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 October 16th, 2002 25

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

1 TABLE OF CONTENTS 2 Page No. 3 4 Exhibits 4 5 6 Andrew Friedel, Resumed 7 Continued Examination-in-Chief 8 by Mr. James Caskey 5 9 Cross-Examination by 10 Mr. Fraser Berrill 108 11 12 Reporter's certificate 211 13 14 15 16 17 18 19 20 21 22 23 24 25

1 EXHIBITS 2 EXHIBIT NO. DESCRIPTION Page No. 3 4 20 Spreadsheet titled: 5 Reconciliation of MFP 6 Business Plan including 7 Annual Percent Increases 12 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

1 --- Upon convening at 10:05 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. I'm pleased to advise that we have a new 8 counsel at the counsel table, Ms. Karen Britton is here. She 9 is general counsel of MFP and she will be assisting there, 10 from time to time, if not, constantly. So, we'll see how 11 that works out, but we welcome her to this Inquiry. 12 MR. COMMISSIONER: Yes, as do I. That's, 13 B-R-I-T-T-O-N? 14 MS. KAREN BRITTON: Yes. 15 MR. COMMISSIONER: Thank you. 16 Mr. Friedel, you remain sworn. Mr. Caskey...? 17 MR. JAMES CASKEY: Thank you, Mr. 18 Commissioner. 19 20 ANDREW FRIEDEL, Resumed: 21 22 CONTINUED EXAMINATION IN-CHIEF BY MR. JAMES CASKEY: 23 Q: Mr. Friedel, yesterday we were talking 24 about the meeting of the 31st of May and the people that you 25 contacted. And I understand that -- that, over the evening,

1 you've had a recollection of some additional contacts that 2 you made, as a result of the questioning that I put to you. 3 Would you be good enough to advise the 4 Commission, and those in attendance, of those additional 5 inquiries you made? 6 A: Yes. After I arrived home in the 7 evening, I called Mayor Woolstencroft and gave her an update 8 on what we had heard at MFP. And that was as a result of a 9 direct request from her, that she be updated as soon as we 10 were able to relay some information to her. 11 Q: So that's the evening of the 31st of May? 12 A: That's right. 13 Q: All right. And, any further contact with 14 Ernst & Young? 15 A: After June the 4th, events were 16 proceeding fairly quickly along there, but, in the next week 17 or so, I contacted Ernst & Young and I, again, spoke with 18 Jennifer Justason and Theresa Fischer regarding the 19 engagement that I -- I undertook in the fall of 1999. 20 And we just met to review what the -- the 21 details of that engagement, just to make sure that we were 22 both understanding what I had asked and what they had 23 delivered. And we agreed that, at that time, that I hadn't 24 asked for any written documentation and so there hadn't been 25 any produced in terms of a report.

1 And they reiterated their, sort of, their 2 findings, in terms of the background of MFP, but, you know, 3 we -- we also agreed that I hadn't asked them to do any 4 taxation investigation at that time. But I thought I should 5 bring that to your attention, that I did meet with them later 6 on in June. 7 Q: Thank you. Yesterday, I had asked you 8 whether or not you had done any analysis, if you will, as to 9 the contract that you saw, under Schedule B, for the payment 10 schedule. And -- and you indicated that you had, in fact, 11 done that, and that was when we were going to produce another 12 document that you had prepared. 13 And Mr. Commissioner, that would be Exhibit 14 Number 20, I believe. And we have a copy for you, and all 15 other persons have a copy of what is called a "Reconciliation 16 of MFP Business Plan, Including Annual Percent Increases". 17 MR. COMMISSIONER: Just give me a moment, 18 please. 19 20 (BRIEF PAUSE) 21 22 MR. COMMISSIONER: This is entitled, 23 "Reconciliation of the MFP Business Plan." Reconciliation to 24 what? 25 THE WITNESS: I was reconciling their

1 estimates of the net revenues, and our obligations under the 2 lease, to what I had included in the business -- the 3 financial plan. 4 MR. COMMISSIONER: Okay, thank you. 5 6 CONTINUED BY MR. JAMES CASKEY: 7 Q: I take it, for your purposes -- 8 MR. COMMISSIONER: Just -- 9 MR. JAMES CASKEY: Oh, sorry. 10 MR. COMMISSIONER: Just generally, you're 11 reconciling what MFP had produced at the meeting in 12 Mississauga, I guess. And had pro -- what they had claimed 13 to have produced to Clarica, all with respect to the various 14 items of income expressed in your -- in the City of Waterloo 15 business plan; is that right, is that fair? 16 THE WITNESS: I'm sorry. You're going to 17 have to ask that question again. I didn't follow that. 18 MR. COMMISSIONER: I'm not sure I can. I 19 gather that you're -- you're reconciling the numbers that 20 were produced by MFP at a meeting in Mississauga and what 21 they apparently had produced to Clarica to -- you're 22 reconciling those numbers, to your own numbers that had been 23 prepared in conjunction with the business plan that you had 24 prepared for the City; is that right? 25 THE WITNESS: Actually, the numbers from MFP

1 that I -- I'm using here are the numbers that were on the 2 sheet that Neil Cameron produced on June 4th. 3 4 CONTINUED BY MR. JAMES CASKEY: 5 Q: Not at MFP offices, but at the June 4th 6 meeting here at the City? 7 A: That's correct. 8 MR. COMMISSIONER: Okay. I understand it. 9 Thank you. 10 MR. FRASER BERRILL: Mr. Commissioner, can I 11 just ask which financial plan we're reconciling to just 12 because it's going in as an exhibit. I'd like to know if 13 it's the August financial plan or the May financial plan. 14 MR. COMMISSIONER: Okay. We can find that 15 out. Can you help us? 16 THE WITNESS: Yeah, I was going to maybe 17 speak to this document and that was one (1) of the issues I 18 was going to address. 19 If you look at the -- the column second from 20 the right, I think that's the easiest place to start, it says 21 "COW Plan" which stands for City of Waterloo. So, those are 22 the net revenues I was projecting in the financial plan 23 that's called "BPRTC 2000 MFP Rate V5052300". 24 MR. COMMISSIONER: Is that what we have been 25 referring to loosely as version 5, --

1 THE WITNESS: Yes. 2 MR. COMMISSIONER: -- is that right? 3 THE WITNESS: That's right. So that -- those 4 -- those are the numbers that would actually appear in the 5 business plan that Council considered on May 29th of 2000 6 which is at Tab 94 of my material. 7 MR. COMMISSIONER: It's at Tab 94? 8 THE WITNESS: Yes. 9 MR. COMMISSIONER: Tab 94 is in your -- 10 MR. JAMES CASKEY: It's in the addendum. 11 MR. COMMISSIONER: -- the addendum, Volume 1; 12 I think, is that correct? 13 THE WITNESS: Yes. 14 15 (BRIEF PAUSE) 16 17 THE WITNESS: I'm just looking for the 18 specific page where the numbers would be cross-referenced. 19 It's -- it's about midway through that 20 section. It's four (4) pages before the cashflow 21 spreadsheet. 22 MR. WILLIAM McDOWELL: Which tab? 23 THE WITNESS: It's still the same tab, 94. 24 MR. COMMISSIONER: That's before the first 25 spreadsheet?

1 THE WITNESS: The cashflow spreadsheet, yes. 2 I think there was some -- it doesn't have a title, but it's 3 got a five (5) year summary of the revenues, expenses, 4 reserve contributions and the operating lease and so on. 5 That's the one, right there. 6 MR. COMMISSIONER: I wonder, Ms. Hocking, if 7 Ms. Hocking could help us out and double-check with the 8 witness as to what page we're looking at and then she could 9 pass that information on to the rest of us. 10 11 (BRIEF PAUSE) 12 13 THE WITNESS: Yes, that's the one (1). 14 15 (BRIEF PAUSE) 16 17 CONTINUED BY MR. JAMES CASKEY: 18 Q: That's the -- that's the page, Mr. 19 Friedel, that's headed, "Revenues", and it's got the year 20 2000/2005, across the top? 21 A: That's right. 22 Q: All right. 23 MR. COMMISSIONER: All right, now, how do you 24 suggest that I identify this page so that, a couple of years 25 from now, when I'm writing the report, I can find it?

1 MR. JAMES CASKEY: Mr. McDowell's going to 2 tab it. 3 MR. COMMISSIONER: Okay. 4 MR. WILLIAM McDOWELL: For the record, with 5 an orange sticky. 6 MR. COMMISSIONER: All right, thank you. 7 It'll help. 8 MR. JAMES CASKEY: The only other thing I can 9 suggest is that we actually, physically write on that page, 10 "see Exhibit 20." 11 MR. COMMISSIONER: Okay, just so -- okay, in 12 Exhibit 20, what we're going to designate as Exhibit 20, 13 these are the numbers that you were identifying as the City 14 of Waterloo Plan, in that second last column? 15 THE WITNESS: That's right. 16 MR. COMMISSIONER: The City of Waterloo Plan. 17 Okay, that's helpful. This will be marked Exhibit 20. 18 19 --- EXHIBIT NUMBER 20: Spreadsheet titled: 20 Reconciliation of MFP Business 21 Plan, Including Annual Percent 22 Increases. 23 24 THE WITNESS: So, the numbers that will cross 25 reference begin in the year 2001, in the Financial Plan. The

1 line is called, "Net Operating Contribution". 2 Now, the signs have been reversed but the 3 absolute value is still the same. So, if you look at the net 4 operating contribution in the Financial Plan, under 2001, the 5 number is $469,000. And that's a net operating loss, at 6 that point. 7 And it cross references to the top number in 8 the second column from the right, on Exhibit 20, which is in 9 brackets, and it's $468,885. 10 11 CONTINUED BY MR. JAMES CASKEY: 12 Q: Right. So, in the one (1) it's just 13 rounded up? 14 A: Yes, it's -- it's rounded to the nearest 15 thousand. 16 Q: Fine, okay. 17 A: Now, if you go down the next five (5) 18 years, in Exhibit 20, and you go across that same row, in -- 19 in this other document, the Business Plan page, you'll see 20 that the numbers are identical, $233,000, 1,285,000, 21 1,631,000 and 1,884,000. And those are all net operating 22 contributions from the revenues of the park. 23 So, the reason I used this Business Plan is 24 because that's the one (1) that was in the plan that Council 25 considered on May 29th. Now, the rest of the years, from

1 2006 onward, are inflated at 2 percent, which we've discussed 2 earlier. 3 And if you like, you can cross reference that 4 to the actual cash flow spreadsheet, but that's where those 5 numbers come from. They total approximately $69 million and, 6 in effect, that's the user rates' support for the park, 7 because it's coming from user fees. Okay? 8 Now, the other component of the support that 9 the City is -- is providing for the park, is called "City of 10 Waterloo Subsidy." It's in the sixth column from the right, 11 and it shows $1.2 million per year in annual subsidies, at 12 37,200,000. 13 That's taken from the spreadsheet that we got 14 from Clarica and MFP and, just to be precise about it, the 15 support in the early years is not $1.2 million because that 16 was being ramped up over four (4) years. So, these numbers 17 aren't quite exactly what Council approved, but I think 18 they're close enough for our discussion here. They total 19 approximately $37 million as presented here. 20 So, taken together, we're looking at about 21 100, $105 million but there are a number of corrections that 22 would have to be made to be exact here. So, that's the 23 balance between user fee and tax base support on this page. 24 Now, if we go over to the left-hand side, 25 maybe I can just go across the columns, the numbers that were

1 provided on the sheet we got from Clarica and MFP were the -- 2 the actual net revenues under each of the columns entitled 3 "golf net income", "Ice net income" and so forth. 4 The columns that I included were the ones that 5 are headed "percent increase". It's "percent inc.". And the 6 reason I was doing that analysis is to see where the net 7 revenues had been increased compared to our business plan so 8 significantly that they could come up with a net revenue 9 figure of $263 million. 10 And it becomes clear when you look at "golf 11 net income" that the assumptions that MFP was using are quite 12 different from the assumptions that the City of Waterloo was 13 using. You can see that whereas I was using 2 percent annual 14 inflation, for the most part, their inflation rate was 15 somewhere in the 7 percent range. 16 However, that was after a significant increase 17 in the year 2006 of 44 percent. So, the base jumped 18 immediately and then they included -- then they -- then a 19 higher percentage rate was used annually, so, you can see 20 that the compounding effect of that would be quite 21 significant. 22 The same thing is true for "Ice net income" 23 where the earlier rates are lower, but the later rates are 24 higher. And then for the remainder of the items, the gym, 25 the soccer fields, the banquet hall, the diamonds and the

1 trails, they've used 2 percent in the later years which is 2 similar to what the assumption that I had made. 3 Now, when you total all those together, you 4 get to the column entitled "net income for all facilities." 5 It has a total of 263,600,000 on the bottom. So here, when 6 you look at the percentage increase, it's blended from all 7 these sources and, again, you can see the significant jump in 8 the year 2006 of 30 percent which either has to come from 9 increased utilization or increased user fees. 10 And then the rates -- the blended rates, 11 again, are fairly high compared to 2 percent. They range 12 from 9 down to 5 in the later years. 13 Then the column entitled "total net with 14 subsidy" is the sum of net income for all facilities and City 15 of Waterloo subsidy, that's where the 300 million comes from 16 that's been mentioned. 17 The next column is the actual sub lease 18 payments as per Schedule B. And then there's a cumulative 19 surplus of -- which is the sum of the total net with subsidy, 20 less the sub lease rent but it's cumulative each year. So, 21 ultimately, it equals $73 million and that's simply a 22 subtraction of 300 million less 227 million. 23 Now, the final calculation that I did was to 24 take the City of Waterloo plan and subtract it from net 25 income from all facilities because those are comparing apples

1 to apples. We're looking at the net revenue from the park. 2 And now I've got an annual difference in the net revenues 3 from the park between the business plan or the financial plan 4 and the net income from all facilities. 5 And you can see that ranges from 300,000 in 6 the early years, but then it ramps up fairly steeply and it 7 ends up at a difference of $17 million annually in the 8 difference in projected net revenues. And the total 9 cumulative value over the thirty (30) years is $194 million. 10 So again, the reason I undertook this was just 11 to get an idea of where the different assumptions were made 12 in terms of the actual net revenues that were being projected 13 from MFP or Clarica, compared to our own plan. And I guess 14 you could say that, primarily, they're in the golf net 15 income, and the ice net income, those are the significant -- 16 where the significant adjustments are. 17 MR. COMMISSIONER: Could we just go back for 18 a moment and tell me, again, the derivation of the 194 -- 19 THE WITNESS: Sure. 20 MR. COMMISSIONER: -- million? 21 THE WITNESS: Yes. That column is equal to 22 the difference between the column entitled, "Net Income for 23 All Facilities", which is what MFP was projecting as net 24 revenues. It sums the 263,600,000 and change. 25 So I've taken that column and I've done just a

1 straight subtraction of the COW Plan, the City of Waterloo 2 Plan, it totals $69 million. 3 And the difference we arrive at is the annual 4 variance between the City of Waterloo Plan and the MFP plan. 5 MR. COMMISSIONER: That's the -- the total 6 variance? 7 THE WITNESS: It's the annual variance, yes. 8 MR. COMMISSIONER: Each year? 9 THE WITNESS: Each year, yes. It starts at 10 348,000 in the first year, and then it -- it grows every year 11 until the difference in the thirty-first (31st) year, alone, 12 is $17 million. 13 MR. COMMISSIONER: Oh, I see. There it is, 14 yes. 15 16 (BRIEF PAUSE) 17 18 MR. COMMISSIONER: Thank you. 19 20 CONTINUED BY MR. JAMES CASKEY: 21 Q: Mr. Friedel, was there ever any 22 indication given by you, in any of the material you presented 23 to MFP, that would justify those increases in utilization 24 fees? 25 A: Well, I think you're making an assumption

1 that it's all utilization fees. 2 Q: All right. In the increase in -- in 3 revenues, then? 4 A: No, I think the responses I gave back 5 were consistent and they were, that after maturity, at year 6 five (5), the amount of increase from year to year should be 7 at 2 percent which is, basically, inflation. 8 Q: All right. Did you attach any 9 significance to the fact that it was in the year 2006 that 10 the large increase took place? 11 A: Well, certainly, when I did this analysis 12 and you look at the golf increase of 44 percent in the net 13 revenues in the year 2006, it would seem that, that was there 14 because I had detailed projections for the first five (5) 15 years, and this is where the assumption of the inflation rate 16 would be hitting. 17 But I should also add that the actual numbers 18 included in the golf net income, prior to that, also do not 19 reconcile to the final financial plan that I sent to MFP, 20 which would be Version 2. So they've -- they've increased 21 the floor, even before that point. 22 Q: The net result of all of that was, at the 23 end of the thirty-one (31) years, it's $194 million more by 24 way of projected revenues? 25 A: That's right. And primarily, it would

1 be -- be coming from the golf. And last night I did some -- 2 just some quick calculations on this, and if you took our 3 rate of sixty dollars ($60) per round and inflated it by 2 4 percent over the remaining twenty-six (26) years of the park, 5 you'd get to about a hundred dollars ($100) per round. 6 If you assume that the first jump is 7 utilization, going up to 35,000 rounds, and then the rest of 8 it is user rate increase based on the MFP plan, you get to 9 a -- a rate that's in the four hundred dollars ($400), per 10 round area, by the year 2031, just to give you an idea of the 11 difference, after thirty (30) years, of what they were 12 projecting compared to what we were projecting. 13 Q: If I wanted to play Grey Silo, I'd have 14 to pay, in the year 2031, four hundred dollars ($400) for a 15 round of golf? 16 A: Well, under the assumptions that I made, 17 that we would be maintaining 35,000 rounds, which you would 18 have to in order to -- to charge that kind of a premium, yes, 19 it would be three hundred and ninety-seven dollars ($397). 20 Q: Thank you. If we can go to Tab 88 of 21 Exhibit 17, which is the last tab, Volume 3 of 3 and this is 22 a -- they call this a classification of a lease and lessee to 23 determine whether or not it's a capital lease or an operating 24 lease? 25 A: Yes. This looks like an excerpt from the

1 CICA handbook to me. 2 Q: All right. And then if -- I take it that 3 you were aware of this document? 4 A: Well, I mean, I've seen it before in my 5 studies but the first time in respect of this issue that I -- 6 I viewed it was in the meeting that took place on May 30th of 7 2001 in Mr. Ford's office. 8 Q: All right. And this then indicates that 9 if -- if the answers to some of these questions are yes, that 10 moves it over into the capital lease category whereas if it's 11 -- if it's no, then it turns out to be an operating lease? 12 A: That's right. 13 Q: Right. There's two (2) notations of it. 14 Number 1, 75 percent of -- is that "useful life"? 15 A: Yes. 16 Q: And then another one "90 percent of fair 17 value." Would you explain those notations? Do you know who 18 made them? 19 A: No. I do not. 20 Q: All right. Do you know what the 21 significance of them is? 22 A: Well, in the -- in the hexagon next to 23 "75 percent of useful life," it says "lease term covers major 24 portion of assets' economic life," and, according to GAAP, 25 that would be 75 percent. That's the kind of the rule that's

1 used, generally speaking. 2 And then "discounted net value of minimum 3 lease payments covers substantially all of the assets' fair 4 value" and "90 percent of fair value", I guess, is how you 5 would interpret substantially in terms of GAAP, which is the 6 Generally Accepted Auditing Standards -- or Procedures. 7 Q: And then the box on the left 8 "determination of the discount rate"? 9 A: Yeah. that's a decision tree to determine 10 the discount rate based on what's known and what's not known 11 in the lease. 12 Q: All right. 13 A: This was the document that Mr. Robson and 14 Mr. Ford were discussing when I entered the room during that 15 meeting. 16 Q: And that -- and at that time they were 17 discussing whether or not it was an operating lease or a 18 capital lease? 19 A: That's right. 20 Q: And I think that the determination had 21 been made that it was to be an operating lease? 22 A: Well, MFP represented to us that they had 23 received an opinion that it was an operating lease and, as I 24 mentioned yesterday, Mr. Ford indicated to me that he had 25 made contact with our auditors about that very same question

1 and had received an opinion. 2 But, when I followed up on that issue, they 3 indicated to me that they were still awaiting some of this 4 information that they needed to go through the decision tree 5 before they could make a ruling on that. 6 Q: Was there ever any -- 7 MR. COMMISSIONER: Excuse me. At that point 8 in time, they had been asked by Mr. Ford to provide the 9 opinion? 10 THE WITNESS: Mr. Ford indicated that he had 11 been in contact with the auditors but the auditors would have 12 been in contact, probably, with the team leader as well in 13 conjunction with the audit that was taking place at that time 14 for the previous year. 15 So, yes, they had received a request to -- to 16 provide an opinion on whether it was an operating lease or a 17 capital lease. But, when I enquired of them in the afternoon 18 of May 30, they indicated to me that they had not yet 19 rendered an opinion because they were still awaiting 20 additional information from our finance department. 21 22 CONTINUED BY MR. JAMES CASKEY: 23 Q: Was there ever an indication given to you 24 that MFP was treating it as anything other than an operating 25 lease?

1 A: No. 2 Q: And I take it your calculations were 3 based on it being an operating lease? 4 A: Well, my calculations would only have 5 been affected by that decision insofar as they obtained a 6 favourable ruling to provide a lower rate. 7 I was not looking at how the ultimate 8 agreement would be treated in the financial statements, 9 because I was looking at the business plan side of things and 10 how could we afford it? And to me that meant, what was the 11 rate going to be, which was only attainable through this 12 operating lease mechanism. 13 Q: Okay. If we could then turn, sir, to 14 page -- to tab 99 of your addendum, which is Exhibit 18, 15 Volume 2 of 2? 16 17 (BRIEF PAUSE) 18 19 Q: And, I take it that you kept a daily 20 record of events? 21 A: Well, I have a day planner and I keep 22 notes in it, yes. 23 Q: Okay. 24 A: But I don't always keep notes of 25 everything.

1 Q: All right. This -- these notes, as I 2 understand it, relate to your -- your Day Timer. And -- and 3 the notes in here would all have been made by you? 4 A: Yes. 5 Q: All right. If we could go to what's 6 headed at the top, "Page 4," which is three (3) pages in, 7 there's a notation on Thursday the 17th of June of 1999, and 8 it says, "Theresa," "E&Y" and a phone number? 9 A: Yes. 10 Q: Can you tell us the significance of that 11 in relation to that phone call or that message? 12 A: I believe that, at that time, I was 13 dealing with Ernst & Young on another matter, not related to 14 this financing issue. We were undertaking a review of our 15 Winshare Program, at that time, and because I had done a lot 16 of the calculations for that, they were looking for some 17 background material, as they were doing their investigation. 18 We had engaged them to provide some opinion on it. 19 Q: All right. So that, then, doesn't deal 20 with this particular financing arrangement? 21 A: No. 22 Q: All right. 23 MR. COMMISSIONER: Well, that's the date in 24 this -- the date for this notation is 1999, is that right? 25 THE WITNESS: Yes. But it wasn't related to

1 this issue. I was dealing with them on another issue. 2 3 4 CONTINUED BY MR. JAMES CASKEY: 5 Q: All right. If we go to the next page, 6 which is the -- another item down, under "John". 7 A: Are you still on Thursday, June 17th? 8 Q: Yes. 9 A: Okay. Yes, this would have been notes 10 that I made from a telephone discussion with Mr. Ford, who 11 was indicating to me that a rate we should be using for the 12 Seagrams, which is the First Gulf Development in the uptown, 13 was 5.5 percent for thirty (30) years, instead of the 14 traditional debentures at ten (10) or twenty (20) years, at 7 15 percent. 16 Q: Do you recall the reason why he was 17 suggesting that figure, at that time? 18 A: Well, it was a result of his 19 conversations with MFP, and Mike Pitre, specifically. 20 Q: Okay. 21 MR. COMMISSIONER: That's on that same date, 22 June 17, 1999? 23 THE WITNESS: Yes. 24 MR. COMMISSIONER: What's the significance of 25 the notation about Seagrams?

