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 February 5th, 2003 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  Karen Britton    (np)      )
  9  
 10  Chris Paliare    (np)      )City of Waterloo
 11  Richard Stephenson         )
 12  Edward Majewski            )
 13  
 14  Robert Fleming   (np)      )Coalition
 15  Paul Berger                )
 16  Barry MacCormack (np)      )
 17  
 18  Wayne Bumstead   (np)      )John Ford
 19  
 20  Kirk Stevens     (np)      )Clarica
 21  Paul Alexander   (np)      )
 22  Melanie Schweizer          )
 23  
 24  Betty Froese               )Registrar
 25  Carol Geehan               )Court Reporter

1 TABLE OF CONTENTS 2 Page No. 3 4 David Robson, Resumed, 5 Continued Examination In-Chief by 6 Mr. James Caskey 4 7 8 Certificate of Transcript 216 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

1 --- Upon commencing at 10:10 a.m. 2 3 THE REGISTRAR: The City of Waterloo Judicial 4 Inquiry is now in session. Be seated, please. 5 MR. COMMISSIONER: Good morning. Mr. Robson, 6 please? 7 8 DAVID ROBSON, Resumed; 9 10 (BRIEF PAUSE) 11 12 MR. COMMISSIONER: Mr. Caskey...? 13 MR. JAMES CASKEY: Thank you, Mr. 14 Commissioner. 15 16 CONTINUED EXAMINATION IN-CHIEF BY MR. JAMES CASKEY: 17 Q: Mr. Robson, you'll recall that at the 18 close of yesterday, we'd been going through the material 19 that -- the business plan and the financial plan that Andrew 20 Friedel had sent off to MFP on the 20th of April and you've 21 told us the way in which MFP looked at his endeavour. 22 I take it that, at some point in time, some of 23 that material from Mr. Friedel would be used? 24 A: Yes, at some point in time we -- 25 Q: But in -- but in the initial instance,

1 you weren't particularly interested in his projections or in 2 his processes that he was using? 3 A: Okay, we were interested in the 4 processes, vis a vis, the facilities. Those were our primary 5 concern, which are the cash flow, effectively. 6 Q: Now, you recall that there were the 7 interest rates, the 4.78 and the 7 percent. When the 8 material came in from Mr. Friedel, where there any comments 9 made by anybody at the asset based group, about the use of 10 those types of percentage figures and what they meant? 11 A: There wasn't a discussion other than on 12 the facilities. I don't know that we -- we drilled into 13 anything beyond the -- the five (5) year analysis, that I 14 recall. 15 Q: All right. Did anybody that you know of, 16 get back to Mr. Friedel to ask him why he had used any of 17 those percentage figures? 18 A: That would have been the modelling group, 19 to kind of flush that out, Bo and, you know, Carmen, et 20 cetera. 21 Q: All right. And are you aware that they 22 did that? Or they didn't do that? 23 A: Offhand, I -- I -- as I say, most of the 24 discussion, if not all of it, in that time frame, related to 25 the facilities, I think. So I'm -- I don't directly recall a

1 discussion on this. 2 Q: All right. Now, at some time, Mr. 3 Robson, you would have to be directing your mind to how you 4 were going to finance this project, I take it? 5 A: Yes, that was, kind of, later on, 6 effectively, in the cycle. 7 Q: All right. And -- and, when you say, 8 later on, what would be the approximate time frame, that you 9 can recall, that -- that you'd start that process? 10 A: We would -- you know, once we had a level 11 of confidence on the cash flows, then we knew what we were 12 dealing with. Then we would begin to do a meaningful 13 analysis with respect to the -- the obligations through the 14 lease, and any other obligations, including the subsidy from 15 the City, et cetera. 16 So, probably the end of the summer, is -- is 17 about the time that we started getting our questions 18 answered, I think, on -- on math. 19 Q: Okay. Now, what is the process that you 20 go through to start the search, if you will, for a funding 21 body? 22 A: What's the process at MFP? 23 Q: At MFP, yes. 24 A: For a funding body, meaning? 25 Q: Well, for -- for a Clarica or a Canada

1 Life, or -- or for somebody that's -- 2 A: Right. 3 Q: -- going to put up the money, in -- in 4 the event that you decide it's a deal that you want to go 5 through with, how do you, at MFP, go about that process? 6 A: We have a -- a Treasury Department, it's 7 a task of basically finding a -- a debt player that's our 8 traditional role for them, I guess, or, a standard role for 9 them. 10 And anything other than that, be it an -- an 11 equity play by MFP or a tax equity play outside of MFP or 12 within MFP, that would go to the -- our CFO side of the -- of 13 the -- of the shop, I guess, effectively. 14 Q: And who is this at MFP that would go to 15 your -- to your finance group? 16 A: Who? 17 Q: Would it be a salesperson, would it be 18 you or would it be Mr. Pelech or would it be Carmen Roberts? 19 Who would go -- 20 A: MFP goes to the -- which group the -- you 21 said the finance -- did you say the finance group? 22 Q: Well, to Mr. Stevens and Mr. Makohon, I 23 take it? 24 A: Oh, okay. To the Treasury Group? 25 Q: The Treasury Group.

1 A: Okay. Within MFP, the sales person would 2 generally talk to them, just to give them a heads up about 3 what we're working on and to get some sense of what the debt 4 components might -- might be. 5 Q: All right. And -- and I take it that -- 6 that, when you go, that if it is a tax play, if you will -- 7 A: Right. 8 Q: -- that you have to talk to that person 9 about the tax play? 10 A: The debt people? 11 Q: The debt people. 12 A: No. 13 Q: Not at all? 14 A: Well, I mean, they're -- they're -- the 15 debt piece and the tax piece are two (2) different pieces. 16 Q: Right, but -- but they might be able to 17 find someone that would be interested themselves in the tax 18 play, couldn't they? 19 A: Gerry and -- and Brian are pretty much 20 line guys, in the sense of -- of putting deals together. 21 They -- they have their single point of 22 contact, being the funders, the debt piece, and -- and if 23 they're pretty linear in -- in -- in their job function. 24 That's why we bring in these consultants, like 25 Bo, and I mentioned Bruce Heatherington et cetera.

1 Those are the people that would add those 2 layers of -- of -- of -- of a transaction from a -- a sales 3 packaging perspective, and then, generally, the CFO, or some 4 other group would -- would look to do something on non- 5 standard forms. 6 Q: All right. Now, then, insofar as the tax 7 play is concerned, when is that definitively determined, and 8 by whom? 9 A: The -- 10 Q: Whether or not MFP is interested? 11 A: Our CFO would be the -- the person who 12 would generally make the -- the recommendation to Peter, but 13 at the end of the day, it's -- Peter's the President of the 14 company. 15 Q: And, he would decide whether or not MFP, 16 itself, had the -- the appetite or the ability to take that 17 tax play, and if not, how you'd go about finding someone 18 else, I take it? 19 A: I would think the CFO would -- would look 20 to see if it was viable, and then if -- if it was something 21 that MFP was going to take, then he would then present it to 22 Peter, and Peter would make the ultimate decision. 23 Q: All right, and your recollection of when 24 that process would -- would proceed timing wise? 25 A: Generally? Well, we have a large --

1 Q: In this deal. 2 A: In -- in this particular deal? 3 Q: Yes? 4 A: Or in -- just in general? 5 Q: Well, you've told us that it has to come 6 after you've got some comfort level with your pro forma, I 7 take it or, with the -- with the cash flows? 8 A: No and I don't -- again, I think you're 9 mixing ideas here. The -- the pro forma that we're building 10 is an analysis of the cash flows, and a valuation of the -- 11 of the facilities. 12 The issue of -- of a debt and an equity 13 component to the -- to the lease, which is outside of the -- 14 the cash flow analysis, that's a different animal, okay? 15 So, you can't -- you're kind of mixing ideas 16 here. 17 Q: All right, well, then -- then when -- 18 when do those ideas formulate? When -- when is it that you 19 go to your -- your financial people, in relation to when you 20 work on your -- your cash flows? 21 A: As if -- when we -- I don't that we go to 22 the financial people to work on our cash flows either. 23 We go to the financial -- we -- within MFP, 24 maybe I'm -- 25 Q: With -- within MFP, you've got people

1 over here working on cash flows, revenues, and expenses? 2 A: Right. 3 Q: And, that's separate and apart, you've 4 told us, from any consideration on -- on the debt financing? 5 A: Correct. 6 Q: All right, so, when -- when do those 7 things happen? 8 Do you -- do you have people that establish 9 the -- the revenues and expenses to a particular point before 10 you go, or are they running in tandem? 11 I just don't know. 12 A: Oh I see. 13 Q: You'll have to tell me. 14 A: So, you're wondering when it -- when it 15 all comes together, effectively? All the different strings, 16 or working them? 17 Q: What -- when they start, and when they 18 come together? 19 A: Well -- 20 Q: Just a picture of how you operate at MFP 21 to marry up the two (2), and when you start each one, and 22 when you bring them together? 23 A: Okay. The modelling group, if I 24 understand your questions, is an analysis of the client's 25 assets, the -- and the revenue generating capability of those

1 assets. So, that's the modelling function, if you will. 2 So, it's true cash flow analysis. 3 The ability for us to get debt to that is a 4 separate discussion, effectively, because it -- and -- and 5 one (1) doesn't necessarily follow the other. They may run 6 in tandem, as -- as generally they do, because at the end of 7 the day, if you're going analyze something, and the client's 8 ready to go, so you -- it is client driven. 9 Then you -- you better have your ducks in a 10 row, on the -- on the other side of the house, be it the tax 11 equity, be it the MFP's equity, and we'll be at the debt 12 component, okay? 13 So, the lease structure has, you know, two (2) 14 components, and I'm sure Mr. Wright, or Mr. Pelech would have 15 taken you through that, but. 16 Then, from a timing perspective, I mean, the 17 -- the equity piece is a -- is a flow of discussion, because 18 MFP is a -- in itself, is a -- is an equity player in our tra 19 -- in our equipment leases, so that's kind of a fluid role 20 that we have. 21 However, to make a decision on a tax equity 22 piece, Bob would have to look at it vis a vis where our 23 financial position was at any given time. 24 So, you -- you -- I know that, typically, on a 25 March year-end, he might make those decisions as late as May

1 because we've -- you know, you always kind of in retrospect 2 looking at your -- at your -- your financial and with respect 3 to going forward, I mean those decisions I'm thing -- I think 4 are things that he makes, you know, sort of on a monthly if 5 not a weekly basis, as far as tax equity. 6 Q: Okay. 7 A: So I don't -- I can't say that there's a 8 definitive time line and it's not like a gant chart or a 9 critical path where, you know, you -- you go through this 10 step, and then once this step is complete you go to that 11 step. 12 That occurs possibly within the steps, within 13 the modelling, within the debt piece, within the equity piece 14 but certainly the three (3) of them only come together -- 15 excuse me -- at -- at -- at the end. The fact that -- well, 16 whenever the client says okay we've got to get this deal on 17 the rails. 18 Q: And when do you recall first going to the 19 -- to the Treasury people to get them to do that? 20 A: The Treasury people to look at a debt 21 piece? 22 Q: Yes. 23 A: We had discussions with them, well I 24 guess would have been after we were given the mandate, 25 effectively which we got in February. So February of -- of

