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 January 7th, 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  
  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  
 24  Elaine Nairne              )Registrar
 25  Wendy Warnock              )Court Reporter

1 TABLE OF CONTENTS 2 Page No. 3 4 Exhibits 4 5 6 Robert Brian Stevens, Sworn, 7 Examination In-Chief by Mr. James Caskey 6 8 9 Certificate of Transcript 244 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

1 EXHIBITS 2 Page No. 3 4 86 Brief of documents for 5 Mr. Stevens, Two volumes. 77 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

1 --- Upon commencing at 10:09 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. We welcome back Mr. McDowell, who is with us 11 now, Mr. Berrill having returned to Toronto. 12 MR. COMMISSIONER: All right. 13 MR. WILLIAM McDOWELL: Changing of the guard, 14 sir. 15 MR. COMMISSIONER: That's fair enough. 16 You've discovered that the sun rises and sets elsewhere than 17 in Toronto, eh? 18 MR. WILLIAM McDOWELL: However briefly. 19 MR. JAMES CASKEY: Our witness today, sir, is 20 Mr. Stevens. 21 MR. COMMISSIONER: All right. 22 MR. JAMES CASKEY: Mr. Stevens, if you would, 23 please? 24 MR. COMMISSIONER: Thank you, Mr. Stevens. 25 If you just can stand beside the witness chair for a moment

1 and listen to the Clerk, please? 2 3 ROBERT BRIAN STEVENS, Sworn; 4 5 MR. COMMISSIONER: I wonder if I could ask 6 you, Mr. Stevens, to keep that microphone sort of in front of 7 you, close -- 8 THE WITNESS: Okay. 9 MR. COMMISSIONER: -- close to you so that I 10 can hear. Everybody else can hear you but I can't. 11 THE WITNESS: Okay. 12 MR. COMMISSIONER: So if you'd just keep it 13 close, that's fine. Okay, Mr. Caskey...? 14 MR. JAMES CASKEY: Thank you, Mr. 15 Commissioner. 16 17 EXAMINATION IN-CHIEF BY MR. JAMES CASKEY: 18 Q: Mr. Stevens, I understand that you live 19 in Oakville? 20 A: I do. 21 Q: And that your date of birth is December 22 7, 1947? 23 A: It is. 24 Q: And you are currently employed by MFP 25 Financial Services?

1 A: I am. 2 Q: Your position there is Vice-President of 3 Debt Placement and Treasurer? 4 A: Yes, sir. 5 Q: You have those two (2) portfolios that 6 you carry? 7 A: Yes. 8 Q: Would you be good enough to give us your 9 education background, sir? 10 A: I've got a BA and an MBA from the 11 University of Toronto. 12 Q: I understand that you've been involved in 13 lending, credit and leasing for thirty (30) years or 14 thereabouts? 15 A: Approximately, yes. 16 Q: All right. And that after you completed 17 your studies you started in the equipment leasing business in 18 about 1974? 19 A: Yes. 20 Q: And you joined MFP in 1991 in January? 21 A: Yes. 22 Q: Your business experience, aside from MFP, 23 prior to that, who were you with? 24 A: A succession of leasing companies. First 25 a leasing company that wound up -- got wound up into the Bank

1 of Montreal, First City Capital was a leasing company, Canada 2 Lease was a leasing company and Central Guarantee Leasing. 3 Q: So they were all leasing companies 4 involved in -- in equipment leasing of some kind? 5 A: Equipment leasing, yes. 6 Q: All right. And -- and, would some of 7 that have been in -- in technology equipment as well? 8 A: Yes, most of them would have done 9 technology, they didn't specialize, necessarily, but Canada 10 Lease did, yes. 11 Q: All right. How was it that you came to 12 MFP? 13 A: I needed a job. And I -- I knew some of 14 the people from -- 15 Q: That was the point, sir -- 16 A: Yes. 17 Q: -- some of the people at MFP you were 18 familiar with? 19 A: Yes. 20 Q: As a result of your prior connections and 21 you applied for then, and got a job with them? 22 A: Yes. 23 Q: What position did you come in to MFP as, 24 Mr. Stevens? 25 A: At first I wasn't full time, I was sort

1 of a consultant, if you like, in the -- in the funding area. 2 And then one (1) of the people left and I became full time to 3 do, first the Canadian funding and then I took my present 4 title, which does both the US and Canadian funding as well as 5 the Treasury function. 6 Q: So it's -- it's in the debt placement is 7 synonymous with funding as far as you're concerned? 8 A: Yes. 9 Q: All right. I'd like to go over, if I 10 may, with you the structure at MFP. And -- and, aside from 11 the corporate structure where you have a -- a Board and then 12 the President and the Vice-Presidents, there's a management 13 team at MFP I understand? 14 A: Yes. 15 Q: All right. Who's on the management team? 16 A: The senior management team right now 17 would be Peter Wolfraim as President, CEO, my direct boss, 18 Bob Wright is CFO, Michael Flanagan is Senior Vice-President 19 of Sales and Trading, I believe, and Fraser Berrill, whom you 20 met yesterday. 21 Q: All right. And I -- am I correct that 22 Mr. Flanagan replaced Irene Payne? 23 A: Yes. 24 Q: What's the -- the function of the 25 management team? What -- what --

1 A: General management of the business to set 2 goals and set out a path for meeting those goals. 3 Q: All right. Does it meet on a regular 4 basis, are the minutes kept, that sort of thing, or is it -- 5 A: It's very informal. They meet quite 6 regularly and some of the rest of us would be joined in from 7 time to time if we're needed. But, no, there's no minutes 8 kept. It's very informal. 9 Q: All right. And you've covered the one 10 point. I take it that that -- that committee then can call 11 on other persons in MFP to come and sit in on the meetings 12 for information for that group? 13 A: Yes. 14 Q: Right. And you, from time to time, would 15 be called into a meeting? 16 A: Yes. Sometimes. But not so frequently. 17 Q: All right. And how about a person like 18 Mr. Robson? When he was with the company would he have been 19 involved at all with the Management Committee? 20 A: Not so much but sometimes if he had a 21 larger deal going on, yes. 22 Q: All right. You have an investment 23 committee? 24 A: Yes. 25 Q: All right. Tell us about the composition

1 of the Investment Committee? 2 A: There's really two parts to the 3 investment committee. There's the internal investment 4 committee which would adjudicate on transactions up to a 5 certain size and then Board members are added in to make an 6 investment committee of the Board. 7 It would meet -- the Board Committee meets, I 8 believe, quarterly in conjunction with Board meetings and 9 gets reported to on the business we're doing and investments 10 we're making, et cetera. 11 Q: What is that level, Mr. Stevens, beyond 12 which you have to have board involvement for investment 13 purposes? 14 A: I'm sorry, I can't quote. At risk, 15 perhaps a million dollars but I'm -- I'm sorry, I just don't 16 know off hand. 17 Q: All right. 18 A: It's in that area though. 19 Q: Right. And are there criteria that when 20 you talk about at risk are there -- are there factors of risk 21 that is where MFP has its own funds involved? 22 A: Yes. Yes. And generally, at least in a 23 technology lease, that's the residual investment we're 24 making. The present value of the investment. 25 Q: Are there -- are there transactions that

1 don't have to go to the Investment Committee that are in 2 excess of the amount of money of a million -- 3 A: It we're not at risk, yes. They wouldn't 4 need to. 5 Q: And I take it at risk would be at risk of 6 your own investment being lost or -- or in some way impaired? 7 A: Yes. 8 Q: And that then involves, I take it, as 9 well, a credit review of the persons you're dealing with? 10 A: Yes. Absolutely. Even if the equipment 11 investment is sound, you're not going to be able to realize 12 on that investment if the customer goes down in the meantime. 13 Q: So those are two factors that you've got 14 to look at? 15 A: Yes. 16 Q: And I take it that then gets you into the 17 credit committee that -- that makes those assessments? 18 A: Yes. Although that's more formalized 19 than in fact. The Credit Committee really devolves to the 20 Investment Committee in those instances. 21 Q: On the Investment Committee you've 22 indicated that for internal purposes, before Board members 23 are involved, there are a number of people at MFP; who would 24 they be? 25 A: I believe those four (4) again: Wolfraim,

1 Wright, Flanagan and Berrill. I'm there to observe and 2 several others are but those are the formal members, I 3 believe. 4 Q: Right. And with the Credit Committee? 5 A: Those four plus myself. 6 Q: Right. 7 A: I guess. 8 Q: Now, at some point in time there was the 9 creation of an asset based financing task force. Can you 10 tell us how that came about and -- and who the persons are on 11 that group? 12 A: I -- I'm sorry. That's not familiar to 13 me. 14 Q: You've never heard of the asset based 15 financing task force or task -- 16 A: To tell you the truth, I've read it in 17 testimony and I've heard you say it before when I was in the 18 room once, but I'm sorry, no. 19 Q: You don't know who that would be? 20 A: No. 21 Q: All right -- 22 A: I assume some of the same people and -- 23 I'm sorry. 24 Q: Right. You -- you know about 25 Mr. Robson's group the asset --

1 A: Oh yeah. 2 Q: -- based financing group? 3 A: Yes. Absolutely. 4 Q: And who would the asset based financing 5 group go to for approvals or are they a self-contained unit 6 that can do everything themselves without any -- 7 A: No. They would go, I assume, to the 8 management committee and maybe that's what was meant by the 9 asset based task force. I'm sorry. 10 Q: And you're familiar with the creation of 11 -- of the asset based group? 12 A: Yes. 13 Q: Tell us how that came about from your 14 perspective? 15 A: For years, we had done technology 16 business with a lot of municipalities, for instance, and a 17 lot of that was through Mr. Robson. You mentioned David 18 Robson. 19 Then he became quite close to those people, 20 and eventually they would say, I'm told, look, we have other 21 assets to finance, we -- we've got communications networks, 22 we've got buses and -- and fire trucks, could -- could you 23 give us some advice? Could you help us out with those? 24 As long as an asset creates a stream of 25 payments, it -- it's financeable, as long as the credit is

1 good, so yes, we could, and we -- we started doing those 2 deals, first of all, Mr. Robson, on -- on -- on his own, as a 3 salesman, and then he was allowed to form this group. 4 Q: All right, and I take it that -- that 5 when those prospects come in, there is some form of vetting 6 within MFP to -- to determine whether or not they appear to 7 be viable, and should go ahead? 8 A: Yes. 9 Q: All right, now what -- what process is -- 10 is undertaken by MFP, I mean, I -- I make the assumption that 11 you, as a Vice-President in debt placement, and the 12 treasurer, would have a lot to do with the financial aspects 13 of the company? 14 A: Yes, basically if -- if you came -- or 15 any salesman came with a -- a transaction that would 16 financeable, and if we had no risk, then we would proceed 17 slowly, slowly, slowly, and -- and see if we couldn't put a 18 transaction together, which would be beneficial all around. 19 Q: Right, and I take it the straight broker 20 deal, which is what we're talking about here, where there's 21 no risk at all to MFP, because you don't have any residual to 22 worry about, and you don't have any assets -- 23 A: There's no funds at risk, yeah. 24 Q: -- no funds at risk, and you don't have 25 any assets that -- that you have to dispose of at the end of

1 the -- the term -- 2 A: Right. 3 Q: -- on a straight broker deal, that was a 4 new approach as far as MFP was concerned, because that's not 5 the way you've traditionally done your business? 6 A: Right, we were traditionally investing in 7 -- in transactions, so there had to be much more oversight. 8 Q: All right. So, and -- and -- and then 9 when you -- you got launched into this asset based financing, 10 and it would be about 1998, would it? 11 A: Sounds about right. 12 Q: All right, and at that point in time, 13 what was the -- the system that was set up to -- to approve 14 or -- or to look at the transactions that were being 15 proposed? 16 A: It -- it may have been through that task 17 force, that -- that you mentioned. 18 I -- again, I'm -- I'm not sure there was 19 anything special instituted. There was already an investment 20 committee. It only looked at deals where MFP was at risk, 21 but I -- I'm not familiar with any special measures that were 22 put in place. 23 Q: All right, and -- and I take it that -- 24 that the difference from your perspective between the -- the 25 residual leasing business and the asset based leasing, is

1 those two (2) factors of -- of risk, and -- and residual 2 value, if you will, at the end? 3 A: True, in those years since 1998, though, 4 the -- they've kind of converged, because we've been having 5 to invest less and less and less into our residuals. 6 Back in '95, '96, we'd be investing 10, 12 7 percent. Now we're investing, on average, maybe 3-4 percent, 8 so -- 9 Q: And, I -- I take it -- 10 A: -- it fills in the gap. 11 Q: -- is -- is that because you're -- you're 12 asset based financing has overtaken that? 13 A: No, no, no, not at all, it -- it's just 14 the -- in the market place people in general are not willing 15 to invest as much as they were. It's a very competitive 16 business, and we're all able to invest less these days in 17 technology. 18 Q: All right. If I could take you, sir, to 19 a book that's already in evidence. It's Exhibit Number 66. 20 It should be up on the corner of your desk, with Mike Pitre's 21 name on the front. 22 A: No. I've got Makohon, Ford, Payne, and 23 pro forma. 24 Q: Sorry about that. 25 Thank you.

1 A: And -- and which tab? 2 Q: That is -- we're going to go to Tab 5, if 3 we can. 4 This is Exhibit number 66. 5 MR. COMMISSIONER: Tab 5? 6 MR. JAMES CASKEY: Tab 5. 7 THE WITNESS: That's the e-mail from Pitre to 8 Robson? 9 MR. JAMES CASKEY: That is correct. 10 THE WITNESS: Okay. 11 12 CONTINUED BY MR. JAMES CASKEY: 13 Q: And you'll notice that copies go to 14 Leanne Fraser and to Bob Wright. And I take it that -- that 15 Leanne Fraser was an employee of -- of MFP? 16 A: Yes. 17 Q: And what was her particular function? 18 A: She was Chief Administrator, if you like, 19 to that group, the asset based financing group, under Dave 20 Robson. 21 Q: All right. And then Mr. Wright is -- 22 A: He's CFO. 23 Q: -- CFO? In the -- in the pecking order, 24 would you be on the same footing as Mr. Wright? 25 A: No, he's my boss.

1 Q: All right. So, theoretically, he would 2 share information with you, I take it? 3 A: I'd agree to theoretically, yes. 4 Q: Okay. Mr. Pitre's role, at the time? 5 A: A salesperson. 6 Q: A salesperson, all right. 7 A: Yes. 8 Q: So this -- this appears to be, sort of, 9 the 5th of May of 1999? 10 A: Yes. 11 Q: And he's sending a note off, it's re the 12 Millennium Recreation Project at the City of Waterloo. At 13 that point in time, back in -- in May of 1999 -- yes, I'm 14 sorry? 15 A: No, I'm just remember now. I think Pitre 16 probably was part of that group and reported to Robson, I'm 17 not sure. And then the attached memo -- I know I'm 18 volunteering here, but is to the asset based task force. It 19 seeming to be familiar, they -- there were just so many 20 transactions, sort of, being proposed, that they wanted to 21 have some sort of structure, some sort of qualifying 22 procedure for these transactions. 23 Q: All right. 24 MR. COMMISSIONER: What was Ms. Fraser's 25 position?

1 THE WITNESS: She was Administrator to that 2 group. She worked for Mr. Robson. 3 4 CONTINUED BY MR. JAMES CASKEY: 5 Q: Prior to her working for Mr. Robson, had 6 she been an employee of -- of MFP? 7 A: Yes, she was a Portfolio Administrator in 8 the technology leasing group. 9 Q: All right. And a long term employee, I 10 expect? 11 A: I believe so, relatively. 12 Q: If we look at this -- this memo, in any 13 event, it talks about the Millennium Recreation Project of 14 the City of Waterloo. Up to this point in time, which 15 appears to be May of 1999, had you heard anything at all, 16 from anyone at MFP, about a transaction with the City of 17 Waterloo? 18 A: I'm sorry, I don't remember the timing 19 but I -- I think Mr. Pitre was originally talking about a 20 parking garage. 21 Q: All right. 22 A: I -- I believe. 23 Q: All right. So, this -- this seems to be 24 a -- a Millennium Recreation Project, had you heard anything 25 of that?

1 A: No. 2 Q: All right. Mr. Pitre is saying to Mr. 3 Robson, 4 "Dave, Bob [I take who would be Bob 5 Wright?] ..." 6 A: Yes. 7 Q: "... and I met with Tom Stockie and John 8 Ford to discuss a pay per use financing for 9 this project. I have attached a memo 10 describing the deal which I would like to 11 discuss with the asset based finance task 12 force ASAP. I have also left a copy of the 13 memo with Leanne. Please give your 14 comments on the memo and your thoughts 15 regarding how we should proceed. Thanks." 16 So, it appears that -- that, at least Mr. 17 Pitre, Mr. Wright, Mr. Robson had all thought there was an 18 asset based task finance task force? 19 A: This does jog my memory a bit. There was 20 something put in place just because there were so many 21 projects coming up. I'm not quite sure who was on it, but 22 I -- I assume the management team which would have included 23 Wolfraim, Wright, Payne, at the time. I don't know who else. 24 Q: All right. And that would suggest to me, 25 when Mr. Pitre's sending this memo, that -- that he can't

1 make decisions all by himself, that he's got to go to the 2 task force to get approvals for these things? 3 A: Correct. 4 Q: And that, I take it, would be the process 5 that none of these sales people had the ability to make 6 decisions all by themselves, they've had to get approval from 7 those above them? 8 A: It appears so. 9 Q: Was that your experience? Did you -- did 10 you think the sales people -- 11 A: I -- I think it needed a -- a sorting 12 out. As I said, there were just so many transactions, and -- 13 coming -- coming up, that we didn't want to be going off in 14 every different direction. And I only have very limited 15 resources on the financing side, and I -- we couldn't be 16 doing so very many deals at one time, so we wanted to pick 17 the best ones. It was more of a sorting out. 18 MR. COMMISSIONER: Who did that? 19 THE WITNESS: I'm sorry? 20 MR. COMMISSIONER: Who did the -- 21 THE WITNESS: The sorting out? 22 MR. COMMISSIONER: Yes. 23 THE WITNESS: I take it, this task force, 24 which was virtually the management team. 25 MR. COMMISSIONER: Were you part of the

1 sorting out process? 2 THE WITNESS: No. No. 3 MR. COMMISSIONER: Okay. 4 5 CONTINUED BY MR. JAMES CASKEY: 6 Q: It appears that Mr. Wright, your 7 immediate superior, was part of the sorting out process? 8 A: He would have been, yes. 9 Q: If we go to the second page, at the top 10 979 which is the number at the top and -- and this is Mike 11 Pitre, it's the 5th of May and he's doing a memorandum to the 12 task force. 13 "And the background, City of Waterloo has 14 received Council approval to begin 15 feasibility studies and public meetings 16 regarding the acquisition of lands and 17 buildings facilities for a 400 acre 18 Millennium Recreation Project." 19 Now, Mr. Wright is getting that information, 20 did Mr. Wright share that with you as -- as the Vice- 21 President of Debt Placement and -- and the Treasurer of the 22 company? 23 A: I don't remember him doing so and it 24 wouldn't strike me as odd one way or the other. 25 Q: Right. He goes on to say that -- that

1 "Monday, May the 3rd, Mr. Wright and Mr. 2 Pitre had met with Mr. Stockie as the Chief 3 Administrative Officer and John Ford as the 4 Chief Financial Officer of Waterloo to 5 discuss the financing." 6 Now, financing, I take it, would involve Debt 7 Placement? 8 A: Eventually, yes. 9 Q: Right. And that would involve you? 10 A: Yes. 11 Q: All right. But, at this point in time, 12 they hadn't discussed it with you? 13 A: No. 14 Q: Is Mr. Wright, by the way, involved in 15 debt placement? 16 A: He oversees it but, no, he doesn't 17 generally talk to the funders. I do that. 18 Q: All right. As the Vice-President of Debt 19 Placement, I take it, you're the one that is charged with 20 that responsibility? 21 A: Yes. 22 Q: And then you can delegate that to persons 23 under you to some extent, like Mr. Makohon? 24 A: Yes. 25 Q: And he would have worked directly for

1 you, I take it? 2 A: Yes. 3 MR. COMMISSIONER: Just so I get -- get a 4 grasp of the pecking order here, what's Mr. Wright's title? 5 THE WITNESS: He's Chief Financial Officer. 6 Senior Vice-Present. 7 MR. COMMISSIONER: He's the CFO? 8 THE WITNESS: Yes. 9 MR. COMMISSIONER: Thank you. 10 11 CONTINUED BY MR. JAMES CASKEY: 12 Q: And then, I take it, this form is a form 13 used at -- at MFP to determine whether or not these projects 14 have the -- the qualifiers necessary to go ahead, a screening 15 process? 16 A: I'm assuming so too. I don't remember 17 ever having seen one before. 18 Q: All right. So, this is new to you then? 19 A: I could have seen it back then but I 20 don't remember seeing it. But that's what it looks like to 21 me. He's trying to engender some interest in following up on 22 this transaction. 23 MR. COMMISSIONER: Is this something that's 24 peculiar to the asset based financing group? 25 THE WITNESS: Yes. In the technology side,

1 you may have heard, we have an approval sheet called a yellow 2 sheet. It sets out all the financial aspects of a 3 transaction. 4 MR. COMMISSIONER: You wouldn't ordinarily 5 see anything like this? 6 THE WITNESS: No. 7 8 CONTINUED BY MR. JAMES CASKEY: 9 Q: If we take a look under 2(a): 10 "Is the deal big enough, profitable 11 enough?" 12 Then it's got 13 "5 million volume. 10 plus percent margin" 14 Was that a criteria that you were familiar 15 with at -- at MFP? That it had to have at least a $5 million 16 transaction to be of interest? 17 A: No. But it -- it makes sense for these 18 types of transactions, I think. 19 MR. COMMISSIONER: Well, you had nothing to 20 do with the asset based financing group; is that correct? 21 THE WITNESS: Well, I would when they finally 22 got a transaction put together then I would take it to the 23 various funder possibilities; the insurance companies, et 24 cetera. I'd be at the other end of the bus. 25 MR. COMMISSIONER: Okay. Mr. Caskey's asked

1 you then about the criteria -- 2 THE WITNESS: Yeah. 3 MR. COMMISSIONER: -- which is set out here. 4 You've never seen this type of a form before? 5 THE WITNESS: Not that I remember. 6 MR. COMMISSIONER: Well, when would you -- 7 when and how would you find out what screening had gone 8 forward by the sales people? 9 THE WITNESS: Somebody would come to me, 10 generally the sales people, and say, this is the transaction 11 that we're doing. Here are the general parameters, can you 12 finance it? 13 MR. COMMISSIONER: But they wouldn't give you 14 the screening -- 15 THE WITNESS: Not particularly. And it would 16 evolve, obviously, over time. 17 MR. COMMISSIONER: What would they give you? 18 THE WITNESS: Mostly verbal. Just to say, 19 here's the transaction approximately that we're thinking of. 20 And it's just four or five salient points. Can you approach 21 the funders and see if there's some interest and we'll fill 22 you in as we go. 23 MR. COMMISSIONER: Okay. You would take some 24 notes -- 25 THE WITNESS: Yes.

1 MR. COMMISSIONER: -- of -- of what they were 2 telling you? 3 THE WITNESS: Usually, yes. 4 MR. COMMISSIONER: And then what would you 5 pass on to the funder? 6 THE WITNESS: I might create a memo. I might 7 just phone call saying this is what we're thinking about, do 8 you have any interest? 9 And, that's maybe where the $5 million would 10 come from. I mean, I -- I can't go to a life insurance 11 company, and say, would you do a $50 thousand transaction. 12 It has to be of substance, and usually for a longer term. 13 MR. COMMISSIONER: Thank you. Sorry, go 14 ahead. 15 MR. JAMES CASKEY: No problem. 16 17 CONTINUED BY MR. JAMES CASKEY: 18 Q: But, the criteria that -- that were 19 established for the asset based financing group, I -- I take 20 it had not been discussed with you at all as the Treasurer? 21 A: Not that I remember, no. 22 Q: All right, so -- so that although these 23 were deals that -- that could generate large amounts of money 24 for the company, and -- and I take it involve a lot of your 25 personnel, that wasn't something that -- that you were

1 familiar with? 2 A: No, not particularly, I mean, we were 3 interested in when a deal would progress far enough to be 4 actually called a deal, and something we could talk to the 5 funders about. 6 Q: All right. Going down, I notice over on 7 the right-hand side in the -- the fourth box down, where -- 8 where under D, Mr. -- whoever did this report -- Mr. Pitre 9 talks about: 10 "We have been working with John Ford since 11 September 1998. He is 'intrigued' by our 12 pay per use program." 13 And, he put that in italics. Does that have 14 any significance for you when you would see something like 15 that? I take it you never did see that? 16 A: No. I don't know why he would -- I mean, 17 he either was interested, or he wasn't, so I'm just taking it 18 as he was interested. I don't know why the quotation marks. 19 Q: All right, and -- and Mr. Wright would 20 get that memo, theoretically, if -- as part of the -- the 21 material to him? 22 He didn't share that with you at all? 23 A: Not that I remember, no. 24 Q: All right. 25 A: There would be no need for it.

1 MR. COMMISSIONER: Was the pay-per-use 2 program that's referred to here something that was integral 3 to the asset based financing? Or was it -- 4 THE WITNESS: Generally, yes, and I -- I -- I 5 note at the top of the memo, he's talking about a structure 6 similar to the land fill deal. I -- I guess that talks about 7 the Windsor transaction, where it -- it was pay for -- per 8 use based. 9 The modeling that they group did was based on 10 tipping fees, and how much the population would grow, and how 11 the tipping fees could politically be advanced over the years 12 to pay for the -- the landfill, so I'm assuming pay for -- 13 for use in this connotation would be for the use of the -- 14 the park. 15 MR. COMMISSIONER: Yes. 16 THE WITNESS: Or the various -- 17 MR. COMMISSIONER: You had no information 18 with respect to what the user fees were going to be? 19 THE WITNESS: No, not at this time. 20 MR. COMMISSIONER: I mean, with respect to 21 the park? 22 THE WITNESS: No, I didn't. 23 MR. COMMISSIONER: Okay, thank you. Okay...? 24 25 CONTINUED BY MR. JAMES CASKEY:

1 Q: At the bottom under Part 3, the action 2 required: 3 "Purpose of the memo: to seek approval from 4 the asset based finance task force to 5 further qualify this opportunity, and to 6 request financial expertise to start to 7 build the pro forma model." 8 Now, what would be involved, Mr. Stevens, in 9 requesting the financial expertise to start to build the pro 10 forma model? 11 A: I'm assuming he's asking for somebody to 12 be added to the asset based finance group who could do the 13 modeling -- the -- the spreadsheet modeling, getting together 14 all the information on the various fee structures of -- for 15 the use of the park, the parts of the park, et cetera. 16 Q: And who -- who did MFP have that it could 17 provide for that purpose? 18 A: I'm sorry, I don't remember. There -- 19 there was a couple of people who filled that role over time, 20 but I don't remember who at that particular time there was. 21 Q: Because of the request for financial 22 expertise, would that involve your group at all? 23 A: No. 24 Q: So that doesn't -- in -- and requires 25 debt placement?

1 A: No, they're -- they're talking about 2 modelling the transaction to try and see if there's a -- an 3 opportunity here. 4 Q: All right. 5 MR. COMMISSIONER: Was that a function that 6 was performed from time to time for the company by Beau 7 Pelech? 8 THE WITNESS: It's possible. He could have 9 sort of supervised in that, but I -- I don't think he's that 10 adept at spreadsheet manipulation, to put it kindly. 11 MR. COMMISSIONER: Okay, just before I -- I 12 know I want to kind of cancel my thoughts which are not 13 coming too quickly here. 14 Just to follow my own line of thinking, Mr. 15 Pelech was not an employee of -- 16 THE WITNESS: No. 17 MR. COMMISSIONER: -- MFP? 18 THE WITNESS: He was a consultant. 19 MR. COMMISSIONER: Okay. How would you 20 describe his area of expertise? 21 THE WITNESS: When I say he couldn't 22 manipulate spreadsheets, himself, he was -- he was very adept 23 at -- at instructing how the spreadsheet should be 24 constructed, what -- what the parameters should be, using 25 the -- the fee information he would have from, I assume, from

1 Waterloo, and how that could be built into the sheet. 2 MR. COMMISSIONER: Was he -- is it fair to 3 call him some kind of a model builder, which I take it, is -- 4 I've heard someplace -- I've heard different descriptions of 5 what some of these people did, and -- 6 THE WITNESS: He would have had, certainly, a 7 lot of input into it, yes. I believe. 8 MR. COMMISSIONER: But you don't know -- 9 THE WITNESS: No. 10 MR. COMMISSIONER: -- if he was the person on 11 this deal? 12 THE WITNESS: No, I -- I don't know. 13 MR. COMMISSIONER: When they're talking about 14 requesting financial expertise, they don't say who. 15 THE WITNESS: Yes, I'm not sure quite what 16 he's getting at there. There -- there was a young fellow, in 17 fact maybe a couple of them, who were in that group, from 18 time to time, who really knew how to build spreadsheets. I 19 think that's more what he's talking about. 20 MR. COMMISSIONER: These are internal? 21 THE WITNESS: Yes. 22 MR. COMMISSIONER: Thank you. Mr. Caskey...? 23 MR. JAMES CASKEY: Thank you, Mr. 24 Commissioner. 25

1 CONTINUED BY MR. JAMES CASKEY: 2 Q: Mr. Stevens, there are a couple of other 3 names that -- that may assist. Was Ken Douglas a person that 4 might provide that information and that -- that role? 5 A: Not the information but he may have been 6 able to -- I can't remember him very well but, yes, he was in 7 that group for awhile. 8 Q: Carmen Roberts -- 9 A: Yes. 10 Q: -- is another name? 11 A: Yes. 12 Q: And what did Carmen Roberts do? 13 A: She was, again, sort of the Excel 14 spreadsheet person who would keep track of all this stuff. 15 Q: Now, the -- the amount of money that was 16 talked about in -- in answer to Part A -- 2-A was twenty-five 17 (25) to $30 million deal. 18 Was that -- was that a significant transaction 19 as far as MFP was concerned, if you had a deal that was 20 financing twenty-five (25) to 30 million? 21 A: Certainly if interest, yes. 22 Q: All right. If we can go, sir, to Tab 15 23 in that same exhibit, Exhibit 66? This appears to be August 24 18th of 1999, Mr. Pitre is doing a memo off to Mr. Wolfraim, 25 Irene Payne, Dave Robson, Bob Wright.