1 THE WITNESS: I was working with Mr. Stockie 2 and Mr. Eichinger on an analysis of the First Gulf Proposal. 3 And initially, I had been using debentures for the 4 construction of the parking garages, at twenty (20) years and 5 7 percent. But as a result of this conversation with Mr. 6 Ford, I began using 5.5 percent for thirty (30) years, which 7 would have been the terms that he was discussing with Mr. 8 Pitre, as to the financing that we could obtain from MFP. 9 MR. COMMISSIONER: Thank you. 10 11 CONTINUED BY MR. JAMES CASKEY: 12 Q: Then if we go to the next page, it's 13 Friday the 25th of June of 1999. And if I look at the 14 second item down, "First Gulf," I take it, that is the same 15 Seagram project? 16 A: Yes, it is. And we would have been 17 making a presentation to Council, probably, on that Monday 18 and I was preparing some financial slides for that 19 presentation. 20 Q: All right. And then the next one (1) is, 21 Les Schmidt of Seagrams. Does that have any significance to 22 the item just before it? 23 A: I'm not sure, I can't recall that 24 notation, at all. 25 Q: All right. If we go, then, to the next

1 page, which is Tuesday the 17th of August of 1999, and on the 2 left-hand side we have a notation, it looks like as if it's 3 at ten o'clock, "Erb Room;" what is that? 4 A: Yes. Those -- that would have been my 5 scheduled meeting that we had with First Gulf, MFP and City 6 representatives regarding the funding for the parking 7 structures in the Uptown Redevelopment. 8 Q: And then on the other side of the page 9 "MFP/First Gulf"? 10 A: Yeah. I'm -- I'm not sure why I noted 11 that, but I probably wrote that down during the meeting and 12 didn't take any notes. 13 Q: All right. Do you recall who was there 14 from MFP at that meeting in August of 1999? 15 A: Beau -- Mr. Beau Peleck would have been 16 there, Mr. Mike Pitre and I believe Mr. Andrews was there -- 17 or Mr. Ken Douglas actually. I think Mr. Douglas was there. 18 Q: Was there any discussion about financing 19 and the cost of financing? 20 A: Well, we certainly talked about 21 financing, that's why we invited MFP to the meeting and they 22 were indicating that they could provide the rates that we had 23 been -- that they had been presenting to us for this 24 undertaking. 25 I think probably the two (2) primary things

1 that I remember from the meeting are the ownership issue of 2 who would own the actual parking garage at the end of the 3 term; whether it was the City, First Gulf or MFP and the 4 other significant item for me is this is where the issue of 5 tendering came up. 6 Q: Right. And do you recall the 7 conversation in relation to tendering? 8 A: Well, the -- the discussion was taking 9 place between Mr. Stockie and Mr. Pitre and Mr. Pitre 10 indicated that they wouldn't be able to deliver the rates if 11 we had to tender and so I think we've -- 12 Q: Right. We've gone through that before in 13 your testimony? 14 A: That's right. 15 Q: And that's the meeting at which that 16 occurred? 17 A: Yes. 18 Q: Okay. If we could go to the next page 19 please which is the 30th of August and I take a look down, 20 the fifth item down on the page on the right-hand side does 21 that say" 22 "E&Y tax implications."? 23 A: Yes. 24 Q: And does that mean that you called E&Y 25 about that or that that was something that you were

1 considering? 2 A: I had a couple of conversations with 3 Ernst & Young regarding the revenue flows on the parking 4 garages. I can't remember the exact details of the 5 conversation, but we were talking about how much a parking 6 space would be and what the gross revenues would be and so 7 on. 8 Q: And the bottom of the page under 9 "Council" the third item: 10 "MFP documentation"? 11 A: Yes. I'm not sure why I made that 12 notation. 13 Q: All right. "Actual versus tender 14 analysis"; what does that refer to? 15 A: That was a different issue that was being 16 discussed at Council. Council was asking for a report based 17 on what the -- the tenders they had let so far this year and 18 then the actual expenditures with respect to those tenders. 19 So it was just an overall report. It wasn't related to this 20 issue. 21 Q: All right. And then the next item is 22 "send..." is that "MFP"? 23 A: Yes. 24 Q: "Stuff to..."? 25 A: "Dana". Dana Tunks was another employee

1 of Ernst & Young that I was dealing with. 2 Q: And what "MFP stuff" were you sending to 3 Dana Tunks? 4 A: I can't recall precisely whether it was 5 as a result of the engagement that I had them undertake or 6 whether it was as a result of the parking garage revenue 7 flows. But it would have been either one of those. The same 8 group of people were working on those things at Ernst & Young 9 for me. 10 Q: All right. Go to the next page which is 11 headed up 008 and that's the 31st of August of 1999 and 12 there's a name in the middle refers to "Theresa Fischer"? 13 A: Yes. 14 Q: Can you tell us about that? 15 A: This -- this was as a result of the 16 engagement I had Ernst & Young undertake with respect to the 17 background check on MFP and she was going to respond with an 18 engagement letter. 19 Q: All right. And you've reviewed that with 20 us? 21 A: Yes. 22 Q: If you go to 010 which is the 9th of 23 September, the second name down is "Jennifer" and "MFP"? 24 A: Yes. Jennifer Justason was -- was one of 25 the people I was working with at Ernst & Young regarding the

1 MFP issue. Jennifer was also involved in the hydro 2 restructuring, so, that's the reason for the second notation. 3 Zamal Russudeen was a -- a fellow employee of Jennifer's, who 4 was a taxation specialist. 5 And this would have been, probably, a 6 telephone message, and she was suggesting that I meet Zamal, 7 or Mr. Russudeen, to discuss the tax implications of the -- 8 of the MFP deal. 9 Q: All right. And -- and, that's something 10 that didn't happen? 11 A: Well, I did meet Mr. Russudeen, but we 12 didn't proceed with the taxation investigation, that's right. 13 Q: All right. The next page, again, 011. 14 It's the 14th of September. "Jennifer, MFP, questions"? 15 A: Yes, I believe at this time Jennifer and 16 I were trading telephone messages, so I was just making a 17 notation of that. 18 Q: Then over to the 20th of September, the 19 next page, and you have, "Jennifer, a meeting re MFP"? 20 A: Yes, we were trying to get together so 21 that the three (3) of us could -- could meet. Again, that's 22 just probably a telephone message. 23 Q: The 21st of September, on the left hand 24 side, Jennifer Justason, MFP. And on the right-hand side, 25 "E&Y, revenue on parking spots, MFP, other clients"?

1 A: Yes, the first notation on the revenue 2 for the parking spots would relate to some of the 3 investigation they were doing, related to the parking 4 structures and the revenue flows. 5 And the second issue related to the -- the 6 engagement that I had undertake -- had them undertake, 7 regarding the background check on MFP. 8 Q: All right. We go to the next page, 9 Tuesday -- I'm not sure that I can pick the date out, but 10 it's there. 11 A: Yes, I believe that would have been the 12 28th of -- 13 Q: 28th of September? 14 A: Yes. 15 Q: Yes. It seems to be the following 16 Tuesday? 17 A: Yes. 18 Q: All right. Would you tell us -- Dana, 19 again, is? 20 A: Yes. Dana related some information to me 21 regarding some other contacts they had in Windsor, I believe 22 they are the auditors in Windsor, as well. And, of course, 23 Windsor has some agreements with MFP, so she was suggesting 24 that, if I was interested, I could contact some of the 25 employees there, specifically Jerry Pinsero and Terry Haddad,

1 I'm not sure if I pronounced those names correctly, but those 2 are the names she was suggesting. 3 Q: All right. 4 A: And then we must have talked about the 5 rate that MFP was suggesting, at that time. And she also 6 noted that Brian Gregg was a contact from Essex. 7 Q: All right. Was there a reason why, when 8 you met with the tax expert at E&Y, that you didn't proceed 9 to retain them for the purpose of tax review? 10 A: I don't think we've come to that meeting, 11 yet, in terms of the time frame. But -- 12 Q: Okay. 13 A: -- I can answer your specific question, 14 if you like. 15 Okay. I think when we get to that time, my 16 role in the organization had changed. I undertook the 17 investigation, initially, as I said, in my role as Team 18 Leader of Financial Services, but by that time, my role 19 had -- had changed. So, that was one (1) factor. 20 Another issue was that I had asked them to do 21 something very specific, which is, look at the background of 22 the company, because I had never heard of MFP before. They 23 had done that and satisfied my inquiry in that respect. It 24 seemed like a reputable company to do business with. So, 25 from that respect, I wasn't as concerned any more about

1 their -- their background check. 2 So, I think those are probably the main two 3 (2) issues. 4 Q: All right. Did you, yourself, make calls 5 to any of these people in Windsor or Essex? 6 A: No, I did not speak with any of these 7 people. 8 Q: Did you ask anybody in the organization 9 to make calls to follow up on these names? 10 A: No, I did not. 11 Q: All right. We go to the next page. 12 A: I should add, though, that I have 13 probably heard some of these names before, from my 14 discussions with Mr. Ford. It wasn't the first time I was 15 hearing these names. 16 Q: All right. The next page is, Tuesday, it 17 looks like the 3rd of October? 18 A: The 5th. 19 Q: The 5th of October, I'm sorry? 20 A: Yes. 21 Q: On the left-hand side, "site visit"? 22 A: Yes, this would have been a day that a 23 lot of the people involved in -- in the early stages of the 24 project, primarily senior management team Council, the 25 community group and a number of staff people, visited a golf

1 course in Vaughan, I believe, but I'm not positive if that 2 was the location. It was a golf course that Steve Young had 3 designed, and he was the golf course architect that we were 4 going to engage for designing our own golf course, so, we 5 wanted to see what some of his work was. 6 We also visited an arena complex, I believe in 7 Mississauga but, again, I'm not sure. Just to get an idea of 8 what some different options were in terms of building a -- a 9 large arena facility; quality, configuration and that sort of 10 thing. 11 Q: And if we go to the next page, 7th of 12 October the notation there is "Jennifer E&Y." Again, part 13 of the investigation? 14 A: Yes. I think at this point we were again 15 trading telephone message trying to set up a meeting. 16 Q: Over to the next page which is the 12th 17 of October, once again, "Jennifer E&Y"? 18 A: Yes. And I think at this point we had 19 finally connected enough to set a time which was 9:00 a.m. on 20 the following Thursday to actually get together and meet. 21 Q: Thank you. 22 A: On this page there's also a reference to 23 Kent McFarlane. If you recall, he's the chap from KPMG that 24 the community group engaged to do a preliminary operational 25 plan for the park. So, we were just having discussions about

1 what was included in his model and so on. 2 Q: Right and the indication there is there's 3 interest rates, financing rates; were those matters that you 4 were going to discuss or matters that you did discuss? 5 A: I believe we -- we did discuss those and 6 that was related to looking at the ultimate model versus the 7 Phase 1 model. 8 Q: All right. Over to the next page, there 9 are two (2) references there, one on the left and one on the 10 right? 11 A: Yes. This was the actual meeting of -- 12 with Ernst & Young with Jennifer Justason and Zamal Russudeen 13 and we discussed their findings related to MFP and Ernst & 14 Young indicated to me that the partner at Ernst & Young in 15 Windsor indicated that everything seemed to be in order in 16 that financial transaction as well, so, there was a certain 17 level of comfort that I took from that. 18 And it was at this meeting that I made the 19 decision not to proceed with an investigation into the 20 taxation aspects of the deal. 21 Q: All right. Now, if we go to the next 22 page, which seems to be the 21st of -- Thursday, the 21st of 23 October, 1999 and I go down to the bottom. This is to Kent 24 McFarlane again? 25 A: Yes.

1 Q: And, again, he's with KPMG? 2 A: Yes. 3 Q: So all of those matters were discussed 4 with him that dealt with the total acres, the golf acres, 5 parking, those sort of issues? 6 A: Yes. And those were just inputs into his 7 financial analysis. 8 Q: No -- no connection with MFP at that 9 point? 10 A: No. 11 Q: Thank you. The next page is the 27th of 12 October and at the top you have "budget issues" and were 13 these matters that had been considered or were these a 14 reminder to put these in the budget? 15 A: Well, they were issues that we were still 16 dealing with at that time for the 2000 budget. When I moved 17 up to the -- my position as executive assistant to the Chief 18 Administrative Officer, one project I took along was the 19 completion of the budget process which I had begun probably 20 in late spring of 1999. 21 Q: And in that process, what factor were you 22 using for the finance cost? 23 A: For the park? 24 Q: Yes. 25 A: I believe we had multiple funding

1 sources; one was debentures and one was an operating lease. 2 Q: All right. Under the debenture, what 3 rate were you contemplating? 4 A: Oh, I think we were probably using 5 7 percent consistently for all the projects we were funding 6 through debentures. 7 Q: All right. And under an operating lease? 8 A: I'm not sure if it was detailed or not. 9 Q: Okay. Go to the next page which is the - 10 - I believe the 3rd of November. On the left-hand side at 11 the top "MRP"; is there anything there that is of 12 significance? 13 A: SMT stands for Senior Management Teams, 14 so we would have been making a present -- an update 15 presentation of some sort, to Senior Management Team, 16 regarding the park. I can't recall, specifically, what that 17 was. 18 Q: If you go two (2) pages, you -- you -- 19 the next one (1), I don't see anything on it that -- I see 20 Mr. MacDonald's name and Gord Lemon. I don't see anything -- 21 A: Mr. Frittenburg was someone with the JF 22 Group, who was involved in that study. We were going to 23 meet, setting -- trying to set up a time to meet with him. 24 Q: All right. 25 A: And that meeting took place on the -- on

40
  1  the next page, I can't make out the date, specifically, 
  2  but -- the 16th?  Yes, okay.  
  3                 You can see, there, John Frittenburg, Bruce
  4  Anderson, Howie, John, Bob McFarland.  Essentially, we were
  5  talking about operational arrangements for running a
  6  recreation facility, ranging from purely City run to a
  7  public/private partnership, to a private operation.
  8                 Q:   All right.
  9                 A:   And then, underneath that, there's a
 10  notation, it says, "Paul, MFP versus debt for parkade."  
 11                 So, we were still discussing how we were going
 12  to fund the parking structures, with respect to the First
 13  Gulf Development.  And that "Paul" refers to Paul Eichinger,
 14  who was pretty heavily involved in that development.
 15                 Q:   All right.  I didn't see anything on the
 16  next page that was relevant to this matter.  Then when we go
 17  over to Thursday the 2nd of December?
 18                 A:   Yes.  Again, I was speaking with Mr.
 19  McFarlane, this is leading up to the December 6th
 20  presentation to the joint meeting of Council and the
 21  community group.  And, again, Kent was looking for some
 22  assumptions in terms of how we were going to move forward
 23  with financing the ultimate model.  
 24                 Q:   And what was the discussion utilizing by
 25  way of the debt financing, or debt servicing?

1 A: I believe I suggested to him to use 5.5 2 percent, which was in keeping with the other estimates we 3 had, at that time. 4 Q: Thank you. The next page is the 14th of 5 December? 6 A: I'm not sure there's anything on this 7 page to -- 8 Q: All right. Then we go to the next, I 9 notice that on the 21st of December of 1999, on the left-hand 10 side, is Mr. White's name, in the middle column on the left, 11 under "Appointment Schedule," is First Gulf, and then a 12 notation on First Gulf on the right. 13 So, does that trigger anything that was 14 relevant to this matter? 15 A: The reference to Mr. White, I believe was 16 in conjunction with the land purchase that Mr. Stockie and I 17 were looking into, at that time, which ended up not coming to 18 fruition. 19 And it rela -- related to First Gulf, David 20 Ross and Mark Kindrachuk, are two (2) executives with the 21 company. And it looks like they were -- I can't recall, 22 specifically, but it looks like they were looking for a term 23 letter from MFP, in terms of the financing of the -- of the 24 parking structures. 25 Q: And the term letter would deal with the

1 length of time over which MFP was prepared to put up the 2 money? 3 A: Yes, and include the rate and so on. 4 Q: And the rate. The next page is the 24th 5 of December. I notice we're suggesting a Merry Christmas at 6 some point. 7 What's the John and MFP on the left? And MFP 8 on the right? 9 A: Yes. 10 Q: Can you go through that, please? 11 A: I believe that John scheduled a meet -- a 12 time for me to meet Mr. Robson, this would have been my first 13 meeting with Mr. Robson. We didn't really discuss any 14 business, it was more of just -- of a casual introduction. 15 Q: All right. Then we get over to the 6th 16 of January. Another First Gulf reference, which would 17 indicate that First Gulf is still continuing as a matter of 18 discussion between the City of Waterloo and MFP? 19 A: That's right. 20 Q: If we could then go to the 11th of 21 January of 2000. 22 A: The other thing on the 6th, I know we 23 don't want to -- 24 Q: I'm sorry? 25 A: -- talk about the library too much,

1 but -- 2 Q: Or at all. 3 A: The -- the library was considering a new 4 development as part of the First Gulf deal and I only mention 5 that because later on there's discussions of that part of the 6 development being funded from MFP funds, and this is the 7 first notation that I believe I made in terms of that effort, 8 which also hasn't come to any fruition, but -- 9 Q: All right. 10 A: -- I'll make that point. 11 Q: The 11th of January, if we can, seems to 12 be a more significant matter dealing with MFP? 13 A: These are notes that I -- I took during a 14 meeting with Mr. Ford, Mr. Robson, Mr. Andrews and Mr. 15 Douglas, that took place at City Hall. 16 Q: The first item is a term letter. I take 17 it that you were seeking a letter from MFP setting out the 18 rate it was proposing to charge and the length of time that 19 money would be borrowed? 20 A: Yes, there was discussion around that. 21 Q: All right -- 22 A: Yeah. 23 Q: -- do you recall whether or not that was 24 something that MFP was prepared to give? 25 A: I can't remember any specifics of that.

1 Q: All right. The next heading is Project 2 Management by MFP? 3 A: Yes, MFP was suggesting that they could 4 provide some project management expertise if -- if we were in 5 the market for that. 6 Q: And was that the first time that that 7 proposition was brought up, as far as you knew? 8 A: Yeah, I believe that this was the first 9 real meeting that I was at to discuss this type of business 10 with MFP, so it's certainly the first time I would have heard 11 it. 12 Q: All right, the next item? 13 A: That would say, "Project Management 14 Professionals," so that's just in following along with the 15 point from before. 16 The next one, "Approvals by April," we were 17 just trying to -- we were discussing some time frame for 18 decision making. 19 The Parking Garage, this is when the -- the -- 20 the first discussion took place with respect to whether MFP 21 and First Gulf and the City should all meet together. I 22 believe that meeting took place in February of this same 23 year, 2000. 24 And then there were a number of issues, the 25 time line and so on, that we were going to discuss.

1 The next one says: 2 "Can draw dollars as required, once the 3 time line is known." 4 So we were talking about what the actual 5 mechanism would be for -- for us to receive cash and as 6 opposed to a lump sum payment, we could draw the funds down 7 as we -- we needed. 8 The next point: 9 "Group fund, save 20 to 30 basis points." 10 We were -- there we were speaking about 11 whether we could put multiple deals together, for example, 12 First Gulf and the Park or the Library and the Park or 13 something like that. 14 And then there would be an advantage to the 15 City of -- of even more reduced rates compared to the -- the 16 rate that we ultimately received. 17 We touched on Conestoga College, there's a 18 plot of land in the north part of the Park that's not 19 developed right now, and that was intended to be a 20 development for a Conestoga College Campus, and we talked 21 about whether they would be requiring funding. 22 And probably for me the most significant point 23 here is: 24 "Can get prime money on non CCA amount." 25 So, that gets back to that non-revenue

1 generating component, as you've labelled it. And how MFP 2 would be willing to fund that component of the Park at prime 3 at that time. 4 Q: And then the three (3) year long bond? 5 A: Yeah, that probably should have said 6 thirty (30) year long bond. 7 Q: Thirty (30) year? 8 A: Yeah. 9 Q: Subject only to the zero (0) then, that 10 would be the discussion that you recall? 11 A: Yes, that would be the basis of the rate 12 calculation. 13 Q: Right. And then that -- that was all, I 14 take it, that you made notes of in relation to the meeting 15 with the MFP people? 16 A: That's right. 17 Q: The next notations of Building Committee 18 are a different group? 19 A: Yes, Mike Church was undertaking a 20 building addition at this time, so -- 21 Q: Right. 22 A: -- he was on that Committee. 23 Q: If we go to the next page, it's the -- 24 you had that meeting on the 11th of January, now it's the 25 12th of January?

1 A: Right, I would have been in a telephone 2 conversation with Neil Andrews at MFP, and I was asking him 3 whether there was a standard legal document or a standard 4 format that they wanted the information in, in order to run 5 the information through their model. That was the inquiry I 6 was making. 7 The response I got was, no, just send us what 8 you've got, and I think following this I -- I did send them a 9 -- a document. I'm not sure if it was following this meeting 10 or -- or a subsequent meeting. 11 Q: All right, now that's the notation at the 12 very bottom of that page. At the top you're talking about an 13 MRP Steering Committee and I take it that those issues don't 14 relate to the MFP discussion? 15 A: No, this would have been the staff 16 steering committee that met on Wednesday mornings. 17 Q: Thank you. If we go to the next it's the 18 19th of January of 2000? 19 A: On the 12th there's also a notation here 20 that I -- I was trading telephone messages with Ken Douglas 21 as well, so I was -- we were trying to just discuss with 22 these issues and I ended up speaking with Neil Andrews. 23 Q: All right. Sorry, get to the 19th, the 24 note that I have in the middle of the page is: 25 "Paul, MFP and Library."

1 A: Yeah, and here our thoughts were going 2 towards how we could fund the Library as part of the First 3 Gulf project, and there was -- the suggestion was that 4 perhaps we could use MFP funds as well. 5 Q: All right. Then on the 21st of January? 6 A: This is a meeting that we had with MFP 7 and I made a number of notes, although I didn't record who 8 was actually at the meeting. 9 One (1) of the issues was the funding for 10 WRECN and I'm not sure what that acronym actually stands for, 11 but ultimately MFP did provide funding for that project that 12 the City was involved in, it was more of a Regional type 13 project. 14 The next point: 15 "Send Business Plan 2000 e-mail." 16 So there was a request from MFP that I send 17 the information that I had on the financial plan, which I -- 18 I did. I'm not sure why it says "Wednesday": 19 "MFP slide, savings due to tax saving for 20 fourth quarter." 21 I believe it was at this meeting that Mr. 22 Robson gave us that overview presentation that has a couple 23 of slides in it regarding the objectives and the sort of a 24 schematic of the mechanism that they were contemplating 25 using.

1 The next line says: 2 "Accountant audit of agreement." 3 And I'm not sure exactly why I wrote that one 4 (1) down, whether it was a discussion point or whether I had 5 just written it down myself. 6 Then "ACC-Game." Mr. Robson asked if Mr. Ford 7 or I would be interested in accompanying him to a hockey game 8 that following Monday at the Air Canada Centre, and as I've 9 indicated I -- I attended that game. 10 And then there was some discussion about the 11 Library and First Gulf and using MFP financing for that 12 transaction. 13 And then the last notation I have here is 14 "Commodities," and that was as a result of Mr. Robson 15 explaining partially how they were setting the rates by 16 placing instruments in the market following the resolution 17 that they required. 18 Q: Right. Now this is -- this is about a 19 month before the meeting where the Council set the -- or 20 passed the resolution to use MFP which allowed them to set 21 the rates? 22 A: Yes. 23 Q: All right, was this the first time that 24 -- that that discussion took place that you can recall of, 25 the necessity for Council to make that commitment?

1 A: Yes, I believe this would have been the 2 meeting we discussed that, yes. 3 Q: Right. And do you recall exactly what 4 Mr. Robson said were the reasons why that was necessary, that 5 the Council make that resolution? 6 A: Well, they were intending on including 7 the transaction in their quarter end, and so they needed -- 8 in order to do that, obviously, there would have to be some - 9 - some element of binding the transactions. 10 Under accounting rules you can't -- you can't 11 include a projected transaction in your quarter end if it 12 hasn't taken place yet. So, they were looking for some -- a 13 def -- I'm trying to find the right word. They were looking 14 for a -- some kind of indication that was -- that was 15 binding, so that they could include it as a transaction in 16 that quarter end. 17 Q: In the form of a commitment of sorts? 18 A: Yes. 19 Q: All right. If we then go to the 24th, 20 Monday the 24th of January. 21 A: I'm here. 22 Q: And I see the first column -- first item 23 is the Air Canada Centre? 24 A: Yes, all these points relate to the 25 specifics of meeting Mr. Robson at the Air Canada Centre. I

1 don't feel very at home in Toronto so he had to give me 2 fairly specific instructions. 3 Q: And the next page is the 25th of January. 4 I don't have anything noted that that's -- for significance, 5 but you may? I guess the significance is that you're back at 6 work after the hockey game, but that's not my suggestion, by 7 the way? 8 A: I believe the -- the reason I included 9 this was the line entitled: 10 "terms of reference. Ten (10) people, 11 staffing liaison, looking at capital and 12 operating." 13 So we were discussing the terms of reference 14 for the -- the advisory committee going forward. So they 15 would have been considering a draft of that report. 16 Q: All right. Over on to the 28th of 17 January? 18 A: On this page the -- a number of issues. 19 The reference to Mr. White here comes with respect to the 20 unwinding of the Not-For-Profit Organisation as they were 21 moving into that advisory committee role because we had to 22 unwind that corporation. 23 Q: Right. 24 A: The reference to Mr. Douglas, probably 25 was a telephone message he left with me asking to send a copy

1 of the resolution after the February 21st Council meeting? 2 Q: Right. 3 A: And then underneath that are a number of 4 comments that Mr. Eichinger was providing to me on the draft 5 business plan that I had circulated to members of Council and 6 members of senior management. 7 Q: And we go to Monday the 31st? 8 A: I should -- can we go back to the 25th? 9 Q: Certainly. 10 A: I remember another point that I should 11 make when I looked at the 31st. 12 The second line there that says "audit". This 13 was the meeting where Mr. Stockie asked that some additional 14 examination take place of the financials that I had prepared, 15 just to make sure that I wasn't the only one looking at them. 16 And so now, if you go to the 31st, you can see 17 that one (1) of the steps that I took was to contact 18 Ms. Stephenson at KPMG/Gulf and ask her to review the Gulf 19 financials to make sure that they were still reasonable based 20 on some of the assumptions that we had amended slightly with 21 respect to the report that they had prepared. 22 Q: Right. And then the -- there's no other 23 items on there? 24 A: No. I don't believe there are. 25 Q: So we move into the 1st of February and

1 there's a meeting that's reflected at the bottom of the -- 2 the last item with: "John, Tom, Paul." 3 Who are they? 4 A: That would be John Ford, Tom Stockie and 5 Paul Eichinger and I was attempting to set up a meeting with 6 City staff named here, First Gulf and with MFP; that meeting 7 took place on February 3rd in their offices. 8 Q: Right. So if we go to the 2nd of 9 February, which is the next page, it's got "Neil, MFP"? 10 A: Yes. That would have been a telephone 11 call that took place between Neil Andrews and myself. Neil 12 was just looking for some background information on First 13 Gulf in advance of the meeting that was taking place on the 14 next day. 15 Q: And then the 3rd of February is the 16 meeting with MFP? 17 A: And First Gulf yes. 18 Q: And First Gulf? 19 A: There were actually three (3) separate 20 meetings on that day. The first one took place at MFP. The 21 second one at First Gulf and then the third meeting took 22 place at the First Gulf offices, but MFP joined us. 23 Q: Right. And was there any discussion at 24 that meeting that related to this project here at the 25 Millennium Centre or was it all in relation to First Gulf and

1 the parking facilities? 2 A: I would say that down to the point where 3 it says: 4 "LCs to secure difference" 5 had to do with the First Gulf project and LC is a letter of 6 credit. 7 And then underneath that, we started 8 discussing both projects, together. 9 Q: All right. What -- what's your note? 10 A: The next line says, 11 "we'll indemnify City so tax changes don't 12 flow through." 13 So, what they were suggesting, there, was that 14 if there was a change in legislation, after they had received 15 an opinion on whether the taxation structure would -- would 16 work, if there was a change in the legislation, then it would 17 only affect MFP, it wouldn't flow through to the City. 18 The next line says, "MRP roll out as a PPP," 19 which is a public/private partnership, with MFP. And then a 20 "focus on annual costs." 21 So the first line has to do with how we were 22 moving forward; we were discussing whether we should present 23 this as a -- as a partnership, more so than a financing 24 arrangement. And I think, in some of the documentations, 25 you'll see that word appear.

1 And then, "focus on annual costs." I'm not 2 precisely sure why I wrote that one down, but, as you see in 3 my business plan, I did look at an annual impact. 4 Again, there's a reference to group funding, 5 with a suggestion that, if we group fund, they'll be 6 additional benefits to the City, if we can -- if we can put 7 both of these deals together. And here, they also indicated 8 that they were looking at multiple structures to -- to get 9 the tax benefit: One (1) was a charitable trust and the 10 other one (1) was a head lease, sub lease arrangement, which 11 is the one (1) that we ultimately used. 12 Again, they were -- they were suggesting that 13 they could provide some project management expertise to us. 14 And then we also talked about our time frame, moving forward, 15 in terms of going to Council. And we were suggesting that it 16 would be beneficial for MFP to send a representative to 17 Council, and -- and just be there, ultimately, to -- to make 18 a presentation. 19 I should also just -- just add, to -- to close 20 a loop here, if you look at the top section, it says, "Martin 21 Farms." I noted earlier that Mr. Stockie and I were looking 22 at some -- purchasing some additional land on behalf of the 23 City, north of the park. And these -- the Martin Farms are 24 the lands that we were considering, so that's why I was in -- 25 in conversation with Mr. White, as well.

