1 2 3 TORONTO COMPUTER LEASING INQUIRY 4 5 6 7 ******************** 8 9 10 BEFORE: THE HONOURABLE MADAM JUSTICE DENISE BELLAMY, 11 COMMISSIONER 12 13 14 15 16 Held at: East York Civic Centre 17 850 Coxwell Avenue 18 Toronto, Ontario 19 M4C 5R1 20 21 ******************** 22 23 24 December 18th, 2002 25

2
  1                        APPEARANCES
  2  
  3  Ronald Manes            )Commission Counsel 
  4  Patrick Moore           )
  5  Diana Groskaufmanis     ) 
  6  
  7  Linda Rothstein         )City of Toronto 
  8  Lily Harmer (np)        )
  9  Robert Centa   (np)     )
 10  Gordon Capern           )
 11  
 12  David Moore             )MFP 
 13  Fraser Berrill          ) 
 14  Ken Jones (np)          ) 
 15  Brian Heller   (np)     )Ball Hsu and Associates Ltd.
 16  Melissa Kronick (np)    )CUPE 
 17  Raj Anand (np)          )Lana Viinamae
 18  Bay Ryley               )
 19  William Anderson        )Wanda Liczyk
 20  Valerie Dyer (np)       )Dell Computers
 21  Jennifer Lynch (np)     )
 22  Edward Greenspan (np)   )Jeff Lyons
 23  Todd White (np)         )
 24  Joyce Ihamaki           )Registrar
 25

1 TABLE OF CONTENTS 2 Page 3 PETER WOLFRAIM, Sworn 4 Examination-in-Chief by Mr. Ronald Manes 5 5 6 Certificate of Transcript 207 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

1 EXHIBITS 2 No. Description Page 3 6 Volume 1 Bound document titled 6 4 "J.Peter Wolfraim" 5 volume 1 tabs 1-159 6 7 6 Volume 2 Bound document titled 6 8 "J.Peter Wolfraim" 9 volume 2 tabs 160-209 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

1 --- Upon commencing at 10:00 a.m. 2 3 THE REGISTRAR: The inquiry is now in 4 session. Please be seated. 5 MADAM COMMISSIONER: Good morning. 6 7 (BRIEF PAUSE) 8 9 JOHN PETER WOLFRAIM, Sworn; 10 11 MADAM COMMISSIONER: Good morning, Mr. Manes. 12 MR. RONALD MANES: Good morning, 13 Commissioner. 14 15 (BRIEF PAUSE) 16 17 EXAMINATION IN-CHIEF BY MR. RONALD MANES: 18 Q: Good morning, Mr. Wolfraim. 19 A: Good morning. 20 Q: Now, sir, you should have two (2) volumes 21 of documents in front of you marked Volume 1 and Volume 2. 22 A: I do. 23 Q: And you should keep those in front of you 24 because we're going to be referring to them. 25 A: Okay.

1 Q: Commissioner, may tender the next exhibit 2 Volumes 1 and 2 of Mr. Wolfraim's documents. 3 MADAM COMMISSIONER: Okay. 4 THE REGISTRAR: Exhibit -- that will be 5 Exhibit 6 Volume 1 and Volume 2. 6 MADAM COMMISSIONER: Thank you. 7 8 --- EXHIBIT NO. 6 VOLUME 1: 9 Bound document titled "J.Peter Wolfraim" 10 volume 1 tabs 1-159 11 12 --- EXHIBIT NO. 6 VOLUME 2: 13 Bound document titled "J.Peter Wolfraim" 14 volume 2 tabs 160-209 15 16 CONTINUED BY MR. RONALD MANES: 17 Q: Mr. Wolfraim, you've been in the money and 18 banking business for close to twenty five (25) years? 19 A: Yes, I have. 20 Q: You received your MBA from McGill in 1975? 21 A: Yes. 22 Q: And proceeded the next approximately ten 23 (10) years to work for a Swiss Bank? 24 A: Yes. 25 Q: You worked in New York for a few years?

