -- you know, I'm sure we had some, at 17 that time, customers with large computer leases that would 18 have exceeded that -- the typical deal that the asset based 19 financing group did. 20 Q: And -- and would they generally be on a 21 lease, leaseback basis? 22 A: On a lease basis. 23 Q: On a lease basis? 24 A: Right. 25 Q: So it didn't necessary have to then have

1 a leaseback component to them? 2 A: I -- I -- sorry I'm not quite sure what 3 you're -- 4 Q: All right. Where -- where, for instance, 5 in this transaction here the -- the City leased to MFP and 6 MFP leased back? 7 A: No. I would have thought that the more 8 typical transaction would have been -- and, again, this is 9 from a board level, would have been where MFP -- let's take 10 the technology leases, they would typically be the owner of 11 that equipment and they would be leasing it to the customer. 12 Q: So that MFP would go in the marketplace, 13 acquire the assets, lease them and then receive payment? 14 A: Right, in the -- in the technology 15 area -- 16 Q: Right. 17 A: -- which was mainstream. 18 Q: So that I take it, from the board's 19 standpoint, the concept of the -- the lease and leaseback was 20 not something that you were familiar with in so far as the 21 group was concerned? 22 A: No. The board would be, I guess, aware 23 if a transaction involved risk or commitment of capital. 24 Where a transaction did not involve that but was a -- a 25 brokered transaction and there was no risk, the board would

1 no generally get down to that level of understanding what the 2 exact documentation stream was on it. 3 Q: Were you aware of any deals that were 4 based on a tax flow advantage for either MFP or for the 5 funder? 6 A: Sorry, the funder? 7 Q: Tax -- well -- 8 A: -- for the funder 9 Q: Or, yeah, for -- for -- 10 A: A funder? 11 Q: -- a funder. 12 A: Okay. Well, certainly MFP did some 13 software leases back in the mid-90's where by they acquired 14 software and leased that and took the tax advantages and 15 those -- those leases had been under scrutiny by Revenue 16 Canada, CCRA, you know, for some number of years. Not just 17 MFP but a great number of companies did those. That would be 18 an example. 19 Q: By 1998, what was your understanding of 20 the ability of MFP to participate in transactions of that 21 sort? 22 A: Well, our -- for MFP, per se, I think 23 that the software type leases had probably dried up because 24 there was some warning flags coming out of Ottawa on those. 25 So on that specific type of thing where you were getting a

1 very fast write off in the early years, that probably was not 2 an asset that was going to be leased. 3 Q: At the Board level, I take it that you've 4 indicated if it was a straight brokered deal, you didn't find 5 out very much about it? 6 A: No. That would be correct. In terms of 7 the details, that would not be a Board concern. 8 Q: I take it you'd -- you'd know the 9 borrower probably? 10 A: Right. 11 Q: And you -- 12 A: Most of our borrowers were known. As I 13 say, that was -- that was a fact. 14 Q: Right. And you'd know the amount 15 involved probably? Like you'd -- 16 A: Yes. I would say at a regular quarterly 17 Board meeting we would be brought up to date in terms of, you 18 know, large -- larger pending deals. 19 Q: On transactions would you know the return 20 on investment at an early stage? Would that be one of the -- 21 A: If it was -- 22 Q: -- factors? 23 A: If it was an investment we would know, 24 first, whether it fit in with our guidelines. That would be 25 the key thing, through our investment committee.

1 Q: If it's a brokered deal would you know 2 the fee that was being generated? 3 A: We wouldn't until, typically, very late 4 in the stage or -- or after the fact. 5 Q: In these transactions, Mr. McGrath was 6 there a -- a fee structure that -- that you, as the Board of 7 Directors, looked at as being a minimum or a maximum that was 8 appropriate for a brokered deal -- 9 A: No. 10 Q: -- or was it left up to the people to 11 negotiate that? 12 A: That was left at the -- at the corporate 13 level. 14 Q: And I take it that, your sales people, 15 were -- were always looking for ways to make the product more 16 attractive to -- to the public and to the institutions? 17 A: Hmm hmm. 18 Q: Was there any discussion -- you've told 19 us about these -- the software advantages or disadvantages, 20 of the tax? 21 A: Hmm hmm. 22 Q: Any discussion at the Board level of how 23 tax advantages, or tax effective funding, could be worked 24 into a deal? 25 A: Not at the Board level. That would be

1 more of a tactical corporate consideration. 2 Q: All right. I take it that if -- if there 3 was some way that it could be worked, where you found a tax 4 exemption or -- and -- and got a tax advantage, that would be 5 of assistance to -- to your sales force? And I'm -- what I'm 6 asking you, really, is, what availability did MFP have, in 7 house, for tax advice? 8 A: For tax advice, I -- corporately, we 9 would have had several people who would be knowledgeable. 10 And we would have also had external advisors, if needed. 11 Q: All right. I take it, you could go 12 outside to tax experts if you wanted, but -- but you, as a 13 Board, if you'd had any questions about tax advice, tax 14 advantages, you would be able to get that in house? 15 A: Yes, I -- I think as a Board, our major 16 concern would be our own tax position, and dealing with our 17 auditors, to make sure that was properly characterized. 18 Q: I take it that, by 1998, you've indicated 19 the -- the Federal Government was looking seriously at, under 20 the -- 21 A: Yes, I'm picking that date. It's 22 approximate -- 23 Q: Yes. 24 A: -- approximately at that time. 25 Q: Yes, under -- under the Income Tax Act,

1 if you will? 2 A: Right. 3 Q: Would you -- 4 A: Looking at software leases. 5 Q: Yes. 6 A: Is what I said. 7 Q: Right. Would you have thought, in -- in 8 an asset based financing deal, that there would have been any 9 availability of a tax flow through or tax advantage, that 10 could be -- 11 A: Could be. 12 Q: Could be? 13 A: There could be. 14 Q: All right. Would you think that would 15 apply where there was a straight brokered deal? 16 A: Flowing through to MFP, no. But there 17 could be, to a -- to the ultimate funder or purchaser. 18 Q: Was there any way that -- that MFP could 19 offer interest rates that were lower than traditional rates? 20 That is, traditional borrowing rates? 21 A: Not unless there was another element to 22 it. 23 Q: All right. So I take it, there would 24 have to be something by way of a tax advantage or a tax flow 25 through, that -- that allowed that to happen?

1 A: There would have to be another element. 2 Q: So, if it -- if -- if MFP sales people 3 don't have a tax advantage to bring, then they have to bring 4 all their other skills, knowledge of the client's project 5 and -- and I take it -- 6 A: Absolutely. 7 Q: -- basic service? 8 A: Right. 9 Q: All right. And specifically, something 10 geared to the particular project, something that would 11 incrementally increase the value of MFP's service, that would 12 beat the competition. 13 And what I'm wondering is, how you do that? 14 What -- what do you bring to the table? 15 A: MFP? 16 Q: Yes. 17 A: Well, I think their stock in trade was -- 18 was, as I say, good customer relations, understanding of the 19 projects, and a willingness to spend considerable amounts of 20 time, on the projects. 21 When it was computer leasing, it could be -- 22 it could be different because we could take a view, as a 23 company, on the future value of certain equipment, that might 24 be different from the marketplace. So that could be an 25 investment that we were willing to make, that others might

1 not be. So that would be a -- a typical sort of element that 2 you could bring. 3 But on the general level, it would be service 4 and understanding, that would be the key elements. 5 Q: Now, I understand that Clarica was one of 6 the -- the dominant companies from whom you acquired funds 7 for the purpose of -- of putting it in the marketplace? 8 A: That would be right. 9 Q: All right. Was there any way that -- 10 that you could get a better deal with Clarica than you could 11 with other institutions? Or other borrowers? 12 A: I would think Clarica, I always viewed as 13 being, you know, a very well staffed, professional 14 organization, and knew their markets. I think their markets 15 would have been -- their rates would have been market -- 16 market rates. 17 Q: All right. So that -- that, what you 18 could borrow for would be the same that -- that one of your 19 competitors could borrow for? 20 A: From Clarica. 21 Q: From Clarica. So that really gets you 22 down to -- 23 A: I mean, that's a -- that's on one 24 element. That's the rate. 25 Q: I understand.

1 A: But it could be the structure, that would 2 make the big difference. 3 Q: Basically then, service, personal 4 contact, would be the edge that MFP -- 5 A: Well, no, it could be the structure of 6 the particular deal that could suit Clarica's books. I, 7 again, not knowing it, but some of these transactions, like 8 you were mentioning before, extremely long -- long term ones, 9 those might well be ones that might fit their liability 10 structure, better than it would fit others. 11 Q: Okay. 12 A: Again, you have to get into them, case by 13 case. 14 Q: All right. And it take it, as well, 15 that -- that structure for a -- for a borrower, in the sense 16 of, for instance, the City of Waterloo, would be a -- a 17 factor that would -- if you could -- if you could structure 18 something specifically tailored, if you will, to Waterloo's 19 needs, that would give you an edge? 20 A: Certainly, I would expect that. 21 Q: And I take it, that would, as well, 22 involve not only Waterloo's needs, but also the -- the lender 23 being prepared to go along with those needs? 24 A: Right. 25 Q: In these financing arrangements, were

1 there requests for proposals that MFP participated in, in 2 order to, if you will, bid on the jobs? 3 A: That was my understanding. 4 Q: All right. Now, particularly with the -- 5 the Corporation of the City of Waterloo, what was your first 6 knowledge that MFP was dealing with Waterloo? 7 A: I don't recall a specific date or month, 8 but it would have been prior to anything to do with this 9 complex. I recall the name Waterloo coming up in the context 10 of a parking garage or some other municipal project, probably 11 a year or two (2) prior to -- to this project. 12 Q: All right. And how would that come to 13 the attention of the Board? 14 A: Probably just -- not necessarily the 15 Board, I might have just understood that one (1) of our key 16 salesmen was dealing with Waterloo on that sort of a project, 17 just as an example of something interesting. 18 Q: And -- and, at what stage would 19 something, then, come to the Board, by way of sort of an 20 official notice, to say -- 21 A: Any time we -- 22 Q: -- we're dealing -- 23 A: Really, after a transaction was done, you 24 might -- I mean, if something was highly imminent at the time 25 of a Board -- and I'm dealing, here, with the brokered

1 transactions. 2 Q: Right. 3 A: You know, officially, it's never over 4 until it's over, on these -- on these deals. So, it could 5 come at the end or at the closing. 6 Q: All right. 7 A: But we -- we would be put on notice, if 8 there was a highly probably, you know, transaction. 9 Q: All right. Now, I take it, there are a 10 number of scenarios that -- that would be available. One, 11 would MFP ever finance a project entirely, itself? 12 A: Oh, yes. 13 Q: All right. 14 A: I mean, again, we're in technology 15 leasing. It would -- I mean, that could be a $1 million 16 project or a $10 million project. 17 Q: All right. Now, in that situation, I 18 take it that there are certain steps that -- that have to go 19 through, and, including the Investment Committee? 20 A: Right. 21 Q: And then it comes to the Board and you'd 22 have to approve that, before anything went further? 23 A: Yes. And I'm a little fuzzy on this one, 24 and just in terms of my specific memory of the guidelines on 25 the Investment Committee, but a little background there, that

1 was set up because we -- the company had gone through a 2 significant write-down of some of its technology assets, I 3 think around '96, '97. And one of the protective measures 4 was setting up an Investment Committee which reviewed 5 transactions of a certain minimum size, and to make sure that 6 they were being priced such that our investment was being 7 priced at the market rather than through the market. 8 Q: All right. And -- and I take it that -- 9 that that, because it was a Board committee, involved a 10 number of members of the Board -- 11 A: Right. 12 Q: -- along with the administration? Now, 13 what about the Credit Committee? When would that -- 14 A: There wasn't a Credit Committee, as such. 15 Q: No -- no, Credit Committee? 16 A: No. Again, we were dealing with 17 municipalities and provincial governments where credit was 18 not a real concern. It would be a sub-set of the investment 19 committee, if you will. 20 The investment committee, really, was looking 21 at risk and credit risk was generally not a significant risk 22 to the company. 23 Q: I take it that there were situations 24 where MFP was one of a number of investors in a project? Had 25 some of your money in but -- but not all of it?

1 A: I'm not -- I'm not recalling that -- 2 Q: All right. 3 A: -- specifically. It mostly -- when 4 you're dealing with assets, generally you have title to a 5 specific asset. There could be other assets that were also 6 being financed by other groups. But I think our general 7 operation was to have a kind of distinctive ownership, like - 8 - in talking about ownership. 9 Q: All right. So that in those situations 10 where you have ownership, you would do the financing and be 11 the -- be the -- 12 A: We'd -- 13 Q: -- contracting party? 14 A: We'd be the lessor and -- in those cases. 15 Q: And, again, those are the situations 16 where you'd have to go to the investment committee? 17 A: That's correct. 18 Q: And you're assessing in all of that, the 19 risk factor for MFP and you're looking at -- at the 20 profitability, that sort of thing, of the deal? 21 A: That's correct. To make sure our -- met 22 minimum thresholds and we were not overly exposed to any one 23 client or any one type of equipment. 24 Q: Now, where it was a straight brokered 25 deal where MFP is simply being the middle person --

1 A: Right. 2 Q: -- if you will between the -- the 3 borrower and the lender, in those situation, I take it, that 4 -- that it wouldn't go to the investment committee because 5 there was no investment by MFP? 6 A: That's correct. 7 Q: And there was no need to worry about the 8 credit because MFP was not -- 9 A: On credit. 10 Q: -- on credit? 11 A: Right. 12 Q: At some point in time, you became aware, 13 I take it, that MFP was dealing with the City of Waterloo on 14 their Millennium Recreation Project? 15 A: Hmm hmm. 16 Q: And that was different than the parking 17 garage. When do you recall first becoming aware of -- of the 18 Waterloo Millennium Recreation Project? 19 A: Now, without checking back through 20 minutes of specific Board meetings which, you know, if it was 21 mentioned it would be there, my recollection would probably 22 be sometime in the summer. If this was -- as I recall, it 23 was September 2000, probably sometime in the summer. 24 I may well have been aware beforehand that 25 there were conversations, but I think it probably became more

1 of a reality in the summer. 2 Q: And when -- when you first became aware 3 of it, what was your understanding of the nature of the 4 transaction that was being contemplated with MFP and the 5 City? 6 A: My -- my understanding would have been 7 very general in the sense that we were dealing with the City 8 of Waterloo, that they had a millennium project and that they 9 were looking to fund that through a lease structure and that 10 we were working with them on it. 11 Q: All right. Now, at that point in time -- 12 A: As I say, a lease structure or a 13 structure that accomplished the same as. 14 Q: At that point in time, was it your 15 understanding that MFP would, in any way, own any of the 16 assets or was it just a straight brokered deal? 17 A: It was -- my understanding was that it 18 was a brokered deal or to be a brokered deal. 19 Q: So that in that -- in that sense, there 20 would be no -- no need to go to the Investment Committee? 21 A: That's correct. 22 Q: Or any credit committee? 23 A: Right. 24 Q: Or look at that? Indeed, I take it that 25 -- that that could all be done then without any Board input

1 or Board approval? 2 A: That's correct. 3 Q: Within the organisation with Mr. Robson 4 running this asset based financing group, what was -- what 5 was his role in bringing those things or not bringing them if 6 there was a presentation to be made; would he be the one that 7 did it or would it be someone else from MFP to the board? 8 A: I don't recall any presentation. There 9 might have -- there could well have been one say on an annual 10 basis to talk about what the nature of the clientele was or 11 the nature of the business had been. 12 But it would have been more for Board 13 information than for any sort of a review of a specific 14 transaction. 15 Q: I take it that -- that Mr. Wolfraim, as 16 the President and CAO -- or CEO, I'm sorry - 17 A: CEO. 18 Q: -- would have been reasonably in contact 19 with you on a daily basis almost? 20 A: I -- let's just say in reasonable 21 contact, yeah. 22 Q: All right. 23 A: Daily might be stretching it. 24 Q: Right. And -- and what sort of 25 information did Mr. Wolfraim bring to the Board?

1 A: Well, the Board would meet, as I say, 2 quarterly, plus other meetings with budgets and for review of 3 the proxy circular. So there were probably six (6) or seven 4 (7) scheduled Board meetings and between those dates he would 5 also take it upon himself, if there was any development of 6 significance, either shareholder -- shareholding related or 7 corporate related, to stay in touch with the Board. 8 Q: Right. So that the -- the flow of 9 information of what was happening within MFP to the Board 10 would be to Mr. Wolfraim then? 11 A: Primarily, yes. I think my role as 12 chairman, where I would specifically be involved, would be on 13 ownership matters -- ownership of MFP matters; that would be 14 more my province. 15 Q: Were you familiar with a chap by the name 16 of Beau Pelech? 17 A: Yes. 18 Q: When did you first come to know 19 Mr. Pelech? 20 A: I would have known Beau, I guess, 21 initially, in the mid-90's. By that I'm guessing '95, '94. 22 Q: I take it that you knew him through your 23 business, that is Dominion Securities? 24 A: That is correct. Beau came to work for 25 Dominion Securities and worked with Dominion for, I think,

1 maybe two (2) or three (3) years. 2 Q: At some point in time he became an 3 independent consultant? 4 A: That's correct. He -- he went from 5 Dominion to Burns Fry and was there for a period of time and 6 then resigned from Burns Fry to become an independent 7 consultant. 8 Q: Was there any way, in your position, 9 Mr. McGrath, you got to see any -- any relationship between 10 Mr. Pelech and Mr. Robson, for instance? None? 11 A: Sorry. I was aware, I guess, I was 12 certainly aware that Mr. Pelech was doing work with 13 Mr. Robson. Sorry, yes. 14 Q: Okay. Within the company -- 15 A: Yes. 16 Q: -- at the board level, you'd know that 17 there was some working relationship between the two of them? 18 A: That's right. 19 Q: And what -- what role did Mr. Pelech play 20 in these transactions, as far as you knew? 21 A: He was a -- he was a -- a very skilled 22 financial engineer, I guess, would be the term that was used 23 in those days. He had -- he would have had a very good 24 knowledge of financial analysis. He would have had a good 25 knowledge of the Tax Act and he would have had a good

1 understanding of accounting treatment of different 2 transactions and he would have had a reasonably good 3 knowledge of the capital markets and, you know, what the cost 4 of funds were and what transactions were happening at that 5 time. 6 Q: I take it that -- that because he's 7 independent and not on the payroll, he's brought on depending 8 on the nature of the transaction? 9 A: That -- 10 Q: Deal by deal? 11 A: That would be my -- my understanding. 12 Q: Now, at -- at MFP was the board at all 13 aware of the remuneration structure of the sales people, that 14 is the commission that people got paid? 15 A: At the Compensation Committee, which met 16 annually to approve the compensation for the key officers, we 17 would have been made aware of the -- the general level of 18 remuneration of the sales people. 19 Q: And -- and I take it that -- that on an 20 annual basis then you'd see what their -- their production 21 had been? That is -- 22 A: That's -- 23 Q: -- Mr. Robson was responsible for this 24 deal and we ended up with X dollars as a result of that? 25 A: Right.

1 Q: And then you would look at that and 2 determine what his -- what either his compensation should be 3 or what his percentage rate should be? 4 A: No. What -- at the Board level that 5 would have been determined -- that was at the corporate 6 level, Mr. Robson's remuneration, as well as all the other 7 sales people. 8 What we looked at, at the Board level, would 9 have been Mr. Wolfraim, Mr. Wright, Mr. Flanagan, and -- who 10 were in the senior management and we would look at their 11 remuneration because that was at the board's discretion. 12 The other -- the sales remuneration was not. 13 Q: On -- on transactions where they actually 14 came to the Board, I take it that -- that, the compensation 15 or the profit, if you will, was a -- was a factor you looked 16 at. We're going to get X dollars out of this and then we'll 17 have to compensate, to a certain extent, the individuals 18 involved? 19 A: You know, I think, at the Board level, we 20 would generally have been presented the profitability, after 21 all costs, part of which would be remuneration. 22 Q: All right. And I take it, as well, when 23 an agency deal -- a straight agency deal was there, and 24 because the Board wasn't involved, the amount of the gross 25 revenue generated from that, would not be something the Board

1 would get, for approval? 2 A: No, we -- not for approval, and not for 3 information, necessarily, it would be more the net, for 4 information, but not for approval. 5 Q: All right. Were there any parameters 6 that the Board set, as to what ought to be paid? That is, we 7 should get 10 percent, we should get 5 percent, on all asset 8 based deals? Sort of set the policy, or was that something 9 that -- 10 A: No, that was -- no, the simple answer. 11 Q: All right. 12 A: Certainly, you know, in terms of 13 technology leasing, as I was saying before, you wanted to be 14 compensated for risk when you were making an investment, but 15 that's another consideration. 16 Q: Now, as -- as I've indicated, or, you've 17 indicated, at some point in time, in -- in 2000, you're aware 18 that there is a Millennium Recreation Project. And -- and 19 your understanding of the deal was that it was a straight 20 brokered deal? 21 A: Hmm hmm. 22 Q: All right. And as a straight brokered 23 deal, I take it that, the marketplace for the cost of money 24 would be what the marketplace is, that MFP couldn't -- 25 A: Right.

1 Q: -- give a better deal on that than what 2 the marketplace had? 3 A: Hmm hmm. 4 Q: Because there would be no tax advantage 5 to MFP, certainly, that -- that they could pass along to 6 anybody else. Am I fair? 7 A: On a brokered deal? 8 Q: On a brokered deal. 9 A: Basically, you would look at, I mean, 10 what you are is acting as a broker, so you would take the 11 cost of funds that you -- from your supplier, and that would 12 be one of the fixed elements. 13 Q: If we could go to the documents, now Mr. 14 McGrath. And Mr. Commissioner, I would indicate that we have 15 a very light volume, one (1) of one (1), for Mr. McGrath. It 16 has three (3) tabs, only. 17 A: This is the one (1) that I've been sent? 18 Q: Yes. 19 A: Okay. 20 MR. JAMES CASKEY: And that would be Exhibit 21 Number? 22 THE REGISTRAR: Sixty-nine (69). 23 MR. JAMES CASKEY: Sixty-nine (69)? 24 MR. COMMISSIONER: Yes, Exhibit 69. 25

1 (BRIEF PAUSE) 2 3 --- EXHIBIT NO. 69: Brief of documents for Mr. 4 McGrath, One volume. 5 6 MR. COMMISSIONER: Thank you. 7 8 CONTINUED BY MR. JAMES CASKEY: 9 Q: And Mr. McGrath, you'll see that -- that 10 this is a fax message that is sent, at Tab 1, to Mr. Robson 11 from John Ford, as the Chief Financial Officer of the City of 12 Waterloo. It's dated February the 18th of 2000. 13 A: Hmm hmm. 14 Q: And he's indicating to Mr. Robson what, 15 attached is a copy of the report circulated to Members of 16 Council, discussed and voted on Monday evening. If any 17 change needed to the recommendation, please advice as soon as 18 possible. 19 And, if you go to the first page, you'll see 20 that this is a draft report, that John Ford is putting 21 forward, and has sent to Mr. Robson, that Council authorize 22 staff to enter into an agreement with MFP Financial Services 23 Limited, to provide the financing required for the Millennium 24 Recreation Project. 25 Now, that's the recommendation going forward.

1 What, from MFP's perspective, would have to have occurred, 2 prior to this time, for -- for Ford to be able to go ahead, 3 make that commitment at the City, and have any implications 4 for MFP? 5 I mean, Robson -- 6 A: You mean -- sorry, in this specific case? 7 Q: Yes -- 8 A: I don't -- 9 Q: -- on this one? 10 A: Yes. I don't know. I mean, I don't 11 know what Mr. Ford's requirements were. 12 Q: No. 13 A: In a typical deal? 14 Q: Yes. 15 A: All right. 16 Q: Where would -- where would -- what 17 representations would Mr. Robson have had from the company? 18 How far could Robson go in soliciting this, and get a firm 19 commitment out of the City, is that I'd like to know? 20 A: If he had a firm commitment out of the 21 City, he would have had -- been required to have presented, I 22 presume, to the City, term sheets with specific rates that 23 would be agreed upon with the City. 24 Because one of the things in this particular 25 agreement is a -- what I would call rate protection and for

39
  1  anything of that nature, which is highly unusual to start
  2  with, for anything of that nature there would have to have
  3  been a very firm transaction. 
  4                 MR. COMMISSIONER:   When you say a "firm
  5  sheet," sir -- 
  6                 MR. JAMES CASKEY:   Term sheet. 
  7                 MR. COMMISSIONER:   Term sheet -- 
  8                 THE WITNESS:   Yes. 
  9                 MR. COMMISSIONER:   -- you mean a commitment
 10  letter? 
 11                 THE WITNESS:   Absolutely, at a minimum for
 12  this type of commitment.  
 13  
 14  CONTINUED BY MR. JAMES CASKEY: 
 15                 Q:   In the preamble here, in the fourth
 16  paragraph on the pa -- well, the third paragraph under
 17  "summary"
 18                   "MFP is a publicly-traded company providing
 19                   asset based financing for public and
 20                   private sector organizations"
 21  That's an accurate statement, I take it? 
 22                 A:   Correct. 
 23                 Q:   "They tailor financial solutions to
 24                   specific customers needs and provide
 25                   innovative financial thinking and

1 partnership with customers." 2 A: Correct. 3 Q: Again, that's correct? 4 "MFP provides off-balance sheet 5 financing ..." 6 Does that have any ring of accuracy for you? 7 A: Certainly, some of their financing would 8 be off-balance sheet, or operating lease financing. 9 Q: All right. 10 "... at rates well below traditional 11 debenture financing." 12 A: Only in the event there was some other 13 element, such as a tax advantage. 14 Q: All right. It says 15 "Although structured in the form of a 16 lease, the effective rates are even below 17 typical business lease rates" 18 Now, from your knowledge where MFP is merely a 19 broker, is that possible? 20 A: It would be if someone on the other side 21 was taking a tax advantage. 22 Q: I take it, it probably wouldn't be a 23 municipality? 24 A: No. I -- if -- it could well be a 25 municipality as the lessee. But if MFP were brokering it

1 between a lessor, who might have had a particular tax 2 requirement or tax -- tax appetite, if you will, that the 3 rate could have been below. 4 Q: All right. Then, at the bottom paragraph 5 "MFP staff have been examining the 6 Millennium Recreation Project, have been 7 working very closely with City staff to 8 develop a funding model to fit our exact 9 financing requirements. This will ensure 10 that funds are advanced to correspond with 11 our project milestones and match our cash 12 flow requirements thereby eliminating any 13 short-term funding costs." 14 Again, that's an accurate statement? 15 A: That would be an accurate statement. 16 Q: All right. At the top of the second 17 page, it says on the repayment side, 18 "...model being developed which could match 19 annual lease payments to operational cash 20 flows." 21 Again, one of the things that MFP, I take it, 22 prides itself in is the knowledge and the ability to do that? 23 A: That would be the objective. 24 Q: "... for the Millennium Recreation 25 Project. This means that annual payments

1 under the lease agreement could be 2 structured to match the business flows and 3 increase over the years as the use of 4 facilities peaks and as operational 5 efficiencies materialize." 6 Again, one of the things that MFP brings to 7 the table? 8 "The benefit for the City in this 9 innovative business approach, a smoothing 10 of the impact on tax levies during the 11 period that the Millennium Recreation 12 Project reaches its peak operational 13 capacity." 14 Once again, one of the things that MFP -- 15 A: Would be -- 16 Q: -- practiced? 17 A: -- Yes. 18 Q: Then this next paragraph, sir. 19 "In our discussions, MFP has been talking 20 about providing financing for the 21 Millennium Recreation Project at interest 22 rates in the low 5 percent range." 23 At that point in time, were you aware of any 24 way that MFP could provide financing at interest rates in the 25 low 5 percent range?

1 A: I wasn't aware of any. 2 Q: And if there had been a way to do that, 3 would you not think that the board and you, as the chairman, 4 would have known that? 5 A: Not really. If it's -- if it was a 6 brokered transaction. 7 Q: "The rate MFP uses and guarantees is tied 8 to the interest rate market, specifically 9 Government of Canada Bond Rates. It moves 10 as the market moves. The economy is 11 becoming a little more volatile now and it 12 appears that interest rates may be on the 13 move. In order to secure a guaranteed 14 rate, we require approval from Council to 15 proceed with formal negotiations. 16 Protection to the City is that should the 17 interest rates climb our rate will be 18 secured or locked in. MFP is also prepared 19 to guarantee that if interest rates go 20 down, that we would get the benefit of the 21 lower rate, so it's in our best interest to 22 lock in the rates as soon as possible." 23 Now, if the City of Waterloo has that 24 representation from Mr. Robson, that that's what's going to 25 happen, what would Mr. Robson have had to have from MFP in

1 order to make that representation? 2 A: Well, the -- the nature of that rate 3 protection would be very expensive to provide where there 4 significant cost, either to the company, or if it was 5 brokered to the institution who was providing the financing, 6 but if it were to come from MFP to guarantee the rate, 7 certainly that would have been a significant cost factor that 8 would have undoubtedly have gone to the Investment Committee. 9 Q: And, if that point in time -- this is in 10 February of the year 2000, that any of that information come 11 to the Investment Committee at MFP? 12 A: No. 13 Q: Okay. And, I take it that Mr. Robson 14 then couldn't make those representations without having gone 15 to the Investment Committee from your perspective -- 16 A: They certainly would not have been, you 17 know, recognized by the board or the company. 18 Q: Then, over on the next page, there are a 19 list of the accomplishments of MFP, and they talk about the 20 County of Essex in the City of Windsor -- Windsor Solid Waste 21 Facility, and under the Union Water for Kingsville/ 22 Leamington-Essex, those were deals that had gone through, and 23 transactions that had been successfully completed by MFP? 24 Do you recall the nature of those 25 transactions? Were they brokered deals? Or were they ones

1 where MFP put up the money? 2 A: I -- I believe if I go by memory here, 3 they were primarily brokered deals. There might have been an 4 element in the City of Windsor, County of Essex deal where 5 MFP made an investment and they -- a particular level of the 6 -- the overall project by way of a subordinated note, but 7 primarily these would have been transactions which were put 8 together away from the MFP balance sheet. 9 Q: I notice under the comments on the 10 customer side on the second bullet down, it talks about: 11 "MFP put a unique long-term financing 12 system in place to help the Municipalities 13 manage the expense, reduce the interest 14 rate we were paying, and save money in the 15 process." 16 And, that's from Bill Allsop of Kingsville, 17 the Deputy Mayor. That's one of the testimonials to MFP down 18 there, and a question I would ask you, is when he talks in 19 there about "reduce the interest rate we're paying", do you 20 know if that was, in fact -- did that in fact happen? 21 A: I -- no, I don't. I don't know what they 22 were paying, or -- and I don't know the rate of the -- the 23 deal. 24 Q: All right. If we go to Tab 2, please. 25 These are minutes of a meeting, and again I appreciate that

1 you probably didn't know of this meeting being held, but if 2 we could go to Tab 2, and page 1564, please, at the top? 3 And, you'll see that there's a number of 4 people are making presentations, and about two-thirds of the 5 way down, Dave Robson? 6 A: Hmm hmm. 7 Q: Vice-President of MFP Financial Services 8 is reflected in the minutes as having told the Council: 9 "MFP is 75 percent owned by six (6) 10 Canadian institutions, including one (1) 11 Bank, three (3) Insurance Companies, two 12 (2) pension funds, with 25 percent balance 13 being publicly traded on the Toronto Stock 14 Exchange." 15 I ask you how accurate that statement is? 16 A: Actually, directionally, it's accurate. 17 As to specifics, probably off a bit. 18 Q: Okay. Then he says: 19 "MFP's financing --" 20 A: It would -- it would not be misleading. 21 Q: No? 22 A: Let's just put it that way. 23 Q: Yes. And I take it, too, you'd 24 appreciate that that would perhaps give a -- potential 25 clients consummate comfort?