1 Q: All right. In that meeting, you don't 2 have the names of all the people that were at that meeting on 3 the 3rd of February. Do you recall who all was there? 4 A: Well, certainly from a staff perspective, 5 Mr. Ford, Mr. Stockie, Mr. Eichinger and myself were in 6 attendance. Mr. Robson would have been there from First 7 Gulf. I believe -- not First Gulf, Mr. Robson would have 8 been there from MFP. I can't recall, specifically, who else 9 would have been there from MFP, sorry. 10 Q: All right. 11 A: From First Gulf, Mark Kindrachuk and I 12 think the President of the company, I can't -- his name 13 escapes me, right now, would have been at the meeting. 14 Q: All right. And would they have been 15 there throughout -- while the conversation was taking place 16 in relation to the indemnification, if the tax flowthrough 17 was reversed? 18 A: When -- who are you referring to when you 19 say -- 20 Q: The First Gulf people? Everybody at the 21 meeting, the whole time? 22 A: I believe that -- it's difficult for me 23 to remember which of these comments were made at which 24 meeting, so I -- I can't definitively answer that question, 25 I'm sorry.

1 Q: Okay. On the left-hand bottom, there's 2 some -- some information there. There's some numbers that 3 come up to -- 4 A: Yes, forty-five (45) or 50 million. 5 Q: Forty-five (45) or 50 million? 6 A: Yes, the first one is MRP, in the amount 7 of 30 million; so, that would have been for the Phase One 8 model. 9 Parking structure, that would have been, also, 10 Phase One, $15 million for one (1) structure. Ultimately, we 11 were looking at building two, in the amount of approximately 12 28 million. 13 And then, library funding in the amount of 6 14 to $10 million. 15 And so those would have been the -- the 16 components of that forty-five (45) to $50 million in total 17 funding, that we were discussing at this meeting with MFP. 18 Q: Thank you. We go to the 9th of February. 19 There's a notation on the -- the left-hand side, in relation 20 to MFP at 12:00 noon. And then the notation on the right, 21 "MFP, how can the library deal be 22 financed." 23 And is that as a result of a meeting or is 24 that just a question that you were asking? 25 A: I think that was the topic of -- of

1 discussion during this -- most of this meeting. I think it 2 was -- I'm not sure if it was specifically set up to discuss 3 the Library, but that was the -- the main focus of the 4 meeting. 5 Q: All right, and -- and what -- what 6 options were discussed for that financing? 7 A: Well, at that -- the proposal we were 8 considering at that time was developing a new lib -- a new 9 main Library as part of the First Gulf development and 10 providing -- having some of the financing provided by MFP at 11 the reduced rate that we had been discussing with them, and 12 making that economically feasible for the City, and also 13 beneficial for First Gulf to have a tenant. 14 Q: All right. The next page is the 10th of 15 February, I don't have a notation as to the significance of 16 it, but you may? 17 A: So we're on February 10th? 18 Q: Yes. 19 A: Robin Stephenson was my contact at KPMG/ 20 Gulf, and we had quite a lengthy telephone conversation where 21 she was asking questions about my plan and I was responding 22 to those questions over the telephone. And it actually 23 carries on to the -- no, sorry, it doesn't carry on to the 24 next page, that's a different meeting. 25 So, she was asking questions about why I had

1 made some assumptions, and I was giving her our reasoning. 2 Q: All right. Now, the next page is also a 3 page from the -- from the 10th of February. Is that also 4 referable to your discussion with Robin? 5 A: Actually on the left-hand side of this 6 page we had a -- I believe it was -- yeah, we had a meeting 7 with the Waterloo Public Library Board, and they were again 8 considering the -- the arrangement with First Gulf and the 9 financing aspects, so we were -- that's on the left-hand side 10 of this page, that's the notes on that meeting. 11 Q: All right. And I see Robin Stephenson's 12 name is -- is on with a phone number toward the bottom of the 13 other side, the right-hand side? 14 A: Right. 15 Q: And at that point in time, at the top, 16 the Advisory Committee with Mr. Sparks, Gladwish and Dan 17 Scott, I take it at that point in time the recommendation was 18 going to be that we -- we have an Advisory Committee as 19 opposed to a Not-For-Profit Organization? 20 A: Yes, and we were trying to get some level 21 of indication from the members of the Not-For-Profit Board, 22 which people would be willing to continue as members of the 23 Advisory Committee. 24 Q: All right. 25 A: So there was a signif -- significant

1 amount of discussion surrounding that. 2 Further down there is a -- a point that says: 3 "Send business plan to Council." 4 So just so they would have an opportunity to 5 review the -- the business plan. 6 Q: Okay. Your next page, some handwritten 7 notes are yours? 8 A: Yes, actually this, I believe, is just a 9 continuation of the notes of the Library Board meeting. 10 Q: All right. 11 A: And so you can see we were talking about 12 leaseholds and how that would work. 13 Q: And I take it that brought in the whole 14 issue of ownership that you've discussed before? 15 A: I can't remember specifically discussing 16 ownership with respect to that arrangement, no. 17 Q: All right. Now we'll go to the 14th of 18 February. If I look under 4:30 in the afternoon, that's Ian 19 Cameron? 20 A: No, that says "in-camera." 21 Q: Oh, in-camera, sorry. 22 A: So -- 23 Q: That's good. Well hidden from me. 24 A: Sorry. We would have had an in-camera 25 meeting that day to discuss a lot of the matters that were

1 going to be presented in open Council the next week on the 2 21st. 3 And then over on the other page, I had a 4 telephone conversation with Dan Scott regarding -- again 5 regarding who was going to be in or out of the Advisory 6 Committee. 7 Q: All right. 8 MR. COMMISSIONER: What's the reference on 9 the left-hand page, about the KPMG audit and the financials 10 audit? 11 THE WITNESS: The KPMG audit would refer to 12 the work that I had Ms. Stephenson do from KPMG/Gulf, so I 13 think I just checked it off because it was done. 14 MR. COMMISSIONER: Oh, okay. 15 THE WITNESS: Something off the list. 16 MR. COMMISSIONER: All right. 17 THE WITNESS: And then finan -- 18 MR. COMMISSIONER: That was in connection 19 with the Gulf -- 20 THE WITNESS: Yes. 21 MR. COMMISSIONER: -- thing that you prepared 22 for the park project? 23 THE WITNESS: For the financial plan. Yes. 24 And then the financial audit, again, I would 25 have checked that off because I sat down with someone from

1 financial services, although I can't remember specifically 2 who, it most likely would have been Mr. Steffler because he 3 was the staff liaison with Recreation and Leisure Services, 4 to go through my financial plan just so that he could verify 5 that, sort of, the logic I was using and the assumptions I 6 was making were appropriate. 7 MR. COMMISSIONER: Thank you. 8 9 CONTINUED BY MR. JAMES CASKEY: 10 Q: If we go to the 17th of February, there's 11 a notation of "Financial review MRP"? 12 A: That would have been the actual meeting 13 that I had with Financial Services. 14 Q: And the 21st, there's a -- obviously a 15 post-it stamp on the left that I have some difficulty with 16 but? 17 A: Oh yes. That just pertains to some 18 stamps I had purchased. 19 Q: All right. 20 A: I collect stamps. 21 Q: On the 21st on the right-hand side under 22 "records sent," "Council meetings to MFP" 23 A: "Council minutes", yes. 24 Q: "Council minutes"? 25 A: Yeah. So they wanted to have minutes for

1 the meeting so I... 2 Q: And that refers back to the request then, 3 by Mr. Douglas, that they be sent once -- 4 A: Once the Council meeting was over? 5 Q: Was over. And then the bottom notation 6 is Mr. Dobbs for the Order of Council presentation. I take 7 it that was in preparation for some part of that meeting? 8 A: Yes. We would have been discussing who 9 would have been standing up at what time during the 10 presentation. As you recall, Mr. Stockie, Mr. McFarland, 11 Mr. Ford, Mr. Robson and I all made presentations that 12 evening. So, we were just going through some of the 13 logistics of how that was going to work. 14 Q: All right. And then the meeting of the 15 21st is held and then you go to the 23rd of February and if I 16 look on the left-hand side under "memo for Council", the 17 first matter is the "Martin Farm"? 18 A: Yes. I've spoken to that. Now, that 19 deal fell through and we were just updating Council on the 20 fact that we weren't able to purchase those lands. 21 Q: All right. And then what are the other 22 notations? 23 A: The next one says "Tom - D. Smith 24 contract." Mr. Dave Smith as an -- a project manager that we 25 hired to work with us on the Gateman-Milloy project. He has

1 experience in building golf courses and was a valuable asset 2 to the team. 3 "Business plan presentation" 4 At this point, the -- the business plan was still in its 5 draft format, so, we were talking about at what date we could 6 possibly get a more definite version to Council. 7 And then "OMB-MFP," I'm not precisely sure 8 what that reference is for. Although, later on, we did have 9 to -- actually I -- I -- it could be regarding the term of 10 the lease. I'm not precisely sure what that was for. 11 And then on the other page "Nelson Wideman" 12 was the person we were dealing with on the Martin Farms. 13 Q: All right. 24th? I have, in the middle 14 of the page, 15 "Update meetings, Library, MFP and First 16 Gulf to meet. Cost estimates for new 17 Library" 18 and then 19 "Roger ..."? 20 A: "Roger Gratl." He's a board member at 21 the library. 22 Q: All right. Anything that came out of 23 that meeting that relates to this project or is that simply 24 an indication that discussions were continuing in relation to 25 MFP and First Gulf?

1 A: Yes. I'm not even sure who -- who would 2 have been attending this update meeting. It could be that I 3 was just updating Mr. Stockie on a number of issues that I 4 was dealing with and this is just a checklist. Some of these 5 have nothing to do with the project so. 6 Q: All right. 7 MR. COMMISSIONER: If I can just interrupt 8 for a minute, Mr. Caskey. I'm not if I understand the 9 purpose of reviewing these pages of Mr. Friedel's diary. 10 MR. JAMES CASKEY: The purpose -- the 11 purpose, sir, is to demonstrate the number of contacts that 12 there were between Mr. Friedel and MFP, on an ongoing basis, 13 throughout the period of time that the City of Waterloo was 14 dealing with MFP. 15 And to demonstrate the number of opportunities 16 for any misunderstandings to have been cleared or to have 17 been corrected or, indeed, to have been amplified. 18 MR. COMMISSIONER: All right. You're in 19 charge. 20 MR. JAMES CASKEY: I realize it's tedious, 21 but -- but -- 22 MR. COMMISSIONER: Well, we've been through a 23 lot of it, already -- 24 MR. JAMES CASKEY: Yes. 25 MR. COMMISSIONER: -- in dealing with Mr.

1 Friedel's previous evidence. And I don't have a -- have a 2 problem with it. As you say, it's tedious, but it's going to 3 tell us -- I don't want to get myself all confused because 4 nothing ever was generated from First Gulf. 5 MR. JAMES CASKEY: No. 6 MR. COMMISSIONER: I've already expressed 7 myself with respect to the library, the issue. 8 Nothing -- fortunately, nothing has developed about that, 9 either. 10 So, all right, let's keep on going. 11 MR. JAMES CASKEY: That -- that -- 12 MR. COMMISSIONER: I'd like to -- I'd like to 13 get through -- through this. We're going to take -- you're 14 going to be a little bit longer, yet? 15 MR. JAMES CASKEY: Yes, a bit. 16 MR. COMMISSIONER: And I think it's time to 17 take a break, at least it is for me. 18 So we'll take fifteen (15) minutes. 19 THE REGISTRAR: The City of Waterloo Judicial 20 Inquiry stands recessed for fifteen (15) minutes. 21 22 --- Upon recessing at 11:32 a.m. 23 --- Upon resuming at 11:55 a.m. 24 25 THE REGISTRAR: The City of Waterloo Official

1 Inquiry now resumes, please be seated. 2 MR. COMMISSIONER: Mr. Caskey...? 3 MR. JAMES CASKEY: Thank you, Mr. 4 Commissioner. 5 6 CONTINUED BY MR. JAMES CASKEY: 7 Q: Mr. Friedel, we were looking at the 28th 8 of February of 2000, there's a reference to a Council meeting 9 that I take it dealt with the -- with the Millennium Project? 10 A: Yes, although I can't recall the exact 11 details of that meeting. 12 Q: All right, let's go to the 13th then, the 13 next page. What is of relevance either from contact with MFP 14 or this project? 15 You see there's a notation on the left of 16 "Jennifer E&Y." and then "Jennifer property must be 17 certified." 18 A: Yes, again I was dealing with Ms. 19 Justason at Ernst & Young, but this was on another matter, 20 although it was related to the Park, it was in terms of 21 donations of property to the project and how the tax 22 receipting would work. 23 Q: All right. 24 A: But it wasn't specifically related to the 25 financing.

1 Q: All right, go to page 17, or the next 2 page is the 17th of March? 3 A: Yes, again, this is just a continuation 4 of a discussion in terms of donations of property. 5 Q: All right. The 22nd of March there is 6 obviously for you some significance to this page? 7 A: Yes, I noted the -- the dates of the 8 presentations to the WEDC, which is the Waterloo Economic 9 Development Committee on March 28th, and also the Uptown 10 Vision Committee on April 12th. These were committees that I 11 attended as a delegation to -- to give -- bring them up to 12 date on the Millennium Recreation Park, and some of what I 13 would have talked about there was the financing arrangement 14 with MFP. 15 Q: All right, and -- and this is a notation 16 of upcoming meetings? 17 A: Yes, I was speaking with Pat Rutter who 18 was coordinating the meetings. 19 Q: All right. On the 28th then, the next 20 page, the WEDC is noted at the top again? 21 A: Yeah, these are just some notes I took at 22 the meeting, they don't really have anything to do with the 23 financing, but again I was on the agenda, the delegation to 24 make a presentation regarding the MRP and the financing. 25 Q: The 30th of March?

1 A: There's a notation here of a conversation 2 with Mr. Robson, and I believe we were attempting to set up a 3 meeting for April the 10th to discuss issues related to the 4 Millennium Recreation Park and then also, at this time, Mr. 5 Robson was inviting me to the Special Olympics Dinner and the 6 hockey draft event that I attended on April 10th. 7 Q: Thank you. 31st of March? 8 A: I -- this is a notation of Mr. Ford 9 calling me to also invite me to the April 10th meeting so, 10 obviously, Mr. Robson and Mr. Ford had been discussing the 11 issue as well. 12 Q: And that meeting was at MFP in 13 Mississauga? 14 A: Yes. I believe that it was. 15 Q: Thank you. April 6th? 16 A: I'm not sure if there's anything relevant 17 to the financing on this page. 18 Q: Thank you. The 7th of April? 19 A: This was probably here in relation to the 20 - the Mayor's request for a presentation to be made at the 21 Volunteer Dinner and I believe that I -- I went through that 22 in my document; I call it the road show. I put together a 23 document that we could present to a variety of groups just to 24 bring them up to date on the status of the project. 25 Q: And the item immediately ahead of that

1 has Dave Robson and Blair Knox? 2 A: Yes. Mr. Knox is a -- is a gentleman 3 with the company called Arena Corp and he was -- I guess he 4 had heard that we were working with MFP on -- on constructing 5 the park and he was looking for Mr. Robson's contact 6 information. So I -- I gave that to him. 7 Q: Thank you. The 10th? 8 A: On the 10th we -- there was a meeting at 9 the MFP offices and we talked about a number of things. One 10 is the tender processes as they were proceeding and then 11 subsequent to this meeting I faxed a number of tenders to 12 MFP. 13 We also talked about revenue modelling so 14 taking the revenue streams from the business plan and putting 15 it into their model to see whether we'd be able to use the 16 tax structure. 17 There was some discussion about commercial 18 space. At this point in time, we hadn't firmly decided 19 whether there would be commercial space in this building or 20 not, so that was still an unknown. 21 MFP was requesting demographics in terms of 22 understanding what the future projected population growth of 23 the City of Waterloo would be and I believe Mr. McFarland 24 responded to that request on behalf of the City. 25 There was a discussion regarding development

1 charges and whether they would be required to be paid on the 2 development, and so that was something that I was going to 3 look into; incidentally, they weren't. 4 And then they were asking if I could e-mail 5 the business plan to them -- or not the business plan, but 6 the financial plan to them, once again. 7 Q: And you did? 8 A: And I did. Yes. And then the 9 information above that, again, is related to the Special 10 Olympics event. 11 Q: All right. The 12th of April? On the 12 left-hand side I see ticked off "MFP demographics"? 13 A: Yes. So that would have been in response 14 to their request for that information. Underneath, again, 15 "DC revenue for MFP"; so whether there would be a development 16 charge applicable. 17 And then the other one is, I think -- those 18 are the only ones over there that relate to the MFP. 19 Q: And you've put _MRP/MFP process", 20 What does that refer to at the bottom of the right-hand side? 21 A: Just making a notation of outstanding 22 items. We had -- create a plan as to how we were going to 23 move forward with the reports to Council and so on as we were 24 moving forward through the construction process and also the 25 discussion as to the final form of the agreement with MFP.

1 I should also the -- there's a -- there's a 2 notation there under "Tom"; that's Mr. Stockie. Mr. Stockie 3 asked me to model the financial plan without the golf course 4 as we were moving forward and discussing different options 5 available to us at that time. So, I was doing that kind of 6 modelling on a -- on a daily basis really. 7 Q: The 13th of April? 8 A: These are notes that I would have taken 9 in the meeting with Mr. Ford, regarding the MRP/MFP process. 10 So, we're talking about some of those critical decision dates 11 as we were moving forward. 12 And you can see, under May 23rd, there we've 13 got _in-camera agreements._ So, that would have been -- I 14 believe that would have been related to MFP, at that time, we 15 were -- we were aiming towards that date. 16 Q: The 14th? 17 A: Again, there's just a note here about a 18 conversation that I had with Mr. Ford, regarding the process. 19 And we were still collecting information as to the -- the 20 time frame and the -- how we were going to position the 21 decision making dates for Council. 22 There's also a note here that I either spoke 23 with -- or had a telephone message from Sandy Pessione, and 24 he was looking for copies of the tender as we were finalizing 25 it. And also, he was indicating that he had some questions

1 he was going to forward directly to me, in order for me to 2 respond to those and I think we've gone through those in -- 3 in some detail. 4 Q: All right. The 19th? 5 A: Again, Sandy Pessione was making an 6 inquiry of me for some reason, I can't remember the 7 specifics. 8 Q: 20th? If I look on the left hand side. 9 A: Yes, I think the -- I've spoken to a 10 number of them the DC, the demographics, but I think the new 11 one here would be the cash draws. We were -- we were 12 entering into the grading tender with Gateman-Milloy around 13 this time. 14 And so once they started work, there would 15 obviously be progress payments required, and we were starting 16 to have discussions about how the actual cash was going to 17 change hands, logistically, between MFP and the City of 18 Waterloo. 19 Q: And were those discussions with MFP, as 20 well as other members of the Finance Department? 21 A: Yes, they were. 22 Q: Thank you. The 1st of May? 23 A: Again, there's a note here about a 24 discussion with Sandy Pessione regarding the grading costs. 25 Q: The 2nd of May?

1 A: Again, a discussion with Sandy 2 regarding -- or, Mr. Pessione, regarding the -- the reports 3 that Council considered on a day before, on May 1st. And 4 then, also, sort of those logistical money transfer issues. 5 And then the last point says, legal agreement 6 issues and I can't remember any specifics with regard to 7 either one of those points. At this time, I think I would 8 have been beginning to refer Sandy directly to the Finance 9 Department, because I wouldn't have been involved in either 10 the -- the actual legal agreement negotiations, nor with the 11 money transfer issues in my role as Executive Assistant. 12 Q: All right. If we go to the 5th of May? 13 A: This was a meeting that we had with MFP. 14 Q: Do you recall who was there, from MFP? 15 A: I believe Sandy Pessione, Carmen Roberts 16 and Mr. Dave Robson were at the meeting. I'm not sure 17 whether Mr. Peleck was in attendance, at that meeting. 18 Q: All right. Where was it held? 19 A: I believe that it was held at the MFP 20 offices, but I'm not positive. 21 Q: Okay. What was discussed? 22 A: We talked about the -- the -- the values 23 and the tenders, as compared with the estimates that I had 24 presented, both to Council and MFP, earlier on in the year. 25 And of course, they were asking what the variances were due

1 to and we were just refining them, at that time. 2 They were also looking for an estimate of the 3 multi purpose recreation building, and of course, we weren't 4 able to provide that, at that time. We gave them an 5 estimate, but we couldn't refine it any further than that. 6 At this meeting, Mr. Robson also indicated 7 that, again, that the rate risk is MFP's, not the City, if 8 the rate should go up, which was significant for me, as I was 9 putting the business -- the financial plan together. Also, 10 Mr. Robson indicated that the pre-paid rent structure of the 11 head lease, sub lease that we ultimately arrived at, was -- 12 was going to be the option, because that's what MFP had 13 decided, at that point. 14 There's also a notation here about putting 15 surplus funds into a -- a reserve fund, which is the 16 equivalent of the sinking fund that we discussed yesterday. 17 MFP indicated that they had a tax opinion that the City owns, 18 or would own -- that the City retains ownership of the asset, 19 which was significant, because in essence, that means it's an 20 operating lease. 21 And just to verify that, they've got: 22 "MFP also indicated that they had an 23 accounting opinion that the transaction 24 would not appear on the balance sheet of 25 the City of Waterloo."

1 So, a number of those assertions are -- are 2 significant in my view, I think it was an important meeting 3 from that respect. 4 There was also some discussion regarding, 5 again, how the logistics were going to happen in terms of the 6 cash, and at this point MFP was suggesting that Gateman- 7 Milloy send their bills directly to MFP, and that MFP would 8 wire the money to Gateman-Milloy, which ultimately was not 9 the model we agreed upon. 10 I mean, to a certain degree the City would be 11 losing some control there, so we felt that was not 12 acceptable, so that discussions continued on after that 13 point. 14 Q: And the 11th of May? 15 16 (BRIEF PAUSE) 17 18 MR. COMMISSIONER: Before you go to the 11th, 19 what about that -- the 5th of May, I think you just touched 20 on that tax opinion note? 21 THE WITNESS: Yes, MFP indicated that they 22 had a tax opinion from people that they would be having look 23 at the deal, that the City of Waterloo would retain ownership 24 of the asset. 25 So we've mentioned a couple of times that that

1 was an issue with the parking garages, for example, and they 2 were just verifying here that the City would retain ownership 3 of the Park, it wouldn't be MFP's Park. 4 MR. COMMISSIONER: Well, yes, it's sort of 5 the City of Waterloo would own the property subject to the 6 lease arrangement? 7 THE WITNESS: That's right. 8 MR. COMMISSIONER: Thank you. 9 THE WITNESS: On the 11th of May, again there 10 was a discussion with Mr. Pessione regarding building costs 11 that would be related to this building, as we were moving 12 along with the design/build process. 13 14 CONTINUED BY MR. JAMES CASKEY: 15 Q: And the 16th? 16 A: On this day Mr. Pessione and I discussed 17 the grading details with respect to the Gateman-Milloy 18 contract. 19 Q: If we go then to the 24th? 20 A: The -- 21 Q: "Other MRP funding." What does that 22 refer to, the sixth item up from the bottom? 23 A: I believe that bullet -- that point and 24 -- and the point about a third of the way up from there, 25 where it says _Wayne_.

1 Q: Yes. 2 A: That would be Heather Card and Wayne 3 Steffler, they're both members of the Financial Services 4 Team, and we were having discussions about -- well I 5 shouldn't even say we were having discussions. They were -- 6 they were beginning to get involved in the process of how the 7 cash flows would actually take place from MFP to the City of 8 Waterloo and they were asking me for some information in that 9 respect. 10 Q: And I take it you were providing the 11 information to them, that you were getting from MFP? 12 A: Well I would have provided -- I would 13 answered their questions, but I hadn't really received any 14 information from MFP regarding the cash draws. 15 Q: All right. The 31st of May? 16 A: Here Mr. Pessione was asking for a copy 17 of a Report to Council, I believe that would be with respect 18 to the Multi-Purpose Recreation Building, we've looked at the 19 fax cover sheet of that. And also Mr. Steffler called me and 20 suggested that Mr. Pessione would like to attend the 21 implementation team meetings that were taking place on 22 Fridays with -- and so obviously, Mr. Pessione and Mr. 23 Steffler had had discussions, probably in respect of the cash 24 flows, and now Mr. Pessione was asking to attend those 25 meetings, sort of as an observer, which he did, following

1 this request. 2 Q: The 13th of June? 3 A: I believe it's on the left hand side of 4 the page here, Mr. Steffler was asking for the most recent 5 Multi-Purpose -- or the Millennium Recreation Park budget, 6 which is the actual financial plan. 7 Q: Okay. At the top of the other page, 8 where you've got Bob, Dave, Tom and Andrew, who are those 9 people? 10 A: That would be Mr. Bob Hayes, who was 11 administering the Gateman-Milloy project on behalf of the 12 City, so he's a City employee. 13 Q: All right. 14 A: He's actually currently the team lead of 15 RIM Park. Dave Smith was the consultant that we hired to 16 help us administer that contract, Tom Stockie and myself. So 17 we were meeting to discuss some issues related to the 18 Gateman-Milloy contract. 19 Q: The 28th of June? 20 A: Here Mr. Steffler was requesting a 21 specific budget line related to storm water management 22 development. 23 Q: Nothing else on that page of 24 significance? 25 A: Olga Doucet who works in our Clerk's

1 Department was -- had received a bill -- I guess, an invoice 2 related -- from probably Mr. White regarding work that he had 3 done on the Millennium Recreation Park financing agreement 4 and so she would have been asking me for an account number 5 probably -- 6 Q: All right. 7 A: -- at that time and I would have referred 8 her, probably, back to Mr. Ford because I wasn't involved in 9 that aspect of the negotiations. 10 Q: All right. The 6th of July. 11 A: The reason that this page is included is 12 the comment from -- under "Fred"; that refers to Fred Dobbs. 13 He's the City Clerk and also a solicitor. "Bill"; that would 14 be Mr. White, "... agrees with his version of assignment". 15 I specifically remember this message on my 16 telephone because I had no idea what he was talking about and 17 so I wrote down what he said in my day planner and I assumed 18 it was some kind of legal issue that the two lawyers were 19 dealing with and, for some reason, he felt necessary to 20 inform me. But I really don't know what they were talking 21 about. 22 In hindsight, obviously, I think they must 23 have been -- actually, I can't comment on it. I still don't 24 understand what it means. 25 Q: All right. But it was a voice-mail

1 message that you made a note of? 2 A: Yes. For that -- because I didn't feel 3 it was something I was going to look into. 4 Q: The 8th of August; is the "Bob", Bob 5 Hayes? 6 A: Yes, Bob Hayes. This is KPMG Gulf became 7 involved in the process again once we were nearing completion 8 of the golf course. They were actually looking at it from a 9 physical perspective now to evaluate its playability, so it's 10 not really related to the -- to the financing per se. 11 Q: 24th of August, I notice under -- the 12 third last item on the -- the right-hand side. It says 13 "Lease cost via purchase"? 14 A: Yes. We were considering options 15 available to us in terms of the -- the maintenance equipment 16 on the golf course. Whether we would lease it or purchase it 17 and that was a different financial transaction. 18 It only impacted the financial plan in so far 19 as we were, at that time, assuming that we were going to be 20 purchasing the equipment. 21 Q: Would that have impacted on your 22 financial plan? 23 A: Well, it would have changed the way we 24 were funding or providing funding for the equipment. But, 25 ultimately, the costs would have been fairly similar --

1 Q: All right. 2 A: -- and we ended up purchasing the 3 equipment. 4 Q: 21st of September? 5 A: I think the reason this is included is 6 just because of the change order. It says "Al"; that's 7 Al McGregor, "change order no. 1, $499,000"; that's with 8 respect to the PCL contract on this building, just because 9 the values were still changing based on decisions we were 10 making throughout the summer. 11 Q: Right. Up above that it's got -- one 12 above is "presentation re: Council"; is that any significance 13 from your perspective? 14 A: That would have just been some 15 discussions we had at the Advisory Committee meeting 16 regarding the presentation we were going to make to Council 17 on the 25th and that was an update that we looked at from our 18 material. 19 Q: All right. And we go past the 25th and 20 we come to October the 1st of 2000. This is after the 21 Council has authorised the -- the Mayor and the Clerk to sign 22 the head lease and sub lease? 23 A: Yes. 24 Q: Right. What's the significance of 25 October the 1st from your perspective?