1 2000? Yes, February of 2000, March 2000. 2 Q: So -- 3 A: We said okay, let's -- we have a real 4 potential deal here. 5 Q: All right. So from that point of time on 6 in February, you've got these two (2) streams running in 7 tandem, essentially? 8 A: Well, three (3) really. You've got the 9 -- the debt, the equity, and the -- and then the modelling 10 people. 11 MR. COMMISSIONER: So as Mr. Caskey asked 12 you, at what point in time on this particular transaction, 13 did you make a determination as to whether there was going to 14 be a tax-equity situation or not? 15 THE WITNESS: We -- we made a decision, I 16 think, within MFP there's -- there's two (2), there's within 17 MFP and outside of MFP, but within MFP, the indication was 18 probably in the June time frame that -- that -- that Bob 19 really, at this -- from his perspective wasn't interested in 20 -- in it at that point. Not to say that we wouldn't ask him 21 to revisit that. 22 As far as our external which is -- is -- is 23 less in our control, certainly, we had set a time line with 24 the client of August 22nd, saying okay if -- by August 22nd, 25 if we haven't found any participant, MFP or otherwise, then

1 from a perspective of the City of Waterloo, there's -- 2 there's not going to be a tax claim unless they chose to -- 3 to restart the calendar with us, effectively. 4 MR. COMMISSIONER: Okay. Well, then if I 5 understand you correctly, by June of the year 2000 it was 6 known that MFP was not going to be attached to that stream? 7 THE WITNESS: I would say by June -- 8 MR. COMMISSIONER: Subject -- subject to -- 9 THE WITNESS: Sub -- yeah. 10 MR. COMMISSIONER: I'll accept that. In 11 THE WITNESS: Yeah. 12 MR. COMMISSIONER: In any event, that's -- 13 that was the position taken by Mr. Wright as Chief Financial 14 Officer? 15 THE WITNESS: Right. 16 MR. COMMISSIONER: And then you're at -- 17 there could be other tax investors other than MFP that you 18 were still having somebody look for. 19 THE WITNESS: Yeah. Bob, predominantly. 20 MR. COMMISSIONER: That is Mr. Wright? 21 THE WITNESS: Yes, Commissioner. 22 MR. COMMISSIONER: And you're telling me now 23 that the magic date was August the 22nd? 24 THE WITNESS: Correct. 25 MR. COMMISSIONER: If you didn't have one by

1 then, there would be no tax play at all? 2 THE WITNESS: I think if there wasn't one by 3 then, the client had a decision. He was at a decision point 4 as far as going forward with the deal and how to go forward 5 with the deal. 6 MR. COMMISSIONER: Okay. 7 MR. JAMES CASKEY: Thank you, sir. 8 MR. JAMES CASKEY: On your desk, Mr. Robson, 9 you should have Exhibit 98, which is a single piece of paper. 10 THE WITNESS: Exhibit 98, okay. 11 MR. COMMISSIONER: Could you look -- 12 THE WITNESS: Oh, I do. Yeah, I do have it, 13 sir. 14 MR. COMMISSIONER: You do have? Okay. 15 Exhibit 98? 16 MR. JAMES CASKEY: Yes, sir. 17 18 CONTINUED BY MR. JAMES CASKEY: 19 Q: And you'll see that this is an e-mail 20 from Leanne Fraser to Mr. Pelech, and you get a copy of it, 21 as does Carmen Roberts and Sandy Pessione and it's talking 22 about Waterloo deadlines. 23 "Hi Bo. Here are the deadlines from John 24 Ford." 25 It says:

1 "Dave wanted me to pass these on to you. 2 He will call you Monday night to discuss 3 before he calls John Ford back to confirm 4 that we can meet these time frames." 5 So I take it that John Ford and you, sometime 6 prior to the 14th of April, which is the date of this e-mail, 7 had a discussion about the time frames that Waterloo was 8 looking at, in order to -- to bring this deal together and to 9 complete it. 10 So that -- that, as of April 25th, some ten 11 (10) or eleven (11) days after this first draft of agreement 12 to Waterloo's lawyer for review. And I'll ask you what is 13 meant, to you, by the first draft of agreement, what does 14 that refer to? 15 A: You know, my sense is that would have -- 16 have been us sending a draft of the head lease, sub lease. 17 Q: All right. 18 A: But I -- 19 Q: Because to you, the agreement means the 20 head lease and the sub lease? 21 A: Correct. 22 Q: All right. 23 A: I'm struggling as to whether we -- we met 24 that timeline of April 25th. 25 Q: All right.

1 MR. COMMISSIONER: No, you didn't, because 2 this thing didn't go out until -- 3 THE WITNESS: No. 4 MR. COMMISSIONER: -- until -- 5 THE WITNESS: Yes. 6 MR. COMMISSIONER: -- August the 25th. Or, 7 September the 25th. 8 THE WITNESS: No, that's correct. You're 9 right, the -- exactly. But I was just on that one (1) point, 10 so. 11 MR. JAMES CASKEY: All right. 12 13 CONTINUED BY MR. JAMES CASKEY: 14 Q: Then on Waterloo's -- May the 8th is the 15 time that, 16 "Waterloo's lawyer to review the final 17 draft of agreement. Also, John would like 18 to run an early draft by Council to gauge 19 their reaction to see if they're on board." 20 So, that's another couple of weeks after 21 the -- the first draft. They want a final draft. When you 22 took a look at this, was that something that you thought was 23 reasonable from a time line standpoint? 24 A: No -- no. These were the deadlines from 25 the City and we were, as I think my evidence stated

1 yesterday, we were behind the eight (8) ball on this deal, 2 trying to catch up. 3 Q: All right. 4 A: So -- 5 Q: And for May 17th, they want, 6 "Their senior management team to review the 7 agreement before it goes to Council and 8 some flexibility on that." 9 Again, did that -- by May 17th, this is the 10 14th, that's a month and a bit, did that seem to be something 11 that you could work toward? 12 A: Again, it was -- this is -- these weren't 13 our deadlines -- 14 Q: All right. 15 A: -- so I can't really speak to that. 16 Q: And then, for May 23rd, 17 "Present final agreement to Council in- 18 camera, for frank discussion about the 19 terms and conditions. If you have any 20 concerns about the agreement before it goes 21 to Council publically on the 29th." 22 And then on the 29th, 23 "The final contract between Waterloo and 24 MFP, approved at the public meeting." 25 And,

1 "Everything done up to that point to be 2 ratified by Council." 3 A: That, I think -- oh, sorry. 4 Q: No, it's okay. 5 A: I think it was shortly hereafter that we 6 really started to get concerned about Andrew's analyses. I 7 think that was one (1) of the issues we had, and we had the 8 tax issue as well. So I know those are two (2) issues that 9 we had, that came up. 10 I don't -- I -- I'm thinking they came up 11 subsequent to this, but certainly, we made the City aware of 12 our concerns. So just to put it in context for you -- 13 Q: All right. 14 A: Okay. I don't -- when -- when was -- 15 should I look? Do you want me to go back to Andrew's report 16 and show you what the concerns were -- 17 MR. COMMISSIONER: Well, why don't you just 18 tell us what the concerns were? 19 THE WITNESS: Sure. We had concerns, on the 20 five (5) year analyses of the facilities, and then beyond, we 21 had concerns that were twofold, really, facilities-wise. 22 You have a -- a -- a golf course and an arena, 23 those are the two (2) primary revenue generators. You have 24 a -- a KPMG report that indicates that the -- the -- the golf 25 course, and I'm not as familiar with golf as -- as you might

1 be, that it should have a certain green fee attached with it, 2 and that -- that that green fee is justifiable based on what 3 we could consider conservative because it's KPMG, that tend 4 not to be ultra optimistic. They -- they tend to be 5 conservative, by their very nature. 6 And what we were hearing back was that, Andrew 7 was taking their numbers and was -- and was reducing them by 8 10 percent, within his own work -- within -- 9 So, let me give you an example of one (1) of 10 the concerns that we -- we -- we talked about. If you looked 11 at the green fees for -- I think they were talking in the 12 range, about $45 to $60, or something. 13 If you grew those green fees at 2 percent over 14 thirty (30) years, the net at the end of thirty (30) years 15 was that your green fees were going to be maybe approaching 16 $100. 17 I mean, it was -- or slightly over. 18 I have more expertise on the hockey side, 19 because of my background, and the -- if I look at the arenas, 20 for example, they were charging 125 an hour at that time, 21 which is what he was using as a basis of his analysis. 22 If you go 2 percent a year for thirty (30) 23 years on $125, that says then, you're adding, arguably, $70 24 to $80 to that number, so that says, then, in thirty (30) 25 years from now, an hour of ice time is going to be $200

1 approximate. 2 Well, I'll tell you today, I live in Hamilton, 3 and we pay $170 an hour today, and if we're paying a hundred 4 -- or -- or slightly over 200 in thirty (30) years from now, 5 and it's just not realistic. 6 Okay, so we -- we kind of got into some 7 pretty, roll up the sleeves, discussions with John about 8 this, okay? 9 And I -- I did make reference yesterday that 10 he indicated to us, and, in fact, it did occur, because it 11 was -- sorry, that -- that Andrew was taken off the project, 12 because we then dealt with Wayne Steffler, and Linda, and -- 13 throughout the month of September, as we approached the close 14 of this. 15 So, I mean, I, you know, appreciate what 16 you're trying to get at here, but you got to understand it, 17 there was a tremendous push-back from MFP about the 18 assumptions. 19 20 CONTINUED BY MR. JAMES CASKEY: 21 Q: All right. Now, and let me ask you, Mr. 22 Robson, why -- why was that of concern to you? 23 You're doing some modelling, if -- if Waterloo 24 is conservative, because of political reasons, or -- or 25 wanting to benefit their own people, their own citizens, why

1 is that of concern to you in the modelling process? 2 Why don't you just say, well Waterloo, that's 3 what you seem to think is appropriate for Waterloo, and we'll 4 just -- we'll just model it on that basis. 5 What problems did that get you into? 6 A: The whole valuation issues is -- is a -- 7 is -- is overriding this. I mean, if you have an asset that 8 isn't properly valued from -- from, certainly, and this is -- 9 I'm using Bo's terminology, then he'll get, from his 10 perspective, a tremendous push-back from Revenue Canada, if 11 there is a tax play at all. 12 So, the underlying assumptions, although you 13 may think are not important, in -- from your question, are 14 extremely important. 15 Q: All right. Let me ask you this. 16 Would Revenue Canada be upset because the 17 valuation is low or because the valuation was high? 18 A: That's a question that Bo is best to -- 19 to answer, frankly, but if you're looking at deductions based 20 on a -- an asset, and you're overstating its value, or -- or 21 -- or for example, versus revenue generating capability, then 22 you're going to get -- you're going to get a push-back, 23 because you're deductions are based on that higher value. 24 Q: Right, but Revenue Canada wouldn't be 25 concerned, I take it, Mr. Robson, if you had a low valuation.