1 And this deals with the asset based finance 2 opportunity for the Waterloo parking facility, which is what 3 you've mentioned before, as having heard about? 4 A: Right. 5 Q: And -- and as you look down the page, two 6 (2) possible -- possible structures are being considered, 7 head lease, sub lease or a sale leaseback. 8 A: Right. 9 Q: Were you familiar with those concepts? 10 A: In general terms, yes. 11 Q: All right. And -- and had you seen those 12 concepts utilized before, in transactions involving MFP? 13 A: I believe so. Certainly sale leaseback 14 is very common in the technology area. Head lease, sub lease 15 I believe was used in the Windsor transaction, I'm not -- 16 Q: Yes -- 17 A: -- remember. 18 Q: How did -- how did the Windsor 19 transaction -- I mean, you were there for that? 20 A: I wasn't involved. 21 Q: You weren't involved in it, at all? 22 A: No. 23 Q: Who at MFP would have been involved in 24 the -- in the Windsor transaction? 25 A: Certainly Mr. Robson, but we -- we farmed

1 out the -- the financing of that transaction, out -- out of 2 house. 3 Q: All right. And so that -- that went to 4 a -- you decided not to do it? Or, it was taken out of your 5 hands by someone, was it? 6 A: I wasn't in the position, at that time. 7 And it was decided to get RBC Dominion Securities to do it. 8 Q: So I take it, then, that MFP didn't have 9 anything to do with the financing of the Windsor project? 10 A: Oh, yes, absolutely. But we used 11 outhouse expertise as the debt placement area, if you like -- 12 Q: All right. Well, what -- 13 A: -- for that transaction. 14 Q: -- what was MFP's involvement, then, from 15 a financing standpoint, in Windsor? 16 A: I'm not sure of the question. Putting 17 together the transaction, as it was. Then we used DS to 18 approach the -- the funders and put the financing together. 19 Q: I take it from that, what you mean is, 20 Mr. Robson and his group did the pro formas and -- and the 21 financial work up to demonstrate the -- the payment streams 22 that could be expected from the project -- 23 A: Hmm hmm. 24 Q: -- and -- and based on that, the pro 25 formas would then go to RBC --

1 A: No, no, no. They would still -- I mean, 2 MFP did the -- the legal documentation. Got the 3 documentation all signed. It was just in that small area, 4 the financing area, the funding area, if you like, DS was 5 employed to do that. 6 Q: At the -- at the bottom of this memo on 7 the first page under four (4) it says "There's not going to 8 be a formal RFP ..." And I take it, RFP being a request for 9 proposal? 10 "... nor will there be an order in Council 11 regarding financing. Tom Stockie, CAO, has 12 stated that he is trusting MFP to provide a 13 fair deal in order to do more financing in 14 the future. However, the City is courting 15 Clarica as a major tenant in the 16 development project so the concern becomes 17 that Clarica either tries to take the 18 business from us or keep us honest." 19 Now, is it normal that in dealing with these 20 matters you would have a request for proposal? 21 A: I'm not really qualified to speak. I 22 would assume so. But I'm not at that end of the transaction. 23 Q: Who -- who at MFP would be the right 24 person? 25 A: I -- I take it the sales area probably

1 and some of the people who work behind the sales area. 2 Q: Who would they be? 3 A: I know in some transactions it's Robin 4 Wilkinson (phonetic). Sandy Pessione is another person who 5 did work behind the scenes on RFPs. 6 Q: All right. At any event, it's not you? 7 A: No. 8 Q: So you wouldn't know anything about 9 request for proposals from -- they go from MFP telling -- 10 A: We get them all the time from various 11 organizations, companies, municipalities. 12 Q: But this would be a proposal that would 13 go from MFP to Waterloo telling Waterloo what MFP was 14 prepared to do for them? 15 A: No. Well, generally it's the other way 16 around. The City would or -- or the entity wanting financing 17 would issue a request for quotations usually and the answer 18 back would come from the various competing -- 19 Q: Right. So -- so in this particular case 20 there wasn't going to be one of those requests so that -- 21 that you people would then be counted on just to treat 22 Waterloo fairly? 23 A: Well, number 1, we didn't do any parking 24 facility and number 2, I'm not familiar with this memo. 25 Q: And you weren't familiar, at that point,

1 I take it, with the Millennium Recreation Project? 2 A: No. 3 Q: Under the recommendation it says 4 "The asset based finance task force should 5 meet during the week of August 30 to 6 approve our final proposal. The proposal 7 will be as vague as possible until the 8 master development agreement is finalized." 9 Now, Mr. Wright would get that; would he share 10 that with you, the approach to take? 11 A: I don't remember seeing this, no. 12 Q: Why would you want a proposal to be as 13 vague as possible until the master development agreement was 14 finalized? 15 A: Knowing Mr. Pitre, he was very thorough 16 and very professional and what he wouldn't want to do was say 17 something in a proposal that would disqualify him, not 18 knowing what it was the City was looking for in the first 19 place. 20 You know, if one of his proposals said it has 21 to be painted green and they wanted red, then he wouldn't 22 want to say green. So -- 23 Q: Paint it all grey? 24 A: Okay. 25 Q: Is that the way you work?

1 A: Yes. 2 Q: Okay. If we can then take a look at 3 Tab 21 please? 4 MR. COMMISSIONER: Before you leave Tab 15, 5 you talked a little bit at the end there about Mr. Pitre's 6 motivation with respect to this suggestion of a vague 7 proposal. 8 THE WITNESS: Right. 9 MR. COMMISSIONER: The earlier paragraph he 10 talks about concern that Clarica, as a tenant in this 11 proposed parking garage development, might become competitive 12 with MFP and talked about financing it themselves. The 13 vagueness that he talks about, would that relate to -- 14 THE WITNESS: That's -- that's possibly 15 related. 16 MR. COMMISSIONER: You don't really know? 17 THE WITNESS: No. 18 MR. COMMISSIONER: Because you haven't seen 19 this? 20 THE WITNESS: No. 21 MR. COMMISSIONER: I take it Mr. Pitre would, 22 from your experience, Mr. Pitre, and other sales people would 23 be concerned about disclosing too much to potential 24 competitors? 25 THE WITNESS: As -- as a -- they -- they're a

1 pretty paranoid lot, yes. 2 MR. COMMISSIONER: Okay, I can understand. 3 4 CONTINUED BY MR. JAMES CASKEY: 5 Q: At Tab 21, sir, it's -- it's a memo from 6 Pitre to the investment committee. It's dated August 31st at 7 1999, and it again deals with the parking facility. 8 And, he says: 9 "For status, the financing proposals should 10 provide a framework for a letter agreement, 11 which will be approved by City Counsel 12 September 27th." 13 What's Mr. Pitre telling the Investment 14 Committee when he says, for a letter agreement? 15 A: I'm -- I'm sorry, I don't know. 16 Q: Not an expression you're familiar with? 17 A: No, he's capitalized it. I -- I assume 18 he's looking for some sort of agreement, and again, I assume 19 between MFP and the City, but I -- I -- I don't recognize 20 this here. 21 MR. COMMISSIONER: He doesn't say in a date 22 in this particular memo about an investment, by MFP, that 23 would put their own assets at risk? 24 THE WITNESS: No. 25 MR. COMMISSIONER: But, he's directed this

1 memo to the Investment Committee. That doesn't necessarily 2 mean the Investment Committee of the Board -- 3 THE WITNESS: No. 4 MR. COMMISSIONER: -- that would approve 5 matters involving MFP's own money. Is that correct? 6 THE WITNESS: That's fair. I think if you go 7 back to the main memo, he's writ -- writing to the task force 8 in the August 18th memo, he's writing to these five (5) 9 people, and in this memo, he was writing to the Investment 10 Committee. 11 He's -- I can almost sense him getting a 12 little frustrated. He's not getting where he wants to go in 13 terms of getting people going on this transaction. 14 15 CONTINUED BY MR. JAMES CASKEY: 16 Q: So, if we go back to -- to Tab 15, and 17 look at the people that he sent it to, how many of Wolfraim, 18 Payne, Robson and Wright are on the Investment Committee? 19 A: All but Robson. 20 Q: All right. 21 A: So -- so he's sending it to the same 22 people, he's just trying to get the right name there to see 23 if he can't get somebody -- 24 Q: Right, and -- and would you be involved 25 on that at that level with the Investment Committee?

1 A: I've -- I -- I do attend, from time to 2 time. I -- I can't remember being there at this time. I'm 3 usually away the last week of August. 4 Q: All right, and -- and you're -- as far as 5 the proposal should provide a framework for a letter 6 agreement, that doesn't make any sense to you? Or it doesn't 7 have any ring to you of being something you'd be familiar 8 with? 9 A: No. I'm assuming, though, he's looking 10 for some sort of -- sort of letter of understanding, if you 11 like, between the City and MFP. 12 Q: All right -- 13 A: Again -- again it was on the parking 14 facility that was never done, and -- 15 Q: I understand that. 16 A: Okay. 17 Q: All right. He goes on to say: 18 "The proposal should include a benchmark 19 rate, i.e., Waterloo cost of funds, less 20 100 basis points." 21 A: I'm sorry, where's there? Oh yeah. 22 Q: Right that -- that's the next line down? 23 Tell us about benchmarking, and rate and cost 24 of funds less 100 basis points. 25 What's the significance of that?

1 A: A benchmark rate would generally be a -- 2 when I'm talking to Clarica any way -- Canada Bonds Rate 3 generally of the same term as the transaction, or -- or at 4 least the half life of the transaction. 5 He's got Waterloo cost of funds capitalized, 6 so I've got no idea what that means, and 100 basis points 7 would be 100 less than that. 8 Q: Right, well, traditionally, Mr. Stevens, 9 how did Municipalities finance their debt? 10 A: I'm not aware, but I understand it's 11 through debentures. 12 Q: Right, had no idea of debenturing or 13 debenturing rates before this? 14 A: Never been involved. 15 Q: All right, now, what was debenturing the 16 -- the alternative for Municipalities? 17 A: I believe so, yes. 18 Q: All right, and -- and so if you were 19 involved at all in -- in looking at -- at rates -- 20 competitive rates, wouldn't you have to be concerned about 21 Municipalities with debenture rates? 22 A: I suppose, but again, I'm not familiar. 23 Q: No familiar at all? 24 A: No. 25 Q: All right. If -- if the cost of Waterloo

1 was the debenture rate, would it be funding available at 100 2 points less than debenture rates would be something that was 3 being offered by MFP? 4 A: I don't know. I don't know what 5 debenture rates are, I'm sorry. 6 Q: All right. About three (3) bullet points 7 down, MFP provide pro forma financial model. Would you have 8 anything to do with the preparation of a financial model? 9 A: No. Again, I assume that's on the 10 project with input from the City and then going through this 11 modeling process. 12 Q: All right. And, how could a financial 13 model be put together if the municipality didn't know the 14 cost of its funds? 15 A: Well, I think he's talking on the revenue 16 side, here. If this is parking I assume there's parking fees 17 and so many cars per day and that sort of thing. And you 18 model that against what -- what it's going to be -- what it's 19 going to cost and what the payments are going to be over that 20 term, as well. 21 Q: All right. Then under, what is required 22 from the Investment Committee, he wants approval of the 23 benchmark rate. Who would provide the benchmark rate? How 24 would you go about that, at MFP, through the Investment 25 Committee?

1 A: I'm -- I'm not sure. Again, it would 2 generally come from a funder, when we could call up and say, 3 how would you go about financing this, would you use a 4 twenty-five (25) to thirty (30) year bond or a half life bond 5 or how -- how would we do that? 6 Q: I take it that at some point in time, to 7 get a benchmark rate, you've got to talk to a funder? 8 A: Yes. 9 Q: And -- and, was there -- was there 10 information available to you on a, say, a monthly basis, as 11 to rates and benchmark rates and funding? 12 A: Yes, we probably could have constructed 13 one, and there may well have been. But it's just as easy to 14 call the people we deal with everyday, and -- and talk over. 15 Q: Well, if Mr. Wright, for instance, had 16 come to you and said, Mr. Stevens, I need the benchmark rate 17 for a project in Waterloo, a parking garage that may go 18 ahead, what would you have done? 19 A: I would have called two (2) or three (3) 20 of the -- with this term, insurance companies, and asked them 21 how they would go about, without using names, just that it's 22 a good municipal credit, this is the term, this is what we're 23 talking about. How would you go about financing it, if 24 indeed, we get you interested in it? 25 Q: All right. There's some handwriting on

1 that memo. I take it, that's not yours? 2 A: No, sir. 3 Q: All right. I take it, you -- you didn't 4 get this memo or see this memo? 5 A: I don't remember seeing it, no, sir. 6 Q: All right. 7 MR. COMMISSIONER: Were you ever asked -- 8 were you the person that the company would have gone to, to 9 determine the benchmark rate? 10 THE WITNESS: Probably, if I was around. 11 And, again, I don't remember being here, then, but I would 12 have been back in the first few days of September. I don't 13 remember this particular transaction going very far. 14 MR. COMMISSIONER: Yes. 15 THE WITNESS: I've got part -- 16 MR. COMMISSIONER: Our information is, it 17 didn't. 18 THE WITNESS: Yes. 19 MR. COMMISSIONER: And I think that's fair to 20 inform you of that. 21 THE WITNESS: And that's where that sorting 22 out process came, was this going to be a real transaction 23 that we should actually spend time working on, because we've 24 got legal people would get involved, my people -- 25 MR. COMMISSIONER: Well, you never spent any

1 time -- 2 THE WITNESS: No. 3 MR. COMMISSIONER: -- to want to determine 4 what a benchmark rate would be -- 5 THE WITNESS: Not for the -- 6 MR. COMMISSIONER: -- as requested here? 7 THE WITNESS: No. 8 9 CONTINUED BY MR. JAMES CASKEY: 10 Q: If we go, then, to the next page? 11 A: Yes. 12 Q: This is on the letterhead of First Gulf 13 Development Corporation. Were you familiar with that group? 14 A: I've heard of them before, but not 15 really. 16 Q: Who is Mark -- did you know Mark 17 Kindrachuk at First Gulf? 18 A: No, sir. 19 Q: All right. Beau Pelech, again, was an 20 independent consultant, I take it? 21 A: Yes, I think that's misspelled, but, yes. 22 Q: Michael Pitre, that's also misspelled? 23 A: Yes. 24 Q: Ken Douglas, I think they got right? 25 A: Yes.

1 Q: Tom Stockie? 2 A: Yes. 3 Q: Then two (2) people from First Gulf that 4 I take it you don't know, that is Mr. Gibson (phonetic) and 5 Mr. Both (phonetic)? 6 A: True, I don't know them. 7 Q: All right. If you go down to paragraph 5 8 on that memo of August 23rd of 1999, it says, 9 "MFP to provide City and First Gulf 10 detailed financing proposal by September 11 7th of 1999."? 12 A: I see that. 13 Q: All right. What would be involved in a 14 detailed financing proposal? 15 A: I'm not sure what you're talking about, 16 and how -- a plan on how we would go about financing it. I'm 17 sorry, I -- 18 Q: Not something you're familiar with, I 19 take it? 20 A: No. 21 Q: Do you suppose that -- that Mr. Wright 22 would be familiar with that? 23 A: I don't know what answer he would give. 24 Q: Would you have -- have been requested to 25 put together the same information for the recreation project?

1 A: The same information? 2 Q: Yeah. The -- the financing proposal that 3 they're talking about here for the -- 4 A: No. 5 Q: -- parking project? 6 A: No. Again, that -- that's more of a 7 sales area. Again, I'm going to get involved when there is a 8 transaction, fairly far down the road, and I'm going to go 9 out and try and finance it. 10 MR. COMMISSIONER: But you never got involved 11 in the parking garage. It apparently never proceeded so you 12 would never have been involved -- 13 THE WITNESS: That's right. 14 MR. COMMISSIONER: -- on that basis. The -- 15 THE WITNESS: But even on the -- 16 MR. COMMISSIONER: -- park project did 17 proceed -- 18 THE WITNESS: Yeah. 19 MR. COMMISSIONER: -- and you were still not 20 involved -- 21 THE WITNESS: No. 22 MR. COMMISSIONER: -- because it was an asset 23 based financing thing? 24 THE WITNESS: Right. And -- and as the 25 proposal evolves then I would be getting more and more

1 involved and I'd have to get Clarica or Canada Life or 2 whoever as up to speed as possible. But it was always very 3 flexible because things would change through the time right 4 down until about the month of closing or so. 5 6 CONTINUED BY MR. JAMES CASKEY: 7 Q: I take it that the information that you 8 would take off to the -- the potential lender, that is 9 Clarica or Canada Life, would come from the asset based 10 financing group? 11 A: Yes. 12 Q: And in particular from any person? 13 A: Quite often from Robson. But from any of 14 the others, but mostly from Robson. 15 Q: What involvement did you have in the -- 16 in the Windsor project? 17 A: If you're talking about the landfill, 18 almost none. 19 Q: The landfill? 20 A: Almost none. 21 Q: What about the next project down there, 22 the Leamington, Kingsville, Essex Union Water deal? 23 A: Actually I didn't have so much to do with 24 that one. Mr. Makohon handled that one completely on his 25 own.

1 Q: All right. There was a transaction in 2 Nova Scotia; were you familiar with that? 3 A: Yes. I can't remember whether it was Mr. 4 Makohon or myself. That was a fairly easy one to do. It 5 could have been either of us. 6 Q: All right. In the pecking order of these 7 deals, I take it that you would know at the end of the deal 8 as the Treasurer what the transaction generated by way of 9 revenue? 10 A: Yes. 11 Q: Right. How did they stack up in relation 12 to the Waterloo deal? Bigger, smaller? 13 A: The size of the transaction? 14 Q: Yes. From the standpoint of MFP? 15 A: The size of the fee? 16 Q: Yes. 17 A: That's what you're asking? 18 Q: That's what I'm getting at? 19 A: I believe Waterloo was the largest. But 20 I don't remember the others so well. Windsor was quite good 21 and so was Nova Scotia. 22 Q: The -- the size of the placement then, I 23 take it, would -- would have been larger at Waterloo as well? 24 Assuming there's a relationship between the size of the 25 project and the fee?

1 A: Not necessarily. No. I -- I -- I can't 2 respond. Windsor might have been a bit larger. 3 Q: I take it that -- that Waterloo as a 4 municipality was the type of client that MFP was interested 5 in? 6 A: Good credit rating, yes. 7 Q: And -- and theoretically then attractive 8 then to a -- to a lender? 9 A: Yes. 10 Q: And as well, the type of projects that -- 11 that municipalities like Waterloo would have, long-term debt 12 financing and a good covenant? 13 A: It was becoming more and more popular 14 also with municipalities as the provincial push down came 15 through and -- 16 Q: Am I correct that -- that it's not every 17 lending institution that would have the appetite for a 18 transaction of the nature that we have here at the RIM Park? 19 A: Very limited to insurance companies, 20 perhaps pension funds. People with long-term appetites and 21 there's not that broad a market in Canada. 22 Q: All right. And would -- would you and 23 your people at MFP know who those people were? 24 A: We try to. We don't know everyone, but 25 we try to yes.

1 Q: All right. So would that be one of the 2 considerations then when the sales people would come in to 3 see you or anybody in the financing group as to whether or 4 not it would be a viable or a -- or a qualifier, if you will? 5 A: I'm sorry. I'm not sure of the question. 6 Q: The -- the nature of the debt, the long 7 term, the municipality -- 8 A: Oh yeah. Yeah. Yes. 9 Q: Right. 10 A: If it were a short term it would go 11 elsewhere perhaps. Some of the life insurance companies 12 would also like shorter term deals from time to time. 13 Q: Now, I take it that the salesperson would 14 know that as well? Basically, what types of institutions? 15 A: Yeah, I mean, they were familiar with 16 having been there for years, what kind of financing we were 17 doing, generally, yeah. 18 Q: But, I take it a deal like Waterloo could 19 not go ahead without you involved in debt placement? 20 A: If we can't find the money, it's not 21 going anywhere, that's right. 22 Q: Right, so at some early stage, they're 23 going to have to come to you? 24 A: At some stage, yeah. Again, the -- the - 25 - the more experienced ones are going to know what kind of

1 transaction they've got, and whether they -- they -- they're 2 pretty sure whether it can be financed or not. 3 How it gets done, they -- they're not sure of 4 the details, necessarily, but they're going to keep plugging 5 away until they get something done. 6 Q: But -- but to -- to place $60 million for 7 30 years, it's not every lender that would have that 8 capability or desire? 9 A: Absolutely. 10 Q: Right, and that would be a very 11 specialized field, I take it? 12 A: Yes. 13 Q: And, that would involve you? 14 A: Absolutely, yes. 15 Q: All right, so at some point, with that 16 type of transaction, they're going to have to come to you? 17 A: Yes. 18 Q: Now, as I understand in the residual 19 leasing business, there were certain factors involved. 20 Number one, you don't get paid up front? Generally, you only 21 get paid at the end of the lease? 22 A: You mean MFP makes a profit? 23 Q: MFP makes a profit. 24 A: I believe we account for a profit through 25 the term, but actually a cash profit wouldn't come until the

1 end of the term, and there's a residual realization, which 2 may happen through the term, but. 3 Q: All right. 4 A: You're correct. 5 Q: And -- and there are credit risk factors 6 involved in -- in the client? 7 A: Yes. 8 Q: And, there are residual risk factors in 9 the type of equipment, and you had to know your product 10 pretty thoroughly to know whether or not you're going to be 11 able to realize on that at the end? 12 A: Absolutely. 13 Q: They're typically a smaller deal? 14 A: Smaller than Waterloo yes. 15 Q: All right, and you -- 16 A: There are some larger ones, but yes. 17 Q: All right, so that -- and -- and they're 18 -- they're -- they're shorter term, two (2) to five (5) 19 years, and -- 20 A: Generally, yes. 21 Q: -- and -- and frequently under $5 22 million? 23 A: Yes. 24 Q: And, I take it there's quite a bit of 25 competition out there in that leasing area?

1 A: Yes. 2 Q: And, so the -- the edge I take it that 3 MFP has, is in knowing the territory, and in service? 4 A: Yes. 5 Q: Right, is -- is -- 6 A: We're also very good at financing it. 7 Q: Okay, and I -- is -- getting to that, are 8 you able to give a better rate, for instance, than any of 9 your competitors? 10 A: No, we've got some very large 11 competitors. It was very hard to -- to compete against the 12 likes of IBM, or -- or GE, but we do the best we can. 13 Q: Right, and -- and so you want to be 14 innovative in the way you approach these things, but it can't 15 be based on the interest rate, because you just don't have 16 the availability to -- to beat that interest rate? 17 A: Maybe not beat, but match, yeah. 18 Q: Okay, that's -- that's fair. 19 A: I mean, we -- we would clump together a 20 -- a -- a lot of business, do it off balance sheet in the 21 securitization, and we could come pretty close to match. 22 Q: All right, so when I talk about MFP, what 23 -- what does MFP have by way of a competitive advantage over 24 anybody else that's in the same business? 25 A: I -- I'd say it's the -- the service of

1 the sales people going out and doing these deals. It's all 2 direct with the customers, not through vendors as some 3 competitors off rate. 4 Q: Right. None of these deals, I take it, 5 are -- are ones that are tax driven, or -- or have tax 6 flow-throughs involved? 7 A: There's a tax aspect to almost everything 8 that MFP does. I mentioned the securitizations we do. 9 They're not tax motivated, but they're very tax effective in 10 that we don't pay capital tax, and that is passed on to the 11 customers. 12 For the last five (5) or six (6) years, we've 13 probably done 70 or 80 percent of our technology financing 14 through securitizations. 15 MR. COMMISSIONER: What do you call that? 16 THE WITNESS: Securitizations? 17 MR. COMMISSIONER: Yes? 18 THE WITNESS: We would have a -- an off 19 balance sheet entity, which would actually undertake the 20 lease. It -- it's -- the assets are put into a trust. They 21 don't detract capital tax, and we're actually getting 22 extremely good rates for those through -- through Clarica and 23 through commercial paper programs, and those are all passed 24 on to the customers. 25 MR. COMMISSIONER: You call it securities?

1 THE WITNESS: Securitization. The -- 2 MR. COMMISSIONER: How do you spell it? I'm 3 not -- 4 THE WITNESS: Security, but with an "ization" 5 at the end. 6 MR. COMMISSIONER: Okay, that's what I 7 thought you were saying. 8 THE WITNESS: Basically, you have a pool of 9 assets, and the trust issues securities against that pool of 10 cash flows. 11 12 CONTINUED BY MR. JAMES CASKEY: 13 Q: And I -- and I take it that that trust is 14 the Windsor land fill deal? 15 A: No. 16 Q: No? 17 A: That's -- no, it's got nothing to do with 18 that. It's Aztec it's called, was one that we issue 19 commercial paper against, and Hamms is the one (1) that 20 Clarica funded. 21 Q: And, in all of these transactions, I take 22 it, Mr. Stevens, you're using money borrowed from a lender at 23 whatever the competitive rate is from that lender? 24 A: Yes. General -- 25 Q: And your residual is really rolling in

1 your -- 2 A: That's where the profit comes from. 3 Q: Yes, that's right. It's from your 4 residual -- 5 A: Yes. 6 Q: -- that's where MFP makes its profit. 7 All right. Now, in an asset based financing deal, the profit 8 comes up front. That is, because you neither own the asset, 9 at any time, nor have any credit risk, you get your money up 10 front when the deal closes? 11 A: Yes. There was one (1) instance where we 12 ended up with a note, twenty-five (25) or thirty (30) years 13 out, as part of the -- the profit. 14 Q: All right. But -- but in fact, the 15 note -- that was a deferred payment -- 16 A: Yes. 17 Q: -- if you will, but -- but under normal 18 circumstances, you get the cash? 19 A: Absolutely. 20 Q: All right. And so that's paid up front, 21 you don't have any credit risk, you don't have any residual 22 risk and you've got bigger deals. 23 So I take it, the asset based deals are very 24 attractive to MFP? 25 A: Yes, they were.

1 Q: When I was asking you about -- about the, 2 really, accountability, when the asset base group got -- got 3 developed, we've seen, through some of the memos, that -- 4 that there was a task force that -- that Mr. Pitre, at least, 5 was seeking approvals from? 6 A: I'd forgotten about that, yes. 7 Q: All right. So, in any event, there 8 seemed to be some accountability built in, but you weren't 9 aware of that? 10 A: It was, to me, more of a screening 11 process, just because there were so many transactions being 12 proposed. 13 Q: All right. What I am concerned with 14 is -- is, who was Dave Robson and his group required to 15 report to, or through? 16 A: I believe at the time, the Senior Vice- 17 President of Sales. 18 Q: And that would have been Irene Payne? 19 A: I believe so, yes. 20 Q: All right. So -- 21 A: Now -- now, Flanagan, I believe. 22 Q: Now Flanagan? 23 A: Yes. 24 Q: So -- so, Robson, then, would report to 25 Payne on matters, and get instructions from Payne?