1 A: Principally, my discussion with 2 Phil Garbett who was a lawyer who was a member of the Not- 3 For-Profit Organization and then also of the Advisory 4 Committee. He had been involved in the incorporation of the 5 Not-For-Profit Organization and we were just following up on 6 winding up the -- the organization. 7 Q: All right. Then we go to the 5th of 8 November. And that, as I recall, is the Air Canada function? 9 A: Yes, this was the deal closing event, 10 where a number of staff members met with members from MFP. 11 Q: And then -- and then on to ACC? 12 A: Yes, we had dinner together and then we 13 went to a hockey game. 14 Q: All right. The 27th of November? 15 A: The 27th of November would have been the 16 last update presentation that I made to Council regarding the 17 MRP, and the date at which I started my new role as Team 18 Leader of Facility Services. 19 Q: And is there anything on that page, or on 20 the subsequent page, which is also the 27th of November, that 21 relates in any way to MFP, or this transaction? 22 A: No, I -- I don't believe that there is. 23 It's more, just about my own personal involvement. 24 Q: All right. Then we go into 2001, in 25 January of 2001, on the 15th?

1 A: Yes, this was a meeting that took place 2 at the City Hall, which involved Mr. Stockie, Mr. Ford, Mr. 3 McFarland, Mr. Brian Detzler and Mr. John Haddock. John 4 Haddock is the -- not the President, but he would be the 5 Executive -- the top person in the YMCA, I can't -- I don't 6 know what his exact title is. 7 Q: Okay. CEO? 8 A: Yes. And -- and so the YMCA had -- had 9 had discussions with the City of Waterloo, regarding options, 10 because their Lincoln Road facility was not practical for 11 them any more. So, we had a meeting, we discussed some 12 options and the -- the issue of MFP came up, whether MFP 13 would be able to provide funding for this kind of 14 undertaking, as well, if the City built it, financed it 15 through MFP and then recovered the funding through a lease 16 arrangement with the YMCA, for example. 17 So, following this meeting, John and I were 18 supposed to look at some financing options. The reason I 19 would be involved in these discussions is because one of the 20 locations we were considering was next to the Waterloo 21 Memorial Recreation Complex, which is one of the buildings in 22 Financial Services -- Facility Services. 23 Q: All right. The 16th of January? 24 A: Yes, this was a followup meeting between 25 John and myself, regarding YMCA funding options. So we would

1 have discussed issues, like using debentures or whether we 2 could use MFP funding. 3 Q: Was MFP involved in any of those 4 discussions with you and Mr. Ford, as far as you know? 5 A: Not in any of the discussions I was 6 involved in. 7 Q: All right. 8 A: That's a question you have to ask Mr. 9 Ford. 10 Q: The 7th of February? 11 A: Yes, this is, again, a followup meeting 12 with the YMCA. The issue of financing came up again. We 13 talked about whether debt would be appropriate. 14 Of course, for the YMCA it comes down to a -- 15 affordability issue. 16 Q: All right. The 28th of March? 17 A: This is the final note on the right hand 18 side of the page, regard -- this is regarding the YMCA. And 19 now the issue of -- an idea of building a joint building 20 between the library and the YMCA had come forward. So, you 21 know, going forward, this is what ultimately turned into the 22 super build applications. 23 So this was the earliest note that I had in my 24 documents about it. 25 Q: All right. The 17th of April?

1 A: Okay. That would be, on the top left 2 hand page, it says, Diane. That's Diane McCullough, who's 3 the Administrative Assistant for Mr. Ford. She called me and 4 asked for a copy of the February 16th spreadsheet, which 5 would be the financial plan that we used -- or that was most 6 current, at the February 21st meeting. She would be -- she 7 requested that information on behalf of Mr. Ford. 8 Q: All right. Did you have any knowledge of 9 why she was requesting that, at that time? 10 A: I believe I asked her that question and 11 she indicated that Mr. Ford was -- just wanted to look at it 12 or something, I -- I don't think she gave me a specific 13 reason. 14 Q: All right. Up to that point in time had 15 you heard anything, or did you know anything about any 16 problems with the lease arrangement with MFP? 17 A: No, the first issues that I would have 18 been aware of were the ones that would have been reported in 19 the paper at that time. I'm not sure how they would 20 correspond to the 17th, so I don't know if it's before or 21 after, but that's where my knowledge would have been coming 22 from. 23 Q: All right, if we go then to the 25th of 24 May of 2001? 25 A: Yes, I've noted here that Mr. Stockie

1 called me and invited me to a meeting at 8:30 a.m. on the 2 following Monday to discuss the business plan. 3 Q: And then we have the 28th of May is a 4 meeting? 5 A: Yes, this is the -- the meeting that 6 we've noted earlier and I think probably the easiest place to 7 start is at the bottom where it says _MFP/RIM." 8 So the name of the Park had changed by this 9 time, so instead of MRP it's just called RIM. 10 So the people attending this meeting were Tom 11 Stockie, Fred Dobbs, John Ford, Linda Whittaker, Wayne 12 Steffler and Mayor Woolstencroft. 13 We discussed the business plan, just fair -- 14 at a fairly high level and whether there were any 15 inaccuracies in the business plan that could be leading to 16 the issues that the newspaper was reporting. And then we 17 also had talked about our approach to the newspaper articles 18 themselves, and I believe that this was the time where we 19 started talking about whether there should be a response on 20 the City's behalf in terms of a press release. 21 For me personally at this meeting, Mr. Stockie 22 also asked me to get involved formally again in the process, 23 and -- and instructed to those present that issues related to 24 the business plan or inquiries by the newspaper should be 25 directed to me.

1 Q: I take it that you read the newspaper 2 articles, whatever the date was that the newspaper articles 3 first came out? 4 A: I can't say whether I read them at that 5 time or whether I read them afterwards, I'm not a subscriber 6 to the K-W Record. I had to ask. 7 Q: So at some point in time, in any event, 8 you -- you did have a chance to read those newspaper 9 articles. Was that the first knowledge you had of -- of any 10 suggestion that there was a problem with the leases? 11 A: Yes. 12 Q: If we go then to the 29th of May. 13 A: On the 29th of May, which would be the 14 next day, I had a meeting with Mayor Woolstencroft, and I 15 believe at this point she had already spoken with Mr. 16 Crowley, and she was offering some background information 17 about that discussion, and also some background information 18 that she was providing to me, and then she asked me to meet 19 with Mr. Crowley the next day, on the 30th. And so she gave 20 me the telephone number and so on. 21 Q: All right. And so then the 30th you -- 22 you have a meeting shown over on the left hand side with Mr. 23 Crowley and then some indication down on the right hand side 24 of what transpired? 25 A: Yes, I met with Mr. Crowley for probably

1 two (2) hours going through the business plan and some of the 2 financial plan and answering some of his inquiries. 3 Specifically, he made a request of getting a 4 copy of the Ice Needs Study, which I faxed to him, of the 5 November '99 Council meeting, which right now I'm not sure 6 exactly what that refers to. And then the user fee impact on 7 users, i.e. will there be a premium on the rates and so on. 8 Those were some questions he had. 9 Following that, there was a meeting that took 10 place in Mr. Ford's office with Mr. Robson and Mr. Stockie 11 and myself, and we've gone through that meeting in a bit of 12 detail. The two (2) notes that I made to myself as a sort of 13 follow up of that meeting were the responses to the question 14 of why there's defined payments in the head lease, but 15 there's a formula in the sub lease. So I think I've spoken 16 to that. 17 The notes above, under the heading _Jennifer_, 18 are notes that I made while I was on the telephone with 19 Jennifer regarding whether they had rendered an opinion on 20 whether the lease arrangement was an operating lease or a 21 capital lease. 22 Q: That's Jennifer Justason of Ernst & 23 Young? 24 A: Yes. 25 Q: And then the 31st?

1 A: On the 31st that was the day, of course, 2 that we went to the Mississauga offices of MFP. On that day, 3 I met with the Mayor first and that's where she asked me to 4 call her with any information I may have discovered. 5 I also met with Mr. Stockie and, again, that's 6 when he asked me to give him a call and that's also where we 7 discussed asking Mr. Steffler to accompany me to the meeting 8 to make sure there -- there wasn't just one person from the 9 City. 10 Also, there was a telephone message on my -- 11 on my phone from Mr. Crowley and he was wondering if we had 12 any more information we could give him because he was aiming 13 towards an article in the paper on Saturday, I believe. 14 And then I also noted that I did call 15 Mr. Stockie and Mayor Woolstencroft as they had requested. 16 Q: On your return? 17 A: Yes. Well, I called Mr. Stockie from the 18 offices. 19 Q: All right. From MFP offices, and you 20 talked to the Mayor when you got back? 21 A: Yes. 22 Q: All right. And on Friday the 1st of 23 June? 24 A: This is just in respect to the meeting 25 that took place in Mr. Bill White's office. So the attendees

1 were Fred Dobbs, Kathy Durst, Tom Stockie, Bill White, 2 John Ford. I believe the Mayor was also at that meeting. 3 I'm not sure why I didn't note that down. 4 So there we discussed, you know, the 5 implications of what we found out the day before and also how 6 we were going to proceed moving forward. Mr. Outhet is 7 another reporter with The Record, so he was looking for 8 additional information on the story. 9 And then you see, on the left-hand side, 10 again, there's the 4:30 in-camera meeting that we had 11 scheduled earlier on in the day at the meeting, so it did 12 come together as we had planned. 13 Q: Then on the 4th of June, you've -- your 14 notation at the top is "MFP and Clarica"? 15 A: Yes. These are notes that I took during 16 the meeting that we had at City Hall with staff, 17 representatives from MFP and representatives from Clarica. 18 So, the first one says 19 "7.6/7.7 plus 100 basis points is rate from 20 Clarica to MFP" 21 So that would have been information that Mr. Wolfraim was 22 providing. They also stated at the meeting that the 100 days 23 -- 180 days of the 4.76 rate expired on August the 20th. 24 "MFP provided the calculation sheet of the 25 revised assumptions and lease payments."

1 That would be the 12 column spreadsheet. And 2 then the next point would have been made after we received 3 the information through MFP from Clarica on the $227 million 4 total. 5 And then we figured out what -- well, we 6 didn't figure out, but we had a -- an understanding of what 7 the implication of the 8.6 or 8.7 percent effective rate was 8 on the sub lease. 9 During the meeting, after the initial shock 10 had worn off, there was some subsequent discussion, primarily 11 led by Mr. Stockie, about the next steps. How were we going 12 to proceed from here because there's obviously some issues 13 that need to be resolved and one of the questions he was 14 asking was, who do we need to talk to at MFP over the next 15 week when we have something to discuss with you? 16 Q: And what was the decision on that? 17 A: I can't remember who the specific person 18 was. 19 Q: All right. 20 A: Just -- I should also just remind you 21 that there was a period of this meeting that I wasn't 22 actually in the room, when I went downstairs with Mr. Ford. 23 So that component of the meeting is obviously missing from my 24 notes. 25 "E&Y review", that's -- I think that would

1 have just been a note that I made to myself, in terms of the 2 engagement that I had undertaken by Ernst & Young in '99. 3 And then Mr. Steffler's comment, are the 4 payment streams the same, was a comment that he made after 5 MFP left the meeting. So he was -- he was reiterating to the 6 people from Clarica and City Staff that we had asked a 7 specific question of Mr. Robson, on the 31st, as to whether 8 the payment streams should be the same. 9 And then there was another meeting set up for 10 8:30 the next morning, to, you know, to plan ahead of what 11 was going to happen. 12 Q: Now, when were you first aware of 13 Clarica's involvement in the funding of this project? Were 14 you aware that MFP had sold the contract to Clarica, and 15 that -- that Clarica had financed it? 16 A: There were discussions during the -- the 17 spring of 2000, that Clarica was one of the sources of 18 funding that MFP was considering. But, aside from that, I 19 don't think I was privy to any additional details. 20 In terms of the autumn of 2000, because I 21 review Council minutes and agendas, if it was included in 22 those, I would have read something about it, although it 23 wouldn't have been an issue for me, at that time. Probably 24 it's in the spring of 2001 when this issue arose again, as a 25 result of the newspapers articles in The Record, that I would

1 have expanded my knowledge of that whole part of the 2 transaction, by doing some digging and so on. 3 Q: All right. What was your view of the 4 role of Waterloo Inc., in -- in this matter? Did it -- did 5 it -- the format of Waterloo Inc. impede the flow of 6 information, or should it have helped the flow of information 7 to all parts of the organization? 8 A: Well, Waterloo Inc. was really an 9 approach to how we were going to relate business units to the 10 corporation. And as I've said before, there were three (3) 11 business units that were initially set up as -- as Incs., so 12 to speak, where there was a set level of taxation support, 13 and then the -- the business unit had to operate within that 14 set level of business -- of taxation support, including their 15 capital expenditures. 16 And, insofar as this project is concerned, the 17 only relationship that I can see between Waterloo Inc. and 18 this project, is, we tried to take the same approach with 19 this project, where we said, there's going to be a set level 20 of taxpayer support of 1.2 million. And the capital 21 components of the project are going to be self financed 22 through the reserve fund allocations, and the use of a 23 stabilization reserve. 24 So -- and that's really an operational 25 transfer of the principles of Waterloo Inc., to the park.

95
  1  Other than that, I don't really see how they're related, at
  2  all.  I mean, Waterloo Inc. was not about improved
  3  communications, it was about how are we going to
  4  operationally function as a -- as an organization?
  5                 Q:   Did -- did you, after your analysis of
  6  everything and all the problems that developed, think that
  7  Waterloo Inc. had contributed to the problems?
  8                 A:   Not at all.  I -- I can't see the
  9  connection there, at all.
 10                 Q:   All right.  We've talked about the
 11  tendering process.  And your view in relation to the
 12  tendering process, I take it, was that -- that this financial
 13  contract ought to have been tendered?
 14                 A:   Certainly at the time that -- of, when I
 15  was involved in discussions surrounding the tendering, which
 16  was August 17th of 1999, it was an issue for me, then.  In
 17  hindsight, obviously, that would have been a prudent thing
 18  for the City to do.  
 19                 And I believe that the interpretation of the
 20  actual purchasing by-law needs to be taken, not necessarily,
 21  in terms of the specific words that are written in it, but
 22  more of, what's the spirit behind it, and -- and what's best
 23  for the City.  Because, as administrators, we're stewards of
 24  public resources and we need to do that prudently.
 25                 Q:   Okay.  John Ford was the Chief Financial

1 Officer of the organization. Was there a sufficient flow of 2 information back and forth between you and Mr. Ford, in your 3 view, such that you each knew the totality of what the other 4 was doing? 5 A: I think at the time, we assumed that was 6 taking place. In hindsight, I'm not sure if the flow of 7 information was the issue, as much as the division of 8 responsibilities, where Mr. -- Mr. Ford was doing, sort of, 9 the negotiation on the legal side of the contract, and I was 10 doing a lot of the detailed operational work, and those 11 things were not necessarily happening in the same room, at 12 the same time. 13 So looking back it may have been better if -- 14 if the arrangement was different, yes. 15 Q: And how would you have improved the 16 arrangement? How would you have changed it so that it was 17 better? 18 19 (BRIEF PAUSE) 20 21 A: Well I think one of the challenges that 22 -- that existed during the -- the whole time period that 23 we're talking about here is the -- the actual working 24 relationship between John Ford and myself probably could have 25 been improved, and -- and -- and that was -- was an issue. I

1 believe that was part of the reason why I left Finance to 2 start with. And so that was sort of an unresolved issue as 3 we were moving forward, and if that relationship would have 4 been better, I think there probably would have been better 5 communication. So I'm not sure if there's anything 6 structurally that could have been done to solve the problem. 7 Q: All right. We talked about Mr. Robson, 8 the role that Mr. Robson played, in the overall, what -- what 9 did you see Mr. Robson's role as being with MFP? 10 A: Well, we knew he was the Vice-President 11 of sort of the asset based financing group, and in our 12 discussions he was certainly the one doing most of the 13 talking, so you know, we assumed that he had a grasp of the 14 issues he was discussing with us. 15 And so from that respect, you know, he was 16 taking the lead on the project from MFP's side, and then he 17 had -- he had assistance on a technical basis from the other 18 people that we've discussed, primarily I believe Carmen 19 Roberts and Beau Peleck, were doing sort of the detailed 20 behind the scenes work. 21 I guess you could look at it to a certain 22 degree in a similar respect as how the City was -- was 23 approaching the matter. John Ford was doing the sort of the 24 higher level negotiations on behalf of the City, and I was 25 providing a lot of the detailed work at a -- at that level.

1 Q: All right, and you've mentioned Carmen 2 Roberts and Beau Peleck. In your discussions and meetings 3 with either one of those two, did they appear to have a grasp 4 of -- of the issues involving the head lease/sub lease 5 arrangement? 6 A: Well Mr. Peleck was certainly addressing 7 sort of the technical side of things, so from that 8 perspective I don't think there was anything out of the 9 ordinary. 10 In my view, probably the questions that 11 related to the financial plan that Carmen Roberts, Leanne 12 Fraser and -- and Mr. Pessione were asking, seemed to me to 13 be at the wrong level of detail, and -- and I wondered about 14 that at the time, yes. 15 Q: Hmm hmm. What -- what role did Mr. 16 Pessione seem to play from your perspective? 17 A: I never really understood his role. He 18 -- he was at some meetings and he wasn't in other meetings, 19 so I can't -- I don't really know, I guess is the answer to 20 the question. 21 Q: All right. You had your auditors, Ernst 22 and Young, you've indicated that you talked to Jennifer 23 Justason on a number of occasions, was there something that 24 you thought Ernst and Young should have done beyond that 25 which they were actually commissioned to do?

1 A: Well I believe that they were certainly 2 acting within the strict limits of the engagement that -- 3 that I had asked them to do. And also strictly speaking, in 4 terms of their role as the auditors of the City of Waterloo. 5 However, I believe that they also have an 6 additional duty sort of to understand the -- the working 7 environment of their clients as well, and they're members in 8 the community, so they obviously would have seen what was in 9 the paper and so on, and if that raised questions for them 10 then I would expect them to make -- to take the appropriate 11 action. 12 Q: Right. If I were to ask you to go to tab 13 82, which is in vol -- Exhibit 17, and it's part of the 14 presentation that Mr. Robson made to you. 15 A: What's the tab number again, I'm sorry? 16 Q: Tab 82 of Exhibit 17. 17 A: Yes. 18 Q: Now, as I understand it, this was a -- 19 part of the presentation that he made to you and to 20 Mr. Steffler when you attended at the MFP offices? 21 A: Yes. 22 Q: All right. If I look at that and I see 23 what he's talking about 24 "... to provide the lowest overall cost of 25 funds for the City of Waterloo. A minimum

100

1 of 102 basis points below incremental cost 2 of funds." 3 Is that what MFP did? 4 A: In actual fact? 5 Q: Yes. 6 A: Well, certainly not, because that would 7 mean that we would be borrowing -- that our incremental cost 8 of funds would be at 10.28 percent, which is not the case. 9 Q: Would it be a fair characterization to 10 say then that number one, that he was presenting to you at 11 that time, was simply not true? 12 A: Well, in actual fact, it didn't come to 13 pass. Yes. 14 Q: All right. The second, 15 "implementation of a pay-per-use program. 16 MFP's pro forma model" 17 That is what they utilized? 18 A: My interpretation of MFP's pro forma 19 model would be that proprietary model that they were using to 20 evaluate whether something was going to be allowable under 21 the taxation legislation. Yes. 22 Q: All right. The third item 23 "Break even and eliminate deficit. Surplus 24 based on Waterloo Millennium Project 25 facilities. Revenue portion of pro forma

101

1 based upon conservative forecast." 2 Did that turn out to be accurate? 3 A: Well, I think if you look at the -- the 4 reconciliation that I did of their -- their actual forecasts, 5 they're certainly not conservative. So, I mean our -- our 6 forecasts are probably more on the conservative side, but 7 their's certainly weren't. 8 Q: All right. And number four 9 "Provide flexibility without financial 10 penalty. Additional funds for 11 contingencies or rent reduction as 12 required." 13 Did you see that come to fruition? 14 A: Well, there are pre-payment terms in the 15 lease and it depends on how you define penalty, I suppose. 16 But, I would say there's a penalty. Yes. 17 Q: So that, from your perspective, was not 18 accurate? 19 A: It depends on how you define penalty but, 20 from my perspective, no. 21 Q: All right. 22 MR. COMMISSIONER: When was the date again, 23 if you can remind me, of the date at which this presentation 24 was made by Mr. Robson? 25 THE WITNESS: This sheet of paper --

102

1 MR. COMMISSIONER: Yes. 2 THE WITNESS: -- was given to us at May 31st 3 but it wasn't the first time I'd seen this sheet of paper. 4 MR. COMMISSIONER: That's May 31st? 5 THE WITNESS: 2001. 6 MR. COMMISSIONER: 2001. 7 THE WITNESS: Yes. 8 MR. COMMISSIONER: That document was first 9 seen when? 10 THE WITNESS: I'd -- I would have to go back 11 and flip through my -- my day planner pages, but I think I 12 indicated that -- that there was one -- one meeting with MFP 13 where Dave Robson went through a presentation and this was 14 one of the slides in it. 15 He addressed these issues and also, sort of, a 16 schematic of how the actual relationships existed between the 17 parties. 18 MS. STACEY HOCKINS: January 21st, 2000. 19 20 CONTINUED BY MR. JAMES CASKEY: 21 Q: If you look at your diary under 22 January 21st of 2000? 23 A: Yeah, I believe that it was around that 24 time frame that he -- he made a presentation to Mr. Ford and 25 myself. It wasn't like a PowerPoint presentation, he just

103

1 showed us the pieces of paper and there were a number of 2 slides that looked very similar to this one in format, just 3 different content. 4 MR. COMMISSIONER: Is this the type of 5 documentation that you would have expected to see if this was 6 a straight forward loan to the City as opposed to the tax 7 structured type of financing? 8 THE WITNESS: Well, I wouldn't have expected 9 that because certainly we -- there would have been no need to 10 discuss the actual user fees coming from the park because the 11 loan would be secured by the City itself, not by the revenues 12 coming from the park. Kind of an irrelevant discussion. 13 MR. COMMISSIONER: So, at least at the time 14 of this document being provided on May 31st, you fully 15 expected to be -- to have -- to have the City participate in 16 a tax structured financing as had been previously discussed? 17 THE WITNESS: Yes. It's just, the only thing 18 that changed on this date, was the rate, because of the 19 credit risk, not the structure of the deal. 20 21 CONTINUED BY MR. JAMES CASKEY: 22 Q: As of the 31st of May, the structure of 23 the deal, as far as you were concerned, and the presentation 24 was made, was the same as always had been? 25 A: That's right.

104

1 Q: The only change was it went from 4.76 to 2 5.45? 3 A: Yes. 4 Q: Okay. I take it that, from what you 5 said, at no time prior to the signing of the head lease or 6 the sub lease, did you ever see a Schedule B to either one of 7 those documents? 8 A: No, I didn't. 9 Q: So that, nobody ever asked you to 10 calculate the effect of the payments under the head lease or 11 the sub lease? 12 A: No. 13 Q: And compare them? 14 A: No, that's correct. 15 Q: All right. At any time after the signing 16 of the head lease and the sub lease, and before the 31st of 17 May of 2001, were you asked by anybody from the City to 18 conduct that investigation? 19 A: Well, as a result of the meeting on the 20 28th, I undertook that investigation, yes. 21 Q: All right. 22 MR. COMMISSIONER: 28th of? 23 THE WITNESS: Of May of 2001. 24 25 CONTINUED BY MR. JAMES CASKEY:

105

1 Q: All right. 2 A: But prior that, I certainly had no reason 3 to do those calculations. 4 Q: Nobody came to you and said, Andrew, we 5 now have Schedule B to both the head lease and the sub lease. 6 Please review them and let us know whether or not we're 7 getting what we think we're getting? 8 A: No, nobody made that request. 9 Q: And you -- you were no longer involved in 10 that area, I take it, to undertake that, yourself? 11 A: Well, I -- yes, I mean, I was in a 12 different role in the organization and it wouldn't have made 13 sense for me to be doing those calculations. 14 Q: I may have asked you this before, did you 15 believe that the socializing that was carried on between MFP 16 and -- and members of the City of Waterloo staff, in any way 17 influenced any of the people, to look at MFP in a different 18 light, in a more suspicious way? 19 A: Well, I -- I think I can only answer that 20 question for myself. And -- and it certainly didn't make an 21 impact on me. 22 Q: All right. In your view, ought there to 23 have been a policy that required this contract to have an 24 external review, an independent outside review? Or, did you 25 believe that your staff and the City staff had the ability to

106

1 review this, to be sure that it did what it said it was to 2 do? 3 A: Well, I'm not sure an external review 4 would have identified anything. I mean, Ernst and Young, 5 they're -- they're -- they're a national accounting firm, 6 their client is Windsor. Their deals were signed a number of 7 years ago and they hadn't raised any red flags. 8 And I think there's some similarities between 9 the deals, so I'm not sure an external investigation would 10 have revealed anything, at the time. Certainly, I -- I don't 11 think there's any harm in doing that, so, it seems like, you 12 know, looking back, it may have been a prudent thing to do. 13 But we're -- we're making assumptions in -- in assuming that 14 it would have caught any kind of error. 15 Q: Okay. 16 MR. COMMISSIONER: Was Ernst & Young involved 17 in the Windsor transaction, as far as you know, as auditors 18 of the City of Windsor? 19 THE WITNESS: Yes, I believe that they -- 20 they -- the City of Windsor is a client of Ernst and Young. 21 They're -- they're the auditors, there. That's what I -- 22 MR. COMMISSIONER: Or, were at the time, 23 anyway. 24 THE WITNESS: Yes, they were at the time. 25 MR. COMMISSIONER: Yes.