1 A: Some comfort. 2 Q: Some comfort, yes, because it's a 3 substantial comfort. And, then he goes on to say: 4 "MFP's financing solutions involve 5 providing the lowest possible cost of 6 funds, flexible repayment terms linked to 7 the project." 8 A: Hmm hmm. 9 Q: And -- and I -- I ask you, whether or not 10 that was one of the things that -- that MFP was noted for, 11 providing the lowest possible cost of funds? 12 A: I -- I think it's probably coupled with 13 flexible repayment terms, et cetera, et cetera. We were not 14 a company that had the lowest cost of funds, but we would 15 attempt to put a structure together that, in all of its 16 elements, fit the -- fit the customer. 17 Q: All right. If we then go to -- on your 18 desk, it's Exhibit Number 30, on your desk, it's from John 19 Ford, Tab 46, Volume 2 of 7. 20 MR. WILLIAM McDOWELL: Tab 36? 21 MR. JAMES CASKEY: Tab 46 of Exhibit 30. 22 23 CONTINUED BY MR. JAMES CASKEY: 24 Q: And you'll see there, Mr. McGrath, we 25 have a letter of February 24 of 2000. It's addressed to Mr.

1 Robson at MFP from Fred Dobbs, the Acting Clerk Solicitor for 2 the Corporation. And he's telling Mr. Robson, 3 "Please be advised that the Council of the 4 Corporation of the City of Waterloo, at its 5 meeting held on February 21, 2000, approved 6 the following resolution. That 7 Corporation/Finance 00-17 be approved and 8 that Council authorize staff to enter into 9 an agreement with MFP Financial Services 10 Limited, to provide the financing required 11 for the Millennium Recreation Project." 12 Then Mr. Dobbs says, 13 "A copy of staff report, Corporation/ 14 Finance 00-17, is enclosed for your 15 information." 16 So, if -- if Tab 1, which was the report that 17 Mr. Ford was sending off to Council, dealing with the rates 18 and what not, low 5 percent range, that sort of thing, if 19 that went to Robson at that point in time, and that appears 20 to be what's happening. 21 A: Hmm hmm. 22 Q: If -- if that information, about the 23 resolution is passed on to a potential lender, to say, here's 24 the resolution of the City that -- that were to be dealt 25 with, and if, in providing that to a potential lender, the

1 staff report was not enclosed, that is, all they got was the 2 first page of Mr. Dobbs letter, and didn't get the 3 enclosures, potential lenders would not know what was being 4 talked about, at that meeting. Or, in that report. 5 A: Hmm hmm. 6 Q: And the question I have for you is, would 7 there be any way that that should happen, knowing MFP's 8 personnel? 9 MR. WILLIAM McDOWELL: Well, that is 10 hopelessly hypothetical. 11 MR. COMMISSIONER: I don't think it's 12 hypothetical, at all. I think -- 13 MR. WILLIAM McDOWELL: Well, there hasn't 14 been any evidence as to what -- just so I can finish the 15 objection, there hasn't been any evidence as to what was 16 attached when it went to the lender and -- 17 MR. COMMISSIONER: I understand that. 18 MR. WILLIAM McDOWELL: Well then it's 19 hypothetical. 20 MR. COMMISSIONER: He can ask the question. 21 I want to make sure that the witness understands the 22 question. 23 MR. WILLIAM McDOWELL: Well, it's got about 24 eight (8) parts -- 25 MR. COMMISSIONER: Okay.

1 THE WITNESS: I can answer the part I do 2 understand. 3 MR. COMMISSIONER: Okay, why don't you finish 4 that answer and we'll come back to it. 5 THE WITNESS: I would expect that if MFP was 6 going to a lender with a project like this, that they would 7 want to illustrate to the lender that they had a mandate to 8 do so and I would look a letter like this exhibit -- John 9 Ford exhibit, as being a mandate -- proof of a mandate. 10 MR. COMMISSIONER: You'd expect to see 11 that -- that report shown to a prospective lender? 12 THE WITNESS: No, this letter. I wouldn't 13 necessarily expect that report to -- 14 MR. COMMISSIONER: All right. 15 THE WITNESS: No, I would have thought that a 16 lender might want to know that they were dealing with a -- an 17 agent who was authorized to deal. And this letter, the one 18 (1) paged letter, would be evidence of that kind of 19 authorization. That's what I -- 20 MR. COMMISSIONER: All right. 21 THE WITNESS: -- what I do understand. 22 MR. COMMISSIONER: Thank you. 23 24 CONTINUED BY MR. JAMES CASKEY: 25 Q: But I take it from that, you wouldn't

1 expect the enclosure, then, to go to the lender? 2 A: No. 3 Q: All right. 4 A: No, I wouldn't. 5 Q: All right. 6 A: No. It -- no, I wouldn't. Not 7 necessarily. 8 Q: Can we then go again -- 9 A: I -- I -- if I might just say, this was 10 February. This would be very early in the stage and I think 11 any lender would want to put his own mark on the transaction. 12 So it probably wouldn't have been relevant to a lender. 13 Q: If we then go to Tab 3 please? 14 A: Sorry. 15 Q: I'm back to Exhibit 69, I'm sorry. I do 16 that frequently I'm told, where I don't bother to announce 17 what I have done. 18 Back to Exhibit 63, Tab -- 69, Tab 3. 19 A: Okay. 20 Q: And this is a letter of the 26th of May, 21 2000 from Dave Robson to -- to John Ford. And he says 22 "As per your request, I would like to 23 update you as follows. MFP Financial 24 Services Ltd. is currently finalizing the 25 head lease, sub lease and associated

1 financing agreements with the Corporation 2 of the City of Waterloo's solicitor (City 3 of Waterloo hereinafter) to finance the 4 Millennium Recreation Project. MFP circled 5 rates and priced the transaction using the 6 30 year Government of Canada Bond which 7 closed February 22 at 5.78 percent based 8 upon our receipt of the Council resolution 9 passed February 21, 2000." 10 So, stopping there, what he's saying is we got 11 your resolution, we circled the rates and we've now got them 12 circled at 5.78. Now, for -- for Mr. Robson to have made 13 that commitment to Mr. Ford at the City of Waterloo what 14 would have happened at MFP to enable him to do that? 15 A: Well, that would imply that MFP had lined 16 up a firm transaction with the lender, that's what the 17 circling is, the general connotation and that either MFP or 18 the lender had locked in the rates at that point sometime 19 prior to May for a transaction that was going to be closing 20 in September which is quite unusual. 21 Q: Now, what would -- what would you, at the 22 Board level or at the Investment Committee level, have 23 received from a potential lender, have Mr. Robson presented 24 to you, what would you have seen by this time or think you 25 should have seen?

1 A: We would not -- we would not have seen 2 anything if it did not involve risk or investment. Had it 3 involved a -- just let me read through -- yep, I read the 4 second part after -- I mean, had this involved a rate 5 protection guarantee and if that rate protection had been 6 provided by the lender, we would not have expected -- I would 7 not have expected the board would see that, that would be a 8 matter between lender and borrower. 9 If MFP were being asked to guarantee the rate, 10 we would definitely have seen it. 11 Q: Now, when you take a look at that first 12 paragraph, Mr. McGrath, would you agree with me that it 13 appears that MFP is the lender? 14 "MFP circled rates and priced the 15 transaction" 16 A: No. I -- I read it differently. 17 Circling is generally something that you do with a funder. 18 Q: Right. So that you see here that MFP -- 19 A: So -- 20 Q: -- was not going to be part of it? 21 A: That's what I would read this. If they 22 had gone out to, you know, a life insurance company or a 23 pension fund. 24 Q: So if that's the case then you're a 25 straight broker?

1 A: Correct. Unless we take some other 2 element and, as I say, that would be rate protection possibly 3 but that would be highly unusual. 4 Q: The next paragraph 5 "Further, through a flow-through of our tax 6 benefit related to this transaction." 7 What would be a flow-through of "our" being 8 MFP's "Tax benefits related to this transaction"? 9 A: I don't know. 10 Q: Any way that you would know that MFP 11 could do that? 12 A: I wouldn't. 13 Q: All right. It says: 14 "MFP will achieve a minimum one hundred two 15 (102) basis point reduction from this cost 16 for the City of Waterloo by utilizing the 17 head lease/sub lease structure." 18 Again, that would take the interest rate down 19 from 5.78 to a minimum of five (5) -- 4.76. 20 Is there any way that you would believe that 21 that could be done at MFP? 22 A: Again, I wasn't aware of our tax position 23 allowing that, so I would say I was -- I was not aware that 24 that could be done. 25 Q: It says:

1 "If there is a further reduction in the 2 equivalent term of Government of Canada 3 bond weight upon closing, MFP will re-price 4 the transaction accordingly. 5 If there is an increase in the rate, MFP 6 will hold a circled rate for 180 days from 7 the date of circling." 8 Now, I take it that, if you read that, that 9 says, well, 180 days you're going to have that rate, and even 10 if the rate goes up, you'll have that rate. 11 A: That's -- that's what that did price, 12 yes. 13 Q: Now, I take it that then, would involve 14 MFP in a degree of risk? 15 A: Absolutely. 16 Q: Yeah. MFP would be committing to put out 17 money at a particular price, and would run the risk of the 18 market going up in values, as a result of which it would be 19 costing you money -- 20 A: Hmm hmm. 21 Q: -- to participate in this transaction? 22 A: That's correct. Right. 23 Q: Now, for that representation to be made, 24 what had to happen to MFP? 25 A: First, it would be a highly unusual

1 circumstance for that to happen. Is -- it's -- if we were 2 corporately doing that, I would think that would go to our 3 Investment Committee because of the nature of the risk. 4 Q: And you, in your experience as a Board 5 member, and as the Chairman of the Board ever seen a 6 transaction of that nature at MFP? 7 A: No, but we would do that, I'm sure, on 8 some of our regular technology lease financing -- 9 Q: Yes? 10 A: -- for shorter periods of time. I mean, 11 the -- the -- the consideration here is we're talking about 12 in February, a transaction that was, quote "circled" for a 13 September closing; that's a very long exposure. 14 If you were dealing in technology leases, I 15 would think it was probably not unusual to offer a customer a 16 rate for a, you know, a shorter period of time. 17 Q: Okay. But this isn't a technology deal? 18 A: No, this is -- this is a broker deal. 19 Q: Yeah, and it's an asset based deal? 20 A: Hmm hmm. 21 Q: Again, your experience with that type of 22 transaction, had you ever seen one like that? 23 A: Not in -- not for MFP to take that risk. 24 Certainly, those are -- I mean, those are 25 transactions that can easily done, but they would not

1 necessarily involve MFP. This would be the sort of thing you 2 could go to your bank and they would readily provide you with 3 that protection, but you would pay the cost. 4 Q: And -- and I take it that -- that by 5 saying you pay the cost, that there is a cost attached to 6 going into -- 7 A: Oh, absolutely. 8 Q: -- and -- and securing a rate of that 9 sort? 10 A: It -- to have the rate fixed at your 11 option, a prepared time, there's a definite cost. 12 Q: Yeah. And -- and is that because you 13 have to hedge? 14 A: That's correct. 15 Q: Right. Would you be good enough to tell 16 us what hedging is? 17 A: Well, I'm not -- I'm the one that's being 18 paid to -- to hedge, so I'm getting a little muggy -- 19 Q: Okay. 20 A: -- as the -- as the years go on, but -- 21 but generally what it means is that you enter into a 22 transaction which basically gives you the protection that if 23 interest rates were to move up, that the transaction will 24 provide you the compensation to -- to counter balance that 25 loss.

1 Q: Right. That would be with some other 2 institution, I take it? 3 A: Yes. It would be easily an -- another 4 institution, or it could be through operating the bottom 5 market. 6 Q: If you had to do something to off set the 7 potential of that happening, and -- and -- and there's a cost 8 attached to it? 9 A: That's correct. 10 Q: And, would it be fair to say that -- that 11 these terms that appear in that May 26th letter, are not 12 something MFP's asset based financing group could complete, 13 unless there was some form of tax structure in place? 14 A: That would be my observation. 15 Q: And I take it that -- that, from your 16 knowledge, you didn't have the -- the ability to -- to know 17 what that tax structure might be? As a Board member? 18 A: No, not as a Board member. 19 Q: All right. 20 A: I mean, it would not have come to us. 21 Q: Would Mr. Pelech have had that knowledge? 22 A: Yes. I mean, that was his -- his field. 23 Q: If you had seen a -- a rate come through, 24 as at 4.76, at that point in time, what would your reaction 25 have been?

1 A: What currency was it in? 2 Q: I take it -- 3 A: That's quite low. 4 Q: Very low. 5 A: Yes. 6 Q: All right. 7 A: No, I -- it -- it was, you know, I don't 8 recall what Government of Canada Bonds were, but I'm going to 9 assume they were around 6 percent, or 5.5 percent, at that 10 time. So anything below Canada's, would be very low. 11 Q: All right. And -- and, were you 12 familiar, in the lending business, were you familiar with the 13 debenture rates that were available to municipalities? 14 A: I -- only because of my previous 15 profession. 16 Q: All right. 17 A: Okay, not because I was a Board member of 18 MFP. 19 Q: Right. But -- but you brought some 20 knowledge with you, from -- 21 A: Sure. 22 Q: -- from RBC? All right. And -- and, 23 that municipalities have available to them, a debenture rate? 24 A: Correct. 25 Q: And what is your recollection of what the

60
  1  debenture rate would have been, at that point?
  2                 A:   Again, the variable there is what they
  3  call the spread over Canada's.  And that is a variable.  And
  4  that could be anywhere, just to pick a number from a half of
  5  1 percent above to 1 percent above.  Again, a function of the
  6  marketplace and of the creditor.
  7                 Q:   All right.  So that would -- that would,
  8  then, still be less than -- that what we call conventional
  9  borrowing rates?
 10                 A:   Again, but it's for a specific structure,
 11  a debenture structure?
 12                 Q:   Yes.
 13                 A:   When you say borrowing rates, you have to
 14  define your structure.
 15                 Q:   Well, all right.  Let -- let me say, 
 16  for -- for rates that you -- that you could arrange with
 17  Clarica?  For instance, MFP arranging with Clarica to put
 18  money up on a project, would be a particular rate, the
 19  debenturing would be less than that rate?
 20                 A:   You would think so, because the Clarica
 21  rate would be what we call private placement rate, which
 22  implies lack of marketability and in some cases, a highly
 23  individualized structure.
 24                 Q:   I take it that, for MFP to have gone into
 25  the marketplace and -- and locked in a rate that related to

1 the Government of Canada Bond rate, you'd have to know the 2 amount involved, of the -- 3 A: Absolutely. 4 Q: -- in the loan? You'd certainly have to 5 know the reasonable certainty of the commitment? 6 A: Hmm hmm. Absolutely. 7 Q: And, you'd have to be pretty well assured 8 that you're going to recover your costs? 9 A: Correct. 10 Q: All right. And all of those -- all of 11 those factors have to work in, together, and that's what, I 12 take it, the Investment Committee, and ultimately the Board 13 of MFP, would be looking at, in assessing any of these 14 transactions? 15 A: Yes. The -- the Investment Committee 16 would, in my experience, not have looked at a transaction 17 like this, but had one occurred, that is where it would be 18 looked at. 19 Q: And -- and, again, I -- I suggest, this 20 transaction, at no time, came before your Board? 21 A: No. 22 Q: And I -- for Mr. Robson to have put 23 together a deal, such as is shown in that letter of May 26th, 24 I take it, would have required him to put it through the 25 Investment Committee and the Board?

1 A: Absolutely. With that -- with that 2 commitment in it, and I -- I was never sure, when I looked at 3 this draft, was this a -- a letter that was actually sent? 4 Q: Yes. 5 A: Okay. 6 Q: The evidence is that -- that the letter 7 was sent and received. 8 A: Okay. 9 Q: Now, again, we're talking about the 10 procedure that would be -- 11 A: Hmm hmm. 12 Q: -- be followed. I take it that -- that, 13 a presentation would be made, presumably to the Investment 14 Committee, by someone and the question I have for you, would 15 that be by Mr. Robson or would that be through your 16 President? 17 A: Probably -- and, again, we're getting 18 very hypothetical, here. 19 Q: Yes, I understand. 20 A: And I do apologize because, first, I've 21 never seen a transaction like this come before -- first, it 22 would be a highly unusual transaction in the absolute sense. 23 I've never seen one come through MFP. 24 If it did come through MFP some of the 25 elements that you've mentioned would be the ones we'd be

1 concerned about. First, is the client committed to this 2 transaction? Is the funding in place? You know, what are 3 the precise terms? What is the cost being passed on 4 adequately? 5 And some of those, certainly Mr. Wolfraim 6 would have made the representations on that but it may well 7 be if, in terms of making sure the client was committed, that 8 Mr. Robson might have, and again, I'm being hypothetical, but 9 might have been brought in to explain the client's specific 10 commitment to the transaction. 11 Q: All right. If a presentation had come to 12 your investment committee and to the board that said $50 13 million, 30 years, 4.76 percent financing but we're certain 14 the deal is going ahead? 15 A: We would certainly want to know a firm 16 commitment from the lender of that rate because that was a 17 rate that could not be accessed in the marketplace. 18 Q: Right. So I take it that you would want 19 some -- something from the lender to say this is -- this is 20 the rate I expect and I want you to confirm that that's the 21 rate that's available? 22 A: Hmm hmm. 23 Q: Right. Now, you talked in terms, with 24 the Commissioner, of a term sheet and I take it that a term 25 sheet is something that -- that you would have by way of --

1 of a commitment, if you will, it's in the form of a 2 commitment from one of the lending institutions that tells 3 you how much you can get and the cost of it, among other 4 things? 5 A: That's jargon and in approaching an 6 institution you use -- the information would be referred to 7 in a number of ways. Certainly the term sheet would be part 8 of it; that sets out the terms of the transaction, the 9 financial terms. 10 There's also, in some cases, a so-called, 11 information memorandum which sets out the details of the 12 project and the economics of the project which, even though 13 it would be for the City of Waterloo and it was a very good 14 credit, might describe the project and some -- some 15 specifics. 16 There could be a commitment letter which would 17 be attached to that which would be a commitment on the part 18 of the lender to the specific terms that were mentioned, 19 either in the information memorandum or the term sheet. So 20 there's all getting at the same point of a mutual 21 understanding of the facts of the transaction and agreement 22 to them. 23 Q: Right. And I take it that -- that it's 24 equally as important for MFP to know that the lender -- or 25 the borrower fully understands --

1 A: Correct. 2 Q: As it is for MFP to know what the deal 3 is? That is, you don't want any mis-communication along the 4 way at all? 5 A: Typically, it would be a -- a process of 6 the parties working together through their legal counsel and 7 through their investment officers. 8 Q: And I -- as I understand, you didn't -- 9 you didn't get a proposal of this sort through Mr. Robson or 10 anyone else but, I guess, typically, those -- that 11 information would have to come to the investment committee in 12 some form, either -- 13 A: No. 14 Q: No? 15 A: Not -- not if we're not at risk. 16 Q: All right. 17 A: No. I'm saying only in that hypothetical 18 context of a transaction that MFP were being asked to make a 19 significant investment for rate protection. 20 Q: But -- but with rate protection it would 21 have to come to you? 22 A: Absolutely. 23 Q: All right. 24 A: In which case then, you would be looking 25 at all the elements of risk in the transaction to make sure

1 it was going to happen. 2 Q: And I take it as well that -- that simply 3 if it were going to broker a deal with those $50 million, 30 4 years, 4.76 percent, that wouldn't have to come to you unless 5 the 4.76 were guaranteed? 6 A: Correct. 7 Q: Once -- once you have a deal, that is it 8 comes to -- to the -- to the Investment Committee and all of 9 the criteria that you've said are in place and you've 10 approved it, does it then go from the Investment Committee to 11 the Board or does the Investment Committee make that -- that 12 commitment to go ahead? 13 A: This on a technology -- a technology 14 lease? 15 Q: Exactly. 16 A: Because that's all that came to the -- 17 Q: Yes. 18 A: -- Investment Committee? 19 Q: Yeah. 20 A: No. That would be a -- the main purpose 21 of the investment committee would be to give some oversight 22 that the major transactions were meeting the basic 23 guidelines, and they were acting on a -- it -- it was a joint 24 senior management and Board Committee. 25 Q: Okay. In a situation where you have a

1 straight agency matter, and it doesn't have to come to the 2 board -- 3 A: Correct. 4 Q: -- because there's no risk factor for the 5 Corporation, and there's no investment consideration, what 6 procedure did you understand was in place? 7 What had to happen? Who looked at it? What 8 oversight was there at MFP to...? 9 A: Now, I would think that the people 10 involved would be a combination of -- of not just Robson's 11 group, but sales management, certainly the legal team, who 12 would be quite involved. 13 Q: What was the composition of the sales 14 management team? 15 A: Well, by that I mean the sales manager. 16 Q: Is it -- was that someone other than 17 Robson? 18 A: It was -- oh, correct. 19 Q: Okay. 20 A: Michael Flanagan, Latterly (phonetic), 21 and I guess, prior to that, was -- there were two (2) or 22 three (3) other individuals. 23 Q: So, this wouldn't be something that Mr. 24 Robson could commit, and do all by himself in MFP. It would 25 have to --

1 A: But -- but again -- 2 Q: -- have some oversight? 3 A: But, I'm not sure what the commitment is 4 here. 5 Q: Well, let's suppose that he's gone ahead 6 with the City of Waterloo in accordance with that letter of 7 May 26th. 8 He's told them, you're going to get, for 180 9 days, I'll guarantee it at 4.76 percent financing, $50 10 million, 30 year term? 11 A: Well, if it was committing the 12 Corporation, that would come, as I say, direc -- directly to 13 the Investment Committee of the board, if it was committing 14 the company. 15 Q: Okay. But, he couldn't do that himself, 16 then? 17 A: No. 18 Q: All right. And what oversight was there 19 of Mr. Robson's activities at MFP? 20 A: That's what I was answering. That would 21 be the sales manager level, and CEO level, and, as I say, the 22 other participants in the process would be probably the legal 23 department. 24 Q: All right. And that, then -- once he 25 decides it's going ahead and turns it over to Legal, I take

1 it that all of those terms that are committed have to have 2 been vetted by somebody other than just Dave Robson? 3 A: That's right. It typically, these are -- 4 would be trans -- transactions that would be developed as 5 they -- along the way. They -- it wouldn't -- it wouldn't be 6 a -- a situation where it would go to a certain point, and 7 then you'd hand it over to legal. 8 There would have been a -- a partnership, if 9 you will, through the piece, once it got to a certain stage, 10 I would think. 11 Q: All right. So, if I were looking for a 12 paper trail, if you will, there would have to have been a 13 number of documents, I take it, that were exchanged up the 14 line to get approvals, and then down with directions to carry 15 out the work? 16 A: If there was any -- such a commitment, 17 right. 18 Q: Over that summer of the year 2000, what 19 was your understanding of what was going on between MFP and 20 the City of Waterloo? 21 A: I -- I honestly can't remember -- as -- 22 specifics other than perhaps an awareness of transaction. 23 It wasn't a high profile, you know, corporate 24 event. 25 Q: All right.

1 A: That I was aware of. 2 Q: All right. In terms of borrowing $50 3 million, is that a significant amount in MFP's eyes? 4 A: Borrowing by MFP? 5 Q: Yes. 6 A: It -- if -- if MFP was the borrower, it 7 certainly would be. 8 Q: All right. 9 A: But if they were brokering a transaction, 10 no, not necessarily. 11 Q: So it wouldn't be something that 12 necessarily would come to the attention of the Board at all, 13 even by the way of interest, as to the amount involved? 14 A: Not -- not because of the amount. 15 Q: Schedules of payments, I take it, are not 16 something that comes to the board, unless the board is the 17 one that's going to make the payments? 18 A: That's correct. Or receiving the 19 payments to receive them. It depends, but if we were a 20 principal in the transaction, we would want to have the 21 assurance from the investment committee that the transaction 22 met all the requirements. 23 Q: This transaction went through, if you 24 will, by way of the City of Waterloo signing the -- the head 25 lease and the sub lease on the 25th of September, as you've

1 been aware. 2 At -- at any time prior to that, would you 3 have been aware, the amount of money that MFP was going to 4 receive by way of compensation or remuneration, in the 5 transaction? 6 A: I don't believe so. 7 Q: All right. 8 A: Not that -- it doesn't come to mind. 9 Q: All right. At some point in time, would 10 it come to the Board as to the -- the generation of revenue 11 or -- or compensation, that actually came to MFP because of 12 this transaction? 13 A: That would probably be reported in more 14 summary form, at the end of the fiscal year, which would be 15 March 31st. 16 Q: So it wouldn't be until, perhaps, March 17 of -- of 2001? 18 A: Depending on -- and again, it would 19 depend on when the income was taken into the accounts, and -- 20 Q: All right. In this particular 21 transaction, prior to March 31st of 2001, were you aware of 22 the amount of money that MFP made on this deal? 23 A: No. 24 Q: Were you aware of the amount that Mr. 25 Robson was paid by way of commission?

1 A: Not prior to that date. 2 Q: Were you aware of any money that was paid 3 to Mr. Pelech? 4 A: No. 5 MR. JAMES CASKEY: Between the -- the -- just 6 wondering about timing, I'm about to start on another area of 7 endeavour? 8 MR. COMMISSIONER: How long are you going to 9 be? 10 MR. JAMES CASKEY: Oh, I will be probably 11 another half hour. 12 MR. COMMISSIONER: Okay. Then, before you -- 13 we will -- we will recess, but before we do, while we're on 14 the same topic, I've got a couple of questions I'd like to 15 ask the witness. 16 THE WITNESS: Sure. 17 MR. COMMISSIONER: Mr. McGrath, if I refer 18 you, again, to Tab 3 of -- of Exhibit 69? 19 THE WITNESS: Yes. 20 MR. COMMISSIONER: That's a letter dated May 21 the 26th, 2000. 22 THE WITNESS: Hmm hmm. 23 MR. COMMISSIONER: And there's been quite -- 24 you've had quite a bit of discussion with Mr. Caskey about 25 it. But I was wondering whether or not, at that point in

1 time, given the circumstances and the content of this letter, 2 if you would normally expect there would have been a payment 3 of a commitment fee, or the existence of a commitment letter, 4 or both? 5 THE WITNESS: If -- yes, I mean, not -- not 6 necessarily a commitment fee, that -- that would not 7 necessarily have been the case. But if there had been a true 8 commitment, you know, made for this financing, at these 9 rates, I would expect that there would have been a commitment 10 letter. 11 MR. COMMISSIONER: Okay, thank you. Now, 12 you've indicated that -- that, in your interpretation of this 13 letter, when you look at it, it does not appear to you that 14 MFP is -- is principal. 15 THE WITNESS: That -- that, I just took from 16 the terminology -- 17 MR. COMMISSIONER: I -- I understand, I'm not 18 critical of that. 19 But if -- if MFP is not the principal, then 20 some other lender is the principal. 21 THE WITNESS: Hmm hmm. 22 MR. COMMISSIONER: Would there be a 23 requirement, in your experience, for the payment of a 24 commitment fee, at that point in time? 25 THE WITNESS: By the lender?

1 MR. COMMISSIONER: By the -- 2 THE WITNESS: By a -- 3 MR. COMMISSIONER: By the borrower? 4 THE WITNESS: No. 5 MR. COMMISSIONER: So the borrower could -- 6 would not have to put up any money, MFP would not have to put 7 up money as the agent, so to speak, and -- 8 THE WITNESS: I would -- I would not think 9 so. 10 MR. COMMISSIONER: Okay, that's fine. Thank 11 you. One (1) other question, if I can remember it. 12 13 (BRIEF PAUSE) 14 15 MR. COMMISSIONER: Oh, yes. There was some 16 conversation between you and Mr. Caskey, with respect to the 17 head lease and sub lease in this particular transaction, 18 having been signed by the City on September the 25th. 19 Now, I understand that your interpretation, 20 that MFP would not be a principal -- 21 THE WITNESS: Hmm hmm. 22 MR. COMMISSIONER: -- in this transaction, 23 given the circumstances that you've seen. But, does it -- 24 does your -- do the circumstances change, in that regard, 25 where it appears that MFP itself is a party to the lease?

1 In other words, is the head lessor and the -- 2 I'm sorry, the head lessee and the sub lessor? I don't mean 3 to confuse you. 4 THE WITNESS: Well, you did. 5 MR. COMMISSIONER: Okay. Well, let me try it 6 again. Let me try it again. 7 THE WITNESS: But I -- I think I know. 8 Circumstances could change where MFP is a -- as I think I 9 indicated, I think, in essence, Windsor to get the final deal 10 transacted, I believe there was a need to put up a portion of 11 the fee by way of a subordinated note which made MFP a 12 principal. 13 And that probably was just at the end of the 14 -- the process in order to get the transaction concluded. 15 MR. COMMISSIONER: Well, in this transaction 16 it appears to you there is -- there is incorporated into the 17 lease documents, as you'd probably expect, an assignment 18 right, but MFP is the party signing these lease documents, 19 both firstly as the head lessee and then secondly, as the sub 20 lessor. 21 THE WITNESS: All right. 22 MR. COMMISSIONER: I'm just curious as to 23 whether or not that -- whatever the obligations are that 24 might be created for MFP because of that, if that's something 25 that would come to your -- would have to come to your

1 Investment Committee or your Board to authorize this to 2 happen? 3 THE WITNESS: Only if it involved corporate 4 exposure and the board would have relied on senior management 5 in assessing that and deciding that there wasn't exposure of 6 any type, financial, legal or whatever. 7 MR. COMMISSIONER: In this case, as far as 8 you're concerned, there was no corporate exposure? 9 THE WITNESS: There was certainly no 10 reporting to the board on that, so -- 11 MR. COMMISSIONER: All right. Thank you. 12 THE WITNESS: -- that was the principal. 13 MR. COMMISSIONER: We'll take fifteen (15) 14 minutes. Thank you. 15 THE REGISTRAR: The City of Waterloo Judicial 16 Inquiry now stands adjourned for fifteen (15) minutes. 17 18 ---Upon recessing at 11:33 a.m. 19 --- Upon resuming at 11:55 a.m. 20 21 THE REGISTRAR: The Inquiry will resume. 22 Please be seated. 23 MR. COMMISSIONER: Thank you, Mr. McGrath, 24 please have a seat again, please. 25 THE WITNESS: Okay.