1 A: I believe so, yes. 2 Q: All right. Was there any suggestion at 3 MFP that Robson wasn't doing that? 4 A: He very much has a mind of his own, but 5 he would also play within the rules, I always assumed. 6 Q: So that, from your perspective, as -- as 7 the Vice-President of Debt Placement and Treasurer, Mr. 8 Robson would follow the pecking order, if you will, go to 9 Irene Payne with -- with matters and report to her? 10 A: Again, I'm assuming. He would come to me 11 with his proposals, his transactions, as he was free to do, 12 and I would do the best I could with them. Otherwise, I 13 don't really know what he was doing. 14 Q: All right. Would he ever go directly to 15 Mr. Wright? 16 A: I'm assuming, probably. And probably Mr. 17 Wolfraim as well. 18 Q: Was there ever any suggestion that Mr. 19 Robson was going directly to Mr. Wolfraim with his matters, 20 and bypassing Irene Payne? 21 A: I don't know if bypassing. But, yes, he 22 would keep Mr. Wolfraim appraised, from time to time. 23 Q: And -- and, when these matters did go to 24 some of these committees, the Credit Committee and that sort 25 of thing, would -- would the salesperson, both Mr. Robson or

1 Mr. Pitre, would they go along with the project, to explain 2 it further? 3 A: Generally, yes. 4 Q: We talked about the qualification of 5 projects. And -- and, you talk in terms of a -- was it a 6 rate sheet or a yellow sheet, that would go with a -- with 7 your residual leasing? 8 A: For technology leasing, yes. 9 Q: All right. 10 A: There was a yellow sheet approval form. 11 Q: And -- and, what all -- what information, 12 if you will, was on that yellow sheet? 13 A: Customer information, contact name and 14 that sort of thing. I believe somewhere on the back, or 15 wherever, the equipment's listed, but I don't ever look at 16 that, so I'm not totally sure. 17 On the front there would be the term and the 18 start date and the cost and the PV of the rental, at an 19 assumed debt rate and the cash consequences. 20 Q: All right. 21 A: The residual being taken, the expected 22 residual after the term. The -- the whole financial -- 23 Q: To make up that -- that sheet, I take it 24 that you would have to confer with the -- the lender? 25 A: No, not -- not very often. Number 1, it

1 didn't come from me, it comes from the salespeople. Their 2 only input to me is to get a credit sign off and also to get 3 an assumed debt rate. I say "assumed" because quite often 4 the start date is three (3) or six (6) months in the future 5 so we're guessing. 6 Sometimes when it's a large deal we'll go to a 7 funder and say, if you were doing the deal today what would 8 the rate be and we'll add a bit to hedge for the future start 9 date. Again, it's a guess. The yellow sheet is an approval 10 sheet of a future deal. So all the numbers there are subject 11 to change. 12 Q: Right. And is this where the 13 benchmarking comes in from the perspective of trying to 14 figure out the rate that would be charged? 15 A: It could, I guess, if you want to call it 16 that. Again, if I call up a funder today and say, what would 17 you do this deal today if it were doing, could you do the 18 credit, number one, and what would the rate be? I could say, 19 okay, that's a benchmark and whatever rate it is and I'll add 20 fifty (50) cents for the future hedge. 21 Q: Right. What if -- what if the borrower 22 says to you -- says to MFP, I have to know the rate today. I 23 -- I can't plan not knowing what the rate is? 24 A: Okay. 25 Q: Is there a method of fixing the rate

1 today? 2 A: Yeah. We'll go one of two ways. If it's 3 a large enough transaction I'll go to the bank and say, okay, 4 let me buy a forward contract on the interest rate and it's 5 going to cost so much and I'll factor that into the 6 transaction. 7 I don't believe I've ever done that because by 8 the time I get the cost and report that back to the customer 9 he says, well, I want all that but I don't want to pay for 10 it. 11 The other way to do it is we'll sit down and, 12 again, ask the funder what would you do it at today's rate. 13 We'll make our best guess, bump it up a little bit for the 14 cost of taking that risk and put that rate on the 15 transaction. 16 Q: Right. And I take it that -- that if you 17 did that you'd discuss that with your customer -- with your 18 client, the borrower, to say this is what the money's going 19 to cost you? 20 A: Very rarely. No. Not really. I mean, 21 the salesperson would come to me and say, what could you do 22 it at and he would go back to the customer and say, okay, 23 this is our rate. 24 Quite often expressed in dollars per thousand 25 or this is your rent because they know the cost, six (6)

1 months out, let's say. This is your rent. Do you want to do 2 it or don't you? 3 Q: Right. 4 A: Or do you want to wait until that six (6) 5 months is up and take the actual rate which, to me, is a much 6 smarter play usually. Because I have to bump it up and hedge 7 it. It would be better for them to wait for the real rate 8 generally. Unless it's a really low interest rate 9 environment and they're expecting quite a rise. 10 Q: I take it that if in the forward ones 11 where we talked about hedging that -- that process of you 12 going into the market and -- and buying that security, if you 13 will, against the future, that's a hedging? 14 A: It's very expensive, yes. 15 Q: And it's very expensive to do. And if 16 the customer absolutely positively has to have a guaranteed 17 rate today it's going to cost them to get that? 18 A: I might have done it once in ten (10) 19 years and I'm not sure when that it was. 20 Q: And I take it that if it was going to be 21 done at MFP, it would have to be done through you as the 22 Vice-President of Debt Placement? 23 A: I think so. 24 Q: Right. That's theoretically -- 25 A: It makes sense to me.

1 Q: Makes sense to you? I take it, 2 Mr. Stevens, you'd be upset if you thought that that function 3 had been usurped by somebody else at the company? 4 A: I'm too old to get upset by that sort of 5 thing any more. If somebody wants to go around me that way, 6 that's fine. 7 Q: But you're not aware of that ever having 8 happened? 9 A: No. 10 Q: And I take it, if it had happened you'd 11 know about it? 12 A: Hope so. 13 Q: All right. Now, are there rate sheets 14 that are prepared monthly to -- to tell everybody what the -- 15 the prevailing rates are? 16 A: There are rate grids. I can't remember 17 the last time we actually published one. They're generally 18 for transactions under 400,000 under a five (5) year term and 19 it's mostly for what we call renewal transactions. 20 A lease -- technology lease gets toward the 21 end of its term. There's a booked residual. The customer 22 doesn't want to buy it, he just wants to renew it and those 23 rates would be used for that kind of transaction. 24 Q: And are those transactions ones that the 25 sales people can -- can bypass the process in order to put

1 them in place? 2 A: Well, that is the process. 3 Q: That is the process? 4 A: There would still be a credit signoff as 5 well. 6 Q: So that, I take it, that none of these 7 transactions can get away without a credit sign off? 8 A: Where we're at risk, that's right. 9 Q: And where you're not at risk, would there 10 ever be any type of transaction that could go forward without 11 approvals? 12 A: I went to look back to see if we'd ever 13 done one for City of Waterloo and I think I found a credit 14 approval which we did on the day that it closed, just because 15 we realized that we'd never done one and for our files we 16 probably should have one. 17 It was sort of half a page of this is the 18 deal, let's do it. 19 Q: All right. That wasn't the RIM Centre? 20 A: Yes. 21 Q: It -- it was RIM Centre 22 A: Yes. I -- I figured that's where you 23 were going. 24 Q: Yes, all right, that was the only one 25 (1)?

1 A: Yeah. 2 Q: Now, I talked to you briefly about 3 debenture rates. When you're dealing with municipalities, 4 would your rate sheets reflect the debenture rates 5 prevailing? 6 A: There's no rate sheets for those deals, 7 and -- and I really don't know very much about debentures at 8 all. 9 Q: How would you go about getting a 10 debenture rate, or knowing what municipality could get money 11 for -- 12 A: I'm not particularly interested in that. 13 I've -- I've -- I'm sorry. My area is to go and find out 14 what we could get for the transaction that I'm being 15 proposed. 16 Q: Sort of off the top of my -- my head, 17 what -- what would be the advantage to a municipality to deal 18 with MFP if they could debenture? 19 A: Again, I know very little about 20 debentures, but I understood, and I'm not sure where I came 21 to this understanding, the debentures were fairly inflexible, 22 maybe for a -- a ten (10) year term maximum for even payments 23 throughout the term. 24 It might have other inflexibilities in them, 25 and it might not suit every transaction, especially one where

1 there's a growing population, and there's a user fee basis 2 for growing payments, rather than static throughout the term. 3 Q: I take it that from your perspective, you 4 didn't even consider debentures to be a concern as -- as an 5 alternative for a municipality? 6 A: Well I always assumed they had other 7 availability, but would have chosen this one, because there 8 was some positives to it. 9 Q: Okay. When I -- I talked to you 10 basically in residual leasing. Were there any tax 11 flow-through advantages that you knew of, aside from what 12 you've talked about -- 13 A: I wasn't familiar at all with anything 14 that went on in that vein, no. 15 Q: All right, so when you were dealing with 16 your -- your lenders, I take it that you wouldn't be looking 17 at any tax advantage that the lender would have? 18 A: No, I other than if we weren't taking the 19 asset on our books, there would be no capital tax. 20 Q: And, to you -- 21 A: To us. 22 Q: And if you got an advantageous rate from 23 that lender, then that -- that could reflect in -- in the -- 24 the amount of the cost to the client as a result of that? 25 A: I didn't follow exactly, but I think the

1 answer's yes. 2 Q: Okay, well, it's just simply this. You 3 said you pass along the benefit? 4 A: Yes. 5 Q: If you get a really advantageous rate 6 from a lender, you can -- 7 A: Yeah -- that's -- that's -- I'm not a 8 profit centre. We pass along basically what we get. Now, 9 when we don't, it's because rates are moving faster than I 10 can guess ahead what they're going to be, because remember, 11 I'm dealing in the future usually when I'm setting the rate. 12 Q: All right. Were you aware of any 13 transactions that -- that were tax driven while you were 14 doing the work as the VP of debt placement? 15 A: I wasn't involved. We did a couple of 16 large software transactions, and any time we do a large 17 software transaction, because they're such a fast write-off, 18 there's always a -- a rate advantage because of the -- the 19 fast write-off. 20 Q: When you're supplying information to -- 21 to the -- to the potential lender -- 22 A: Yes. 23 Q: -- what's the source of that information 24 that you provide? 25 Do you ever go directly to the borrower? Do

1 you just -- 2 A: The -- the odd -- the odd -- the odd time 3 -- it's almost all from the salesman, and it may be as simple 4 as him picking up financial statements off the coffee table 5 as he leaves the company. 6 The -- everybody has a web site now, and 7 financial statements are generally on web sites, so it's 8 pretty easy for us to get that. 9 The lenders are looking for financial 10 information mostly. Other than that, if it's quantitative, 11 or if it's on the equipment, or whatever, it would come from 12 the sales people. 13 Q: Was there any discussion at MFP about 14 advantageous rates available because of any tax advantage 15 that -- that you were able to give? 16 A: I wasn't involved in any discussions with 17 that. 18 Q: Okay, so -- 19 A: But I wouldn't expect to be either. 20 Q: Well, if you're going to place debt -- 21 A: Yes, but it wouldn't come necessarily 22 from the debt side, it might be, who was involved on -- in 23 owning the transaction? For instance, one of our 24 shareholders, or whatever. 25 I wasn't involved in any -- in speaking to

1 Canada Life or Clarica or anybody like that. 2 Q: So I take it that -- that, from your 3 perspective, in the time that you've done the job, it's -- 4 it's always been a matter of -- of getting the best rate that 5 you could from whichever one (1) of the potential lenders -- 6 A: Yes. 7 Q: -- and passing that rate on through, 8 adding whatever MFP adds for its profit margin? 9 A: Correct. 10 MR. COMMISSIONER: Is that a convenient place 11 to stop? 12 MR. JAMES CASKEY: Yes, sir, this is an 13 advantageous point. 14 MR. COMMISSIONER: All right. Just before we 15 do that, I just wanted to ask a question. 16 You told us earlier that, essentially, you 17 dealt in residual type leases? 18 THE WITNESS: Mostly, yes. 19 MR. COMMISSIONER: And not the asset based? 20 THE WITNESS: Oh, no, I did the asset based 21 ones as well. 22 MR. COMMISSIONER: You did those -- 23 THE WITNESS: Oh, yes, yes. 24 MR. COMMISSIONER: Okay, thank you. 25 THE WITNESS: But, I mean, in terms of number

1 of deals -- 2 MR. COMMISSIONER: Yes, okay. 3 THE WITNESS: -- obviously, more -- 4 MR. COMMISSIONER: All right. Did the 5 Waterloo Millennium Recreation Park deal come to you, ever? 6 THE WITNESS: Oh, yes. I did it. 7 MR. COMMISSIONER: You did it? 8 THE WITNESS: I closed it. Mr. Makahon 9 started it, I can't remember whether it was vacation time or 10 whatever, but I took it over in the summer and finished it. 11 MR. COMMISSIONER: At what point in time did 12 that deal come to you? You were -- you were the one that had 13 to search out the available funds? 14 THE WITNESS: Yes, eventually. I think Jerry 15 started it in, whenever it was, February or March, and I 16 would have known about it, and taken it over, maybe in July 17 or -- 18 MR. COMMISSIONER: Okay. 19 THE WITNESS: -- August. I don't have a firm 20 recollection. 21 MR. COMMISSIONER: So, by July of 2000? 22 THE WITNESS: Yes. 23 MR. COMMISSIONER: You would have been into 24 the thick of the search for these funds? 25 THE WITNESS: Yes.

1 MR. COMMISSIONER: If I -- that's my 2 expression, not yours. 3 THE WITNESS: No, that's fine. 4 MR. COMMISSIONER: Okay. Thank you. 5 All right, we'll take fifteen (15) minutes. 6 THE REGISTRAR: The City of Waterloo Judicial 7 Inquiry now stands recessed for fifteen (15) minutes. 8 9 --- Upon recessing at 11:27 a.m. 10 --- Upon resuming at 11:47 a.m. 11 12 THE REGISTRAR: The City of Waterloo Judicial 13 Inquiry is now resumed. Please be seated. 14 MR. JAMES CASKEY: Mr. Stevens, please? 15 MR. COMMISSIONER: Thank you, Mr. Stevens. 16 Just have a seat again, please? Mr. Caskey...? 17 MR. JAMES CASKEY: Thank you, Mr. 18 Commissioner. 19 20 CONTINUED BY MR. JAMES CASKEY: 21 Q: Mr. Stevens, just before the break we 22 were discussing the way in which you would get a rate from a 23 company. I take it, the only way that -- that one could talk 24 about an advantageous rate at MFP, would be if you got an 25 advantageous rate from a lender?

1 A: You know, you're using that term, 2 advantageous. All the rates I got were advantageous, if you 3 want to put it that way. They were the best rates I could 4 get. 5 Whether or not MFP wanted to do something else 6 from the rates I could do, that's certainly up to management. 7 Q: All right. But -- but in any event, the 8 best rates you could get you got from lenders and they didn't 9 have any -- 10 A: Right. 11 Q: -- input from MFP? 12 A: True. From time to time I would go to a 13 lender, on a technology lease, and say, if you want to buy 14 the assets as well and take the CCA, would you give me a 15 concession for that? Not often, but that would happen, as 16 well. 17 Q: CCA being Capital Cost Allowance? 18 A: On the technology equipment, yes. 19 Q: All right. But aside from that, you just 20 passed on what you got? 21 A: I just passed on what we got, yes. 22 MR. JAMES CASKEY: All right. I propose now, 23 Mr. Stevens, to ask you questions relating to the documents 24 that we provided to you. 25 Mr. Commissioner, I have two (2) volumes of

1 documents for Mr. Stevens and I would propose making them the 2 next exhibit. 3 MR. COMMISSIONER: Exhibit 86? 4 MR. JAMES CASKEY: Eighty-six (86). 5 MR. COMMISSIONER: Volumes 1 and 2? Two (2) 6 volumes. 7 8 --- EXHIBIT NO. 86: Brief of documents for Mr. 9 Stevens, Two volumes. 10 11 MR. COMMISSIONER: If there was to be a rate, 12 other than what you were able to get from one of your funding 13 institutions, who would make the decision about -- about 14 altering that rate? 15 THE WITNESS: The senior management -- the -- 16 the four (4) people there. Remember, there's two (2) rates, 17 there's the rate at which I borrow against a transaction, and 18 there's a rate that is implicit in the transaction, itself. 19 MR. COMMISSIONER: Yes. 20 THE WITNESS: Two (2) completely different 21 rates. I would only effect the one (1), the borrowing rate. 22 MR. COMMISSIONER: All right. So you 23 could -- you could determine what the -- what that borrowing 24 rate was? 25 THE WITNESS: And, yes. That's pretty well

1 set by the -- the lending community and whether MFP wanted to 2 go above or below that rate, it's not my purview. 3 MR. COMMISSIONER: In most cases you'd expect 4 them to go above? 5 THE WITNESS: Yeah. But in technology ones, 6 we were quite often below because the implicit rate in a 7 technology lease with a residual investment is quite often 8 below my borrowing rate. 9 MR. COMMISSIONER: Because of the -- 10 THE WITNESS: Because of what we expect at 11 the end. 12 MR. COMMISSIONER: Yes. 13 THE WITNESS: Yes. 14 MR. COMMISSIONER: I see. 15 MR. COMMISSIONER: Was that the case with 16 what you were doing for the Millennium Recreation Park? 17 THE WITNESS: Again, there were two different 18 rates. I never really looked at the implicit rate in the 19 transaction itself. All I knew was I was trying to get the 20 best rate I could from the lending community. 21 MR. COMMISSIONER: You were aware that there 22 was no residual. 23 THE WITNESS: Yes. But I wasn't aware of any 24 other rates or -- 25 MR. COMMISSIONER: So your job was the get

1 the rate from the lending institution -- 2 THE WITNESS: I'm the money. 3 MR. COMMISSIONER: -- and then turn to you 4 people and say, this is -- 5 THE WITNESS: This is what I got. 6 MR. COMMISSIONER: -- what I got? 7 THE WITNESS: Yes. 8 MR. COMMISSIONER: And then they would do 9 what ever they want to do. 10 THE WITNESS: Absolutely. 11 12 CONTINUED BY MR. JAMES CASKEY: 13 Q: I take it, Mr. Stevens, following up from 14 what the Commissioner says, because there is no ownership and 15 no residual that if MFP wanted to make any money on the 16 transaction the rate that was charged to the borrower would 17 have to be more than the rate that you got from the lender. 18 A: Makes sense to me. 19 Q: Yeah. 20 A: I mean, lacking any other consideration, 21 yeah. 22 Q: There's nowhere else for it to come from; 23 is that -- is that fair? 24 A: True. 25 Q: Thank you. If we can go then to -- to

1 Volume 1 of Exhibit 86, as it is now, and I'll go to Tab 1 if 2 I can please. This is a letter of October 15th of 1999. It 3 comes from Mr. Robson to Mr. Stockie at Waterloo. 4 And -- and what he says in that letter in the 5 second paragraph is, 6 "The cost of funds will be approximately 7 102 to 106 basis points below Waterloo's 8 incremental cost of funds. This offer is 9 subject to then current interest rates, tax 10 regulations and credit ratings." 11 Now, the first question that I would ask you 12 is, were you aware, in October of 1999, that MFP was offering 13 potential borrower's cost of funds at 102 to 106 basis points 14 below Waterloo's -- or below incremental cost of funds? 15 A: The easy answer is no. A question I 16 would have is what incremental cost of funds is? It's a 17 nonsense term to me but. 18 Q: All right. Well, let's -- let's assume 19 that the incremental cost of funds would be the cost at which 20 Waterloo could borrow by way of debenture? 21 A: Okay. 22 Q: So it would be 102 to 106 points below 23 that level theoretically? 24 A: Okay. And the -- I'm sorry, the question 25 is?

1 Q: Were you aware that MFP was offering 2 funds that would be in -- in that way tied to what Waterloo 3 could otherwise borrow at? 4 A: No. No. It would make sense in terms of 5 a technology lease. 6 Q: But not asset based? 7 A: Not particularly, no. 8 Q: Now, for Mr. Robson to have made that 9 representation to the City of Waterloo, what processes or 10 approvals would he have had to go through at MFP to get the 11 authority to do it? 12 A: Well, your assumption was, it couldn't be 13 done anyway, so I don't think there is a process. This is a 14 draft for discussion purposes only, unsigned memo that I see. 15 I've never seen it before. 16 Q: Well, let's assume that Mr. Robson signed 17 the one that he sent to the City of Waterloo? Let's assume 18 it's draft only? 19 A: Okay. 20 Q: Is he not representing to the City of 21 Waterloo at that point in time, because he says, 22 "I'd like to confirm MFP Financial Services 23 Ltd's offer to the City of Waterloo to 24 provide financing for the proposed parking 25 facility."

1 A: Yeah, He is. 2 Q: That's -- that's what he's talking about? 3 A: Yep. 4 Q: And he's saying, I can get you this money 5 at 102 to 106 basis points below what you could otherwise get 6 it at? 7 A: If that's what incremental cost of funds 8 is, yeah, that's what he's saying. 9 Q: And -- and I take it that as a debt 10 placement person, you were the Vice-President at that point, 11 October '99? 12 A: Yes, sir. Yeah. 13 Q: That wasn't something that you could 14 arrange? 15 A: No. 16 Q: That would have been unavailable to you, 17 whether it was for a parking garage, or for a recreation 18 complex? 19 A: I -- I believe not, depending on what 20 incremental cost of funds are, and if that's the debenture 21 rate, which I don't know what those were, I'm generally 22 agreeing with your premise. 23 Q: All right. Now, and -- and -- you said 24 that -- that there's no approval process for something that 25 can't be done, but if Mr. Robson theoretically was getting

1 approval for this concept, who would he have got it from? 2 From the task force? Or from the investment 3 committee? 4 A: I -- I doubt he would have got that 5 approved; he wouldn't have. 6 Q: So, I take it that from -- from what you 7 say, you -- you assume that Mr. Robson wasn't acting on 8 anyone's authority, he was just doing it on his own? 9 A: That would be my assumption. 10 Q: All right. If we can go to Tab 2, 11 please? And Tab 2 consists of minutes of a meeting of 12 February 21st of the City of Waterloo. 13 A: Hmm hmm. 14 Q: And, if I -- if you'd be good enough to 15 go with me to page 1564, which is the fourth -- actually, the 16 fifth page in? 17 A: Okay. 18 Q: Now, you'll see that two-thirds of the 19 way down, Dave Robson, Vice-President with MFP Financial 20 Services Ltd.? 21 A: Right. 22 Q: He addressed the municipal Council, 23 advised that MFP is 75 percent owned by six (6) Canadian 24 institutions, including one (1) bank, three (3) insurance 25 companies, two (2) pension funds, with 25 percent balancing

1 publicly traded on the Toronto Stock Exchange. 2 MFP's financing solutions involve providing 3 the lowest possible cost of funds with flexible repayment 4 terms linked to the project. 5 A: Okay. 6 Q: Now, as far as the composition of MFP 7 Financial Services, is that reasonably accurate? 8 A: I really don't know. 9 Q: Okay. 10 A: It's always been a mystery to me. 11 Q: And, I take it that -- that MFP's 12 financial solutions, from your perspective, do involve 13 providing the lowest possible cost of funds with flexible 14 repayment terms linked to the project? 15 A: Yes. 16 Q: All right. The lowest possible costs of 17 funds being -- 18 A: I do the best I can. 19 Q: Do the best you can -- 20 A: Yeah. 21 Q: -- from the lending institution. 22 A: Excuse me. 23 Q: And then, MFP puts whatever it has on top 24 of that to make a profit, and that's as low as it gets from 25 your perspective?

1 A: Yes, sir. 2 Q: Let me ask you, Mr. Stevens, if you were 3 aware that Mr. Robson, at that point in time, was making a 4 presentation to the Municipal Council for the City of 5 Waterloo in relation to their millennium project? 6 A: No. 7 Q: I would now like to take you to an 8 Exhibit at -- it's number 30, it's John Ford's material, and 9 you should find that book on the corner of your desk. It 10 should be Volume 2 of 7? 11 A: Yeah. Number? 12 A: I take you Tab 41, please? 13 And, you'll see at Tab 41 there is a fax 14 message from John Ford, Chief Financial Officer at Waterloo 15 to Dave Robson at MFP, and he says at Tab 41, 16 "As discussed, attached is a copy of the 17 report, which has been circulated to 18 members of Council, and will be discussed 19 and voted on Monday evening." 20 And, then he says, 21 "If there is any change needed to the 22 recommendation, please advise asap on 23 Monday. Cheers. John." 24 And, I take it that you were not aware that -- 25 that Mr. Robson had received that from Mr. Ford at that time?

1 A: No. 2 Q: All right. If you'd be good enough to go 3 to Tab 42, please? 4 Tab 42 is the report referred to by Mr. Ford 5 in his memo to Mr. Robson, and this is a report that goes to 6 Council. It's dated February the 18th of 2000, and -- and it 7 says, 8 "The recommendation that Council authorize 9 staff to enter into an agreement with MFP 10 Financial Services Limited, to provide the 11 financing required for the Millennium 12 Recreation Project." 13 Now, for MFP Financial Services Limited to 14 provide the financing required, what steps would have to be 15 taken? Assuming that the Council goes along with it -- 16 A: Right. 17 Q: -- what would have to be done for that to 18 occur? 19 A: There's a -- it would be a ton of legal 20 documents to negotiate and execute. I'd have to get involved 21 and go find the money. 22 Q: That's right. So, would it be your 23 experience that -- that someone would have had to come to you 24 before making a commitment or getting a commitment of this 25 site, to -- to say, what can we do for these people?

1 A: No, I think it's talking about, in the 2 future, that staff can enter into, when they're ready, into 3 an agreement. 4 Q: You -- you -- 5 A: Giving them authority to -- to do 6 something. 7 Q: All right. You, obviously, weren't aware 8 of -- of this meeting or -- 9 A: No. 10 Q: -- Mr. Robson going, or -- 11 A: No. 12 Q: -- or soliciting that business? 13 MR. WILLIAM McDOWELL: Sorry, which volume 14 are you in? 15 MR. JAMES CASKEY: I'm -- I'm in Volume 16 Number 2 of 7. 17 MR. WILLIAM McDOWELL: So, -- 18 THE WITNESS: John Ford. 19 MR. JAMES CASKEY: Of Ford, which is Exhibit 20 30. 21 MR. WILLIAM McDOWELL: Thanks. 22 23 CONTINUED BY MR. JAMES CASKEY: 24 Q: You didn't know about it and -- and -- 25 A: Again, I -- as I said before, I wouldn't

1 get involved until there's actually a -- pretty much of a 2 deal to go forward on. And -- 3 Q: All right. 4 A: -- and go to a lender with. 5 Q: If you go to the next page you'll see 6 that the reason this second page in this exhibit -- this tab, 7 is included, is because the information at the top isn't 8 obscured by the -- the numbers. Do you see that, if you look 9 at it? 10 A: Oh, yeah, okay. 11 Q: That thirty (30) years at 5.25 percent? 12 A: Somebody's written in. 13 Q: Somebody wrote in at the top, there, with 14 a three (3) beside it? 15 A: Yes. 16 Q: All right. That's the difference between 17 the two (2) pages. 18 A: Okay. 19 Q: If I can take you, please, to the next 20 page, which is page 2 -- 21 A: Yes. 22 Q: -- at the top? After going through the 23 summary on the first page, and it comes over to the top on 24 the second, and he says, 25 "On the repayment side, a model is being

1 developed which could match annual lease 2 payments to operational cash flows." 3 A: Right. 4 Q: Now I take it that was the secret of the 5 asset based group? 6 A: Absolutely. 7 Q: That's what they took pride in, that's 8 what they did best? 9 A: Yes, in any project like this, let's say 10 the landfill, the cash flows would ramp up and you could 11 concoct a repayment schedule, if you like, based on the 12 available cash flow. 13 Q: It says, 14 "For the Millennium Recreation Project, 15 this means that annual payments under the 16 lease agreement could be structured to 17 match the business cash flows and increase 18 over the years as the use of the facilities 19 peaks and as the operational efficiencies 20 materialize." 21 A: Correct. 22 Q: Again, that's what you would have 23 expected? 24 A: Yes. 25 Q: All right.

1 "The benefit to the City, in this 2 innovative business approach, is a 3 smoothing of the impact on tax levies 4 during the period that the Millennium 5 Recreation Project reaches its peak 6 operational capacity." 7 Again, Mr. Stevens, that -- that would be what 8 you would expect? 9 A: I -- I understood there was a -- a 10 maximum amount the City wanted to contribute every year and 11 so that would have to be put into the model. 12 Q: All right. It says, 13 "In our discussions, MFP has been talking 14 about providing financing for the 15 Millennium Recreation Project at interest 16 rates in the low 5 percent range." 17 Now, at -- as at February, 2000, was that 18 something that -- that you could achieve for any client, from 19 any lender? 20 A: I don't know the answer to that. I don't 21 remember what rates were at that time, I rather doubt it. 22 Q: I mean, when -- when have they been in 23 the low five's? 24 A: I do deals right now in the low five's. 25 Q: In the low five's?

1 A: That's because we're at such a low rate. 2 Q: Right. 3 A: So, that's why I'm saying, probably not. 4 Q: Back in February, 2000 they weren't at 5 that level? 6 A: Probably not. 7 Q: Okay. 8 "The rate MFP uses and guarantees is tied 9 to the interest rate market, specifically 10 Government of Canada Bond Rates and will 11 move as the market moves." 12 Now, is that an accurate statement? Does 13 MFP -- 14 A: Except -- 15 Q: -- use and guarantee rates tied to the 16 interest -- 17 A: I think it's pretty well a factual 18 statement except for the words "and guarantees". 19 Q: So I take it that -- that MFP, unless 20 you've gone and hedged the bet or the loan, if you will, -- 21 A: In the residual business -- in the 22 technology business we'll bet maybe six (6) months out and -- 23 and hold that. 24 Q: But from an asset financing standpoint, 25 that was not something that would be considered by MFP?

1 A: Not for the size of this transaction. 2 Q: "The economy is becoming a little more 3 volatile now and it appears that interest 4 rates may be on the move. In order to 5 secure a guaranteed rate we require 6 approval from Council to proceed with 7 formal negotiations." 8 Now, I take it to -- from your perspective, to 9 secure a guaranteed rate you'd need more than an approval by 10 Council, if you do it at all? 11 A: Well, if -- yeah, if I do it at all. If 12 I was willing to go out and pay for it, I could secure a 13 guaranteed rate. But this is way too early in the project to 14 even be talking about that. 15 MR. COMMISSIONER: You wouldn't be involved 16 in guaranteeing the rate anyway, would you? 17 THE WITNESS: I'd go out and arrange it with 18 a bank to -- for a forward contract. 19 MR. COMMISSIONER: But would you be making 20 such a guarantee to a customer? 21 THE WITNESS: Generally not, no. 22 MR. COMMISSIONER: Somebody else would do 23 that, if you're going to do it at all; is that right? 24 THE WITNESS: Well, I'd go out and arrange 25 the hedge to do it. But, no, I wouldn't be doing it, no.

1 MR. COMMISSIONER: You're not making any 2 guarantees -- 3 THE WITNESS: No. 4 MR. COMMISSIONER: -- to the borrower? 5 THE WITNESS: That's right. 6 7 CONTINUED BY MR. JAMES CASKEY: 8 Q: It says, 9 "The protection to the City is that should 10 interest rates climb our rate will be 11 secured or locked in. MFP is also prepared 12 to guarantee that if interest rates go down 13 that we would get the benefit of the lower 14 rate." 15 Again, is that something that -- 16 A: Sounds pretty one way. 17 Q: Yeah, it does, doesn't it. It sounds all 18 in favour of the City? 19 A: Yeah. 20 Q: Now, that -- that -- that wouldn't be 21 something that would appeal to you at MFP? 22 A: It's not impossible. In the markets you 23 can hedge that way. But, again, very, very expensive. 24 Q: It goes on to say 25 "So, it is in our best interests to lock in

1 the rates as soon as possible." 2 And then it recommended that Council authorize 3 the staff to enter into an agreement with MFP Financial 4 Services to provide. 5 Now, if one were to -- to have received those 6 representations from a representative of MFP, would that be 7 something that they'd have to come to you for before they 8 could make those representations? 9 A: Not necessarily to me, but it would be 10 wise. And, again, I wouldn't have gone along with -- 11 Q: And I take it that you wouldn't have 12 expected anybody at MFP to have gone along with this at that 13 point in time? 14 A: Not at that point in time, that's for 15 sure. 16 Q: If we go over to the next page and you'll 17 see that -- that it's an information addendum which is 18 basically the -- talking up the merits of MFP. It talks 19 about some of your larger asset based financing solutions. I 20 take it you're aware of the County of Essex, City of Windsor 21 partnership on the solid waste at the landfill? 22 A: Yes. 23 Q: The Union Water? 24 A: Yep. 25 Q: And the Province of Nova Scotia?