107

1 MR. JAMES CASKEY: If I may just check one 2 thing, Mr. Commissioner? 3 MR. COMMISSIONER: Yes. 4 5 (BRIEF PAUSE) 6 7 MR. JAMES CASKEY: Those are all the 8 questions I have -- 9 MR. COMMISSIONER: All right, thank you. 10 MR. JAMES CASKEY: -- of Mr. Friedel. 11 MR. COMMISSIONER: We're going to recess now 12 and we'll come back and, is it Mr. Berrill going to conduct 13 the questioning? 14 MR. FRASER BERRILL: Yes, sir. 15 MR. COMMISSIONER: Mr. Berrill has some 16 questions for you, then, after the luncheon recess. We'll 17 recess now, until two o'clock. 18 THE REGISTRAR: The City of Waterloo Judicial 19 Inquiry will now stand in recess until 2:00 p.m. 20 21 --- Upon recessing at 1:00 p.m. 22 --- Upon resuming at 2:02 p.m. 23 24 THE REGISTRAR: Order. All rise. The City 25 of Waterloo Judicial Inquiry has now resumed. Please be

108

1 seated. 2 MR. COMMISSIONER: Okay, sir. Mr. Berrill? 3 Okay. Mr. Berrill? 4 5 CROSS-EXAMINATION BY MR. FRASER BERRILL: 6 Q: Mr. Friedel, I'm going to see if there's 7 a few things we can establish off the bat that -- as being 8 common ground or things that we can agree on. Now, that's 9 generally a dangerous thing to try to do but you testimony 10 thus far has been pretty cogent and quite candid, so I'm 11 going to try and cut through a few principles here. 12 First of all, it seems thus far in the -- in 13 the Inquiry we've been -- we've been focusing on interest 14 rates and I noticed in your -- in your examination-in-chief 15 by Mr. Caskey that -- that you seemed to say that as at the 16 February 3rd meeting, the most important thing that MFP 17 seemed to be bringing to the table was the fact that a 18 possible transaction would be structured and that was, even 19 to you, more important than rates, at that point in time? 20 A: At which meeting? 21 Q: February 3? 22 A: Yes. That was a critical portion of the 23 deal, yeah. 24 Q: Okay. And the rate was -- was good. It 25 was a good thing. It allowed you to afford a bigger facility

109

1 but -- 2 MR. COMMISSIONER: Excuse me, Mr. Berrill. 3 The reporter at the back with his camera. Cameras are not 4 allowed except in accordance with the rules. Have a look at 5 the rules in my staff's office. Pictures can be taken 6 outside or prior to the commencement of the Hearing on any 7 given day or after the termination of the Hearing, at no 8 other time unless you're on a tripod and in a fixed location. 9 Those are the rules, sir. 10 Okay, Mr. Berrill...? 11 12 CONTINUED BY MR. FRASER BERRILL: 13 Q: I'll just repeat that. The rate was a 14 good thing, it allowed you to -- to do a bigger facility -- 15 afford a bigger facility, but the most important thing was 16 structure? 17 A: Well, I think to me -- 18 Q: From your point of view? 19 A: -- to me they're both critical. You 20 can't -- you can't build the park that we built without 21 having either one of those components. 22 Q: All right. And you could always, insofar 23 as the rate was concerned, I guess, default, if you will, to 24 a commercial arrangement where you'd get a -- a commercial 25 rate of interest but if you had the structure, you could do

110

1 that much more with the facility long-term? 2 A: Are you asking me whether we had recourse 3 to a regional debentures at any time? 4 Q: No. I wasn't asking you that. If you 5 just did a straight structured deal in the private -- private 6 market -- 7 A: Okay. 8 Q: -- if you will, you could default to a 9 better rate, or a worse rate from your point of view, if you 10 had to as long as you had the structure in place, you could 11 do what you contemplated -- contemplated doing? 12 A: Well, we would have had to run a 13 different analysis and may have ended up with a different 14 size park and so on, but -- 15 Q: Absolutely. But you'd still have the 16 structure in place? 17 A: The structure was important in either 18 case. Yes. 19 Q: Okay. And the two things, to just not 20 put too fine a point on it, but the two things that structure 21 could give you -- a structured deal could give you that 22 debentures couldn't was the fact that it was a stepped rate, 23 in other words, low at the front and higher at some time in 24 the future, that was one thing. 25 And the second thing was the term of thirty

111

1 (30) years as opposed to twenty (20) or even ten (10) which 2 you had done with debentures in the past? 3 A: Just to be clear, you said a stepped rate 4 and at no time did we think there was a stepped rate as we 5 were going through this deal. There were stepped payments. 6 They're not the same thing so I just want to clear up that. 7 Q: Okay. Well, would you agree with me on 8 this, that if you're not paying anything at the beginning, 9 the rate at that point in time that you're paying on that 10 money that has been advanced to you is zero? 11 A: No. I wouldn't agree with that because 12 the principal was accreting. 13 Q: Is accreting? 14 A: Yes. 15 Q: Okay. In other words, the total amount 16 that you have to pay over time is -- 17 A: Is increasing. 18 Q: -- increasing? 19 A: So it's not fair to say that -- that the 20 rate is zero. 21 Q: But, from a cash-flow point of view, 22 you're not coming out with any money so -- 23 A: No -- 24 Q: -- the interest rate from a cash-flow 25 point of view is zero because you're not paying anything?

112

1 A: No. That's not correct. 2 Q: All right. What's correct? 3 A: The principal is accreting because it's 4 -- the principal is increasing every year based on the 5 interest that's occurred in that year. The payments are an 6 independent calculation. 7 Q: The point is you haven't paid anything 8 though? 9 A: That doesn't matter. The principal is 10 still accreting. 11 Q: All right. That's -- that -- you'd like 12 to stick with that answer then. We're not -- obviously we 13 have a disagreement so I'm not going to pursue -- 14 A: I don't understand what your point is. 15 You're -- you seem to be saying that because we're not making 16 any payments the principal's not earning any interest from 17 MFP's perspective. 18 Q: No. I'm not saying it's not earning any 19 interest, the interest rate, thus far, on what you've paid 20 and what you've -- what you have not paid is nothing, because 21 you haven't paid anything? 22 A: We haven't paid any interest, but the 23 principal's accreting and therefore we'll have to pay at some 24 point in the future. So I disagree with how you're coming at 25 the question.

113

1 Q: Well, we'll agree to disagree on that? 2 A: Okay. 3 Q: Now, the second thing I'd like -- 4 proposition I'd like to put to you is that MFP was a middle 5 man and was perceived as the middle man in this transaction 6 from, essentially, the outset? In other words, a broker? 7 A: You're asking my opinion on this 8 question? 9 Q: Yes. 10 A: I didn't have that perception. No. 11 Q: All right. Do you have that opinion now? 12 A: Absolutely. 13 Q: Okay. Would you say it's fair that you 14 ought to have had that opinion then? 15 A: Based on the representations that MFP was 16 making to us, no. I wouldn't agree with that statement. 17 Q: All right. Would you say, based on 18 Mr. Ford's May 23 memo, which I have called in the 19 vernacular, the sleight of hand memo. I think it was added 20 to your -- to your addendum latterly and I can reach for the 21 tab number unless the Court knows what it is? 22 MS. STACEY HOCKINS: 92. 23 24 CONTINUED BY MR. FRASER BERRILL: 25 Q: Ninety-two. Thank you very much. And

114

1 I'll be referring to this again. And I ask you to, you know, 2 in the penultimate para -- no. Sorry. The largest paragraph 3 in the middle, it's underlined in my copy at Tab 92 4 "MFP is the middle man and structures the 5 deal taking into account ..."? 6 A: Yes. 7 Q: Okay. When you read that memo, I think 8 you testified about a week after it's date -- 9 A: Yes. 10 Q: -- did it register on you then that maybe 11 MFP was a middle man? 12 A: Well, you used the word broker before, 13 not middle man. 14 Q: Well, I used the word middle man first, 15 but -- 16 A: Well, you asked me if I thought they were 17 a broker and I said no. 18 Q: All right. 19 A: After reading this I still wouldn't think 20 they were a broker, no. 21 Q: All right. Would -- would you agree that 22 they were a middleman then? 23 A: In my understanding of the deal, 24 notwithstanding what's written here by John Ford, I wouldn't 25 call them a middleman, no. They were the ones that were

115

1 taking the initiative to structure the deal, our deal was 2 with them, they were the ones deriving the tax benefit, I 3 never viewed them as a broker. 4 Q: All right, well let me ask you this 5 question then. If they weren't the middleman or a broker, 6 they would have to be the principal? 7 A: Okay. 8 Q: There's only two (2) things that you can 9 be, would you agree with me on that? 10 A: Okay. 11 Q: Okay. Now had you looked at MFP's 12 balance sheet? 13 A: No. 14 Q: Well then I'm just going to -- at any 15 time have you looked at MFP's balance sheet? 16 A: No, I don't think I have. 17 Q: So I guess you relied on -- on E & Y's 18 due diligence with respect to that. But my question really 19 has to do with MFP's financial capability to be a principal 20 in a $50 million loan. Did you have any view of that? 21 A: Well we didn't look at it as a loan, we 22 looked at it as a tax structured deal, and to me they're not 23 quite the same. 24 Q: Not quite the same? 25 A: Yeah.

116

1 Q: So somebody had to come up with the 2 money? 3 A: Yes. 4 Q: So did you think it was going to be MFP 5 if they were the principal? 6 A: I would say that was our -- our initial 7 discussion with MFP, yes. 8 Q: All right, and if I told you that -- that 9 -- and it's -- it's a matter of public record, but I'm just 10 going to have to suggest to you that if you'd read MFP's 11 balance sheet at the time, you would discovered -- would have 12 discovered that they had about a $120 million of equity, a 13 lot of which had been invested. Would it have changed your 14 view as to whether or not they could be a principal in a deal 15 like this? 16 A: Well I'd certainly have to get a lot more 17 information than the amount of equity they have -- 18 Q: I guess that's the point -- 19 A: -- before I could make that question. 20 Q: -- you needed a lot more information at 21 that point in time to know whether or not they could have 22 been a principal or if the middleman? 23 A: Well to me that wasn't the issue we were 24 discussing with them, so I didn't really feel it was 25 necessary to investigate --

117

1 Q: All right. 2 A: -- their balance sheet. 3 Q: So I guess we can't come to an agreement 4 that you knew at the time that they were a middleman, except 5 in May 23rd when you read Mr. Ford's memo? 6 A: That I -- I personally -- 7 Q: That would have been the first time that 8 it came through to you that they were the middleman? 9 A: Well I still don't view them as a -- I 10 still didn't view them as a middleman after I read this. 11 Q: I see, okay. 12 A: And -- and so if I -- I can have a 13 different opinion than Mr. Ford. 14 Q: No, no, that's fine, and that's really 15 what I've asked you, so -- 16 A: Yeah. 17 Q: -- we can't agree on that, again. You 18 knew at least, I think your testimony was just -- just about 19 an hour ago, that MFP was going to sell the deal to Clarica 20 though, and you thought in the spring of 2000 that had come 21 -- come home to you? I think Mr. -- Mr. Caskey asked you 22 that question, that you knew Clarica was going to be the 23 investor? 24 A: I didn't answer that question in that 25 manner, I said at one of the meetings we were at, that was

118

1 discussed. But in none of the meetings I was at was that 2 ever a decision that had been made, it was a suggestion that 3 MFP was making -- 4 Q: All right. 5 A: -- and to me there's a big difference 6 between those two. 7 Q: Right. All right, then you were alert to 8 the possibility that maybe somebody was going to buy this 9 loan then, that MFP wasn't going to be putting up the money? 10 A: Well first of all I didn't call it a 11 loan, and I still don't call it a loan at that point in time. 12 Secondly, there was never a discussion about selling anything 13 to anybody, it was about having investors participate in the 14 transaction, and I don't necessarily think those are the same 15 either, as what you're making it out to be. 16 Q: Well I'm -- I'm going to suggest to you 17 that -- that what MFP was doing, as a middleman, was 18 packaging this deal to be sold to other investors, that they 19 didn't have the wherewithal at the point in time -- this 20 point in time, to do a transaction, and that that's what MFP 21 did for a living? 22 A: Okay, I mean looking at what actually 23 transpired, obviously it seems like that's the case, yeah, 24 all right. But at the time of the transaction occurring, I 25 -- you know, we had a different understanding of what kind of

119

1 agreement we were entering into with them. 2 Q: Very good, okay. And looking back on it 3 then, can you tell me that if you just hadn't listened to 4 MFP, maybe you'd done some due diligence or finished your 5 deliberations with E & Y or gotten into it a little deeper, 6 looked at MFP's annual report, for example, that you might 7 have come to this conclusion a little bit earlier, to be 8 fair? 9 A: Well I'd have to agree with the way 10 you've posed the question, we might have come to the 11 conclusion earlier. I don't think anybody can dispute that, 12 if we had taken additional steps, yes. 13 Q: All right. 14 A: But taking additional steps would not 15 have necessarily have alerted us to the fact of what had 16 actually transpired. I disagree with that. 17 Q: All right. That's fine. 18 A: All right. 19 Q: But you do agree that you might have 20 uncovered that that's the way MFP does business, and you 21 might have made the logical synapse that that's what was 22 going to happen in this deal? 23 A: It could have occurred, yes. 24 Q: Yeah, yeah. 25 A: Okay.

120

1 Q: You'd have been on your alert anyway to 2 say, well it looks like MFP's not going to be taking this 3 loan as a principal, it looks like they're going to sell it 4 to somebody else like they've done with every other 5 transaction they've ever done? 6 A: Well we may have found that out, but on 7 the other hand that wasn't really the issue with this, I mean 8 you know, to a certain degree whether they keep the deal or 9 sell the deal is not really the issue, we want a certain 10 rate, that's the issue for us. And I mean they could do 11 whatever they want with the -- with the paper, so to speak, 12 as long as we're paying a certain rate. 13 Q: All right, well -- well we'll get into 14 that in -- in some detail, I'm afraid. I'm -- I'm going to 15 suggest to you that -- that as a broker/middleman, what MFP 16 was doing when they were beavering away with their own 17 business plan, was packaging the transaction so that they 18 could sell it to somebody else, i.e. Clarica. Does that look 19 like maybe what was happening when you look back on the 20 transaction? 21 22 (BRIEF PAUSE) 23 24 A: Well I haven't seen any documents to say 25 that happened or didn't happen, but certainly in the end they

121

1 had a deal done with Clarica, so at some point there must 2 have been some discussions with Clarica. I don't know 3 whether they were shopping it around or not, I haven't been 4 privy to that information. 5 Q: All right, that's fine, but -- 6 A: Yeah. 7 Q: -- chances are good that when you were 8 doing your business model figures and that they were 9 manipulating that and asking you for additional information 10 and they were doing their own business model, it was with a 11 view to selling it to someone else, saying this is -- this is 12 the cash flows we're going to get out of this transaction, 13 you should invest in this, because it's a good deal. It's a 14 great credit rating, we've done a CBRS report, they're an A+, 15 and look at this financial model that we've done based on 16 information that the City has given us, this is a good deal, 17 you should buy it? 18 A: Are you going to ask me a question, am 19 I -- 20 Q: My -- my question is -- 21 A: -- okay. 22 Q: -- the same question I asked before. 23 A: Okay. 24 Q: Do you think now looking back on it, that 25 that's what MFP was doing all the while?

122

1 A: I can't comment on that, because I don't 2 know what MFP was doing. 3 Q: Even today you don't know? 4 A: Well I haven't seen any documentation 5 that tells me they've been shopping it around, no one's shown 6 that to me. 7 Q: Well, Mr. -- with respect, Mr. Friedel, 8 we -- we've seen the business plan that we've talked about. 9 I think it was your Exhibit 20 where we compared MFP's 10 business plan to your own, and that's the one that Clarica 11 had at the famous January -- or June 4th meeting, and 12 presented. Is not something registering here with you? Are 13 you not -- 14 MR. COMMISSIONER: Well, Mr. Berrill, I'm 15 going to interrupt you for just a minute. 16 MR. FRASER BERRILL: Sure. 17 MR. COMMISSIONER: One of the problems I'm 18 having with the line of questioning is that the information 19 that was being used by MFP in the presentation to Clarica was 20 not the information provided by the City. 21 MR. FRASER BERRILL: That's right. 22 MR. COMMISSIONER: And that's I think where 23 the witness is having difficulty coming to grips with your 24 question. Sure, it's clear that there was a presentation of 25 certain figures by MFP to Clarica apparently, but they were

123

1 not the figures from the City. 2 MR. FRASER BERRILL: No, I -- I think -- I 3 think what's in evidence, Mr. Commissioner, is that this 4 witness gave certain information, gave a business plan that 5 I'm going to get into, to MFP. And MFP obviously, we now 6 know, massaged that information, sold the deal to Clarica, 7 and the first time that this witness understood that the 8 business plan was different was on June 4th. 9 And I'm asking the witness if now he knows 10 that what MFP was doing at that point in time was taking his 11 base business plan, making their own projections, selling it 12 to Clarica on a different basis. 13 MR. COMMISSIONER: Well I suppose we can 14 accept that, but -- 15 MR. FRASER BERRILL: That's really what I was 16 getting at. 17 MR. COMMISSIONER: You're going to have -- 18 you're going to have trouble with me, if it's your intention 19 to indicate that the massaging of the City's numbers was 20 legitimate. I don't -- you know, this -- 21 MR. FRASER BERRILL: Well -- 22 MR. COMMISSIONER: -- this witness may be 23 able to comment on that, but he's already commented, if 24 I understand his earlier evidence, that these figures that 25 were -- that he's compared to his own figures, were not

124

1 appropriate, and they were not right. 2 MR. FRASER BERRILL: Oh, no, he's -- he's 3 commented on that, and I plan to get -- get into that with 4 him, in -- in some detail. All I'm trying to establish 5 through the witness, at this point in time, is that he knows, 6 or might have known, during the course, that MFP was working 7 with different numbers, and selling the deal to someone else. 8 MR. COMMISSIONER: Well, I don't know if he 9 knew that or not. Did you know that? That MFP was working 10 with different numbers? 11 THE WITNESS: No, absolutely not, not until 12 June 4th. 13 14 CONTINUED BY MR. FRASER BERRILL: 15 Q: Not until June 4th? 16 A: Right. 17 Q: And my question is, that after June 4th, 18 it dawned on you, at that point in time, that they had sold 19 this deal to someone else, on the basis of other numbers? 20 A: Yes. 21 Q: Okay. Now, will you agree with me on 22 this proposition, that the park and the project was designed 23 to be a pay per use project? 24 A: The park, itself, was designed to 25 establish a certain balance between pay per use and taxation

125

1 support. 2 Q: Okay. And -- and what, sort of, the Riel 3 politic, if you will, of -- of financing in -- in the 4 province, dictated was, that there had to be less and less 5 taxpayer support, and more and more pay per use, as time went 6 on. Was that the -- the basic theme, given that there was 7 downloading coming from the province, and more municipal 8 responsibility. Municipalities had to think more creatively 9 about how they were going to finance this kind of project? 10 A: I'm not sure if government pressures was 11 the driving force behind our desire to be innovative as an 12 organization. It was part of our culture. 13 Q: All right. Let me -- let me draw a 14 comparison between the WRC and, that was the Waterloo 15 Recreational Centre -- 16 A: Yes. 17 Q: -- and the MRP, drawn from your analysis 18 of the two (2). The operating impact of the WRC was to be 19 1,149,000 per year. And it was a much smaller facility than 20 the RIM Park? 21 A: Was it smaller -- you're -- 22 Q: Is that right? 23 A: -- asking me if it was smaller? 24 Q: Yes. 25 A: Yes, smaller both in it's capital value

126

1 and it's floor space. 2 Q: That's right. But the operating impact, 3 from year to year, was, in your testimony, $1.149 million, 4 per year? 5 A: Yes. 6 Q: Okay. And that the MRP, which was a much 7 longer facility -- or, larger facility, rather, its impact 8 was, on the tax base, was 1.2 million per year, going 9 forward? 10 A: Yes. 11 Q: All right. And the WRC was only -- 12 you -- you guessed that it was maybe only three (3) more 13 years that you had to deal with that debenture, to pay -- pay 14 that off. Whereas, in MRP's case, it was going to be for 15 another thirty (30) years, that you were going to have to pay 16 for it? 17 A: Yes. 18 Q: Okay. And that in terms of the expense, 19 as you've indicated in Exhibit 20, that was about $35 million 20 of taxpayers money, over that thirty (30) year period of 21 time, and the balance was going to be investment, over that 22 thirty (30) year period of time. Or rather, lease payments 23 over that thirty (30) year period of time? 24 A: Now, you've lost me. The balance of what 25 was going to be the lease payments?

127

1 Q: The balance of what it cost to run the 2 place, and pay it off -- pay it off. 3 A: Are you sure you don't mean user fees? 4 Q: Well, it was paid in -- financed by way 5 of operating as opposed to financed by the taxpayers, out of 6 taxpayer revenue? 7 A: I think you're mixing apples and oranges, 8 here. 9 Q: All right -- 10 A: The whole park -- the whole park was 11 financed by an upfront payment under the head lease, that's 12 how the financing happened. How as the financing going to be 13 paid for, that's another question. 14 Q: That's the question I'm referring to. 15 A: Okay. Then the answer to that question 16 is, it was going to be paid for by the net proceeds from user 17 fees on the park. 18 Q: Right. 19 A: And taxation support. 20 Q: Right. 21 A: Okay. 22 Q: And what I'm saying is, the taxation 23 support was $30 million, and the user fees were the balance? 24 A: Well, I wouldn't say the balance, they 25 were in the $69 million range.

128

1 Q: Right. Okay. 2 3 (BRIEF PAUSE) 4 5 CONTINUED BY MR. FRASER BERRILL: 6 Q: Now, I want to get back to the issue of 7 structure. And I want to refer to the May 26th letter, the 8 so called commitment letter, on the circled rate. And that 9 was Mr. Stockie's evidence, I think at tab 33. 10 11 (BRIEF PAUSE) 12 13 MR. COMMISSIONER: What have we got here, Mr. 14 Stockie? Did you say tab 32, sir? 15 MR. FRASER BERRILL: Tab 33. 16 MR. COMMISSIONER: 33? 17 18 (BRIEF PAUSE) 19 20 CONTINUED BY MR. FRASER BERRILL: 21 Q: Now, all this letter refers to is the 22 locking in of the rates, at 4.76. It -- it doesn't refer to 23 what you had said was as important, if you will, and that's 24 the structuring aspect. It doesn't refer to that, at all? 25 A: No, it doesn't.

129

1 Q: All right. If, for example, in the May 2 26th letter, it had said, 4.76 for five (5) years, in your 3 view, it would have been unacceptable? 4 A: Well, certainly, because I was using 4.76 5 for thirty (30) years. 6 Q: Right. 7 A: Okay. 8 Q: And this is a bit of Finance 101, but 9 they're basically are several elements that have to be in a 10 so called commitment, before it can be viewed as a complete 11 deal or a complete commitment, if you will. And I'm going to 12 suggest a few, to you. 13 First of all, in -- insofar as rate is 14 concerned, it was incomplete, we know, even on its face, 15 because at May 26th, you were looking for a commitment from 16 MFP for a debenture style loan, as well as just the low rate? 17 A: Yes, not -- at that point in time, we -- 18 we hadn't resolved the issue of what elements of the park 19 would and wouldn't be included in the operating lease, yes. 20 Q: So you were not ad idem, if you will, or 21 you weren't of the same mind, with respect to rate on all of 22 the transaction, if we just refer to the May 26th letter? 23 A: That's right. 24 Q: That's right. The other thing, or 25 another thing, that wasn't in the May 26th letter, was the

130

1 term, the number of years? You didn't know if it was twenty 2 (20) or thirty (30), from reading that, and that would be 3 very fundamental to you, in terms of preparing your model? 4 A: Yes. 5 Q: You didn't know about the structure of 6 the payments, either? You didn't know, to the extent that 7 they would be low at the front and higher at the back end, 8 that kind of thing. You -- you didn't know the profile of 9 the payments? 10 A: You're asking me whether it was included 11 in the document we're just looking at? 12 Q: Right. 13 A: You're right -- correct in saying that it 14 wasn't in that document. 15 Q: It was being talked about at that point 16 in time, in discussions with -- with MFP? 17 A: They were the elements that we were 18 discussing at the meetings, yes. 19 Q: Right. You, in fact, there's a fourth 20 element that was uncertain at that point in time, and that 21 was the amount, as well. You didn't know, really, the size 22 of the park, at that point in time. You had some good ideas 23 but Council hadn't really adopted your business plan, and -- 24 and approved the ultimate model. You didn't know if it was 25 40 million or forty-nine (49), or if the fundraising didn't

131

1 come through and you had to borrow fifty-nine (59), or $56 2 million, you didn't know that, either? 3 A: Well, I believe Council gave us direction 4 on the scope of the park, on February 21st, subject to any 5 variances that may be have been forthcoming. So, just to be 6 clear, I think everybody was looking at the large version of 7 the park, at that point in time. That was not a variable any 8 more. 9 Q: All right. But you will agree with me, 10 though, we didn't know the success of the fundraising program 11 at that point in time, so we didn't know if you had to borrow 12 56 million or forty-eight and a half (48 1/2) or 49 million? 13 A: That's right. 14 Q: All right. You didn't know, as well, 15 what the advances were going to be, in terms of when you 16 would receive the money from MFP, and on what -- in what way? 17 Whether or not you received half of it up front and half the 18 next year or whether they would be staggered advances, you 19 didn't know that either? 20 A: No. 21 Q: All right. You didn't know the 22 transaction costs, I guess, at that point in time and for 23 whose account they would be for; that wasn't mentioned in the 24 May 26 letter? 25 A: I'm not sure what you're asking me again?