1 MR. COMMISSIONER: Mr. Caskey...? 2 MR. JAMES CASKEY: Thank you, Commissioner. 3 4 CONTINUED BY MR. JAMES CASKEY: 5 Q: Mr. McGrath, just before the break, The 6 Commissioner was asking you some questions that -- I'd like 7 to follow up on one if I can. 8 For a transaction to actually go to the legal 9 department of MFP, that is, when we look at -- at Tab 3 of 10 your material at Exhibit 69, May 26th, when Mr. Robson says, 11 "MFP is currently finalizing the head lease 12 sub lease." 13 What process, what stage is any deal at, for 14 it to go to that stage? 15 A: Again, this is an observation, not -- 16 Q: I understand. 17 A: -- based on knowledge. But I think, if 18 this letter -- if a -- if a commitment was in place, as 19 implied by this -- this letter, there definitely would have 20 had to have been a significant amount of documentation 21 developed. 22 Q: All right. And where would that 23 documentation develop, within MFP? To your knowledge? 24 A: To my knowledge, it would develop, I 25 guess, jointly, with our legal staff and with Waterloo's

1 advisors and to a degree, I think because of the nature of 2 this commitment, also to Clarica. 3 That there would have been a team working on 4 this, and all on the same page. 5 Q: All right. If I can take you to Mr. 6 Ford's book, which is Exhibit 30, and go to Volume 4 of 7? 7 It should be -- 8 A: I don't think I have that. 9 Q: You do not have 4 of 7 there? 10 A: Maybe this is it, yes. Yes, I do, yes. 11 Q: All right. And if you could -- go if you 12 would, please, to Tab 123? 13 A: Okay. All right. 14 Q: And at Tab 123, you will see a head lease 15 and then if you go to Tab 128, you'll see a sub lease, and 16 these are the documents that, when the Commissioner was 17 saying that, MFP, as the lessee on the head lease, and the 18 lessor on the sub lease. 19 If you look at those documents, Mr. McGrath, 20 that seems to be, MFP is the only party to those documents. 21 Am I -- is that fair? That you don't see anybody else's name 22 on those -- the head lease and the sub lease? 23 A: I would hasten to say, I've never seen 24 these. 25 Q: All right.

1 A: I'd have to read them through to see what 2 the assignment privileges are. 3 Q: Now -- but okay. Let's -- let's -- 4 assuming there are assignment privileges, right? 5 MR. COMMISSIONER: Well, why don't we -- why 6 don't we go to them, so that the witness can see them. The 7 assignment -- can you give me a help? 8 MR. JAMES CASKEY: Yes. 9 10 (BRIEF PAUSE) 11 12 MR. JAMES CASKEY: If you go to Section 9.1, 13 that's on page 7. 14 MR. COMMISSIONER: Is that the head lease? 15 MR. JAMES CASKEY: Of the -- of the head 16 lease and you'll see that, it talks about, assignment by 17 lessor and then at 9.2 on page 8, assignment or subletting by 18 lessee. 19 Then if you go to -- 20 MR. COMMISSIONER: It's Article 10 in the sub 21 lease. 22 MR. JAMES CASKEY: It's Article 10 in the sub 23 lease. 24 25 CONTINUED BY MR. JAMES CASKEY:

1 Q: But -- but assuming that you've got the 2 absolute right, Mr. McGrath, to assign these, that MFP does? 3 A: Hmm hmm. 4 Q: But -- but, when MFP becomes a party to 5 both the head lease and the sub lease, aren't they committing 6 themselves to that line of endeavour, and without any 7 assignment, are creating risk and responsibility? They're 8 entering into a contract, and it's a contract that involves 9 $50 million. 10 Isn't that something that -- that has -- has 11 implications for MFP, that ought to have gone through an 12 Investment Committee, and gone to the Board? 13 A: Unless there was an assignment for it. 14 Q: All right. Now, let's assume that -- 15 A: Of which I don't -- I don't know what the 16 structure is, I -- I haven't seen these documents before, 17 so -- 18 Q: All right. Let's assume that the plan is 19 always to assign, would you not have to have an absolutely 20 firm commitment, with -- with the party to whom it's to be 21 assigned, in place, before you started the process of even 22 drawing the leases? 23 A: Well, in a private placement, typically, 24 everything falls in place at the end. And it's a process of 25 working along different avenues, all towards a common goal.

1 So, I wouldn't find that unusual in capital 2 markets, to have a variety of -- of endeavours working 3 towards a -- a closing. 4 Q: All right. 5 A: And, everything being done in the context 6 of all the steps having to fall in place. 7 Q: Would -- would you want the step of the 8 assignment, then, and that commitment to be in place before 9 MFP actually signed the leases? 10 A: As I say, I -- I think that you have to 11 look at a transaction, and see if that was the intent that -- 12 when the deal was closed, or as it was closed, and it was 13 being assigned, that that would all be part of the -- the 14 process, and therefore, there wouldn't be a risk. 15 Q: And -- and -- and not a risk that had to 16 be assessed by -- 17 A: -- by the Investment Committee. 18 Q: By the Investment Committee. 19 And who -- who would have made that decision 20 at MFP? 21 A: In terms of -- I -- I would assume that 22 our legal department would look at this. If -- if MFP had 23 signed this, it would be looked at in the context of -- of 24 what our legal rights were in terms of assignment. 25 Q: Right. And -- and who --

1 A: I'm assuming. 2 Q: All right. 3 A: Because I haven't seen these before. 4 Q: Right. Would -- would that, then be a 5 decision made solely by the legal department, or would it be 6 a decision made by someone other than the legal department? 7 A: No, but I think that it -- it's 8 ultimately a Corporate -- it would be a Corporate decision to 9 sign things, and the CEO would look to the legal department 10 to give him advice on the documentation, that it's in order. 11 Q: And, at what point in time -- that -- 12 that's when it comes down to signing? 13 A: That's what I thought we were asking. 14 Q: Well, yeah, okay. 15 Well, what -- what about back in May, when -- 16 when they're in the process of finalizing the head lease and 17 the sub lease? 18 A: Is that the date in this -- 19 Q: May 26th is the letter -- 20 A: Well, I -- I -- 21 Q: -- that Mr. Robson sends, and he talks 22 about finalizing the head lease and the sub lease. 23 A: But I was just -- but -- on this Exhibit, 24 what's the date? 25 Q: 25th of September.

1 A: Okay, so. 2 Q: Back on the 26th of May when -- 3 A: I don't -- what was in existence then? I 4 don't know, okay? I -- I -- that's -- my -- 5 Q: All right. 6 A: I don't know what documentation was in 7 existence then. 8 Q: Right now, now, and getting to that -- 9 A: Okay. 10 Q: -- what should have been in existence, 11 from your perspective? 12 A: From which perspective? The Board's 13 view? 14 Q: Board member. 15 A: Well, I don't know that. 16 Q: All right. That would then be in the 17 hands entirely of the administration? 18 A: That's correct. 19 Q: All right. And, who in the 20 administration would be the one (1) that would be 21 responsible? 22 A: Quantitably (sic), the CEO is responsible 23 for, you know, our corporate operations. 24 Q: Now, as I've indicated to you, the -- the 25 head lease and the sub lease are executed by the Mayor and

1 the -- and the clerk of the corporation on the 25th of 2 September, and between then and about the 23rd of May of 3 2001, what is your recollection of anything that happened 4 with MFP and the City of Waterloo? 5 A: My recollection is dim. 6 Q: All right. Particularly, if I go to 7 another book on your desk, Exhibit 30, 5 of 7, Tab 154. 8 A: Hmm hmm. 9 Q: It's -- it's -- 10 A: Hmm hmm. 11 Q: -- a press release, I take it, where MFP 12 announces a new municipal financing worth $50 million. It's 13 dated December 12th of 2000. 14 A: Hmm hmm. 15 16 (BRIEF PAUSE) 17 18 Q: And, 19 "MFP Financial Services Limited of 20 Mississauga, Ontario, has completed a long 21 term $50 million lease financing agreement 22 with the City of Waterloo for this 23 municipality's new Millennium Park." 24 A: Hmm hmm. 25 Q: "The agreement of 28 year lease, that

1 aligns payments with park use over time is 2 new and innovative in its structure." 3 And then it goes on to provide additional 4 details on that page and on the next page. 5 Were you aware of this press release having 6 gone out, and -- and of that information being made public? 7 A: Oh, I would think so. 8 Q: Aside from that, was there any discussion 9 at -- that you were aware of in relation to the MFP Waterloo 10 relationship? 11 A: Not that I recall. 12 Q: All right. Now, you indicated that at 13 some point in time there had to be a co-ordinating of all the 14 players; that is, the City of Waterloo, MFP and the lender 15 being Clarica? 16 A: As I say, in a typical private placement, 17 that would be customary. 18 Q: Right. So I take it that you'd find it 19 rather odd if -- if Clarica was forbidden to in any way 20 communicate with the City of Waterloo in this transaction? 21 A: No. I didn't say that. 22 Q: No, no. I say, would you find it odd? 23 A: Oh, I thought you were telling me. 24 Q: No, no. 25 A: Okay. No. Well, depending whether there

1 were proprietary aspects it might well be, because that's one 2 of the delicate things when you're a middle person is your 3 proprietary products and interests. 4 Clarica -- and, again, I'm making a 5 supposition here, I don't know the facts, but Clarica were a 6 competitor as well as a supplier and there might well be some 7 aspects that, you know, would be viewed by MFP as 8 proprietary; that would not be unusual. 9 Q: So that to keep Clarica and the City of 10 Waterloo from talking to each other or knowing that the other 11 existed? 12 A: Could be. Again, I'm making a conjecture 13 here. 14 MR. COMMISSIONER: Well, in fairness, this 15 press release is dated December 12th, some almost three (3) 16 months after the transaction has closed, or after the leases 17 were signed anyway, and there is no mention made in the 18 document -- in the press release of any dealings with 19 Clarica? 20 THE WITNESS: Correct. 21 MR. COMMISSIONER: You don't find that 22 surprising? 23 THE WITNESS: No. I don't. Not really. I 24 would have thought Clarica's interest in the transaction was 25 on a -- to provide some debt financing.

1 MR. COMMISSIONER: And receive the payments. 2 THE WITNESS: And receive the payments. You 3 know, as distinct from being a business partner. 4 MR. COMMISSIONER: Okay. 5 THE WITNESS: That would be their intent. 6 7 CONTINUED BY MR. JAMES CASKEY: 8 Q: So, you'd be aware of that press release 9 having gone out, presumably? 10 A: Sure. 11 Q: Anything else that happened up until 12 about the 23rd of May of 2001? 13 A: Not -- not specifically that I can 14 recall. I mean, I certainly in awareness of it and, as a 15 matter of fact, I think that in our annual report the 16 transaction would have been mentioned and might even have 17 been showcased. 18 I -- I'm trying to recall whether that was the 19 case or not. 20 Q: All right. And at that time, I take it, 21 that you would, as a Board Member and as the Chairman, would 22 have ascertained how much money MFP made on the deal? 23 A: At that time, as I say, I think we would 24 have been into Compensation Committee. Our annual meeting 25 was September 30th, so the key point would have been the end

1 of May to meet with the Compensation Committee and to prepare 2 fora proxy circular which would have been sent out, probably 3 in June -- mid-June. 4 Q: All right. Did you know what 5 Mr. Robson's compensation scheme called for on a deal like 6 this? 7 A: No. I knew in a general sense that he 8 was entitled to somewhere between 20 and 25 percent, is my 9 recollection, of the net contribution of a transaction that 10 he was responsible for. 11 Q: Right. And did you know what the net 12 contribution of -- 13 A: No. 14 Q: -- the transaction -- 15 A: No. 16 Q: -- was? 17 A: No. I did not know specifically. 18 Q: At any time up until the story broke 19 about there being a problem here; did you know? 20 A: No. I would have made some assumptions, 21 but I would only have known actually when we met on June the 22 4th. 23 A: All right. What was your first 24 information that came to you, as the -- the chairman of the 25 board, of a problem with the Waterloo deal?

1 A: It was -- we had a Board meeting and I'm 2 grappling here, I've -- it was just after Victoria Day 3 Weekend when MFP would have had its Board meeting and, at 4 that time, that day, maybe the weekend before, there had been 5 a story in the local newspaper, The Record. 6 And Peter Wolfraim would have brought me and 7 the rest of the Board immediately up to speed on that -- that 8 article because it was quite a concerning article because it 9 talked about interest rates that were well below what, in 10 fact, could have been achieved on that transaction. 11 Q: All right. And what did Mr. Wolfraim 12 tell you, as the Chairman of the Board, and tell the Board, 13 from his perspective, and MFP's perspective, was the problem? 14 A: Well, the problem was either we had a 15 newspaper article that was terribly wrong, or we had a client 16 who did not understand what payments they were making and 17 what the cost of funds were. And that, in either case, we 18 had to make -- take immediate steps to get that remedied. 19 Q: And, I take it that, toward that end, you 20 directed Mr. Wolfraim to set something up? 21 A: Didn't so much as direct him, I mean, 22 that was agreed, that was a logical agreement, was to put 23 that on the absolute front burner, to directly or indirectly 24 get in front of the City of Waterloo and clarify the -- the 25 contract that they'd entered into.

1 Q: And I take it that, there was a meeting 2 scheduled, then, for sometime in the future. Were you 3 advised of when that was going to be? 4 A: No, I -- but I was -- I -- I did put Mr. 5 Wolfraim, not on notice, but I did tell him that I was very 6 willing to join him in that meeting, and that we should have 7 it as soon as possible. And I'm not saying I, necessarily, 8 said, have it as soon as possible, but that was the 9 understanding that, at the earliest possible convenience, we 10 should be up here. 11 Q: All right. Were you aware that, on the 12 29th of May of 2001, two (2) representatives of the City of 13 Waterloo attended at the MFP offices in Mississauga, to 14 review this? 15 A: I was aware -- yes, I was aware -- 16 Q: All right. 17 A: -- of such a meeting, I wasn't aware of 18 who they were, but I was aware of -- that -- that they were 19 coming down to -- to meet. 20 Q: All right. And, at that point in time, 21 were you aware of who was to be there at the meeting, from 22 MFP? 23 A: I don't recall but I would presume that 24 it would have been David Robson and one, or more, of his 25 people.

1 Q: All right. And Mr. Pelech? 2 A: Could well have been there. 3 Q: All right. 4 A: In -- in fact, he was there, but I'm just 5 trying to go back to what have understood, at the time. 6 Q: All right. And who was Carmen Roberts, 7 to your knowledge? 8 A: I believe she worked for David Robson, 9 but I'm not sure. 10 Q: All right. And Leanne Fraser? 11 A: Leanne definitely worked for David 12 Robson. 13 Q: All right. Was there any thoughts, on 14 your part, when you heard there was going to be a meeting, 15 that someone else should be at that meeting, in addition to 16 Mr. Robson and Mr. Pelech and others; that is, someone more 17 senior in the organization, having regard to the information 18 you had received? 19 A: No, I don't think, at that point -- now, 20 mind you, I wasn't aware of who was coming down from the City 21 and I didn't review -- I don't think I was aware that that 22 was any sort of an ultimate meeting. I'd -- that was viewed 23 as more of part of this informational process, to make sure 24 that the client understood the -- the terms of the 25 transaction.

1 Q: All right. Would you have thought that, 2 at that meeting, on the 29th of May, the exact nature of the 3 transaction would have been conveyed to the City 4 representatives, from MFP's perspective? 5 A: I would think that that was probably a 6 meeting to determine what -- whether we had a problem or not 7 and whether the client had a problem or not. 8 I don't think I would have -- I mean, I'm 9 conjecturing again, what I might have thought at the time, 10 had I been aware of the meeting, but, no, I would have 11 thought that the main thing would be to determine, is there a 12 problem here, in a -- in a very broad sense. Not, you know, 13 do these individuals understand that, but is there a problem. 14 Q: All right. Following that meeting, on 15 the 29th of May, did any information come to you, between 16 then and the 4th of June, when you actually went to a meeting 17 in Waterloo, about what was discussed at that meeting? 18 A: I believe, and again, into conjecture 19 here, but I believe I would have been aware that there was a 20 problem, that the -- that the City did not have the -- that 21 we did not have the comfort that the City had the proper 22 level of understanding of the commitments that they'd entered 23 into. 24 I think I would -- had been aware of that, 25 because I know, it then became absolutely imperative to get

1 up to the City, at a senior level, as soon as possible. 2 Q: Do you recall who that information came 3 from, to you? That the City was -- 4 A: It would have been through Peter 5 Wolfraim. 6 Q: Through Mr. Wolfraim? 7 A: Yeah, I -- I would have not have 8 communicated with -- anyone else. 9 Q: Do you recall any specifics, that is, do 10 you recall that the City of Waterloo was informed at that 11 meeting that the rate was not 4.76? 12 A: No, I don't know what was -- I wouldn't 13 have been advised at what the particulars of that meeting 14 were. 15 Q: But, in any event, as a result of that 16 meeting, and the information that flowed from it, I take it 17 through Mr. Wolfraim, it became absolutely imperative that 18 you would go down and meet with the people from Waterloo? 19 A: Correct. 20 Q: Right. Was there any contact as far as 21 you knew with the people from Clarica at that point in time? 22 A: There had been a meeting that week, 23 again, going back to Board meeting, I think it -- there may 24 have been a meeting, you know, later in that week, and I 25 think, perhaps, even a subsequent meeting with Clarica to go

1 through the -- the payment streams. 2 Q: And had you been made aware of those 3 payment streams at that meeting at -- 4 A: No, I wasn't at that meeting. 5 Q: You weren't at it? 6 A: No. 7 Q: Were you made aware of it after the 8 event? 9 A: Just to the effect that it seemed to be a 10 satisfactory meeting with Clarica as to the payment streams. 11 Q: Right. That Clarica and MFP, at least, 12 seemed to be on all fours about the deal I take it? 13 A: Well, no, I -- as -- as to the payment 14 streams. 15 Q: That is the streams? 16 A: That -- that's my recollection. 17 Q: All right. 18 Now, at some point in time, a decision is made 19 that it's going to be June the 4th? 20 A: Correct. 21 Q: And, I take it that there would 22 discussion between you and Mr. Wolfraim about going down to 23 Waterloo to meet? 24 A: I think just -- my early discussion would 25 be as to my availability.

1 Q: All right. 2 A: And that this was a -- a top priority. 3 Q: How did you get down to Waterloo? 4 A: I drove down. 5 Q: All right. With Mr. Wolfraim, or by 6 yourself? 7 A: No, I drove -- I -- the meeting came up 8 that evening of the 4th, at dinner time. 9 Q: So you drove independently? 10 A: I drove independently. 11 Q: Right. Prior to you leaving to come 12 down, had there been any discussion with you and Mr. Wolfraim 13 about what was to be discussed, and the parameters of the 14 discussion once you got there? 15 A: Not that I can recall. 16 Q: All right. Was there any discussion that 17 rates were not an issue, and that all you should be talking 18 about would be payment streams? 19 A: No, I think that that's out of my 20 testimony, the comment -- that comment reflects more what the 21 practice in the leasing industry should be, that a lease is a 22 lease, and a debenture is a debenture, and they're different 23 things. 24 One is an interest rate explicit transaction. 25 The other's a structured series of payments, and that you

1 could get into difficulties if you tried to connote or lease 2 as a straight interest rate equivalent. 3 Q: Right. So, I take it that wasn't a 4 discussion that you and Mr. Wolfraim had? 5 A: No, I -- I think I was parroting my 6 understanding that a salesman shouldn't connote a lease as a 7 -- a -- the equivalent of a debenture financing. 8 Q: You've got to the meeting. What time did 9 you arrive? 10 A: Well, I -- I believe I would have left 11 home, say, 6:30 or so, so probably eight o'clock. 12 Q: Okay, and who was there from MFP? 13 A: Peter and David Robson and myself. 14 Q: At any time before attending that 15 meeting, had you seen this letter of May 26th at Tab 3 of 16 your -- 17 A: No. 18 Q: -- material? 19 A: No, I had not. 20 Q: Do you recall who was at the meeting from 21 Clarica? 22 A: There were three (3) individuals. Scott 23 McNabb I believe, was the senior person, and two (2) other 24 individuals that I did not know. 25 I didn't know Scott really, but I remem --

1 recall his name. 2 Q: And from the City? 3 A: The Mayor, and Tom Stockie, and John 4 Ford, and I think two (2) others. 5 Q: All right. 6 A: Total five (5), maybe six (6). 7 Q: Now, who led the discussion? 8 A: Well, I think that the discussion -- I 9 mean, the first point was that the -- that probably the Mayor 10 saying, we've got a problem here and, you know, here's -- 11 here's the -- I think there was a proposed press release that 12 the City was proposing to issue. 13 Q: Yes. 14 A: Now, I can't recall the exact context of 15 it because it didn't become relevant or it ceased to be 16 relevant as we got into the discussion. But the Mayor 17 indicated that there was a significant problem here. 18 That they had -- that the press were after a 19 story and until everyone knew the facts that, you know, we -- 20 we -- that we should try to get all the facts out so that the 21 story could be cleared up. 22 Q: Now, had you seen the proposed press 23 release before you got to that meeting? 24 A: I don't believe so. 25 Q: Right. And you did see the proposed

1 press release when you got there, I take it? 2 A: I can't recall. As I said, I can't 3 recall. But I recall the sense of it and it was a -- a 4 correction in the understanding of the rate. 5 Q: Right. The City thought initially the 6 rate was 4.76 but they now understand it's 5.45? 7 A: Okay. 8 Q: Right. And that too, I take it, was 9 wrong? It wasn't -- 10 A: Absolutely. Yes. 11 Q: Yes. So that press release couldn't go 12 out in that form -- 13 A: Right. 14 Q: So -- 15 A: So that made that academic. 16 Q: Yes. Now, we're going to get down to the 17 bottom of it. What was the City asking? Did they want to 18 know what rate they were paying? 19 A: Certainly. That was the whole objective 20 of the meeting was to determine that all sides understood the 21 transaction and what they had entered into. 22 Q: And -- 23 A: That it was not just rate. That was just 24 one element. 25 Q: Did, in fact, the Mayor ask specifically

1 about the rate? 2 A: I don't recall. 3 Q: Right. 4 A: I mean, it was certainly one of the key 5 elements of the meeting. I don't recall who asked. 6 Q: What was MFP's position as put forward by 7 Mr. Wolfraim in relation to that? 8 A: MFP's position was that the rate was not 9 the 4.7 or 5.4 but, in fact, that there had not been any tax 10 transaction which was part of the original -- part of the 11 discussion earlier that evening; that, in fact, it was a 12 conventional financing and that the cost of funds was seven 13 point something and MFP's margin was 1.2, I believe, and 14 therefore the rate was eight point something and that there 15 was -- you know, that was the irrefutable fact. 16 Q: Right. So I take it that from MFP's 17 perspective, this never was a tax deal? 18 A: I don't know that. I'm just saying it 19 wasn't a tax deal. The deal that was done wasn't a tax deal. 20 Whether when you were asking me before, whether there was a 21 structure, I'm not aware of, you know, back in the earlier 22 days, I don't know. 23 Q: In this transaction, going back in time 24 then, it wasn't a tax deal, it wasn't tax driven at the time 25 it was finalized?

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1 A: In September of '00; that's correct. 2 Q: Did you ascertain at any time from 3 Mr. Wolfraim, or anybody else, the point at which it was 4 always just a straight borrowing without any tax deal 5 involved -- any tax flow-through deal involved? 6 A: No. No. I mean that wasn't a relevant 7 question. 8 Q: And I take it that without it being a tax 9 deal in those terms, that there couldn't have been a rate 10 that was less than conventional? 11 A: Without -- that's correct. 12 Q: And I think you've indicated that that 13 was 7.7 from Clarica and you added on -- or MFP added on -- 14 A: I believe it was 1.2. 15 Q: Any discussion about whether or not that 16 could be changed? 17 A: Yes. I think we made the comment, I 18 think I, in fact, made the comment that there were two 19 elements to the transaction. One was Clarica's rate and the 20 other was MFP's profit and the only one that MFP could speak 21 to were its -- was its profit in terms of coming up with a 22 solution. 23 And I think we acknowledged at that meeting 24 that we had -- we were very concerned because we had a very 25 unhappy client.

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1 Q: And I take it that Mr. Robson contributed 2 something to this meeting? After all, he was the 3 salesperson. 4 A: Contributed something, yes. 5 Q: What did he contribute? 6 A: His -- his information, I guess, in 7 response, obviously he was asked for an explanation of a 8 transaction. And his line of explanation was that, the -- 9 the mandate that the City and MFP had, was to develop a 10 transaction that financed the Millennium Park, for the 11 required period of time, and without encroaching further on 12 tax revenues, beyond 1.2 million. 13 That that, in fact, was what people had 14 dedicated months of work to, and had achieved, and therefore, 15 no one should be unhappy. 16 Q: And I take it that, the 1.2 million in 17 taxpayer support, was what he said they worked to and they 18 arrived at? 19 A: No, not that they arrived at. Oh, sorry, 20 yes, that they accomplished that. 21 Q: That they accomplished that? 22 A: Yes. But I think, I don't know, but I -- 23 I just presumed that the 1.2 was a given factor, from the 24 City, to the financing. 25 Q: All right.

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1 A: That there had been some economic 2 analysis on the project, that came up with the fact that 1.2 3 was the appropriate number and it was affordable. 4 Q: All right. And I take it that, interest 5 rate, then, was irrelevant to the City of Waterloo? 6 A: At what point? 7 Q: Well, at the time that they entered into 8 the deal. If they fix the 1.2 million, wasn't it Robson's 9 position that interest rate wouldn't matter? 10 A: It could be, I don't recall. 11 Q: All right. 12 A: I don't recall him making a statement 13 quite as bla -- bald as that, but, I recall his major thrust, 14 as I say, being that the bottom-line mandate was to finance 15 the project within the 1.2 million. I don't recall him going 16 on to say the next part. 17 Q: But that would be a logical extension, 18 wouldn't it? If we can guarantee you 1.2 million as the 19 taxpayers base in this formula, then -- 20 A: Well, not if you're in the financing 21 business. I -- I think that, you know, things aren't as 22 simple as just one -- one variable. 23 Q: Right. 24 A: I think you also want to pass the test, 25 of you know, having a -- a reasonably compatible structure

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1 and interest rate, as well. 2 Q: Right. And so MFP people would all 3 understand that, because they're in the business? 4 A: Understand which? 5 Q: Understand what you've just said, 6 about -- 7 A: Yes. 8 Q: -- you have to have all the components 9 pulled together, can't be just one factor? 10 A: That's correct. 11 Q: And that the City of Waterloo isn't in 12 the finance business? 13 A: Well, that's -- that's another point. 14 Q: Or, apparently not? 15 A: Apparently. 16 Q: But in any event, Robson thought that 17 everybody should be just absolutely happy with the deal, as 18 it was put together. 19 What was the reaction of the -- 20 A: That's what -- sorry, you asked what 21 he -- 22 Q: Yes, isn't that right? 23 A: You asked what he contributed to the 24 meeting? 25 Q: Yes.

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1 A: He contributed that statement to the 2 meeting. I didn't -- I don't know what he felt. 3 Q: Okay. So, he said it but he might not 4 have meant it? 5 A: Don't know. 6 Q: Okay. What was the reaction of the 7 people from Waterloo, when they ascertained what the interest 8 rate really was? 9 A: Shock. 10 Q: And I take it that, at some point in 11 time, Mr. Ford absented the meeting and came back with an e- 12 mail, a message of some kind? 13 A: That is my recollection. 14 Q: All right. If we go to Exhibit 30, 15 again, Book 5 of 7? 16 A: Exhibit? 17 Q: Thirty (30), which is Mr. Ford's book. 18 A: I have different numbering, here. 19 MR. COMMISSIONER: It's Volume 5. 20 MR. JAMES CASKEY: Volume 5 of 7? 21 THE WITNESS: Yes, 130? 22 MR. JAMES CASKEY: Tab 160, the very last 23 Tab. 24 THE WITNESS: Oh, okay. 160. 25

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1 (BRIEF PAUSE) 2 3 THE WITNESS: Yes. 4 5 CONTINUED BY MR. JAMES CASKEY: 6 Q: All right. And, this is April the 5th, 7 that he's faxing a message off to Dave Robson saying, 8 "Attached is spreadsheet which sets out the 9 annual sub lease payments, as I understand 10 them. Please review and let me know if 11 these calculations are correct. If I am 12 wrong, please calculate the correct amounts 13 and send them to me. Thanks for helping 14 out my feeble math mind." 15 I take it that there were spreadsheets that 16 were produced, at that meeting? 17 A: Correct. 18 Q: And that, when Mr. Ford came back, it 19 demonstrated that there were two (2) different calculations 20 that one could make, to arrive at two (2) different numbers. 21 One at 112 million, approximately, the other at about 227 22 million? 23 A: I don't recall that. 24 Q: All right. Do you recall, then, at some 25 point in time, that Clarica had spreadsheets with numbers on

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1 them? 2 A: They -- they were the only ones at the 3 meeting with the spreadsheets. 4 Q: Right. When Ford came back with that 5 e-mail, did he come back with a spreadsheet at all? 6 A: I don't know. 7 Q: You don't recall? 8 A: I can't -- I can't recall. 9 Q: Okay. 10 A: I just recall that Clarica had the 11 spreadsheets that were shared with the -- with the meeting. 12 Q: And had Mr. Wolfraim brought with him the 13 spreadsheets -- 14 A: No. 15 Q: -- with any of the calculations? 16 A: No, he hadn't. He asked Clarica for the 17 spreadsheets, which were handed out at the meeting. 18 Q: And, it was apparent that those payments 19 when they showed a figure of about $220 or $227 million? 20 What was the reaction of the City of Waterloo at that point? 21 A: Shock. 22 Q: Is there any indication from any of them 23 that they'd ever seen that spreadsheet before? Or those 24 numbers before? 25 A: Certainly not from the Mayor.