1 A: Yes. 2 Q: Then it talks about the client, the 3 Government of Ontario and -- and the regional -- Waterloo 4 Region Education, those -- those are accurate, those are the 5 people you deal with? 6 A: Yeah. 7 Q: And then some of the comments of happy 8 customers that -- that have dealt with MFP? 9 A: Okay. 10 Q: Now, as one looks at that report going to 11 the municipal Council, would it be fair to suggest that -- 12 that Waterloo would have expected, based on what it was being 13 told, that it would get something in the low 5 percent range 14 and those are the reasons why? 15 A: Again, that's coming from the staff? 16 Q: Yes. That's coming from Mr. Ford to -- 17 A: I don't know what the Council could 18 expect, but it's reasonable to me, yes. 19 Q: Yeah. That's -- they might -- they might 20 believe that's what MFP would do for them? If those 21 representations were accurate -- 22 A: Yes. 23 Q: -- that's what they could expect? If I 24 could then take you to Tab 46 please. Tab 46 of Exhibit 30 25 is a letter of the 24th of February of 2000 from Fred Dobbs,

1 the Acting Clerk Solicitor for Waterloo, to Mr. Robson at MFP 2 and -- and what he is doing at Tab 46 is sending a copy of 3 the resolution of Council, authorizing staff to enter in the 4 agreement with MFP for the financing. 5 And also at Tab 47, you'll see that he's 6 sending along another copy of that report that John Ford sent 7 to Mr. Robson for approval, together with -- to pages two (2) 8 and three (3). 9 Now, when that comes into MFP, I take it that 10 if that information gets sorted through the normal mail 11 process, and -- and goes to Mr. Robson? 12 A: I would think so, yes. 13 Q: Right, now, with that in hand, who has 14 access to that, other than Mr. Robson at MFP? 15 A: Nobody, unless he wants to share it. 16 Q: Yeah, so there's no vetting of that by 17 anybody else at MFP? 18 A: Not if it's a letter to him. 19 Q: At any time, up to February 24th of 2000, 20 was anybody that -- in your department aware of the 21 representations being made by Mr. Robson, or the information 22 that he had? 23 A: No. 24 Q: Okay. Any discussion with you about -- 25 after that point in time, getting rates for Waterloo?

1 A: I don't think so. It was still pretty 2 early in the -- in the game. I don't know when the first 3 conversations took place. I'm sure we'll get there. 4 Q: The next document that I'd like to review 5 with you, if I may, is the single document in Irene Payne's 6 material. Take a look at Exhibit 85. 7 A: Yeah. 8 Q: And, you'll see that this is a letter at 9 Tab 1, which is the only document in her material. 10 Letter of May 26th, 2000, from Dave Robson to 11 John Ford at the City of Waterloo. 12 A: Right. 13 Q: Now, I'll ask you whether or not you'd 14 ever seen this letter before? 15 A: Not that I can remember, no. 16 Q: All right. You'll see that he says, 17 "As per your request, I would like to 18 update you as follows: MFP Financial 19 Services Ltd. is currently finalizing the 20 head lease sub lease, and associated 21 financing agreements with the Corporation 22 of the City of Waterloo's Solicitor to 23 finance the Millennium Recreation Project." 24 Now, if we stop there, again, in -- as a 25 matter of process, what would have gone on at MFP to finalize

1 the head lease sub lease and associated financing agreements 2 between Waterloo and MFP? 3 Is that not a reasonable distance down the 4 road that they're gone by the 26th of May, in order to make 5 that representation to the City of Waterloo? 6 A: I'm sorry, you've just confused me with 7 going down the -- he -- I think we're a long way down the 8 road here towards finalizing, you know, and in the terms of 9 letter currently finalizing can mean it'll happen within the 10 next decade, I suppose, depending on what currently means, 11 but, yes, you'd think fairly far down the road. 12 Q: Okay, and -- and from the prospect -- or 13 from the -- from the perspective, I'm sorry, of MFP, if you 14 are finalizing the head lease sub lease and associated 15 documents, I take it that some process has to have gone ahead 16 to involve your legal department? 17 A: It would have had to, but I doubt very 18 much it had gone very far by May 26th. 19 Q: All right, and to have involved the debt 20 placement people? 21 A: Yes. 22 Q: All right, and -- and had you been 23 involved by that time? 24 A: I think we probably knew about the 25 transaction. I think Jerry was starting to work on it, may

1 have been talking to the debt rating people we hired. 2 Currently finalizing is a difficult term to 3 use at this point in the game. 4 Q: All right. Now, would that have come in 5 to you as the person in charge of the debt -- 6 A: Would -- would what have come in? 7 Q: -- the -- this transaction, and then you 8 delegate that to Mr. Makohon, or would that -- 9 A: Yeah, generally, we worked in -- in 10 tandem, again, depending on who was doing what, and -- and at 11 what time. 12 I remember Jerry working on the first part of 13 this transaction, and I -- I took it over in the Summer, and 14 finished it off. 15 Q: Mr. Robson goes on to say, 16 "MFP circled rates and price to 17 transaction." 18 Now, what would be involved in circling the 19 rates and pricing the transaction, from your perspective, as 20 the person in charge of debt placement? 21 A: Well, again, there's -- there's two (2) 22 different rates. There's the rate inherent in the 23 transaction and there's the rate that I can go out and fund 24 it at. And those two (2) can be, at different points in 25 time --

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1 Q: Right. But -- 2 A: And certainly, in this one, they were. 3 Q: Right. I take it that you -- you had to 4 start out with the rate that you get from the lender? 5 A: You have to start out with a guess at 6 what the rate is going to be from the lender. If you 7 remember how the transaction closed, the actual rate wasn't 8 established until a day or two (2) before closing. 9 Q: And after the leases had been signed by 10 the City of Waterloo? 11 A: Yes. 12 Q: So, -- 13 A: So there is going to be, always, a -- a, 14 sort of a disjointed effect. 15 Q: But, those variations, I take it, unless 16 it's a very volatile market, are not going to be significant 17 in terms of a great number of basis points? 18 A: Over that number of months they could be. 19 Q: All right. So -- so, in any event, 20 for -- for the circling of the rates? Again -- 21 A: Well, it's an odd term to use but he's 22 saying, we're -- this is the rate we're going to charge you. 23 Q: All right. Now, for him to make that 24 representation, what would have had to happen at MFP? 25 A: What should have happened and what would

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1 have happened probably are -- are different things. I -- I 2 don't think anything in particular happened in the month of 3 May or -- 4 Q: Let me -- let me go and put on -- put on 5 the Waterloo hat. 6 A: Okay. 7 Q: You're sitting in Waterloo and somebody 8 says to you, we, at MFP, have circled the rates and priced 9 the transaction. 10 A: I'm going to assume that MFP is saying 11 that's what the rate's going to be. 12 Q: Yes. And -- and now, if -- if MFP was 13 going to do that, there would have been a process that would 14 have to have been gone through for them to say that? 15 A: I'll give you that. 16 Q: And -- and they would have had to hedge 17 that loan? 18 A: Well, not necessarily. I mean, we could 19 take the gamble ourselves. 20 Q: All right. Now, who would take the 21 gamble? How would you do that? Would that go to the 22 Investment Committee, to the -- 23 A: Well, I'm not going to do it on my own, 24 so, yes. 25 Q: For sure you're not? Would -- would Mr.

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1 Wright do it on his own? 2 A: Not likely, no. 3 Q: All right. Mr. Wolfraim do it on his 4 own? 5 A: No. 6 Q: No. So it's going to go to a very high 7 level, if you're going to put the company at risk on a $60 8 million project -- 9 A: Yes. 10 Q: -- and that's going to have to take a 11 very high level of approval? 12 A: Yes. 13 Q: All right. Was there a high level of 14 approval in place, on the 26th of May, when Mr. Robson made 15 that representation to the City of Waterloo? 16 A: I don't know one way or the other. I 17 wasn't involved, no. 18 Q: All right. If -- if -- 19 A: And I didn't go out and talk to funders 20 and I didn't get a hedge in place, no. 21 Q: All right. If, in fact, that committee 22 had met for that purpose, would you not have thought you'd 23 know that? 24 A: Yes. 25 Q: Certainly. You'd -- you're the Vice-

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1 President of Debt Placement -- 2 A: But, again -- 3 Q: -- Mr. Stevens. 4 A: Right. But I deal on the financing side. 5 As I said, there's two (2) rates here. One, I'm going to get 6 from the funder and one implicit in the transaction, which 7 I'm not -- I don't have anything to do with. 8 Q: That's fine. But -- but I think it's 9 common ground between us, in fairness, sir -- 10 A: Yes. 11 Q: -- that that rate's not going to be lower 12 than the rate that you can borrow at? 13 A: I'd hope not. 14 Q: Right, or you wouldn't make any money? 15 A: That's right. 16 Q: So, probably it's going to be at a higher 17 rate -- 18 A: Probably, yes. 19 Q: -- when it goes out to the lender -- to 20 the borrower, rather, than the -- 21 A: Yes. 22 Q: -- rate that you got? All right. 23 A: Yes. 24 Q: Now, making that assumption, if -- if, in 25 fact, MFP was prepared to take this risk, a number of months

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1 down the line, there would have had to be approvals at a very 2 high level? 3 A: I believe so. 4 Q: Right. And -- and, probably you would 5 have been consulted because you're the person that places the 6 debt and would know what the spreads are probably going to 7 be? 8 A: I hope so. 9 Q: Yes. So if it had gone up to a high 10 level, the probability is that you'd have known about it 11 because you'd have been consulted? 12 A: A probability, yes. 13 Q: Yes. Nothing comes with guarantees, Mr. 14 Stevens, we understand that. 15 A: Okay. 16 Q: Death and taxes, only, excepted. But on 17 this transaction, you would have been consulted because of 18 the risk factors? 19 A: I hope so, yes. 20 Q: All right. In any event, you weren't? 21 A: That's true. 22 Q: You're not aware of the Investment 23 Committee ever having met? 24 A: No. 25 Q: And this debt was never hedged by you?

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1 A: No. 2 Q: Thank you. He says, 3 "Using the thirty (30) year Government of 4 Canada Bond Rate. It closed February the 5 22nd at 5.78. Based on our receipt of the 6 Council resolution." 7 It says 8 "Further, through a flow-through of our tax 9 benefits related to this transaction ..." 10 Were you aware of any tax benefits on the part 11 of MFP related to the transaction? 12 A: I wasn't aware of any specific tax 13 benefits. 14 Q: It says, 15 "MFP will achieve a minimum of 102 basis 16 point reduction from this cost for the City 17 of Waterloo by utilizing a head lease, sub 18 lease structure." 19 Again, were you aware of that being possible? 20 A: No. 21 Q: You will immediately appreciate that 5.78 22 less the 102 gets you down to five point -- 4.76? 23 A: Yeah. 24 Q: So what Waterloo is being told, 25 apparently, we've circled the rate, you're going to get it.

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1 4.76 percent. Then he goes on to say MFP will on closing re- 2 price the transaction if there's a further reduction and then 3 he tells you that you're going to hold the rate for 180 days 4 from the date of circling. 5 So, again, if one is wearing the Waterloo hat 6 would it not be rational and reasonable to assume that you're 7 going to have financing at 4.76 percent and that if the rate 8 gets better you'll do better and the rate's going to be held 9 for 180 days. 10 A: You could take that, yes. 11 Q: Again, from your perspective as the Vice- 12 President of Debt Placement, was that anything that was 13 possible at MFP at that time? 14 A: I don't think so. 15 Q: Thank you. And I take it as well that if 16 it had been possible you'd have known about it? 17 A: I hope I would have known about it. If 18 -- if there were tax considerations in that I might not have. 19 Q: Not aware of any tax considerations, I 20 take it? 21 A: I wasn't aware of anything. 22 Q: Right. And -- and particular not when -- 23 when the asset remains in the name of the municipality and 24 doesn't go into the name of MFP; is that fair? 25 A: Yes.

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1 Q: If we could go to Tab 3 please of your 2 material. You'll see that it's a Bond Rating Service report 3 dated June the 8th of 2000? 4 A: Right. 5 Q: And I'll ask you, who ordered the report? 6 A: Jerry Makohon engaged CBRS. 7 Q: Right. Was that done after consultation 8 with you? 9 A: I believe so. Clarica was going to want 10 -- it wasn't usual for them -- some sort of rating on this 11 transaction. When we originally started out we weren't sure 12 who was going to fund the transaction and I assumed it would 13 be more than one party. That's a large transaction for one 14 funder to -- to take down just on their own. 15 In retrospect, I think the only reason Clarica 16 wanted the rating was that they were going to sell some of it 17 on, after closing. 18 Q: All right. 19 A: I didn't know that at the time. 20 Q: Now, at the time that you ordered this -- 21 this credit rating, was that at the request of Clarica 22 specifically or was that because you thought that potential 23 lenders would require it? 24 A: I'm not sure when the first -- when their 25 first term sheet came out but I believe it specified that

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1 they wanted some sort of a credit rating. We would have got 2 it anyway because some of the other lenders, like Canada Life 3 or Maritime Life, require it; an investment grade rating. 4 Q: All right. Up to the time that you 5 ordered this report, who did you shop the deal to? 6 A: I can't remember the -- the timing. If 7 it was before or after. We definitely talked to Canada Life. 8 I believe we talked to Maritime Life and certainly Clarica. 9 Q: And -- and I take it that in your initial 10 discussions you would have had those discussions? 11 A: Again, I'm not remembering very well. It 12 could have been me. It could have been Jerry Makohon. 13 Q: In any event, there was interest shown by 14 Clarica? 15 A: Yes. 16 Q: Was there interest shown by Canada Life? 17 A: Yes. 18 Q: And by Maritime Life? 19 A: I believe so. I'm a bit fuzzy on that 20 one. Jerry may have talked to them. 21 Q: All right. In any event, you ordered 22 this -- this credit report? 23 A: Yeah. 24 Q: Was there any instruction given to the 25 bond rating service in relation to whether or not it could

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  1  make contact with the City of Waterloo?
  2                 A:   Again, it was Mr. Makohon who ordered the
  3  report.  It was my understanding that they didn't really need
  4  to talk to Waterloo.  It would have been more expensive for
  5  us to have them talk to Waterloo, that they could do their
  6  work just through the public record and financial statements.
  7                 That's all they required, and all I was
  8  looking for was the -- the letter rating, the A plus rating.
  9                 Q:   All right.  Would it be unusual then for
 10  MFP to instruct the Bond Rating Service not to make contact
 11  with Waterloo?
 12                 A:   They could do anything they wanted.  I
 13  just wanted to know who paid for it.
 14                 Q:   All right, well, how about specific
 15  instructions not to go near Waterloo, and talk to people?
 16                 A:   Neither here nor there.  If -- if it was
 17  going to cost me more, I -- I didn't particularly want it,
 18  because I didn't think anybody really needed it.  This is
 19  Waterloo, the financial record speaks for itself.
 20                 Q:   If that's the case, that you weren't
 21  going to talk to Waterloo, I take it that -- that all the
 22  information that the Bond Rating Service could use would
 23  either be in the public domain, or would come from MFP?
 24                 A:   Yeah, that would be their, I mean, if
 25  they're willing to write the report on just what's there,

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1 then fine, let's -- let's go. 2 Q: All right, and who would it be at MFP 3 that would give them the information that was not in the 4 public domain? 5 A: It was Mr. Makohon who was talking to 6 them. 7 Q: All right. I take it that you didn't 8 give them any information yourself? 9 A: No. 10 Q: If we take a look at the -- at the 11 report, you'll see at the -- the top left hand, it talks 12 about confidential rating report, not for release or 13 publication? 14 A: Right. 15 Q: I take it that's a standard -- 16 A: It's standard for a -- a shadow rating. 17 It's not -- it's something that we've -- what's a good word 18 for it -- that we've hired, and are paying for, so we don't 19 want it spread out all over the place. 20 Q: All right, and -- and a shadow rating, 21 that -- that means one that is done without the -- 22 A: It's -- it's not -- yeah. It's -- it's 23 not like -- 24 Q: -- without the borrower knowing that 25 you're doing it?

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1 A: It's not supposed to be a big secret, I 2 think, but it's -- it's for our benefit, and the benefit of 3 our lenders. 4 Q: All right. If you take a look on the 5 right hand column, under rating option, the third paragraph 6 down: 7 "This confidential rating process has been 8 initiated in response to a proposed 50 9 million financing for the City's Millennium 10 Recreational Park, which is a multi-use 11 facility to be completed by the Autumn of 12 2001." 13 And that -- that is, in fact what you thought 14 the extent of the borrowing would be at that time, I take it? 15 A: I think so. 16 Q: Okay. Do you recall getting that 17 information from anybody? 18 A: No, not particularly. It would have come 19 from us, and whatever information -- 20 Q: I take it you'd have passed that 21 information along to -- to Clarica or to Canada Life or 22 Maritime Life? This is a $50 million placement? 23 A: This is the size that we're looking at, 24 yeah. 25 Q: If you go over to the second page of the

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1 report, at the top left, there are a number of bullet points. 2 The second last one, you see, Mr. Stevens, it says, 3 "More cost of funding for the Millennium 4 Project compared to tradition debenture 5 financing makes this venture more 6 affordable." 7 So, what -- what the Bond Rating Service is 8 saying is that it's lower than debenture. I take it that 9 your people would have to know what debenture was to know 10 what the rate was? 11 A: I don't know where they got that. I 12 don't know where the -- the writer got that. 13 Q: All right. Well, that's why I asked you 14 the question. If it's not in the public domain, it would 15 have to come from MFP, because you couldn't get that from 16 Waterloo, could you? 17 A: I -- I should tell you something. I 18 didn't read this until probably after the deal was closed, 19 and when I did, I assumed that sort of thing came from 20 Waterloo. I didn't remember them not talking to the City of 21 Waterloo people. 22 Q: But, do you recall when the -- when the 23 Bond Rating Service got a draft of this, the Bond Rating 24 Service sent it back to MFP to have it vetted? 25 A: Okay.

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1 Q: All right? Do you recall seeing it come 2 in, and -- and being told by Mr. Makohon, is there anything 3 in here that's inaccurate? Let's change it if it's not 4 right, and send it back? 5 A: I don't remember that happening. 6 Q: All right. 7 A: Again, I didn't think it was particularly 8 important. I didn't think it was a -- something that 9 Clarica, for instance, really needed, they were just, threw 10 that in, as something they knew we had done with other 11 financings. 12 Q: All right. 13 A: And I was just looking at the initial. 14 Q: All right. But if you had seen, when 15 this report came back, for vetting before it was sent out to 16 the potential lenders -- 17 A: Hmm hmm. 18 Q: -- that -- that there were 19 representations being made about lower cost of funding for 20 the Millennium Project compared to traditional debenture 21 financing -- 22 A: That particular bullet wouldn't have 23 bothered me too much. And I don't know if I would have said, 24 lower cost, I might have said, more flexible, certainly, from 25 my understanding of what debentures were.

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1 Q: Because it -- as far as, if you knew 2 debenture rates, and I -- I assume that your people would be 3 familiar with debenture rates, someone there? 4 A: No. 5 Q: Nobody at MFP, that you knew, was 6 familiar with debenture rates? 7 A: We don't -- we don't operate in 8 debentures. We don't issue debentures. 9 Q: I take it that you'd know whether you 10 knew what the rates were, that debentures for municipalities, 11 would be lower than commercial rates? 12 A: Again, please? 13 Q: You would know -- people at MFP would 14 know that debenture rates were lower than commercial lending 15 rates? 16 A: Generally, because the credit's better. 17 Q: Yes. 18 A: Okay. 19 Q: So you'd know that? 20 A: Yes. 21 Q: And -- and you'd know what the commercial 22 rates are? 23 A: Okay. By inference, I -- I see what 24 you're saying. 25 Q: All right. So if you know the commercial

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1 rates, you know denturing is better than that, and they're 2 talking here about lower than debenture rates. 3 A: Okay. 4 Q: So now you've gone from your commercial 5 lending rates -- 6 A: Okay, I see -- 7 Q: -- downtown -- 8 A: Okay. 9 Q: Right? You still don't think that you'd 10 have twitched to that and said, my goodness, how are we doing 11 that? I mean, you're the people that are ordering the credit 12 rating -- 13 A: Hmm hmm. 14 Q: -- you're the people that are going to 15 get the financing? 16 A: No, I understand. At the time, anyway, I 17 just didn't think debenture financing was suitable to the 18 project, due to its length and the need to ramp up the -- the 19 payments. So it was a flexibility issue not a -- a cost of 20 funds issue. And again, I, as I say, I can't even remember 21 reading this. 22 Q: Okay. Let's look over under the 23 debenture issuance side of the -- of the page, over on the 24 right hand side -- 25 A: Okay.

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1 Q: -- they get down to off balance sheet 2 options. It says, 3 "An off balance sheet financing solution 4 may strengthen the City's ability to issue 5 debt within its provincial borrowing limit, 6 however, City of Waterloo taxpayers are 7 required to pay for the financing of such 8 capital projects regardless of its on or 9 off balance sheet treatment. From our 10 credit perspective, CBRS does not 11 differentiate between on and off balance 12 sheet financing options, and substance over 13 form must prevail." 14 A: Right. 15 Q: Now, I take it, you would agree with 16 that? 17 A: Pretty much, yes. 18 Q: All right. So that on or off balance 19 sheet for a municipality is of no significance, would you 20 agree? 21 A: I absolutely agree. 22 Q: Yes. 23 A: But that doesn't mean that some 24 municipalities and some other government organizations don't 25 come after us and -- and pester us for off balance sheet

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1 treatment. Whether it's logical or not, time and time and 2 time again, they've come and asked for it and I had just 3 assumed, in this case, that's one thing they wanted. 4 Q: Did you talk to anyone at Waterloo about 5 whether or not that's what they wanted? 6 A: No, I've never talked to anybody at 7 Waterloo, other than for a few seconds. 8 Q: All right. If you go over to the next 9 page -- correction at the top, 2018, that's the third page of 10 the report -- correction, the fourth page of the report. 11 A: Okay. 12 Q: In the very middle on the left hand 13 column it's got, "Reserve Fund Positions". And the first 14 paragraph down -- second paragraph, actually -- 15 A: Yes. 16 Q: "While the proposed 50 million 17 construction loan to fund the Millennium 18 Recreation Project provides a low cost 19 financing alternative, due to its tax 20 advantageous treatment to perspective 21 investors, the City's debt ratios may rise 22 significantly." 23 What tax advantageous treatment to perspective 24 investors was anyone at MFP aware of? 25 A: I don't know of anyone at MFP, I wasn't.

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1 Q: And you're not aware of -- of that, at 2 all, as being anything that you could offer, I take it? 3 A: Again, I'm in the financing side, it 4 wouldn't have come from the funders I deal with, no. 5 Q: Yes. But -- but, Mr. Stevens, wouldn't 6 that give MFP a complete leg up, if they could come up with 7 some system that would allow them to offer interest rates 8 that completely bettered any of the competition? 9 A: Absolutely. But because it's a 10 competition everybody else would be in the same boat very 11 quickly anyway. But it's always a competition to see what 12 structures you can come put with. 13 Q: But -- but then you'd know about it 14 wouldn't you? You'd know what the competition knew about 15 you? 16 A: Again, I'm only on the financing side. 17 I'm on the other side getting the funds for the transaction 18 that's presented to me. 19 Q: I take it that -- that if you -- if you 20 go to a lending institution, a potential investor in this -- 21 A: Yeah. 22 Q: -- transaction you're going to have to 23 tell them if there's some tax advantageous way that you're 24 going to deal with them? 25 A: Not necessarily. They're being presented

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1 with a cash flow. A series of payments which they're going 2 to discount. How those payments are concocted or set doesn't 3 really matter. The customer is signing up for that series of 4 payments and that's what I'm selling off, if you like, to the 5 funder. 6 Q: Okay. If we go to Tab 4 please. And 7 it's been pointed out to me we've got to go to Exhibit 63 8 though. Can we get Exhibit 63 please? It's the -- of 9 Mr. Calder. 10 MR. COMMISSIONER: Just give us a minute. 11 Hang on. 12 THE WITNESS: Thank you. 13 14 CONTINUED BY MR. JAMES CASKEY: 15 Q: We called Mr. Calder as a witness, 16 Mr. Stevens, because he was from the Bond Rating Service, as 17 you recall. 18 And it was Mr. Calder that indicated to us 19 that at Tab 1 of his -- of his documents, which is 20 Exhibit 63, that this document was sent out to you people at 21 MFP and it came back with two changes on the first page and 22 one on the second. 23 And -- and those were the changes that were 24 noted there. It wasn't going to be a proposed 60 million 25 financing it was fifty (50). And -- and it wasn't going to

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1 be done by the summer of 2001 it was done by the Fall. And 2 on the next page it's not a sale and leaseback, it's a lease 3 and leaseback transaction. Do you see those changes? 4 A: Yes. 5 Q: Right. And -- and the evidence of 6 Mr. Makohon was that -- that those changes were made at MFP 7 and then sent back to Mr. Calder and you'll see that those 8 changes were incorporated in Tab 2 which is, in fact, the 9 same as Tab -- Tab 3 that we've just reviewed? 10 A: Okay. 11 Q: Right? 12 A: Yeah. 13 Q: So those, I take it, you don't even 14 recall seeing them come back. Is that a standard procedure 15 for the Bond Rating Service to send these things back to you 16 for approval? 17 A: I'm sorry. I've hardly ever dealt with 18 them. I don't know what's standard. I guess they'd want to 19 know if they're on the right track. 20 Q: Well, I guess they'd want to know that 21 the information that they were putting out was accurate? 22 A: Makes sense. 23 Q: Right. And -- and if they're not able to 24 talk to the City of Waterloo they've got to come to the 25 person that hired them to find out what's accurate and what's

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1 not? 2 A: Right. 3 Q: So that's why it came back that way. But 4 I take it that -- that from your perspective as the person in 5 charge of the Debt Placement department that ordered this, 6 you didn't even pay attention to it? 7 A: No, sir. And after I took over the file 8 it wasn't important in the least. 9 Q: All right. 10 MR. COMMISSIONER: What made it unimportant? 11 THE WITNESS: Clarica never, as far as I 12 knew, asked for one before. I knew it wasn't particularly 13 important to them. If they were going to on-sell some of the 14 transaction they'd be interested in the A plus rating, but I 15 know that their Credit Committee didn't really pay much 16 attention to other people's analysis of a credit. It's their 17 own analysis that they depended upon. So -- 18 MR. COMMISSIONER: When you took this over, 19 and I think you told me it was in July -- 20 THE WITNESS: Yes. 21 MR. COMMISSIONER: -- 2000, you had -- had 22 the transaction changed to your knowledge from one type of 23 transaction to another? 24 THE WITNESS: All transactions change 25 continuously but up to the --

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1 MR. COMMISSIONER: I don't mean in substance 2 -- I'd like -- 3 THE WITNESS: No. Not in substance. I mean, 4 it was still the RIM Park and it was still a long-term 5 financing for a lot of money. 6 MR. COMMISSIONER: Now you've got a head 7 lease/sub lease, and I gather it was always that way, as far 8 as you know? 9 THE WITNESS: Yeah, but again, even the form 10 of documentation can change through the piece. 11 MR. COMMISSIONER: All right. Well, when did 12 it become a brokered loan? 13 THE WITNESS: Oh, as far as I'm concerned, it 14 always was. 15 MR. COMMISSIONER: It always was as far as 16 you knew? 17 THE WITNESS: Yeah. 18 MR. COMMISSIONER: And, the information -- 19 THE WITNESS: And MFP's a substantial 20 company, but we don't have fifty (50) or $60 million -- 21 MR. COMMISSIONER: The information seems to 22 be disclosed here. It doesn't sound to me much like a 23 brokered loan. It sounds like there's something special 24 about it. Tax advantages being talked about -- 25 THE WITNESS: I understand.

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1 MR. COMMISSIONER: -- and all of a sudden, we 2 find out there isn't any such thing, it's a brokered loan, 3 and that's a lot different. 4 THE WITNESS: Okay. 5 MR. COMMISSIONER: Because it's going to be a 6 higher rate; it has to be. Is that fair? 7 THE WITNESS: Yeah, you know, there may have 8 been, but the in -- investigation of tax considerations of 9 the first, I'm just not aware. I -- I'm at the other end of 10 the transaction. 11 MR. COMMISSIONER: Do you have any knowledge 12 of the type of disclosure being made by MFP to the City of 13 Waterloo with respect to the nature of the transaction, 14 especially with respect to the issue of a straight brokered 15 loan? 16 THE WITNESS: I don't have any knowledge of 17 that, no. 18 MR. WILLIAM McDOWELL: I'm -- I'm timid at 19 objecting to a Judge's question, though -- 20 MR. COMMISSIONER: It happens all the time, 21 so you don't have to worry about it. 22 MR. WILLIAM McDOWELL: I just -- just break 23 that down. You're unaware of what? 24 THE WITNESS: Of what Waterloo was told, 25 basically, I guess. Was that your question?