132

1 Q: I'm talking about the legals and any -- 2 any brokerage or any tax that had to be paid or transaction 3 incidental costs? 4 A: Who's going to pay the transactions fees 5 and so on? 6 Q: Hmm hmm. 7 A: It's not included in the document, no. 8 But, again, that was one of the elements that we were 9 discussing during the meetings. 10 Q: You hadn't -- hadn't come to ground on 11 that yet? 12 A: No. I wouldn't agree with that. MFP 13 indicated that it would be worked into the rate, their fees 14 would be worked into the rate. 15 Q: Okay. They indicated that? 16 A: Yes. 17 Q: Okay. Is it fair to say then, in your 18 view, that there wasn't -- there weren't the elements of a 19 commitment as at May 26 -- 20 A: Well in my -- 21 Q: -- in so far as they would be enforceable 22 or reliable or be able to be relied upon rather? 23 A: Well the second question you're asking me 24 is a legal one that I think you'll have to ask lawyers. 25 The first one is, did I think there was a

133

1 commitment, for me the commitment was made February 21st when 2 Council passed a resolution because that's what MFP indicated 3 they needed from us in order to place the instruments in the 4 market to give us the rate. So that's what -- that's the 5 date that I view that the commitment was made; not in respect 6 of the letter that you're -- you're referring to here. 7 Q: Right. But the other elements that we've 8 talked about hadn't been agreed upon at that point in time? 9 A: No. They were still discussion points 10 between February and May. 11 Q: Well, I'm not going to ask you to play -- 12 play lawyer, but were any of the other terms that we've 13 talked about, apart from rate, ever formally agreed to or 14 reduced to writing prior to the execution, if you will, of 15 the sub lease and the head lease? 16 A: Not in the discussions that I was 17 involved in, no. 18 Q: Are you aware today as to whether or not 19 it was ever reduced to writing or formally, if you will, 20 agreed to, other than the discussions that you were party? 21 A: You're asking me whether there's any 22 documentation? 23 Q: Hmm hmm. 24 A: I don't think I'm aware of any. Any way, 25 it's not included in my briefs.

134

1 Q: Was there any fee paid to MFP for a 2 commitment to go ahead? I mean, sometimes in financing 3 transactions, you may or may not be aware of, when a 4 commitment is entered into, the lender is paid a commitment 5 fee? 6 A: Sort of like a down payment. 7 Q: No. It's a fee for -- if I agree to lend 8 you money at any time during the next 180 days, I have to put 9 that money aside and I have to be ready to lend it to you and 10 for that, I want a fee? 11 A: No. To my knowledge, we never paid such 12 a fee. 13 Q: All right. Are you familiar with that 14 concept of a commitment -- commitment arrangement? 15 A: Well, it's certainly not the type of 16 thing we do with the region and that's the funding model that 17 I'm familiar with. 18 Q: Yeah, but I'm just asking from your 19 financing experience, if you will, if you're familiar with a 20 -- a commitment -- commitment fee or a commitment 21 arrangement? 22 A: I've never paid one, so I guess the 23 answer to that question is no. 24 Q: All right. Do you know if anybody at the 25 region had that kind of experience?

135

1 A: In terms of paying commitment fee? 2 Q: Yes. 3 A: I've never asked anybody at the region 4 that question, no. 5 Q: All right. To be fair, others in the 6 industry that do structured financing for long-term capital 7 or infrastructure project are out there; are you aware of any 8 of the other people in the market that do that? 9 A: Any specific companies that are in that 10 industry? 11 Q: Yes. 12 A: I probably couldn't name a couple, but it 13 wouldn't surprise me if there were other industry players, 14 yeah. 15 Q: Does GE Capital ring a bell? Are you 16 familiar with what they do? 17 A: No. I'm not. Okay. 18 Q: Okay. All right. Borealis? 19 A: I haven't heard of it, no. 20 Q: All right. Citibank Financial? 21 A: Well, I've certainly heard of the word 22 Citibank -- 23 Q: You've heard of them? 24 A: -- but, I mean, I haven't done any 25 financing with them.

136

1 Q: All right. And you don't know anything, 2 or you didn't know at the time, what the prevailing rates 3 were for the kinds of services that those structuring 4 companies offered? 5 A: No. 6 Q: No. All right. And I assume then that 7 you didn't tender or check with any of these companies as o 8 what the prevailing market was for deals of this nature? 9 A: No. We didn't. 10 Q: All right. 11 12 (BRIEF PAUSE) 13 14 Q: And I'll ask you this question, why you 15 didn't check with these other companies, was it because you 16 didn't know of them, or because the MFP deal seemed so great? 17 A: Well actually for me personally there was 18 another reason, and that was I wasn't in Financial Services, 19 I was in the CAO's office, I was charged with the 20 responsibility of putting the business plan together, the 21 negotiations on the financing was done in Financial Services, 22 that was their role in the organization, so I never viewed it 23 as my responsibility to undertake those kind of 24 investigations. 25 Q: Okay, well I'm -- I'll ask you questions

137

1 about that later, because I'm a little confused about what 2 your role in fact was. But we are agreed, I think we've 3 already talked about the fact that -- that the low rate lived 4 and died, if you will, or the low rate that MFP was offering 5 on the tax structure, that's why they could give such a low 6 rate? 7 A: That's what they represented to us, yes. 8 Q: All right. And -- and you didn't check 9 that out with any other companies that were in that space, if 10 you will, in the industry as to whether or not they offered 11 that kind of tax deal as well? 12 A: I didn't, no. 13 Q: No. Okay. And you don't know if anybody 14 else in Financial Services did that? 15 A: No, you'd have to ask them. 16 Q: Right. 17 18 (BRIEF PAUSE) 19 20 Q: Well then I'm going to have to ask you 21 about what you understood of the tax structure, because you 22 were central to the -- to the deal, as I understood it, 23 because you would take the numbers and put them into the 24 financial plan, and my question -- my questions involve this. 25 What was your understanding, first of all, of

138

1 how the tax structure deal worked? 2 A: At what point in time? 3 Q: At any point in time, start at the 4 beginning and talk about how it metamorphosized, if it 5 changed? 6 A: Well at the beginning we were talking 7 about a tax structure deal, and I think I've noted that MFP 8 presented two (2) different options to us, one -- one they 9 called a charitable trust and one they called a head 10 lease/sub lease arrangement. 11 So I -- I would assume that there's different 12 underlying tax mechanisms to both of those. The one we 13 ultimately used, that MFP suggested to us, was the head 14 lease/sub lease transaction. 15 And I think I've already indicated that it 16 would be related to a CCRA capital cost allowance write off 17 to a certain degree. That was my understanding of it. But 18 to go into further detail on the taxation aspects of it, I 19 can't answer that question because I'm not a taxation expert. 20 Q: Okay, well I'm -- I'm going to have to, 21 for the record, ask you some questions about it and see if 22 these concepts were being talked about at the time, and 23 whether or not you had any familiarity with it. 24 First of all, I think you're explaining that 25 you thought it was CCA or capital cost allowance driven. Can

139

1 you tell me in your understanding how that would work if the 2 Municipality still owned the property? Because I understand 3 it, it's -- it's only the owner of the property that can take 4 capital cost allowances? 5 A: Well I think that's part of the 6 proprietary system that MFP was using and they didn't divulge 7 that information to us, nor did I investigate it, so I can't 8 -- I don't know the answer to your question. 9 Q: So -- so somehow you thought at least, 10 and correct me if I'm wrong -- 11 A: Yeah. 12 Q: -- and you're -- you're quite precise, 13 and I want you to be. But to understand what you're saying, 14 somehow MFP had found a way to transfer the capital cost 15 allowance from the Municipality to itself, or perhaps someone 16 it had sold the deal to, that was your understanding? 17 A: At a high level, I think I would agree 18 with that statement, yes. 19 Q: All right. I think the -- the Mayor it 20 seems was under that apprehension as well. So it was a 21 capital cost that generated a loss, or that was just going to 22 be deductible against income for MFP or some other user? 23 A: Well it's difficult for me to answer that 24 question in terms of how they would treat that -- that 25 accounting transaction in their own books, but it would make

140

1 sense to me if it was -- it was deducted from their net 2 income so they'd pay less tax. You know, at a high level 3 again, that makes sense to me. 4 Q: All right. 5 A: But I -- I haven't looked into those kind 6 of details. 7 Q: Okay. Can you tell me what you thought 8 about how much capital cost allowance the project would 9 generate? Did you ever sit down and do that calculation? 10 A: No, I -- no, I didn't -- I didn't. 11 Q: Okay. 12 A: But, I -- you know -- okay, just keep 13 asking the questions, sorry. 14 Q: So -- so, you didn't do it. Have you 15 done it today, or -- ? 16 A: No, I haven't. 17 Q: All right. Okay. 18 A: I mean, the taxation implications were 19 MFP's responsibility, not the City's responsibility. We 20 were -- we were buying a service or a product, so to speak, 21 and ordinarily when we're doing business with people, we 22 don't inquire into their business practices because, if I go 23 to Home Depot and I buy some lumber that's on sale, I 24 don't -- I don't ask them how it's possible that they can 25 give me such a good deal, because maybe they -- they got a

141

1 deal buying it from Argentina or something. 2 But, -- 3 Q: Okay. 4 A: -- normally, that's not how we do 5 business. 6 Q: Okay, well I'm going to ask you some 7 questions about that, so just save that -- 8 A: Okay. 9 Q: -- that thought, for a moment. 10 A: Okay. 11 Q: I've got a few more questions about 12 the -- the tax -- tax situation. So you didn't do any 13 calculations about the quantum of the loss? 14 A: No. 15 Q: So you didn't know what benefit MFP was 16 receiving in terms of ultimate dollars, if you will, or 17 write-off dollars? 18 A: No, because the issue to us was, how that 19 translated into the rate they'd be able to deliver to us. 20 Q: Right. So you didn't do a calculation? 21 A: No. 22 Q: Did you do any calculations or any 23 estimation as to when that cost could be used? 24 A: No. 25 Q: Because you didn't query the quantum, so

142

1 you didn't know when that loss could be used, either? 2 A: No, because what mattered to us was the 3 rate we were getting, now how MFP was going to be treating -- 4 Q: Okay, you're just -- I'll just keep 5 asking this list of questions because I think it's important. 6 A: Okay. 7 Q: Because -- did you think, or did you ask 8 yourself the question, whether or not those losses were then 9 going to be used over thirty (30) years, or used up front? 10 A: I didn't ask myself that question. 11 Q: You didn't ask yourself that question. 12 A: No. 13 Q: Okay. Did you think maybe, at that point 14 in time -- well, let me ask you this question, first. There 15 was a tax ruling that was anticipated, to make sure that MFP 16 could continue to do this -- do this deal. And I take it, 17 from what you've said up until now, that you weren't 18 interested, necessarily, in seeing that, either? 19 A: No, we had verbal assurances from Mr. 20 Robson that the ruling had been obtained. And again, that -- 21 that related to their own business practices, not to the 22 City's business practice. 23 Q: Okay. And I think you said before, it 24 was proprietary. And I'm going to ask you whether or not you 25 ever asked them, to say, I'm prepared to sign a non-

143

1 disclosure agreement, or that kind of thing, so that I can 2 see that this thing is for real, this tax mumbo jumbo -- 3 A: No, I never made that request, no. 4 Q: No. Do you agree with me that, without 5 tax structuring, the transaction wouldn't have worked? In 6 other words, that's what MFP was saying, I can give you this 7 low rate because of the tax structuring? 8 And if the tax structuring, therefore, didn't 9 work, that MFP couldn't offer that rate? 10 A: I'll agree with the first part of your 11 comment -- 12 Q: Hmm hmm? 13 A: -- when they were saying that this -- 14 this deal is -- is based on a tax structure. But I -- I 15 would not agree with your second statement, because they 16 indicated to us that they had other taxation type models that 17 they could look at, if the head lease, sub lease didn't work. 18 Q: Okay. 19 A: Okay. 20 Q: And, if they went through all of those 21 models, and none of them passed muster, it might not work and 22 you might not get the low rate? 23 A: That seems reasonable, yes. 24 Q: Okay. That it really was contingent on 25 some kind of tax structure happening?

144

1 (BRIEF PAUSE) 2 3 A: Yes, I think I'd agree with that, yes. 4 Q: Okay. 5 6 (BRIEF PAUSE) 7 8 Q: Now, you -- you had an understanding that 9 it was based on capital cost allowance. And I've shown you 10 Mr. Ford's memorandum of -- of -- to Mr. Stockie of May 23. 11 Let's -- let's get that out, that's at tab 74, I believe. I 12 haven't -- I'm sorry. 13 14 (BRIEF PAUSE) 15 16 MR. COMMISSIONER: This is? 17 MR. FRASER BERRILL: Tab 74 of Mr. Friedel. 18 MR. COMMISSIONER: Of Mr. Friedel. 19 MR. FRASER BERRILL: Oh sorry, 77 I believe. 20 I think I got that. No, it's not? 21 MS. STACEY HOCKINS: Addendum, 92. 22 MR. FRASER BERRILL: 92? It was 74 of 23 Stockie's, so, it's 99 of Mr. Friedel's. 24 MR. COMMISSIONER: Okay. Let me find it? 25 Have we decided which one it is?

145

1 MR. FRASER BERRILL: You can either get it 2 from Mr. Stockie or Mr. Friedel. 3 MR. COMMISSIONER: Well, who do you want it? 4 MR. FRASER BERRILL: Let's get it from 5 Mr. Friedel. 6 MR. COMMISSIONER: All right. 7 MR. FRASER BERRILL: It's 99 -- 92. 8 MR. COMMISSIONER: That's in the addendum? 9 MR. FRASER BERRILL: That's in the addendum 10 sir. 11 THE WITNESS: Just to be clear, my name's 12 Friedel, not Friedel. 13 MR. FRASER BERRILL: Friedel, I apologise. 14 MR. COMMISSIONER: We've all had trouble with 15 that. 16 THE WITNESS: I'll keep correcting. 17 MR. COMMISSIONER: Especially Mr. Caskey. 18 Okay. Tab 92 of the addendum, Volume 1, Exhibit 18. 19 MR. FRASER BERRILL: That's correct. 20 21 CONTINUED BY MR. FRASER BERRILL: 22 Q: I had showed you this, but it was with 23 reference to -- to our middleman discussion. Mr. Ford 24 embarks on a -- an explanation of the way he thought the tax 25 elements of the deal worked and I note there it had nothing

146

1 to do with capital cost allowance. 2 It was how they treat the head lease payments 3 for tax purposes; and did you still think at that time it was 4 maybe capital cost allowance driven or income loss driven? 5 In other words, MFP was taking an income loss upfront because 6 the tax payments were -- were different for timing purposes? 7 A: I -- 8 Q: Or did you think, at all, about it? 9 A: I -- quite frankly, I wasn't looking at 10 those aspects of the deal. I was working on the business 11 plan not -- not asking those types of questions on their side 12 of the transaction. 13 Q: All right. So Mr. -- Mr. Stockie gave 14 you this memo and did you expect that he was giving it to you 15 for a purpose or just to file? 16 A: Well, this was -- this was a covering 17 memo on an early lease document, I believe; right? 18 Q: Right. 19 A: I don't think he was looking for any 20 comments back from me. At the -- at the time that this 21 transaction was occurring, the correspondence related to this 22 project was mostly flowing through my office, so I didn't 23 find it unusual that he would have passed this document along 24 to me. But, as I said, Mr. Ford was doing the negotiations 25 with MFP so I -- I didn't take any action on this or the

147

1 attachment to it. 2 Q: Fine. Did you ever talk to Mr. Stockie 3 about how this worked? How the tax aspects worked or did you 4 ever get an understanding that he understood how it worked? 5 A: I don't think I ever discussed it with 6 him, no. 7 Q: You didn't talk to him? 8 A: No. 9 Q: I don't mean to badger you here, but it 10 was the basis of the low rate you were getting and I think 11 you've just agreed that it rose and fell on a tax structure 12 but, from your point of view, it wasn't within your bailiwick 13 so therefore it wasn't important to you? 14 A: Well, the rate was important to me and 15 the structured payments were important to me because those 16 were the things that made the business plan work at 17 $1.2 million annual tax base support. 18 Q: Right. But the fact that you didn't know 19 what the tax structure was and the tax structure drove the 20 rate didn't -- wasn't your responsibility, let me put it that 21 way? 22 A: I didn't -- 23 Q: Somebody else was looking -- 24 A: I didn't view it as my responsibility, 25 no, and I didn't ask any questions in that respect.

148

1 Q: All right. Were you confident that 2 Mr. Stockie knew what was going on and he was up to date on - 3 - on the nature of the tax structure and the fact that it 4 would probably work? 5 A: I think -- 6 Q: Or did you have an opinion? 7 A: It's difficult for me to comment on 8 whether he was up on it or not, but I can't recall having a 9 conversation with him about this issue, so he would have had 10 to have been getting that information somewhere else, if, 11 indeed, he was getting the information. 12 Q: All right. I'm asking the same question 13 with respect to Mr. Ford? If you knew that, apart from the 14 May 23 memo, he knew what was going on with respect to the 15 tax structure? 16 A: Well, he -- I guess I can only say that 17 he was in a lot of the same meetings that I was in with MFP 18 so he would have heard the same information. But, I believe 19 that the discussion that Mr. Ford had with MFP went beyond 20 those meetings as well and I can't comment on what was 21 transpiring in those meetings or discussions. 22 Q: Do I take it then from what you've said, 23 that you were working under the assumption that Mr. Ford knew 24 what was going on? 25 A: I was working under the assumption that

149
  1  he was doing the negotiations on the financing, yes.
  2                 Q:   All right, but my question was a little
  3  more specific, did you have an assumption that he knew about
  4  the tax structure deal and how it worked?  Not that he was
  5  just doing the negotiations, but that he knew or understood
  6  what the tax structure deal was?
  7                 A:   No, I don't think I would have had that
  8  assumption, I don't -- I can't recall ever hearing that it
  9  was a necessity for the City to understand the tax structure
 10  of the deal, so I can't agree with your statement, no.
 11                 Q:   All right.  I'm -- I'm going to ask you
 12  specifically about your Home Depot analogy.
 13                 A:   Okay, sure.
 14                 Q:   And -- and put this to you, that -- that
 15  as a general rule, when you negotiate with somebody on a
 16  transaction such as this, you should know what's in it for
 17  them, as well as what's in it for you?
 18                 A:   I don't think I necessarily agree with
 19  that statement, no.
 20                 Q:   All right, well let me -- let me put to
 21  you a few reasons why that might be the case, and then we'll
 22  see if that changes your answer.
 23                 If you know what's in it for the other side,
 24  you're in a better position to bargain with them.  I mean if
 25  you knew because of a tax structured deal that MFP was

150

1 getting a fantastic tax loss arrangement here, you could say, 2 well how about a 4.2 interest rate as opposed to the 4.6, 3 because you're making all this money? 4 A: Or you may be in a better position to 5 negotiate, but you may -- you may not. You're -- you're 6 making an assumption there that I can't agree with. It may 7 affect the negotiations but it may not, you may end up in a 8 worse spot because you begin negotiations. 9 I believe the important thing is here, is that 10 both MFP and the City came to the table and said, let's try 11 and do a deal together and -- and not wrangle over specific 12 issues as much as we can, because we can both benefit from 13 this relationship, with a view to doing more deals in the 14 future. 15 Q: But it -- but it was a business 16 relationship that you were entering upon and -- and wouldn't 17 you say that it's prudent, and that's a word that you like to 18 use and I think it's a good word, to know what's in it for 19 the other side when you strike a business relationship, or 20 negotiation? 21 So you -- 22 A: I believe -- 23 Q: -- it puts you in the same bargaining 24 position? 25 A: -- well I believe that -- that the word

151

1 partnership needs to be put on the table here as well, 2 because you've called it a business -- business transaction, 3 I would -- I would say there was a lot of discussion about 4 coming at this as a partnership and I think there's a 5 different element of trust when you're coming at it from a 6 position of partnership. 7 And a lot of the discussions we had were -- 8 were based on trust and you -- you need to trust people in 9 the business world, as well as other parts of your life, and 10 I think you know, we relied on that. 11 Q: So -- so normal commercial business 12 principles are bent a little bit because you have a -- a 13 partnership as opposed to a business relationship? 14 A: That was -- I would say that was the 15 basis of some of the discussion that we had, yes, I wouldn't 16 call them bent, you're making it seem like a bad thing. I 17 think it's a -- it's a productive thing, because you don't -- 18 you're not asking those types of questions, you're both 19 working together towards a common goal. 20 Q: All right, well then you won't -- you 21 won't agree with me that it's a good thing to know what the 22 other side is getting, because it -- it doesn't necessarily 23 make your bargaining position any stronger. 24 Do I take it then that -- is that what you're 25 saying?

152

1 A: I'm saying that it may or may not have an 2 imp -- improvement on your bargaining position, you're making 3 an assumption there. 4 Q: It doesn't do you any harm, Mr. Friedel, 5 to know what's in it for the other side? 6 7 (BRIEF PAUSE) 8 9 A: Okay, I'll agree with that I suppose, you 10 know -- 11 Q: Thank -- thank you very much. 12 A: Just so we can -- just so we can move on 13 here, but -- 14 MR. COMMISSIONER: I'm not sure I do, but he 15 does. 16 THE WITNESS: Yeah, I -- well I -- 17 18 (BRIEF PAUSE) 19 20 THE WITNESS: You're making a -- you're 21 making an assumption that all the information that you would 22 get by doing this research is something that would make your 23 position stronger, and I -- I can't agree with that. 24 25 CONTINUED BY MR. FRASER BERRILL:

153

1 Q: All right. I don't want to take a lot of 2 time on this because -- I'll move to the next one, and I'm -- 3 I think that it's important to put this to you, that it's 4 important to know what's in it for the other side, to test 5 whether or not they're serious about doing a deal. 6 If it was only a marginal benefit to MFP, in 7 other words, they might walk away from it if they weren't 8 getting much out of it? 9 A: Well, again, you're -- you're talking 10 in -- sorry, sorry, in very general terms because, I assume 11 you're talking about the financial benefit to the company? 12 Q: Absolutely. 13 A: Okay. But there's other benefits in any 14 transaction, as well. 15 Q: Well, let's talk about the financial, 16 first. I mean, if that -- 17 A: Well, I -- I don't think you can. I 18 don't think you can take an isolated component of a deal, of 19 any transaction, and say, let's only evaluate it on that -- 20 on that merit, because, there's other aspects that you need 21 to consider, as well. 22 So, for example, it's common business practice 23 to offer a low rate, in order to get somebody's business, so 24 that they can test your services and see that you -- you 25 provide a good level of customer service, and you move

154

1 forward together, to establish a rate that is more beneficial 2 to both. 3 But, it's that low rate that's going to bring 4 you in the door. 5 Q: But this was a $50 million transaction, 6 this was the largest loan that you'd ever done, this wasn't 7 exactly a lost leader. This wasn't a tester. 8 A: No, no, but you're -- you're reversing 9 the issue here. The person -- the people that are giving us 10 the low rate, are -- is MFP. And they're the ones that 11 are -- are wanting to do business with us, just like we want 12 to do business with them, right? 13 So they're going to offer us an attractive 14 rate because they want -- it's their business, you said it 15 yourself. They want to -- it's their line of business, what 16 they do. So they want more customers. And if they can have 17 a happy customer, I think that's beneficial to their 18 business, as well. 19 Q: All right. This is all coming back to 20 whether or not you thought it was important to know what they 21 were getting out of the deal, and I think that I'm getting 22 the answer, that -- from you, that it wasn't important to 23 you, to know what MFP was deriving from this transaction? 24 A: No, I don't think it was. 25 Q: All right. That's fine.

155

1 A: Okay. 2 Q: On just one third proposition to see if 3 this tips you over the edge. 4 You need to know that it's worthwhile for them 5 to do the deal, to see if it's logical that it's going to 6 happen, that it's going to close, that it's going to 7 eventually pass the smell test and occur, because it's the 8 only transaction you've got hanging out there. 9 MR. COMMISSIONER: I don't think that that's 10 really fair to put that to the -- the witness can probably 11 answer it, but it's not the only transaction that's out 12 there. 13 MR. FRASER BERRILL: Well, they weren't 14 dealing with anybody else. 15 MR. COMMISSIONER: They've got the debenture 16 route to turn to, if MFP walks away. 17 MR. FRASER BERRILL: Well I thought, Mr. 18 Commissioner, we'd established, early on, that -- in fact, it 19 was the first question I asked, that the structured 20 transaction was important, as important as the rate. And -- 21 and -- and you can't get that by way of debenturing. You 22 can't get a stepped -- well, a stepped rate, you can't get 23 a -- a payment schedule, it's different, and you can't get 24 more than a twenty (20) year deal. 25 MR. COMMISSIONER: Well, then they don't do

156

1 the deal the way the ultimate model is put to you -- is put 2 to you. 3 MR. FRASER BERRILL: Well, I'm going to be 4 suggesting to the witness, Mr. Commissioner, that at 5 September 25th, it was a little too late, because they didn't 6 have a commitment until September 25th. 7 In fact, this building was part way up. 8 MR. COMMISSIONER: I thought I'd -- I thought 9 the question had been put, during the course of the evidence 10 of this witness, or Mr. Stockie, that -- that debenture 11 financing was still available to them. 12 MR. FRASER BERRILL: Well, they may have said 13 that, Mr. Chairman -- or, Mr. Commissioner, but I don't 14 believe that that's the case, and I -- 15 MR. COMMISSIONER: Well, okay -- 16 MR. FRASER BERRILL: -- and I hope to 17 establish that. 18 MR. COMMISSIONER: I'm not going to argue 19 with you, anymore than I'm going to let you argue with him. 20 So -- 21 MR. FRASER BERRILL: I -- I can't convince 22 him and that's fine. But I -- 23 MR. COMMISSIONER: I think you should move on 24 to another topic. 25 MR. FRASER BERRILL: Well, my questions are

157

1 now on the record, and -- and -- 2 MR. COMMISSIONER: That's fine. 3 4 CONTINUED BY MR. FRASER BERRILL: 5 Q: I'm also going to suggest to you, that, 6 you must understand the deal, fully, before you proceed, 7 especially when the taxpayers dollars are at risk? 8 A: I think it's our responsibility to 9 understand what our commitments are, when taxpayers dollars 10 are at risk, yes. 11 Q: But you won't agree with me that it's not 12 your responsibility to understand the deal fully? 13 A: We were entering into a transaction for a 14 certain rate, and whatever the mechanism was that MFP was 15 using, it was not our responsibility to -- to delve into. 16 We're not the taxation consultants on the deal, we're buying 17 a rate. 18 Q: Well, there's two (2) things I'm going to 19 suggest to you, that you prudently should know a bit more 20 about the transaction then just the fact that this person has 21 promised a rate? Made no legal commitment, no contract for 22 this rate, just that they had said, and I think the 23 expression in the February 21 memo -- or rather Council 24 report was -- was talking about a rate in this regard, 25 especially when they had a limited appetite to do deals?

158

1 A: Well, I think I did my background check 2 when I engaged Ernst & Young to see whether this was a 3 reputable company. It is a reputable company, it's traded on 4 the Toronto Stock Exchange. They had done deals with other 5 municipalities. So, none of those things raised flags to me 6 as to, boy, you should check out the tax deal because maybe 7 it's not going to work. 8 Q: All right. Mr. Stockie suggested that -- 9 that if, for some reason, MFP went away, that the tax 10 structure didn't work or that -- that kind of thing, went 11 away from their quote, end quote, _commitment_, that -- that 12 you could sue on it or take some kind of legal recourse; did 13 you address that in your own mind? 14 A: I've never considered whether -- what our 15 legal capabilities could be. And, again, I'm not a lawyer so 16 I think I'm not qualified to make a comment on that. 17 Q: All right. Did you ever raise with 18 Mr. Stockie, up until September 25th, certainly after the 19 commitment of the 120 days -- or 180 days rather for the rate 20 had expired, that perhaps we're in some jeopardy here with 21 respect to our financing? 22 A: No. I never talked with Mr. Stockie 23 about it, but I never questioned it myself either. 24 Q: You continued to rely on MFP because had 25 a -- a partnership?