1 A: Yes. 2 Q: Came back -- 3 A: At Dominion Securities. 4 Q: Yes -- came back to Canada to work at the 5 Chemical Bank? 6 A: That's right, yes. 7 Q: And you did stints in Vancouver, Calgary 8 and then came to Toronto? 9 A: That's right. 10 Q: Now, I understand that MFP was born in 11 1984 by the name of Manufacturer's Finance Progress? 12 A: That's right. 13 Q: And there were four (4) founders of that 14 company? 15 A: That's correct. Myself, we had two (2) 16 sales reps and there was a lawyer from Smith Lyons actually. 17 Q: Right. Now, you were and have always been 18 the President and CEO? 19 A: No, actually -- I became President and CEO 20 in 1988. The other three (3) partners left, two (2) in 1988 21 and one (1) in 1992 and I became President and CEO in 1988. 22 Q: All right. You took the company public in 23 1994? 24 A: That's right. 1993, sorry. 25 Q: 1993. And there was a name change in 1998

1 the name change was MFP Technical Services Limited -- 2 Technology Services Limited? 3 A: Yes, yes. And we changed it to MFP 4 Financial Services. 5 Q: Now, you have offices in Canada, US and 6 the UK? 7 A: That's right. 8 Q: And how many employees does the company 9 have? 10 A: At the moment we have about a hundred and 11 twenty (120) employees. 12 Q: And at its highest? 13 A: We would have been about two hundred and 14 fifty (250). 15 Q: And at the point that I was reading, which 16 was recently, you had about a billion dollars worth of assets 17 under management? 18 A: That's right. That's declined a little 19 bit in the last year or so, but as at about eighteen (18) or 20 twenty four (24) months ago, we reached the billion dollar 21 mark in assets in management, yes. 22 Q: Now, that's from a get go of one and a 23 half million dollars ($1,500,000) in assets in -- 24 A: Our very first transaction was one and a 25 half million dollars ($1,500,000), yes.

1 Q: Now, unique about your company as a 2 reseller is that 85 percent of your asset management is 3 leasing technology? 4 A: That's right. 5 Q: Now, insofar as that is concerned and 6 regarding other resellers, you specialize in leasing 7 technology? 8 A: Leasing technology and related services, 9 asset management, related asset management services, yes. 10 Q: And how do you distinguish yourself from 11 captive suppliers and if you could tell us what a captive 12 supplier is and then how you distinguish yourself? 13 A: A captive supplier would be a leasing or 14 financial services subsidiary of a computer manufacturer like 15 an IBM leasing is a subsidiary of an IBM, a Compaq, Capital 16 or HP Finance, is a subsidiary of HP. 17 We differentiate ourselves, or have to 18 differentiate ourselves a couple of different ways. One (1) 19 is we pride ourselves on vender independence. 20 So that what you know is you're free to deal 21 with all vendors at all times and come to us looking for new 22 solutions, for example, rather than being perhaps tied into a 23 solution of the captive manufacturing parent. 24 In addition, we have to find other ways to add 25 value because we're clearly a lot smaller than some of those

1 people and if we're competing strictly on price, we're not 2 going to survive for long. 3 Q: We're going to talk a lot of about MFP's 4 value added services, as we go along. 5 You're -- 6 MADAM COMMISSIONER: Just before you go on, 7 are you okay with that chair? 8 THE WITNESS: Yes, it's -- I'll find my level 9 eventually. It's -- 10 MADAM COMMISSIONER: We do have a little roll 11 thing at the back for somebody else, so if you'd like that we 12 can find that for you. 13 THE WITNESS: No, I'm fine. 14 MADAM COMMISSIONER: Okay. 15 THE WITNESS: Thank you. 16 17 CONTINUED BY MR. RONALD MANES: 18 Q: What percentage of your business is public 19 sector, whether Provincial, Federal or Municipal? 20 A: About a third of our portfolio is public 21 sector, a third is public sector, another third of it private 22 sector in the United States and about a third of it private 23 sector in Canada. 24 Q: So in Canada, would that be something 25 like half your business?

11
  1                 A:   It would be half our Canadian portfolio
  2  when you total up public sector, yes.  Or even --
  3                 Q:   Compared to other resellers, that's quite
  4  high isn't it?
  5                 A:   Well, I think it is.  We -- we've been
  6  involved with public sector customers, really, from the
  7  beginning.  
  8                 Our first couple of transactions -- our very
  9  first transaction was with the Government of New Brunswick
 10  and I think our second was for the Ontario Hospital
 11  Association and we've maintained a strong public sector
 12  presence, really for close to twenty (20) years.
 13                 Q:   In addition to being specialized in -- in
 14  leasing technology, you would equally be specialized in
 15  leasing technology to the public sector?
 16                 A:   We think so.
 17                 Q:   All right.  Now, as I understand it, 1999
 18  your stock price hovered around fifteen dollars ($15) and
 19  some?
 20                 A:   It didn't -- I -- I -- it might have
 21  spiked at fifteen dollars ($15).  It's probably hovered
 22  closer to the twelve ($12) or thirteen ($13) dollar mark.
 23                 Q:   The -- the IPO, when you went public, was
 24  at about nine dollars ($9)?
 25                 A:   That's right.