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1 Q: The -- it approximately doubled that, 2 which they thought they had signed up for? 3 A: Yes. That's what they -- they stated. 4 Q: Would it be fair to say at that point in 5 time, it was clear to you that there was a very clear 6 problem? 7 A: That is correct. 8 Q: Okay. Was there any further discussion 9 after those revelations, Mr. McGrath, in relation to what to 10 do, or how to do it? 11 A: I think the name -- it was a -- at about 12 that time, I would have made the comment that we have an 13 unhappy client, and the one element we can address is the 14 profit, in terms of trying to restructure the -- the 15 transaction. 16 I could certainly recall that, and I can 17 recall the agreement of the group that let's work very 18 diligently and quickly to see if we can come up with some 19 sort of resolution, before, you know, more than a couple of 20 days passed. 21 Because what was pressing was a response to 22 the press or a public release on -- on the transaction, so 23 there was a -- a mandate to, you know, very quickly re- 24 examine and see if something could be come up, or could come 25 up with.

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1 Q: All right. Now, I take it that after the 2 meeting, you and Mr. Wolfraim and Mr. Robson left together, 3 and you then went to a Tim Horton's, am I right? 4 A: That is correct. 5 Q: All right. What was discussed at Tim 6 Horton's? 7 A: To my recollection it was that -- a major 8 point of discussion was, had these people from the City seen 9 these -- seen these payments. 10 I think anything else paled by comparison with 11 that question at that time. That was the -- the pressing -- 12 pressing issue. 13 Q: All right, and what were you told? 14 A: My recollection is that we were told that 15 yes, certain people had seen the payments -- the payment 16 streams, I should say. 17 Q: Okay, and what was the indication given 18 as to the acceptance or rejection of the payment streams that 19 Mr. Robson had -- 20 A: I think it -- it was a -- that wasn't the 21 question. The question was, was the client aware of the 22 level of payments required by the contract, and my clear 23 impression was that he felt they were. 24 Q: All right, and I take it you would have 25 assumed that the payment streams were a joint effort between

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1 the City of Waterloo and the MFP people? 2 A: Right. 3 Q: And, I take it it would have been of 4 great surprise to you to ascertain, if you had, that that was 5 not a joint effort between the two (2)? 6 A: Or, at a minimum, that -- that the City 7 would not have done the analysis themselves, or through an 8 advisor, to determine just what the payments were. 9 I -- I'm -- I would have regarded that as 10 customary, to say the least. 11 Q: I take it that at no time, up to this 12 point, had you ever been made privy to the financial 13 projections of Mr. Friedel at the City of Waterloo? 14 That is no -- 15 A: He -- he was one of the other -- one of 16 the other people there? 17 Q: Before he -- 18 A: No I -- 19 Q: I'm sorry. Not in preparation for the 20 meeting, or at any time -- 21 A: Not -- nothing I can recall on that. 22 Q: All right. I take it that all of the 23 financial modeling for this would have been done through Mr. 24 Robson, Mr. Pelech, or Mr. Douglas? 25 A: Certainly the financial modeling at MFP

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1 would have been done through that group. That would be a big 2 part of their -- their work on it. 3 Q: Would there be anyone else at MFP, 4 Mr. McGrath, that would be overseeing that or supervising 5 that and approving it, or ought to have been approving it? 6 A: Ought to is a -- is a word that, you 7 know, would not -- would not have been used at that time. 8 Ought to, perhaps, could have been the case. 9 But, in the normal scheme of things in 10 investment banking circles, you know, work like this is going 11 on continuously and there is normally the interchange between 12 parties to the transaction. As I say, there's more of a 13 co-operative effort in terms of developing the documentation 14 and the economics that both sides are on the same page. 15 Q: All right. Were you aware that MFP had 16 commissioned a credit search in so far -- a credit rating to 17 be done in relation to the City of Waterloo? 18 A: I -- I think I was. I was aware -- and 19 I'm -- I can't be 100 percent clear whether it was Waterloo 20 or some other credit, but it could well have been Waterloo. 21 And this was a -- maybe, perhaps because the City wasn't 22 credit rated. 23 I'm just going way back in -- in time now. 24 And the City may -- you know, that can be checked out 25 quickly, but if the City wasn't rated, that may have been

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1 viewed as constructive in terms of getting the particular 2 interest rate. 3 Q: All right. And if MFP isn't going to be 4 financially involved in this, other than as a broker and 5 getting a commission -- 6 A: Right. 7 Q: -- why would it commission a credit 8 review of the City of Waterloo? 9 A: Perhaps because Clarica -- in order to 10 sell the debt. I mean, which is what the broker does. That 11 may have been viewed as one of the constructive things to be 12 done is to commission a credit report to get a rating. 13 Q: Credit reviews come in, I take it; would 14 that be something that you would expect to be coming in to 15 just Mr. Robson or his group or would that be something that 16 would come in to others at MFP? 17 A: I would not comment on that. I -- it's a 18 fairly standard request of a rating agency. It is -- it 19 wouldn't raise any level of concerns or alarms. I mean, this 20 is what they're in business to do is to rate credits. 21 Q: So, if -- 22 A: Such that you could go to the capital 23 market and say, I have a single A low credit and that 24 deserves X rate. I mean, this is the way, you know, the 25 markets work.

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1 Q: All right. You've mentioned, on a number 2 of occasions, the City of Windsor. I take it that from the 3 standpoint of you as the chairman of the Board, this was a 4 similar transaction to that in Windsor? 5 A: With the one exception that I did mention 6 and that was my recollection is that in Windsor at the end of 7 the day MFP turned part of their commission into a 8 subordinated loan to the project in order to make the overall 9 economics work. 10 Q: All right. 11 A: That's the one exception -- 12 Q: And I take it that the Board was part of 13 the final solution in this matter when it was finally 14 resolved and settled? 15 A: No. The Board would have been advised of 16 it, at the time. I think this may even have pre-dated the 17 formation of the Investment Committee. I'm not sure on that 18 date, but, in any event, it was viewed as coming out of part 19 of the commission. It wasn't coming out of the capital of 20 the company. 21 MR. JAMES CASKEY: All right. Okay. Thank 22 you, sir. Those are the questions I have. 23 MR. COMMISSIONER: Before we continue, I have 24 one question I want to ask you, sir. There's been evidence, 25 I'm not sure if you've heard it before, but that the formula

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1 for -- there was a formula for the calculating the payment of 2 the amount of the rent payments under the sub lease. 3 The first five (5) or six (6) years were 4 spelled out month by month and then the latter 25 years were 5 to be calculated in accordance with the specific formula? 6 THE WITNESS: Right. 7 MR. COMMISSIONER: And that, technically, 8 what you told me earlier, was that -- that the -- you had -- 9 in the ordinary course of things, you'd expect MFP, as the 10 agent, and the City to have worked out -- worked out the 11 cost -- 12 THE WITNESS: Hmm hmm. 13 MR. COMMISSIONER: -- of the financing and so 14 forth. And would you -- would you be surprised that the 15 formula, itself, under the sub lease, would not be produced 16 to the City, until about five (5) minutes before the Council 17 meeting began? 18 THE WITNESS: Yes, I'd be -- I'd be very 19 surprised. That's just, going by my experience, not -- 20 nothing to do -- 21 MR. COMMISSIONER: Yes. 22 THE WITNESS: -- with this specific case. 23 MR. COMMISSIONER: And -- 24 THE WITNESS: And it might -- just to qualify 25 that a little bit, a lot of times, transactions are done and

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1 the final bullet hole is filled with the final rate, but 2 that's usually narrowed down to, you know, very small 3 variation. But that the basic homework would have been done 4 on the economics, would be what I would expect. 5 MR. COMMISSIONER: Okay. Fine, thank you. I 6 guess, are you going to go last? 7 MR. WILLIAM McDOWELL: Yes. 8 MR. COMMISSIONER: Okay. Mr. Stevens, do you 9 have any questions of the witness? 10 MR. KIRK STEVENS: Yes, I do, Mr. 11 Commissioner. 12 MR. COMMISSIONER: Just so you're -- 13 perhaps -- I'm not sure if you know who all the players are, 14 yet. 15 THE WITNESS: No, not yet. 16 MR. COMMISSIONER: Mr. Stevens represents 17 Clarica. 18 THE WITNESS: Okay. 19 MR. COMMISSIONER: Mr. McDowell, of course, 20 you know who he represents. 21 Mr. Stephenson and Mr. Paliare represent the 22 City of Waterloo. 23 THE WITNESS: Right. 24 MR. COMMISSIONER: And you've been 25 questioned, up until now, by Mr. Caskey as counsel to the

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1 Commission. 2 THE WITNESS: Thank you. 3 MR. KIRK STEVENS: Good morning, Mr. McGrath. 4 THE WITNESS: Good morning. 5 6 CROSS-EXAMINATION BY MR. KIRK STEVENS: 7 Q: Mr. McGrath, I take it that, to your 8 knowledge, MFP had many other institutional investors, aside 9 from Clarica, right? 10 A: To my knowledge, yes. 11 Q: There were insurance companies and 12 pension funds? 13 A: And banks. 14 Q: And in some sense, Clarica was even 15 viewed as a potential competitor to -- to MFP, on financing? 16 A: On some things. 17 Q: And, insofar as MFP was acting as a 18 middle man, MFP could be expected to take steps to protect 19 that position as a middle man, right? 20 A: Yes. 21 Q: You're aware of the major shareholders of 22 MFP? 23 A: I -- I was. I believe they're still the 24 same. 25 Q: You had no awareness of Clarica being the

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1 shareholder, did you? 2 A: That's a bit questionable. Mutual Trust 3 were a shareholder of MFP. I think they held 300,000 shares, 4 which I believe they subsequently sold. Whether they were 5 sold at that time, in total, I couldn't tell you. But I -- 6 that is one connection that I was aware of and that went back 7 a number of years. 8 Q: You're aware that Mutual Trust had some 9 shares, at some point? 10 A: Three hundred -- 300,000 shares of MFP, 11 at some point. 12 Q: In 1997, were you aware that they had any 13 shareholding -- 14 A: That's what I'm saying, I'm not sure of 15 where that shareholding stands, in terms of a precise date. 16 Q: To your awareness -- 17 A: That would be my best -- 3 percent. I 18 mean, it wasn't a dominant piece. 19 Q: Certainly, they didn't have enough 20 representation to have anyone sitting on the Board, did they? 21 A: No. 22 Q: Okay. And at some point, you're aware 23 that those shares were divested? 24 A: That's my understanding. Whether, in 25 fact, in total, I couldn't say, but I -- I'm assuming so.

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1 Q: If I could ask you to turn to Tab 2 of 2 Exhibit 69, which is your small booklet? And I'd ask you to 3 turn to page 1564? 4 Mr. Caskey had raised this with you, but in 5 looking down the page, the penultimate paragraph, 6 "Mr. Robson, Vice-President with MFP 7 Financial services, addressed Council and 8 advised that MFP is 75 percent owned by six 9 Canadian institutions, including one (1) 10 bank, three (3) insurance companies and two 11 (2) pension funds, with a 25 percent 12 balance being publically traded on the 13 TSE." 14 In response to -- to the question of whether 15 that was accurate, you stated that the general direction was 16 accurate. Is there anything that was inaccurate, in this 17 statement? 18 A: It's hard to say. I mean, it would 19 certainly be true that at least 75 percent of the company's 20 shares were held by institutions that fall into that 21 category, but one (1) question I had when I was asked was of 22 Acktion Corporation as to what sort of category they might 23 fall into? 24 They were a 30 percent shareholder. Their 25 predecessor had been a leasing company that CIBC had had some

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1 interest in, so you get into definitions of what is a hold -- 2 you know, what -- where you slot a holding company like that. 3 That was my one (1) thing. Lincluden which 4 was the other 30 percent, was very definitely a pension fund 5 manager, and, you know, whether there were two (2) or three 6 (3) insurance companies, I wouldn't know. 7 I would have thought, you know, that's, likely 8 -- that's quite possible, but I certainly would have though a 9 minimum of 75 percent was in the hands of institutions and 10 that -- that type. 11 Q: Acktion was one (1) of the two (2) major 12 shareholders -- 13 A: That's correct. That's correct. 14 Q: Now, I take it that the -- the overall 15 import of your testimony as to what MFP's Investment 16 Committee would see, was that that committee would only see 17 transactions where MFP itself was on the risk, right? 18 A: That would be true. 19 Q: And with respect to the Windsor 20 transaction, the only risk that accrued to MFP was through 21 the subordinated note, but that -- for that reason, it didn't 22 go up to the Investment Committee? 23 A: That's again, my recollection. It -- 24 because it came from the commission, if you will, or the sup 25 -- or the -- the profit, it wasn't coming from MFP's nominal

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1 resources. 2 Q: RBC Dominion Securities did have a 3 connection to the Windsor transaction. You're aware of that? 4 A: I am. 5 Q: At that time, was Mr. Pelech working with 6 RBC Dominion Securities? 7 A: No. 8 Q: He was not? 9 A: No, I -- he was not. I think just maybe 10 to clarify the record, my -- my memory -- I said Mr. Pelech I 11 thought left in the mid-90's. I think it was probably the 12 very early 90's that he left Dominion Securities. 13 Q: Were you aware that he was involved in 14 the Windsor transaction? 15 A: I would have been, yes. 16 Q: You -- so you would have been even -- 17 that means you were? You were aware of that? 18 A: Yes. 19 Q: Okay. All right. 20 A: I thought you said would you have been 21 involved -- aware. 22 Q: Okay, sorry. Okay. I just want to go 23 over -- from -- from the perspective of MFP obtaining funding 24 from an institutional investor like Clarica -- 25 A: Hmm hmm.

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1 Q: -- typically, the -- the transaction 2 would start off with discussions, and that would lead to a 3 term sheet, right? 4 A: On a specific private placement, yes. 5 Q: Right, okay. And, a term sheet is -- is 6 the -- it's not binding to your -- your understanding, right? 7 A: Right. 8 Q: It's just a description of the 9 transaction? 10 A: That's correct. 11 Q: And then, as the parties get more 12 serious, the next step is something called a commitment 13 letter. 14 A: Hmm hmm. 15 Q: Right? A commitment letter is a 16 commitment, so it's binding, and that -- that's your 17 understanding, right? 18 A: Correct. 19 Q: The commitment letters only have certain 20 conditions in it, is that your understanding? Is that -- 21 A: I -- I said that would be logical. 22 Q: Right. And -- and a commitment letter 23 certainly doesn't mean that the deal is closed, right? 24 A: No. 25 Q: Okay. And, then, finally, there is the

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1 final closing? Now, I'm going to ask you to assume the 2 following. As of September 25th, 2000, MFP had a commitment 3 letter from Clarica, right? 4 MR. COMMISSIONER: From where? 5 MR. KIRK STEVENS: Oh, you're -- 6 THE WITNESS: Oh, so I'm at -- 7 MR. COMMISSIONER: Sorry, I couldn't hear 8 your last -- 9 MR. KIRK STEVENS: As of September 25th, 10 2000, MFP had a commitment letter from Clarica? 11 MR. COMMISSIONER: From Clarica? 12 MR. KIRK STEVENS: Right, okay. That's the 13 first part of the -- the hypothetical. 14 MR. COMMISSIONER: Okay. 15 16 CONTINUED BY MR. KIRK STEVENS: 17 Q: And, then, on September 25th, MFP 18 actually signs the lease and the sub-lease with the City. 19 Now, at that point, it's gotten more than a 20 commitment letter with the City. It -- it has a firm, 21 binding, and closed transaction, right? 22 A: Okay, I'll assume that. 23 Q: You will assume that. Also assume that 24 there's no assigning of the lease and sub lease until October 25 4th to Clarica, so my question to you is between September

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1 25th and October 4th, MFP is on the risk, isn't that right? 2 A: Well, I haven't seen the -- you're asking 3 me to assume a commitment letter with conditions; what were 4 the conditions? 5 Q: I mean, I'm just asking you to assume 6 that there were conditions. I -- you know -- 7 A: Well, I'm -- 8 Q: Right. 9 A: I -- I trying to be accurate here. It 10 would be very much a function of those conditions as to 11 whether it was a -- a risk. 12 Q: My proposition to you is though that in 13 so far as you do not have a final closed deal, there would 14 always be some risk; even if it is the risk of corporation 15 like or the -- the funder, like Clarica, refusing to close 16 and then that would, of course, lead to litigation; right? 17 A: Hmm hmm. 18 Q: So even if there was a wrongful refusal 19 to close, MFP would still have some risk in that situation? 20 A: Right. I mean, that -- that could happen 21 if a lessee ceased to make the lease payments too. 22 Q: That's true. So, when you have a 23 transaction that's -- that's structured this way, in stages, 24 it doesn't all come together at once; right? 25 A: Sorry, I'm -- on these assumptions?

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1 Q: Yes. 2 A: On those assumptions? 3 Q: Yes. On those assumptions. 4 A: Okay. 5 Q: If those assumptions were the case, would 6 you have expected that that transaction would have been 7 brought before the Investment Committee? 8 A: That's a good question. Again, I have to 9 know much more than just those assumptions myself, as a Board 10 Member. I'd want to know what those conditions were and 11 whether these were in the ordinary course conditions. 12 Or whether these were conditions that had some 13 risk to them. And I -- I mean, you make judgements based on 14 levels, not just on, you know, absolute risk. That's what I 15 would say -- if -- I mean if there was a definite risk, you 16 know, let's say subject to markets over a week's time, that's 17 a risk. 18 Q: Okay. Now, you testified that you were 19 not aware of any tax-driven transactions involving the asset 20 based finance group; right? 21 A: No. I didn't say that. 22 Q: Okay. You did not say that? 23 A: No. I wasn't asked that. 24 Q: Okay. Well, were you aware of any tax- 25 driven transactions in the asset --

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1 A: I can't recall. 2 Q: You cannot recall that? 3 A: I cannot recall. There are various 4 transactions. I certainly can say with a certainty that 5 there wasn't in this case. But I -- I would be, I think, 6 hard-pressed to say that there were not tax-driven 7 transactions in other loans. 8 Q: Your understanding that the Windsor 9 transaction was that it was not tax-driven; right? 10 A: I don't think so. But I don't know. I 11 mean I -- that's not one I've reflected on and, from my 12 knowledge, I don't -- I don't recall anything of significance 13 of a tax -- from a tax standpoint. 14 Q: Well, what about the Union Water 15 transaction? 16 A: Yeah. No. I don't think that was. 17 Q: Did you have any awareness that anyone in 18 the asset based financing group was telling potential 19 borrowers that tax savings could result in a lower rate and 20 here I'm speaking -- 21 A: I wouldn't be surprised at that. Phrased 22 exactly as you put it, that, tax savings could result in a 23 lower rate. I think the proof would be are they available? 24 Can they be developed? 25 Is there a structure that makes those, you

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1 know, generates those savings that could be passed on? 2 Q: Well, were you aware that Mr. Robson and 3 his group was making -- were making representations to 4 municipalities that tax savings could be achieved? 5 A: I wasn't aware. As -- as a member of the 6 Board, no, I wasn't aware. 7 Q: As a member of the Board? 8 A: That's correct. 9 Q: Were you aware in any other way? 10 A: No, no. I -- I'm just saying that's what 11 I was, was a member of the Board. 12 Q: Right. 13 A: I was not aware. 14 Q: You were not aware? 15 A: Two (2) statements. But I'm not 16 surprised. You know, in the sense of that's normal stock in 17 trade is to see if there are tax advantages. 18 Q: But if there aren't tax advantages, you 19 certainly expect that MFP would advise the other party to the 20 transaction, that there weren't any? 21 A: I would. 22 Q: Especially after having raised that 23 subject with them? 24 A: Yes. And I would have thought that -- 25 that when you get into the development of the final terms,

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1 and the documentation, that that would all be explicit. 2 Q: Were you ever, at any time, shown 3 marketing material by Mr. Robson, or people in his group? 4 A: No. 5 Q: Now, I'll turn your attention to 2001, 6 the spring of 2001. There was a Board meeting just after 7 Victoria Day, and you were aware, and other people in MFP 8 were aware, of the stories in The Waterloo Record, I believe 9 that was your -- 10 A: Yes, that is correct. 11 Q: And at that point, you were not sure that 12 the City understood the transaction, I believe that that was 13 your evidence? 14 A: That's correct. 15 Q: And you knew that -- 16 A: We were sure that the paper didn't. 17 Q: That they were -- 18 A: We were concerned that it was not just 19 the reporter; that it was the client. 20 Q: So there was a possibility of confusion 21 on the part of the City? 22 A: Okay. 23 Q: And, you knew, then, that the interest 24 rate was a matter in controversy, right? 25 A: Yes.

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1 Q: And I believe you also said that, it 2 had -- maybe I'm paraphrasing you're evidence here -- it was 3 possible that the client also did not know the payment 4 stream? Did that occur to you, or others, at the time? 5 A: Well, certainly. I mean, one is -- 6 they're -- they're intertwined. So I think our concern was a 7 little broader than, you know, just two (2) elements. Our 8 concern was, did the client understand the transaction? 9 Q: But that certainly would have been part 10 of it? 11 A: Absolutely. 12 Q: And, the purpose of the June 4th meeting 13 was to ensure that everybody would be on the same page, 14 right? 15 A: Right. 16 Q: Clarica, of course, brought the payment 17 stream to the meeting? 18 A: Hmm hmm. Because they had been meeting 19 with the -- the City, I gather, earlier that day. 20 Q: Right. Tell me, did -- how did Mr. 21 Wolfraim and Mr. Robson arrive at the meeting? Did they 22 drive down together, or did they drive separately? 23 A: I believe, together, but I'm not sure. 24 Q: You're not -- 25 A: You know, certainly, I -- I think -- I

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1 recall how I drove and I can recall meeting them somewhere 2 close to City Hall, because I -- as I got off, what is it, 3 Highway 8, because I needed some direction. So, that's -- 4 whether Mr. Wolfraim did the same thing, I don't know, 5 whether they came together. 6 Q: Well, I think you testified Mr. Wolfraim 7 didn't bring the payment stream spreadsheet -- 8 A: Right. 9 Q: -- to the meeting. And neither did Mr. 10 Robson, right? For the record, I think you have to -- 11 A: No, sorry. Yes -- no, that's -- you're 12 quite correct. 13 Q: Did it ever occur to you, at any time 14 after the meeting, to ask either Mr. Wolfraim or Mr. Robson 15 why they didn't bring the spreadsheet, with the correct 16 payment streams, to the meeting? 17 A: No, it didn't. I mean, the meeting came 18 up so quickly, you know, a call at 6:30 at night. The main 19 thing was to get down in front of the -- I mean, the -- the 20 interest rate was patently, you know, I won't say obvious, 21 but that information was -- was clearly available. 22 Q: I believe that you testified that you 23 were aware that late the previous week, the very last few 24 days of May, either May 29th, 30th or 31, there had been a 25 meeting between MFP and Clarica.

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1 And your understanding of that meeting was 2 that they were to go over the payment streams? 3 I believe that was your -- 4 A: That's right. I think there were two (2) 5 meetings. I believe there was first a meeting with -- with 6 Scott McNabb and Peter, and that set up a second meeting with 7 Clarica people, with MFP people, to go through the 8 transaction, which happened the following week. 9 And, I'm not sure whether there was one (1) or 10 two (2) meetings -- 11 Q: Okay, that's fine, I understand -- 12 A: -- I guess you'll have to ask people from 13 Clarica but -- 14 Q: My question is, were you ever told that 15 Clarica had requested that meeting for the purpose of asking 16 MFP what it had told the City? 17 A: My und -- well, answer it the way that I 18 feel confident, my memory, was I understood that the agenda 19 for that meeting was to present the deal to Clarica as it 20 would have been presented to the City, or that it -- to make 21 Clarica aware of the terms that were then available to the 22 City. 23 Q: Who advised you of that? 24 A: Peter Wolfraim. 25 Q: Okay. And, that was prior to the June

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1 4th meeting? Or after? 2 A: Oh, I think it would have been prior. 3 Q: Okay. Now, after the June 4th meeting, 4 did you and -- I'm referring to the time -- the Tim donut 5 Shop, or any time afterwards, did you ask Mr. Wolfraim or Mr. 6 Robson whether, at any time, MFP had advised the City that a 7 tax deal was possible, or had raised the subject? 8 A: Did I -- well, I'm sure we -- I'm sure 9 that was a subject of discussion. 10 Q: And what did they say? 11 A: In -- in that that was in that letter 12 that had been presented -- 13 Q: Okay. 14 A: -- that I'd seen for the first time that 15 day. 16 Q: At the meeting? 17 A: Yes. 18 Q: Okay. 19 A: And Peter had made it clear, at that 20 meeting, that no tax deal had developed, and this was at the 21 June 4th meeting, so I -- it would -- that was all very 22 clear. 23 Q: So, it was clear to you then that a tax 24 deal had been discussed? 25 A: It had been discussed with the City that

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1 there was no tax deal which resulted. 2 Q: Friday you were asked about your 3 awareness of MFP having commissioned a Canadian bond rating 4 service report. 5 My recollection of your evidence is that you 6 weren't quite sure, as to whether the CBRS report pertained 7 to this transaction, or to another transaction. 8 A: Yeah, I -- and I did know the CBRS by the 9 way. I knew -- we would have been one of the two (2) 10 Canadian Bond Rating Services, and it -- it certainly sounded 11 familiar to me, but I -- something that I hadn't reflected 12 on. 13 Q: Had you ever read a CBRS report in 14 connection with the Waterloo transaction? 15 A: No. 16 Q: With the Windsor transaction? 17 A: No. 18 Q: Okay. You just heard about them? 19 A: Well, I -- I didn't hear about the 20 Windsor transaction. I just heard about the Waterloo. 21 Q: Were you, at any point, advised with 22 respect to the CBRS report in the Waterloo transaction, that 23 there was a condition in the agreement between MFP and CBRS 24 that CBRS was not to directly contact the City to correct 25 information?

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1 A: No, I wasn't aware. 2 Q: Okay. Would such a condition surprise 3 you? 4 A: I don't read a lot of CBRS reports, so I 5 really don't feel qualified to answer that. 6 MR. KIRK STEVENS: Thank you. Those are my 7 questions. 8 MR. COMMISSIONER: I have one (1) question 9 I'd like to ask. 10 MR. JAMES CASKEY: That's fine. 11 MR. COMMISSIONER: Well, okay, I won't. 12 It's just a matter of startle significance, 13 Mr. McGrath. When did you cease to be Chair and a member of 14 the Board of MFP? 15 THE WITNESS: I ceased to be Chair in June of 16 that year, of 2001. I ceased to be a member of the board, I 17 think, in September -- whenever the annual meeting was? 18 September 25th, or thereabouts of 2001. 19 MR. COMMISSIONER: At the annual meeting? 20 THE WITNESS: Yes -- yeah. 21 MR. COMMISSIONER: Okay. 22 MR. JAMES CASKEY: Yes, Mr. Commissioner, I 23 -- I want to correct this. I had indicated there was a 24 meeting at MFP on the 29th of May, it was the 31st. I 25 apologise to the witness if I've -- so just to correct that

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1 date. It was the 31st of May and not the 29th, Mr. McGrath, 2 so I was in error in that regard. 3 THE WITNESS: Okay. 4 MR. COMMISSIONER: All right. I think that's 5 okay then. But thank you, Mr. Stevens. We're going to 6 recess for lunch until 2:15 and when we come back, Mr. 7 Stephenson and Mr. Paliare. Thank you. 8 THE REGISTRAR: The City of Waterloo Judicial 9 Inquiry now stands adjourned until 2:15 p.m. 10 11 --- Upon recessing at 1:06 p.m. 12 13 --- Upon resuming at 2:17 p.m. 14 15 THE REGISTRAR: The City of Waterloo Judicial 16 Inquiry is now resumed. Please be seated. 17 MR. JAMES CASKEY: Mr. McGrath, please? 18 MR. COMMISSIONER: Thank you, Mr. McGrath. 19 Mr. Stephenson...? 20 MR. RICHARD STEPHENSON: Thank you. Mr. 21 McGrath, good afternoon. My name is Richard Stephenson and 22 I'm counsel for the City of Waterloo in this matter. 23 24 CROSS-EXAMINATION BY MR. RICHARD STEPHENSON: 25 Q: I just want to tidy up a couple of points

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1 that you were speaking about with Mr. Caskey this morning. 2 You made reference to a person by the name of 3 Mr. Liptok, I believe you said his name was? 4 A: Yes. 5 Q: And he was -- 6 A: He -- I was referring to -- 7 Q: -- a Senior VP, I believe? 8 A: Okay. I think he -- I believe -- 9 Q: Or Executive -- 10 A: I believe he was Executive Vice- 11 President. 12 Q: Okay. I think that's what you said, yes. 13 A: Yes. 14 Q: And then you said, he left sometime in 15 the -- in the '90's. And then the question was, was he 16 replaced and if so by whom? 17 A: His successor would have been Irene 18 Payne -- 19 Q: Okay. 20 A: -- who was Sales Manager. And I'm a 21 little -- I'm a little foggy just on the nuances there. She 22 was certainly sales -- General Sales Manager, or Vice- 23 President of Sales, or Senior Vice-President of Sales, I 24 guess. I can't recall whether the title Executive Vice- 25 President ever transferred over.

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1 Q: Okay. And I guess the question that I 2 would then have for you is, while Ms. Payne is in that 3 position, can you assist us what the relationship, reporting 4 and otherwise, would have been, as between these three (3) 5 people, Mr. Robson, Ms. Payne and Mr. Flanagan? 6 A: Mr. Flanagan would have been Irene 7 Payne's successor. 8 Q: Okay. 9 A: He would have had a different function, 10 at the time that she had the Sales Management responsibility. 11 Q: Right. 12 A: So he wouldn't have been directly 13 involved with Mr. Robson, while she was, in her position. 14 Q: Okay. 15 A: He would have reported to her -- sorry, 16 Robson would have reported to Payne -- 17 Q: Right. 18 A: -- when she was in the Senior Sales 19 capacity. 20 Q: Right. And at some point, it's Payne 21 out, Flanagan in? 22 A: That's correct. 23 Q: In that position? 24 A: That's correct. 25 Q: Okay. And can you assist us, at all, as

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1 to when that occurred? 2 A: I should be able to. 3 Q: We can ask -- 4 A: It's a matter of record. I -- I'm going 5 to say it was sometime in 1998. 6 Q: Okay. 7 A: '97, '98. 8 Q: All right. Another matter you mention 9 was that, in terms of the Directors of the company, you 10 thought there was around eight (8) or so. And then at some 11 point in time, an additional person was added? 12 A: Right. 13 Q: Can you tell me when and who? 14 A: The addition would have been Fraser 15 Berrill. And that would have been done probably around 16 1997-8, in that area. Acktion Corporation, who owned 30 odd 17 percent, I guess 30 percent, were represented by Rai Sahi 18 who's the CEO of Acktion Corp., and around 1998 we expanded 19 the Board by one and added Fraser Berrill. 20 Q: Okay. And did Mr. Sahi come in at the 21 time that Acktion assumed that shareholding or does he 22 precede that? 23 A: At the time. 24 Q: Okay. And Mr. Berrill is associated with 25 Acktion as well?