1 They're only concerned if you take a high valuation, and try 2 to take greater deductions than would be appropriate? 3 A: I -- I like -- like I'm out of my depth, 4 and in all due respect, so are you. 5 You can't tell me what Revenue Canada -- 6 MR. COMMISSIONER: You would be surprised at 7 what he knows. 8 THE WITNESS: Yeah, I should -- I mean, yeah. 9 MR. WILLIAM McDOWELL: I kept looking under 10 the desk. 11 MR. COMMISSIONER: But, let me ask you a 12 question. 13 The valuation issue has been discussed with 14 Mr. Pelech, and my understanding of his evidence is that the 15 valuation issue only arises with respect to a tax equity 16 investment, and if the project is not going to go out with a 17 tax investor, and it's going to be strictly a money-over- 18 money issue, the sole issue that you have to concern yourself 19 with is credibility of the borrower, the City -- 20 THE WITNESS: You see, I -- 21 MR. COMMISSIONER: -- whether or not the City 22 can afford -- 23 THE WITNESS: Yeah. 24 MR. COMMISSIONER: -- to pay the cost of the 25 borrowing, and the valuation issue, sort of goes out the

1 window perhaps as the tax investor. Is that true? Do you 2 agree with that? 3 THE WITNESS: Well, I w -- I mean, I'm not 4 surprised that Mr. Beau -- Mr. Pelech, Mr. Bo -- Mr. Pelech 5 has said that. His strength is the tax side and his focus 6 always has been but I will say that in -- in my experience in 7 the leasing business, when you look at -- at -- at funders, 8 yes they certainly would do their own credit analyses, no 9 doubt about it. 10 However, and we, of course, subscribe to CBRS 11 on this project, on the same basis of establishing credit 12 worthiness of the -- of the lessee. However, we do know that 13 a lot of the funders look to push back and understand a 14 couple things. 15 One is do you have a facility that the Council 16 has said that they're -- they are going to only subsidize at 17 1.2 million for thirty (30) years. So if then economics 18 don't work, as a funder you've gone in with your eyes open 19 and you could run into some push back and the reason I bring 20 that up is it's my understanding in this transaction, that 21 when Clarica tried to securitise pieces of it, they came back 22 to our staff and asked for the golf reports. Maritime Life I 23 think was interested in that, et cetera. 24 So if, what you're saying or what Bo was 25 saying, you're -- I think it's Bo that said that. If it's

1 true, then why would Maritime Life, Canada Life and all these 2 other folks push back for -- for numbers. I mean, it's 3 because there's more than just the credit worthiness and the 4 hell or high water. 5 MR. COMMISSIONER: Well, I suppose we'll find 6 that out when we talk to the witnesses from Clarica but the 7 suggestion that has been made is that Maritime Life and 8 Canada Life don't know Waterloo the way Clarica does and I'm 9 not sure it's exactly accurate, but my understanding was that 10 Clarica was less concerned about these matters, as long as 11 the covenant of the City of Waterloo. 12 They didn't care about anything else but 13 perhaps Maritime Life and Canada Life, they're the ones that 14 wanted it that Clarica wanted to pitch off part of this deal 15 to one of them. And that's why all this stuff is being 16 produced to Clarica so they can resell it or sell part of it, 17 anyway. 18 THE WITNESS: Well -- but then what are they 19 selling? If they're just selling the credit. 20 MR. COMMISSIONER: That's right. That's all 21 -- that's all -- 22 THE WITNESS: Well, why -- 23 MR. COMMISSIONER: -- they were going to 24 sell. 25 THE WITNESS: Well, why would they ask for

1 golf numbers and et cetera? I mean, that's not the credit. 2 MR. COMMISSIONER: Well, I appreciate that 3 but Maritime Life -- or the suggestion is that Maritime Life 4 didn't know that. They didn't know about the City of 5 Waterloo and what a good bunch of people they are and they -- 6 there's a few issues like that, but we don't know yet. We're 7 going to have to find out. 8 THE WITNESS: Well, you know, in all due 9 respect to Clarica, I have had Clarica people come with me to 10 visit clients, to push back on their business plan. 11 MR. COMMISSIONER: Okay. 12 THE WITNESS: So I mean -- 13 MR. COMMISSIONER: One of those clients was 14 not the City of Waterloo? 15 THE WITNESS: The -- no, you're right. 16 MR. COMMISSIONER: Okay. 17 18 CONTINUED BY MR. JAMES CASKEY: 19 Q: In any event, from your perspective a 20 revenue and expense projection that was too low was equally 21 as bad from Revenue Canada's standpoint, as far as you knew, 22 as one that was too high? 23 A: Okay. We're -- okay, as far as I knew -- 24 MR. WILLIAM MCDOWELL: Well, what I think 25 it's fair of Mr. Robson to say who knows what Revenue Canada

1 thinks and surely the point, if you want an accurate 2 valuation and then we can just go ahead and ask them. 3 MR. COMMISSIONER: Well, you know, I don't 4 know whether there's an issue surrounding this or not. Mr. 5 Caskey can make that determination but the information we've 6 developed from Mr. Pelech who a self-avowed non-expert in 7 taxation, he led me to believe, anyway, that Revenue Canada 8 was the key to determining whether or not a tax play was 9 going to work. 10 MR. WILLIAM MCDOWELL: True, true. 11 MR. COMMISSIONER: And that they were going 12 to look at the potential deduction as against his valuation. 13 MR. WILLIAM McDOWELL: True. I take -- take 14 Mr. Caskey's point, that if you want to see whether someone's 15 fiddling taxes, then an absurdly high valuation is -- is key 16 to that. But the point is, the valuation should be accurate 17 for a whole bunch of reasons -- 18 MR. COMMISSIONER: That's fine. 19 MR. WILLIAM McDOWELL: -- and I don't know 20 why we're belabouring the -- 21 MR. COMMISSIONER: Well -- 22 MR. WILLIAM McDOWELL: -- the point about 23 what they would think about -- 24 MR. COMMISSIONER: Well, I'm not sure either, 25 but we've had -- the matter's a potent issue, and I just

1 explained to you, the best I could, what I understood, that 2 developed. 3 Now, this witness is not -- is not a tax 4 expert, either. And it may be that we'll have to wait until 5 we have a tax expert or some other kind of expert, from 6 Clarica, who's going to tell us what they depend upon. 7 One (1) of the things they did not depend, in 8 this case, was the tax play. 9 MR. WILLIAM McDOWELL: True. 10 MR. COMMISSIONER: They were not interested, 11 MFP was not interested. 12 MR. WILLIAM McDOWELL: Sure. 13 MR. COMMISSIONER: We've got all that so far. 14 MR. WILLIAM McDOWELL: True. But -- 15 MR. COMMISSIONER: The evidence is, thus far, 16 that nobody was interested. 17 MR. WILLIAM McDOWELL: But -- but let me just 18 plant this thought. It should not be assumed that Clarica, 19 which is a very important corporate resident of this city, 20 would just rely on the covenant and nothing else. Because 21 that, potentially, would put Clarica in the position, if this 22 facility were a white elephant, of suing its host city. And 23 that's a pretty extreme measure. 24 You know, and if you look at the way the Sky 25 Dome scenario played out in Toronto, that's not how it played

1 out, you know, where you've got something that was a 2 construction cost of 270 million, that sold for 90 million, 3 and so on. 4 MR. COMMISSIONER: Well, we can compare it to 5 lots of things. If you want to go to the Silver Dome and pay 6 admission, you can get, you know, a worse explanation. 7 Okay, well let's carry on. I don't know where 8 you want to go with this. 9 MR. JAMES CASKEY: It was simply a matter 10 of -- of, Mr. Commissioner, the -- the issues of whether or 11 not Mr. Friedel's projection -- projections should be looked 12 at by -- by MFP, and for what purpose? And -- and why it was 13 that if they were -- if they were low, why it would really 14 matter? 15 MR. COMMISSIONER: Well, he says, please 16 explain why. And I think, the first -- this is the first 17 time that we've heard from any witness, that Mr. Friedel was 18 turfed off the job because of his conservatism. I haven't 19 heard that from anybody else. 20 MR. JAMES CASKEY: No sir, you're quite 21 right. 22 MR. COMMISSIONER: And we're going to maybe 23 have to recall some witnesses, to find out why Mr. Robson 24 says he was told that Friedel was bumped, because he was too 25 conservative. Well, that may be, I don't know.

1 But just because he -- I said this to other 2 witnesses, just because Mr. Robson was told that, doesn't 3 make it so. 4 MR. JAMES CASKEY: True. 5 MR. COMMISSIONER: And we're going to have to 6 get to the bottom of it. 7 MR. JAMES CASKEY: Yes, sir. 8 MR. COMMISSIONER: Okay. 9 MR. JAMES CASKEY: Mr. Robson, let's move on, 10 then, to -- back to Exhibit 107, which is your book of 11 exhibits. And in particular now, we're at Tab 20. 12 MR. COMMISSIONER: Is that Volume 2? 13 MR. JAMES CASKEY: In Volume 2, sir. 14 15 CONTINUED BY MR. JAMES CASKEY: 16 Q: And this appears to be handwritten notes. 17 It seems to be May the 5th of 2000. And can you tell us if 18 you recognize the handwriting? 19 20 (BRIEF PAUSE) 21 22 A: Oh, sorry. Yes. This is my handwriting. 23 I'm sorry. 24 Q: All right. And -- and, do you know 25 whether or not this was a meeting or whether these were just

1 inner thoughts that you had that you were putting down? 2 3 (BRIEF PAUSE) 4 5 MR. WILLIAM McDOWELL: Did you say, inner 6 thoughts, Mr. Caskey? 7 MR. JAMES CASKEY: Yes. Inner thoughts. 8 9 (BRIEF PAUSE) 10 11 MR. COMMISSIONER: If that's the case, they 12 are no longer inner thoughts. 13 MR. JAMES CASKEY: Once they're committed to 14 paper, they become outer thoughts, Mr. McDowell. 15 MR. WILLIAM McDOWELL: It's too metaphysical 16 for me, Mr. Commissioner. 17 18 (BRIEF PAUSE) 19 20 MR. COMMISSIONER: It must be the weather. 21 Have you got an answer? 22 THE WITNESS: I think these are outer 23 thoughts. 24 MR. JAMES CASKEY: Thank you. 25

1 CONTINUED BY MR. JAMES CASKEY: 2 Q: Then, go through and tell us -- tell us 3 your recollection of how they came about, whether it was a 4 meeting, a discussion, and who would be there? 5 A: It -- it is from a meeting, and I don't 6 know who was there, but it looks to me that we were -- or I 7 was involved in -- in -- actually, can I re -- I don't know 8 if you have all my DayTimers. 9 Okay, I -- I'm -- I'm pretty certain it's a 10 meeting, and it -- it looks like the -- the -- the discussion 11 surrounds the golf course. I don't -- I don't recall who the 12 meeting was with, so, I'm at a bit of a loss. 13 MR. COMMISSIONER: That first item talks of 14 grading, it appears the number -- the $900,000, I guess, it's 15 Dave's estimate, is that you? 16 THE WITNESS: No, I -- I think the project 17 manager for the golf course was Dave, and I don't recall his 18 last name. 19 MR. COMMISSIONER: Okay. 20 MR. JAMES CASKEY: I think Smith, if you look 21 down about three (3) lines. 22 THE WITNESS: Oh, very good, yeah. 23 MR. JAMES CASKEY: All right. 24 MR. COMMISSIONER: Okay. I should have 25 looked there too. Thank you.