1 Q: You, sir, owned approximately four (4) 2 percent -- 3 A: Three (3). 4 Q: -- issued in outstanding stock? 5 A: Yes. 6 Q: How many shares would that be? 7 A: That's four hundred thousand (400,000) 8 shares. 9 Q: The -- any of the employees in your 10 company, at the material times, 1999, 2001, did any of them 11 own stock in the -- in the company? 12 A: I would guess that -- that we have a 13 dozen people that would own between one (1) and five hundred 14 (500) shares internally. 15 Q: Are there options? 16 A: There are options as well. There are, I 17 think at the moment, about four hundred thousand (400,000) 18 options outstanding. Most of them are out of the money at 19 the moment. They're exercisable at prices of twelve (12), 20 thirteen dollars ($13). 21 Q: Of the -- of the dozen or so people that 22 -- that would own shares, would Mr. Domi have owned -- 23 A: No. 24 Q: -- shares? 25 A: No, not that I am aware of.

1 Q: Mr. Wilkinson? 2 A: He probably owned some shares. He also 3 has some options so I'm going to say five (5) or ten thousand 4 (10,000) options. 5 Q: And Irene Payne? 6 A: Irene owns a small number of shares and 7 she had some options. 8 Q: All right. Let me take you back to talk 9 about the growth of your company. 1982 you were -- and 10 through '89, you were mainly in the mainframe business? 11 A: That's right. We mainly provided -- we 12 actually provided vendor programs or financing programs to 13 computer vendors that didn't have their own captives and -- 14 but understood the value of having -- having leasing programs 15 available to their customers. 16 We started with companies like Sperry and -- 17 and Burrows and Control Data. In 1985 we undertook a program 18 with CNCP Telecommunications to lease telex machines to their 19 subscribers and I'm going to say that over a two (2) or three 20 (3) year period, we accumulated a portfolio of about twenty- 21 five thousand (25,000) telex machines. 22 In 1986 we started working with Digital 23 Equipment Corporation, DEC, in the distributed computing 24 world and then, I guess, as we approached the end of the 25 '80s, we concluded two (2) things.

1 One (1) was that if we wanted to continue to 2 grow, we needed to get into the IBM space which was more 3 mainstream and we were finding ourselves -- we wanted to be 4 more oriented towards end users and less -- less tied to the 5 manufacturers. 6 Q: You became a remark -- a re-marketer of 7 IBM product? 8 A: Right. Yeah, we became a reseller of IBM 9 products. Well, if you go back through it -- from '89 to -- 10 well, okay, there are two (2) types of re-marketing, I 11 suppose, or reselling. 12 One (1) is in the used market and being a 13 leasing company or a technology finance company, we were 14 always involved in -- in re-marketing or reselling used 15 technology as it came off lease. 16 In 19 -- let me get the chronology right. So 17 we had first entered the IBM market in 1989. We bought the 18 Canadian assets of Continental Information Systems, which is 19 a US IBM computer lessor. 20 In 1992 we bought the Canadian assets -- or 21 well, the assets of Triathlon Computer Leasing which was a 22 subsidiary of Trilon and that positioned us actually in the 23 PC marketplace. 24 And as part of being in the PC marketplace, we 25 began to not only lease to our customers, but also we signed

1 up reselling agreements or reseller agreements with a variety 2 of manufacturers. 3 So we were distributing IBM PC's and Compaq 4 PC's and so forth. 5 Q: Actually, 1989 you bought from Chapter 11 6 -- 7 A: That's right 1989 -- 8 Q: -- you bought CIS, Continental Information 9 Systems, its Canadian arm? 10 A: That's right. 11 Q: And that together with the Triathlon 12 Computer Leasing purchase, really launched you into the PC 13 leasing market? 14 A: It launched us into the PC leasing market, 15 and positioned us, I guess, as we're the largest independent 16 computer lessor in Canada and one (1) of the largest in North 17 America. 18 Q: And that constituted a real change in 19 direction from mainframes to PC's to the point that 1996 you 20 exited the mainframe market? 21 A: That's right. We actually began to exit 22 the mainframe market earlier. We just didn't quite get out 23 fast enough, so 1996 we exited it altogether. 24 Q: Well, having regard to your involvement in 25 the mainframe market and now the PC market, in addition to