159

1 A: I believe that we made a commitment on 2 February 21st when Council passed a resolution which was what 3 MFP was asking us to do in order that they could place the 4 instruments in the market, yes. 5 Q: Right. And that commitment was for 180 6 days? 7 A: At the time the commitment was made, 8 there was no discussion about a time limit. 9 Q: Okay. The May 26th letter refers to a 10 time commitment of 180 days from February the 22nd, from the 11 date of the meeting, after 180 days did you express a concern 12 that we don't have a commitment with respect to a rate? 13 A: No. I wasn't involved in negotiations at 14 that point in time. 15 16 (BRIEF PAUSE) 17 18 Q: Now, in your world, as I understand it, 19 because you had prepared the financial model, if you will, 20 you had a pretty good idea of what to look for in the sub 21 lease payments in terms of amounts from time to time? 22 A: You're -- can you rephrase the question? 23 I think I know what you're asking, but I just want to be 24 clear. 25 Q: That may be awkwardly worded. If the sub

160

1 lease had come to you, the first thing that you would look 2 for is the payments under the sub lease because you had a 3 pretty good idea in your own mind, having worked with the 4 financial models for months, at that point in time, what they 5 should be? 6 A: Yes. I agree with that. 7 Q: Okay. And if the sub lease had been 8 presented to you early on, you would have checked to make 9 sure that those payments jived, if you will, with what you 10 thought they should be? 11 A: That's a likely course of action that I 12 would have taken, yes. 13 Q: How, if at all, was your expectation with 14 respect to those payments communicated to others within the 15 organization? 16 A: You're asking me how other people knew 17 what the structure of the payments were supposed to be? 18 Q: Yes. 19 A: Okay. All right. I sent the information 20 to Mr. Ford, obviously, so he was in possession of it. I 21 reviewed it with a member of the finance department in 22 February of 2000. 23 Q: Just stopping there for a moment? 24 A: Yes. 25 Q: Would -- would that have been

161

1 Wayne Steffler or Heather Card or -- 2 A: I believe that it was Wayne Steffler but 3 I'm not positive and I said earlier the reason I would have 4 met with him is because he was the financial representative 5 for recreation and leisure and this was a rec and leisure 6 park, so it made sense to -- to meet with him. I -- I can't 7 remember specifically who it was I'm sorry, but -- 8 Q: Let me just stop there, before we gloss 9 over it. 10 A: Yeah. 11 Q: Did you put the spreadsheet in front of 12 him and say, these are the payments under the operating 13 lease? 14 A: Well I wouldn't have put it in front of 15 him so to speak, I would have been using a computer screen. 16 Q: Okay, fine. 17 A: Okay, so, yeah, we would have gone 18 through each of the tabs in the plan, similar to what we've 19 done here, starting at the beginning with the capital and 20 assumptions and cash-flow and all that, yeah. 21 Q: All right. 22 A: So and then when Linda Whittaker was 23 hired as the financial consultant for the Park itself and 24 devoted a lot more attention to it, I would have gone through 25 that exercise with her again, and as I -- I noted yesterday,

162

1 I transferred all of my files over to Finance so that they 2 could have access to all the work I had done over the 3 preceding six (6) months. 4 5 (BRIEF PAUSE) 6 7 Q: Was there a budget prepared with respect 8 to the amounts to be expected to be paid under the sub lease? 9 A: Aside from the first five (5) years? 10 Q: Yes. 11 A: Well the first five (5) years are 12 detailed in the business plan and then -- 13 Q: That's the business plan, but I'm talking 14 about the budget process? 15 A: You're talking about the operating budget 16 process? 17 Q: Yes. 18 A: No, because at that time the operating 19 budget was -- believe it or not, it was one line, because we 20 didn't know what the operations were going to look like at 21 that time. So Council had approved a budget allocation of 22 four hundred thousand dollars ($400,000) and it was a single 23 line in the budget. 24 Q: All right. And budgeting is it just a 25 yearly process, you don't do a -- a budget beyond one (1)

163
  1  year?
  2                 A:   Well we -- we -- we try and do three (3)
  3  year rolling budgets, but there wouldn't have been any detail
  4  beyond that either, because we were still working through the
  5  business plan what operationally it was going to look like.
  6                 So there would have been -- only have been one
  7  (1) line at that time, and it would have been equal to the
  8  gross amount that was being raised from taxation for support
  9  of the Park, the first year it was four hundred (400) and
 10  then it was 1 percent of taxes after that.
 11                 It wouldn't have been -- let me -- let me just
 12  clarify.
 13                 Q:   Sure.
 14                 A:   It wouldn't have been until the 2001
 15  budget process that we actually would have been looking at
 16  the detailed line items for the Park.
 17                 Q:   All right, well let -- 
 18                 A:   Okay.
 19                 Q:   -- let me take you there then.
 20                 A:   Okay.
 21                 Q:   To 2001, because -- 
 22                 A:   Right.
 23                 Q:   -- that really was what I was getting at. 
 24  I didn't expect there would be a budget amount -- 
 25                 A:   Okay, you didn't expect --

164

1 Q: -- prior to that, but did it have an 2 account number, financing? Did you assign an account number 3 to it? 4 A: That's something Linda Whittaker would 5 have been driving that process, but, yeah, I mean there would 6 have been a -- a capital financing type of line -- 7 Q: Okay. 8 A: -- in the budget. 9 Q: And you would have been helping Linda do 10 that, because you set up the budget, the -- the chart of 11 accounts for the whole project didn't you? I think you -- 12 your testimony, I think it was yesterday or the day before, 13 was that money was starting to be sent -- spent, so you set 14 up a budget for the project, so that people could keep track 15 of -- 16 A: Okay, but just to clarify, those -- those 17 budget lines are for capital expenditures and that's part of 18 the capital budgeting process, and I think what we're talking 19 about here is the operating budget, which is where we would 20 record the debt charges on an annual basis. 21 So, yes, I set up the capital accounts and I 22 set up the operating accounts for the fundraising and the 23 office operations in the trailer, but the -- the full 24 detailed version of the budget for 2001 is something that 25 Linda would have done as part of her duties. I would have

165

1 been a resource to her if she had questions -- 2 Q: Okay. 3 A: -- but I wasn't involved in the -- 4 Q: And did she have any questions of you as 5 to what amounts to set up in her operating budget or her 6 capital budget, with respect to financing for the year 2001? 7 A: Well I'm sure we must have talked about 8 it, but I can't remember a specific question. 9 Q: All right, where would you have gotten 10 that information to give to Linda Whittaker about what 11 amounts she should budget for 2001? 12 A: I would have got it from the financial 13 plan. 14 Q: From your financial plan? 15 A: That's right. 16 Q: Not from the documents themself, but the 17 head lease and the sub lease, you would have gotten it from 18 the financial plan? 19 A: That's right, as I've already testified, 20 I didn't look at the head lease and sub lease until I was 21 asked to get involved in the project again in May of 2001. 22 Q: I mean is -- is that good practice, Mr. 23 Friedel? 24 A: It's Friedel. 25 Q: Friedel, I -- I apologize. To go from

166

1 the business plan to get the budgeted amounts or to go from 2 the source documents to get the budget amounts. In other 3 words, the actual documents that give rise to the payments? 4 A: Well, it would make sense to go to the 5 source documents, but I believe the payments were zero (0) in 6 the early years, as you've pointed out yourself. 7 Q: So you were -- you were setting up zero 8 (0) in any event, so you had no reason to go to the source 9 documents? 10 A: I was getting my information from my own 11 financial plan, and I can't speak to where they were getting 12 any other additional information. 13 14 (BRIEF PAUSE) 15 16 Q: When you left Finance, and I think it was 17 in July, or you said late summer I think of '99, August -- 18 A: Late summer, yeah. 19 Q: -- late summer. Did you do a -- a 20 closing -- or who -- who took your -- who took your place 21 there? 22 A: That's why I can't give you a specific 23 date when I left Finance, it was kind of a -- a phased 24 approach because there was some delay in hiring a replacement 25 person for my position.

167

1 And the person that came after me was Heather 2 Card. 3 Q: Okay, and when did Ms. Card arrive? 4 A: Well Ms. Card was already a member of the 5 Financial Services Team, and I -- I -- I'm not sure what her 6 exact start date was. 7 Q: Okay, so she was taking over your 8 responsibilities with respect to this project insofar as it 9 affected financing? 10 A: No, I don't think I would agree with that 11 statement. We were -- we were -- as I mentioned, in the fall 12 of 1999 we were trying to put together two (2) separate 13 business plans, one from the community group and one from 14 staff. And I was involved in -- in the staff's initiative, 15 and -- and also a resource person to the community group. 16 And those two (2) eventually came together in late 1999, and 17 that's not something that I would have handed over to Ms. 18 Card, no. 19 So from a business plan perspective, she 20 wouldn't have been involved in that. 21 Q: From the business plan perspective, but 22 from your involvement with the financing? 23 A: I wasn't involved in the financing at 24 that point. 25 Q: Well you were -- you were at meetings

168

1 with Mr. Ford or Mr. Stockie with MFP, and you were 2 discussing rates, and you were discussing structure and -- 3 A: Okay, but now you're talk -- 4 Q: -- you were taking a role? 5 A: -- okay, but now you're -- okay, and I 6 guess I just want to be clear on the time frame, I'm talking 7 about the autumn of 1999? 8 Q: That's right. 9 A: Okay, we hadn't talked about financing 10 for MF -- for the Millennium Recreation Park at that time, in 11 my view. I had never met anybody from MFP, for example. My 12 -- my involvement started in January of 2000, and I think 13 what you're trying to get at is -- is the time frame here; 14 right? 15 Q: Right. 16 A: So I'm trying to be accurate. 17 Q: All right. Well then you took some 18 responsibility with respect to financing, because you 19 contacted E&Y, and started a due diligence process with 20 respect to MFP? 21 A: Yes, in my role -- that was -- that was 22 in conjunction with my role as team leader of Financial 23 Services. 24 Q: Okay, and that was back in '99? 25 A: Yes.

169

1 Q: Okay. So you were aware of the kind of 2 service, if you will, that MFP was offering. And your 3 testimony is that that hadn't extended yet to the MRP, but 4 only dealt with the Library and -- and the parking garage? 5 A: Well actually only with the parking 6 garages in my view, but -- 7 Q: All right. You -- you agree with me? 8 A: Yeah, I agree with that? 9 Q: Okay, so you had done some -- some due 10 diligence on MFP, and then with respect to the parking garage 11 only, let's put it that way -- 12 A: Okay. 13 Q: -- then, did you sit down with Heather 14 Card at that point in time, or say do a hand-off memo to her 15 and explained to her the work that you had done in regard to 16 MFP? 17 A: No, I wouldn't have told her about the 18 work I did with MFP, but I did sit down with her and give her 19 the files related to First Gulf, because then she started 20 doing that analysis. 21 Q: Okay. So that the due diligence you've 22 done with E & Y for example, was -- was kind of wasted, you 23 didn't pass that on to anybody? 24 A: Well I don't -- I wouldn't use the word 25 wasted, I had satisfied my own concern that I had on behalf

170

1 of the City, and it turned out that they answered the 2 questions I had and there was no reason for there to do any 3 further investigation into the background of the company, so 4 I don't think it was wasted. 5 And the answer to your other question is, no, 6 I didn't share that with anybody at the City. 7 Q: All right, so no one else at the City had 8 the benefit of it, just you, and as far as you were 9 concerned, if it passed your muster it was okay? 10 A: Well I think it had to pass both Ernst 11 and Young and my muster, so to speak -- 12 Q: Right. 13 A: -- and you're right, I didn't share it 14 with anybody else at the City. 15 Q: Right. 16 17 (BRIEF PAUSE) 18 19 MR. COMMISSIONER: Is this a convenient time 20 to break? 21 MR. FRASER BERRILL: Yes, it is. 22 MR. COMMISSIONER: Fifteen (15) minutes. 23 THE REGISTRAR: The Waterloo Judicial Inquiry 24 now stands recessed for fifteen (15) minutes. 25

171

1 --- Upon recessing at 3:15 p.m. 2 --- Upon resuming at 3:42 p.m. 3 4 THE REGISTRAR: The City of Waterloo Judicial 5 Inquiry is now resumed, please be seated. 6 MR. COMMISSIONER: Mr. Berrill...? 7 8 CONTINUED BY MR. FRASER BERRILL: 9 Q: I take it, Mr. Friedel, that -- that 10 there was pretty good communication in the City among the 11 Senior Management Team with respect to issues like this? I 12 mean, you would talk about these kinds of things from time to 13 time, there were no barriers to free flow of information? 14 A: Among the Senior Management Team? 15 Q: Hmm hmm? 16 A: I didn't perceive there to be any, no. 17 Q: You alluded in your testimony just at the 18 end of Mr. Caskey's questions that you had a bit of a problem 19 in your working relationship with Mr. -- Mr. Ford. And you 20 expected that that had maybe something to do with a lack of 21 communication that might have given rise to some of these 22 problems? 23 A: Are you asking me a question? 24 Q: Yeah, I'm asking you to elaborate on 25 that.

172

1 A: Okay. Yeah, well Mr. Ford and I have 2 different work styles, and sometimes that created a bit of 3 conflict in -- in the way we approached problems, and as time 4 went on, you know, that -- that situation didn't get better. 5 And I think as I -- as I said this morning, I 6 think one (1) of the reasons why I went to be the Executive 7 Assistant to Tom Stockie is because that was a place where I 8 could continue to develop and -- and work with a different 9 Senior Manager than Mr. Ford, yes. 10 Q: Okay. And it confuses me a little bit, 11 because when you went to become Mr. Stockie's Executive 12 Assistant, you took with you the responsibility for the 13 modelling and the business plan, with respect to the Park, 14 which included pro forming the financing? 15 A: Well, I wouldn't exactly say that. The 16 whole modelling and -- and doing the pro forma hadn't begun 17 yet when I moved up to -- to be the Executive Assistant; that 18 was something that started while I was up there. 19 The involvement that I had had with the Park 20 up until that time was more as a result of my position as 21 team leader of Financial Services, and in that position I 22 oversee the preparation of the capital and operating budgets, 23 and of course, we had to make some provision for a project of 24 this size in those documents. But the details weren't being 25 discussed at that time.

173

1 Q: All right. So -- so but you -- you did 2 have, while you were Mr. Stockie's assistant, the 3 responsibility for analyzing the Park and preparing the 4 business plan and the financial model. 5 And the problem was that you had a 6 communication problem, if you will, or some kind of 7 relationship problem with the person that was involved with 8 arranging the financing? 9 A: Yeah, if that relationship would have 10 been better, I -- I expect that you know, the communication 11 would have been improved as well, yes. 12 Q: All right. And then in terms of your 13 prognostications, or your plans in the -- in the business 14 model, or the financial plan, would it be fair to say that 15 most of the communication then as to what you were 16 anticipating, was with Mr. Steffler or Ms. Card, and not with 17 Mr. Ford? 18 A: No, I don't -- I wouldn't say that. I 19 would say most of my discussions was with -- most of the 20 discussions I had with Financial Services regarding this 21 issue were with Mr. Ford. 22 Q: Okay. Had you sat down with Mr. Ford, as 23 you did with Mr. Steffler, and -- and looked at the screen 24 and identified what the payments would be for thirty (30) 25 years, so that you were bringing home to Mr. Ford what your

174

1 anticipation was of the payment stream, in any event? 2 A: No, I don't think I ever sat down with 3 him in front of a computer and did that kind of a 4 presentation. My discussions with Mr. Ford would have been 5 more at a higher level, and I probably only would have been 6 showing him sort of the cash flow tab in the -- in the 7 business plan, not sort of the operational side of things. 8 Q: Are you assuming then that -- that he 9 knew what your anticipation was of the payments out thirty 10 (30) years, under the operating leases? 11 A: He understood what the structure was in 12 terms of being low at the beginning and high at the end; he 13 understood the rate that I was using, but I'm not sure he was 14 -- was fully aware of what the actual values were, no. 15 Q: Was anyone -- was -- was Mr. Steffler? 16 And what I'm trying to get at is: Who, in Finance, was aware 17 of what the actual values were? 18 A: Right. I would say Ms. Whittaker would 19 have been aware of what the finance -- what -- what the 20 actual payment levels were after she had accepted the role to 21 be more involved in the project, yes. 22 Q: All right, you say she would have been 23 aware -- 24 A: She was aware, yes. 25 Q: She was aware?

175

1 A: Yeah. 2 Q: Because you made her aware or -- 3 A: Yes. 4 Q: Okay. 5 A: Yes. 6 Q: Because you sat with her, with her, and 7 not with Mr. Steffler? 8 A: That's right. 9 Q: And now Ms. Whittaker got involved after 10 the signing of the deal though, I understand? And I'm not 11 putting words in your mouth, I just want to know -- 12 A: No, she -- she got involved probably in 13 July of 2000. 14 Q: July of 2000? 15 A: 2000, that's right, yeah. 16 Q: And had she been in Financial Services, 17 or how did she come to get involved? 18 A: Yes, she was an employee in Financial 19 Services and we posted a one (1) year contract position, 20 something like that. I can't remember the exact details, but 21 she applied for the position or she was seconded to the 22 position and then she accepted it. 23 Q: All right. 24 A: Yeah. 25

176

1 (BRIEF PAUSE) 2 3 4 Q: Now, turning to the -- to one (1) or two 5 (2) more questions that -- that I want to ask you about, the 6 divergence between the MFP model and your business plan or 7 financial model. 8 A: Okay. 9 Q: You were providing MFP with figures and I 10 think your testimony was, they were putting it into their 11 model? 12 A: Yes. 13 Q: All right. Did you know if they were 14 changing the figures or just reallocating those figures, and 15 if so, for what purpose? 16 A: I wasn't clear on exactly what they were 17 doing with the figures, but I believe -- I had the belief 18 that they were doing that analysis to see whether the -- the 19 revenues from the Park fit their model in order to take 20 advantage of the tax legislation. 21 Q: All right, and now you're talking about 22 revenues as opposed to write-offs from a capital item being 23 capital costs allowance. 24 A: Yes. 25 Q: So presumably, at some point in time,

177

1 you're thinking it changed from a revenue or income 2 deductibility scenario, a tax scenario if you will, from a 3 capital cost write-off scenario. Is that -- is that fair? 4 A: Well, no, I -- I'm not sure I agree with 5 that. I -- I believe -- 6 Q: We've agreed on very little, so I -- 7 A: Well, I think we've agreed on some 8 things, but, at the time, I think it comes back to the issue 9 of what was revenue producing and what wasn't revenue 10 producing, in terms of what was going to be fundable under 11 the lease and what was going to be fundable as a -- a loan, 12 at prime, so to speak? 13 And -- and how they were using those elements 14 in their model, was not something I inquired about. So, I -- 15 I never asked the question of myself, that you're posing to 16 me right now. 17 Q: All right. In any event, am I right in 18 saying that it had to fit their model in order to get the low 19 tax rate? 20 A: Under the model that they were 21 producing -- proposing at that time, yes, it would have had 22 to have worked, according to their model. 23 Q: And it never dawned on you, at any point 24 in time, that they were using different figures, it was just 25 a function of reallocating your figures?

178

1 A: Yes, it -- it certainly -- I never had 2 the anticipation that they would be doing anything with the 3 figures that I was providing with them, in terms of 4 increasing them or decreasing them, because we were the ones 5 that were, sort of, the experts in that field. That they 6 were financial analysts, we were City bureaucrats, so to 7 speak, that was our business. 8 So it wouldn't have made sense to me for them 9 to be adjusting those rates. It would have been more a 10 matter of defining how those revenue streams relate to 11 different components of the park, for example, and -- and 12 seeing whether they're going to fall under that tax 13 legislation. 14 Q: The two (2) areas of most significant 15 revenue for the park, though, were things that you weren't an 16 expert in; that is, the golf, and you had an external expert 17 advising you on that -- 18 A: Right. 19 Q: -- KPMG -- and -- and the ice? Did you 20 consider that the City's were experts in running ice rinks? 21 A: Well, certainly we're -- we're, you know, 22 municipalities are probably the largest owners of arenas, and 23 in the City of Waterloo, we own a couple of facilities and 24 run them. So, yes, we -- we feel we have some expertise in 25 that area.

179

1 Q: Okay. 2 A: With respect to the golf, you're right in 3 saying that that's a new area -- a new undertaking for us. 4 And that's the reason why we got some external analysis done 5 there. 6 Q: Okay. Did you -- did you ever think that 7 you might get some external help on the ice, as well? I 8 mean, there are public companies that are involved in that, 9 there's utilizations in the summer time, there's all kinds of 10 other factors to make this a better business case for a 11 revenue generation from the ice facilities? 12 A: No, we think we do a pretty good job, so, 13 we wouldn't have considered that. 14 Q: I see. 15 16 (BRIEF PAUSE) 17 18 Q: The last financial plan that MFP saw, I 19 think your testimony was -- was April, that's the last one 20 (1) that you sent to them? 21 A: That's the last one that I sent to them, 22 yes. 23 Q: All right. We know that the lease 24 payment stream changed, in terms of what you had represented 25 to Council, you or Mr. Ford represented to Council, as the

180

1 operating lease figure was $3,040,000, I think in 2 September -- or rather, in -- in February, and it changed to 3 $3,093,000, in September. 4 Was MFP aware of those changes? I mean, what 5 I don't understand, in all of this is, changes were being 6 made to the business plan, from time to time, that -- that, 7 apparently, MFP was not aware of because the last one (1) 8 they saw was in April. 9 And I'm just wondering if you can elaborate on 10 that and -- and what the understanding would have been, or 11 what the modus vivendi was? 12 A: You're going to have to clarify a 13 question that I can answer. 14 Q: All right. I'll -- I'll say again, the 15 operating lease payments were $3,040,000 in February, that 16 was the anticipation? 17 A: Okay. 18 Q: Okay. The last business plan you sent to 19 MFP was in April, but the operating lease payments changed 20 again in September to $3,093,000? But, was MFP aware of the 21 changes in the operating lease payments, at maturity? 22 A: I would -- I didn't -- after that 23 business plan that I sent them, at the beginning of April, I 24 didn't send them another business plan, so, they certainly 25 wouldn't have got that information from me.

181

1 Q: So somebody else -- either MFP came up 2 with a different figure, or nobody communicated the 3,093,000 3 figure to them? 4 A: Or, somebody else -- or somebody else at 5 the City of Waterloo could have communicated that 6 information, but I'm not aware of any. 7 Q: You're not aware of it? 8 A: That's right. 9 Q: Okay. But at that point in time, you 10 were no longer responsible for the financial plan, or, had 11 you passed that off to someone else? 12 A: Well, I was involved in the month of May, 13 up until the month of May. And then I think you can -- after 14 that, I didn't really -- I don't think I met with MFP again, 15 after the early meetings in May. 16 And then there were some -- there was some 17 correspondence and telephone calls in May. And from my 18 perspective, the issues that they needed resolate -- 19 resolutions to, were resolved during that correspondence and 20 during those telephone discussions that we had. And we were 21 moving to a -- a position where we were approving a tender 22 for the multi-purpose recreation building, that was really 23 the largest last unknown that we had for the -- for the plan, 24 itself. 25 So, moving forward, it didn't strike me as odd

182

1 that there was no more back and forth between the two (2) 2 organizations, on the financial plan side. 3 Q: See, what I don't understand is, that you 4 were changing the operating lease payments in the financial 5 plan, or someone was? 6 A: Yes. 7 Q: And they weren't communicating those 8 changes to MFP. So, I'm wondering if the logical assumption 9 was that MFP was doing their own financial plan? 10 A: You're asking me whether I thought they 11 were making up their own financial plan? 12 Q: Yes, as a result of that. Because, they 13 weren't getting the information that -- that -- the 14 amendments to the financial plans that you or your people 15 were drafting. 16 A: Well, and I guess, the answer to that 17 question, from my perspective, is, I believe that they were 18 taking our information and running it through their model, 19 which is a different question than how the repayments are 20 going to be made, specifically, in my view. 21 And again, I -- I wasn't involved in that side 22 of the negotiations, I was trying to fulfill their requests 23 for information on the financial plan. 24 25 (BRIEF PAUSE)

183

1 Q: I'm going to ask you to turn to tab 78. 2 MR. COMMISSIONER: Is that in his own 3 exhibit? 4 MR. FRASER BERRILL: Yes, it is. 5 MR. COMMISSIONER: It's Volume 3? 6 MR. FRASER BERRILL: Specifically, page 3599, 7 which is Mr. Ford's memorandum to Council. 8 9 (BRIEF PAUSE) 10 11 CONTINUED BY MR. FRASER BERRILL: 12 Q: And, it says at the bottom, his second 13 point from the bottom, 14 "Annual lease payments are based upon the 15 business plan, and projected cash flows 16 from operation." 17 MR. COMMISSIONER: What page, I'm sorry? 18 MR. FRASER BERRILL: This -- this is page 19 3599. 20 MR. COMMISSIONER: Okay. 21 MR. FRASER BERRILL: And it's the second last 22 bullet point, at the bottom. 23 24 (BRIEF PAUSE) 25

184

1 CONTINUED BY MR. FRASER BERRILL: 2 Q: And I'm asking the question, again, it's 3 sort of in the context of -- of what I had asked before, that 4 MFP hadn't seen a business plan since April. And yet at this 5 point in time, Mr. Ford is saying, this is in September, that 6 the lease payments are based on the projected cash flows. 7 So, is the assumption, then, that MFP was 8 basing its payment stream on your last business plan? Is 9 that your assumption? 10 A: Well, like I said, I hadn't -- I hadn't 11 been involved in -- in any discussions with MFP, since May of 12 this year, 2000. So what transpired between May and 13 September, in terms of the negotiations on the lease, is not 14 something that I was privy to. 15 I can tell you, again, that the last business 16 plan that I sent to MFP was in April. I don't know what 17 other communication occurred between that time and this time. 18 Q: Well, let me ask you this question then, 19 referring to the September 25th meeting of Council, I think I 20 have that date correct? 21 A: Yes. 22 Q: At which the September 21 memo was 23 referred or the in-camera meetings leading up to it, did 24 Council see the full financial plan or did they just see that 25 summary page that you presented them showing them up to five

185

1 (5) years? 2 A: Well, they certainly didn't see the 3 detailed financial plan from me. If someone else had 4 presented it, I guess they could have seen it. 5 To my recollection, I wasn't at the September 6 18th in-camera meeting. But there was also a presentation at 7 that time that must have included some lease payments. I 8 think I've seen it in somebody else's documentation. 9 Q: Yes. That's the three million ninety- 10 three figure in the PowerPoint presentation? 11 A: Right. And I -- I didn't create that 12 document, nor was I at the meeting, so it's difficult for me 13 to speak to that. 14 I was at this meeting, so, I can speak to what 15 happened at that meeting but, again, I didn't create this 16 memo. This is John Ford's memo and I hadn't been involved in 17 any discussions with MFP between this period and going back 18 to May. So I -- I don't know what transpired during that 19 time. 20 Q: To your knowledge, though, Council did 21 not see the full financial plan with the payments out to 22 December -- or rather to -- for thirty (30) years? 23 A: No. I know of no time at which that was 24 done. 25 Q: All right. Now, I'm going to refer you

186

1 to the February 21 meeting at the -- at the time of the lock 2 in of rates and I've asked you questions about any concern 3 you may or may not have had with respect to a commitment 4 occurring at that point in time and I think we understand 5 your answers. 6 The Commissioner has said, and you have said 7 in your testimony, and the Commissioner has referred to 8 earlier testimony that, at that point in time and maybe 9 later, you could default to debentures. In other word, if 10 the MFP didn't work, you could do a debenture plan; is that 11 correct? 12 A: That's an option that was available to 13 us, yes, I agree. 14 Q: Were there other options that were 15 available? Were there any other options that you had 16 considered? 17 A: Well, up until the decision was made 18 regarding the expenditures, there were certainly options 19 available such as reducing the scale of the park, not 20 building the park at all was an option, phasing the park over 21 multiple years was another option and then debenture 22 financing. 23 I guess those -- those are the options until 24 the point in time when we actually made commitments, then the 25 situation would change slightly.