1 2 CONTINUED BY MR. JAMES CASKEY: 3 Q: All right, in any event, it starts off 4 talking about the grading, presumably about the golf course, 5 and -- and there's a -- a 9.3, and I take it that it's 6 million, an 8.5, Dave's estimate, and then there seems to be 7 an arrow that -- that leads down, and it says, "project met". 8 MR. COMMISSIONER: Management. 9 MR. JAMES CASKEY: Management? 10 MR. COMMISSIONER: M-G-T. M-G-T. 11 MR. JAMES CASKEY: Okay. 12 MR. COMMISSIONER: My eyesight's improving 13 still. 14 MR. JAMES CASKEY: Absolutely. 15 16 CONTINUED BY MR. JAMES CASKEY: 17 Q: So, if you could take us just through it, 18 rather than have me guessing at what your handwriting says, 19 Mr. Robson? 20 A: Okay. The -- I guess from the top: 21 "9.3 versus 8.5." 22 I've -- my guess, it -- it -- for some reason, 23 my guess is that's -- that's million, but I -- that's just a 24 guess. "Dave's estimate, petroleum price", that's with 25 petro-pricing construction, "Dave Smith, golf specialist" is

1 the third line, 2 "Tuesday's price should be [yeah] 35 3 million P.V.K. architect. 4 Modular and expanded - design and build 5 Elliston and PCL, Ball construction." 6 I -- my guess is this is referring to the -- a 7 tender for the golf course engineering, I guess. 8 Q: Yeah. 9 A: "Value engineering's a certain mix of 10 topsoil, but subsequent blend of sand, 11 which is on site, will decrease the cost" 12 So I think some type of a -- a -- a by-product 13 of -- of what they were doing, that would enable them to save 14 some money. 15 "Golf practice facility added. Grade 16 soccer fields, i.e., 100 K -- one hundred 17 thousand per soccer field budgeted, but 18 economies of scale." 19 And, beside the two (2) asterisks, is 20 "1.2 million is tax payer's subsidy, so 21 contingency fund is a question mark." 22 Okay. I have some thoughts about that, but, I 23 don't -- 24 "Which translates to $27.00 on the tax 25 bill. Individual tenders, therefore

1 severable, prioritize per revenue. 2 If you don't need a 1.2 million, then you 3 need the sinking fund" 4 I'm sorry, I'm at the top of the second page. 5 Q: Yes? 6 A: "Or MFP takes money against rent. 7 Surplus funds applied to future years sub 8 lease payments -- sub lease rents [I'm 9 sorry]. Agreements approved by Council. 10 Sample agreement, then there's an asterix, 11 Bill White, from White, Jenkins, Duncan's, 12 copy of draft only, copies to John Ford and 13 Andrew." 14 The next point, 15 "Grading contract awarded, but legal [I'm 16 not sure what that meant] By-weekly draws, 17 therefore pay early June, and approve John 18 or Heather cart for advances." 19 And then, beside the two (2) asterisks, 20 "May 29th, and May 15th photo op -- photo 21 opportunity." 22 Beside the single asterisk at the bottom -- 23 second to last line at the bottom of the page 24 "Financial project management binder" 25 And then the final point beside the asterisks:

1 "$56 million, budget gets money from 2 donations, et cetera" 3 Q: I think it might be but gets -- budget 4 gets. 5 A: Budget. 6 Q: Budget gets, sorry. All right. 7 Now, as -- in that meeting, I take it there 8 were two (2) matters that you'd come out of it with aside 9 from all the others is that there's going to be the 10 taxpayer's subsidy of $1.2 million and I take it that wasn't 11 entirely new to you on the 5th of May? You knew that was 12 what they -- the Council had indicated? 13 A: Correct. 14 Q: And the other thing is that, at the very 15 last, it's not a $56 million deal? If everything is done. I 16 take it that -- that you were aware that when this started 17 off, there was a Phase 1 and a Phase 2 or a basic plan and 18 then a Phase 2 depending on affordability? 19 A: Actually, when we began it was very much 20 Phase 1 and 2 but I understand from my first meeting with 21 Andrew, there was a Phase 1 being considered but it moved 22 quickly to Phase 2. 23 Q: All right. 24 MR. COMMISSIONER: So is it correct that the 25 numbers that Andrew produced from the City for MFP, they --

1 they included the projections with respect to four (4) ice 2 pads versus -- 3 THE WITNESS: That's right. 4 MR. COMMISSIONER: -- what's required in 5 Phase 2? 6 THE WITNESS: Yeah. 7 MR. COMMISSIONER: And the expense side of 8 that also took into account four (4) ice beds? 9 THE WITNESS: Yes. 10 MR. COMMISSIONER: Yeah. So that what you're 11 saying now is that as far as MFP was concerned, from the 12 outset basically, they were talking about Phase 1 and 2? 13 THE WITNESS: Correct. 14 MR. COMMISSIONER: Okay. 15 16 CONTINUED BY MR. JAMES CASKEY: 17 Q: I take it that -- that when we talk 18 affordability, if indeed these projections of revenue and 19 expense don't justify a borrowing to the extent of $56 20 million that -- that Waterloo would have to cut back its 21 expectations and really just do the Phase 1 at about $27 22 million? 23 A: Now, I'm -- I'm not sure. Being as I 24 guess I've gained a lot of knowledge through the process of 25 -- of the mediation, I don't I can talk using that knowledge

1 or not. I mean -- 2 MR. WILLIAM MCDOWELL: That, actually is a 3 bit of a question. What I think we want to avoid is subject 4 view, Mr. Commissioner, is reference to positions taken in 5 the mediation. 6 MR. COMMISSIONER: I don't really want to 7 know what information was developed or where the information 8 was developed from particularly. 9 MR. WILLIAM MCDOWELL: Sure. If what he's -- 10 what's saying, I think is that there -- there may be 11 financial facts, for example, that he learned through the 12 litigation process and provided they're identified as such 13 that. 14 MR. COMMISSIONER: But they're, I take it -- 15 I'm assuming what Mr. Robson just said, he does have some 16 information but they shed light on this project that isn't 17 going to breach any confidences that may have developed. 18 MR. WILLIAM MCDOWELL: Right. 19 MR. COMMISSIONER: -- in course of the 20 mediation. 21 MR. WILLIAM MCDOWELL: And I think that -- 22 that you're entitled to know that after acquired information, 23 as long as he says, well I learned through the mediation this 24 about the City or about MFP, I don't think there's anything 25 offensive about that.

1 Except for this -- 2 MR. COMMISSIONER: Don't worry about -- if 3 you're concerned about disclosing of confidence then you can 4 bring it to my attention and deal with it. If you're not 5 concerned about confidence, then tell us what you know. 6 THE WITNESS: Okay. 7 MR. JAMES CASKEY: And Mr. Commissioner, for 8 your understandings, what I'm really interested in is what he 9 knew on the 5th of May when he's at this meeting. That's 10 what I want to know. 11 MR. COMMISSIONER: We're talking about the 12 5th of May 2000, at this point. 13 THE WITNESS: Correct. 14 MR. JAMES CASKEY: Okay. 15 THE WITNESS: All right. In the 5th of May, 16 2000 we -- MFP had been party a considerable presentation by 17 the users -- potential users of the RIM Park from the K-W 18 Skating Club to the Waterloo Soccer to on and on. That there 19 was a tremendous need in the community for this facility, as 20 it sits today. 21 So -- and I -- and I -- I mention that 22 because, it was only through the mediation process that we 23 even understood that there was an alternative -- I mean, we 24 understand there was an alternative position in January, 25 the -- the discussion was, certainly, Phase 1, Phase 2. But

1 after January, it -- it was certainly after the -- the 2 February Council meeting, it was always the two (2) phases 3 combined. 4 MR. COMMISSIONER: Are you telling us that 5 there were presentations made by various user groups, to MFP? 6 THE WITNESS: No, to Waterloo Council -- 7 MR. COMMISSIONER: To Waterloo Council. 8 THE WITNESS: -- on that February the 21st 9 Council meeting, as far -- 10 MR. COMMISSIONER: At the February -- yes. 11 And if they haven't been referred to, yet, I'm sure they will 12 be, but you're quite right. At that February 28th meeting of 13 Council, there was -- or February 21, I guess it was -- 14 THE WITNESS: Right. 15 MR. COMMISSIONER: -- there were a number of 16 speakers addressing Council, one (1) of whom was yourself. 17 THE WITNESS: Yes. 18 MR. COMMISSIONER: That you -- I guess we 19 have heard about that. So I just was trying to get a handle 20 on whether or not there was some kind of presentation made 21 directly to MFP, other than those that we know about, having 22 been made to City Council. 23 And you're telling me, no, that the 24 presentations you're talking about are presentations you were 25 present at --

1 THE WITNESS: Correct. 2 MR. COMMISSIONER: -- that were made to City 3 Council by various user groups. 4 THE WITNESS: Correct. 5 MR. COMMISSIONER: Okay. 6 THE WITNESS: So to -- to answer your initial 7 question about May, and I apologize -- 8 MR. JAMES CASKEY: Not a problem. 9 THE WITNESS: Yes, we were, certainly in May, 10 on to Phase 1, Phase 2. Not just Phase 1. 11 MR. JAMES CASKEY: All right. 12 13 CONTINUED BY MR. JAMES CASKEY: 14 Q: And that -- that was the totality of the 15 project, as it now exists? 16 A: Correct. 17 Q: Totalling $56 million worth of -- worth 18 of expenditure? 19 A: Correct. 20 Q: But was there ever any discussion, at 21 that February or leading up to the February 21st meeting, or 22 after it, with Mr. Ford, where he -- he said, if you can get 23 us money at the 4.5 or 4.7, we can build the whole thing, our 24 whole dream? 25 A: Is this -- is this in May, you're talking

1 about? 2 Q: No, this is before that. Was there -- 3 was there any -- 4 A: No, there was never -- from our 5 perspective, certainly, we did not believe that Phase 1 and 2 6 was directly as a result of MFP's negotiations. 7 Q: All right. So they -- did -- did you 8 understand how they got from their Phase 1 to their Phase 2, 9 how they thought they could afford to build something worth 10 56 million instead of something just worth 27 million? 11 A: Well, again, through the mediation 12 process, we -- we learned how they -- their position was, how 13 they -- they felt that the two (2) were justified. But we 14 disputed that. 15 Q: And -- and I take it that, back at the 16 time that this happened, there was no thought or discussion 17 that -- that because you were able to get them such a good 18 deal on the cost of their money, that they could build 19 something larger than that they otherwise would be able to 20 build? 21 A: From our perspective, at MFP, the -- the 22 requirements of the City, were -- were driving this. That 23 the taxpayers needed this facility. So I -- I can't say that 24 the only reason that they went after this facility was 25 because they felt they had cheap money.