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1 A: Right. 2 Q: Okay. 3 Q: Notwithstanding his being a very 4 desirable director in his own right. But he had worked with 5 Mr. -- Mr. Sahi. 6 Q: Okay. Now, Mr. McGrath, there's a 7 document that's in -- on the top left-hand corner of your 8 desk now which should be MFP's annual report for 1999; have 9 you got that, sir? 10 A: I have that. 11 Q: And I take it that obviously this was 12 something you would have been familiar with, broadly 13 speaking, at the time? 14 A: Yes. 15 Q: It would be something that you would 16 certainly receive a copy of and have some role in producing? 17 A: I will say, certainly received a copy of. 18 I -- I don't want to take any credit for the -- 19 Q: All right. And you certainly recognise 20 it? 21 A: I do. 22 Q: Okay. 23 A: Definitely. 24 MR. RICHARD STEPHENSON: Can we make this the 25 next exhibit then, Mr. Commissioner?

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1 MR. COMMISSIONER: The 1999 MFP Annual Report 2 will be Exhibit 70. 3 4 --- EXHIBIT NO. 70: MFP Annual Report for 1999. 5 6 CONTINUED BY MR. RICHARD STEPHENSON: 7 Q: And perhaps you could just assist us, for 8 a moment, in terms of time sequence here, Mr. McGrath -- 9 A: Yes. 10 Q: -- the fiscal year for MFP is the fiscal 11 year ending March 31? 12 A: Correct. 13 Q: And so this would be the annual report 14 for the fiscal year ending? 15 A: March 31, 1999. 16 Q: And is that -- what -- is that -- the '99 17 refers to the year ending date? 18 A: Yes. 19 Q: Okay. And so this is produced at some 20 point in time -- 21 A: Say -- 22 Q: -- say summer of '99, roughly? 23 A: Before -- probably early summer, late 24 Spring. 25 Q: Okay. Now, if I can, if I could just get

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1 you to turn up page 12 and it's page 12 and 13 I'd like you 2 to take a look at and it's a little difficult to -- to read 3 them because I think these would have been in the original, 4 facing pages. 5 A: Okay. 6 Q: So you read across the two (2) pages -- 7 A: Yes, yes. I see. 8 Q: -- together and you see the -- this is a 9 report on the, sort of, activities that -- that the company 10 is engaging in at this point in time and asset based 11 financing is one of them. 12 And it's actually, I think, if we could start 13 on page 13 for a moment, you'll see under the heading 14 "results" the reference there says, 15 "The asset based financing group was 16 'officially' organized during the year 17 through its name change and other marketing 18 activities MFP began to actively pursue 19 business in this sector. Finance bookings 20 totalled $50 million." 21 And I take it that that references the -- the 22 very thing that you were describing this morning in the sense 23 that these -- MFP had been undertaking some business in this 24 area prior to that date but this is when it was officially 25 recognised as --

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1 A: A separate -- 2 Q: -- in some way? 3 A: A separate division or -- 4 Q: So that can tell us the date. It's in 5 fiscal '99. 6 A: Right. 7 Q: If we then go back to page 12, I -- I 8 take it that the description there about what the asset based 9 financing group does is -- is accurate from your perspective 10 at -- at that point in time? 11 A: Right. 12 Q: Okay. It specifically indicates that it 13 is, 14 "...customized financial solutions for 15 major capital infrastructure expenditures 16 such as public work, machinery and other 17 equipment" 18 Is that right? 19 A: Correct. 20 Q: Okay. And then goes on to say, 21 "Although a relatively new activity, 22 business to date is evolving as expected 23 from technology leasing relationships" 24 And I take it what's referencing there is the 25 fact that you, to a significant degree, MFP already had

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1 relationships with many of these customers through its 2 technology side? 3 A: Hmm hmm. Would be right. 4 Q: And then it goes on to say 5 "Typically, asset based transactions are 6 larger than technology leasing 7 transactions, and are on average -- and on 8 average, exceed 25 years in duration." 9 That was sort of the point that -- that Mr. 10 Caskey was speaking about with you this morning, and that's 11 -- that's generally speaking truth, correct? 12 A: Hmm hmm. 13 Q: I think you have to say "yes". 14 A: Oh, yes. Yes. 15 Q: Okay. 16 A: Sorry. 17 Q: And then, I'm interested in the last 18 sentence: 19 "Profits are generated at the front end of 20 the transaction." 21 A: Hmm hmm. 22 Q: And, would I be correct, sir, that the -- 23 the reason why that is so, is because these are broker 24 transactions whereby MFP is -- is -- is extracting it's fee 25 literally at the point of -- of selling the transaction to a

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1 funder? 2 A: That would be, generally, it could be -- 3 that would be the major reason. 4 Q: Okay. What would be other reasons? 5 A: Another reason might be if it was a 6 securitized transaction, whereby MFP completed a transaction, 7 and sold all the receivables to a third party funder. 8 Q: In effect, you're -- it's another 9 mechanism of crystalizing the stream of revenues to a -- to a 10 point in time at the present? 11 A: That's correct. 12 Q: All right. And, to your knowledge, did 13 they, in fact, securitize asset based financing transactions? 14 A: I believe in terms of receivables at the 15 Essex Water transaction was sale of receivables. 16 Q: Okay. And, in -- in -- you'll see in the 17 -- the third -- we're turning back to page 13 in the third 18 column, which is referenced as "The Future". Do you see 19 that? 20 A: Yes. 21 Q: Again, under description there, and 22 indicating that one of the advantages of these kinds of 23 transactions from MFP's perspective is that it -- it -- it 24 balances the -- the manner in which MFP extracts it's 25 revenue, by way of contrast to the typical lease financing

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1 whereby MFP's revenue is derived from the residual at the end 2 of the lease, correct? 3 A: Correct. 4 Q: And so, this is front end loaded versus 5 back end loaded. Now... 6 7 (BRIEF PAUSE) 8 9 Q: If I can then get you to turn to page 16? 10 A: Okay. 11 Q: Which is under the heading, Sales and 12 Marketing? 13 A: Yes. 14 Q: And, just one (1) item there, and I think 15 this is a general statement that you'll have no difficulty 16 with. In the -- the second paragraph on that page, starting 17 with "last year"? 18 A: Hmm hmm. 19 Q: Do you see that? 20 A: Yes. 21 Q: Okay. The second sentence that says: 22 "Our people were viewed as partners by our 23 customer, and as a result, expanded 24 business opportunities throughout the 25 year."

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1 This, and I -- I just want to focus now on 2 this notion of partnership. I take it that from MFP's 3 perspective in terms of the value added it could bring to a 4 transaction was this close relationship and understanding 5 that the -- the customer's business? 6 Is that fair to say? 7 A: Yes. 8 Q: And -- and that's what's being referred 9 to in this notion of partnership? 10 A: Yes, and I think in a sales' 11 relationship, or a marketing relationship with the customer. 12 Q: They're -- you're not talking here about 13 any sort of formal legal construct? 14 A: No. No. 15 Q: Okay, and I take it that that concept of 16 partnership was something that was in the parlance of -- of 17 MFP generally, and was something they were trying to 18 encourage with their customers? 19 A: Right. 20 Q: And, page 17, just as a sneak preview 21 here. We've got pictures of Mr. Robson and Ms. Fraser. 22 That's who those people are I take it? 23 A: That would be true. 24 Q: Okay, and indeed this is a -- obviously 25 part of -- of a -- an annual report is -- is to promote your

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1 stock to potential shareholders, and -- and that's what's 2 going on here, and it -- it's really talking about -- 3 A: I think, to be honest with you, I think 4 it -- the greater use that was intended by the annual report 5 was marketing. 6 Q: To customers? 7 A: To customers. 8 Q: Right. 9 A: I mean, one (1) of the problems MFP 10 always had was it was -- while it was a significant company, 11 it was very small in the eyes of the marketplace. 12 Q: Because you're walking amongst the 13 Behemoths of Bay Street? 14 A: That, plus just the fact that there was a 15 very limited supply of stock available to be purchased. 16 Q: As a matter of fact, although this is 17 a -- is ostensibly a publically traded company, the public 18 float was, as we've indicated, is relatively small, 19 something of 25 percent? 20 A: That's right. 21 Q: And in fact, it's very thinly traded? 22 A: That is correct. 23 Q: And -- 24 A: So as I say, that -- that would not 25 justify, you know, some of the quality of the annual report

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1 of the -- 2 Q: All right. And I take it -- 3 A: -- funds. 4 Q: -- I take it that, again, although it's 5 a public company, the Board is comprised, in part, of a lot 6 of insiders, within the notion of that term, as in the 7 securities business. That these are people that -- 8 A: Well, I think there was only -- there 9 were perhaps three (3) insiders out of nine (9). 10 Q: In the sense of employees, in the sense 11 of -- 12 A: No, no. There was only one (1) 13 employee. 14 Q: And that's Mr. Wolfraim? 15 A: Yes. 16 Q: Okay. The other insiders would probably 17 be Mr. Sahi and Mr. Berrill. 18 Q: And what about Mr. Jamieson? 19 A: No, because he -- he was there 20 representing a number of different pension funds. 21 Q: I'll come back to -- 22 A: As an individual investor. I'm just 23 saying, that -- that is the -- the Ontario Securities 24 Commission, I think, defined his role as not being an 25 insider.

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1 Q: Okay. Fair enough. Can I just take you 2 to page 18 -- 3 A: Hmm hmm. 4 Q: -- for a moment, of the -- and it's 5 almost, unfortunately, incomprehensible to read that huge 6 writing at the top of the page. Again because this, and 7 page 19, I think, were facing pages. 8 A: Okay. 9 Q: And I'm actually not going to try to -- 10 well, I think it says, 11 "MFP was the only (RFP respondent) that was 12 innovative about off-balance sheet 13 financing. They were the only ones that 14 did something a little different." 15 Have I got that -- 16 A: Yes, I agree with you. 17 Q: Okay. And this, in fact, is talking 18 about the Union Water deal, you see that? 19 A: I -- I do see that. 20 Q: Okay. And I take it that this is 21 something that MFP did, from time to time, in its financial 22 report. They put, in effect, something that is sort of a 23 customer testimonial? 24 A: Absolutely. 25 Q: And I take it that this was driven

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1 towards that same marketing concept that you described 2 earlier? 3 A: That's -- that's right. 4 Q: And, it's indicated in the very first 5 sentence, 6 "Over the next five (5) years, Union Water 7 will save the citizens of Kingsville, 8 Leamington, and Essex, Ontario, 9 approximately $1.3 million." 10 I take it, you just accept that to be true? 11 You don't have any reason to believe that is not true? 12 A: I don't know what the background is. 13 Q: Okay. And you'll see, if we just go on 14 to the right hand column, there's a series of quotes here 15 from Kingsville Deputy Mayor Bill Allsop, you'll see. And 16 then just starting the first quote on the sec -- the right 17 hand column says, 18 "MFP put in a unique long term financing 19 system in place, to help municipalities 20 manage the expense, reduce the interest 21 rate we were paying, and save money in the 22 process. That will give us a nice reserve 23 at some point down the line, when we're 24 ready to put another expansion in the 25 facility."

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1 I could be wrong, but I think that's the same 2 quote that appeared in -- that was put to you this morning, 3 in your Tab 1? 4 A: Was that one of the testimonials? 5 Q: Yes, one of the testimonials. 6 A: Okay. 7 Q: Yes, it you look at page 3 of Tab 1 -- 8 A: All right. 9 Q: -- you'll see an excerpt from that quote 10 appears. But I guess that just tells us the source. 11 A: Right. 12 Q: Okay. Okay. 13 14 (BRIEF PAUSE) 15 16 Q: Now, Mr. McGrath, I just need you to 17 turn your head back to the days when you were on the Board 18 at MFP. Is it fair to say, sir, that you would consider 19 yourself, personally, a person of high integrity? 20 A: Yes. 21 Q: And I take it you pride yourself in 22 that? 23 A: I would hope to live to that standard. 24 Q: And, I take it that you would hope that 25 your business dealings were governed by that same kind of

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1 concern and that same kind of approach to dealing in 2 business? 3 A: That's fair. 4 Q: That's fair? And would you agree with 5 me, sir, that taking an approach of high integrity would 6 mean that, from a company's perspective, that that would be 7 being honest and truthful in terms of its dealings with its 8 customers; is that fair? And candour; would that be an 9 element of -- of -- of high integrity? 10 A: Certainly something I would admire. 11 Q: I take it that as a member of the Board, 12 did you view it as part of your role for you and your other 13 board members to imbue the company with that kind of 14 philosophy? 15 A: I think more by osmosis. 16 Q: It -- just in terms of your contacts 17 with the members of management and others; is that what you 18 mean? 19 A: Yeah. And the demands we placed on the 20 company in terms of, you know, insisting on credibility. 21 Q: And I take it that, to your knowledge, 22 people within the company did conduct themselves in 23 accordance with those kinds of principles? 24 A: That fair. 25 Q: Is that fair? I take it if they didn't

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1 and you learned about it, that would be something you'd be 2 concerned about? 3 A: Certainly, and would speak to senior 4 management about. 5 Q: And -- and I take it did those occasions 6 arise when you were at the company that you had to bring 7 that to the attention of management? 8 A: No. Now, management might bring it to 9 our attention. 10 Q: Right. But to the extent that those 11 issues arose, I take it they were dealt with to your 12 satisfaction? 13 A: Right. 14 Q: Okay. Can you assist me, sir, the -- 15 are you familiar with an organization by the name of the 16 Canadian Finance and Leasing Association? 17 A: Not really. 18 Q: Okay. 19 A: I take -- if it's an industry group, I'd 20 be certainly -- 21 Q: Yeah. It's -- 22 A: -- aware of its existence under 23 different names. 24 Q: Fair enough and I'm not going to trick 25 you here. There's a -- right on your -- on the front of

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1 your desk you'll see something called the CFLA Annual 2 Report? 3 A: Right. 4 Q: 2001/2002. 5 A: Hmm hmm. 6 Q: And -- and you'll see that's from an 7 outfit called the Canadian Finance and Leasing Association 8 which is -- which describes itself on page 2 of the report 9 as 10 "The only organization advocating the 11 interests of asset based financing vehicle 12 and leasing industry in Canada helping the 13 industry develop a profile and policy 14 responses for decision-makers through the 15 Association members are able to influence 16 the shape of the industry's future within 17 the competitive financial services sector." 18 Does that help you at all? 19 A: Sure. 20 Q: Okay. 21 A: I understand. 22 Q: And if you -- if you turn to the back of 23 the -- the document I'm looking at page 22? 24 A: Hmm hmm. 25 Q: This indicates the members of the CFLA

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1 for 2000/2001 and it's alphabetical thankfully and in the 2 left-hand column you'll see MFP's listed? 3 A: I do. 4 Q: I take it that MFP viewed itself as a 5 leading member of the leasing and finance based -- asset 6 based finance business in Canada; is that fair? 7 A: I would -- I would agree with that. 8 Q: Okay. For what it's worth, I see 9 Mr. McDowell's firm is also a member. 10 MR. WILLIAM McDOWELL: Yes. It's all true. 11 MR. RICHARD STEPHENSON: It should have been 12 distributed. 13 MR. COMMISSIONER: Actually -- 14 MR. RICHARD STEPHENSON: One moment. There 15 we go. 16 THE WITNESS: There are quite a number of 17 accounting firms and legal firms shown as members. 18 MR. RICHARD STEPHENSON: There sure -- there 19 sure are. I'm looking for Mr. Caskey's firm. 20 21 CONTINUED BY MR. RICHARD STEPHENSON: 22 Q: In any event, it wouldn't surprise you 23 at all that MFP would be a member of an organization like 24 this? It's precisely the kind of thing you would expect 25 them to do; fair enough?

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1 A: Okay. That's fine. 2 Q: If we turn for a moment to -- and I take 3 it that to the extent that you're a member of these things, 4 you like to keep -- you want to make sure that they are -- 5 you keep on-side whatever the rules and regulations of -- of 6 an organization like this is that you're a relevant industry 7 organization? 8 A: I can't comment on this. 9 Q: Okay. Fair enough. 10 A: I wasn't aware of the organization. 11 Q: All right. Let me just -- can I turn 12 you to page 4? 13 A: Sure. 14 Q: As these organizations often times do, 15 it appears that this organization's got a code of ethics; 16 you see that? 17 A: Hmm hmm. Yes. I do. 18 Q: And I take it for granted that you're 19 not familiar with this particular -- 20 A: No. 21 Q: -- section of this document, but I don't 22 think some of these things are terrible surprising, but, and 23 let me just ask you this. 24 What are things that they -- they do. They 25 say there are -- there are fundamental standards of

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1 practice, which should serve as a guiding principles for all 2 engaged in business of leasing and asset-based financing. 3 And, the first one, they say: 4 "At all times conduct our activities with 5 integrity, dignity, and professionalism, 6 and encourage such conduct by other -- by 7 others in the leasing industry." 8 I take it regardless of whether you're a 9 member of this organization, that is a view that you would 10 ascribe to personally. 11 A: Thank you. 12 Q: And, I take it that that -- you would 13 expect MFP as a member to -- to conduct itself consistent 14 with that. 15 A: I would -- certainly I would hope that 16 that would be the case. 17 Q: Okay. And, the second item is that -- 18 it says that the members shall maintain respect for team 19 competition, and seek no unfair advantage by dishonest or 20 unethical means. And, again, I take it that's something you 21 would personally ascribe to? 22 A: Hmm hmm. Yes, I would. 23 Q: And you would admit it's something that 24 you would expect MFP would ascribe to as well? 25 A: I would -- I would hope so as well.

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1 Q: Just dropping down one then. The -- the 2 fourth item is that members would not knowingly make false 3 or misleading statements or withhold information vital to an 4 intelligent business decision concerning any aspect of a 5 leasing transaction. 6 A: Hmm hmm. 7 Q: Again, you'd personally ascribe to that? 8 A: Yes I do. 9 Q: And, you would expect that MFP would 10 ascribe to it as well. 11 A: I would certainly hope so. 12 Q: And, then, the next item is that members 13 would disclose all relevant information as to terms and 14 conditions of the lease, which may effect the lessee's 15 decision. 16 A: Correct. 17 Q: Do you see that? And, again, the same 18 question, personally, you'd ascribe to that? 19 A: Hmm hmm. Yes. 20 Q: And -- and you would expect that MFP 21 would ascribe to it as well? 22 A: Yes. 23 MR. RICHARD STEPHENSON: Mr. Commissioner, I 24 wonder if we can make this the next exhibit? 25 MR. COMMISSIONER: I think we should.

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1 THE REGISTRAR: Exhibit 71. 2 MR. COMMISSIONER: Which one? Seventy-one? 3 Okay. 4 5 --- EXHIBIT NO. 71: The Canadian Finance and Leasing 6 Association Annual report, 7 2001/2002. 8 9 MR. RICHARD STEPHENSON: Thank you. 10 MR. COMMISSIONER: Exhibit 71. 11 12 (BRIEF PAUSE) 13 14 CONTINUED BY MR. RICHARD STEPHENSON: 15 Q: Mr. McGrath, I've got another document 16 up there for you, and I think this one you'll actually 17 recognize, and that is something called MFP Financial 18 Services Limited Annual Information Form for Fiscal Year 19 Ended March 31, 2000. 20 Have you got that, sir? 21 A: I do. 22 Q: Okay. As I understand it, sir, and 23 annual information form is something that public companies 24 are required to -- to file, and I, for the life of me, I 25 can't remember whether it's with the TFE or the OFC or both?

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1 A: OFC. 2 Q: It's OFC? 3 A: Yes. 4 Q: Okay. And -- and so this is a 5 statutorily mandated document? 6 A: Yes. 7 Q: And, I take it that it -- it's one (1) 8 of those things like -- that that company's got to get it 9 right. Great care is taken with ensuring its accuracy? 10 Is that fair? 11 A: Yes. 12 Q: Okay. Now I'm hoping that this can 13 actually assist us with some of this, so I don't have to ask 14 you, but if you turn up page nine (9). 15 MR. COMMISSIONER: Do you want this 16 exhibited? 17 MR. RICHARD STEPHENSON: I will -- yeah, we 18 may as well do that now, sure. 19 MR. COMMISSIONER: Any objection? 20 MR. RICHARD STEPHENSON: That would be 72? 21 MR. COMMISSIONER: Exhibit 72. 22 23 --- EXHIBIT NO. 72: MFP Financial Services Limited 24 Annual Information Form for 25 Fiscal Year Ended March 31, 2000.

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1 2 CONTINUED BY MR. RICHARD STEPHENSON: 3 Q: One (1) of the things that the companies 4 are required to do is to list their officers and directors, 5 and at page 9, that's what MFP has done. Is that fair? 6 A: Yes. 7 Q: And, so, that -- that gives us the 8 information about who the officers and directors are, and I 9 see that Mr. Robson is listed there as an officer, correct? 10 A: Correct. 11 Q: But, he's not a director? 12 A: Correct. 13 Q: That's -- that's the distinction, okay. 14 And -- and I don't see Ms. Payne anywhere on 15 there. I take it that that is because she's left the 16 company, is that -- am I right about that by this date? 17 A: Yes. I think over at page 10, it 18 describes when Flanagan took over, February of 2000. 19 Q: February, 2000, I see that. Okay. So, 20 to the best of your knowledge, that when you have Payne 21 out -- 22 A: It was possibly the -- 23 Q: -- Flanagan in? 24 A: -- time that she would have left. 25 Q: Okay. Now, another thing that I gather,

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1 you are -- a company is required to do in the annual 2 information return -- or annual information form, is to 3 indicate the shareholdings of -- that are held by people 4 that are either officers or directors? 5 A: I'm not sure of that. Certainly, that 6 goes in the proxy -- the proxy circular. I'm not sure it 7 goes in the -- 8 Q: Yes. 9 A: -- as well. 10 Q: Just flip to page 11, sir? 11 A: Okay. Yes? 12 Q: And it's the bottom of the page, there, 13 you see that? 14 A: Hmm hmm. Yes, I do. 15 Q: Okay. That's a statutorily required 16 item? 17 A: Well, as -- as I say, there's two (2). 18 There's that, the more exhaustive one (1) is in the proxy 19 information circular. 20 Q: Right. 21 A: That's compiled at the same time. 22 Q: Which is part of your annual meeting, I 23 take it? Or, your annual general meeting, you send that 24 out? 25 A: Right.

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1 Q: Okay. In any event, I take it that we 2 can take this as more or less authoritative, in terms of the 3 shareholdings of the -- the mentioned entities, as at that 4 date? 5 A: Yes. 6 Q: Okay. And as you'll see there, we've 7 got 32.72 with Lincluden Management Limited? 8 A: Yes. 9 Q: And then there's 29.42 with a numbered 10 company? 11 A: Yes. 12 Q: And -- and I take it that that is 13 Acktion Corp.? 14 A: That is correct. 15 Q: Is the numbered company? 16 A: That is correct. 17 Q: And just for the record, Acktion, I -- I 18 believe is spelled, A-C-K-T-I-O-N? 19 A: A C-K -- that is correct. 20 Q: Okay. Now, just so I understand it, 21 Lincluden Management Limited is a mutual fund company? 22 A: That is -- no. No, sorry. It is an 23 investment management company, which primarily manages 24 pension funds, as opposed to mutual funds. 25 Q: Don't they sell something called the

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1 Lincluden Balance Fund? 2 A: That would be sold to their pension 3 funds, not to individuals. 4 Q: I see. 5 A: I think it's called a diversified fund. 6 Q: Okay. To the extent that they are 7 buying, are they buying in their own name, or are they 8 buying a -- 9 A: They were buying in a variety of ways, 10 not to their own name, not to hold as principals. 11 Q: Right. 12 A: They are not principals, they're 13 advisors. So it -- 14 Q: Right. 15 A: -- they would put some into that 16 diversified fund, they've got several funds. They -- I 17 think they would put some there, they might put some into 18 segregated funds, which would be individually managed, 19 for -- 20 Q: Right. 21 A: -- large companies. 22 Q: Right. 23 A: So they would buy in a -- a number of 24 different ways. 25 Q: Okay. Now, let me just come back, then,

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1 to this issue about the shareholdings of the company and 2 it's the, to assist you, it's back to your -- your thin 3 volume, Tab 2, page 1564. 4 And I'm just having some difficulty 5 reconciling the description contained at the minutes of the 6 meeting, with the -- the annual information form. 7 A: That's why I said, directionally, it's 8 correct. 9 Q: Yes, I understand that. So, in -- 10 insofar as we can figure this out, we've got -- I -- I was 11 just doing -- oh, the additional thing that the information 12 form tell us is that, approximately 6 percent of the shares 13 are -- are held directly or indirectly, by the Directors and 14 Officers, themselves, fair enough? 15 A: Yes. 16 Q: So that's Mr. Wolfraim and others, fair 17 enough? 18 A: Correct. 19 Q: Okay. So I add all those up, just for 20 what it's worth, and my math is, subject to check, 68.14 21 percent is held -- 22 A: Of those three (3). 23 Q: -- by those three? 24 A: Correct. 25 Q: Okay. So, Mr. Robson here is advising

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1 that there's 75 percent held by these -- these institutions, 2 including a bank. 3 A: No, I'm sorry. Not by these 4 institutions. He's -- 5 Q: By -- by -- by -- the institutions that 6 I'm about to list. 7 A: Oh. 8 Q: A bank, three (3) insurance companies 9 and two (2) pension funds? 10 A: Right. 11 Q: Okay. At this point in time, sir, is 12 there, in fact, a bank that owns -- 13 A: I think, at that time, the Royal Bank 14 still had shares. 15 Q: Okay. 16 A: It had shares for a number of years. 17 Q: All right. 18 A: So that would be it. If it wasn't that. 19 It could have been another bank, I don't know. 20 Q: I take -- this is not a significant 21 shareholding in the company? 22 A: It couldn't have been because you were 23 -- if you had 75 percent in total and we see that 62 percent 24 are held -- 25 Q: Sixty-eight.

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1 A: -- 68 percent by the three (3) groups so 2 there was only another 7 percent to account for. 3 Q: Okay. The three insurance companies; 4 you mentioned the fact that, at some point in time, Mutual 5 Trust -- 6 A: Right. 7 Q: -- held some shares. I take it that's 8 not actually the insurance company but rather a trust 9 company owned by an insurance company? 10 A: Same voice. Same thing. 11 Q: Separate corporate entity? 12 A: But I don't think it's relevant. It's 13 within the organization. I think for a statement like this 14 it's probably close. It would be more relevant than, you 15 know, condoning it differently. 16 Q: Okay. And then in a sense of -- there 17 are some two other insurance companies that own some shares? 18 A: Quite possibly. 19 Q: I take it again, the -- 20 A: The other sense -- perhaps the way 21 shares get registered is through the clearing corp and the 22 only way you can pick up a lot of people's shareholdings is 23 by looking at their actual shareholders lists. 24 Q: Right. 25 A: It's not from the share registry, so

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1 that's why I said directionally. 2 Q: Right. 3 A: I was satisfied that 75 percent were in 4 the hands of people like this. 5 Q: All right. And then the two pension 6 funds would be though include -- amount? 7 A: And again -- 8 Q: -- is that fair? 9 A: What? 10 Q: As best as you can tell? 11 A: Yes. 12 Q: Okay. I mean, wouldn't it -- 13 A: I wouldn't have described it as such. 14 But there you go. 15 Q: Yeah. I mean that's -- I guess that's 16 the question, is that, you know, if you were describing 17 something with candour, I take it the way to describe 18 something with candour in terms of the share ownership of 19 the company would be to describe it in the way that's 20 included in the annual information form? 21 Wouldn't that be the way you'd describe it? 22 A: No. I don't think so. Not necessarily. 23 Q: Well -- 24 A: That's -- that's candour. I mean, going 25 back to your statement, but it's not necessarily complete.