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1 MR. COMMISSIONER: Not exactly. 2 THE WITNESS: Okay. 3 MR. WILLIAM McDOWELL: But it's a follow-up 4 if you mind, Mr. Commissioner. 5 MR. COMMISSIONER: No, if there's any help 6 you can give us, if you'll -- 7 MR. WILLIAM McDOWELL: Well, with the 8 greatest respect. 9 MR. COMMISSIONER: Okay. I'm sure it'll be 10 followed up by -- in any event, but, I don't want to confuse 11 you. 12 THE WITNESS: No, it's... 13 MR. COMMISSIONER: I take it from what you 14 did say is that you have no knowledge of the City of Waterloo 15 being advised that the debt that they were undertaking was by 16 way of a straight loan from Clarica -- 17 THE WITNESS: I don't know. 18 MR. COMMISSIONER: -- as opposed to come kind 19 of tax flow-through deal that had been represented before? 20 There appears to have been -- 21 THE WITNESS: Right. I -- I don't know. 22 MR. COMMISSIONER: Okay. Well, that's all. 23 MR. WILLIAM McDOWELL: Thank you very much 24 for that. 25 MR. COMMISSIONER: Okay, thank you.

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1 2 CONTINUED BY MR. JAMES CASKEY: 3 Q: Mr. Stevens, the -- your lack of interest 4 in this -- this bond rating report, although it -- it was 5 ordered by your group, is somewhat puzzling to me. 6 Was that just because you thought the -- the 7 lenders would need it? 8 A: My -- my lack of interest because I 9 thought they would need it? I -- I -- I don't follow. 10 Q: I mean it is your order -- 11 A: No. 12 Q: -- did you order it just because -- I -- 13 you appear -- appear to have no interest in this at all. 14 A: I remem -- I remember one (1) of the 15 original term sheets asked for it, which I thought was pretty 16 strange, because Clarica never asked for it before. In 17 retrospect, I realize because they wanted to on-sell it. 18 It would be useful to us, and again, just the 19 A plus credit rating, if we were going to involve Canada 20 Life, or Maritime Life, or any of the others, but I knew from 21 many years experience with Clarica that they didn't really 22 care about it. 23 They did their own credit analysis in-house. 24 Q: All right, now, this was a shadow 25 report --

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1 A: Yeah. 2 Q: -- if one looks at that report, is there 3 any indication in that that -- that it was a shadow report? 4 A: I don't even -- I'm not really sure what 5 the term, shadow report is. It's not stamped on the front. 6 I don't think very many people got copies. I think we got 7 most of the copies. I'm not sure if Waterloo got a copy. 8 Q: And -- and when you send it out to 9 Clarica, and to Canada Life -- 10 A: Yeah. 11 Q: -- and to Maritime Life -- 12 A: Yeah. 13 Q: -- did you tell them that none of the 14 information here came from Waterloo? It's all been the 15 public domain, or from us? 16 A: No, we -- we probably sent along, saying 17 here's a shadow rating, whatever that means to -- on City of 18 Waterloo. 19 Q: Okay, and as one looks at it, and -- and 20 sees tax flow-through benefits, and -- and other -- other 21 benefits, lower cost, the borrower would make the assumption, 22 I take it, that, that came from Waterloo? 23 A: Again, I said -- when I said I did 24 finally read it, I thought that probably did come from 25 Waterloo.

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1 Q: All right. That was your reaction? 2 A: Yes. 3 Q: And no reason to think that a lender 4 would be in any different frame of mind than you? 5 A: Can't speak for them. 6 Q: No, I understand that. But -- but, if -- 7 if you look at it and you think that it came from Waterloo, 8 someone else might very well think the same? 9 A: Yes. 10 Q: Is that fair? 11 A: Correct. 12 Q: Go, then, to Tab 4, please? This is a 13 letter dated June the 19th of 2000, it's from Mr. Cameron at 14 Clarica? 15 A: Yes. 16 Q: And, he's sending to Mr. Makohon, I take 17 it, that it would come to your attention? 18 A: I believe so. 19 Q: So he says, find attached a copy of the 20 proposed term sheet, et cetera. It's the second line down -- 21 the second paragraph, 22 "We would also like to reiterate that a key 23 condition precedent is Clarica becoming 24 comfortable with the underlying transaction 25 between MFP and the City of Waterloo."

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1 A: Right. 2 Q: Now, how would you go about making 3 Clarica comfortable with the underlying transaction? 4 A: I'm not sure what he was talking about at 5 that time, but I assume they want to talk to Waterloo and -- 6 and discuss the transaction, and everybody be comfortable. 7 Q: Yes, because that's the way in which they 8 would become comfortable, is by Clarica sitting down with 9 Waterloo, understanding the way Waterloo is looking at the 10 project -- 11 A: Right. 12 Q: -- and -- and the two (2) of them 13 satisfying themselves that they're all on the same page. And 14 that's what you thought would happen, I take it? 15 A: I thought that's what they were asking 16 for, yes. 17 Q: All right. 18 A: And I -- 19 Q: Was that something that -- that, from the 20 standpoint of MFP, you were ever going to let happen? 21 A: Yes. 22 Q: All right. We take a look at -- at the 23 term sheet, itself. At this point in time, on June the 19th, 24 they're talking about the $50,000 -- 25 A: Fifty (50) million?

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1 Q: Fifty (50) million, I'm sorry. 2 A: It's easily done. 3 Q: And then it talks about, under the agent 4 and lead lender, 5 "It's anticipated that Clarica will 6 underwrite the entire loan amount." 7 And I take it, that was all right with you but 8 it was not usual for this amount? 9 A: No, that's fine. I just hadn't 10 anticipated that they would -- they would do that. 11 Q: All right. And we take a look at 12 interest rates, the last paragraph on that page, it talks 13 about: 14 "The average life of the transaction for 15 this purpose will be the weighted average 16 term of each scheduled principle repayment 17 during the construction period, and the 18 operations period combined." 19 A: Right. 20 Q: "Indicative rate, utilizing the June 1, 21 2021, 9.75 percent bond rate, at June 15, 22 2000, is 7.76 percent" 23 And it says: 24 "Before cost of deferred draw down." 25 Now, you can help me a little bit --

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1 A: The structure -- 2 Q: -- what does this talk about before the 3 cost of the deferred draw down? 4 A: The first -- this is the first whack at 5 -- at a term sheet, trying to put something together, and 6 they're talking about financing the construction period. And 7 then -- then a -- an operations period, if you like, for 8 the -- for the rest of the thirty (30) years. 9 So, we wouldn't be taking down the whole loan 10 amount, at first. And, I don't know if they were going to 11 charge us more for not taking down the loan, or -- or what 12 was going on here. It didn't end up being this way -- 13 Q: I understand that. 14 A: -- in any case. But -- so I guess they 15 were going to add -- add on a rental charge for storing the 16 rest of the money, or something, I don't know. 17 Q: Yes. The point being, the 7.76 percent 18 wasn't going to go down? 19 A: No, no, it wasn't going to go down. 20 Q: All right. It -- it can only go up, if 21 in fact, you structure it this way, with the construction 22 draw down, that sort of thing, it's going to increase the 23 cost of the money? 24 A: Yes, unless we can negotiate them down or 25 the bond rate falls, yes.

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1 Q: So, what we -- we know is, for a nice 2 starting shot, Clarica says it's going to be at least 7.76 3 percent, from our perspective, and it may get higher? 4 A: That's right. 5 Q: All right. And that's known as of the 6 19th of -- of June? 7 A: Yes. That's correct. Sorry, I'm turning 8 off my phone, here. Yes. 9 Q: By the way, that's a good idea, turning 10 off his cell phone. 11 MR. COMMISSIONER: Yes. 12 THE WITNESS: Sorry, I just realized it was 13 there. 14 15 CONTINUED BY MR. JAMES CASKEY: 16 Q: If we can go over to the second page of 17 that term sheet. Again, they've -- this is what you were 18 talking about, paragraph 6? 19 A: Right. 20 Q: "Public shadow rating by either CBRS or 21 DBRS confirming that the City of Waterloo 22 is the equivalent of an A plus credit 23 risk." 24 A: Right. 25 Q: So I take it that that's their request

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1 and that you had obviously got that in -- in an oral 2 representation at some point before? 3 A: I believe so, yes. And if not, and we 4 were going to go to other lenders anyway, even if they 5 weren't asking for it we would have gone out and gotten it. 6 So we could talk to Canada Life, for instance, or Maritime or 7 whoever else. 8 Q: I take it that -- that you wanted all of 9 the lenders to have the same information upon which they were 10 basing their rates? 11 A: Yes. 12 Q: Now, number 7 is a -- a request to post a 13 mutually acceptable signage stating that Clarica is providing 14 the financing for their -- for the project? That was 15 something that they wanted, some attribution for having put 16 up the money? 17 A: Yes. 18 Q: At the bottom, a standby fee of a quarter 19 of a point -- quarter of a percent. I take it that's 20 standard? If they're going to put it up and not have their 21 money used -- 22 A: I think so. And I think that's where the 23 deferred draw down cost comes from, I'm assuming. 24 Q: Right. And then at the -- at the end -- 25 on the next page on the final page of the document under

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1 "confidentiality" there's a confidentiality clause. And then 2 it talks about a 3 "fee of $75,000 due to Clarica upon 4 provision of a commitment on terms and 5 conditions outlined herein"? 6 A: Right. 7 Q: So that was in addition to anything else 8 that Clarica was going to get. If this deal went through 9 they would get $75,000? 10 A: Well, they'd supposedly earn it even if 11 it didn't go through. 12 Q: Yes. 13 A: Just giving us the commitment would earn 14 them the seventy-five (75). Whether or not it ever closed or 15 we used somebody else or whatever. 16 MR. COMMISSIONER: But it's not payable until 17 a commitment has been signed? 18 THE WITNESS: That's right. So the idea is 19 this would come in final, I would sign it back. At which 20 time they would go and get us a commitment so it's in their 21 hands on whether or not they earn the seventy-five (75). 22 23 CONTINUED BY MR. JAMES CASKEY: 24 Q: But -- but, indeed, that would require a 25 commitment signed by MFP?

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1 A: Yes. 2 Q: And at that point in time you'd want to 3 make pretty sure the deal was going to go through? 4 A: Yes. 5 Q: Otherwise you're going to be paying -- 6 A: Yes. 7 Q: -- them -- 8 A: Yeah. 9 Q: -- and you're going to be on the hook for 10 getting the money some place else for the borrower? 11 A: That's right. 12 Q: Could cause you very serious problems? 13 A: Yeah. 14 Q: As the Commissioner says, this was a 15 straight brokered deal from MFP's standpoint? 16 A: Yes. 17 Q: All right. And there would be then no 18 suggestion in any of this term or commitment of any tax 19 advantage to one side or another that you were aware of? 20 A: Again, this is my end of the transaction 21 and, no, there wasn't. 22 Q: Now, would it be fair to say, 23 Mr. Stevens, that what is being proposed here by Clarica to 24 you is not what Mr. Robson appeared to have been proposing to 25 the City of Waterloo?

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1 A: Again, there are two sides to the 2 transaction and they don't necessarily have to match. You're 3 right though. There looks to be anomalies. 4 Q: It's more than just an anomaly. 5 Mr. Robson was telling Waterloo that they wouldn't do any 6 worse for 180 days than 4.76 percent; correct? 7 A: True. 8 Q: And here you're getting Clarica telling 9 you it's going to be 7.76 at best? 10 A: Well, that's their opening shot. But, 11 yes -- 12 Q: All right. 13 A: -- there's a wide divergence. 14 Q: And to that MFP has to add whatever 15 profit it wants? 16 A: Yes. 17 Q: So it definitely isn't what Robson was 18 telling Waterloo; is it? 19 A: Doesn't seem to be, no. 20 Q: Thank you. Now, these term sheets are 21 signed by Clarica and by MFP, I take it, when you -- 22 A: When, eventually, there's something we 23 can agree on, yes. 24 Q: All right. At any time in this process, 25 Mr. Stevens, is there any discussion with the borrower as to

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1 what the rates would be, either as between Clarica and MFP or 2 as between MFP and the borrower? 3 A: Not that I was aware of. I never spoke 4 to Waterloo people other than for a very brief time. 5 Q: Would there be anybody at -- at Waterloo 6 that would have had a chance to talk to anybody at MFP, other 7 than Mr. Robson and his group, about the amount that they 8 were going to be charged for their money? 9 A: I don't know that -- I'm sorry. 10 Q: Would you think that would be something 11 that would -- would ever happen? 12 A: It's a pretty public phone number, if 13 somebody wants to call up. 14 Q: All right, and I take it -- 15 A: I'm not aware of that happening though. 16 Q: If -- if someone at City of Waterloo had 17 called you up, and said, you're in charge of debt placement, 18 Mr. Stevens, what's this loan costing us? 19 Would you have given them that information? 20 A: I know what it's costing me. I don't 21 know what it's costing you. There are two (2) sides to the 22 transaction. 23 Q: Could you have possibly gone and got that 24 information from anybody? 25 A: I -- when the deal was finally set out,

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1 yeah, I could have. 2 MR. COMMISSIONER: Who was going to tell the 3 City how much it's going to cost them? 4 THE WITNESS: I figured the City's advisors. 5 They had stacks of Lawyers and Accountants, and, as far as I 6 knew, every other kind of professional advisor in place, 7 and -- 8 MR. COMMISSIONER: Was there any 9 responsibility on MFP to tell the City how much this deal's 10 going to cost them? 11 THE WITNESS: If they ask. I -- I don't mean 12 to be flip, but in it -- in -- it's -- 13 MR. COMMISSIONER: Okay, I understand there's 14 a difference between the term sheet, and a commitment letter. 15 THE WITNESS: Yeah. 16 MR. COMMISSIONER: We haven't got to the 17 commitment letter yet, and maybe I'll just save my questions 18 until that, but I'm curious about the issue of non-disclosure 19 of the commitment by MFP or Clarica to the City of Waterloo. 20 Just so you know where I'm coming from. 21 THE WITNESS: Okay. 22 MR. COMMISSIONER: That's what I want to know 23 about. I'm not going to ask you to answer, because I think 24 we're not there yet, but... 25 THE WITNESS: Okay.

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1 THE CHAIRPERSON: Having said that, it's 2 lunch time. 3 MR. JAMES CASKEY: So it is. 4 MR. COMMISSIONER: We'll recess until two 5 o'clock. 6 THE REGISTRAR: The City of Waterloo Judicial 7 Inquiry now stands recessed until 2:00 p.m. 8 9 --- Upon recessing at 12:59 p.m. 10 --- Upon resuming at 2:02 p.m 11 12 THE REGISTRAR: The City of Waterloo Judicial 13 Inquiry is now resumed. Please be seated. 14 MR. COMMISSIONER: Okay. Would you come up 15 and join us, sir? Thank you. 16 Mr. Caskey...? 17 MR. JAMES CASKEY: Thank you, Mr. 18 Commissioner. 19 20 CONTINUED BY MR. JAMES CASKEY: 21 Q: Mr. Stevens, we were looking at your 22 exhibit book, 86, and I think we were up to Tab 4 and we're 23 now looking at Tab 5, if you would, please? 24 A: Okay. 25 Q: Oh, by the way, getting back to Tab 4,

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1 which is the term sheet, in addition to the cost of the 7.76, 2 which is -- is the money that was going to come from Clarica, 3 then you had to factor in their fee and -- and any other 4 costs, I take it, that are associated with the loan, before 5 MFP gets to put any profit in? 6 A: Correct. 7 Q: So that there are a number of things that 8 you have to build in, on top of what Clarica gives you by way 9 of an interest rate, before you can come to a rate that -- 10 A: Before there's anything left over, yes. 11 Q: Yes, before there's anything left over. 12 A: Yes. 13 Q: And that would include the legal fees 14 of -- of independent law firms acting for both sides, both 15 Clarica and -- and -- 16 A: MFP. 17 Q: -- MFP, and -- and any fee, such as the 18 75,000, that all gets factored in? 19 A: Yes. 20 Q: So the 7.76, assuming it to be somewhat 21 carved in stone, would be a starting point and from that it 22 would only go up? 23 A: The effect cost to us, yes. 24 Q: The effective cost of the loan to the 25 borrower?

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1 A: To -- 2 Q: And again -- 3 A: -- to MFP. 4 Q: To MFP, rather. And then, thus on to the 5 borrower with whatever MFP adds? 6 A: Assumidly so, yes. 7 Q: Yes. And I -- and I think what the 8 Commissioner was asking you is, -- is, how would the borrower 9 ever know what the real cost of the loan was? 10 A: Well, as I said, there's -- there's two 11 (2) separate parts to it. That's the cost of the loan to 12 MFP. What I'm borrowing is what you just described, the 7.76 13 plus. The -- the sub lease payments are open to the borrower 14 and all he has to do is sit down and calculate them. 15 Q: All right. 16 A: It's not -- 17 Q: Right. So -- so -- but the -- the 18 borrower would never know what the cost is between you -- 19 between MFP and Clarica? 20 A: No. 21 Q: No. Because, all they would know is what 22 the ultimate cost of the -- of the borrowing was, by looking 23 at the lease payments? 24 A: Is what I assume what they're interested 25 in, yes.

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1 Q: Okay. I'm sorry to digress. 2 A: No. 3 Q: Then go to -- to Tab 5, please. AS I 4 look at Tab 5, I believe it's dated -- there are three (3) 5 e-mails here, and you start at the bottom and work up, as I 6 understand it. 7 The first one (1) is from Mr. Makohon -- or 8 correction, from Carmen Roberts to Mr. Robson, copies to 9 Makohon, to Beau Pelech and to yourself? 10 A: Okay. 11 Q: And it's re Waterloo funding. 12 "Here's the updated Waterloo numbers for 13 the golf course and the ice pads." 14 A: Yes. 15 Q: And then they -- they provide -- if you 16 go, the second page in, I take it, these are the Waterloo 17 numbers that -- that appear -- 18 A: Yes, I'm thinking. 19 Q: All right. And then, going up in the 20 e-mails, back on page, at the top, 339, it looks like, in the 21 second one, Mr. Makohon is sending that on to Mr. Anderson, I 22 take it, at Clarica saying, cash flow for the City of 23 Waterloo as requested? 24 A: Right. 25 Q: And then, in the third one, Mr. Anderson

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1 is sending it on to Mr. Cameron saying, I haven't looked at 2 this yet but the document we're talking about is, in fact, 3 the -- the cash flow that appears at the top of 341? 4 A: Yes. 5 Q: All right. Now, as I look at that, I 6 would ask you, who created this document called, "City of 7 Waterloo Pro Forma Lender Cash Flow"? 8 A: I don't know. From the flow of e-mails, 9 it looks like it's coming from the asset based group, Dave 10 Robson's group. 11 Q: All right. So that -- that, what they've 12 got over on the far left hand side for the year, that would 13 be the thirty (30) year term of the lease? 14 A: Yes. 15 Q: And then, it has the City of Waterloo 16 golf net cash flow. And it shows that, at the start, there's 17 a negative, which is what you would expect with a golf course 18 that's being built. 19 And ultimately, the net, at the end of thirty 20 (30) years, would be 1,892,503, for the annual net cash flow? 21 A: Right. 22 Q: A million five three for the ice pads, 23 the Waterloo subsidy. And then I go to the -- the next 24 under, 'Total'. And when I look at -- at those payments that 25 are down under the total, and I go to the next column, I

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1 notice that, for instance, under 1,135,900, is mirrored in a 2 -- in a column that you can't tell the name if it because 3 it's blacked out -- 4 A: Okay. 5 Q: -- it's mirrored for the second payment 6 for the third payment, for the fourth and the fifth payment. 7 Do you see that? 8 A: Yes. 9 Q: And then it jumps dramatically on that -- 10 on that second column from the right, it goes up to 11 5,026,000, do you see that? 12 A: Yes. 13 Q: Now, that would have been done by 14 someone, I take it, at MFP? 15 A: I'm assuming so. 16 Q: All right. And, if you look up in the 17 top right hand corner, there's a 1.5 figure, do you see that? 18 A: Yes. 19 Q: All right. If I tell you that, 1.5 times 20 3,351,049 is 5,026,573. It's a 50 percent increase at 21 year 6; do you see that? 22 A: Yes. What from 3,085 to 5,026? 23 Q: Yes. 24 A: Okay. 25 Q: No, no. From the 3,351,049. If you go

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1 to year -- 2 A: Oh yeah. Okay. 3 Q: All right. Go to year six -- 4 A: Got it. 5 Q: All right. 6 A: Got it. 7 Q: So -- so what -- what has happened at 8 MFP, MFP instead of mirroring the total payments in column 3 9 from the right have, at year 6, bumped them up by a -- by a 10 factor of 50 percent; do you see that? 11 A: Whatever that column is. I see what 12 you're getting at, yes. 13 Q: Right. Now, you got a copy of this? 14 A: I don't know that. But I could have, 15 yes. 16 Q: Right. Let me -- 17 A: Should I go back to the e-mail? 18 Q: Go back to the -- 19 A: Yeah, okay. 20 Q: -- to the e-mail. And it appears -- 21 A: Yeah. I understand. Yes. 22 Q: -- that you should have -- 23 A: I probably did. 24 Q: All right. Did you get the rationale for 25 it being one and a half times the -- the payments in that --

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1 in that -- 2 A: Well, I don't know if it's a payment 3 column. But, no, I didn't. 4 Q: Nobody explained to you why that would 5 be? 6 A: No. I didn't ask. 7 Q: All right. And nobody explained to you 8 why the first five years would be the same in both columns 9 and it would only be in year 6 that it would go up 10 50 percent? 11 A: No. I don't know what that column is, 12 again. 13 Q: Did you bother to ask what that column 14 was? 15 A: No. I don't think so. I don't know what 16 the last column is either. 17 Q: Well, I think if you -- if you do the 18 mathematics on it it would -- it would be a differential, 19 present value? But we'll get to that in a moment. 20 A: Okay. 21 Q: All right. But, in any event, if you got 22 this on the -- the 9th of June, what did you do with it? 23 A: I'm sorry. I have no idea. Sorry, 24 you're saying Makohon sent it to Anderson? 25 Q: Yes. It appears -- it appears on the --

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1 on the e-mail that -- 2 A: Oh yeah, yeah, yeah. 3 Q: -- Mr. Makohon in the second one up, 4 Makohon sends that off to Anderson at -- at the Mutual Group 5 as it says and then in the top e-mail Anderson sends it to 6 Cameron. Makohon sends it to Anderson. Anderson sends it to 7 Cameron. 8 A: We're assuming this is June 9th? 9 Q: Yes. 10 A: Okay. 11 Q: All right. 12 A: You see in Anderson's he's got the dates 13 reversed. 14 Q: Yes. And -- and that's -- that's one of 15 the things we've struggled with, Mr. Stevens, -- 16 A: Yes. 17 Q: -- is that Clarica and MFP reverse the 18 month and the day. 19 A: Yeah. Okay. 20 Q: So it -- it sometimes poses a problem. 21 But let me tell you that I worked it out and that -- that is, 22 in fact, -- 23 A: I'm -- I'm believing it's June because 24 Jerry is still involved here. 25 Q: Yes. Right?

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1 A: Yeah. 2 Q: Do you recall the significance of this 3 document, in any event, when you got it? 4 A: No. Sorry. 5 Q: I would now like to take you, if I may, 6 to Exhibit 84. Exhibit 84 ought to be pro forma -- do you 7 have it there -- 8 A: I've got something called pro formas. 9 Volume 1 of 1. 10 Q: Yes. 11 MR. COMMISSIONER: Is that marked Exhibit 84? 12 THE WITNESS: No. 13 MR. JAMES CASKEY: Does that not have 84 14 written on the front? 15 THE WITNESS: No. 16 MR. COMMISSIONER: We'd better see that it 17 does. Why don't you do that right now so there's no 18 confusion. 19 20 (BRIEF PAUSE) 21 22 CONTINUED BY MR. JAMES CASKEY: 23 Q: And I would indicate to you that these 24 pro formas were produced in the course of the litigation, 25 Mr. Stevens?

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1 A: Okay. 2 Q: And I think the indication given was that 3 they were produced somewhere between September the 7th and 4 September the 19th of the year 2000, is the information that 5 I had. 6 Now, if we take a look at pro forma 1 and 7 perhaps you can tell me how these pro formas get created at 8 MFP? 9 A: It's coming out of the asset based group. 10 They're working on what they expect the revenues streams are 11 in the various parts of the park from information they've 12 been given. That's -- other than that, I don't really know. 13 Q: All right. Now, if you take a look at 14 the first -- first page of the first tab which is a pro 15 forma 1? 16 A: Yeah. 17 Q: And the heading up there is "errors in 18 the ice expenses" is what they call it. But you'll see under 19 "green fees" that there is an inflation factor of 3 percent; 20 do you see that -- 21 A: Yes. 22 Q: -- at the top of that column? And then 23 I'd like you to go, if you could, to the very last page. 24 Perhaps maybe before I do that -- no, the very last page, 25 1-13?

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1 A: Yeah. 2 Q: And you'll see that -- that here the 3 projection in the year 2031 is that there will be net golf 4 income of 4,340,617? 5 A: I see that. 6 Q: And that under the -- the ice it's at 2 7 million seven seventy-nine, and if I take you back to the 8 prior exhibit, your Exhibit 86, and look at the lender cash 9 flow of June the 9th? 10 A: Yeah. 11 Q: The anticipated or the announced stream 12 of revenue for the net golf was 1,892,000 and for the ice was 13 1,530,000. 14 Can you tell me how between the 9th of June 15 and presumably the 7th of September the ice flows get to be 16 at that level? 17 A: The cash flows? 18 Q: Cash flows? 19 A: No. I can't. 20 Q: Any rationale explained to you how that 21 happened? 22 A: No. 23 Q: All right. If you go across the -- the 24 page on that -- that line of "totals" and you get under "sub 25 lease rents"; do you see that, the third column from the

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1 right? 2 A: Yes. 3 Q: 227,708,652. Now, am I correct that that 4 is the figure that they discount at the appropriate rate with 5 Clarica to arrive at the present value for funding purposes? 6 A: I -- I don't know that those are the 7 exact numbers, but it was a number something like that, and 8 yes. 9 Q: All right. And that -- that once you -- 10 once you're able to convince the lender that they're going to 11 receive 227 million, they then can discount that down and 12 they say, well, that's in present value terms, $60 million or 13 whatever the number is? 14 A: Yeah. But they're not going to take that 15 from here. They're going to take it from the -- the lease 16 contract, the sub lease, at least. 17 Q: So they -- they -- 18 A: They're discounting the lease stream 19 itself. 20 Q: All right. So that -- that they're going 21 to take the lease document and they're going to look at the 22 total under the sub lease payments to see how much that 23 figure is? 24 A: They're going to discount the stream, 25 yes.

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1 Q: All right. Now, but this, presumably, is 2 at a time before you have a deal with Clarica? If it's 3 September the 7th you haven't got a final deal with Clarica? 4 A: We don't have a final, final, no. 5 Q: All right. So -- but the people at MFP 6 would know the significance of the 227 or approximately and I 7 take it they would know, in reasonably gross terms, what the 8 present value of $227 million would be? 9 A: I presume so, yes. 10 Q: Yes. And so they'd know the amount of 11 money, within a range, that's going to come from Clarica? 12 A: Yes. 13 Q: Right. So then it's a matter for MFP to 14 decide how much of that is going to go to Waterloo for their 15 funding purposes. 16 And the differential would be the profit, 17 subject to any expenses you had, for MFP? 18 A: You're correct on that. 19 Q: Right. So, as at a time in -- in early 20 September, MFP people, theoretically your department as well, 21 would know approximately how much profit they were going to 22 get from this deal? 23 A: Early in September, I certainly didn't 24 know. 25 Q: All right.

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1 A: But, yes, somebody probably did. 2 Q: All right. And -- and the reason they 3 would know is, when they project those streams of payments 4 for the sub lease, and come to a total, take whatever the 5 present value is and work it back, and -- and if I tell you 6 that -- that the present value of that figure is 59 million 7 odd, then -- then that would be the gross amount that MFP 8 would know they would get from Clarica, and from that they 9 could then figure out how much their profit would be? 10 A: Subject to whatever rate they were using 11 to discount, yes. 12 Q: Yes. And understanding that that rate 13 doesn't get absolutely fixed until the deal is crystalized? 14 A: The day before. 15 Q: Or, the day before. And -- and subject 16 to those things, if -- if at that point in time, MFP thought 17 that they could pay $48 million to Waterloo, they'd know that 18 they were going to make $11 million? 19 A: Somebody probably did, yes. 20 Q: All right. And in fact, that's about 21 what MFP made on this deal, isn't it? $11 million? 22 A: Yes. 23 Q: All right. So as of September the 7th, 24 or thereabouts, if -- if the information we got from -- from 25 the production of these documents is accurate, somebody at

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1 MFP, in the finance group, would know that? 2 A: In the asset based finance group, yes. 3 Q: All right. Now, again, you make a 4 distinction? 5 A: Well, I'm part of the finance group and 6 accounting's part of the finance group -- 7 Q: Right. 8 A: -- so just to say finance group is 9 incorrect. No -- nobody there would know, necessarily. I 10 don't remember knowing what the sub lease rents were until 11 later in the month. 12 Q: All right. But -- but, these figures are 13 being generated and produced to Clarica, are they not? 14 A: I don't know that. This particular page, 15 you're showing me? 16 Q: Well, the page that we got, was sent off 17 to Clarica, the -- the -- 18 A: That page was. 19 Q: -- the first page went? 20 A: That page looks like it was, yes. 21 Q: All right. So, theoretically, at some 22 point in time, Clarica's going to get something that should 23 show 227 million? 24 A: They'll get the -- the sub lease, yes. 25 Q: All right. Now, from that point in time

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1 on, with all of these pro formas, I take -- take it, what -- 2 what your financial people are doing, in your asset based 3 group, is they're trying different scenarios on, to see what 4 will work and what won't work, from the standpoint of 5 arriving at -- at something that is saleable to Clarica? 6 A: I -- I'm not sure that's quite correct. 7 Q: But don't they have to convince Clarica 8 that it should loan the money? 9 A: Yes. 10 Q: And they're not going to go back to 11 Waterloo and show them these figures? 12 A: I -- I -- okay, I'm getting -- well, what 13 the basis for was these -- these income streams, you mean? 14 Q: Yes. I mean, they're -- 15 A: To show Clarica that they have the 16 likelihood of being paid? 17 Q: That's right. 18 A: Okay. 19 Q: And -- and how they get there? 20 A: Okay. 21 Q: And why they get there, all right? 22 A: Okay. 23 Q: So, we look at the first pro forma 24 and -- and I'm making an assumption, I -- it could be wrong, 25 that Pro Forma 1 would be produced before Pro Forma 2?