1 But that's really our -- was our belief at 2 that time. 3 Q: All right. If I can go, then, to Mr. 4 Ford's material, Exhibit 30, Volume 2 of 7? And in 5 particular, Tab 52, please? 6 7 (BRIEF PAUSE) 8 9 Q: And you'll see that this is a message 10 from the desk of John Ford, it's to Tom Stockie, it's dated 11 the 23rd of May. And he says to Mr. Stockie, 12 "Attached is a copy of the head lease and 13 sub lease with MFP Financial Services, for 14 the MRP lease financing." 15 So I take it that, by that point in time, the 16 process had gone to the point where your legal department had 17 become engaged, and -- and the head lease and the sub lease 18 were in the process of being drafted, and sent out for 19 consideration? 20 A: We -- I think we send a standard -- just 21 a standard head lease sub lease. 22 Q: All right. 23 A: So, it's -- 24 Q: And, then, Ford goes on to say: 25 "These are pretty straightforward standard

1 lease documents." 2 Which I take it, ties into your comment, Mr. 3 Robson: 4 "Bill White has copies of them as well." 5 And, I take it, Mr. White, you knew to be the 6 Solicitor for the City of Waterloo? 7 A: That's correct. 8 Q: All right. 9 "His first blush comment was that these are 10 pretty standard leases, which have all of 11 the conditions in the hands of the lessor, 12 it's just pretty normal for any lease 13 agreement." 14 I take it you'd agree with that? 15 Then, he goes on to say this: 16 "The magic in the arrangement between the 17 City and MFP does not lie in the leases. 18 Rather, it lies in the process by which MFP 19 gets to the sub lease amount, and how they 20 treat the head lease payments for tax 21 purposes. Lifeco's are looking for sec -- 22 credit security, which the City brings to 23 the table. They are also looking for 24 longer terms, typically over twenty (20) 25 years. To get the credit security, and

1 long term, they are prepared for a lower 2 interest rate than one might likely think 3 they would want for their investments. MFP 4 is the middle man, and structures the deal, 5 taking into the accounts, the rates, the 6 Lifeco's are prepared to accept, and taking 7 into account, the income tax implications. 8 The result is that we get a very low rate 9 on the financing." 10 Now, stopping there, let me ask you if -- if 11 you think Mr. Ford understands the process when you read that 12 memo of the 23rd of May? 13 A: I think from a ten thousand (10,000) foot 14 level, I, you know, I mean, Bo would -- I'm -- should 15 certainly have -- did Bo read this as well, I -- I guess I 16 can't answer that. 17 MR. COMMISSIONER: Is that at a low level or 18 a high level? 19 THE WITNESS: Yeah, Bo is more of a, yeah, a 20 low -- low level. He could get right into the -- 21 MR. COMMISSIONER: No, what's ten thousand 22 (10,000) feet? 23 THE WITNESS: Oh, that' what I -- sorry. 24 That's a high level. All right, so, from a high level, I 25 would think that's -- that's very accurate.

1 MR. JAMES CASKEY: That's -- that's fairly 2 accurate that -- that -- 3 MR. COMMISSIONER: That's about where you run 4 out oxygen. 5 THE WITNESS: Yeah, that's -- fair enough. 6 7 CONTINUED BY MR. JAMES CASKEY: 8 Q: So, we're -- we're -- all right, he's got 9 it right that the magic doesn't lie in the lease, is it's how 10 you get there, and that -- that there are some tax 11 implications that the life insurance companies are looking 12 for, credit security, and the City brings them. 13 And, it talks about MFP is the middleman, and, 14 I take it that -- that that is true in the way in which this 15 deal aro -- evolved, that -- that MFP was, in fact, the 16 middleman? 17 A: Correct. 18 Q: Then, he goes on to say: 19 "All this slight of hands is done in the 20 background to get to the rates, which finds 21 their way into the head and sub leases, and 22 so that's why the head and sub lease are 23 pretty plain Jane." 24 Then, he says: 25 "Bill is looking at documents. He will

1 give us a written opinion." 2 Then, he says: 3 "There is a second agreement for interim 4 financing." 5 So, I take it that -- that in your discussions 6 that you had prior to this time, that -- that you were 7 looking at some way for the City of Waterloo to finance the 8 construction up until the time that you had your final 9 agreement in place, and -- and the money advanced? 10 A: Hmm hmm. 11 Q: Is that fair? 12 And -- and how, Mr. Robson, did those 13 discussions develop? Who did you have them with at -- at the 14 City of Waterloo, and -- and what was the thought process 15 that you discussed with them, on how that interim financing 16 would work? 17 A: You know what, I -- I -- as you were 18 speaking to me a second ago, I was reading the -- the last 19 paragraph, so I -- I do apologize. 20 You -- your prior question that you asked me, 21 do -- could -- do you mind asking me that again? 22 Q: Yeah. In the -- in the context of this 23 interim financing -- 24 A: Yeah. 25 Q: -- at some point in time, you'd have to

1 have discussions with someone from the City of Waterloo about 2 the way in which they were going to finance the project -- 3 A: Right. 4 Q: -- if, in fact, they were going to start 5 construction before the final agreement was in place, and 6 they have all the money to do the building -- 7 A: Right. 8 Q: -- somebody's going to have to finance it 9 in the meantime? 10 A: Right, rich financing -- 11 Q: Rich financing? 12 A: Right. 13 Q: All right, and I take it, because Mr. 14 Ford here is saying, there's a second agreement for interim 15 financing, that second agreement was proposed by MFP, I take 16 it? 17 A: It was proposed -- I think it was a 18 construction loan agreement. There was several agreements, 19 actually, at this point in time because we struggle with this 20 a little bit. 21 MR. COMMISSIONER: Interim agreements or 22 agreements for interim funding? 23 THE WITNESS: Correct. We looked at an 24 interim agreement but as it turned out, it was -- it was -- 25 there was two (2) factors that dissuaded us from -- from

1 pursuing it. 2 One was the best we could get was a 3 construction loan agreement because of all the contingencies 4 in relation to building any facility which was an onerous 5 document, frankly and the second thing that dissuaded us was 6 John was negotiating with us and tried to get us to give him 7 a rate that we just couldn't do without some element of 8 certainty on the head-lease/sub-lease. Effectively, do a 9 loss leader, was what he wanted from us. 10 Okay. You know, he was negotiating and that's 11 -- that's fine, right and at the end of the day we ran into 12 several issues. One of which, McCarthy's had given us an 13 initial indication that we couldn't do a head-lease/sub-lease 14 structure until the entire facility was built because you 15 can't lease nothing, effectively, right? 16 So -- which all of a sudden took the interim 17 financing from a few months, which is a cross that MFP would 18 consider doing, you know, in lieu of getting the bigger deal 19 to all of a sudden being a fifteen (15) month carry and that 20 just -- we just couldn't do it. So we just said, you know, 21 we can't. 22 So this is where -- 23 MR. COMMISSIONER: Well, there's no question 24 that the interim financing never came about. That's between 25 MFP and the City, right?

1 THE WITNESS: Yeah. 2 MR. COMMISSIONER: And I don't mind having 3 some discussion about that but I don't want to pursue it to 4 no avail. 5 We've already heard from this witness that MFP 6 couldn't do the interim financing that the City wanted, 7 apparently, and we also know from Bill White that he didn't 8 want to deal with a seventy (70) page interim financing 9 agreement and he quite vociferously threw it back on the 10 table -- get it out of here and that came to grinding halt 11 from both sides. 12 So there's no question that that interim 13 financing was on the table. I got the impression from Mr. 14 Pelech that he continued to -- to work on the potential for 15 interim financing in his modelling, even after it was off the 16 table, but to no avail. It never came about. 17 I just say that, Mr. Caskey, in the event that 18 there is some good reason to pursue the issue of the interim 19 financing. If there isn't, we might as well get on with it. 20 MR. JAMES CASKEY: Sir, I was more worried 21 about the mechanism within MFP of how one goes about getting 22 approvals for that process and Mr. Robson, you might be able 23 to tell me -- Mr. Ford has indicated in this memo that 24 there's a head lease and a sub lease and there's a interim 25 finance agreement.

1 2 CONTINUED BY MR. JAMES CASKEY: 3 Q: How do those things get put in place at 4 MFP so that the legal department knows to send all this 5 material to Mr. White? What process does MFP have in-house, 6 is it you that goes and advises the legal department? Is it 7 Mr. Wright? Is it Mr. Wolfraim? 8 A: Well, the -- the -- the way the business 9 deal was presented to us would have required an investment by 10 MFP so certainly Peter had to be involved. An investment in 11 that -- the interim had -- it was basically at loan, if you 12 will, a short term bridge finance and he was looking for 13 better rates than we could -- we could possibly achieve 14 unless it was tied to the head lease/sub lease which was the 15 -- the -- you know, the -- the bigger transaction. 16 So it was the loss leader. 17 MR. COMMISSIONER: Karen Britton, she 18 prepared a document, or at least sent Mr. White a document, 19 she may have got that document from McCarthy -- 20 THE WITNESS: As a matter of fact, you're 21 right. She did get that from McCarthy. I'm pretty s -- 22 sure. 23 MR. COMMISSIONER: A wonderful agreement. 24 MR. WILLIAM MCDOWELL: That's fabulous. It's 25 noted in the footer at the bottom that it came from McCarthy.

1 MR. COMMISSIONER: I didn't mean to be -- 2 MR. WILLIAM MCDOWELL: I know. 3 4 CONTINUED BY MR. JAMES CASKEY: 5 Q: But as I say, Mr. Robson, because this 6 interim financing agreement, potentially impacted 7 economically on MFP -- 8 A: Hmm hmm. 9 Q: -- there would have to be some approval 10 process at MFP, for you to enter into that with the City of 11 Waterloo, I take it? 12 A: There would be -- an approval process is 13 really -- is a -- like I mentioned on Monday, is -- is 14 really, from my perspective, is -- is Peter, the -- the CEO 15 and the President. So, I don't -- just -- I don't -- 16 MR. COMMISSIONER: If Peter didn't approve 17 it, it doesn't go anywhere. Is that fair? 18 THE WITNESS: Exactly. I mean, I do an 19 analogy, I used to use it all the time, of -- of Microsoft 20 and Bill Gates. I mean, they're one and the same, 21 effectively, from a -- an approval process. 22 MR. JAMES CASKEY: If you think I'm going to 23 doubt that -- I'm not going to challenge you on that. 24 25 CONTINUED BY MR. JAMES CASKEY:

1 Q: So I -- just so that I understand, you 2 would come out of a meeting with Waterloo and they would be 3 talking about the total cost of the project, they'd be 4 talking about taxpayer support. And they'd be saying, we're 5 going to start construction, Mr. Robson, and -- and so we're 6 going to have some expenses. How do we bridge the financing? 7 And that's not a decision that you can make, I 8 take it. You can give them some ideas, but you have to go 9 back and talk to Mr. Wolfraim and say, Peter, this is what 10 Waterloo wants to do, how can we do it, or is it even 11 possible to do? 12 A: Right. And in that -- I mean, I'll bring 13 this up. Like, I'm not sure -- yes, I guess this is the 14 right context. In the discussions, specifically with John, I 15 mean, he talked about all of his other alternative sources 16 for this -- I mean, we're certainly not the only game in town 17 for an interim financing. 18 Q: Sure. 19 A: And that was the -- the negotiating 20 position that the City had on that agreement. And, you know, 21 if you think about the alternative was for us to maybe wait 22 fifteen (15) months, which, you know, we may have had to do, 23 had McCarthy's not been able to work through the -- the issue 24 of head lease/sub lease, without an existing facility. 25 And that's -- that's the nature of the beast.