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1 Q: Well, I understand that, sir, but if I 2 -- wouldn't you agree with me that somebody reading this 3 document and assuming Mr. Robson said it, the person's 4 listening to him would come to the conclusion that the bank, 5 the insurance companies, and the pension funds were very 6 substantial shareholders in this outfit? 7 A: Hmm hmm. 8 Q: And that's just not true? 9 A: Well, it's approximately true. 10 Q: Well, the pension funds might be true 11 including -- but I think the bank and the insurance 12 companies are very, very minor shareholders, collectively, 13 at a maximum 7 percent; fair enough? 14 A: As I think I indicated in my advance 15 comments, it depended how -- how he chose to regard Acktion 16 Corp. 17 Q: Well, it's not a bank, is it, sir? 18 A: Well, that's what I mean. 19 Q: And it's not an insurance company? 20 A: No, you're -- you're absolutely right. 21 Q: All right. So, I mean, to the extent 22 that this leaves the impression that a bank and then three 23 insurance companies are major shareholders in this company; 24 it's just not correct? 25 A: Oh, I don't know that. Excuse me. I --

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1 I don't know that it isn't correct. 2 Q: Well -- 3 A: I know that it doesn't -- if you exclude 4 Acktion, I couldn't tell you whether there was one bank and 5 three insurance companies or not, is what I'm saying. 6 Q: Well, we know it -- the bank -- 7 collectively, the bank and the insurance companies can only 8 form a maximum of 7 percent, collectively? 9 A: Hmm hmm. 10 Q: Right? So to the extent this 11 representation would lead one to believe -- 12 A: I -- no, I -- 13 Q: -- that these are major shareholders -- 14 A: Absolutely. 15 Q: -- that's not true? 16 A: Absolutely. 17 Q: All right. 18 A: So the error was saying six (6). He 19 shouldn't have said six (6). If he had not said six (6), 20 this is quite possibly correct. 21 Q: Right. But you would -- 22 A: So that's important. 23 Q: This is not a statement you would have 24 made? 25 A: No. I would have --

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1 Q: And -- 2 A: I wouldn't have said six (6). 3 Q: Well, I suggest to you, sir, if you -- 4 A: I would have said it includes, and it 5 may well have included a bank, it may well have included 6 three (3) insurance companies. It included more than two 7 (2) pension funds. I would have said that and it includes a 8 holding company listed on the Toronto Stock Exchange. 9 Q: Wouldn't it -- 10 A: I would have been more factual. 11 Q: Wouldn't a more accurate way to describe 12 the company would be that this is a company that, although 13 it's publicly traded, in fact, it's effectively ,or has many 14 of the attributes of, a closely held company where you've 15 got two large shareholders, you've got some officers and 16 directors with a significant shareholding and that the 17 balance is thinly traded? 18 Wouldn't that be a more accurate way of 19 describing the owning -- the shareholdings of this company? 20 A: Okay. Fine. I thought that the 21 25 percent being publicly-traded gave that connotation. 22 23 (BRIEF PAUSE) 24 25 Q: One of the expressions that you've

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1 used -- 2 A: And -- and, sorry, I've just -- going 3 back in my mind, because this is something I hadn't looked 4 at. I think there were three (3) insurance companies, or I 5 mean the records can tell us. I think SunLife is certainly 6 one (1). 7 Clarica would have been another through 8 mutual trust, and I think there was a third. I think Canada 9 Life may well have been. 10 Q: Okay. It -- 11 A: So, that's correct. 12 Q: It -- 13 A: I think the Bank is correct, so -- and I 14 think the 75 percent is correct. Six (6) for me is wrong. 15 I mean, if you want to be -- as far as, you know, specifics. 16 Q: Right, but just to be clear, to the 17 extent that there's these outfits, these institutions, are 18 shareholders. They're within the 7 percent. 19 A: I don't know. 20 Q: Okay. 21 A: I don't -- again, you're into the 22 vagaries of the -- the registration protocols. 23 Q: Okay. One of the expressions that 24 you've used from time to time in terms of trying to 25 distinguish between types of transactions is, you've used

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1 the expression, "a broker transaction". Have you heard -- 2 you remember saying that. 3 A: I -- I said that, yes. 4 Q: And, I think sometimes you've also used 5 the expression, "an agency transaction" as well. 6 A: Correct. 7 Q: Okay. I take it what -- you're using 8 those interchangeably? 9 A: And, not exclusively either. I've used 10 a number of -- what I meant was non-risk, where we woul -- 11 didn't end up as the ultimate principal. 12 Q: Right, and I -- that's what I have had 13 -- I've taken from that, but, on -- in the expression, 14 "agency", and again, I don't think you're necessarily 15 applying any strict legal meaning to that. 16 A: Absolutely not. 17 Q: But, who are you -- who is MFP acting as 18 an agent for? 19 A: I differentiate agent from principal, 20 just in terms of risk. 21 Q: Okay. 22 23 (BRIEF PAUSE) 24 25 Q: Now, I think you'd indicated to us this

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1 morning that you weren't sure whether or not the Windsor 2 deal was a tax deal or not, and, can you assist us at all? 3 Do you have any knowledge whether there was a 4 special low rate attached to the Windsor deal in the sense 5 of something below debenture rate? 6 A: No, I -- I can't help you. 7 Q: You don't know one way or another. 8 A: I -- I do not know. 9 Q: Okay. 10 11 (BRIEF PAUSE) 12 13 Q: I'm going to ask you to turn up Exhibit 14 67. I'm going to bring it to you, but for -- 15 A: Okay. 16 Q: Just so you know, Mr. McGrath, we will 17 ask other people. Our understanding is, in fact, the 18 Windsor deal was not a tax deal, and in fact, had an 19 effective interest rate significantly higher than debenture 20 rates, okay? 21 And I'm going to ask you to assume that, for 22 the purpose of this, we'll have evidence about it one way or 23 another later on. I don't know if you have any idea who 24 this outfit is, the Canadian Municipal Management Forum? 25 A: No.

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1 Q: You familiar with them at all? 2 Okay. Apparently they had a seminar program 3 in February of 1999, and we've heard evidence about somebody 4 who was there; but if you turn over to the second page of 5 the document, you'll see at -- at 1030 in the program there? 6 A: Hmm hmm. Yes. 7 Q: There's a program called, "Developing 8 Innovative Planning and Financing Strategies to Make Do With 9 Less", and there's a presentation there by two (2) 10 gentlemen, Mr. Wills, from City of Windsor, and there's Mr. 11 Robson, from MFP. 12 Now, you see that? 13 A: Yes. 14 Q: Okay, and apparently, the presentation 15 they were making is described as follows: 16 "This case study will focus on the 17 financing and operation of a regional land 18 fill through a unique public/private 19 partnership. A partnership provided 20 financing at cost of funds more than 200 21 basis points below traditional financing." 22 Again, assuming that, in fact, the Windsor 23 financing is at greater than debenture rates, sir, what do 24 you think about Mr. Robson making such a public 25 presentation?

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1 A: On your assumptions -- 2 Q: Yes. 3 A: -- it would seem like a very difficult 4 case to make. 5 Q: I take it, it would not be consistent 6 with the kinds of -- 7 A: With whoever -- 8 Q: -- ethical standards we talked about 9 earlier? 10 A: Or what the description of the program 11 that's in -- that's written here. 12 Q: Yes. For example, you see there's a 13 bullet point there, where it talks about CCA pass-throughs, 14 you see that? 15 A: Right. 16 Q: And we understand, I take it, that that 17 would be indicative -- CCA being Capital Cost Allowance? 18 A: Yes. 19 Q: And that would be indicative of some 20 kind of tax-assisted or tax flow-through transaction? 21 A: Yes. 22 Q: Okay. I take it that, again, taking my 23 assumption about what the Windsor transaction was, if you 24 had known about this presentation at that point in time, it 25 would not have been something you would have approved of?

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1 A: No. No, I -- not that -- I certainly 2 would have asked about the two hundred (200) basis points 3 below, as to who -- who wrote that. 4 Q: Right. And, I take it -- 5 A: The other, I mean, looks like quite 6 normal topics that you would want to see discussed. 7 Q: Absolutely. 8 A: You'd want to see CCA pass-throughs, you 9 know, all those topics are very -- 10 Q: Right. 11 A: -- they were very topical at the time. 12 Q: Right. Right, but the pricing doesn't 13 seem right, if, in fact, it's not -- 14 A: On your assumptions -- 15 Q: Yes. 16 A: -- that you've told me. 17 Q: Yes. 18 A: Okay. 19 20 (BRIEF PAUSE) 21 22 Q: Now, if I can just get you to turn, 23 again, back in your documents to -- it's Tab 1, which is 24 this report dated February the 18th? 25 A: Yes.

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1 Q: The evidence is -- 2 MR. COMMISSIONER: What exhibit are we 3 looking at? 4 MR. RICHARD STEPHENSON: Sorry, it's in Mr. 5 McGrath's documents, Tab -- or, Exhibit 69, pardon me. 6 MR. COMMISSIONER: Tab 1? 7 MR. RICHARD STEPHENSON: Tab 1, yes. 8 THE WITNESS: Hmm hmm. 9 10 CONTINUED BY MR. RICHARD STEPHENSON: 11 Q: Mr. McGrath, the evidence is that this 12 document, and it's actually an identical version of this 13 document, not this precise copy, but - went into the public 14 record, it became part of the public record at a Council 15 meeting, on February the 21st of 2000 and that it was 16 discussed, with some degree of thoroughness, at that meeting 17 and that Mr. Robson was present in the audience, throughout 18 that meeting, okay? 19 A: Hmm hmm. 20 Q: There's a reference to -- and this was 21 reviewed with you by Mr. Caskey, this morning -- about rates 22 being discussed in the low 5 percent range, remember that? 23 A: Hmm hmm. Yes, I do. 24 Q: And there's a reference to, essentially, 25 that MFP is prepared to guarantee the rates, lock them in,

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1 if you approve. 2 A: Yes. 3 Q: Do you recall that? Would you agree 4 with me, sir, that, if Mr. Robson is sitting in the 5 audience, and, in fact, makes a presentation there, that the 6 City Council would assume that he agrees with all this talk 7 and that he -- by -- if he doesn't say anything, then -- 8 MR. COMMISSIONER: Just a minute. 9 MR. WILLIAM McDOWELL: How do we know -- I'm 10 sorry. How do we know what they think? We've heard from 11 them, not really much use getting -- 12 MR. COMMISSIONER: I think, Mr. Stephenson, 13 you can probably express the question a little differently. 14 MR. RICHARD STEPHENSON: All right. 15 MR. COMMISSIONER: Probably get the -- 16 MR. RICHARD STEPHENSON: Yes. 17 MR. COMMISSIONER: But, he doesn't know. 18 MR. RICHARD STEPHENSON: Yes. 19 20 CONTINUED BY MR. RICHARD STEPHENSON: 21 Q: Mr. McGrath, you're not Chairman of MFP 22 for the purposes of this question. You're sitting in the 23 audience, okay? In Waterloo City Council, okay? In 24 February of 2000. You're sitting there watching this 25 presentation and Mr. Robson's in the room.

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1 I take it, wouldn't you assume that he -- he 2 concurs with all the discussion unless he raises his voice? 3 A: Probably. 4 Q: Wouldn't -- if -- as a -- as an employee 5 of the company that you are on the Board of Directors of, 6 wouldn't you expect that a Vice-President of your company, 7 if he's sitting in such a meeting and people are saying 8 things that he knows are not correct, that he would stand up 9 and say, listen actually, there's a few things you need to 10 know. I've got to clarify, I've got to correct some things. 11 This is the transaction? 12 That's -- that's what you would expect of a 13 Vice-President of your company; wouldn't you? 14 A: I would hope so. 15 Q: Let me just turn now to Tab 3 of, again, 16 Exhibit 69. Now, this is the May 26th letter from 17 Mr. Robson to Mr. Ford. In -- in the second paragraph of 18 that letter and -- and Mr. Caskey asked you this question 19 this morning, there's a reference to a flow-through of "our" 20 tax benefit, I take it, can only mean MFP; would you agree 21 with me? Reading that paragraph the word "our" there can 22 only mean MFP? 23 A: I -- you're probably right. It's 24 contradictory with the context of the letter, but you're 25 probably right.

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1 Q: Okay. In the sense of the circling the 2 rates? 3 A: That's right. 4 Q: Yeah. And I take it that -- 5 A: It's just the way -- you know, the way 6 the business works. 7 Q: Would you agree with me that somebody at 8 -- at City Hall wouldn't necessarily have the same -- the 9 concept of circling rates and whatever it means in the trade 10 wouldn't necessarily be obvious to somebody at the City of 11 Waterloo? 12 A: Well, who? 13 Q: Well, let's say, Mr. Ford? 14 A: I don't know Mr. Ford. 15 Q: I understand that. But, I take it, this 16 concept of circling rates, you say is, in effect, an indicia 17 of a brokered deal? 18 A: Okay. But you asked me what my 19 connotation was, that's mine. 20 Q: I understand that. 21 A: I can't answer for anyone else. 22 Q: I understand that and let me just unpack 23 how you -- you come to your understanding, sir. That's -- 24 that's what it means, from your perspective, when you see 25 circling rates, that -- that's an indicia of a brokered

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1 deal; is that fair from your perspective? 2 A: Brokered or principal. I mean, it's -- 3 it refers to an institutional order; that's what circled 4 means. 5 Q: So -- 6 A: But it doesn't necessary denote agency 7 versus principal. 8 Q: Okay. Then what is it about this letter 9 that you say that tells you that it's referencing a brokered 10 deal? 11 A: In that they -- it would imply to me 12 that MFP were in the marketplace with institutions seeking 13 financing for this particular transaction and that 14 commitments were -- were made or circled by institutions in 15 the marketplace; that's what I assume. 16 Q: But, I mean, assuming that MFP was going 17 to be doing this deal as a principal, okay, I mean, couldn't 18 it -- or wouldn't it, I mean, if it was going to give some 19 kind of a rate guarantee, it could, as a principal as well, 20 go out into the marketplace and make some kind of hedge in 21 order to provide that rate guarantee as a principal? 22 A: It could. 23 Q: So I don't -- if that's true, I don't 24 see anything in this letter that tells you it's a brokered 25 deal?

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1 A: Well, giving you my opinion based on the 2 way I read circling in this transaction. 3 Q: But, I think you just agreed with me 4 that you could circle a rate by, in effect, hedging -- 5 A: Not hedging. No. Hedging that's -- the 6 second paragraph is about the hedging; that's a different 7 transaction. 8 Q: All right. But -- so you say circling 9 rates, but I thought you told me that circling rates could 10 be used either where you're a principal or a broker? 11 A: What -- what circled means. No, I was 12 just explaining what the term circled means and that's when 13 the institution places a commitment -- a preliminary 14 commitment for securities. 15 Q: Right. 16 A: And you put a circle around that. 17 Whether it's an agency or principal, it can still be a 18 circled. 19 Q: Okay, but MFP could do that, on it's 20 own, I mean -- 21 A: MFP is -- 22 Q: As a principal? 23 A: As borrowing? 24 Q: Yeah? 25 A: No, I -- I mean, it would have to have

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1 been done on the City of Waterloo's credit. 2 Q: But, you're not gaining that from this 3 letter. You're gaining that from your knowledge of the 4 industry. 5 A: Correct. 6 Q: All right. 7 MR. COMMISSIONER: Does the word "circling" 8 to you, sir, mean fixing a rate? 9 THE WITNESS: No, it means committing to an 10 amount, and it could mean, your Honour, it could mean, for 11 example, committing to purchase a certain number of 12 securities, or provide a certain amount of financing on a 13 formula basis, can, you know, which could be related to 14 Government of Canada Bonds at some former date. 15 MR. COMMISSIONER: I don't quite understand 16 what you're defining as circling, whether it's used in 17 conjunction with a raise? I mean, it seems to be defined 18 specifically. 19 THE WITNESS: Well, that's what I'm -- 20 MR. COMMISSIONER: -- rate. 21 THE WITNESS: And -- and I -- I -- no, I 22 totally agree. I totally agree. Two (2) different points, 23 and that's -- you're quite right, and that's what I wasn't - 24 - this would imply if they were actually circling fixed 25 rates.

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1 It would imply that they had fixed 2 commitments on the other side, that were well advanced on 3 the transaction. I'm sorry, I got into a discussion of 4 circling. 5 MR. COMMISSIONER: Okay. Thank you. 6 7 CONTINUED BY MR. RICHARD STEPHENSON: 8 Q: It seems to me that -- I just want to 9 understand the two (2) possible structures of -- of -- of a 10 transaction that could fall out of -- of this letter in 11 terms of what might have been contemplated. 12 First case scenario is that MFP's doing this 13 deal as a principal. We know that didn't ultimately happen, 14 but if some of these -- a possibility that that's what Mr. 15 Robson is purporting to tell Mr. Ford. 16 A: Hmm hmm. 17 Q: In that circumstance, in order for Mr. 18 Robson to write this letter, he would have had to have 19 gotten sign off from -- that the Board of Directors 20 investment committee, correct? 21 A: If this was a firm commitment on the 22 part of MFP? 23 Q: Yes. 24 A: Yeah. 25 Q: Okay. And --

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1 A: At -- at which we were at risk. 2 Q: Yeah. That's what I'm talking about, as 3 principal. 4 A: Yeah, that's correct. 5 Q: As principal. 6 The other alternative would be a situation 7 where they're doing it as broker, or of -- of something of 8 that nature, and in that circumstance, if the second 9 paragraph were -- well, I take it -- let me back it up. 10 In order for to put MFP's tax benefit at risk 11 in this transaction, you'd also have to get sign off from 12 the Investment Committee I take it? 13 Do you fig -- is that fair? 14 A: Not necessarily from the Investment 15 Committee, I mean if -- for MFP to take tax benefits from 16 the sourc -- this transaction? 17 Q: What -- yeah -- if -- if -- there's a 18 reference to these put up flow-through -- a flow-through of 19 our tax benefits related to that that, to the extent that 20 that's somehow is that -- that MFP is somehow utilizing it's 21 tax benefits -- 22 A: Right. 23 Q: In order for -- if that were to happen, 24 I take it that he would have had to have gotten some 25 approval from the Board? Or --

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1 A: From senior man -- I mean, what if -- it 2 would have been -- it would have to have been approved, you 3 know, at -- at senior level to Mr. Robson. 4 Q: Okay. And, then I guess the last 5 possibility is that, in fact, it was a flow-through of say, 6 that -- that -- that the fund tax benefit -- a third party 7 tax benefit, and that I guess that the -- that that funder 8 had given some kind of irrevocable, or some kind of term 9 commitment to MFP that it was going to be able to -- to -- 10 to do that. 11 That -- that would be a possibility as well. 12 Is that correct? 13 A: That could be. 14 Q: If that were the case, if it was that 15 scenario, I take it you would expect there to have been 16 substantial documentation between MFP on the one hand, and 17 the funder on the other, sort of, pinning down that point, 18 that the funder had -- was committed to using it's tax 19 benefits to -- reducing the cost of funds. 20 A: I doubt that that would be the case, but 21 I think they'd certainly want a very significant commitment 22 from the funder. I think how they handled their tax 23 position, if that was in case -- in fact, the case, would be 24 something they might do internally. 25 Q: Right. You would -- from -- to the

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1 extent that the funder was going to, in a sense, facilitate 2 the rate, through tax benefits, at the end of the day, 3 that's the funders business and not MFP's? 4 A: That would be -- that would be true. 5 Q: And I take it that, in terms of MFP's 6 due diligence, it has to mind its end of the transaction, 7 and not -- and the funder minds it's -- their -- their 8 respective end of the transaction? 9 A: Certainly, if it were -- if it had 10 anything to do with taxes -- 11 Q: Right. 12 A: -- you would certainly think they would 13 want all their expertise applied. 14 Q: Right. But that's -- that's their 15 business, not MFP's? 16 A: Absolutely. 17 Q: All right. Now, in any event, to your 18 knowledge, none of those things happened? This thing never 19 went to, at this date in time, May 26th? 20 A: Correct. 21 Q: It certainly never went to any Board 22 committee? 23 A: Correct. 24 Q: It didn't go to senior management, and 25 you didn't have -- that is, MFP, didn't have a firm

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1 commitment from a funder? 2 A: That would be my understanding. 3 Q: All right. 4 A: Now, I can speak specifically to the 5 Board piece of it, but that would be my understanding of the 6 three (3) scenarios. 7 Q: Fair enough. To the extent the other 8 two (2) things occur -- 9 A: I wasn't aware of it. 10 Q: -- you were not aware of it, at all? 11 A: Right. 12 Q: And frankly, if it had occurred, you 13 would have expected to be aware of it? 14 A: Yes. 15 Q: Okay. Would you agree with me, sir, 16 that for a Vice-President of your company to be writing this 17 letter on May 26th, I take it that, he would expect that the 18 person receiving it, would understand that, MFP was 19 providing a commitment to 5.78 less 102, guaranteed for -- 20 one hundred and eighty (180) days? 21 MR. COMMISSIONER: Now, you're asking him -- 22 if you're asking him about what somebody else -- 23 MR. RICHARD STEPHENSON: Yes. 24 MR. COMMISSIONER: -- was thinking? 25 MR. RICHARD STEPHENSON: Yes.

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1 MR. COMMISSIONER: Well, I think if you -- 2 MR. RICHARD STEPHENSON: Isn't that -- 3 MR. COMMISSIONER: -- you can express the 4 question a little differently. 5 MR. RICHARD STEPHENSON: Well, I can -- 6 wouldn't it be -- wouldn't it be reasonable for the 7 recipient to form that conclusion? 8 THE WITNESS: If the letter was signed and - 9 - one of the problems I'm having here is that this is a 10 draft letter, unsigned, with many changes in it. I -- I 11 just -- I'd like just a confirmation that, in fact, it was 12 signed. 13 14 CONTINUED BY MR. RICHARD STEPHENSON: 15 Q: Yes, we've got it, it's in the evidence 16 already, and I can show you it, if it helps. 17 A: No, just confirmation that it was. 18 Q: Sure. That would be fair to you. 19 A: That would be fair. 20 Q: Ms. Hocking will help us -- 21 A: Okay. 22 Q: -- of the appropriate -- 23 24 (BRIEF PAUSE) 25

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1 MR. JAMES CASKEY: It's at Tab 62, Volume 3 2 of 7 in Exhibit 30. 3 MR. RICHARD STEPHENSON: Have you got it? 4 MR. COMMISSIONER: I don't think he's got 5 that one. 6 7 (BRIEF PAUSE) 8 9 MR. COMMISSIONER: Volume 3? Thank you. 10 Tab 62. Yes, that's the one. 11 THE WITNESS: Thank you. Okay, thanks. 12 MR. RICHARD STEPHENSON: Okay. 13 14 CONTINUED BY MR. RICHARD STEPHENSON: 15 Q: So, it would be fair to say that the 16 recipient of that could reasonably conclude that that's what 17 was being provided? 18 A: Yes. 19 Q: Okay. 20 A: Hmm hmm. 21 Q: Now, you indicated, I believe, that -- 22 A: I might -- I might just add, though, I 23 would, based on this date, I mean, I would have thought that 24 most recipients would -- there would be a whole stream of 25 questions about this, that would not be reliance just on one

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1 -- one single letter. That there must have been a -- a 2 documentation flow parallel to this, of some magnitude. 3 Q: Okay. 4 A: For a transaction of this size and -- 5 Q: Sure. 6 A: -- and this importance. 7 Q: Sure. And I take it that, then, you 8 would expect that to be travelling both directions? 9 A: Absolutely. 10 Q: Now, you had indicated that the Board 11 met quarterly plus special meetings. And one of the things 12 that the Board would be advised of, were significant pending 13 transactions? I thought I heard you say that. 14 A: Yes. 15 Q: And, was that -- is that simply 16 significant pending transactions, where the company's 17 capital is at risk, or is it any significant pending 18 transaction? 19 A: It would be in the form of any 20 significant pending transaction. This was highly probable. 21 Q: Okay. And -- 22 A: More by way of an activity report -- 23 Q: Right. 24 A: -- than by any other -- 25 Q: You've got -- I take it you have some

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1 meeting of your board between May and September? 2 A: There would be a July meeting. 3 Q: Right. And so, I take it, this -- the 4 MFP transaction -- sorry, the Waterloo transaction, pardon 5 me, was certainly a significant pending transaction at that 6 point in time? 7 A: In July of -- 8 Q: July 2000? 9 A: -- 2000? 10 Q: Yeah. And so it's fair to say that it's 11 probable you got a report on it at that point? 12 A: Could have. I mean, again, we could see 13 the minutes -- 14 Q: Right. 15 A: -- of the board meetings. That would 16 confirm that. 17 MR. RICHARD STEPHENSON: I've got to turn to 18 Mr. McDowell. 19 MR. WILLIAM McDOWELL: I don't have them 20 committed to memory. 21 MR. RICHARD STEPHENSON: I appreciate that. 22 But perhaps they -- we could see if they are forthcoming. 23 MR. COMMISSIONER: See what? 24 MR. RICHARD STEPHENSON: The minutes -- the 25 Board minutes of MFP for July 2000.

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1 MR. COMMISSIONER: What do you want those 2 for? 3 MR. RICHARD STEPHENSON: I want to find out 4 if there's a report on this transaction. 5 MR. COMMISSIONER: You don't remember? 6 THE WITNESS: No. I don't, specifically. 7 Whether it was mentioned at the board. 8 MR. COMMISSIONER: Mr. McDowell...? 9 MR. WILLIAM McDOWELL: Well, bearing in mind 10 that your mandate is to inquiry to the extent that these 11 matters are necessarily incidental, I don't know that 12 whether the Board knew on a purely informational basis of 13 this transaction coming up is necessarily incidental. 14 MR. COMMISSIONER: Well, I'm not certain 15 it's going to advance the situation very much. If the 16 information's available we're probably entitled to see it. 17 MR. RICHARD STEPHENSON: I -- it -- 18 MR. COMMISSIONER: I don't want to -- I 19 don't want to put Mr. McDowell or anybody else to 20 difficulty. If it's not going to -- 21 MR. RICHARD STEPHENSON: From my own -- 22 MR. COMMISSIONER: -- advance it. 23 MR. RICHARD STEPHENSON: From my own 24 perspective it's -- it's -- it's -- if the answer is 25 Mr. McDowell can come back to us and tell us that he's

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1 looked at it and there's no reference to the MFP 2 transaction, that's fine with me. 3 MR. COMMISSIONER: Fair enough. Let's do it 4 that way. We have enough -- we have enough paper. 5 MR. RICHARD STEPHENSON: Yeah. Sorry, I 6 think I said MFP transaction, I meant Waterloo transaction. 7 I -- I use -- 8 THE WITNESS: I suspect there was. I mean, 9 I suspect that there would have been but I just don't 10 recall. 11 12 CONTINUED BY MR. RICHARD STEPHENSON: 13 Q: If this was a, at that point in time, 14 say, July of 2000, if it -- MFP was contemplating this as a 15 tax-driven transaction whereby the funder was going to get 16 some tax benefit and it was going to flow through and affect 17 the rate in some fashion, I take it those are -- those are 18 pretty sophisticated transactions, sir? I mean, is that 19 fair to say? 20 A: If that were the case. 21 Q: Yeah, if that were the case and there -- 22 there would have been a lot of work on -- going on in the 23 background just clarifying all that and -- and nailing it 24 down over the course of the month leading to closing; is 25 that fair to say, sir?

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1 A: The specifics of the tax aspect, if 2 there was a tax aspect? 3 Q: Yeah, if there was going -- 4 A: The general transaction -- I mean a 5 transaction of that nature, I think, would generally have 6 been very complex. 7 Q: Right. 8 A: In terms of economic modelling and 9 matching of cash flows and I think that, in itself, would be 10 its own source of activity. You know, whether tax was 11 another element of it, would have added to it, but -- 12 Q: I guess the question is, if it was a tax 13 deal, would that make it more likely that it would have been 14 reported to the board -- 15 A: No. 16 Q: -- as a pending deal? 17 A: Not if it was not involving MFP's tax 18 position. 19 Q: Okay. 20 MR. COMMISSIONER: I think what you're 21 telling us is that -- is that this was -- would be a 22 significant transaction in terms of its value and it would 23 be reported to the Board as such. But it's not the type of 24 transaction that would be -- for which the board's approval 25 would be sought --

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1 THE WITNESS: That's correct. 2 MR. COMMISSIONER: -- because there was no 3 capital of MFP at risk? 4 THE WITNESS: That is correct, sir. That is 5 correct. It would be reported by way of a report on an 6 activity -- significant activity. 7 8 CONTINUED BY MR. RICHARD STEPHENSON: 9 Q: We've had evidence in this proceeding 10 that there is a meeting in July, on July the 5th, between 11 MFP and the City and amongst the people in attendance -- 12 A: Which year? Of 2000 or -- 13 Q: Of 2000, pardon me. July the 5th, 2000. 14 Amongst the people in attendance are a person by the name of 15 Mr. White who is the City's solicitor, external solicitor on 16 this deal and Mr. Robson and others from MFP, okay? 17 If Mr. White, if at the meeting, Mr. Robson 18 said that MFP would be able to provide the financing at a 19 couple of points below debenture rates, given the time frame 20 of July of 2000, that would be a pretty surprising thing for 21 Mr. Robson to have said. Is that fair? 22 A: It certainly would have been. 23 Q: And, I take it if he was saying that -- 24 A: And the assumption -- and the -- not the 25 only assumption, a couple of points being like two (2)

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1 percentage -- 2 Q: Yeah, 2 percent -- not -- not -- 3 A: Yes. 4 Q: I -- I don't think he was meaning two 5 (2) basis points. I think he -- 6 A: No -- no -- and -- and even so, no, it 7 certainly would have been surprising. 8 Q: And, I -- I -- and -- and there was 9 certainly nothing that you were aware of -- and I -- 10 admittedly this is at the board level, and I know you're not 11 at management, but there's certainly nothing you were aware 12 of that -- going on at MFP that would lead you to have any 13 inkling that that was in fact, the nature of the transaction 14 at the time? 15 A: No. That is correct. 16 Q: And, I -- assuming that that statement 17 was made, unless there was, in fact, unless Mr. Robson had 18 some very good reason to believe that that was going to be 19 the ultimate terms, that would not be a kind of statement 20 that you would endorse, somebody like Mr. Robson made it? 21 A: Yeah, unless he was working on a 22 structure that was going to produce those tax savings, which 23 I was not aware of, no, I wouldn't endorse that statement. 24 25 (BRIEF PAUSE)

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1 Q: You were asked a little bit about the 2 schedule. I think the Commissioner asked you about the -- 3 the delivery of the schedule on September the 25th, and that 4 -- I think you agreed with Mr. -- with the Commissioner that 5 it was unus -- it would have been unusual that a payment 6 schedule would arrive at that late hour on that late day. 7 Subject to, you know, last minute changes, I 8 take it, you -- you're -- you're -- that was the caveat you 9 put, I think, was that sometimes the final terms don't 10 crystalize until the last minute, and -- and to that extent, 11 there might be last minute changes. 12 A: I -- I think what I said was I would 13 find it very unusual that that would happen and be the only 14 schedule -- 15 Q: Right. 16 A: -- that I had seen, that there had not 17 been ample work-up on both sides in terms of what the -- 18 what the deal was going to look like. 19 Q: Okay, would it be fair that those kinds 20 of schedules, you would expect those, amongst others, to be 21 involved in them, would be counsel on both sides of the 22 case? 23 A: I would think so, yes. 24 Q: I don't know if you've ever seen the 25 schedule in this case, and we can turn it up if we have to,

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1 but there is this things about formalize. 2 A: Well, what I -- I think this -- the 3 schedule I saw was whatever was shown that night on June the 4 4th, that was circulated among committee -- three (3) 5 parties. 6 Q: Okay. I'm using the "schedule" loosely, 7 and I shouldn't. 8 A: I know of -- 9 Q: Okay. There's more to this -- there -- 10 as you can imagine, there's lots of schedules. 11 A: Yes. 12 Q: And, I think I wouldn't -- I'd -- I'd 13 like to show you about -- the actual schedule that's come 14 into question. It's called Schedule B to the sub Lease. 15 A: Okay. 16 17 (BRIEF PAUSE) 18 19 Q: Have you got Volume 4 to this Board's 20 documents up there, sir? 21 A: Yes. What Tab? 22 Q: I'm told that the sub lease it at 128. 23 MR. COMMISSIONER: That's correct. 24 MR. RICHARD STEPHENSON: Okay, yeah, if you 25 have a 130, it's got Schedule B in isolation.