1 having an expertise in leasing technology and recent 2 technology of the public sector, you have some expertise in 3 technology, as well? 4 A: Some expertise, yes. 5 Q: Right. Now, the fortunes of MFP have 6 declined somewhat, in March this year, your stock was at 7 about eight dollars ($8.00) down from thirteen fifty ($13.50) 8 from July 1st, correct? 9 A: Yes. 10 Q: Now, as I understand it, there's been a 11 general slowdown -- 12 A: Yeah, there's been a general slowdown I 13 think in the whole technology market post-Y2K and I think 14 that what's happened with our stock, I don't know how much of 15 that is attributable to slow downs in the economy generally 16 and technology specifically, and how much of it's 17 attributable to any publicity we may have received. 18 It's hard to know. But, certainly it's a 19 combination of the three (3). 20 Q: The -- your -- in 2001 you declared a $17 21 million profit, in March 31st, 2002, you took a $2.9 million 22 loss? 23 A: Right. Now, we in our operations, we made 24 about $12.5 million from operations, but we took a $25 25 million special charge to cover litigation expense. It was

1 related, primary to the City of Waterloo. 2 Q: Let's turn to your organization and how 3 you as the President CEO operate it. As the President and I 4 take this from the statement that you gave to the police, 5 that's enclosed in the materials at Tab 59 -- I should put on 6 the record what Begdoc number that is -- 7 MADAM COMMISSIONER: Are you turning us to 8 that Mr. Manes? 9 MR. RONALD MANES: Just for the record, I'm 10 not turning you to that, I'm just going to give you the 11 Begdoc number 41622. 12 MADAM COMMISSIONER: Okay. 13 14 CONTINUED BY MR. RONALD MANES: 15 Q: You described yourself as hands on in 16 relation to day-to-day financial transactions? 17 A: Yes. 18 Q: So you, Mr. Wolfraim, would participate in 19 meetings and strategy, pricing, go before your investment 20 committee, which we'll talk about in a moment, go before your 21 credit committee, all of those matters you involve yourself 22 in, on a day-to-day basis? 23 A: Yes. 24 Q: It sounds like that you are interested in 25 anything that is going to have a financial impact?

1 A: That's correct. A material financial 2 impact. 3 Q: Yes. And in terms of material financial 4 impact, on major leases such as City of Toronto, there can be 5 material impacts when a lease is rewritten? 6 A: Yes, sir, yes. 7 Q: Or when a -- there is an extension of 8 three (3) year leases to five (5) year leases? 9 A: Certainly. 10 Q: In addition, I understand that you, to 11 some extent, participate in hiring, including interviewing, 12 perspective employees, where those employees critical or 13 important to your operation? 14 A: Yeah, it doesn't happen often but it -- 15 it -- from time to time, yes. 16 Q: Between 1999 and 2001, your Senior Vice 17 President was Irene Payne? 18 A: I'm sorry. Senior Vice President, sales 19 and marketing from 1997 to 1999. Right. 20 Q: 1997 to 1999? 21 A: Yeah. Yeah. Fall of '97 to -- 22 Q: Oh -- 23 A: December of 19 -- 24 Q: Sure -- 25 A: Sorry.

1 Q: All right. My mistake, sorry. 2 A: Yeah. From February of 2000 to the 3 present, it's Mike Flannagan. 4 MADAM COMMISSIONER: It's wh -- Mike who? 5 THE WITNESS: Flannagan. 6 7 CONTINUED BY MR. RONALD MANES: 8 Q: Now, what was Irene's -- Irene Payne's 9 job as the Senior VP of Sales and Marketing? 10 A: Well, she's essentially responsible for 11 the Sales and Marketing area of the company so annually we 12 would go out -- annually we would, as a management team, 13 review the strategy for the company on a longer term basis, 14 meaning three (3) to five (5) years, and we would also put 15 together a business plan for the next twelve (12) months. 16 And Irene would meet with her sales folks and 17 sales management and review -- review accounts and account 18 strategies and -- and put together a budget for the year in 19 terms of new business and residual performance statistics and 20 expense forecasts and the like. 21 So she'd put together a business plan for the 22 year. She was responsible for essentially deli -- delivering 23 that plan. 24 Q: Next to you, would she have been the most 25 senior person in the company?

1 A: We had three (3) senior vice presidents 2 so she would have ranked equally with the other two (2) -- 3 Q: And -- and the other two (2) -- 4 A: And the other two (2) would have been the 5 Chief Financial Officer, Bob Wright and -- well, prior to 6 taking over the sales responsibilities, Mike Flannagan was 7 Senior Vice President in charge of Asset Management and 8 Trading. 9 So the equipment trading operation reported to 10 him and he was responsible for managing the risk in the 11 business -- the residual risk in the business. 12 Q: Could you explain what that means? What 13 his job is in lay terms? 14 A: He -- he would be responsible for -- he'd 15 be, kind of, the first line of approval for -- for 16 transaction pricing. He'd be the one (1) responsible for 17 establishing residual values to be used in the company's 18 books and records. Those would be presented to the 19 Investment Committee, this bridge we talked about -- we 20 talked about yesterday. 21 He's responsible for approving for pricing of 22 individual transactions and portfolio transactions. So end 23 of the lease transactions -- so if a salesman wants to sell a 24 product off lease to a customer, then if the transaction's of 25 a certain size, he'd have to get Mike's approval on the price