1 I mean, these things change, they evolve, they negotiate, 2 continually. 3 Q: Yes. And I -- I take it Mr. Ford, in 4 those discussions with out, would say, we have reserves, we 5 have them invested. We'd have to cash in, we have bank 6 loans, but the cost attached that, if -- if you people can 7 give us interim financing that's at a better rate than our 8 investments, or -- or our -- or our bank loans, we'll look at 9 your -- your interim financing. 10 But if you can't -- 11 A: Yes -- 12 Q: -- if you're more expensive that what we 13 can do ourselves, we don't need you? 14 A: I -- actually, I think it's closer to 15 what the Commissioner talked about, as far as the way it 16 evolved, was, when the construction loan agreement was sent 17 out, they said, why would we do this? You know, why would we 18 go through this level of -- of -- of negotiation, if you 19 will, for an interim financing, when I can just go to the 20 bank, right? 21 So, and that's -- that's kind of where it 22 ended up. 23 Q: Yes. And then that's where it ended up 24 when Mr. White actually got to see the -- the document that 25 came out, and what the cost was going to be?

1 A: Hmm hmm. 2 Q: But before that, you'd had these 3 discussions and these negotiations, and that's what Mr. Ford 4 was driving. He was wanting you to commit to an interest 5 rate, back here with the interim financing, on the 5th of 6 May, or thereabouts -- or the 23rd, whatever it was, that 7 would allow him to use you instead of using his other 8 sources. Is that fair? 9 A: There were continual negotiations. It 10 may not seem so on the outside, but I was certainly -- we 11 were beat up on a lot of points. 12 Q: All right. And -- and the rate that he 13 wanted, was simply not a rate that -- that you people could 14 provide him? Certainly, on an interim basis? 15 A: Well, that -- it really depends. I mean, 16 it's -- it's no different than any loss leader, you -- if you 17 could do something in the short term that would benefit the 18 client and the customer and ourselves, in the long term, then 19 you'd consider doing it. 20 Q: If we can go, please, just very briefly, 21 to Mr. Andrew Friedel's book, being his addendum, Volume 2 of 22 2? 23 MR. COMMISSIONER: What's the -- what's the 24 exhibit number? 25 MR. JAMES CASKEY: Exhibit 18. It may not be

1 on your desk, but it may be. 2 3 (BRIEF PAUSE) 4 5 MR. COMMISSIONER: Is this discussion on the 6 same vein? 7 MR. JAMES CASKEY: It is, but it's a -- it's 8 sort of a new -- a new phase of it. 9 MR. COMMISSIONER: New twist? 10 MR. JAMES CASKEY: New twist. 11 MR. COMMISSIONER: Okay. We're going to take 12 fifteen (15) minutes. 13 THE WITNESS: Okay, what -- what was the 14 Exhibit, and maybe I'll look at it -- 15 MR. JAMES CASKEY: This is -- this is going 16 to be Tab -- if I can, 99. 17 THE WITNESS: Okay. 18 MR. COMMISSIONER: Thank you. 19 THE REGISTRAR: The Inquiry will recess for 20 fifteen (15) minutes. 21 22 --- Upon recessing at 11:15 a.m. 23 --- Upon resuming at 11:34 a.m. 24 25 THE REGISTRAR: The Inquiry is resumed. Be

1 seated please. 2 MR. COMMISSIONER: Mr. Robson...? 3 Okay, Mr. Caskey...? 4 MR. JAMES CASKEY: Thank you, Mr. 5 Commissioner. 6 7 CONTINUED BY MR. JAMES CASKEY: 8 Q: Mr. Robson, I had referred you to Mr. 9 Friedel's Exhibit 18, Volume 2 of 2, and to Tab 99, which you 10 see is a series of -- of diary entries, and you've got to go 11 about 80 percent or 90 percent of the way through, until you 12 come to May 5, which is the -- the date on which this -- this 13 meeting took place. 14 And, do you recall Mr. Friedel being there? 15 A: I -- I can't say that I recall the 16 meeting, distinctly. But I -- I'm going to have to say, I 17 don't recall this meeting, in particular. 18 Q: All right. 19 A: Nothing about it. 20 Q: In any event, his -- his notation on this 21 was, the heading is,"MFP", 22 "Hire tenders versus change orders [I 23 think] to drive the price." 24 Then he talks about the grading tender 25 questions.

1 "Estimate of [I think it's] MPRB." 2 Then it's got this point, 3 "Risk -- rate risk is MFP's." 4 Do you recall any discussion about rates being 5 discussed and -- and rates being at the risk of MFP? 6 A: Well, my sense from our prior discussion 7 was, this would have been the negotiating point that John was 8 having with us, on the interim. 9 Q: All right. Do you take that as being one 10 of Mr. Ford's comments, then, as opposed to one of yours? 11 A: I would put it down as a point of 12 discussion. I don't know that I would say that it was -- 13 it's -- I don't know if I can attribute it to him or to 14 myself. I don't have a clear recollection of this meeting, 15 so -- 16 Q: All right. Was there, in your 17 recollection, as best it is, some suggestion that if a rate 18 gets put in place, that MFP bears the risk of it changing in 19 the future? 20 A: Actually, I'd like to cross-reference 21 with my own notes from that -- 22 Q: Yes. If you would, please? That's back 23 at -- at Exhibit 107, Tab 20. 24 25 (BRIEF PAUSE)

1 Q: That's in your -- your Volume 2 of 5. 2 A: Okay. Good. Yes, I have it. 3 4 (BRIEF PAUSE) 5 6 A: Okay, I -- I don't see any reference 7 about who was going to bear the risk, unless I thought I -- 8 my sense was that it -- that John expected us to -- to step 9 up, if we were going to do the interim. 10 Q: All right. And -- and I take it, Mr. 11 Robson, when you're making notes, you're making notes of what 12 other's say, but when you're speaking, you're not making 13 notes of what you, yourself, say? 14 A: I wouldn't draw that conclusion. 15 Q: All right. So that your experience is 16 that you make notes of what you say, as well as notes of what 17 others say? 18 A: No, my experience is, usually the -- the 19 topics that are discussed, are in the notes. Because going 20 away from the meetings, we need to, obviously, have action 21 items. So that's -- 22 Q: In any event, you don't have any note in 23 your notes, of, "rate risk is MFP's". And to that extent, I 24 take it, you can't help us as to who said what, whether 25 Andrew Friedel's recollection of it is that it might have

1 been you that said it? You don't know that, I take it? 2 A: I don't, but I do know it was a point of 3 negotiation. 4 Q: All right. Then the next note is, 5 "Model, pre-paid rent structure." 6 7 (BRIEF PAUSE) 8 9 Q: Do you know what would have been 10 discussed at that meeting about a pre-paid rent structure? 11 A: I mean, I would surmise that it's 12 possibly the head lease that he's talking about, but I'm 13 not -- 14 Q: Yes. That -- that's the -- the only one 15 that -- that really makes sense, isn't it? That the head 16 lease is the only pre-paid rent structure that -- that would 17 be available, in this situation? 18 A: Okay. 19 Q: Do you know of any others? 20 A: No, I -- that's a fair statement, I 21 guess. 22 Q: All right. And then, 23 "Surplus funds into..." 24 Presumably RF being a reserve fund? 25 A: Okay.

1 Q: I take it, that's consist with your 2 notes? 3 A: Yes -- there's discussion about surplus 4 funds, yes. 5 Q: That's the second point down on page 2 of 6 your notes? 7 A: Correct. 8 Q: All right, and, then it's got a tax 9 opinion, City of Waterloo owns, and -- that -- do you recall 10 whether or not you already had a tax opinion in the event of 11 ownership remaining with the City of Waterloo? 12 A: No, we didn't pursue a tax opinion on -- 13 on this transaction, once we had a tax investor, and et 14 cetera, et cetera. 15 Q: All right, but -- but I take it that -- 16 that at one point in time, this question of an operating 17 lease, and a capital lease that the ownership was an issue 18 there? 19 That is, you couldn't have an operating lease 20 unless someone other than the City of Waterloo owned it, or 21 some percentage of it; was that not an issue? 22 A: The operating lease was always discussed. 23 The ownership issue is not that clear cut, I mean, a head 24 lease/sub lease, the City of -- of Waterloo continues to own 25 the asset as the -- sorry, head lessor, and sub lessee.

1 Q: Right. 2 A: So -- 3 Q: In any event, that -- at that point in 4 time, I take it, that you weren't contemplating getting any 5 tax advice on that issue? 6 A: Other than Bo, who's obviously our 7 consultant, would certainly give us an opinion, but as far as 8 a -- a legal tax opinion, that's a -- that's a whole 9 different animal. 10 Q: All right, and -- and, you're 11 recollection is, that aside from Bo, there was no opinion 12 sought? 13 A: On this transaction? You know, there was 14 never a tax investor at the end of the day, so we didn't 15 perform it. 16 Q: Okay, then we come to the next point, 17 that -- I think it's accounting opinion. 18 "Put on balance sheet, the City of 19 Waterloo." 20 I take it that was something that was 21 discussed and in the context of whether or not it was on 22 balance sheet, off balance sheet, that sort of thing? 23 A: And, I'm so -- just as an -- I'm 24 struggling with it, because C-O-W is also City of Windsor. 25 MR. COMMISSIONER: This was the City of

1 Waterloo, guaranteed. 2 THE WITNESS: No, I understand, but -- but 3 there were a lot of discussions -- 4 MR. COMMISSIONER: Yes, I understand. 5 THE WITNESS: -- between the two (2) -- that 6 just -- it's not to make things more muddy. 7 8 CONTINUED BY MR. JAMES CASKEY: 9 Q: All right, that -- that -- that you're 10 wondering whether or not the reference by Mr. Friedel is the 11 City of Windsor, as opposed to the City of Waterloo? 12 A: Right, and I say that, because I don't 13 see it in my notes, in particular, so by way of, you know, 14 MFP traditionally -- typically, would explain other client's 15 experiences by way of reference, so, that's why I -- I sit 16 here, and I see C-O-W, and I -- and I know that City of 17 Windsor certainly is C-O-W to us, as well as well as the City 18 of Waterloo. 19 Q: Okay. The -- the next item says: 20 "GM payment method." 21 Do you know what that reference would be to? 22 "Direct fee -- direct bill to MFP" 23 That -- would that -- is that a general 24 method, or? 25 A: Yeah.

1 Q: Payment method, "direct bill to MFP"? 2 3 (BRIEF PAUSE) 4 5 A: Again, I'm -- I'm trying to cross 6 reference. I -- I -- I have to say, I don't know what Andrew 7 means by this GM, and I -- did he -- did he ever answer that 8 question? 9 Q: Well, I think it's Gateman Milloy, is the 10 contractor that was doing the -- 11 A: Oh. 12 Q: -- the grading contract. 13 A: Okay. 14 Q: All right? 15 A: I mean I don't know. 16 Q: So, I guess -- I guess what it was, was a 17 discussion of how the payments will work, that is, if -- if 18 -- if it's Gateman Milloy, is it a -- is it a direct method 19 of payment from -- from the City, or is it -- do they bill 20 directly to MFP? 21 Is it the Millennium Project board, or Gateman 22 Milloy? Who is it that is going to do all those things? I 23 see the total comes to about $46 million. Do you recall any 24 discussion about that, in line of -- of what Mr. -- Mr. 25 Friedel's notes are?