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1 THE WITNESS: Okay. 2 3 CONTINUED BY MR. RICHARD STEPHENSON: 4 Q: Okay. You've never seen this document 5 before, I take it? 6 A: Not to the best of my knowledge. 7 Q: Okay, yeah, you have to say yes or no, 8 so the -- 9 A: Okay, I 10 Q: Okay. 11 A: I do not remember seeing this document. 12 Q: Perfect. Okay. I -- I take it that 13 you don't have a particular -- well, let me ask you, I -- do 14 you have a particular experience or expertise in leasing and 15 leasing documentation? 16 A: No. 17 Q: Okay. Let me ask you this from a -- 18 but, nevertheless, I take it you -- you know your way around 19 business transaction, I take it, through your experience at 20 DS, and elsewhere? 21 A: I would hope so. 22 Q: Okay. By the way, I -- I forgot to ask 23 you this question, are you involved in -- I -- I had assumed 24 that you sit on a variety of other corporate Boards, or have 25 done in the past?

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1 A: I have in the past. 2 Q: Okay. Have you Chaired other corporate 3 Boards? 4 A: Not -- no, just Not-For-Profits. 5 Q: Not-For-Profits, okay. Fair enough, 6 thank you. There's something, and I'm not going to ask you 7 to -- to try to parse through this schedule, mercifully. 8 But, we can tell you, and I think this is without 9 controversy, that this is a -- a schedule which is somewhat 10 odd, in the sense that it's expressed in words and it deals 11 with a -- a series of future payments. 12 But it is possible, if you read this 13 schedule, it's a -- it's a -- it's a formula where there are 14 no unknown variables. 15 A: Hmm hmm. 16 Q: All -- every single one of the variables 17 is present, within the text. It is not dependent upon any 18 future event occurring? 19 A: Okay. 20 Q: Can you assist me, sir? Can you think 21 of any business justification which would cause you to write 22 a schedule like that? 23 A: I -- I would have to give that a fair 24 amount of thought. Frankly, it's not my field. 25 Q: All right. But, let's put it this way,

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1 there is another schedule to this document, which is the 2 schedule to the head lease, which has thirty (30) years of 3 payments, okay? 4 A: Hmm hmm. 5 Q: And I can take you to that if you need 6 to see it. But take it for granted, it's got thirty (30) 7 years of payments, on page after page after page. 8 And in fact, if you work through this 9 schedule, you generate another long list of thirty (30) 10 years of numbers. 11 A: Okay. 12 Q: Can -- can you assist me? Is there any 13 conceivable business reason that MFP wouldn't put in a list 14 of thirty (30) years of payments? 15 A: That I don't know. I'm sorry. 16 Q: Can you -- 17 A: No, I -- I don't know. 18 Q: Okay. You don't know one way or 19 another? 20 A: To be very honest with you, I'm not 21 going to with this documentation. And I, you know, I'd be 22 happy to help if I could, but -- 23 Q: Would -- okay, that's as far as I'm 24 going with that, thanks. 25

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1 (BRIEF PAUSE) 2 3 Q: I'd ask you to turn up -- actually, I'm 4 going to show you, Exhibit 14. You don't have it front of 5 you. 6 A: Okay. 7 8 (BRIEF PAUSE) 9 10 MR. COMMISSIONER: A single sheet. Thank 11 you. 12 13 CONTINUED BY MR. RICHARD STEPHENSON: 14 Q: The evidence is that, Mr. Ford received 15 a copy of this letter from Mr. Robson, on September the 16 25th, 2000 and, rightly or wrongly, Mr. Ford took it to be a 17 commitment on the part of MFP, to provide up to an 18 additional $7 million of financing, on the same terms as the 19 transaction that was closing on that very day. 20 And my question for you, Mr. McGrath, is -- 21 is this, assuming that that's what this is, would you -- 22 that's a -- would you agree with me, it's just sort of an 23 odd thing to do, that he would be committing, months in 24 advance, to do another deal on the same terms? 25 A: It says, will pursue a second agreement.

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1 Q: Yes, with similar terms. 2 A: But pursue is -- 3 Q: Right. 4 A: -- far from commit. 5 Q: Right. And, I -- I read the same 6 words -- 7 A: Right. 8 Q: -- the words the same way you do. Let's 9 just assume, okay? And -- and we'll deal with whether the 10 assumption's true, later. Assuming that this was a 11 commitment to do a deal, on similar terms, would you be 12 concerned that somebody is committing in September of 2000 13 to do a deal on the same terms, in say April of 2001? 14 A: But I don't -- I don't understand your 15 point. It -- it doesn't say commitment. 16 Q: I -- I -- I understand that, sir, and -- 17 and my -- my question is, I'm going to -- I'm going to ask 18 you -- I get to ask you to make assumptions and I'm going to 19 ask you to make one here. 20 MR. COMMISSIONER: Let's assume -- let's 21 assume that it is a commitment and then ask him. 22 23 CONTINUED BY MR. RICHARD STEPHENSON: 24 Q: Assume it is a commitment, sir. My 25 question is that would -- it would be -- wouldn't it be very

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1 odd for somebody to be making a commitment in September of 2 2000 to do a deal no earlier than April 1 of 2001? 3 A: Unless there was some reason for a 4 delay. I mean, if you're asking me to make that assumption, 5 I'm not sure why would the client want to delay it. 6 Q: My question is, from MFP's perspective, 7 wouldn't it be risky to commit to doing a transaction on the 8 same terms, approximately 7 months in the future? 9 A: Unless they had an offsetting commitment 10 that's -- would be right. 11 Q: And when you say that's the, sort of, 12 hedge concept we talked about earlier? 13 A: Well, it could be. Or it implies two 14 things; it implies, first, a lender and second a hedge. 15 MR. COMMISSIONER: Well, this is not the 16 hedge. 17 THE WITNESS: No. 18 19 CONTINUED BY MR. RICHARD STEPHENSON: 20 Q: No, no. You're saying that -- 21 A: I'm just saying if they were to commit - 22 Q: Yes. 23 A: -- if they were to commit, they would 24 require both of those elements. 25 Q: That would be what MFP would require in

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1 order to be prudent? 2 A: Right. 3 Q: Okay. You made reference, in questions 4 from Mr. Caskey and I think also Mr. Stevens, that you 5 thought there was, perhaps, two meetings between MFP and 6 Clarica in -- in the May time frame of 2001; do you recall 7 that? 8 A: Yes. I do. 9 Q: Okay. And did you receive a report back 10 from Mr. Wolfraim regarding the outcome of either of those 11 two meetings? 12 A: Yes. I did. 13 Q: Okay. And -- and -- and -- I think I 14 heard you say that he reported back that Clarica and MFP 15 were, I guess, ad idem on what the payments were; is that 16 the -- 17 A: I believe that -- 18 Q: -- gist of it? 19 A: -- that's -- that's my memory. 20 Q: Okay. I understand that -- well, at 21 least one of the meeting involved Mr. Wolfraim on the one 22 hand and Mr. McNabb on the other -- 23 A: That -- 24 Q: -- correct? 25 A: I believe that was a one on one meeting.

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1 That was the first of the two. 2 Q: I understand that Mr. McNabb will say 3 that on May the 29th at the meeting -- there was a meeting 4 involving Mr. Cameron, Mr. McNabb a fellow by the name of 5 Mo Danis, who I assume you don't know? 6 A: I know I -- 7 Q: Oh, he's from -- 8 A: I have met him. 9 Q: He's from Clarica? 10 A: Yes. I have met him. 11 Q: Right. On the one hand and then 12 Peter Wolfraim, Beau Pelech, Dave Robson, Brian Stevens on 13 the other, maybe that's the second meeting? 14 A: That would be the second. The first 15 meeting, I understand was just McNabb and Wolfraim. 16 Q: Okay. And Mr. McNabb will say that at 17 the meeting it was pointed out to them that the MFP 18 presentation does not discuss interest rates. Okay. And 19 meaning the presentation to Waterloo? 20 A: Right. 21 Q: Okay? That's what Mr. McNabb, we 22 understand, will say. In view of the documents that you've 23 got now at Tab 1, 2 and 3, would you agree with me that 24 that's -- that's just hard to sustain? I mean, MFP was 25 talking about rates with the City of Waterloo, don't you

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1 agree? 2 A: Based on Tabs 1, 2 and 3, I would agree. 3 Q: And assuming that, you know -- and 4 obviously, I take it, Mr. -- unless he's forgot about it, 5 Mr. Robson knew that in May of 2001; correct? 6 A: Yes. 7 MR. WILLIAM McDOWELL: You've got to be 8 careful here. I take the force of what Mr. Stephenson's 9 saying but without the benefit of knowing what Mr. McNabb 10 was referring to by presentation, it may not be inconsistent 11 -- I -- you will have heard what the Witness has said, which 12 presentation he's referring to. And, some of them do refer 13 and some of them don't. 14 MR. RICHARD STEPHENSON: Bottom line being, 15 I mean, Mr. -- Mr. -- Mr. Robson could not say with honesty 16 that he did not talk about rates with the City of Waterloo, 17 fair enough? 18 MR. COMMISSIONER: Based on these documents? 19 MR. RICHARD STEPHENSON: Yeah. 20 THE WITNESS: Based on these documents. 21 MR. RICHARD STEPHENSON: Yeah. 22 23 CONTINUED BY MR. RICHARD STEPHENSON: 24 Q: And, if he told such a thing to Clarica, 25 then that, you know, he shouldn't have said that to Clarica

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1 either, is that fair? 2 A: If those were -- if -- if the 3 conversations on rate were solely on these documents, and no 4 other discussions, that's what I -- I don't know what other 5 -- there's a long time frame -- 6 Q: I -- 7 A: -- that elapsed here. 8 Q: Yes? 9 A: And, during that time frame, I'm not 10 sure what discussions would have gone on between the City 11 and MFP. 12 Q: Fair enough. 13 A: Quite apart from Clarica's 14 understanding. 15 Q: But, if -- if -- it sure as heck would 16 not have been appropriate for Mr. Robson to help Clarica 17 that there was no discussion with -- with Waterloo about 18 rate. That would not have been appropriate for him to tell 19 them. 20 A: If the comment was there had been, on -- 21 on -- I would agree with you. 22 Q: Okay. 23 A: What I don't know is how the transaction 24 developed as it finally materialized. 25 Q: Okay. Now --

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1 MR. COMMISSIONER: I've been letting it go 2 without a break. 3 MR. RICHARD STEPHENSON: Yeah -- I'm -- I'm 4 not -- I don't have that much longer to go, but I'm not 5 going to be two (2) minutes either. 6 MR. COMMISSIONER: All right. Well, we're 7 going to take a break, and how long do you expect you're 8 going to be, Mr. McDowell, could you give me a...? 9 MR. WILLIAM MCDOWELL: Twenty (20) minutes. 10 MR. COMMISSIONER: All right. I would like 11 you to start it with our next witness. 12 MR. JAMES CASKEY: The Witness is in fact 13 here, sir, and ready to proceed. 14 MR. COMMISSIONER: Okay, I just wanted some 15 idea. Thank you. We'll take fifteen (15) minutes. 16 THE REGISTRAR: Order. All rise. 17 18 --- Upon recessing at 3:44 p.m. 19 20 --- Upon resuming at 4:02 p.m. 21 22 THE REGISTRAR: The City of Waterloo Judicial 23 Inquiry is now resumed. Please be seated. 24 MR. COMMISSIONER: Mr. McGrath, would you 25 come up, please? Thank you. Mr. Stephenson...?

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1 MR. RICHARD STEPHENSON: Thank you. 2 3 CONTINUED BY MR. RICHARD STEPHENSON: 4 Q: Mr. McGrath, in front of you should be a 5 volume -- of Exhibit 30. It's John Ford's documents. It's 6 Volume 6 of 7. And if I could ask you to turn up Tab 187? 7 A: Hmm hmm. Yes? 8 Q: I'm now going to take you to June 4 of 9 2001, sir. Can you assist me? This document, just if you 10 look in the second column from the right and you go to the 11 bottom, you'll see you've got the 227,708,000 number? 12 A: Hmm hmm. 13 Q: Do you see that? 14 A: Yes. 15 Q: Can you help us? Is that the document 16 that you saw for the first time at the June the 4th meeting? 17 A: I don't know, but that's certainly the 18 number. 19 Q: Okay. 20 A: You know, it was a schedule -- 21 Q: Right. 22 A: -- and that was the aggregate of the -- 23 the -- 24 Q: Right. 25 A: -- payments.

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1 Q: Looked something like this? 2 A: That type of calculation. 3 Q: Yes. No reason to think that it's not, 4 let's put it that way? 5 A: That's correct. 6 Q: Okay. I think you'd indicated to Mr. 7 Caskey, this morning, that you were aware of a meeting that 8 was held on May the 31st at the MFP offices, with 9 representatives from the City? You were aware either that it 10 had been held or was going to be held? 11 A: I was. 12 Q: Okay. At that point in time, I think, 13 you've indicated, that it was -- MFP was sort of on a state 14 of high alert about this file because they understood there 15 was a controversy about it; fair? 16 A: Right. 17 Q: And you understood that the purpose for 18 that meeting, I gather, was to get -- for the City folk and 19 the MFP folk to get on the same page; fair? 20 A: Correct. 21 Q: Okay. And, is it -- would you agree with 22 me that, thinking back about high integrity and ethical 23 business practices, that, at a meeting like that, it would 24 have been particularly important for MFP to have a high 25 degree of candour about its understanding of the transaction?

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1 Is that fair? 2 A: Yes, I -- although I understand, 3 subsequent to that meeting, that the people in response -- 4 with responsibility for the deal -- 5 Q: Yes? 6 A: -- had not come. 7 Q: From the City side? 8 A: From the City side. 9 Q: Yes. 10 A: I think that was a bit of a problem. 11 Q: Would the -- I take it -- sorry, is it -- 12 I mean, although you're not there, did you come to understand 13 that the MFP people felt constrained in some fashion in terms 14 of what they could disclose to these folks? 15 A: No. What I -- what I had understood was 16 that the senior financial officials of the City had not come. 17 They had sent two others -- 18 Q: That's right. 19 A: And it became apparent that there was a 20 disconnect in terms of the understanding of what the future 21 payment obligations were and that it became obvious that MFP 22 would have to get in front of the City itself at a very 23 senior level very quickly. That was my understanding of that 24 meeting. 25 Q: But, I take it that there would be no

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1 reason why, MFP, at that meeting, and it's representative, 2 couldn't provide full, fair and frank disclosure of the 3 totality of its understanding of the deal? 4 A: Except for what I say -- I think, it's my 5 understanding, at least -- was that they determined that 6 there was this disconnect and that the proper people to 7 communicate that disconnect to were the two senior financial 8 officials and/or the Mayor. I think that became imperative 9 as they determined that the City's understanding was not what 10 it was assumed to be. 11 Q: That -- I take it that the perceived 12 problem was that the people who were being spoken to, namely 13 the City officials, weren't understanding what they had been 14 told; is that fair? 15 A: Or -- no, I think -- again, what I was -- 16 what I was advised was that the City officials at that 17 meeting in -- by their comments or questions or answers 18 indicated that their understanding of the economics of the 19 transaction was significantly different than what the actual 20 contract was. 21 Q: But that wouldn't preclude anybody from 22 MFP from educating those people in terms of the precise terms 23 of the deal from MFP's perspective? 24 A: No. It wouldn't. But it might have been 25 the judgment -- and it might have been the correct judgment

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1 -- that that information, if that disconnect existed, should 2 better be communicated at the senior level immediately. 3 Q: All right. Can you assist us, who told 4 you this? 5 A: It would have been Peter Wolfraim. 6 Q: Okay. And obviously -- well, our 7 understanding, he wasn't at the meeting on May the 31st, so 8 he was, again, relaying second -- 9 A: I forget -- 10 Q: -- hand information? 11 A: Okay. 12 Q: Okay. Turning back now to 187, yeah, can 13 you just assist us in terms of when you learned that 14 information from Mr. Wolfraim that you've just conveyed to us 15 about the meeting? 16 A: If that was a Thursday, I would have 17 learned it on, say, a Thursday night. 18 Q: Okay. So it's before June 4th? 19 A: That's right. After the meeting -- 20 Q: In between? 21 A: In between -- 22 Q: Okay. 23 A: -- and it put a high state of alert on, 24 again, in getting a meeting with the City. 25 Q: I --

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1 MR. COMMISSIONER: Could I just interrupt for 2 a minute. You weren't at that meeting -- 3 THE WITNESS: No. 4 MR. COMMISSIONER: -- youself. And so you 5 were learning from Mr. Wolfraim, I presume -- 6 THE WITNESS: That's correct. 7 MR. COMMISSIONER: -- what transpired at the 8 meeting which was attended by Mr. Robson -- 9 THE WITNESS: Robson. 10 MR. COMMISSIONER: -- and by two lesser 11 lights from the City? I presume those two were Mr. -- 12 MR. RICHARD STEPHENSON: Mr. Friedel and 13 Mr. Steffler. 14 MR. COMMISSIONER: Mr. Friedel and Mr. -- 15 what's the other -- 16 MR. RICHARD STEPHENSON: Steffler. 17 MR. JAMES CASKEY: Steffler. 18 MR. COMMISSIONER: Steffler. Did you know 19 those names? 20 THE WITNESS: No. I knew -- the name Friedel 21 I did. I subsequently knew Steffler. 22 MR. COMMISSIONER: Let me just ask you 23 something. The information I've got thus far is that, as a 24 result of that meeting, Mr. Friedel and Mr. Steffler came 25 back to Kitchener or Waterloo -- I've got to say Waterloo.

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1 I'll get in a lot of trouble if I say Kitchener. 2 At any event, they came back to Waterloo and 3 told their superiors that there had been a mistake made on 4 the rate and that it wasn't 4.76. In fact, it was 5 5.45 percent. 6 Now, it transpired that that wasn't right 7 either. And it transpired that the rate was something -- 8 ended up something in the range of eight (8) or 8.2 percent. 9 And do you have any explanation for me as to where these 10 representatives from the City of Waterloo come up with a rate 11 of 5.45 percent when, obviously the MFP people knew that it 12 was over eight (8). 13 THE WITNESS: No, I don't, I'm sorry. 14 Unfortunately, I do -- don't have an explanation for that. 15 MR. COMMISSIONER: Okay. 16 17 CONTINUED BY MR. RICHARD STEPHENSON: 18 Q: Just going back to this May 31st meeting, 19 would you agree with me that it would be -- going into the 20 meeting, okay, before the meeting has started -- you would 21 expect the MFP representatives to be going into that meeting 22 with an intention that there would be full candour, full, 23 fair and frank disclosure; fair enough? 24 A: Yes. 25 Q: Okay. If a problem arises later on,

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1 during the meeting, that wasn't because -- was as result of 2 their intentions going in; fair? In terms of your 3 expectations? 4 A: That would be my expectation. 5 Q: All right. Turning back to Tab 187, 6 then, sir, let's assume for the purposes of this question 7 that this is the document you see on June the 4th? Okay? 8 A: Okay. 9 Q: Given your expectation, that going into 10 the meeting on May the 31st, the expectation would be for the 11 MFP people to deal with this in candour, full, fair and frank 12 disclosure, can you think of any reason why this wouldn't be 13 the first piece of paper that they wouldn't have -- that they 14 would have turned to at the beginning of that meeting on May 15 the 31st? 16 A: I -- I can't disagree with you, but I 17 don't know what the -- the document flow was. 18 Q: Wouldn't that -- from your perspective, 19 that would have been the logical place to start, isn't that 20 fair? 21 A: It would certainly have been one of the 22 -- one of the logical places. It's -- it seems to set out in 23 all the -- the key barrier -- key, not variables, key 24 payments. 25 Q: Okay. Turning now to June the 4th, sir,

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1 I think you had indicated that the issue of the payment 2 schedule comes up at some point in time during that meeting? 3 A: Right. 4 Q: And then, ultimately, the Clarica folks 5 cough up the docu -- this document here, 179, or something 6 that looked like it? 7 A: Yeah, I -- I don't think it was done -- I 8 mean, to create -- my -- my recollection, I think what came 9 up first was the rate discussion. 10 Q: Yes. 11 A: The discussion of what Clarica's rate 12 was, and what the add-on was for MFP, and that was shock 13 number one. 14 Q: Yes. 15 A: Then the next was, what are the level of 16 payments, and at that point, it was a bit of a scramble as to 17 who had -- who had a schedule, and the Clarica people 18 fortunately did have the -- had their schedule with them. 19 And, that was the document that was handed 20 out. That -- I'm presuming this is the one. Certainly the 21 quantum is right. 22 Q: We think so, but -- 23 A: Yeah. Sure. 24 Q: Okay. Let me see if I can assist your 25 recollection in this.

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1 It's my understanding, in fact, that Mr. 2 Robson did in fact produce a schedule at that meeting. 3 Do you have recollection of that, sir? 4 A: Not real -- keep going -- not really. 5 Q: Okay. 6 A: Because as I mentioned before, I recall 7 him speaking to the mandate that was -- was being worked to 8 to develop a financing program keep -- keeping within the 1.2 9 million subsidy. 10 Q: All right. 11 A: Now, whether he was speaking from a piece 12 of paper, I don't recall. 13 Q: All right. 14 A: But, that was his contribution. 15 Q: We understand that the person that 16 actually handed over this document, that we're looking at, at 17 179, is a fellow by the name of Neil Cameron, who is one of 18 Mr. McNabb's folks from Clarica, okay? 19 And we understand that Mr. Cameron will say 20 that, if you just flip over one (1) page -- 21 A: Right. 22 Q: -- to the Tab 178(a). 23 A: Yes. 24 Q: -- a very similar, but not identical 25 document, and in this one, it's got the MFP logo in the

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1 bottom right-hand corner. Do you see that? 2 A: Okay. 3 Q: All right. And you'll see it's got a 4 date at the bottom in the middle, 06/04/2001 -- 5 A: Right. 6 Q: -- which would have been the date of the 7 meeting. Do you see that? 8 A: Okay. 9 Q: All right. We understand that Mr. 10 Cameron will say that Mr. Robson gave this document out at 11 the meeting. 12 A: Okay. 13 Q: Okay? Can you help us with that at all? 14 Would that assist your recollection? Can you say one way or 15 the other? 16 A: I certainly -- I would -- I wouldn't say 17 no to that. That could well have been, because that would 18 have in the context of Robson's presentation. 19 Q: All right. And, you'll see the 20 difference -- there's one (1) or two (2) -- 21 A: Well, there's a missing line. 22 Q: -- subtle differences. But it doesn't 23 have the sub lease rents on it? 24 A: That's correct. 25 Q: Yes. Yes, which I take it, is -- is sort

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1 of a -- the bottom line, from -- from the perspective of this 2 discussion, sir? 3 A: Well, it was and it wasn't. I -- I guess 4 it's certainly the bottom line as far as this discussion, 5 this afternoon. At that time, whether it was, again, it 6 depends on what the question -- why this cash flow, the 7 second one (1) with MFP, was being developed. 8 Q: Right. I mean, given the -- 9 A: I think there was the economics of the 10 project, pre-financing, that lets a reasonable schedule. 11 Q: I mean -- 12 A: And then you take the financing costs 13 off, which is that sub lease rent line, and then you end up 14 with the cumulative net surplus, as opposed to the cumulative 15 surplus before lease payment. 16 Q: Right. But I take it, the two (2) key 17 elements of the discussion, on June the 4th, were, what is 18 the rate and what are the payments? Is that fair? 19 A: That's how it developed. Now keeping -- 20 keeping in mind, that wasn't an agenda meeting, that was a, 21 you know, being called at 6:30 to be down there. We 22 certainly -- the rate was highly visible in the press and 23 that was something that -- 24 Q: You knew that was going to be discussed, 25 for sure?

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1 A: Well, not only knew that was going to be 2 discussed, but the City had to be advised that that was way 3 off base, we certainly knew that. 4 Q: Right. 5 A: The schedule, I mean, a related topic is 6 the schedule -- 7 Q: Right. 8 A: -- of payments. 9 Q: One -- one rolls out of the other? 10 A: That's exactly it. 11 Q: All right. But, you'd agree with me, 12 sir, that this particular document, at 1787(a), sure as heck 13 doesn't get anybody to the bottom line, about what the 14 payments are? 15 A: That's right. 16 Q: And in fact, we understand that, the way 17 the discussion went, and we understand that through what -- 18 well, we understand what Mr. Cameron will say, is, that 19 Clarica asked Mr. Robson to produce a copy of the payment 20 schedule and this, Tab 187(a), is what he produced? And -- 21 A: My recollection is a little at odds with 22 that, as being there. And my recollection is that the 23 question of the payments came up as not being in the -- that 24 Robson's presentation, I couldn't recall, that it was on 25 paper, but the question of the payments was -- was not

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1 addressed. 2 The question then came up, well, our -- our 3 understanding of the level of payments is that they are, 4 let's, say 120 million, some lower number. 5 Q: Yes? 6 A: And the answer was, oh no, they're not. 7 And that would have been from the MFP side and then the 8 question came up, well, what are they? Has anyone got the 9 schedule? And I can recall the gentleman from Mutual saying, 10 well -- to the MFP people, that he had the schedule and I can 11 recall MFP instructing him, well, then give it out. 12 Q: In fact, the -- the evidence that -- that 13 Mr. Cameron will say, was that there was a reluctance, a 14 noted reluctance on the part of any of the MFP 15 representatives, to produce the schedule. Not because they 16 didn't have it, but because they didn't want to circulate. 17 That's what we understand -- 18 A: That's -- that's -- 19 Q: -- that Mr. Cameron will say. 20 A: -- that is at odds with my recollection. 21 Q: All right. 22 A: I think it -- as I recall, there was a 23 high degree of sensitivity on the part of Mutual or Clarica, 24 at the time, based on confidentiality. And that was the 25 point that I think that they addressed with MFP, was, we have

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1 the schedule, but it wasn't theirs to give out. It was -- 2 and MFP released them and said, please give it out. 3 Q: All right. Just in flipping out of 4 the -- I mean, let's get their name on the record again, 5 going to Tim Horton's. You guys go to all the best places. 6 The -- did -- you indicated that, at that 7 point in time, during that meeting, Mr. Robson confirmed that 8 he had reviewed with the City, the entire -- the complete 9 payment schedule? 10 A: That was my recollection. 11 Q: That's -- that's what he indicated? 12 A: Yes, to the effect that he -- I think he 13 was probably referring to either -- probably John Ford. But 14 he had definitely seen the payments. 15 Q: All right. And -- and, beyond that, do 16 you have any recollection of the -- him advising you, of -- 17 to the time, place or manner in which that had occurred? 18 A: No. 19 Q: Okay. 20 A: No. 21 Q: On your desk -- this is the last thing, 22 Mr. Commissioner. On your desk, you should have Exhibit 25. 23 A: Okay. What would that be -- 24 Q: Which would be Mayor Woolstencroft's 25 documents. If you wouldn't mind -- and I'd like to take you

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1 to Tab 42 which is, I believe, the last tab in the volume. 2 Now, apparently, Mr. McNabb, after going to 3 the meeting on June the 4th, goes back to the office and 4 prepares a memo about the meeting and I'd like you -- I'd 5 like you to take whatever time you need to review that and 6 then I've got a question for you. 7 8 (BRIEF PAUSE) 9 10 Q: Just to save you a moment, Mr. McNabb 11 (sic), when you get to the second page, you can stop at 12 "we caucassed as the City reviewed the 13 schedule." 14 A: Okay. 15 Q: No, sorry, I take that back. You have to 16 go to the end. I tried to save time. 17 A: Okay. Do you want me to keep going? 18 Seriously. I'll take a chance. 19 Q: The question -- well I -- you know, I 20 want to be fair to you, actually. 21 MR. COMMISSIONER: We're getting -- it could 22 take overnight. 23 MR. RICHARD STEPHENSON: Well, no -- I've got 24 a real simple question for you, at the end of the day. 25

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1 CONTINUED BY MR. RICHARD STEPHENSON: 2 Q: Leaving aside the first three (3) 3 paragraphs which are probably things you don't know about, 4 starting at -- it talks, on the fourth paragraph it says 5 "8:00 p.m. the meeting began, essentially", 6 you see that? 7 A: Yeah. 8 Q: And then after that he describes his 9 version of the events of the meeting and my question for you, 10 really simply, is this; is that a fair description of the 11 meeting? 12 A: It probably was. 13 Q: I mean, is there anything in here you 14 quarrel with? 15 A: I'd certainly want to read it much more 16 carefully. 17 Q: Well -- 18 A: You know, I've never seen this before. 19 Q: I appreciate that, sir. And I want to 20 give you that opportunity. 21 MR. COMMISSIONER: Well, why don't we give it 22 to him right now. We're not going to finish this this 23 afternoon. Why don't you give -- 24 MR. RICHARD STEPHENSON: This is my last 25 question.

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1 MR. COMMISSIONER: All right. Mr. McGrath, 2 why don't you take a few minutes, and finish reading it. 3 THE WITNESS: Okay. 4 5 (BRIEF PAUSE) 6 7 THE WITNESS: Your Honour, I'm prepared. 8 MR. COMMISSIONER: Okay. Sure. All right, 9 question please...? 10 11 CONTINUED BY MR. RICHARD STEPHENSON: 12 Q: My question is simply it's -- is -- is it 13 a fair recording of -- of that meeting as you understand it? 14 A: In -- in a -- in a first read, it is. I 15 won't say it's -- its, you know, totally inclusive. 16 Q: Okay. Fair enough. And -- and there's 17 nothing that leaps off the page as something you quarrel 18 with? Is that fair? 19 A: Not -- not really. 20 MR. RICHARD STEPHENSON: Okay. Now, those 21 are my questions, thank you very much, I appreciate your 22 time. 23 MR. COMMISSIONER: Okay, thank you. 24 MR. WILLIAM MCDOWELL: Sir, I probably will 25 be half an hour or so.