187

1 Q: Okay. Did you ever do any analysis of 2 that or any, sort of, backup plan or said, look if MFP goes 3 bankrupt or if something happens with this financing, if they 4 don't get their tax ruling or that kind of thing, this is 5 what we can do with debentures? 6 A: No. I never did that type of modelling. 7 Q: Do you know if anybody did? 8 A: I'm not aware of anything, no. 9 Q: Okay. In your view of prudence, would it 10 have been a good thing to do? 11 A: I don't think anything bad could have 12 come out of that analysis, yes. 13 Q: All right. In actual fact, if you'd gone 14 through a tendering process, you might have scared up some 15 other people that you could have then resorted to to say, you 16 were second bidder, will you come and do this deal with us 17 now because the first bidder has gone away? 18 A: That's true. 19 Q: So that's another reason tendering might 20 have been a good idea? 21 A: Yes. You're right. 22 Q: Now, you say that MFP needed a resolution 23 from Council in February so that they could put their 24 instruments in the market, I'm putting those -- those words 25 in quotations and I'm going to ask you if you can tell me

188

1 what you think that means because I don't know what it means? 2 A: I -- 3 Q: Specifically? 4 MR. COMMISSIONER: We're not going to ask you 5 what you think. 6 THE WITNESS: I don't -- I don't know what 7 the -- 8 MR. FRASER BERRILL: Maybe the Commissioner 9 does. 10 THE WITNESS: I don't know what it means 11 specifically. Those are the words that Mr. Robson explained 12 to us and that was, sort of, the flip side of the City's 13 commitment. 14 So, on the one side the City would be making a 15 commitment through this resolution of Council. On the other 16 side, MFP would be making a financial commitment to the 17 project by quote "placing the instruments in the market." 18 19 CONTINUED BY MR. FRASER BERRILL: 20 Q: Okay, well what -- what commitment was 21 Council making? I don't quite understand what they were 22 doing in passing that resolution; what commitment they were 23 making? 24 A: Well, they were instructing staff to come 25 to an agreement with MFP.

189

1 Q: But that wasn't a carte blanche as far as 2 you were concerned, it had to come back to Council before -- 3 before any -- anything -- I mean, you couldn't just go and 4 sign an agreement with MFP then, could you? 5 A: Well, no. Typically agreements like that 6 come back to Council for approval and signatures, yes. 7 Q: I think Mayor McKinnon, at that point in 8 time, said we had an agreement, sort of, in principle and -- 9 and we could back out of it, was what she said? 10 A: Okay, well that might -- 11 Q: Is that your understanding? 12 A: I don't think we ever looked at it as a 13 deal we were going to back out of, no. I think we were 14 making a commitment to move ahead with this company to 15 provide the financing. 16 Q: Okay. Let's come back to "instruments in 17 the market" and try to think through this logically, as you 18 might have thought it at the time, rather than just taking it 19 at face value. 20 MFP was going into the market to buy a rate of 21 4.76, I take it, they were buying a hedge by putting 22 instruments in the market so that they could deliver 4.76 to 23 you. 24 A: That's sounds -- 25 Q: Is that your understanding?

190

1 A: That sounds reasonable, yes. 2 Q: All right. And this was for how much 3 that they were buying a hedge for; was it $46 million or 4 $50 million or $56 million; do you know? 5 MR. COMMISSIONER: Well, Mr. Berrill, that is 6 not the evidence, as I recall it. Nobody talked about 7 putting instruments into the market, as I understand the 8 evidence. 9 MR. FRASER BERRILL: I think this witness 10 just said -- 11 MR. COMMISSIONER: Well, if he did, I didn't 12 catch it. What I understand was happening when the -- the 13 resolution of Council was made on February 21st was they were 14 authorizing the -- the staff to go ahead and complete their 15 negotiations with MFP on the basis that they had been told 16 that MFP would circle the rate. 17 Now, if that means putting instruments in the 18 market -- putting money instruments into the market by MFP to 19 secure the rate, you've lost me totally because I did not 20 hear that being said. I didn't even hear it from this 21 witness. 22 MR. FRASER BERRILL: I think the witness just 23 said that -- 24 MR. COMMISSIONER: Well, let's ask him. 25 MR. FRASER BERRILL: -- with respect.

191

1 MR. COMMISSIONER: What do you understand is 2 meant -- was meant by that resolution? 3 THE WITNESS: That resolution, in my view, 4 was a commitment by the City to continue to do business with 5 MFP as the financing partner on this project. 6 On MFP's side, they needed that resolution so 7 they could go forward and circle the rate through placing 8 instruments in the market; that's what Mr. Robson told us. 9 MR. COMMISSIONER: Well, to be perfectly 10 straightforward, in your view does that mean that they had to 11 put some kind of money instruments up front to hold that rate 12 with somebody? 13 THE WITNESS: Yes. They would have had to 14 make a financial expenditure to create a hedge so they could 15 guarantee the rate. 16 MR. COMMISSIONER: All right. 17 THE WITNESS: That seems like a reasonable 18 terminology to use here, yes. 19 MR. COMMISSIONER: Okay. I didn't understand 20 that. 21 22 CONTINUED BY MR. FRASER BERRILL: 23 Q: Very good, Mr. Commissioner. So -- so I 24 go back to my question and ask you: Do you know how much 25 money they were hedging; did it ever come up in the

192

1 conversations? Was it $46 million or $50 million or 56 or 2 what; or do you know. 3 A: Well, I don't know the exact number. But 4 at that Council meeting Council also approved, in principle, 5 to go with the larger version of the park so that would have, 6 at least, narrowed it down between, sort of, the $30 million 7 version versus the $56 million version. 8 Q: Right. But we still don't know if it's 9 forty-nine (49) or fifty-six (56) that they were going to be 10 required to fund, because as I understand it, they had 11 committed to fund, at that point in time, more than just the 12 revenue-generating parts of the Park, but also the 7 percent 13 non-generating. So it could be as much as $56 million that 14 they were committing to finance? 15 MR. RICHARD STEPHENSON: I don't think 16 there's been any evidence on that issue at all at this point 17 in time. We're now talking in February of 2000 -- 18 MR. COMMISSIONER: That's right. 19 MR. RICHARD STEPHENSON: -- about any 20 commitment by MFP to lend more than $50 million. 21 MR. FRASER BERRILL: I don't -- I don't want 22 to make a big thing of this. 23 24 CONTINUED BY MR. FRASER BERRILL: 25 Q: Just, Mr. Friedel, could you just tell me

193

1 if you know how much they were going into the market to 2 commit for? 3 A: I couldn't tell you how much, I can 4 only -- 5 Q: There was -- 6 A: -- I can only reiterate that we had -- 7 Council had given us the go ahead to look at the larger model 8 of the Park. 9 Q: All right. 10 MR. COMMISSIONER: So how much money did you 11 need for this project? 12 THE WITNESS: Well, I could go back to the 13 business plan, but I think you're asking me a specific dollar 14 value, I couldn't tell you that. 15 16 CONTINUED BY MR. FRASER BERRILL: 17 Q: It's in the neighbourhood of $50 million? 18 A: That's right. 19 Q: It's -- 20 A: It's in the neighbourhood of $50 million, 21 I'll agree with that. 22 MR. COMMISSIONER: Okay, all right. Then 23 we're all on the same wavelength, yes. 24 25 CONTINUED BY MR. FRASER BERRILL:

194

1 Q: Yeah, good. 2 A: Yeah. 3 Q: I just -- what I'm driving at here is 4 that it would be difficult, it would seem to me, with the 5 state of Council's understanding about how big a park they 6 were going to build, for them to go out and put instruments 7 in the market when they didn't know exactly how much they 8 were going to have to hedge, that's all I'm -- that's all I'm 9 getting at. 10 And -- and do you agree with me that way -- 11 A: Well I -- 12 Q: -- because you didn't know the amount 13 either? 14 A: No, I don't know if I would use the word 15 "difficult," that's the line of business that MFP is in. I 16 would think that they could make -- 17 Q: All right. 18 A: -- some judgment call there. 19 Q: All right, so you think they made some 20 judgment call. 21 And they were tying up that rate for thirty 22 (30) years? I mean, that money had to be available at that 23 rate for thirty (30) years, they were buying a thirty (30) 24 year hedge? 25 MR. COMMISSIONER: I thought they were buying

195

1 it for a hundred and eighty (180) days? 2 MR. FRASER BERRILL: Well, I mean if -- if 3 the commitment had -- if it is a commitment and it had come 4 through within a hundred and eighty (180) days, then they had 5 to put up the money for -- for thirty (30) years, Mr. 6 Commissioner. 7 MR. COMMISSIONER: That's right, yes, or 8 lending the money. Somebody -- 9 MR. FRASER BERRILL: Well I -- 10 MR. COMMISSIONER: -- is going to be -- 11 MR. FRASER BERRILL: -- and we're not calling 12 it a loan because the witness doesn't want to call it a loan, 13 so they had -- they were putting up the money for thirty (30) 14 years, if -- if they had been called upon within a hundred 15 and eighty (180) days. 16 MR. COMMISSIONER: That's right, that's what 17 I had understood. 18 MR. FRASER BERRILL: Yeah. So they were 19 buying a hedge for a hundred and eighty (180) days for thirty 20 (30) year money at 4.76 percent. 21 MR. COMMISSIONER: I'm still having a little 22 trouble with what you're calling the buying of a hedge. 23 Now, Mr. Friedel he seems to agree with you 24 that they're putting up some kind of money, some kind of 25 money, what did we call it, the instrument, money instrument.

196

1 MR. FRASER BERRILL: Hmm hmm. 2 MR. COMMISSIONER: And -- 3 MR. FRASER BERRILL: I think in the 4 vernacular it's called a hedge instrument. 5 MR. COMMISSIONER: Well, this is the first 6 I've heard of it and somebody's going to have to explain it 7 to me before this Hearing is over. 8 MR. FRASER BERRILL: Well, Mr. Friedel is 9 going to be lost to me by the time that explanation happens, 10 so. 11 MR. COMMISSIONER: I hope he's able to do 12 that. 13 MR. FRASER BERRILL: Right. 14 MR. COMMISSIONER: Okay. 15 16 CONTINUED BY MR. FRASER BERRILL: 17 Q: So your -- your understanding, Mr. 18 Friedel, because I'm trying to work through this logically. 19 A: Yeah. 20 Q: Is because of the commitment they had 21 made on February 21st, they were committed to deliver, if you 22 will, not a loan, but deliver or come up with $50 million, I 23 think we've agreed on, for thirty (30) years, at a rate of 24 4.76 percent? 25 A: Yes.

197

1 Q: All right. And that that commitment they 2 were making to do for a hundred and eighty (180) days, that 3 any time during a hundred and eighty (180) days if the City 4 said, yes, we want that loan, they had to deliver it, they 5 had committed to doing that? 6 A: Well, I -- you're -- now you're speaking 7 about February; right? At that point in time I had never 8 heard of a hundred and eighty (180) days. The first time I 9 had any knowledge -- 10 Q: Very good point, good catch. 11 A: -- about a hundred and eighty (180) days 12 was the memo that Mr. Robson Ford -- wrote to Mr. Ford. 13 Q: Okay, all right. Do you have any idea, 14 Mr. Friedel, how much that would cost to buy that kind of an 15 instrument in a market? 16 A: No, I don't. 17 Q: All right. So we're going to have to get 18 someone else to do that. 19 Whatever it cost, and we'll have further 20 testimony about that, MFP was putting up that money and 21 buying that hedge, against the possibility that they would 22 close this deal. And that was a cost that I guess MFP was 23 incurring? 24 A: Yes, and -- and the reason I think was 25 because they wanted to include it in their quarter end, which

198

1 they indicated to us was March 31st. 2 Q: Okay, I'm going to ask you questions 3 about that too. 4 But, the second thing I want to ask you, if 5 you had any appreciation at that point in time for the risk 6 involved to MFP or to any party that went into the market to 7 buy that kind of a hedge, that interest rates would go off- 8 side and it would cost them a lot of money to -- to get out 9 of that hedge, if you will? 10 A: No. That's certainly not my line of 11 business. 12 Q: All right. Fine. This is where, I 13 guess, it would have been good to have some financial advice 14 to understand the dynamics of what was going on? 15 I mean, to have somebody by your side and say, 16 you know, what's -- what's this all about? What are they 17 doing? To have some appreciation for the risks or potential 18 risks involved? 19 A: For whom? 20 Q: For MFP. To see whether or not they were 21 going to close the deal? To see whether or not they were, in 22 fact, committed to doing this deal? 23 A: I'm not sure I agree with that. 24 Q: All right. 25 A: I guess we -- we were working under the

199

1 assumption that the -- the risk was MFP's and they reiterated 2 that to us a number of times. If we were bearing the risk 3 then, yeah, then, you know, we probably would have taken a 4 different approach. 5 But, MFP was the one providing the financing 6 here and -- and took the risk by placing the instruments in 7 the market. It was not our risk. 8 Q: All right. But, if MFP was at 9 substantial risk and went off-side with that investment, it 10 might put the whole transaction at risk or in some jeopardy? 11 A: It could, yes. 12 Q: And if you had an appreciation for the 13 risks involved, it might have been a good thing to assess 14 your own risk, if not proceeding with this transaction; that 15 your only financier in the private market was, maybe, going 16 to go away? 17 A: Well, I think we addressed that risk 18 issue by having other options available to us in terms of our 19 expenditures. At February 21st, we had really made no 20 commitment to the expenditures. Okay. We had only bought 21 the land. 22 Q: Okay. Now, would you answer be the same, 23 though, with respect to September 25, if MFP presented you 24 with an agreement that you didn't like? 25 A: Well, at that point, we had entered into

200

1 other contracts for expenditures, there's no doubt about 2 that. 3 Q: And you would have had to default to 4 debenturing because you had no other back up plan? 5 A: Well I -- I think what you're -- you're 6 getting into a legal area that I can't comment on because -- 7 Q: Well, I'm talking about a practical -- 8 A: Well, I guess the question is: When to 9 people -- when legally was there an agreement and you're 10 assuming that the legal agreement didn't take place until 11 September 25th, and if that's the case, yes, I suppose then 12 we would have to look at some other options. 13 But, if the legal agreement existed before 14 then with MFP in terms of the representations they had made 15 and the commitments we had made, then I suppose we would 16 have, you know, some type of legal action against MFP too. 17 But those are legal questions, I can't -- 18 Q: Well, really what it comes down to, 19 Mr. Friedel, will you agree with me, the only time you're 20 really out of risk is when you have the money because there's 21 no sense in waking up on September 25th, or whenever the deal 22 was supposed to close, I think it was October 1st or 4th or 23 whatever, and you didn't have the money, it didn't matter if 24 you had a lawsuit or if MFP had gone bankrupt or something 25 like that, you didn't have the money, you were at risk. You

201

1 couldn't pay the trades? 2 A: Well, you're making an assumption there. 3 We have other financial resources available, like, obviously, 4 we cash flowed the first part of the project, at any rate, 5 notwithstanding what -- what may have happened; in reality we 6 did. So, we have that course. 7 We also have the ability to borrow money from 8 the bank, obviously, up to probably over $40 million. So, 9 you know, from that respect, from a cash flow perspective, I 10 don't think it's the emergency you're making it out to be. 11 Q: Okay. I'm not talking about emergency, 12 but I'm talking about embarrassment, I'm talking about 13 financial cost, perhaps, of waking up on September 25th and 14 not having any money from this financing source and only 15 having debenturing to fall back on. 16 Now, you've talked about a bank and that's the 17 first time I've heard about the bank being a backup plan too. 18 A: Well, I never said it was a backup plan. 19 You're asking me hypotheticals and I'm explaining to you 20 that -- 21 Q: Well, yeah, it's a hypothetical. It was, 22 sort of, a risk that you were facing, as I understand it. 23 MR. COMMISSIONER: What's the embarrassment? 24 I don't understand that because -- they can raise $50 million 25 by debentures. He said he can borrow $40 million from the

202

1 bank. I wouldn't be embarrassed if -- if MFP didn't come up 2 with the money, I'd go elsewhere. 3 MR. FRASER BERRILL: Would -- 4 MR. COMMISSIONER: If I had those options, 5 and he says that -- he just said that he did have those 6 options. 7 MR. FRASER BERRILL: Well, we're going -- 8 we're going to test that. And I -- I'd like -- it's going to 9 take me about fifteen (15) minutes to test that very 10 proposition. I'll do it -- start it in five (5) minutes. If 11 you want to sit later, I -- I'm happy to do it -- to embark 12 upon that. 13 But, I don't think that your assumption, Mr. 14 Commissioner, is correct. 15 MR. COMMISSIONER: What -- what do you -- 16 MR. FARSER BERRILL: With respect to 17 debenturing. I don't think, as the testimony has been, that 18 you can just pick up the phone and call for $50 million from 19 the region. 20 MR. COMMISSIONER: Whether you can, I don't 21 know that, either. 22 MR. FRASER BERRILL: Well, we're going to get 23 into that, but -- 24 MR. COMMISSIONER: The evidence, thus far, as 25 has been that they could.

203

1 MR. FRASER BERRILL: Well, that evidence is 2 going to be challenged. 3 MR. COMMISSIONER: Well, that's fine. I 4 don't know who you're going to challenge it with, but that's. 5 Was the money available to you, September the 25th, that you 6 had to -- if you had to get rid of MFP and go elsewhere? 7 THE WITNESS: Well, we could have debentured, 8 yes. 9 MR. COMMISSIONER: Okay. 10 11 CONTINUED BY MR. BERRILL FRASER: 12 Q: All right. So, I -- I've heard for the 13 first time, you had the bank, too. But, is that a viable 14 proposition, you'd just go down to the bank and -- and borrow 15 $50 million? 16 A: Well, I wouldn't say, you just go down to 17 the bank. But I mean, like any institution of our size, we 18 have a relationship with a bank, and we have certain 19 provisions in place to allow us to loan money on a line of 20 credit. 21 Q: So they might bridge it for awhile until 22 you can put other -- 23 A: That's right. 24 Q: -- financing in place? 25 A: Yes.

204

1 Q: All right. I just -- before we get into 2 the debenturing issue, I want to ask you whether or not it 3 was within the senior management team, or between you and Mr. 4 Stockie, or you and Mr. Ford, or anybody, ask the question, 5 what happens if this doesn't happen, at any time, up to 6 September 25th? What happens if MFP doesn't come up with the 7 money? 8 A: I -- I never was a participant in any 9 type of discussion like that, no. 10 Q: And you never saw any plans or any 11 backup? 12 A: No. 13 14 (BRIEF PAUSE) 15 16 MR. FRASER BERRILL: Now, Mr. Commissioner, I 17 planned to get into the debenturing issue. I plan to be 18 about fifteen (15) or twenty (20) minutes. Would you like me 19 to carry on? 20 MR. COMMISSIONER: Yes, let's do it. 21 MR. FRASER BERRILL: All right. 22 23 CONTINUED BY MR. FRASER BERRILL: 24 Q: Now, I understand, in your previous -- or 25 in your history, Mr. Friedel, you -- you'd been involved with

205

1 the WRC debenturing and with the capital budgets and the 2 financial returns for the province, I think that was your 3 testimony? 4 A: Yes. 5 Q: Okay. And can you tell me, and I've 6 asked you to bring your calculator with you, if on September 7 25th, you woke up in the morning, and MFP had gone bankrupt 8 and the financing was no longer available, how much 9 debenturing, at that point in time, for the $50 million 10 project, would have cost? 11 And I -- I'm going to invite you to make some 12 assumptions. And I can maybe make those assumptions and then 13 you can think about it overnight, because I've got other 14 questions. So you can leave that calculation for tomorrow, 15 if you want, and we'll carry on with other questions. 16 MR. COMMISSIONER: Other questions about 17 what? 18 MR. FRASER BERRILL: About debenturing. 19 MR. COMMISSIONER: Well -- 20 MR. FRASER BERRILL: And about the regions -- 21 MR. COMMISSIONER: Well, you want -- do you 22 want Mr. Friedel to do some calculations? 23 MR. FRASER BERRILL: Yes. I'll give him 24 those assumptions and maybe he could do them -- 25 MR. COMMISSIONER: Why don't you give him the

206

1 assumptions and we'll come back tomorrow morning? 2 MR. FRASER BERRILL: All right. 3 4 CONTINUED BY MR. FRASER BERRILL: 5 Q: Mr. Friedel, I want you to work on $50 6 million, because I think you were committed to forty (40), 7 but you were going to have to furnish this wonderful place, 8 and do other things, so I think it's not fair to use forty 9 (40), I'd like you to use fifty (50). 10 A: Okay. 11 Q: You can do some sensitivity if you want, 12 there's no -- no holds barred. I'd like you to use 7 13 percent. I'd like you to use what you consider to be the 14 costs of such a transaction, and whether or not you would 15 expense those costs immediately, or include them in the 16 return. 17 I'd like you to take into consideration the 18 fact that you're getting all of this money up front, as you 19 do in debenturing, but you may not need it for over a period 20 of time. So you've got a chunk of money sitting there that 21 you're going to have to invest somewhere, and there's going 22 to be a negative spread for a period of time, if you think 23 that's a valid assumption, or you could tell me why it's not? 24 I'd like you to use a term of twenty (20) 25 years.

207

1 A: Can I just finish making this point? 2 Q: By all means, sorry. 3 4 (BRIEF PAUSE) 5 6 A: Okay, how many -- what's the term? 7 Twenty (20) years? 8 Q: Twenty (20) years. 9 A: Sure. 10 Q: You -- you may want to run a ten (10) 11 year scenario as well, in the circumstances we decide that 12 you wouldn't have gotten twenty (20) years? 13 14 (BRIEF PAUSE) 15 16 Q: And I want you to be aware of whether or 17 not in any point in time you're running afoul of -- of the 18 fact that the Municipality might be budgeting for a deficit, 19 from the operation of the -- of the -- of the Park, which I 20 understand as a matter of law, you're not able to do? 21 A: You're going to have to clarify that 22 point, I'm not sure I agree with that. 23 Q: I understand you're not allowed to budget 24 for a deficit in -- in the operations of the City, by -- by 25 law?

208

1 A: Okay, yeah, I'll agree with that 2 statement. 3 Q: All right, and I want you just to make 4 sure that in your calculations that you're not budgeting for 5 a deficit in doing this exercise? 6 A: Oh, okay, so -- 7 Q: All I -- 8 A: -- like -- 9 Q: -- I want you to comment on it. 10 A: -- okay, so what you're really asking me 11 is what's the tax rate impact? Because we would have to -- 12 Q: Precisely. 13 A: -- raise the difference -- 14 Q: Precisely. 15 A: -- through taxes. 16 MR. COMMISSIONER: You're talking about a 17 deficit for the operations of the whole City? 18 MR. FRASER BERRILL: Yes, yes. 19 MR. COMMISSIONER: Or are you talking about a 20 deficit in the operation of the Park? 21 MR. FRASER BERRILL: Of the whole City. 22 MR. COMMISSIONER: The whole City? 23 MR. FRASER BERRILL: Right. What the impact 24 of this financing would be on the financial -- 25 THE WITNESS: On the taxes --

209

1 MR. FRASER BERRILL: -- situation of the -- 2 THE WITNESS: -- basically on the tax rate, 3 because we'd have to raise the differential. 4 5 CONTINUED BY MR. FRASER BERRILL: 6 Q: Precisely. Okay? And unless there are 7 other assumptions that you feel you need to know, that's the 8 extent of what I want to ask. 9 A: Well if there are some, I'll make them. 10 Q: Very good. 11 MR. COMMISSIONER: Can I ask one question 12 before we go? 13 THE WITNESS: Certainly. 14 MR. COMMISSIONER: I take it you don't want 15 to have the witness make any other assumption about reducing 16 the size of the project, you want to go with $50 million? 17 THE WITNESS: That's right. 18 MR. FRASER BERRILL: Because I think at 19 September 25, they were committed, in my submission, to -- 20 MR. COMMISSIONER: That's your view? 21 MR. FRASER BERRILL: -- that Park. 22 MR. COMMISSIONER: Okay. 23 24 CONTINUED BY MR. FRASER BERRILL: 25 Q: I think you have to make some assumptions

210

1 as well, My -- My Colleague has just pointed out, I had a 2 note, how the principal would be repaid, whether or not it 3 would be a sinking fund operation, or whether or not you 4 would amortize it over the life of thirty (30) years. 5 A: Okay. 6 Q: What options are available to you there? 7 MR. COMMISSIONER: Are you paying over thirty 8 (30) years or twenty (20)? 9 MR. FRASER BERRILL: Excuse me, twenty (20) 10 years, yes. 11 MR. COMMISSIONER: Okay. 12 MR. FRASER BERRILL: Good catch, Mr. 13 Commissioner. 14 15 (BRIEF PAUSE) 16 17 MR. COMMISSIONER: Okay, have you got all the 18 assumptions in place? 19 MR. FRASER BERRILL: I think they're all 20 there. 21 MR. COMMISSIONER: Okay, then we'll recess 22 until ten o'clock tomorrow morning. 23 THE REGISTRAR: The City of Waterloo Judicial 24 Inquiry now stands adjourned until 10:00 a.m. tomorrow 25 morning.

211

1 --- Upon adjourning 4:30 p.m. 2 3 4 5 6 Certified Correct 7 8 9 10 ____________________ 11 Carol Geehan 12 Court Reporter 13 14 15 16 17 18 19 20 21 22 23 24 25