1 A: I mean, you know -- and I -- I don't want 2 to be going back on something that you said earlier, but you 3 know, five (5) minutes ago you told me that, if I have notes, 4 it's recording something that someone else told me. And I 5 don't see how Andrew could have been recording what MFP told 6 him, when there's terminology in here that I -- I haven't the 7 slightest -- 8 MR. COMMISSIONER: Well, -- 9 THE WITNESS: -- GM is an example. I just -- 10 MR. COMMISSIONER: All you have to say is, 11 you don't know. 12 THE WITNESS: Okay. I don't know. I just -- 13 sorry, but I find that a little inconsistent. 14 MR. COMMISSIONER: You could be right. 15 MR. JAMES CASKEY: So -- so, what Andrew's 16 notes seem to indicate, are not terminology that you would 17 have used, for him to copy down? Is that essentially what 18 you're saying? 19 MR. COMMISSIONER: He said -- I'm sorry, he 20 said he didn't know. 21 MR. JAMES CASKEY: Oh. All right. 22 MR. COMMISSIONER: He said -- if he doesn't 23 know, he doesn't know. If he does know, he can tell us. I 24 think -- I don't want you to be guessing unless you're doing 25 some educated guessing.

1 THE WITNESS: Fair enough. 2 3 CONTINUED BY MR. JAMES CASKEY: 4 Q: All right. We'll leave that now and go 5 back to your documents, if we can please, Mr. Robson? 6 Exhibit 107, Volume 2 of 5, Tab 21. 7 And this is a -- a letter that is sent by you 8 to Mr. Ford, dated May 26th of 2000. And what I'd like to 9 know, before we get into the -- the body of the letter, is, 10 what process you went through at MFP, by way of discussion or 11 approval, for the authority to write this letter? 12 A: Okay, this -- I mean this letter is 13 something that certainly has been the topic of discussion for 14 months, if not years. But let me put in its proper context, 15 because I -- I don't know that I've ever had the opportunity 16 to -- to address it. 17 I -- I received a phone call from John, asking 18 us -- asking me, in particular, to give him an update of what 19 we're working on at this point in time. 20 We, at MFP, were aware of the work that was 21 being done in-house, as well as at the City, with respect to 22 the facilities, the tax, the debt piece, et cetera and we 23 felt that we needed a timeline of which this letter 24 addressed. 25 There is a mistake in this letter, and I did

1 sub -- subsequently address this mistake with -- with the 2 City, in front of their lawyer, in a subsequent meeting, I 3 think, in the July time frame. 4 And the mistake in this letter is that, we -- 5 we were in the process of doing a CBRS study on the credit -- 6 not credit-worthiness, but the -- the investment -- the level 7 of credit of the City of Waterloo. And I missed that point 8 in here, because what -- what we had done, inadvertently, I 9 had done, is put a letter together that didn't include the 10 credit spread, over and above the thirty (30) year Canada 11 Bond. 12 In the meeting with Bill White and John Ford, 13 Wayne Steffler was there, who was Andrew's replacement on the 14 modelling side for the City, I addressed that then, that the 15 benchmark was incorrect. Okay. 16 So I'm just kind of prefacing that because I 17 have certainly suffered a lot of arrows over this letter, and 18 so -- 19 Q: All right. 20 MR. COMMISSIONER: I'm sorry, I don't 21 understand what the error is, yet. 22 THE WITNESS: If -- if you look at the -- the 23 end of the first paragraph, it talks about using the thirty 24 (30) year Government of Canada Bond? 25 MR. COMMISSIONER: Yes.

1 THE WITNESS: Okay. Which closed, et cetera. 2 What -- what we don't address here is, in setting the 3 pricing, which -- the hundred and two (102) basis points, to 4 that Canada Bond, there will be a credit spread, which we 5 were working on determining at that point and that -- that 6 credit spread was the -- it turned out from Clarica's 7 perspective to be one hundred and sixty (160) basis points 8 over the -- the Canada Bond, I'm thinking one sixty (160), 9 possibly higher. 10 MR. COMMISSIONER: Okay so... 11 12 (BRIEF PAUSE) 13 14 MR. COMMISSIONER: What you say in this 15 letter is that the Government of Canada Bond closed February 16 22 at 5.78. 17 THE WITNESS: Right. 18 MR. COMMISSIONER: And are you saying that 19 that should have said -- 20 THE WITNESS: Well -- 21 MR. COMMISSIONER: What do you -- what do you 22 say it should have said? 23 THE WITNESS: Well, where we use that as a 24 benchmark at 5.78 what should have happened in the second 25 paragraph is -- because it follows through from that

1 benchmark, we would achieve a one hundred and two (102) basis 2 point reduction. 3 Where it says from this cost, it should be 4 from this cost and the related City's credit spread. So what 5 happens here effectively, Commissioner, is when I make 6 reference to this cost in the first sentence of the second 7 paragraph, I fail to recognize the credit spread of the City 8 of Waterloo. 9 MR. COMMISSIONER: All right. Well, how 10 would you express? You say the error is then that you said: 11 "further through a flow-through of our tax 12 benefits related to this transaction..." 13 THE WITNESS: Right. 14 MR. COMMISSIONER: "...MFP will achieve the 15 minimum of one hundred and two (102) basis 16 point reduction from this cost for the 17 City" 18 THE WITNESS: What -- what we should have 19 said was from the incremental cost of funds as -- and we 20 missed -- we missed that because the incremental cost of 21 funds would, by definition, be the -- the Canada's plus the 22 spread which is how Clarica would price its debt to MFP. 23 MR. COMMISSIONER: Well, where do you talk 24 about the -- would you put the spread in this letter? Is 25 that the error?

1 THE WITNESS: We didn't know the spread 2 because we were just having them -- the -- the CBRS report 3 was just being done in May. We didn't get it until early 4 June, I think and ultimately it helps to define the spread. 5 MR. COMMISSIONER: Well, you say you failed 6 to define the spread. A few minutes ago you talked about one 7 hundred and sixty (160) basis points over the Canada Bond 8 Rate, is that the spread? 9 THE WITNESS: Ultimately that turned out to 10 be the spread in September when we worked with -- with 11 Clarica on the quotes. 12 MR. COMMISSIONER: Well, what did you know? 13 You wouldn't know that at the time you wrote this letter or 14 did you? 15 THE WITNESS: No, we didn't know that. So 16 that -- this is where the incremental cost -- 17 MR. COMMISSIONER: But you certainly said in 18 this letter that the bond rate, on February 22, was 5.78 19 percent and that in the next paragraph that you expect to 20 achieve a one hundred and two (102) basis point reduction 21 from that cost by using the head lease/sub lease structure? 22 THE WITNESS: Correct. Now, -- 23 MR. COMMISSIONER: At least that's the 24 information that got to the City of Waterloo, that you 25 reported, yes and did you say you corrected that?

1 THE WITNESS: Yes. 2 MR. COMMISSIONER: When? 3 THE WITNESS: There was a meeting in July 4 with John, Wayne and Bill and effectively what -- what we did 5 was addressed it in the context of where the end rate should 6 be and we talked about it as being a few basis points below a 7 debenture rate, for example, is what we used in the 8 discussion. 9 So if we go th -- I mean, we can go through 10 the math if that helps but if you look at 5.78 and if you 11 took one hundred and two (102) basis points off of 5.78, 12 you're at 4.76 and 4.76 is not the -- is not the hundred and 13 two (102) basis points from incremental cost of funds. 14 MR. COMMISSIONER: What is it? 15 THE WITNESS: Well, a hundred and two (102) 16 basis points below the incremental cost of funds would -- 17 would be closer to 5.75 percent or actually, closer to 6 18 percent, because you've got 578, plus Clarica's 160, plus 19 102, so you're at 630 -- 630 -- six (6), and if you look at 20 the debenture rate, I think at that time, a few points below 21 that would put you at 6.36 -- 22 MR. COMMISSIONER: Well, why -- 23 THE WITNESS: -- ball park. 24 MR. COMMISSIONER: Where do you get the two 25 (2) points off that rate?

1 If I add it up, 5.78, plus 160 basis points, 2 comes to 7.38. 3 4 (BRIEF PAUSE) 5 6 THE WITNESS: And -- 7 MR. COMMISSIONER: Is that what Clarica's 8 rate was? 9 THE WITNESS: Well, and then you -- and then 10 you -- correct, and then you take the 102 from the 7.38. 11 12 (BRIEF PAUSE) 13 14 MR. COMMISSIONER: So, 6.36. 15 THE WITNESS: Correct. 16 MR. COMMISSIONER: And, you said you 17 explained that in July at a meeting with Ford, Steffler, and 18 Bill White? 19 THE WITNESS: Yes. 20 MR. COMMISSIONER: But you just do it orally? 21 Is there anything in writing that tells me 22 that that confirmation went forward that you could direct me 23 to? 24 THE WITNESS: No, we didn't -- we didn't give 25 him anything specifically correcting this letter,

1 unfortunately. 2 MR. WILLIAM McDOWELL: You may want to turn 3 up Mr. White's note actually, with -- 4 MR. COMMISSIONER: I'm sorry? 5 MR. WILLIAM McDOWELL: You may want to turn 6 up Mr. White's notes? 7 MR. JAMES CASKEY: We'll -- we'll be getting 8 there. 9 MR. COMMISSIONER: Oh no, okay, I'm sorry. 10 I -- 11 MR. JAMES CASKEY: It's okay, but we will be 12 getting Mr. White's notes. 13 MR. COMMISSIONER: Okay. I'll let you do it. 14 Tell me when you get there. 15 MR. JAMES CASKEY: Thank you. 16 17 CONTINUED BY MR. JAMES CASKEY: 18 Q: It's a long time ago, Mr. Robson, but I 19 did ask you a question in relation to the process that you 20 went through at MFP before you sent this letter? 21 A: Hmm hmm. 22 Q: And -- and, who you talked to, and who 23 you got approvals from, and that whole process prior to you, 24 in fact, signing this letter and sending it off. 25 Would you be --

1 A: Fair. 2 Q: Go through that process for us, please? 3 A: I -- I mean this letter was a -- was 4 consistent with what everything we had been working on, so in 5 sending this letter, I certainly talked to -- post-sending 6 it, unfortunately, talked to Peter, and talked to Bo, more in 7 par -- more specifically, Peter, about the deadline, because 8 if you look at this letter, we are acknowledging the what -- 9 the intended transaction is, forgetting the mistake, which we 10 corrected. 11 And, we're also setting a -- a deadline for 12 the client, at which point, you know, we have to revisit the 13 transaction. 14 Q: All right, so, I take it that you -- you 15 sit down with Mr. Wolfraim, and perhaps, Mr. Pelech, and you 16 say, this is the deal that -- that we've talked about, the 17 City of Waterloo has committed to deal with us, and they want 18 our commitment back to them, and our commitment is as 19 follows? 20 A: No. This is not a commitment letter. 21 Please. Let's not take it out of context, because it 22 certainly has been taken out of context. 23 This letter is an update. This is letting 24 somebody know what we're doing, because he wants to be 25 updated, and he wants you to updated in a hurry.