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1 MR. COMMISSIONER: Well, I hesitate to hold 2 Mr. McGrath more than I warrant necessary. Okay, finish that 3 and let's go. 4 5 (BRIEF PAUSE) 6 7 CROSS EXAMINATION BY MR. WILLIAM MCDOWELL: 8 Q: Sir, just looking at some of these areas 9 that you were asked about. First of all, in relation to 10 tax-driven transactions. There's been a certain amount of 11 evidence here, and you were asked questions by My Friend, Mr. 12 Caskey, about tax-driven transaction, and your answer was 13 essentially that CCRA by 1998, or Revenue Canada, I can't 14 remember which it was, but the Government -- 15 A: Yes. 16 Q: -- the Federal Government, was beginning 17 to look more carefully at tax-driven transactions involving 18 leasing companies? Correct? 19 A: Correct. 20 Q: And, to be fair, that tax is not a 21 particular area of expertise of yours? 22 A: Correct. 23 Q: And, it's an area that's quite arcane and 24 complicated? 25 A: Right, particularly as it -- it develops

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1 into transactions that will pass muster or not. 2 Q: All right, and one of the things that I'm 3 -- I'm just interested to see, just looking at Exhibit 71, is 4 -- just at a glance, there are quite a number of tax lawyers 5 on the Legal Committee of the Canadian Finance and Leasing 6 Association, and then moving, you know, so you don't have to 7 take that on face. 8 If you look at Page 4 within Exhibit 71 -- and 9 actually, I'm sorry, I've got the wrong page reference for 10 you there. 11 Look at Page 9 of -- 12 A: Is this the leasing -- 13 Q: Of the annual report. 14 A: Oh of -- of the annual report, okay. 15 MR. COMMISSIONER: Which is not his annual 16 report? 17 MR. WILLIAM McDOWELL: No. 18 MR. COMMISSIONER: You're talking about the 19 CFLA? You were right the first time. 20 THE WITNESS: Okay. 21 22 CONTINUED BY MR. WILLIAM McDOWELL: 23 Q: So, page 9, this is the presence report. 24 And one of the principle areas of discussion is the 25 elimination of capital taxes. And the President says,

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1 "After years of debate, there seems to be 2 growing recognition, both federally and in 3 some provinces, that the advisability of 4 eliminating or at least to reducing capital 5 tax." 6 So, within leasing transactions, there's a 7 question of potentially being able to sell tax losses, 8 correct? 9 A: Right. 10 Q: There is a question of capital cost 11 allowance, correct? 12 A: Correct. 13 Q: And then there is the category of 14 discussion that the President is talking about, which is a 15 third category, I take it? 16 A: That would be correct. 17 Q: And so, you can't tell me, off hand, I 18 take it, precisely what -- what or how the government 19 restricted the ability of leasing companies, to do tax 20 flow-through transactions, in 1998, whether it was dealing 21 with capital cost allowance or some other aspect? 22 A: Not in any sort of thorough way. 23 Q: Okay. And, as at 2001, even, I take it 24 that, within the industry, there were certain asset based tax 25 driven transactions being done, perhaps not by MFP but by

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1 others? 2 A: I -- I've heard that. 3 Q: And just so the Commissioner is clear, 4 when -- when MFP was looking at tax-driven transactions, what 5 it might be looking at, from the point of view of its 6 technology deals, was quite different than from asset based 7 transactions? 8 A: That would be likely. 9 Q: All right. Now, in relation to the -- to 10 the Board, so I have it clear, none of your evidence is that, 11 where MFP was not at risk, where its own capital was not at 12 risk, there would be no requirement of a sales person, for 13 example, to -- to consult with the Investment Committee? 14 A: That is correct. 15 Q: Broadly speaking, that is correct? 16 A: That is correct. 17 Q: And similarly, there would be no need to 18 engage the attention of the Board? 19 A: That's -- that's also correct. 20 Q: Right. And when I say, at risk, I don't 21 mean, technically for some brief period of time, at risk, but 22 in a material way, at risk, I take it? 23 A: That would be -- that would be true. 24 Q: Right. And so, in relation to Mr. 25 Steven's questions about, what about this ten (10) day

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1 period, where the transaction is closed and MFP is obliged to 2 provide the money, but the transaction with Clarica hasn't 3 closed, a general counsel advising MFP, or an outside counsel 4 advising MFP, might well take the position that, MFP was not 5 really at risk because Clarica, in all likelihood, is going 6 to complete the deal? 7 A: Correct. 8 Q: And so you're not alarmed, I take it, as 9 a former member of the Board of MFP, it's former Chairman, by 10 the fact that MFP's Board was not advised or -- 11 A: No. No, not -- provided there was no 12 condition in the Clarica commitment, that carried with it 13 some material risk. 14 15 (BRIEF PAUSE) 16 17 Q: Now, there was some discussion with you, 18 of Mr. Ford's memorandum, which is at Tab 1 of your 19 documents, which is Exhibit 69? 20 A: Okay. 21 Q: And, you said in your evidence in-chief 22 that you didn't know what the City's requirements were, 23 correct? So that, in other words, that -- that Mr. Ford 24 writes this memorandum and you're asked various questions 25 about Mr. Robson's response to it, but there was some

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1 question in your mind just what, at least based on this 2 document alone, the City required from MFP in the 3 transaction? 4 A: Right. 5 Q: And when Mr. Ford says at page 2 of his 6 memorandum, 7 "In our discussions, MFP has been talking 8 about providing financing for the 9 Millennium Recreation Project with interest 10 rates in the low 5 percent range ..." 11 "Has been talking about", I take it, is not an 12 expression of commitment on the part of MFP? 13 A: No. No, it wouldn't be. 14 Q: "The rate MFP uses and guarantees is tied 15 to the interest rate market ..." 16 And so on 17 "... and will move as the market moves." 18 And then he says 19 "In order to secure a guaranteed rate we 20 require approval from Council to proceed 21 with formal negotiations." 22 Again, that's not describing a commitment -- a 23 commitment, in fact, on either part? 24 A: That would be true. 25 Q: And, do I take it that as you look at

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1 that document, I mean, appreciating that probably your 2 experience is probably different than Mr. Ford's that that 3 description strikes you as being a bit naive on the part of 4 Mr. Ford? 5 A: Absolutely. 6 Q: And the reasons for that, just to 7 summarize, are that if we're looking at doing a deal say it's 8 seven (7) or eight (8) months down the road, for MFP to 9 guarantee in any way a rate would require MFP to go into the 10 market and -- and purchase some kind of instrument? 11 A: That's correct. 12 Q: The cost of that, given that the rate is 13 supposed to be a rate which will be good for 30 years would 14 be exorbitant, I take it? 15 A: It would be a significant risk. 16 Q: And that, frankly, this kind of 17 mechanism, as it's being described there, is not one that was 18 typical in your experience? 19 A: That's -- that's certainly true. 20 Q: So, from the point of -- and then this is 21 probably a point that you made in your evidence in-chief, but 22 from the point of view of the City, if that's what they 23 thought MFP was guaranteeing, then as a sensible commercial 24 party they should have looked for a term sheet, but, more 25 importantly, a commitment letter?

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1 A: I would have -- I would have expected 2 there would be an exchange of agreements. 3 Q: You would have expected that solicitors 4 would have acted for both side on that? 5 A: Correct. 6 Q: The commitment letter would have set out 7 precisely what amount was being committed, what the rate was, 8 what the term was, first, for the length of time for the 9 commitment, I take it? 10 A: That's correct. 11 Q: You would have expected there to be a fee 12 specified? 13 A: If -- sorry on the rate protection? 14 Q: Yes. 15 A: Yes. Or, as I say, a firm commitment 16 which the fee would be implicit in whatever the rate to the 17 City was. 18 Q: Right. So, in other words, either it's 19 going to be -- either the fee is going to be broken out or 20 it's going to be included within the -- within the rate 21 charged to the City? 22 A: Right. 23 Q: The commitment letter would have to be 24 executed, not only by MFP but would also have to be executed 25 by the City; I take it? Correct?

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1 A: Yes. 2 Q: And none of that is contemplated by 3 Mr. Ford's discussion nor by the resolution which followed, I 4 take it? 5 A: That would appear so. 6 Q: Now, you were asked questions about this 7 letter of Mr. Ford's at Tab 46 setting out the resol -- this 8 is Tab 46 of Volume 2, you don't need it in front of you -- 9 Where Mr. Dobbs rather, not Mr. Ford, sent to Mr. Robson a 10 copy of the resolution and Mr. Stephenson said, well, there 11 was a lot of discussion that went along with the resolution 12 and if that were being disseminated within the market to 13 potential funders, wouldn't they want to have all of that 14 discussion. 15 And do I take it that the nub of your answer 16 is that what the funder needs to see is that there is some 17 kind of determination, if I can put it that way, on the part 18 of the City to actually go ahead with this transaction. 19 A: That would be true. 20 Q: So -- 21 A: But there has been a mandate given. 22 Q: There's been a mandate given, so that the 23 funder recognizes that this isn't some kind of pie in the sky 24 thing -- 25 A: It's worth spending real time.

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1 Q: Right, and I'm going to avoid the use of 2 the word, commitment, but what you're looking for is some 3 kind of air of reality surrounding the determination of the 4 City to proceed? 5 A: Right. 6 Q: Now, you were asked a number of questions 7 about Tab 3 within your documents. This is the famous letter 8 of May 26th, 2000. First of all, looking at that, bearing in 9 mind the previous discussion, which we've just had about 10 commitment letters. You don't read that as a commitment by 11 -- at all I take it? 12 A: No. 13 Q: And, the point that you derived from the 14 -- or one (1) of the points you derived from the letter is 15 that, in fact, this contemplate MFP acting in a capacity 16 other than as a principal? 17 A: That was my -- my take on it -- on the -- 18 on the language here, that, in fact or substance, that they 19 would be laying off the transaction -- 20 Q: Right. 21 A: -- to a lender. 22 Q: And, within structured finance, I take 23 it, by referring to circling, that can only -- meaning I take 24 it, that there is a funder or a lender involved? 25 A: That would be the inference that I would

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1 put on it. 2 3 (BRIEF PAUSE) 4 5 Q: Now, you were asked some questions about 6 Tab 154, which is within Volume 5 of Exhibit 30? 7 A: All right. 8 9 (BRIEF PAUSE) 10 11 Q: This is a press release, which I gather 12 was on the MFP website? 13 A: Do I have it in front of me? Yes. 14 Q: Right. Do I take it that -- that, as far 15 as you're concerned, there is nothing which is false or 16 misleading within that press release? 17 A: That's -- that's true. 18 19 (BRIEF PAUSE) 20 21 Q: Now, I'm not going to rehash in any 22 detail these meetings of May 31st, 2002 -- or 2001 and June 23 4th, 2001. There's the meeting that you became aware of that 24 took place on May 31st, which did involve Mr. Robson, but did 25 not involve Mr. Ford or Mr. Stockie, I take it?

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1 A: That's correct. 2 Q: And, from that meeting, I appreciate that 3 you weren't present. You derived an -- an appreciation from 4 the people who were present, that the City plainly did not 5 understand what was going on? 6 A: That's my recollection. 7 Q: And, in fact, you understood from that 8 point that there was a gulf in their understanding? 9 A: Yes. 10 Q: Or I guess it's gulf between their 11 understanding, and -- and MFP's understanding. 12 A: Correct. 13 Q: And, as I understand, your evidence was, 14 you're saying is, where the under -- the misunderstanding is 15 that fundamental, you want to have a face to face meeting 16 among the most senior people involved in the respective 17 organization? 18 A: Right. 19 Q: And, so, you were not dismayed that Mr. 20 Robson did not convey the extent of the misunderstanding at 21 that meeting? 22 A: No, I wasn't. Mind you, that was coupled 23 with the urgency to get on with the meeting, in Waterloo, 24 with the senior officials. 25 Q: Right. And, you were asked some

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1 questions about the meeting on June the 4th. And Mr. 2 Stephenson asked you why it was that you didn't go down, 3 formula in hand. 4 And I take it that this meeting was not only 5 scheduled for, sometime in the evening, it was actually 6 called in the evening? 7 A: That's correct. I think I was called 8 around 6:30. 9 Q: Right. And were you at home? 10 A: At home. 11 Q: And Mr. Wolfraim was called at home, as 12 far as you know? 13 A: That's my understanding. 14 Q: Right. And so that, I take it, explains, 15 in some measure, why neither you nor Mr. Wolfraim had 16 schedules in hand, when you went to the meeting? 17 A: I would -- I didn't have a schedule, but 18 that would explain why Peter wouldn't. 19 Q: Right. We'll hear from him, obviously. 20 A: Yes. 21 Q: Now, you have this meeting with -- with 22 the representatives of Clarica and the representatives of the 23 City. I mean, there's a -- there's a lot of evidence of a -- 24 he says -- I don't want to say he says, she says, but I think 25 all the material players are -- are he's in this.

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1 But there's a lot of debate here, about the 2 order of who said what, at this meeting, but, can I put it to 3 you that, out of that meeting, there was a clear 4 understanding imparted as to not only what the payments were, 5 because that came from the schedule produced by Clarica, 6 correct? 7 A: Correct. 8 Q: That there was no objection taken on the 9 part of MFP to that schedule being produced? 10 A: That's correct. 11 Q: That Mr. Wolfraim was not only completely 12 forthright about the rate, he was forthright about the 13 portion of the rate that could be attributed to the fee or 14 the profit, charged by MFP? 15 A: That's -- he was quite explicit. 16 Q: Right. So, however the batting order 17 emerged from that meeting, the City was left in no doubt as 18 to what this deal was all about? 19 A: Correct. 20 Q: And do I take it that, within twenty-four 21 (24) hours of that meeting, MFP came to the City with a 22 proposal to restructure the deal in some measure, which would 23 have allowed MFP to put its fee back into the deal? 24 A: That's -- that's correct. 25 Q: All right. And that, within a week of

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1 that discussion, MFP went as step further and said, we will 2 unwind the deal by putting the entirety of our fee, back on 3 the table? 4 A: That's correct. I don't recall how that 5 second part was communicated. 6 Q: Right. Well, we'll get -- 7 A: I -- that'll be -- 8 Q: Right. We'll put letters in when Mr. -- 9 A: Okay. 10 Q: -- Wolfraim -- 11 A: The first part I do recall, the day after 12 the June 4th meeting. 13 Q: Now, Mr. Stephenson asked you some 14 questions about the Windsor transaction and the presentation 15 that was made, which is Exhibit 61. And he asked you to make 16 a number of rather pregnant assumptions, if I can put it that 17 way. 18 And if you assume that the following are also 19 true, one, that the rate in Windsor, in fact, is for some 20 portion of the term, two hundred (200) basis points below the 21 incremental cost of funds, and you assume that, in fact, the 22 payments were spelled out in some detail, to the Windsor 23 officials, and that one of those Windsor officials, to whom 24 the amount of the payments was spelled out, was in fact, a 25 participant in this discussion --

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1 A: Right. 2 Q: -- do I take it that that puts the matter 3 in a somewhat different light, as far as you're concerned? 4 A: Sorry, if I could just clarify that 5 with -- 6 Q: Mr. Stephenson says, in effect, if you 7 assume that the rate is not two hundred (200) basis points 8 below, it's actually higher than debenture? 9 A: Right. 10 Q: Then Mr. Robson doesn't look particularly 11 good, correct? 12 A: Right. 13 Q: And what I'm asking you to assume is some 14 facts which put it in a somewhat different light. First of 15 all, there are a number of rates, one of them is the rate 16 encapsulated in that bullet point, okay. 17 But going beyond that, that both the rate and 18 the amount of the payments were at a material time disclosed 19 to responsible officials at the City of Windsor? 20 A: Right. 21 Q: And that one of these officials actually 22 participated in this discussion. All I'm suggesting is that 23 that might characterize or might show Mr. Robson's conduct in 24 a somewhat different way? 25 A: Yes.

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1 Q: And ultimately that discussion really is 2 for another day and Windsor's a different situation 3 altogether. 4 Now, Mr. Stephenson asked you some questions 5 about MFP dealing with Clarica or with a third party and the 6 third party getting the tax benefit and you said that the 7 diligence on the part of MFP was limited to MFP's own part of 8 the transaction? I know you've got a heck of a cold, but 9 you've got to say yes or no -- 10 A: Yes. 11 Q: -- for the record? 12 A: Sorry, nodding. That's a yes. 13 Q: And do I take it that has to be qualified 14 to this extent; that if MFP is getting the money because of 15 some tax flow-through benefit that the funder is getting, MFP 16 at least wants to assure itself that the mechanism is going 17 to work? Doesn't want the funder walking away at the last 18 minute because the mechanism was simply pie in the sky? 19 A: No. That would be true. That would be 20 true. 21 Q: Now, there is this, sort of, thorny 22 business of who owns MFP; correct? Or who owned it at the 23 material time? And, first of all, your answer to that is 24 that you can only know with any assurance within limits, I 25 take it?

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1 A: That's correct. 2 Q: And that you certainly know that there 3 was a pension fund which had a significant chunk of MFP; 4 correct? 5 A: That's right. A series of pension funds 6 under one manager. 7 Q: Under one umbrella, as it were? 8 A: That's correct. 9 Q: You know that there was a shareholding, 10 indirectly, by the Canadian Imperial Bank of Commerce at the 11 point in time? 12 A: Prior to -- yeah, that's correct. 13 Q: The Acktion Corporation had a significant 14 shareholding at the material period of time? 15 A: That's right. They would have purchased 16 the previous block. 17 Q: And you were left in some doubt, I guess, 18 as to just how you describe the Acktion Corporation? 19 A: Right. 20 Q: And I take it that the description that 21 Mr. Stephenson was putting to you that was set out in the 22 minutes of the City meeting is not so at variance with the 23 facts, so far as they can be determined, as to really cause 24 you much concern? 25 A: No. When I saw it it didn't cause me

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1 significant concern, as I say. I wouldn't perhaps -- it 2 would using a specific number like six (6). 3 Q: Right. 4 A: It might be something a little more -- a 5 little broader. 6 MR. WILLIAM McDOWELL: Right. If I could 7 just have one second, sir. 8 9 (BRIEF PAUSE) 10 11 MR. WILLIAM McDOWELL: Thank you, sir. 12 MR. COMMISSIONER: All right. Thank you. I 13 have four (4) questions, okay and then we're going to get out 14 of here. 15 MR. WILLIAM McDOWELL: You're entitled to 16 start refusing. 17 MR. COMMISSIONER: Let me see if I can find 18 them. Wait now. I want to ask you a question concerning the 19 manner in which you obviously conduct business with 20 integrity, and in an ethical fashion. 21 I just wanted to ask you, as a former 22 Chairman, and Director of MFP, you would be concerned that an 23 officer of the company, namely, Mr. Robson, was offering a 24 low rate of interest through whatever mechanism there was, 25 and in this case, on a lease back scheme, and subsequently,

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1 substitute a high rate conventional loan without discussion 2 whether to replace to the borrower City. 3 What do you think about that, from an 4 integrity point of view? 5 MR. WILLIAM MCDOWELL: Sir, if I can just 6 intervene one moment; assuming that that's -- 7 MR. COMMISSIONER: Yes, I'm saying that 8 that's what he did. 9 MR. WILLIAM MCDOWELL: Yes, if you assume -- 10 MR. COMMISSIONER: We have no evidence as to 11 the contrary, but we are going to hear -- I haven't heard 12 from all the Witnesses. Assuming those facts, I want you to 13 tell me what's your view. 14 THE WITNESS: If the facts were as -- as 15 clear as that, I would not be at all happy or condoning of 16 that type of disclosure. 17 My, just further, comment would be if the low 18 interest rate was being offered with a real possibility of 19 someone funding it who did have the opportunity to put value 20 on tax, and if -- if that proved not to be the case some time 21 during the transaction, I would expect that would be 22 communicated through the -- the client, and -- 23 MR. COMMISSIONER: You would expect it if the 24 circumstances of the loan changed, that there'd be some 25 communication --

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1 THE WITNESS: Hmm hmm. 2 MR. COMMISSIONER: -- of those changes to the 3 lending party. 4 Is that correct? 5 THE WITNESS: Right. 6 MR. COMMISSIONER: Okay. Now, looking at -- 7 something I didn't quite understand. At Exhibit 30, Volume 8 5, you're referred to Tab 154, which was the media release by 9 MFP? 10 THE WITNESS: Right. 11 MR. COMMISSIONER: And I wondered if you had 12 any -- you may not have any understanding of this, but if you 13 do, would you tell me. The last sentence in that first 14 paragraph of the press release says that the agreement is a 15 28 year lease that aligns payment with park use over time. 16 This is a press release that's dated in 17 December of 2000? 18 THE WITNESS: Right. 19 MR. COMMISSIONER: So, three (3) months after 20 the closing date, and after the assignment to Clarica? 21 THE WITNESS: Right. 22 MR. COMMISSIONER: What does that -- I 23 haven't been able to find anyplace where the 28 year lease 24 aligns payments with park use over time, in any of the lease 25 documents that form part of the --

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1 THE WITNESS: I'm just -- I'm just looking 2 for that schedule. 3 MR. COMMISSIONER: Okay. You may not know, 4 I'm just asking if you know. 5 MR. WILLIAM MCDOWELL: I think the evidence 6 will be that the ramp up is thought to achieve exactly what 7 you're describing. 8 MR. COMMISSIONER: That's five (5) years. 9 MR. WILLIAM MCDOWELL: Right. And that 10 thereafter, there's an escalator in that, you know, from 11 MFP's perspective, and there's a quarrel about this, that, 12 the pro -- the MFP projection and the lease payments do 13 mirror each other. 14 MR. COMMISSIONER: Well, I'm asking the 15 question, and it may be that if the Witness hasn't got the 16 answer, you do. Or, you're going to have a Witness that does. 17 MR. WILLIAM MCDOWELL: Yeah, and I'm not -- 18 MR. COMMISSIONER: I -- it's just a question 19 that occurred to me, I want to know, so that I can -- when 20 I'm dealing with this thing, I can understand myself -- 21 MR. WILLIAM MCDOWELL: Hmm hmm. 22 MR. COMMISSIONER: -- what these things mean. 23 THE WITNESS: My as -- my assumption, as I 24 would read that, and having lo -- just looked at the 25 schedules was that there was an escalator --escalation in

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1 revenues built into the model, which would, I guess, be 2 achieved through a combination of greater park usage and 3 maybe greater economies, in terms of the operation, which 4 would increase the amount of revenues over time, and 5 therefore, that the lease payments might be parallel to that, 6 to increase over time, in parallel with those expectations. 7 MR. COMMISSIONER: Well, there's no question 8 that that's what occurred in the first five (5) or six (6) 9 years. But, Mr. McDowell's going to have to help me 10 understand how that applies over the whole term of the lease, 11 because I don't understand the -- well, I don't understand 12 the leasing business, to start with, but I'm willing to 13 learn. 14 And I think that what I have to do is 15 understand how a statement like this is meaningful, over the 16 long haul, over and above the first five (5) years. I 17 understand the first five (5) years, I don't understand the 18 rest of it and I'm prepared to leave it at that, for now, 19 because the witness has done his best, I'm sure, to respond. 20 One other question. You responded to Mr. 21 McDowell that you were not dismayed that Mr. Robson, at the 22 meeting on May the 31st, with Messrs Friedel and, who's the 23 other one? 24 MR. JAMES CASKEY: Steffler. 25 MR. COMMISSIONER: Steffler, thank you. That

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1 you weren't dismayed that Robson didn't convey to those two 2 (2) people from the City of Waterloo, the extent of the 3 misunderstanding of what you thought was -- 4 THE WITNESS: Right. 5 MR. COMMISSIONER: -- an obvious 6 misunderstanding of the rate and the actual rental payments. 7 I would have thought that Mr. Robson should 8 have said something to them, that the rate -- or that the 9 rate -- or the effective rate was something in the range of 8 10 percent, and not the 5.45 percent that he let them go away 11 thinking. 12 THE WITNESS: Right. 13 MR. COMMISSIONER: That there was a 5.45 14 rate. 15 THE WITNESS: Yes, I -- 5.45 was new -- new 16 to me. I didn't realize that that was communicated to them. 17 But I was -- my understanding, or the reason I would be 18 understanding of not going into any detail, which I assumed 19 they hadn't gone into any detail with them, was that, 20 suddenly, it would become apparent that there was a very 21 major gap in understanding or acknowledgement of the 22 transaction and that, immediately, we should get up to the 23 City. 24 MR. COMMISSIONER: Well, the evidence that we 25 have so far is that those two (2) representatives from the

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1 City of Waterloo went home, having been told that the 2 effective rate of interest was 5.45 -- 3 THE WITNESS: No, that's -- 4 MR. COMMISSIONER: -- as far as Mr. Robson 5 knew. Now there might be an explanation for it, and I'm 6 prepared to wait for that. 7 THE WITNESS: Right. 8 MR. COMMISSIONER: But as far as you're 9 concerned, you weren't aware -- 10 THE WITNESS: No, and I -- 11 MR. COMMISSIONER: -- if they were left with 12 that misunderstanding? 13 THE WITNESS: No, I -- and my stronger 14 recollection, Your Honour, is that it underscored the need to 15 get up, absolutely as soon as possible. 16 MR. COMMISSIONER: Yes, okay. 17 THE WITNESS: I mean, that's the -- that's 18 the stronger recollection I have, I believe, as a result of 19 that meeting. 20 MR. COMMISSIONER: Okay. I take it that, 21 given the differential that was finally disclosed on June the 22 4th at the meeting in Waterloo, that you described the -- you 23 know, that that meeting ended, there was a clear 24 understanding, I think were your words, that -- what the 25 payments really were?

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1 THE WITNESS: Yes. 2 MR. COMMISSIONER: Finally. That there was a 3 clear understanding -- 4 THE WITNESS: That's right. 5 MR. COMMISSIONER: And you were also aware 6 that -- I think you were asked, that there was no objection 7 by MFP, to that disclosure? 8 THE WITNESS: Correct. 9 MR. COMMISSIONER: But you also said, in an 10 earlier time this afternoon, that these people from the City, 11 they were shocked? 12 THE WITNESS: Absolutely. 13 MR. COMMISSIONER: So obviously -- is it fair 14 to say that it was obvious to you that, although there, at 15 the end of that meeting, there was a clear understanding of 16 what the obligation was, there had not been that clear 17 understanding before? 18 THE WITNESS: That -- that is certainly true. 19 MR. COMMISSIONER: Okay. 20 THE WITNESS: And that -- that is why we had 21 a problem. If that was the problem. 22 MR. COMMISSIONER: Okay, Mr. Caskey, do you 23 have a question? 24 25 RE-DIRECT EXAMINATION BY MR. JAMES CASKEY:

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1 Q: One (1) matter on the -- the re-examining 2 -- Mr. McGrath, by the time you left as chairman, and 3 ultimately as a board member, had the Windsor problem 4 surfaced? 5 A: Frankly, I can't recall. I was in 6 communication with the Company obviously, through the piece, 7 so I was certainly aware -- I think, my recollection is that 8 while I was certainly still a Board member, that three (3) 9 month period, that there was a significant effort initiated 10 by MFP, and what the -- and we'll say support, with -- with 11 the mandate from the Board to get out to the other key 12 lenders -- or sorry, borrowers, while these asset based 13 schemes to make sure that they understood what the payment 14 schedules were, and Windsor was at the top of the list. 15 Q: And -- and I take it, then the issues 16 that -- the hypotheticals put to you by Mr. Stephenson and by 17 Mr. McDowell, those are matters that were in dispute at that 18 time, I take it? 19 Or did you even know what the disputes were in 20 Windsor, and the different -- 21 A: No, I didn't, I mean, my -- my strong 22 hope was that there hadn't been any misunderstandings, and 23 that they understandings on rate, you know, were -- were 24 fully on both sides. 25 Q: Right, but do you now understand that

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1 those misunderstandings are still there? They're 2 litigating -- 3 A: Are being con -- contested -- 4 Q: Yes. 5 A: I'm certainly aware -- aware of that. 6 MR. JAMES CASKEY: Thank you sir, those -- 7 that's the only question I had. 8 MR. COMMISSIONER: All right. Thank you. 9 Then Mr. McDowell...? 10 11 RE-CROSS-EXAMINATION BY MR. WILLIAM McDOWELL: 12 Q: This -- this is tied in with that, but I 13 forgot to ask you, you resigned from the Board in September 14 2001, is that right? 15 A: Yeah, that's correct. 16 Q: And this was in contemplation of you 17 becoming the Chancellor of the Arch-Diocese at Toronto, 18 which, I take it, is basically a full time job? 19 A: It is full time. 20 Q: Just on the temporal side, the spiritual 21 side is a -- 22 A: It's really both. 23 Q: Right. That's a really full time thing. 24 MR. JAMES CASKEY: Don't -- don't -- don't 25 spoil the image.

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1 MR. WILLIAM MCDOWELL: But, just on the 2 temporal side? 3 THE WITNESS: Right. Right. 4 5 CONTINUED BY MR. WILLIAM MCDOWELL: 6 Q: That's -- how many boards did you resign 7 from at that time? 8 A: Well, it was -- just to go through my 9 personal history event -- period, I -- I as -- I committed 10 myself the previous December to this job, and it was kept 11 very much under wraps until about April, and at that time, I 12 resigned as -- the first board I resigned from was one (1) 13 called Italia America (phonetic), which is in the art 14 business, a private company, so I -- I got off that. 15 Another board I was involved with in Boston, 16 fortunately got purchased by somebody, closed in June, so I 17 -- I didn't have to resign from that. That happened 18 naturally. 19 Another assignment I had was -- it wasn't on 20 the board, but I was the financial advisor to Legacy Hotels, 21 which is a real estate -- the hotel group, so I had to advise 22 them of coming off, and MFP I advised the board I think in 23 May -- or April, I -- that I had this new assignment, and I 24 -- all I was sure of at that point was that I was going to 25 have to come off as Chair, because I knew, while I would have

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1 liked to have done double duty, I just knew that the other 2 job was going to be full time. 3 I was undecided as to whether to stay on as a 4 Director. I -- it was really my call, but I realized when -- 5 when we got into the Waterloo situation that this was going 6 to be taking more time that I was going to be able to 7 provide, so I went ahead with the chair transition in June 8 with Mr. Sahi taking that on, and then I come the following 9 annual meeting, I -- I stepped down as a -- as a director. 10 The other boards I had to come off were 11 Not-For-Profits, where there was a conflict with my job. 12 MR. COMMISSIONER: Thank you, Mr. McDowell. 13 MR. WILLIAM MCDOWELL: Thank you. 14 MR. COMMISSIONER: I thank you, Mr. McGrath, 15 for your candour in speaking to us today. I'm glad to be 16 able to get you out of here after only a single day. 17 THE WITNESS: Thank you. 18 MR. COMMISSIONER: And, I appreciate your 19 coming down and helping us out. 20 THE WITNESS: Well, sir, thank you very much. 21 MR. COMMISSIONER: We'll recess until ten 22 o'clock tomorrow morning. One more point, tomorrow's a half 23 day. 24 THE REGISTRAR: This Inquiry is recessed 25 until tomorrow morning at ten o'clock.

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1 --- Upon recessing at 5:10 p.m. 2 3 4 5 6 7 8 9 Certified correct, 10 11 12 13 ____________________ 14 Wendy Warnock, Ms. 15 Court Reporter 16 17 18 19 20 21 22 23 24 25