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1 A: A good assumption. 2 Q: Is that pretty good? 3 A: Yes. 4 Q: All right. 5 A: Although, I don't know where those 6 numbers came from, but, yes, I -- I'd give you that. 7 Q: All right. In -- in any event, I just 8 take it from the -- the first page of the document that says, 9 City of Waterloo Pro Forma 1. 10 A: That's a good place to get it. 11 Q: All right. Now, I take it that -- that 12 in the course of your business, in -- in the -- the debt 13 placement, you see these pro formas all the time? 14 A: From time to time, yes. 15 Q: Yes. They're not -- that's not a 16 document that you wouldn't be familiar with? 17 A: No. 18 Q: All right. Now, if we go to Pro Forma 2? 19 A: Okay. 20 Q: You'll see, again, it's called, at the -- 21 the first page that's after -- the title page of Pro Forma 2, 22 it's called, "Errors and Ice Expenses" again. 23 Under "Green Fees", now we have a 6 percent 24 inflation factor. 25 Do you remember the first one (1) was based on

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1 the 3 percent? 2 A: I do. 3 Q: Fair -- fair enough? So, now we're at 6 4 percent, and so when we go to the last page, which is 2.13 5 now -- 6 A: Hmm hmm. 7 Q: -- of that document, and you'll see that 8 -- that the -- the Gulf net income is now 10 million, eight 9 fifty-four (854) odd a year? 10 A: Yeah. 11 Q: And, that the ice is up to nine million 12 two and as you look at those totals, when you go across under 13 the sub lease rents, they're still the 227, do you see that? 14 A: Yeah. 15 Q: So, whatever manipulation is being done 16 with the figures in relation to revenues and increases, the 17 227 stays the same. 18 A: Right. 19 Q: And -- and if you look at the notes that 20 appear below 1-13 and 2-13, you'll see what they tell you. 21 It says: 22 "The first five (5) years of rejections 23 were based upon the City of Waterloo's 24 conservative internal assumptions. The 25 following years were based up on estimates

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1 from KPMG (the City of Waterloo's Golf 2 Project) and the Royal Canadian Golf 3 Association (1999 Golf participation in 4 Canada Survey Report)." 5 Then they go to the ice, and they have some 6 other matters there. So, that's the rationale. 7 We've -- we've used Waterloo for the first 8 five (5) years, and then we've used other figures after that. 9 A: Hmm hmm. 10 Q: All right, but the one thing that -- that 11 appears to be constant certainly between Pro Forma 1 and Pro 12 Forma 2, is this sub lease rent of $227 thousand. 13 Fair? 14 A: $227 million. 15 Q: Do I say "thousand" every time? You see, 16 in -- I'm from London. What can I tell you? 17 18 CONTINUED BY MR. JAMES CASKEY: 19 Q: We'll go to Tab 3, please, and I'll see 20 if I can correct the error of my ways. 21 A: Okay. 22 Q: Pro Forma 3, if you look again, they've 23 -- they've taken away the disclaimer at the top that it's to 24 correct errors in the ice rentals, and they've just gone, and 25 they've taken a straight 6 percent inflation, and -- and then

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1 they've got a couple of errors. 2 It says: 3 "Changed from 65 to 70, as per KPMG and -- 4 and grew at inflation." 5 So, they didn't just take a straight 6 inflationary run at it. They've increased some other 7 calculations. 8 Do you see that? 9 A: I see what you're meaning, yeah. 10 Q: All right. If we go to 3-9, if you would 11 please? 12 A: Is it the last -- I would say the last -- 13 Q: That's the second last page. 14 A: Okay. 15 Q: And -- and you'll notice at the top, it's 16 called, Project Pres -- it should say Presentation 1? 17 A: Yeah. 18 Q: It's -- it's not very clear there. 19 Again, we've got -- we've got some changes here. We've got 20 the -- the Golf net income of 10.3, almost 10.4 a year, and 21 8.69 for -- or for 6.09 for the -- ice. 22 This projection I don't see with the sub lease 23 rents. Do you notice that it's -- it doesn't appear? 24 A: Okay. 25 Q: And, if we look over on the next page,

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1 this is called Presentation Number 2, and Presentation Number 2 2 talks about income from all facilities up to the end of 3 year five (5), and goes across, and talks about the 4 cumulative surplus, et cetera, but again, we don't see any of 5 the sub lease rents in that document. 6 A: Yeah. 7 MR. JAMES CASKEY: I'm sorry? 8 Or -- over to the right. 9 THE WITNESS: The third from right. 10 MR. RICHARD STEPHENSON: Last page. 11 12 CONTINUED BY MR. JAMES CASKEY: 13 Q: I beg your pardon, but not for the full 14 term, I'm sorry. 15 A: No. 16 Q: No, so, if one were to look at the sub 17 lease rents that appear there, they would not have 18 accelerated, I take it, to the same extent as before? 19 A: Okay. 20 Q: All right. And it would be a matter of 21 comparison and I'm sorry that I haven't done that for you. 22 If you take a look at -- at -- back at Tab 2-13? 23 A: Yeah. 24 Q: You'll see that under "sub lease rent" 25 the -- the first year is approximately the same 8 -- I don't

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1 know whether that's 69 or 96? 2 A: Yeah. They're the same. 3 Q: Right. In any event, they are -- the 4 next one is 14, 24, 27 and then it's rounded off at 37 as 5 opposed to thirty-six ninety-nine (3699); do you see that? 6 A: Yes. 7 Q: They're approximately the same? 8 A: Yes. 9 Q: All right. And they only go for the 10 first five (5) years? Now, we go then to Pro Forma 4. 11 You'll see that we have an inflation projection of 2 percent? 12 A: Yeah. 13 Q: And if we go to page 4-12, you'll see 14 that that only generates 3,491,000 on an annual basis of net 15 golf revenues -- net golf income and over under the ice, 16 you're at 8.690? 17 A: It's back where it was before? 18 Q: Back where it was before. And then when 19 we look over onto the next page under sub lease rents, we, 20 again, are back to the first five (5) years; am I correct? 21 A: Yes. 22 MR. COMMISSIONER: Sorry, where do you get 23 that? 24 MR. JAMES CASKEY: If you go to page, at the 25 top, 4-13 and you look under sub lease rents, the first five

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1 (5) years, they're the same. 2 MR. COMMISSIONER: That's fine, yeah. 3 4 CONTINUED BY MR. JAMES CASKEY: 5 Q: This presentation 2 is the same number as 6 presentation in the prior document. In -- in the prior tab; 7 correct? 8 A: I think so, yes. 9 Q: If we go to Pro Forma 5 and you'll see 10 it's projected at 6 percent inflation. And when you take a 11 look at Tab 5-10 that brings the golf net revenue back up 12 over 10.3 million annually to go with the 8,609,000 in ice 13 income. The other incomes and we don't have here the -- the 14 second page with the sub lease rents. 15 Assuming that there is a purpose for all of 16 these, if you go to Tab 6. Again, it's at 6 percent and if 17 you look at 6-13 you'll see that -- that it's got the 18 projections for the -- the golf income and the ice income 19 and, again, it shows the sub lease rents at the 227,708,652? 20 A: Yeah. 21 Q: Now, if you look under cumulative surplus 22 you'll see that -- that if you do a calculation based on 23 6 percent inflation that you end up with a cumulative surplus 24 of seven -- $73 million at the end of the term? 25 A: Difference between the 300 and the 227?

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1 Q: Correct. Now, I take it that -- that 2 that would be significant from the standpoint of the borrower 3 to think that at the end of the term they actually were going 4 to have more money than they paid out? If these projections 5 were correct? 6 A: Well, it wouldn't be more than they paid 7 out, but it's a substantial sum. 8 Q: Well, I thought that the cumulative 9 surplus would say, at the end of 30 years or 31 years, we've 10 paid 227 in rent -- 11 A: Yeah. 12 Q: -- and we've got -- 227 million, we've 13 got 73 million as a surplus? 14 A: Okay. 15 Q: So, if you make those assumptions, 16 then -- then, you actually, you're making money on your 17 project, and that would give you some left over to apply to 18 other projects. Isn't that what that would do for you? 19 A: I -- I think so, yes. 20 Q: All right. And again, that's -- that 21 would allow that -- that projection to work, in terms of not 22 costing the municipality money over and above what it has to 23 pay by way of rent, other than the $1.2 million surplus, 24 annually, that was supposed to come from the taxpayers? 25 A: Okay.

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1 Q: That would allow, based on those 2 projections, MFP to say to Clarica, taxpayer contribution is 3 capped at 1.2 million, and it won't cost the taxpayers of 4 Waterloo any more money than that. 5 And in fact, at the end of the term, they'll 6 have put in their pocket $73 million? 7 A: Okay. 8 Q: That's sounds like a pretty good deal, 9 doesn't it? 10 A: It does. 11 Q: Okay. It just assumes an inflationary 12 factor of 6 percent on all the projections? 13 A: And other assumptions. I -- I'm looking 14 at population growth and fee growth and all -- all that. 15 But, yes. 16 Q: All right. And -- and again, if we go to 17 Tab -- to -- yes, Tab 7, for Pro Forma 7, you'll see it -- 18 it's based on a 6 percent inflation factor. And if you go to 19 the end, to the 7-10, basically the same figures, here. You 20 have to look at the two (2) pages, the one before is 21 Presentation 1, it says at the top, or it works through and 22 you see that it's projecting the 10 million and the 9 million 23 for revenues for ice and -- for hockey and -- and ice and 24 golf. 25 And then you come over to the second page and

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1 that's where you've got the 227 million, again -- 2 A: Right. 3 Q: -- with the 73 million odd surplus. So 4 that, again, is -- is one of the pro formas that's produced, 5 for whatever purpose. And I take it that -- that the purpose 6 of producing various pro formas is to see what works, 7 manipulating the numbers to see how you can best fit in 8 different scenarios? 9 A: Yes. 10 Q: If we look at -- at Tab 8, again, it's an 11 inflation factor assumed of 6 percent. And here we have two 12 (2) presentations, at 8-9 and 8-10, you'll see 13 that -- that the projections result in, again, the numbers 14 that are there for golf and ice. 15 If you look over onto 2- -- or, 8-10, 16 Presentation 2 it's called at the top, this has eight (8) 17 three (3) -- or, correction, ten (10) three (3) for the golf 18 and eight (8) six (6) for the ice. Your same sub lease 19 rents; but because your total net, with subsidy, is slightly 20 down, your cumulative surplus is slightly down; but it's 21 still a surplus? 22 A: On 8-10? 23 Q: On 8-10. 24 A: Okay. Sorry, I was looking at the total. 25 Yes, okay, got it.

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1 Q: All right. And again, the -- the figure 2 for the sub lease rent is the same, but because of other 3 factors the cumulative surplus is slightly down but, 4 nonetheless, still a surplus? 5 A: Right. 6 Q: Still saleable, I take it? Would that be 7 the way they would look at it, at MFP? You can still sell 8 this? 9 A: I'm not sure who's benefit this is all 10 for. I mean -- 11 Q: It's got to be for the benefit of 12 Clarica, doesn't it? 13 MR. COMMISSIONER: Mr. Stevens...? 14 MR. KIRK STEVENS: If I could just indicate 15 to you, I think Mr. Caskey's under a mis-impression that 16 Clarica received that from the pro forma. 17 MR. JAMES CASKEY: No, not at all. 18 MR. KIRK STEVENS: Oh, okay, sorry. 19 MR. JAMES CASKEY: Not at all. No. 20 MR. KIRK STEVENS: He didn't -- 21 MR. JAMES CASKEY: No, no. Not at all. 22 MR. KIRK STEVENS: Okay. 23 24 CONTINUED BY MR. JAMES CASKEY: 25 Q: Mr. Stevens, I understand that they've

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1 got to put something together that's going to be saleable to 2 Clarica, am I right? 3 A: Yes. 4 Q: Sure. So you're -- at MFP, you're 5 putting together scenarios with different assumptions, 6 different inflation rates, different rounds per year, and 7 amounts per round of golf, and that sort of thing, that 8 you've got -- end up, at the end of it, you have to sell it 9 to Clarica, and say, Clarica, this is a rational approach to 10 what Waterloo wants. 11 A: Well -- 12 Q: This is what Waterloo agrees with, and 13 therefore you should loan the present value of $227 million? 14 A: If -- if -- in the end, if there were no 15 revenues at all, and Clarica's worried about the credit 16 worthiness of Waterloo, and the fact that they've signed up 17 for the sub lease payments. 18 So, yes, it would be comforting, I suppose, to 19 Clarica, but they're, if you like, buying the sub lease, and 20 discounting those payments there, and the fact that there's 21 some logic for those payments is comforting, but not really 22 totally necessary. 23 Q: No, if it's unnecessary, why do it at 24 all? 25 A: Well, that's why I ask. I'm not sure who

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1 these were for. 2 Q: Well, I mean, were they being done for 3 MFP to simply put in time, and idle away your life? 4 A: I -- I don't know. I wasn't involved. 5 Q: I mean, surely, Mr. Stevens, it has to 6 have some rational being if between September the 7th and 7 September the 19th of 2000, when you don't have a contract 8 signed with MF -- with the City of Waterloo, and you don't 9 have a commitment from Clarica in writing that's final -- 10 A: No I -- I think they would be interested. 11 I'm just saying the final arbiter is what the lease says, the 12 lease that they're buying. 13 Q: So, if -- if you don't produce any of 14 this material to Clarica, that's okay? 15 A: I'm -- I -- I don't know that. I -- I 16 don't remember them asking for this, but it -- quite possibly 17 did, and I can see where they would be comforted by there's a 18 logic behind the sub lease payments. 19 What I'm saying is the final decision is what 20 was going to be in the sub lease. 21 Q: Let's -- let's look at it from Clarica's 22 standpoint -- 23 A: Yeah. 24 Q: -- and say, Clarica says, we know that 25 Waterloo can debenture --

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1 A: Hmm hmm. 2 Q: -- we know that Waterloo can debenture at 3 6 percent, and a half maybe? 4 Why in the world is Waterloo borrowing money 5 from us? 6 A: Well, I -- 7 Q: And broker it through MFP? 8 A: Okay, I don't know the answer to -- to 9 that question. To me, a debenture is quite different than 10 what we've got structured here with a -- a low payment going 11 to high, and with a thirty (30) year term. 12 I'm sorry, I can't answer on behalf of MFP 13 like that. 14 Q: One might be prepared to pay Mr. Stevens 15 something for that expertise -- 16 A: Yeah. 17 Q: -- of -- of structuring it, but would you 18 think it would be worth about $112 million for that 19 privilege? 20 A: I don't think anybody was paying a $112 21 million in present term. 22 Q: In present terms? 23 A: Yeah. 24 Q: But over the term of the lease, that's 25 the differential between what these projected payments, $227

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1 million, against $112 million, that Waterloo thought it was 2 paying? 3 A: I -- I don't know what Waterloo thought 4 it was paying them, I'm sorry. 5 Q: All right, well, you saw what Mr. Robson 6 was telling them? 7 Mr. Robson was telling them you're going to 8 get your money at 4.76 percent. 9 A: And, I don't know that comes to 112, and 10 I -- as I said, I've never seen that -- 11 MR. COMMISSIONER: Assume that it does. 12 THE WITNESS: Yeah. 13 14 (BRIEF PAUSE) 15 16 THE WITNESS: I'm sorry, I missed the 17 question that's been asked. 18 MR. JAMES CASKEY: If it -- if -- if it does 19 come to 112, and -- and you're charging -- you're putting pro 20 formas showing 227, the question is why in the world would 21 Waterloo ever enter in a deal like that? 22 MR. WILLIAM MCDOWELL: Okay, before you 23 answer the question; there may be -- it may be worthwhile to 24 hector some witness about this, but I don't think this is the 25 right witness with respect --

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1 MR. COMMISSIONER: No, I don't think 2 hectoring is the correct description of what's going on here. 3 MR. WILLIAM MCDOWELL: Well, we're getting 4 there. He's trying to get -- 5 MR. COMMISSIONER: No, not yet. I don't 6 allow hectoring, but I want to get some answers. 7 MR. WILLIAM MCDOWELL: Sorry, but -- but -- 8 but I don't see how one can construe the different between 9 what Waterloo thought it was paying, and what the deal 10 actually was is amounting to a fee of some sort, payable to 11 MFP -- the two have got nothing to do with one another. 12 MR. COMMISSIONER: Well, I guess what we're 13 going to have to do is maybe demonstrate to this witness what 14 showed up on the direction to pay. 15 MR. WILLIAM MCDOWELL: And, if you want to 16 ask the witness why the -- 17 MR. COMMISSIONER: Maybe he doesn't know the 18 answer to that question. 19 What we've got in evidence thus far, is the 20 fact of how much is paid out. 21 MR. WILLIAM MCDOWELL: Right. 22 MR. COMMISSIONER: And, the amount that was 23 paid out, if it was determined, to cost $227 million. 24 MR. WILLIAM McDOWELL: Not paid out, but to 25 be paid over the term.

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1 MR. COMMISSIONER: To be paid over the term. 2 MR. WILLIAM McDOWELL: But to say, well that 3 somehow is a fee that was being paid to the -- that, with 4 great respect, that makes no sense. 5 MR. JAMES CASKEY: I didn't say "fee". 6 MR. COMMISSIONER: Don't -- just a minute. 7 Just a minute. Don't you two (2) guys argue. You're talking 8 to me. 9 MR. JAMES CASKEY: I apologize, sir. 10 MR. COMMISSIONER: And one -- and one at a 11 time. 12 MR. JAMES CASKEY: Thank you. 13 MR. COMMISSIONER: Now, I don't understand 14 your comment. 15 MR. WILLIAM McDOWELL: Well, Mr. Caskey says, 16 was it worth $112 million or the difference between 112 and 17 227 to Waterloo in order to have this structure. But that -- 18 that, with respect, makes absolutely no sense to me. Because 19 what that is is the gulf in understanding. 20 The proper question might be, was it worth the 21 $11 million fee which was the fee to have this structuring 22 done and that's fair enough. 23 MR. COMMISSIONER: Well, the trouble with -- 24 with putting it the way you -- you want to put it is a 25 problem that we haven't quite got to yet. And that is, the

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1 problem that the $11 million was never disclosed to the City 2 as far as the evidence is thus far. The City didn't know it 3 was costing them $11 million. 4 And that is a big issue in this Inquiry. 5 MR. WILLIAM McDOWELL: Oh, I agree. When you 6 get a Treasurer of the City who says he didn't think there 7 was any fee at all, which is, you know, what do you think of 8 that? 9 But, I -- I agree that that is a proper area 10 for inquiry. But that's not what's being asked. Instead, 11 there's this cross-examination on what possible basis there 12 could be for this gulf of a hundred and some odd million 13 dollars. 14 And that -- that's just a difference in 15 understanding. 16 MR. COMMISSIONER: Well, there's more to it 17 than a difference in understanding, I think. We aren't quite 18 getting here yet. 19 MR. WILLIAM McDOWELL: Oh, I'm not talking -- 20 MR. COMMISSIONER: I'm -- I'm not sure that 21 the question that Mr. Caskey was putting to the witness is 22 necessarily a question that's within his purview to answer. 23 MR. WILLIAM McDOWELL: I'm not being very 24 clear in my objection, I think. But part of it is that I 25 don't want anyone to leave here thinking that somehow MFP got

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1 the benefit of an additional $110 million or something. 2 MR. COMMISSIONER: No. They did not. 3 MR. WILLIAM McDOWELL: They didn't. 4 MR. JAMES CASKEY: No. 5 MR. COMMISSIONER: That's -- that's not the 6 -- if that -- if that's the line of questioning that will not 7 go forward from this moment. But, I'm not sure, Mr. Caskey, 8 that we've laid -- the groundwork has been laid to talk to 9 this witness about the difference in -- between what the City 10 of Waterloo expected to pay and what they're actually going 11 to pay under the sub lease payments, necessarily in these pro 12 formas. 13 He has testified that, as I understand it, 14 that there was no knowledge of his that Mr. Robson or anybody 15 else from MFP had told the City that they were going to get 16 the money at 4.76 percent. 17 And it's clear that, from the calculations 18 that were made earlier in evidence, that if you apply that 19 rate that you're going to come up with 112 or $113 million 20 instead of 227 million. And that the 227 million arises out 21 of the of the application of the interest rate that 22 ultimately was imposed on the borrowing from Clarica, plus 23 the profit factor for MFP. 24 So, I guess, the unfairness, if there is such 25 a thing, as between -- for Mr. Stevens, is that he has told

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1 us that he doesn't know anything about the 113 million that 2 the City thought they were going to pay because he doesn't 3 know anything about the application of a 4.76 percent 4 interest rate in any kind of a calculation. 5 All he knows about is he went to Clarica as 6 requested and determined that they would lend $48 million 7 plus their costs, and it turns out to be $59 million or 8 whatever it is. 9 So, I'm not sure how -- how you're going to 10 get, through this witness, how he accounts for the 11 difference, because we know there was a difference. And I 12 think that's the issue that -- is that the issue that you're 13 getting at? 14 MR. WILLIAM McDOWELL: That's another one 15 that I could raise, yes. 16 MR. JAMES CASKEY: That's good enough for Mr. 17 McDowell. 18 MR. WILLIAM McDOWELL: I adopt your 19 objection. 20 MR. COMMISSIONER: Okay. 21 MR. JAMES CASKEY: You know, as they say, if 22 you ask that on my behalf I withdraw. If you ask it for My 23 Friend, I object to it. 24 MR. COMMISSIONER: Okay. Well, I want -- I 25 think it's important that we be fair to this witness, and

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1 that we -- you can put to him certain issues but you have to 2 understand, and we all have to understand, that if he doesn't 3 know what was previously being offered to the City by anybody 4 else, then it's not quite fair to ask him how he can account 5 for the difference. 6 MR. WILLIAM McDOWELL: Right. 7 MR. COMMISSIONER: Do you understand what I'm 8 saying? 9 MR. JAMES CASKEY: I do understand what 10 you're saying, sir. 11 MR. COMMISSIONER: Okay. 12 13 CONTINUED BY MR. JAMES CASKEY: 14 Q: And what I want to know from Mr. Stevens 15 is, in his position as a member of the management team -- 16 A: Hmm hmm. 17 Q: -- and as a member of the investment 18 team, to the extent that you were called in on any decisions 19 and as the Vice-President of Debt Placement, why you wouldn't 20 know? Why would you not know what these pro formas were 21 turning out? 22 A: I don't even, I'm sorry, really know the 23 purpose of why the pro formas. I -- I assume they were going 24 through different iterations to see how the numbers worked, 25 and it could have been for the comfort of Clarica, I -- I

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1 don't know that for sure. 2 When I turned around with the lease documents, 3 I would go to Clarica and I would discount the sub lease 4 payments, that would create a number that was the 59 point 5 whatever, 48 went to the City, the rest came to MFP. 6 MR. COMMISSIONER: Let me interrupt again -- 7 THE WITNESS: Yes. 8 MR. COMMISSIONER: -- thank you. When you 9 went to Clarica -- 10 THE WITNESS: Yes? 11 MR. COMMISSIONER: -- did you go to Clarica 12 with the lease documents, including the sub lease? 13 THE WITNESS: Yes, but as -- going through 14 all the documents, I realized, not with the schedules to the 15 sub lease -- 16 MR. COMMISSIONER: No schedules? 17 THE WITNESS: No. Not until very close to 18 the end. 19 MR. COMMISSIONER: How could Clarica even 20 make a determination? 21 THE WITNESS: Well, that's -- they couldn't. 22 MR. COMMISSIONER: They didn't have the -- 23 THE WITNESS: I'm not sure where they got the 24 idea. I think one (1) of the term sheets came in at 62 25 million, if I'm not wrong, near the end.

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1 MR. JAMES CASKEY: You are correct. 2 THE WITNESS: And -- and that's probably 3 where that came from, that would be the absolute maximum that 4 they were willing to do, and then we'd have to see how the 5 documents came out. And it turned out to be less than the 62 6 million. 7 8 CONTINUED BY MR. JAMES CASKEY: 9 Q: What would the 62 million be based on, as 10 the maximum they were prepared to do? 11 A: I would have asked them to go up to that 12 amount based on probably what Mr. Robson asked me to -- to 13 get. 14 Q: And -- and what would Mr. Robson produce 15 to you, to get you to go to Clarica? 16 A: He's just call me and say, this is the 17 max that it's going to be. 18 Q: And how would you convince Clarica? 19 A: I -- I would tell them -- I don't have to 20 convince Clarica if they're willing to do it. I have to 21 bring them a document that discounts to that, eventually. 22 And when I did bring them a document, it didn't discount to 23 that much, it came to the 59 whatever point number it was. 24 Q: And -- and that's because the document 25 that you take would show 227 million odd?

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1 A: No, they'd be the sub lease, itself, with 2 the formula, et cetera. 3 MR. COMMISSIONER: When did you show that to 4 Clarica? 5 THE WITNESS: Must have been very late on, 6 and probably after it was signed. I -- I'm assuming. 7 MR. COMMISSIONER: I think we'll all agree, 8 it must have been later on, given what we know. I'd like to 9 know when? Was it the day of the signing of the lease? 10 MR. WILLIAM McDOWELL: Yes, exactly. When, 11 relative to the day of the closing? 12 THE WITNESS: Yes, well -- 13 MR. COMMISSIONER: Does this -- just so you 14 understand -- 15 THE WITNESS: Yes. 16 MR. COMMISSIONER: All right. The evidence 17 we have so far is that -- is that this -- these leases were 18 signed by the City on September 25th. 19 THE WITNESS: Yes, okay. I'm thinking I 20 probably got them the next day and signed them, myself, and 21 sent them on to Clarica, saying, here is what we can 22 discount. 23 MR. COMMISSIONER: Well, you've got the City 24 signing the leases and you don't have a deal yet with 25 Clarica?

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1 THE WITNESS: No. Well, the City doesn't 2 really have a deal with us, because I haven't signed them 3 back yet, either. Somebody's got to sign first. 4 MR. WILLIAM McDOWELL: Right. And they're 5 taken back to Toronto. 6 MR. COMMISSIONER: I understand where we're 7 going, but the evidence that we have is pretty clear. The 8 City's certainly thought they had a deal, whether you thought 9 so or not. 10 THE WITNESS: Oh yeah, no, I understand that. 11 I understand. 12 MR. COMMISSIONER: Okay. 13 14 CONTINUED BY MR. JAMES CASKEY: 15 Q: If I may, and -- and I realize the 16 limitations of this, Mr. Stevens, but I'll complete -- 17 A: Yes. 18 Q: -- the documentation, if I can, in the 19 pro formas. 20 We were at, I believe Tab Number 9. 21 A: Okay, let me -- just wait a minute, yeah. 22 Q: It was a 2 percent projection, and -- and 23 again, if you go to 9-10, you'll see that -- that's it got 24 the amounts that are down there for the golf and the -- the 25 other incomes, and it shows the 227 million is still the

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1 constant of -- of the amount of the sub lease payment. 2 A: Yeah. 3 Q: Is that fair? 4 A: Yeah, and then there's some messing up of 5 the numbers there. 6 Q: Yes, and -- and -- and I don't know -- 7 and I take it you don't know -- it's got REF, would be 8 reference something, I assume? 9 A: Well -- it -- that's what every 10 spreadsheet I ever do looks like. 11 Q: All right. 12 A: It means there's an error somewhere. 13 Q: Pro forma 10, which is the next Tab. 14 A: Yeah. 15 Q: Here we've got a -- at the top, we've got 16 a 4 percent inflation factor, so at -- it seems that they're 17 experimenting with 4 percent -- 18 A: Right. 19 Q: -- if -- if you look at the top, under 20 golf course, it has Waterloo rate, and you run across the 21 top, and then it's got MFP rate. 22 It's got Waterloo would be 77 percent, and MFP 23 would be 80? 24 A: Yeah. 25 Q: Then, Waterloo, 35, MFP, 50, then a 5

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1 percent, but nothing added, and then 18 and 20. 2 So, it -- with the exception of that one 5 3 percent the -- the Waterloo rates appear to be inflated over 4 those of Wat -- of -- are less than MFP rates? 5 A: Looks like it. 6 Q: All right. If you can go then to 10-13, 7 10-10, I'm sorry. 8 You'll see that -- that when you take your 9 numbers across, and you have your 227 million in sub lease 10 rents -- 11 A: Ten (10) -- I'm sorry. 12 Q: Ten dash ten (10-10) 13 A: Ten dash ten (10-10), yeah. 14 Q: Yeah, that at -- at 2 percent, or 15 correction, at 4 percent, it appears that there's a deficit 16 of -- of 11 million at the end of the term. 17 Would that be fair? 18 A: Looks like it. 19 Q: All right, and I take it that -- that if 20 you were going to present something to Clarica that has a 21 deficit, it probably wouldn't work by way of convincing them 22 to -- to loan the money? 23 A: I'll give you that. 24 Q: Okay. If you go to the next Tab, which 25 is Tab 11, and you'll see that's it's a 5 percent --

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1 A: Yeah. 2 Q: -- inflation. If you go to 11-10, again, 3 this will -- with the -- with the rents, sub lease rents at 4 227, it turns actually out a surplus of 21 million. 5 So, it looks like 4 percent results in a 6 deficit, and 5 percent results in a surplus. 7 We know that 6 percent results in a surplus, 8 so I -- I would think offhand if I were trying to slot 9 something, and then ended up with a surplus, I'd have to 10 start at 5 percent, or higher. Would that be fair? 11 A: I'm more along the lines of your logic, 12 yes. 13 Q: Okay. If we look at Tab number 12, 14 again, it's at 6 percent. If we look at 12-10, you'll see 15 with the numbers generated at that, and we've made some other 16 cash flow consideration. 17 Now we're up to 11 million annual surplus in 18 -- or net income in golf, 9.2 million annually in ice, and it 19 ends up with at the $73 million surplus at the end of term. 20 A: Right. 21 Q: Now, we -- we now go to what is called 22 the "City of Waterloo Pro Forma Final". That's at Tab 13. 23 And, if you look across the top, again they've 24 got the -- the -- it says, these are the closing 25 spreadsheets, see final updated for numbers after closing.