1 There is no signing this back. There is no 2 great definition of -- of compounding yield that you'd need 3 for a commitment letter. 4 This is what -- it -- it is what it says it 5 is. "As per your request, I'd like to update you as follows" 6 That's it. 7 Q: So, from the perspective of Waterloo, I 8 take it, that they ought not to rely on anything that's said 9 in here? 10 MR WILLIAM McDOWELL: What? That doesn't 11 follow on at all from what he just said. 12 MR. COMMISSIONER: That's right. 13 MR. JAMES CASKEY: There's -- that's not a 14 commitment letter. It can't be sued upon. 15 THE WITNESS: No, no, no, I'm just -- 16 MR. COMMISSIONER: There's nothing to rely 17 on. 18 MR. JAMES CASKEY: If -- if it's not a 19 commitment letter, was it a commitment? 20 THE WITNESS: That's -- it's almost a 21 rhetorical question. 22 MR. COMMISSIONER: Well -- 23 THE WITNESS: Obviously it's not a 24 commitment. 25 MR. COMMISSIONER: It's -- you're saying it's

1 not a -- forget about rhetorical questions. Your answer is, 2 it's not a commitment letter? 3 THE WITNESS: Yes. 4 MR. COMMISSIONER: It's not a commitment of 5 any kind, by MFP? That's your position? 6 THE WITNESS: That is my position. 7 MR. COMMISSIONER: Thank you. Tell me this, 8 you talk about, in this letter and in your evidence a few 9 minutes ago, you talked about the hundred and two (102) basis 10 points to be taken off the incremental cost of funds, that 11 gets you through these numbers that you say Clarica was 12 dealing with. 13 The hundred and two (102) basis point 14 reduction only applies, as I understand it, if there is a tax 15 play of some kind. If there is no tax investor, the hundred 16 and two (102) basis points doesn't exist. Is that right? 17 THE WITNESS: I would disagree with that. 18 MR. COMMISSIONER: Well, don't -- okay, 19 that's fine. I want you to -- 20 THE WITNESS: Okay. You want me to explain? 21 MR. COMMISSIONER: I want you to disagree and 22 tell me why you disagree with me. 23 THE WITNESS: The -- the -- and this is 24 the -- the -- the gist of the incremental cost of funds. The 25 incremental cost of funds is defining the cost of funds to

1 the client, on this transaction that we're -- we're 2 contemplating. 3 If it's -- if it's a tax play, we understand 4 the incremental cost of funds is the debt rate, effectively, 5 that we receive from -- from our funder, in this case, less 6 the one hundred and two (102) basis points. 7 If it's not a debt play -- sorry, if it's not 8 a tax play, where either MFP or an outside investor is 9 involved, and it's a money-over-money transaction, then it's 10 purely the cost of funds, added to the -- the spread that MFP 11 would look to for one (1) of these transactions, less a 12 hundred and two (102) basis points. 13 And I -- I -- I don't know if you have minutes 14 from the meeting with the Mayor and Peter and John McGrath, 15 but that was explained very clearly, that MFP would look -- 16 in a money over money deal, MFP would look to make 17 approximately two hundred and twenty (220) to two hundred and 18 forty (240) basis points, over our cost of funds. 19 MR. COMMISSIONER: That -- that meeting 20 you're talking about, occurred after the closing, right? 21 THE WITNESS: Yes, sorry, this is -- 22 MR. COMMISSIONER: After -- 23 THE WITNESS: -- June, 2001. 24 MR. COMMISSIONER: After -- what's been 25 referred to as the disclosure of the amount of the payments,

1 under the sub lease? Is that right? 2 THE WITNESS: Well, that disclosure was 3 always made, from MFP's perspective, from September, onward. 4 So that's September of 2000, onward. 5 MR. COMMISSIONER: All right. Do you want -- 6 I guess I'm into it, I might as well ask. Who made the 7 disclosure? 8 THE WITNESS: Of the sub lease rents? 9 MR. COMMISSIONER: Yes. To the City? 10 THE WITNESS: I made the disclosure to the 11 City. September the -- 12 MR. COMMISSIONER: When -- when did you do 13 that? 14 THE WITNESS: September the 25th is when 15 we -- we analysed all -- 16 MR. COMMISSIONER: December? 17 THE WITNESS: Sorry, September the 25th of 18 2000. And I -- I -- one (1) of the things that I've 19 included, that wasn't included, and I don't know why, was the 20 actual documents that were presented on that date. And 21 McCarthy's, I -- Will, you can -- 22 MR. COMMISSIONER: What documents are you 23 referring to? 24 MR. WILLIAM McDOWELL: Well, there is a 25 document that was presented to Ms. Sutherland, that I

80
  1  understand, on Monday, that is not in the package that you
  2  have, that has a crude graph on the bottom, which has -- it's
  3  written, I believe, on the sub lease rent document.  
  4                 MR. COMMISSIONER:   When was that -- who
  5  prepared that and when was it presented?
  6                 MR. WILLIAM McDOWELL:   Mr. Robson prepared
  7  it.  Mr. Robson, in a brief discussion with me, before the
  8  proceedings began on Monday, made me aware of this document,
  9  and I told him, I don't act for him, that he should present
 10  this to Ms. Sutherland.  
 11                 And he did, I gather, but it is not in the
 12  package of loose documents that came out yesterday.  So --
 13                 MR. COMMISSIONER:   Okay.
 14                 MR. WILLIAM McDOWELL:   -- I presume it's in
 15  the office. 
 16                 MR. JAMES CASKEY:   Mr. Commissioner, I think
 17  it may very well be in on the desk of Ms. Sutherland.  It --
 18  it may -- if we could take -- just everybody stay where they
 19  are and I'll go and make sure that I can dig that up. 
 20                 MR. COMMISSIONER:   Well, everybody can stay
 21  where they are if they want.  But I'm not going to stay here. 
 22                 MR. JAMES CASKEY:   I mean, it's well out of
 23  context, you appreciate, that we're a long way from getting
 24  there in my examination but Mr. Robson -- 
 25                 MR. COMMISSIONER:   Well --

1 MR. JAMES CASKEY: -- Mr. Robson's raised it. 2 Might as well see if we can -- 3 MR. COMMISSIONER: Okay, let's do that 4 because I've started this mess and I want to try and get 5 through it and I'm sorry if I've gotten out of the particular 6 chain. All right. We'll take a few minutes. Take a few 7 minutes, when you're ready, let me know. 8 MR. JAMES CASKEY: Thank you, sir. 9 THE REGISTRAR: The Inquiry will recess until 10 recalled. 11 12 --- Upon recessing at 12:06 p.m. 13 --- Upon resuming at 12:12 p.m. 14 15 THE REGISTRAR: The Inquiry is resumed. Be 16 seated please. 17 MR. COMMISSIONER: Have a seat, Mr. Robson. 18 MR. JAMES CASKEY: Mr. Commissioner, I would 19 indicate to you that Mr. Robson brought in a number of 20 documents and -- and on the basis that we served him with a 21 summons that required him to bring all his documents and 22 these were documents that he didn't find in his materials. 23 I had separated out some in time sequence that 24 I was going to put in not, frankly, because they add very 25 much as per that one that you commented about yesterday, but

1 because Mr. Robson brought them. 2 In any event, these are the remaining 3 documents. I haven't made copies for everybody. I just want 4 this man to identify that these are the remaining documents 5 and to tell us any significance so that I can then take out 6 anything that's extraneous. For instance, the first document 7 in the pile here is 8 "Win a prize. Please take a few minutes to 9 help your community". 10 I don't know that that's significant but it 11 may be significant and he may think it should go in. If I 12 may be good enough, sir, to hand him the rest of these 13 documents and ask him to tell us what he places on any of 14 them so that I can then make copies and we'll have them for 15 the Inquiry? 16 It sounds a little strange that I'm not making 17 a decision but you may want to look at them. 18 MR. COMMISSIONER: No, I want to see them. 19 MR. WILLIAM McDOWELL: Well, there's one that 20 I think you'll want to see, Mr. Commissioner. 21 MR. COMMISSIONER: Well, I'll probably want 22 to see them all. I'm just curious as to whether or not 23 there's a faster and easier way of dealing with them. I 24 mean, he's brought them in as he's obliged to do and that's 25 great.

1 Okay, I guess we haven't really had an 2 opportunity to determine what they are. 3 MR. JAMES CASKEY: Not yet. 4 MR. COMMISSIONER: Okay, let's do it. 5 6 CONTINUED BY MR. JAMES CASKEY: 7 Q: Mr. Robson, I'm handing you the 8 documents, some of the documents only that you brought in 9 because, as you know, we've made copies of the rest of them 10 on your desk. 11 Take a look at those please and tell us what 12 they represent and -- and whether or not they're -- you 13 attach any significance to them? 14 MR. COMMISSIONER: You have to tell us what 15 they are, if you can. 16 THE WITNESS: Okay. This isn't the complete 17 package of what I brought it. 18 MR. JAMES CASKEY: I've made that point. 19 You'll find on your desk the additional documents -- 20 THE WITNESS: Sorry. 21 MR. JAMES CASKEY: That you brought in that 22 we were going to put in. We've already put one into exhibit 23 already, you remember that yesterday, and the remaining 24 documents are on your desk. 25 THE WITNESS: Okay.

1 MR. JAMES CASKEY: And they just -- 2 MR. COMMISSIONER: Just, if you can, go 3 through the ones that Mr. Caskey has handed to you now and 4 just tell us what they are, if you will? 5 THE WITNESS: Sure. Yes, the first one is 6 probably an extraneous document, that is the -- the one that 7 you referred to as the -- the win a prize. That was an -- an 8 effort, from MFP, to help the -- the client with getting more 9 demographic information. 10 What we -- what we felt and what we found 11 through the process is that, there was a considerable, from 12 our -- in our opinion, there needed to be more interaction 13 with the community, here, as far as understanding who they 14 were trying to serve with respect to these facilities. 15 And I guess, that -- that -- that was our 16 opinion. So we felt that by using the internet and other 17 vehicles that are available in today's society, you might 18 want to run a contest which would give you, in return, a 19 considerable amount of demographic statistics about your own 20 area. So that was just, in -- in a -- a real time fashion. 21 So this is -- this is the purpose of this, 22 it's not -- it's not a carnival type of win a prize, this 23 is -- this truly was a purpose here, to assist the client in 24 generating their own models, on a going forward, because we 25 certainly believe that they -- they're -- they truly struggle

1 with this modelling. 2 3 CONTINUED BY MR. JAMES CASKEY: 4 Q: All right. Now, I take it that that 5 didn't proceed? Or -- or, do you know that? 6 A: It -- I don't know that it didn't 7 proceed, because the facilities weren't built yet. The idea 8 was that we would set up kiosks. And in the kiosks here, in 9 the facilities, while somebody takes their -- their child to 10 a hockey game or whatever, and/or is waiting while a child is 11 getting dressed, they would then use the kiosk and -- and -- 12 and, you know, answer questions from, effectively, the 13 municipality, relating to what they liked about the 14 facilities. You know, what things they found useful, et 15 cetera. 16 MR. COMMISSIONER: This was not a document, 17 it was distributed to the public prior to the completion of 18 this facility, is that right? 19 THE WITNESS: That's correct. That's 20 correct. It wasn't -- it was -- it was more intended to be 21 an online kiosk type of -- 22 MR. COMMISSIONER: Do you know whether it was 23 ever