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1 And, again, I take it that -- that because you 2 wouldn't have an absolutely final figure until just the day 3 before Clarica delivers the money, these are all subject to 4 some change, however great or small, because of the final 5 rate not known -- being known; is that fair? 6 A: I don't see what that -- you mean the 7 Clarica rate would have some effect on -- 8 Q: Would it not? 9 A: -- golf revenues? No. 10 Q: Would you -- would you not, if you're 11 going to increase everything at 6 percent, I guess on all 12 those, it doesn't matter, does it? 13 A: No. Again, I'm discounting the sub lease 14 rent. 15 Q: Yeah. And you're discounting it from 16 227 million? 17 A: I'm discounting the flows. That -- 18 227 million is just what the flows add up to. It's the 19 individual payments that get discounted. 20 Q: But you have to be able to justify the 21 $227 million flow; don't you? 22 A: Well, I'm sure Clarica would be comforted 23 by that, but, no, not particularly. 24 Q: Okay. In any event, the final seems to 25 say updated for numbers after closing and it -- it again has

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1 on page Final-10 -- 2 A: Yeah. 3 Q: -- the 227 and the surplus? 4 A: It does. 5 Q: So, I take it that if -- and you're not 6 familiar with these, I've assumed that you wouldn't have had 7 any part to play in these at all? 8 A: Not in putting them together, no. 9 Q: And -- and the $227 million figure was of 10 no significance to you? 11 A: No. Not particularly, no. 12 Q: Okay. If you're going to keep all the 13 other figures at a particular level, the only one that hasn't 14 changed throughout this, pretty well, is the 227 million; you 15 see that? 16 A: I see it. Yeah. 17 Q: Yeah. So that throughout the whole 18 manoeuvring of these figures, the inflation rates and the 19 amounts that are charged for rounds of golf, the one thing 20 that MFP knows is the amount of its profit, or the 21 approximate amount of its profit? 22 A: Well, I don't know what MFP knows. I can 23 see where you're going with that. 24 Q: MFP would have to know because your 25 people know --

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1 A: Whoever was doing the spreadsheets, 2 perhaps. I didn't and I'm part of MFP. 3 Q: Did -- you -- you're -- you're part of 4 MFP. You're a Vice-President, you're an officer and -- and 5 these are MFP documents? 6 A: Yeah. 7 Q: Does that not suggest that MFP -- 8 A: There's thousands of MFP documents so not 9 me personally, I'm saying. No, I didn't 10 Q: Right. But MFP as a corporation knows 11 the profit it's going to make? 12 A: Somebody there, yes. 13 Q: You're the Treasurer? 14 A: Yeah. But I don't. I knew when I took 15 the sub lease rents and discounted them to Clarica and I got 16 a cheque. 17 Q: And not before then did you know how much 18 you were going to make? 19 A: Not until I did the pay proceeds letter 20 that you've been talking about. 21 Q: But you can see where someone at MFP 22 knew? 23 A: It appears so. Yes. 24 Q: Yeah. And -- and that they would -- they 25 would have a very good idea of what the total for MFP would

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1 be, close to $11 million? 2 A: Yes. 3 Q: Wouldn't that be a substantial fee for 4 MFP on the deal? 5 A: Yes. 6 Q: It would be very significant that -- that 7 certainly people in the executive would like to know what 8 that was likely to generate? 9 A: Yes. 10 Q: That would be important, wouldn't it? 11 A: But whether it's that number or another 12 number, as long as it's a positive, that's a good thing. 13 Q: So I take it that from your perspective, 14 if MFP had been making a million dollars on the deal, that 15 was not much difference in significance to making $11 million 16 on the deal? 17 A: It's a big difference. 18 Q: Well, I would have thought it was? 19 A: Yeah. 20 Q: Right. And I would have thought that if 21 someone in the executive of MFP knew a deal was going down 22 that they could make $11 million on they'd be pretty 23 interested in that? 24 A: Until the dust settles, you don't know 25 what the final number is.

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1 Q: But if you knew within a couple of 2 hundred thousand dollars of $11 million, it would still be 3 significant; wouldn't it? 4 A: Yes. 5 Q: So, who would know about this? Who at 6 MFP would know how much money was going to be made on this 7 deal at September 19th when these final pro formas were taken 8 off? 9 A: I can only assume and it would be 10 Mr. Robson and his group. 11 Q: Nobody outside Mr. Robson's group? 12 A: I can't say. But I doubt it very much. 13 Q: Okay. 14 MR. COMMISSIONER: When did your function in 15 this particular deal terminate? What was the end of the 16 road, as far as you're concerned; your last function? 17 THE WITNESS: Well, I think it's still going. 18 MR. COMMISSIONER: You don't have to look at 19 your watch. 20 THE WITNESS: After -- after closing, there 21 were a few cleanup sort of things. There was a per diem 22 adjustment because it didn't close when it was supposed to. 23 MR. COMMISSIONER: Would you be involved in 24 the closing? 25 THE WITNESS: Oh, very much so.

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1 MR. COMMISSIONER: Were you present? 2 THE WITNESS: Well, closings to us are 3 usually done remotely. I mean, with couriers and everything, 4 paperwork would come to Waterloo or Toronto or wherever it's 5 going. There wasn't people sitting around a table, passing 6 cheques and documents or anything like that. 7 MR. COMMISSIONER: Were you aware of the -- I 8 don't mean to jump in here. 9 MR. JAMES CASKEY: No, that's fine. 10 MR. COMMISSIONER: Were you aware of the 11 closing documents as between Clarica and MFP? 12 THE WITNESS: I would have -- 13 MR. COMMISSIONER: Which -- 14 THE WITNESS: I would have signed them, yes. 15 MR. COMMISSIONER: Which included the 16 direction? 17 THE WITNESS: Yes. I would have signed them 18 all. 19 MR. COMMISSIONER: That direction -- 20 signatories to that direction -- did not include the City of 21 Waterloo? 22 THE WITNESS: No. This is a -- a direction 23 to Clarica to pay the funds. Please pay Waterloo 48, pay 24 yourselves, pay lawyers, lawyers, lawyers and pay us the 25 rest.

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1 MR. COMMISSIONER: And you agree that -- do 2 you know whether the City of Waterloo was aware of it's total 3 cost of borrowing? 4 THE WITNESS: I don't know that for a fact. 5 It's down in black and white and they funded it. Had all 6 kinds of lawyers and accountants. 7 MR. COMMISSIONER: They weren't aware of, as 8 far as you knew, they weren't aware of the commission being 9 paid by Clarica to MFP? 10 THE WITNESS: Not the quantum, no. 11 MR. COMMISSIONER: Do you think they should 12 be? Should have been? 13 THE WITNESS: In retrospect, they should have 14 done some homework, yes. 15 MR. COMMISSIONER: Is there a reason why they 16 wouldn't? 17 THE WITNESS: Not that I can think of. I 18 mean, it's -- it's a big transaction and it's not rocket 19 science to be -- 20 MR. COMMISSIONER: Well, once you get into 21 it, it seems not simple but -- okay. Carry on. 22 23 CONTINUED BY MR. JAMES CASKEY: 24 Q: Just finishing up with that, pro formas, 25 Mr. Stevens --

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1 A: Yes. 2 Q: -- if, in fact, one wanted to reduce the 3 inflation rate, for instance, if Clarica said, 6 percent 4 inflation is crazy, it's not going to get to 6 percent, your 5 assumptions are way too high. 6 I take it, the only way in which you could 7 reduce the amount would be to cut down the sub lease 8 payments, to reduce the amount -- 9 A: There's other factors on that sheet, 10 there's -- there's population growth, there's cost per round, 11 there's number of rounds, just talking about the golf. So I 12 assume there is variables in every -- several variables to 13 every column. 14 Q: Yes. So -- but, one of the things that 15 you could have varied at MFP -- 16 A: Yes. 17 Q: -- was the sub lease payments? 18 A: Yes. 19 Q: And yet that's the one constant, 20 throughout? 21 A: Appears to be. 22 Q: So, for whatever reason, MFP wasn't 23 prepared to reduce the sub lease payments, because it wasn't 24 prepared to reduce the amount that it was going to take home 25 on the deal?

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1 A: I wouldn't attribute that to MFP. The -- 2 the sheets kept that number constant, it seems. 3 Q: Somebody wasn't prepared to do it? 4 A: That's right. 5 Q: And that somebody appears to have been at 6 MFP? 7 A: Sounds like it. 8 Q: Let's go to Tab 6, if we can, please? 9 A: Of? 10 Q: Of Exhibit 86, yes. We're done the pro 11 formas. And if you turn to -- 12 A: Eighty (80) -- 13 Q: -- 86, that's your document brief? 14 A: Oh, okay, sorry. 15 Q: Yes, Exhibit 86. 16 A: Number? 17 Q: And we're at Tab 6. 18 A: Okay. 19 Q: And this is a fax that comes to you, 20 Brian Stevens -- 21 A: Yes. 22 Q: -- from Neil Cameron on September the 23 19th, and -- and this is a term sheet that, if I take a -- a 24 look at the -- the last page, or the third page of the term 25 sheet, has Mr. Anderson's signature on it I take it?

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1 A: Yes, yeah. 2 Q: Right, and at this point in time, you've 3 asked them for approximately $62 million? 4 A: Yes. 5 Q: And would it have been you that did that? 6 A: At that time, probably, yes. 7 Q: All right. Then, if we take a look down 8 at the discount rate, it's the very last -- it's a discount 9 rate to be fixed upon completion and execution of 10 satisfactory legal documentation at a rate equal to the June 11 1st, 2021, 9.75 percent Canada Bond yield, plus 165 basis 12 points compounded semi-annually, and I take it that your 13 people would know exactly what was meant by that? 14 A: Pretty close, yeah. 15 Q: And -- and you'd be one of those people? 16 A: Yes. 17 Q: So, you'd know from that -- 18 A: Well, I'd -- I'd go to the newspaper and 19 figure out what the Bond Rate was and add 165. 20 Q: So, he says "The indicative rate," over 21 the next page "is 7.59." 22 A: Oh yeah, I see, okay. 23 Q: All right? 24 A: Yeah. 25 Q: So, you don't even have to make the

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1 calculate, and he says: 2 "As of September 14th, that's what it would 3 be." 4 So, you can take a guess when we close this to 5 what it might be? 6 A: That's right. 7 Q: Wasn't -- wasn't commonplace to be a long 8 time between this particular transaction closing at this 9 point, correct? 10 A: I -- it just seemed like a long time. 11 Sorry. 12 Q: All right, down the page, under 13 "Conditions Precedent", Number 6 -- 14 A: Yeah. 15 Q: "MFP to agree to undertake to establish a 16 meeting between the City of Waterloo staff 17 and Clarica personnel subsequent to the 18 provision of a commitment." 19 A: Yeah. 20 Q: And, I take it, that's because Clarica 21 wanted to sit down with Waterloo, and make sure they were 22 both on the same page? 23 A: Right. 24 Q: Right, and -- and you were going to 25 undertake to do that?

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1 A: I did. 2 Q: All right, and -- and what -- what steps 3 were taken to bring Clarica and Waterloo together to talk 4 about the deal? 5 A: We arranged a meeting. 6 Q: Right, and when was that meeting arranged 7 for? 8 A: September 28th. 9 Q: Where? 10 A: Glen Abbey Golf Club. 11 Q: And, what was that in context with? 12 A: All the people were going to be in the 13 same place at the same time. It was an MFP annual golf 14 tournament. The people from Waterloo and Clarica would both 15 be there, so we had them sit together at dinner, and chat 16 away. 17 Q: All right, and then you expected them to 18 talk about the deal? 19 A: Thought it might come up. 20 Q: And -- and in fact, there hadn't been a 21 firm commitment with Clarica at that point, had there? 22 A: On the 28th? I -- probably. 23 Q: Probably? You have -- you had them sign 24 a commitment, and you'd signed it back? 25 A: I'd -- I think so, but --

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1 Q: All right -- 2 A: -- we'd have to go through the -- 3 Q: -- I could be mistaken. 4 A: Well, we're close anyway. 5 Q: We're close to? 6 A: Yeah, and they're saying that subs to -- 7 the meeting should be subsequent to the -- 8 Q: To the commitment? 9 A: -- anyway, yeah. 10 Q: All right. In any event, you -- you took 11 the golf tournament as being the meeting that was arranged? 12 A: Yeah, that was the only time it seemed we 13 -- we could get everybody together. 14 Q: Then did you -- did you talk to the 15 people at the City of Waterloo about their availability to 16 meet with people from Clarica? 17 A: I didn't -- 18 Q: Okay -- 19 A: -- Mr. Robson did. 20 Q: All right. I take it he told you that? 21 A: Yes. 22 Q: All right. You understand that Clarica's 23 right here in Waterloo, along with Waterloo? 24 A: Yeah. 25 Q: And, they could probably walk between

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1 their respective offices, and get together? 2 A: Yes. 3 Q: Where -- did you tell Clarica the purpose 4 of having them to the golf tournament was to discuss the deal 5 with Waterloo? 6 A: Yes. 7 Q: Oh, you did? 8 A: Yeah. 9 Q: Okay. Who was it that you did talk to at 10 Clarica to say, come on to the golf tournament, and talk 11 about the deal with Waterloo people? 12 A: Mr. Anderson, and Mr. Cameron. 13 Q: Okay. 14 A: I think we invited others as well, 15 including Mr. McNabb. I don't think he came. 16 Q: Under expenses, all the expenses of 17 Clarica are included. The $75 thousand fee, due to Clarica 18 is included, and all of those would be expenses that would be 19 included in the cost of the borrowing? 20 They would be over and above the interest 21 rate, correct? 22 A: They would be on MFP's tab, yeah. 23 Q: All right. And, again, at that point in 24 time, was Clarica entitled to talk to Waterloo at all about 25 the deal?

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1 A: I -- I don't know what would have 2 necessarily stopped them. There's a confidentiality note in 3 here. We were going to be meeting in a week or two (2), 4 whenever it was. I don't know the answer to that, one way or 5 another. 6 Q: If we could go to Tab 7, please? 7 A: Okay. 8 Q: And -- and I apologised before, this is, 9 in fact, the term sheet that you sign back. If you look at 10 the page, it's got 726 at the top -- 11 A: Yes. 12 Q: -- of Tab Number 7, you'll see that 13 that's your signature? 14 A: Yes, it is. 15 Q: All right. 16 A: It -- it's one (1) of the ones I signed 17 back. I -- I'm not sure if there weren't a series, actually. 18 Q: All right. In any event, this -- this 19 came -- it was -- this particular sheet goes from Neil 20 Cameron to Nick Williams who was the solicitor for Clarica. 21 And -- and it includes your signature on the last page? 22 A: Yes. 23 Q: On the 19th of September? 24 A: Yes, it does. 25 Q: If we could go, please, to Tab 8?

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1 A: Okay. 2 MR. COMMISSIONER: What -- just to clarify 3 something for me at this point, we now have a term sheet 4 signed by both parties? 5 THE WITNESS: Yes. 6 MR. COMMISSIONER: And is that to be taken as 7 a commitment? 8 THE WITNESS: Well, I think it says that it's 9 not to be taken as a commitment on the Clarica part, just 10 above my signature. 11 MR. COMMISSIONER: I had understood there was 12 a separate document -- 13 MR. JAMES CASKEY: There is. 14 MR. COMMISSIONER: -- as a commitment? 15 MR. JAMES CASKEY: There -- there is, Mr. 16 Commissioner. 17 MR. COMMISSIONER: Yes, I see. The -- 18 MR. JAMES CASKEY: Tab 13. 19 MR. COMMISSIONER: -- second paragraph at the 20 top of the term sheet says the letter's -- 21 THE WITNESS: I'm sure, eventually we got to 22 one. 23 MR. COMMISSIONER: Well, anyway, this got 24 signed as a term sheet. That is not the commitment. 25 THE WITNESS: Clarica's saying it's not, yes.

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1 MR. COMMISSIONER: Well you signed it, too. 2 THE WITNESS: Yes. It's more of a commitment 3 on my part than theirs. They're wanting us to step off 4 first. 5 MR. COMMISSIONER: Okay, I -- 6 THE WITNESS: There's a -- there's a 7 subsequent letter that's -- 8 MR. COMMISSIONER: That answers my question, 9 thank you. 10 THE WITNESS: -- that's a commitment. 11 MR. JAMES CASKEY: And I think, Mr. 12 Commissioner, we will get to it, it's at Tab 13 and it's 13 dated the 21st of September. 14 MR. COMMISSIONER: All right, we'll come to 15 that. If it's convenient, we'll -- 16 MR. JAMES CASKEY: It is. 17 MR. COMMISSIONER: -- take a fifteen (15) 18 minute break, please. 19 THE REGISTRAR: The City of Waterloo Judicial 20 Inquiry now stands recessed for fifteen (15) minutes. 21 22 --- Upon recessing at 3:18 p.m. 23 --- Upon resuming at 3:37 p.m. 24 25 THE REGISTRAR: The City of Waterloo Judicial

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1 Inquiry is now resumed. Please be seated. 2 MR. COMMISSIONER: Okay. 3 MR. JAMES CASKEY: Thank you, Mr. 4 Commissioner. 5 6 CONTINUED BY MR. JAMES CASKEY: 7 Q: Mr. Stevens, if we could turn to Tab 8, 8 please of Exhibit 86 which is your documents? 9 A: Okay. 10 Q: And this is a memo, or memorandum if you 11 will, of the 21st of September of 2000 to the Mayor and 12 Members of the City Council, from John Ford. Tom Stockie, 13 Dave Robson and Bill White got copies of this. 14 And you, I take it, knew that Tom Stockie was 15 the Chief Administrative Officer of the City? 16 A: I know that, yes. 17 Q: Yes. And -- and you know Mr. Robson. Do 18 you know Bill White was the legal advisor? 19 A: Yes. 20 Q: All right. When you suggested that -- 21 that Waterloo had all kinds of accountants and lawyers on the 22 file, did you know that? 23 A: I'm assuming. I know there was Mr. White 24 and I knew they had -- there was some sort of golf course 25 studies so that KPMG was involved. I'm assuming they're a

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1 big corporation, they must have lots of people internal and 2 external. 3 Q: Okay. This is a memorandum that -- that 4 is going from Mr. Ford to the Council and it's telling them 5 that the agenda for the Council meeting, September 25, 6 include two (2) bylaws authorizing the entering into lease 7 agreements of MFP Financial Services Limited, to provide the 8 financing required for the Millennium Recreation Project. 9 Now, stopping there, as of the 21st of 10 September of 2000, had you seen either the head lease or the 11 sub lease? 12 A: I hadn't seen the signed documents, I may 13 have seen a, sort of, pro forma what it might look like. It 14 was back and forth between the lawyers, at that time, I 15 believe. 16 Q: Had you seen any of the schedules to the 17 head lease or the sub lease? 18 A: I don't know. 19 Q: Had you seen the sub lease -- or head 20 lease payments and the sub lease payments, what became 21 Schedule B, to each one of those documents? 22 A: I -- I don't know. 23 Q: All right. And then they -- they set out 24 the -- the resolution that authorized them to go ahead, and 25 then he says:

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1 "In summary, the head lease and sub lease 2 agreements include the following 3 provisions: 4 Number 1: Financing for up to the full 5 gross project cost of 56.6 million, with 6 the impact on repayments netting out to 7 49.5 million, after taking into 8 consideration the estimated $7 million in 9 fund raising." 10 Now, were any of those numbers familiar to you 11 at September the 21st? 12 A: No, I knew there was fund raising 13 involved, and I don't know when I knew about the 49.5. 14 Q: All right. The next is: 15 "An option for additional funding at any 16 time throughout the duration of the lease 17 period, should a significant capital 18 expenditure be contemplated on the site." 19 Is there any provision in anything you talked 20 about with the funders for an option for additional funding? 21 A: No. 22 Q: "Lease payments are computed on an 23 effective annual interest rate of 4.76 24 percent." 25 That's an accurate statement as far as you

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1 were concerned? 2 A: Not if he was talking about the -- the 3 sub lease. I don't know how the head lease was discounted. 4 Q: All right, but if he's talking about the 5 lease payments to be made by Waterloo, that would be under 6 the sub lease? 7 A: Yes. 8 Q: And, that then, the 4.76 was not an 9 interest rate that was remotely close, was it? 10 A: I don't think so, no. 11 Q: No, at that point in time, you'd know 12 that the rate, if you added in something for all the extra 13 costs over and above the cost of borrowing, plus what MFP 14 would want, would get the rate up, perhaps another four (4) 15 or five (5) points, wouldn't it? 16 A: It's quite possible. Again, there were 17 two (2) separate streams. One I'm borrowing on, and the 18 other one -- 19 MR. COMMISSIONER: No, we're talking about -- 20 just go around this thing. We're talking about the payments 21 to be made by the City of Waterloo. 22 THE WITNESS: Yeah. It -- it's quite a bit 23 north of that. 24 25 CONTINUED BY MR. JAMES CASKEY:

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1 Q: So, it -- it could be very well close to 2 double that amount? 3 A: Could be, I don't know, and I never did 4 work it out. 5 Q: Now there was -- there's talk about 6 interim funding, but -- but that didn't become necessary, 7 because there was the payment up front of the total amount -- 8 A: Right. 9 Q: -- of the present value. 10 A: Right. 11 Q: Is that fair? 12 A: Yes. 13 Q: Then, it says: 14 "Funds will be advanced as follows: 48.5 15 million immediately, the remainder to be 16 advanced in April 2001 time frame, when an 17 accurate estimate of full construction will 18 be possible, and when fund raising projects 19 will be firmed up." 20 Again, anything that you were talking about 21 with any of your funders for that to occur? 22 A: No. 23 Q: "Interest earned on advanced funds to be 24 fully to the credit of the City." 25 Is that something that you would be aware of?

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1 A: No, but if they're getting the whole 2 amount at one time, I'd -- I don't think it's really germane. 3 Q: "Term of lease is as 30 years. Agreement 4 specifies 31 years, which allows for the 5 one (1) year interim financing period 6 during construction." 7 A: Okay. 8 Q: Okay, and that was in keeping with your 9 understanding? 10 A: They were -- there wasn't going to be any 11 sub lease payments for the first year I think. 12 Q: Right. 13 A: Okay. 14 Q: Then, it says: 15 "Annual lease payments are based upon the 16 business plan, and projected cash flows 17 from operations." 18 Now, what would you take from that? 19 A: I'm assuming that Waterloo probably has a 20 business plan, and the -- that in conjunction with the cash 21 flows they're expecting with -- from operations somehow gets 22 you to the annual lease payments. 23 Q: Right, and that would be the Waterloo 24 business plan then, that -- that would have the projections? 25 A: I'm assuming that's what he's talking

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1 about. 2 Q: All right. Had you ever seen the 3 Waterloo business plan in the course of -- 4 A: No. 5 Q: -- of your discussions with anybody at 6 MFP? 7 A: No. 8 Q: Then, it talks about provision for 9 prepayment of future lease payments. 10 Was that something that could be worked into 11 the document? 12 A: I'm not sure if it was in the documents. 13 I mean, lenders will always accept prepayment on certain 14 conditions. 15 Q: That may be onerous, but -- but there's 16 provision for it? 17 A: There's provision for it. 18 Q: All right. Then it goes on to say that 19 Dave Robson, Vice President of MFP, and Bill White, City 20 Solicitor will be on hand Monday. 21 I take it you were aware that there was going 22 to be a meeting that -- of -- of the City Council for the 23 purpose of finalizing this deal? 24 A: I -- I don't know if I was specifically 25 aware. It wouldn't surprise me.

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1 Q: All right. Were there any time frames or 2 time limits placed upon -- upon this deal going through by 3 Clarica for their commitment to be valid? 4 A: I'd have to look back in the letter but I 5 -- I don't think in the terms you're asking the question 6 there probably was, no. 7 Q: They didn't put -- didn't say this -- 8 A: It has to be done by a certain time, no. 9 Q: They didn't tell you that? 10 A: No. 11 Q: Thank you. If we go to Tab 9 please -- I 12 take it that -- that if you'd seen -- if you'd seen this memo 13 of September 21st, you would have said, that's not the deal 14 that I'm working on? 15 A: There's a problem, yeah. 16 Q: Yeah. So, the fact -- if Mr. Robson had 17 this document, he clearly didn't share it with you? 18 A: That's true. 19 Q: Right. Tab 9 please. This is from you 20 to Mr. Anderson. And -- and it deals, I think, with the fact 21 that there's a problem with mutually acceptable signage? 22 A: That was one of Clarica's requests. I'm 23 telling Clarica that it seems to be a -- a problem. 24 Q: And it says 25 "Apparently mutually acceptable signage is

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1 a concern for the City staff. While staff 2 understand Clarica's involvement, the 3 Council resolution mentions financing by 4 MFP so staff is sensitive to having to 5 explain Clarica's involvement." 6 A: Right. 7 Q: Where -- where did you get that 8 information? 9 A: From Mr. Robson. 10 Q: And you say 11 "In my mind, this is not, I guess, such a 12 huge issue as I think what you are looking 13 for is one of those customary signs stating 14 'Financing by Clarica' which would go 15 alongside signs by the architect and 16 several engineering firms..." 17 A: I was trying to figure out what it is 18 they're looking for. I'm just thinking one of those little 19 signs. 20 Q: Yeah. And I take it you didn't see this 21 as being a reason why there should be a big deal made about 22 it? 23 A: I sure didn't want it to be. 24 Q: All right. And I take it that you 25 wouldn't want that problem to come between MFP and Clarica

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1 and this deal? 2 A: That's right. 3 Q: At that point in time, did you know how 4 big a deal it was for MFP? 5 A: On the 21st, certainly maximum of sixty- 6 two, but I'm not sure of the exact amount, no. 7 Q: And -- and you'd know what that would 8 translate into for -- for the MFP profit? 9 A: I suppose. But I hadn't thought about 10 it. 11 Q: The next tab is, in fact, Tab 10 but it's 12 out of sequence. Can we go to Tab 11 please? 13 A: Okay. 14 Q: And in Tab 11, sir, there are now 11A, B 15 and C; can you see those? You should have additional 16 documents? 17 A: I've got two (2) pages in Tab 11. 18 Q: Right. 19 A: Oh, these other ones here? 20 Q: Yeah. The other ones to your right? 21 A: Yeah, yeah. Got it. 22 Q: You'll see the first has got -- should 23 have 11A at the top and this appears to be a faxed message 24 that's sent by John Ford to MFP. 25 MR. COMMISSIONER: Wait a minute. Have I got

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1 these? 2 (BRIEF PAUSE) 3 4 MR. COMMISSIONER: Just so I understand. 5 Where does this fit in -- 6 MR. JAMES CASKEY: What -- what we would have 7 -- what was Tab 11 is going to be 11C, Mr. Commissioner. And 8 then the fax message is -- is 11A. The handwritten notes are 9 11B and then the email from Mr. Stevens to Mr. Cameron is 10 11C. 11 MR. COMMISSIONER: Thank you. So we're now 12 at 11A? 13 MR. JAMES CASKEY: 11A. 14 15 CONTINUED BY MR. JAMES CASKEY: 16 Q: And if you look at the second page, at 17 the top it says "CL65"? 18 A: Yeah. 19 Q: Now, these are a series of questions for 20 Waterloo staff, I take it? 21 A: Yes. 22 Q: Now, where did these come from? 23 A: From Clarica. 24 Q: So Clarica sends to you a list of 25 questions and they want the answers to them?

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1 A: Yeah. 2 Q: Number 1, to provide a list of the five 3 (5) largest taxpayers, et cetera. Provide as number 2, 4 approximate breakdown of the tax base. Number 3, the City's 5 strategy regarding future operating surpluses and deficits. 6 Number 4, any additional significant expenditures requiring 7 debt financing planned by the City or the region. Five, to 8 comment on the level of due diligence expended in the 9 analysis of the Millennium Project and how comfortable the 10 City staff are with the projected cash flows from this 11 source. Seven, comment upon any ongoing merger talks with 12 neighbourhood municipalities, what are the short and long 13 term prospects. 14 MR. COMMISSIONER: What century are you 15 talking about? 16 MR. JAMES CASKEY: This is CL -- 17 MR. COMMISSIONER: I know what it is. 18 MR. JAMES CASKEY: Oh, you mean the mergers? 19 MR. COMMISSIONER: Merger discussions have 20 been going on for the last two hundred (200) years. 21 MR. JAMES CASKEY: All right. I'm sorry. 22 This is -- 23 MR. COMMISSIONER: Really, anybody from 24 Toronto who doesn't know that, I'm not surprised. 25

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1 CONTINUED BY MR. JAMES CASKEY: 2 Q: In any event, these are the questions 3 that are posed by Clarica? 4 A: Yes. 5 Q: And -- and you're going to get the 6 answers for them? 7 A: I'm going to give these to Mr. Robson and 8 he's going to get the answers for me and I'll get them back 9 to Clarica. 10 Q: All right. 11 MR. COMMISSIONER: Okay, just before you go 12 on. This fax message 11-A, is from John Ford -- 13 THE WITNESS: Yes. 14 MR. COMMISSIONER:-- to whom? To MFP? 15 THE WITNESS: To Robson -- 16 MR. COMMISSIONER: Does that go to you or who 17 gets it? 18 THE WITNESS: No, Robson. 19 MR. COMMISSIONER: All right. 20 21 CONTINUED BY MR. JAMES CASKEY: 22 Q: It's not addressed to Mr. Robson -- 23 A: No. 24 Q: -- per se, but it's addressed to MFP 25 Financial Services Limited, and I take it --

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1 A: That's a -- that's not the general fax 2 number, I assume it's Mr. Robson's fax number. 3 Q: All right. So it goes to Mr. Robson's 4 fax number? 5 A: Yes. 6 Q: Now, this specifically answers the first 7 two (2) questions, I take it? 8 A: Yes. Can I -- 9 Q: Yes? Go ahead. 10 A: Sorry, I just wanted to volunteer, this 11 is probably received around the 17th or 18th of September. 12 And you're talking about Clarica's commitment, obviously 13 they're still asking questions very late in the game, here 14 so. 15 MR. COMMISSIONER: Well, this can't be 16 received on September the 17th because it's -- 17 MR. JAMES CASKEY: No. 18 MR. COMMISSIONER: -- it's dated September 19 the 19th -- 20 THE WITNESS: No, no. The page attached. 21 MR. JAMES CASKEY: The -- the questions -- 22 MR. COMMISSIONER: Oh, I'm sorry, the fax. 23 MR. JAMES CASKEY: We don't have the sheet 24 that sends you the questions, but it -- 25 THE WITNESS: It's got to be prior to --

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1 MR. JAMES CASKEY: It's got to be prior to 2 this? 3 THE WITNESS: Yes, agreed. 4 MR. JAMES CASKEY: All right. 5 MR. COMMISSIONER: Well, it's dated -- the 6 fax is dated September the 12th, up at the top of the page. 7 MR. JAMES CASKEY: Quite -- quite right, Mr. 8 Commissioner. But you'll note that -- that it's in response 9 to these questions, as opposed to sending this list of 10 questions, itself. 11 MR. COMMISSIONER: Okay. 12 13 CONTINUED BY MR. JAMES CASKEY: 14 Q: So, as I understand it, Mr. Stevens, the 15 process would be, Clarica sends to you or to Robson -- 16 A: To me. 17 Q: -- to you, this list of questions, some 18 time prior to the 19th? 19 A: I'm guessing, yes. Yes. 20 Q: And you then go to Robson and say, 21 Clarica wants the answers to these? 22 A: Right. 23 Q: And the first reply that comes in appears 24 to be this fax from September 19th, which is the first page 25 of 11-A --

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1 A: Right. 2 Q: -- saying, here's the answers to the 3 first two (2) questions that you've asked me? 4 A: Yes. 5 Q: Now, what you don't know, I'm suppose, is 6 whether or not Mr. Robson gave Mr. Ford all these questions, 7 or whether he just gave him the first two (2)? 8 A: I've no idea. 9 Q: All right. But in any event, he answers 10 the first two (2)? 11 A: Right. 12 Q: So -- and that says, the top five (5) 13 taxpayers in Waterloo are, and then gives the breakdown of 14 the residential, commercial industrial taxes by percentage? 15 A: Right. 16 Q: So that left the other six (6) questions 17 to be answered? 18 A: Right. 19 Q: Now, if I go to the second document in 20 that, which is handwritten notes, it's dated September 20, am 21 I correct? 22 A: Yes. 23 Q: And these are handwritten notes from Mr. 24 Robson? 25 A: I believe so, yes.

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1 Q: All right. And Mr. Robson is saying to 2 you, Brian, here are the answers to Clarica's questions? 3 A: Right. 4 Q: Then he goes, Number 1 is the five (5) 5 largest taxpayers, Number 2, the breakdown between 6 residual -- residential, rather, commercial and industrial. 7 And then he -- because those are the answers that came from 8 Mr. Ford? 9 A: Right. 10 Q: Then he goes to Number 3 on the City 11 strategy, re the future operating surpluses, deficits: 12 "Historically, the City would operating -- 13 [what is that] -- account for, use -- use 14 operating surpluses for other non-budgeted 15 initiatives, however more recently they 16 have established a "mill rate," 17 stabilization reserve and contribute to it. 18 And I take it, that would be the answer 19 that -- that you would give to -- to Clarica, in your 20 response, presumably? 21 A: Word for word. 22 Q: Word for word. Okay. Then, it goes on 23 in Number 4: 24 "For additional expenditures requiring debt 25 financing plan."

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1 And, then you talk about a downtown parking 2 garage, a new head library, and MFP is in negotiations with 3 the City to arrange financing for both of these projects. 4 A: You're reading off the email? 5 Q: I'm reading off the email. 6 A: Yeah. 7 Q: The question that I have is: Where does 8 that information come from? 9 A: The -- 10 Q: The bit about negotiating -- MFP 11 negotiating with the City to -- 12 A: I'm speculating that I think Mr. Robson 13 probably asked me to throw that in to keep Clarica at bay on 14 those two (2) projects. 15 Q: All right, and then in Number 5, which is 16 in response to the City's due diligence, Mr. Robson says: 17 "If the business plan --" 18 And that would be Waterloo's business plan I 19 take it? 20 A: Right. 21 Q: "The business plan did not work, then the 22 City would not be in the middle of the 23 project for the Millennium Recreation 24 Park." 25 Right?

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1 A: Yeah. 2 Q: So, I guess what he's saying there is 3 they -- they've already started the project, Clarica, you 4 know that. If it -- if their business plan didn't work, they 5 wouldn't have started, therefore, that's their due diligence? 6 A: That's not the answer we sent on to 7 Clarica though. 8 Q: No, that's the answer Mr. Robson gave to 9 you. 10 A: Well, his first answer, he's -- he's -- 11 just reading that, it's not much of an answer, is it? 12 I don't know what happened exactly, but I can 13 see myself going back to him, and saying, come on, you can't 14 just parrot this back. Give me something -- give me 15 something better than that. 16 Q: All right, so then, you go on to say 17 this, and this is in -- in 11 C, which is the -- the email -- 18 A: Yeah. 19 Q: -- that you're sending off to Neil 20 Cameron on the 21st of September -- 21 A: Yeah. 22 Q: -- under paragraph 5: 23 "The City has undertaken an extraordinary 24 level of planning and due diligence 25 befitting such a large project."

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1 A: Right, I'll -- 2 Q: What examination did you make of anything 3 to be able to make that statement to Clarica? 4 A: Again, I was just parroting what Robson 5 would have told to me. 6 Q: All right. What did he tell you that the 7 City had done by way of due diligence? 8 A: He didn't. 9 Q: So, he just said, they've done due 10 diligence, and you repeated it. 11 A: Yeah, it seemed logical to me. It's a 12 big deal. 13 Q: It said: 14 "From the outset with professional needs 15 studies to environmental and architectural 16 assessments, and an on-going reliance on 17 KPMG, especially for the primary cash 18 generator, the golf course, the City has 19 analysed, planned and approved the project 20 step by step." 21 And then you put an anecdote that: 22 "KPMG recently walked the golf course, and 23 declared it too difficult for a municipal 24 course, so some bunkers and trees have been 25 removed. The course otherwise resolved to

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1 bring it more in line with its intended 2 market." 3 A: I think I threw that anecdote in 4 actually. It was something I had heard in one of the 5 sessions we had. 6 Q: All right. 7 A: And, I believe the first part of the 8 answer came from Mr. Robson. 9 Q: All right, and then you go on over on the 10 next page to say: 11 "City staff are very comfortable with 12 projected cash flows have been estimated on 13 a very conservative basis, for instance, 14 the first five (5) year's capacity usage 15 for the arena is projected at 25 percent, 16 however, community groups have already 17 signed up for 30 to 40 -- 35 to 40 18 percent." 19 Again, where did that information come from? 20 A: From Mr. Robson. 21 Q: Then you -- you go in and -- and answer 22 six (6), seven (7) and eight (8), in accordance with what Mr. 23 Robson has told you? 24 A: Yes. 25 Q: So, the only significant change, I take

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1 it, Mr. Stevens, between what Mr. Robson gave you by way of 2 answers, and what you passed on to Clarica was in relation to 3 due diligence? 4 A: Yes. 5 MR. COMMISSIONER: I have to -- I can't 6 resist. The answer to Question 6, where he discusses the 7 City of Kitchener on the back burner for two (2) to three (3) 8 years, Clarica must have laughed like hell when they read 9 that. 10 11 CONTINUED BY MR. JAMES CASKEY: 12 Q: I take it that -- that that again was 13 information that came from Mr. Robson? 14 A: Yes. 15 Q: Did you make any independent verification 16 of anything told to you by Mr. Robson by checking with other 17 people? 18 A: No. 19 Q: Didn't go to anybody else at MFP to say, 20 what have you heard about this deal? 21 A: No. 22 Q: And didn't call anybody at the City to 23 confirm anything? 24 A: Never spoke to anybody at the City. 25 Q: Did it not concern you that you were

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1 making representations to Clarica about due diligence based 2 solely on what Mr. Robson was telling you? 3 A: I make representations like that all the 4 time and have to live with it. 5 Q: We should go back to Tab 10 now. This is 6 the 21st of September? 7 A: Right. 8 Q: And it's to Ken Anderson from yourself. 9 "In re-reading the questions and answers, I 10 realize that we don't have the relative 11 contributions of the five (5) largest 12 taxpayers. City staff does confirm, 13 however, that those names are in order of 14 contribution from highest to lowest of the 15 five (5) names." 16 And then we have a series of Bs down there. 17 What -- what is the significance of four Bs? 18 A: That's me. 19 Q: And -- 20 A: I just sign emails that way. 21 Q: All right. 22 A: And I know it's me. 23 Q: And I've seen an email that had seven Bs? 24 A: Oh, there's no significance to the 25 number. My finger gets tired.

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1 Q: You just put the finger on the B and let 2 it run? 3 A: Yes, sir. 4 Q: Then you know it's you? 5 A: Yes, sir. 6 Q: All right. The information that you got, 7 you say the City staff confirmed that? Did -- did you 8 contact City staff to confirm that? 9 A: No, sir. I would have asked Mr. Robson. 10 Q: If we can go to Tab 12 please. This is a 11 document that goes from Neil Cameron to Nick Williams - I 12 think that's who that is - and forwarded by Neil Cameron, 13 it's -- it goes on from you to Ken Anderson. 14 "This is the simple master sale agreement 15 LTD..." 16 Now, what does that stand for? 17 A: MFP Financial Services Ltd. 18 Q: Okay. 19 "...currently uses to sell leases to 20 Clarica whiel..." 21 I take it 22 ".. while retaining billing, collecting and 23 remitting of rents and taxes. We assume it 24 can be used for Waterloo with any (SMALL!) 25 refinements made to the relevant schedule

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1 to this master agreement." 2 A: Right. 3 Q: Right. So you've taken what -- what is a 4 master sale agreement and you say, make minor adjustments if 5 you want but -- but how be we use this? 6 A: Right. 7 Q: Okay. If I then go to Tab 13 please. 8 MR. COMMISSIONER: I don't understand the 9 reference to the -- to the sale agreement? 10 THE WITNESS: At some times we would sell 11 Clarica technology leases rather than just assign them for 12 financing purposes, so, we had a separate document to sell 13 the lease and the assets under the lease -- 14 MR. COMMISSIONER: Oh, I see. 15 THE WITNESS: -- to Clarica and, I guess, 16 that would become germane in selling the head lease and sub 17 lease to Clarica. They were looking at this late date for a 18 -- for a draft document. 19 MR. COMMISSIONER: In those cases, MFP would 20 retain its status as the -- 21 THE WITNESS: Servicer, we would call it. 22 MR. COMMISSIONER: Yeah -- 23 THE WITNESS: We would bill and collect. 24 MR. COMMISSIONER: Retain its status under 25 the lease, simply sell the documents to Clarica and then

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1 continue to service the -- 2 THE WITNESS: Yes. 3 MR. COMMISSIONER: -- the clients. 4 THE WITNESS: And we would enjoy the residual 5 realization at the end. 6 MR. COMMISSIONER: Yeah. And then presumably 7 you get paid for doing that as part of the sale price? 8 THE WITNESS: We wouldn't get paid for doing 9 that. We'd get paid through the residual realization at the 10 end. It was just the same as borrowing against it as far as 11 we and Clarica were concerned. 12 MR. COMMISSIONER: And on the sale agreement 13 then you would sell the leases but retain the right to the 14 residual -- 15 THE WITNESS: Yes. 16 MR. COMMISSIONER: -- values? 17 THE WITNESS: Yes. 18 MR. COMMISSIONER: Okay. Thank you. 19 20 CONTINUED BY MR. JAMES CASKEY: 21 Q: If we turn to Tab 13, Mr. Stevens, we 22 have a letter that goes from Mr. Anderson to you? 23 A: Yeah. 24 Q: And this is the commitment letter, I take 25 it? The form of commitment letter?

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1 A: I believe so, yes. 2 Q: It's -- it's different than the term 3 sheet? 4 A: Yeah. 5 Q: So if we look at that it's -- as I say, 6 it's the 21st of September. It's $62 million. It says, 7 "The final loan amount will be equal to the 8 discounted cash flow stream of the sub 9 lease payments at the discount rate, yet to 10 be determined. Today's indicative rate of 11 7.56 percent would provide for a loan 12 amount of approximately 60,186,775.00" 13 A: Right. 14 Q: Then, over on page 2, under, 'Lease 15 Payments', 16 "Lease payments for the thirty-one (31) 17 year term will be based on the agreed upon 18 repayment schedule." 19 And that is a repayment schedule, I take it, 20 agreed upon between who? 21 A: I'm sorry, again? 22 Q: Top of page 2? 23 A: Yes. Lease payments for the thirty-one 24 (31) year term will be based on the agreed upon repayment 25 schedule.

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1 Q: Yes. Who -- who is the agreed upon 2 repayment schedule between? -- 3 A: Well, it's -- 4 Q: -- MFP and Clarica? 5 A: No, it's the lease payments under the sub 6 lease. 7 Q: All right. So they'd be the -- the -- 8 the lease payments agreed upon between the -- the borrower 9 and the lender? 10 A: Between MFP and Waterloo, no? 11 Q: Okay. 12 A: Okay. Yes, the sub lease payments. 13 Q: All right. Those -- those are the ones, 14 then. At that point in time, as of the 21st of September, 15 did you know what those payments were? 16 A: I don't believe so, no. 17 Q: All right. Did Waterloo know what they 18 were? 19 A: I don't think so, from what I've read, 20 no. 21 Q: All right. I take it that when you look 22 at -- at the amount of money on page 1, that -- that they're 23 going to get a 60,186,000, that -- that now you know, if you 24 give Waterloo 48 million, you'll make $12 million worth of -- 25 of income on the deal?

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1 A: Yes, I'm not quite sure where that comes 2 from, but, yes. 3 Q: All right. So, that -- but that seems to 4 be -- at the 21st of September, they're telling you, on -- 5 based on our rate, we're -- we're prepared to give you 60 6 million. 7 And you'd know approximately how much you had 8 to give to Waterloo? 9 A: Yes. 10 Q: So at that point, you would know what the 11 deal was worth? 12 A: Right. 13 Q: And you'd know that your company stood to 14 make about 11 or $12 million? 15 A: Yes. 16 Q: Over on page 2, we've talked about the 17 lease payments and the discount rate to be fixed upon 18 completion and execution of satisfactory legal documentation, 19 at a rate equal to the June 1st. And we go through that 20 calculation. 21 Today's indicative rate is 7.56 per annum, 22 being 5.91, the bond yield, plus a hundred -- 1.65 or a 23 hundred and sixty-five (165) basis points? 24 A: Right. 25 Q: And then they've got their fee of

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1 seventy-five (75). And -- and as of this date, if you go to 2 the next page, they still, in paragraph 4, want to have the 3 meeting? 4 A: Right. 5 Q: By the way, when you told Clarica and -- 6 and Waterloo to come to your golf tournament to discuss this 7 deal, did you tell them to bring all their documentation with 8 them, or did you tell them you'd have the documentation there 9 for them? 10 A: Didn't speak to Waterloo, at all. Spoke 11 to Clarica and said, this is what we can do. If you want to 12 come along, we can sit for dinner with the representatives of 13 Waterloo and have your meeting. 14 Q: And -- and, didn't tell Waterloo the 15 same? 16 A: I didn't speak to Waterloo at all. 17 Q: Okay. If you go to the last paragraph on 18 that -- the third page, under the heading, 'Acceptance'? 19 A: Yes. 20 Q: "Upon acceptance by the borrower, this 21 offer shall constitute a binding agreement 22 between Clarica Life Insurance Company and 23 MFP. This offer shall be null and void if 24 not accepted by MFP where indicated below, 25 and a fully executed copy thereof returned

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1 to Clarica Life Insurance Company by the 2 close of business, September 25th." 3 A: Yes. 4 Q: So I take it that, that is good reason 5 for haste in getting it back to them, signed? 6 A: Yes. I think there's probably a series 7 of these, as well. There perhaps isn't, so I wouldn't take 8 it too seriously. 9 Q: You -- you think if you -- if you had 10 dallied and not got it back to them before the 25th, that the 11 deal still would have been alive? 12 A: They're pretty interested in doing it and 13 so are we. 14 Q: All right. You didn't read anything into 15 that, by way of requiring someone to move quickly? 16 A: I know they want to move quickly, so 17 that's all I'd say. 18 Q: In any event, it's got a date for 19 acceptance, for you people, of the 22nd of September? That's 20 over on the next page? 21 A: Hmm hmm. Yes, there is. 22 Q: All right. 23 Q: If we could go to Tab 14, please? Here 24 we have the MFP credit committee. 25 A: Yes.

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1 Q: And, it consists of Mr. Makohon, 2 yourself, Bob Wright, and Peter Wolfraim? 3 A: Right. 4 Q: And -- and why was it that this deal had 5 to go to the credit committee? 6 A: It probably didn't. This was a last 7 minute thing. I asked Jerry to do -- to say, look here's the 8 big deal, we should at least have a credit committee approval 9 on this, so, just type something up and get it signed. 10 Q: Okay. Was that -- was it a matter of the 11 credit committee meeting -- 12 A: No. 13 Q: -- and discussing the deal at all? 14 A: No, it just would have been passed around 15 the office. 16 Q: Right. Now, by this time, on whatever 17 the date, the 22nd of September, you now know that -- that 18 the exposure here for MFP is $48,300,000, which is the amount 19 of money that you're going to turn over to Waterloo, I take 20 it? 21 A: Yes. 22 Q: So, now we know the difference between 23 that number and the 60 million is yours, subject only to 24 having to pay any expenses? 25 A: And any last minute rate changes, yeah.

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1 Q: All right, then, it talks about the 2 purpose of the arrangement is to provide financing. It talks 3 about the park, and I take it Mr. Makohon drew this up at 4 your instructions? 5 A: I believe so, yes. 6 Q: And, then he would have gone and had 7 everybody else sign on it? 8 A: Yes. 9 Q: And again, your purpose for doing that 10 was what? 11 A: Well, we've got internal procedures, and 12 one (1) of them is the credit committee sign off on any of -- 13 large deal. 14 Q: Of which this was one (1)? 15 A: Yeah, and obviously, we weren't taking it 16 very seriously. 17 Q: Then, if we could go to Tab 15, please? 18 MR. COMMISSIONER: I take it there was no 19 meeting of -- 20 THE WITNESS: No. 21 MR. COMMISSIONER: -- the credit committee -- 22 THE WITNESS: No. 23 MR. COMMISSIONER: -- everybody just signed 24 on this -- 25 THE WITNESS: Just passed it around.

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1 2 CONTINUED BY MR. JAMES CASKEY: 3 Q: Number 15 is an email that you're sending 4 on the 22nd of September to Ken Anderson, and you say to him: 5 "A mistake in yesterday's email. 6 Waterloo's meeting is Monday evening, so 7 documents must..." 8 And you make that a capital: 9 "...be agreed today between our legal team, 10 (we are working flat out) and Nick 11 Williams." 12 And then you say: 13 "The main sticking point now is that Nick 14 wants a separate indemnity in Waterloo's 15 acknowledgement that Bill White, outside 16 Counsel for the City, wants it in the sub 17 lease, otherwise it has to go back to City 18 Council. I understand Nick's reasoning, 19 but are most sympathetic to Bill." 20 In any event, you know that it's Monday 21 evening, that that's when it's going to happen, and you've 22 got to have everything in place by then? 23 A: Need the documents finished. 24 Q: Right, and -- and what would have 25 happened, as far as you knew, if it didn't get done by Monday

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1 night, the 25th of September? 2 A: We would have missed the -- the Council 3 meeting I suppose. 4 Q: All right, and -- and I take then, it 5 would go for two (2) weeks before he could get the deal done? 6 A: I don't -- I don't know. 7 Q: But that's signi -- 8 A: It could happen right away -- no, not to 9 me, particularly, but I'd like to finally get this finished. 10 It's been going on for a while. 11 Q: I guess the fact that -- that there's 10 12 or $11 million coming to MFP was not a motivator for you? 13 A: No, if it happens now or in two (2) 14 weeks, it's not that -- 15 Q: Not a big deal? 16 A: Yeah. 17 Q: Tab 16, please? 18 Again, you're writing to Mr. Anderson on the 19 25th, and you say: 20 "Received new term sheet. Will review and 21 respond this morning." 22 Right? That's the Clarica term sheet? 23 A: Yeah, and I assume now it's really a 24 commitment -- a revision of the commitment letter. 25 Q: Right, and you're -- you're going to

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1 review it, and respond this morning. 2 "Have Waterloo's wire information, will fax 3 it to you. Waterloo Council meeting this 4 evening. Anticipate signing of head lease 5 and sub lease tomorrow by Mayor and Clerk. 6 Should have final sub lease rents today for 7 inclusion in sub lease document. Present 8 value may be in the area of 58 million 9 only. Waterloo will want funds asap we 10 think." 11 Now, as I take a look at that, the part that 12 intrigued me was, 13 "should have final sub lease rents today 14 for inclusion in sub lease document." 15 So I take it that as of 9:54, almost ten 16 o'clock on the morning of the 25th, you hadn't seen the sub 17 lease rents? 18 A: I hadn't seen them, no. 19 Q: All right. Did anybody have them as far 20 as you knew? 21 A: I didn't know. 22 Q: Had you ever seen any of the sub lease 23 rents before that? 24 A: I don't believe so, no. 25 Q: Okay. Tab 17. This appears to be from

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1 -- from you to Ken Anderson providing Waterloo's wire 2 transfer information. 3 That was to expedite, I take it, the transfer 4 from Clarica to Waterloo -- 5 A: Yes. 6 Q: -- of the funds? 7 A: Yes. 8 Q: All right. Then at Tab 18 we have the -- 9 the head lease. It's dated the 25th of September and as I 10 look down under Article 1, interpretation, on the first page, 11 I see commencement date is September 29th, 2000? 12 A: Hold on. Yeah. 13 Q: Front page? 14 A: Yeah. 15 Q: Right. Then if I go over to page 3 of 16 the lease, at the bottom, talking about rent: 17 "The lessee covenants to pay to the lessor 18 an amount equal to 48,353,159 on the 19 commencement date in full satisfaction." 20 A: All right. 21 Q: Right. So by this document the forty- 22 three -- 48,353,159; where did that figure come from? 23 A: From Mr. Robson I believe. 24 Q: All right. You didn't see it until you 25 saw it in the lease?

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1 A: I believe I did not. It evolved somehow 2 from a discounting of the schedule of lease payments in 3 Schedule B. 4 Q: And that would indicate that that money 5 is due to go to the City of Waterloo on September 29th, I 6 take it? 7 A: Yes. 8 Q: If I then go to page 9 of the document -- 9 MR. COMMISSIONER: By this date, are all the 10 numbers then fixed -- 11 THE WITNESS: On the twenty -- on the 25th, I 12 believe, they were, yes. 13 MR. COMMISSIONER: On the 25th, so that MFP 14 and Clarica both knew on that date the amounts that were 15 going to be paid to the -- 16 THE WITNESS: That date or the next. I guess 17 the lease was signed in the evening. 18 MR. COMMISSIONER: Okay. Well, this is 19 signed by both the City and MFP? 20 THE WITNESS: Right. 21 MR. COMMISSIONER: You signed it for MFP? 22 THE WITNESS: Right. 23 MR. COMMISSIONER: And the City, the evidence 24 is the City signed it on Monday night, the 25th? 25 THE WITNESS: Yeah. I would have signed on

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1 the 26th. 2 MR. COMMISSIONER: You would have signed it 3 when, the next day? 4 THE WITNESS: Yes. 5 MR. COMMISSIONER: You did not -- the City 6 signed it before you did? 7 THE WITNESS: I believe so. Yes. I just 8 can't remember. 9 MR. COMMISSIONER: Well the evidence is, it's 10 fair to tell you, is that when it was signed by the City it 11 was merely stuck in an envelope, rushed back to your abode -- 12 THE WITNESS: Okay. 13 MR. COMMISSIONER: -- and presumably you 14 signed it the next day. And arrangements were then being 15 made to close this thing out when, on the 29th? 16 THE WITNESS: I think so. 17 MR. COMMISSIONER: That was the effective 18 date? 19 MR. COMMISSIONER: Yes. 20 MR. COMMISSIONER: But it didn't happen until 21 the 4th -- 22 THE WITNESS: Right. 23 MR. COMMISSIONER: -- of October; is that 24 right? 25 THE WITNESS: I believe so. Yes.

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1 2 CONTINUED BY MR. JAMES CASKEY: 3 Q: Now, if, in fact, the City thinks you 4 signed it before they got it? 5 A: It's possible. 6 Q: All right. Do you have any recollection 7 at all of -- of meeting with Karen Britton for the purpose of 8 signing it? 9 A: I don't. But it could have happened. 10 Q: All right. Or meeting with Dave Robson 11 in any way? No? 12 A: I'm sorry. I don't -- I just don't 13 remember it. 14 Q: Right. 15 A: There are instances where we would sign 16 the lease first. 17 Q: Now, at the time that you signed the 18 lease, what was contained in it; that is, the very next page 19 is a Schedule A which is a sketch; was that sketch in it? 20 A: I believe so. I -- I think everything 21 here was. 22 MR. COMMISSIONER: You're talking about the 23 head lease? 24 MR. JAMES CASKEY: Head lease. At -- at 25 Tab 18.

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1 2 CONTINUED BY MR. JAMES CASKEY: 3 Q: All right, Tab B is a Schedule of 4 Payments and it runs for a number of pages for the full 372 5 payments? 6 A: Yeah. 7 Q: Do you remember seeing that? 8 A: At some time. But I don't -- I don't 9 know if it was then or later, I assume it was there. 10 Q: All right. Did you see it at any time 11 before you signed the head lease? 12 A: I don't know. I don't think so, but, I'm 13 sorry, I don't -- 14 Q: All right. And your recollection is that 15 you didn't sign this on the 25th, that it -- it came back to 16 you signed by the City. And -- and you then signed it after 17 the City had signed it, on the 26th? 18 A: I believe that's the way it happened. 19 Q: All right. Then the other documents that 20 are part of the schedules, I take it, your recollection is 21 they were there, as well? 22 A: I believe so, yes. 23 Q: Looking very quickly at Tab 19, then, is 24 the sub lease? 25 A: Yes.

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1 Q: And again, we have, on the first page, 2 it's dated the 25th, commencement date September 29th, 2000. 3 If we go over to page 4 under Article 3.01, under, 'Rent', 4 "The sublessee covenants to pay directly to 5 the sublessor or to such other person or 6 persons as the sublessor may direct, rent 7 in the amounts and on such dates as 8 specified in Schedule B." 9 And then if we go to page 18, we see your 10 signature? 11 A: Yes. 12 Q: And again, your recollection of when and 13 where this was signed? 14 A: I believe it was in the MFP offices on 15 the 26th. 16 Q: All right. 17 A: But -- 18 Q: And then we -- we go to Schedule B, and 19 was Schedule B a part of the document when you signed it? 20 A: I believe it was, yes. 21 Q: All right. When is the first time that 22 you saw Schedule B? 23 A: I believe it -- 24 Q: The one that's in here? 25 A: I believe it was on the 26th, when I

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1 signed the lease. 2 Q: All right. And -- and, did you know that 3 Schedule B would be in a formula and not in a stream of 4 payments? 5 6 (BRIEF PAUSE) 7 8 A: I -- I don't know. I think so, but, I'm 9 sorry, I don't know. 10 MR. COMMISSIONER: How would you know -- if 11 you first saw this Schedule B to the sub lease -- 12 THE WITNESS: Yes? 13 MR. COMMISSIONER: -- at the time you signed 14 it on the 26th, and then the formula, how were you able to -- 15 what enabled you to determine that this added up to the $227 16 million? 17 THE WITNESS: I -- I wouldn't do that. I -- 18 I'd take the -- the schedule of payments and -- and discount 19 it, just on my little calculator, and figure it out. 20 MR. COMMISSIONER: You mean, you take the 21 formula and work it out? 22 THE WITNESS: Yes. 23 MR. COMMISSIONER: How long did that take 24 you? 25 THE WITNESS: Ten (10), fifteen (15) --

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1 MR. COMMISSIONER: I'm curious, because -- 2 THE WITNESS: Ten (10) -- ten (10) minutes, 3 maybe. 4 5 CONTINUED BY MR. JAMES CASKEY: 6 Q: In any event, your recollection is that 7 it was -- it was a matter of ten (10) minutes or so, you 8 worked out the full schedule of thirty-one (31) years of 9 lease payments, took the present value of that, and -- and 10 that's how you figured it out? 11 A: Yes. Now, the one area I wasn't totally 12 sure of was the difference between Clarica quoting and semi- 13 annual. And my mind set is on a monthly compounding, so I 14 would have got fairly close, but close enough to vet and 15 sign. 16 MR. JAMES CASKEY: Okay. Mr. Commissioner, 17 is this a convenient time to break? 18 MR. COMMISSIONER: If it's convenient to you, 19 it is to me. I have another engagement at five o'clock, so 20 we'll recess 'til ten o'clock tomorrow morning. Thank you. 21 THE REGISTRAR: The City of Waterloo Judicial 22 Inquiry is now adjourned until 10:00 a.m. tomorrow morning. 23 24 --- Upon adjourning at 4:24 p.m. 25

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1 2 3 4 5 Certified Correct, 6 7 8 9 __________________ 10 Wendy Warnock, Ms. 11 Court Reporter 12 13 14 15 16 17 18 19 20 21 22 23 24 25