1 and that sort of thing. 2 In addition, we had a trading operation where 3 we buy and sell new and used technology and that business 4 contributes about 15 percent of our gross profits and Mike's 5 responsible -- was responsible for managing that in that 6 capacity. 7 Q: All right. Now, Rob Wilkinson was a vice 8 president -- 9 A: Yeah. 10 Q: -- is a vice president, I should say. 11 A: He is a vice president, yes. 12 Q: And what -- what is Mr. Wilkinson's job? 13 A: And he's -- essentially, he was actually 14 our first employee. We hired Rob in 1985 and he was actually 15 our auditor when we hired him and he's had just about every 16 job in -- in the company that there is. He's worked in just 17 about every function there is to work in. 18 He has run a sales support group that we call 19 Business Analysts, for several years so he would be vice 20 president and -- and a business analyst wh -- someone who 21 understands the business and from -- from MFP's perspective 22 the accounting impacts and -- and -- and has some knowledge 23 or some insight into capital markets and financial 24 engineering and -- and -- and, as well has gained experience 25 and insight as to how customers look at things over the

1 years. 2 Q: Now, as I understand it, when the sales 3 people get a lead such as City of Toronto, they will bring in 4 as person of choice, Rob Wilkinson as an expert in leasing 5 technology, asset management or any other question that may 6 challenge MFP? 7 A: Right. Yes, if it's not a straight 8 forward transaction, or they're looking for a sort of 9 intelligence as to how to approach certain customers, given 10 certain customer objectives then they'll get Rob involved. 11 Q: If I could give him a title, he would be 12 your, go-to guy, in the company? 13 A: For deals, yes, sure. 14 Q: For deals? 15 A: Yes. 16 Q: Your regional sales manager at the time of 17 the City deal was -- I shouldn't say at the time of the City 18 deal, in 1999 was Rob Ashbourne? 19 A: Yes. 20 Q: And he had been with the company for how 21 many years? 22 A: Rob joined the company with the Triathlon 23 acquisition in 1992. But, we'd known Rob for longer. Rob 24 had been with CIS prior to that and I guess at the time we 25 acquired CIS, Rob chose to go with Triathlon and not come

1 with the portfolio from CIS, but we'd certainly known him 2 since then. 3 Q: He's very capable in technology leasing? 4 A: Yes. 5 Q: He would be as expert as any salesperson 6 in the business in technology leasing? 7 A: Competent might be a better word, but 8 certainly he's as good as anyone else, very experienced, very 9 solid. 10 Q: Now, we're going to come to this in a 11 little while, but Mr. Domi was hired by the company in 12 October 1998? 13 A: That's correct. 14 Q: And we'll talk more about him as we go 15 along. 16 Risk management at MFP, could you explain the 17 function of the investment committee and the credit 18 committee, insofar as it relates to risk management? 19 A: Sure. The investment committee is -- is - 20 - oversees the company's investments in technology and the -- 21 so that includes both how we're going to price transactions, 22 what -- how much equity we're going to invest in technology 23 and what future values we're going to book or keep in the 24 books and records as residuals. 25 The investment committee, comprises a number

1 of people. It was the primary responsibility in 1999 of Mike 2 Flannagan, or he was the one primarily responsible for it. 3 So he would produce the grids. 4 The way that our approval process worked and 5 does work, was that as the company's risk position in a 6 particular transaction increased, then it -- as you would 7 expect, more people had to sign off. 8 The people that were on the investment 9 committee were -- were Mike, Bob Wright, Irene and then after 10 those three (3) I would be required to sign off. 11 And then once the investment reached a certain 12 level we had two (2) members of the Board that were not -- 13 non-management members of the Board, that were on the 14 investment committee, and they'd be required to sign off. 15 And then at certain investment levels the Board had to sign 16 off in its entirety. 17 Credit committee is a little different, in the 18 sense that most of the money we borrow, we borrow on a non- 19 recourse basis. 20 Meaning when we finance a lease, for example, 21 the City of Toronto lease, what we're doing is we are 22 essentially factoring receivables to our lender on a non- 23 recourse basis back to MFP. 24 So, the credit committee is mainly in-house, 25 meaning it doesn't involve any Board member other than

1 myself. But, again, it's -- we have to sign off at different 2 -- higher levels for larger exposures. 3 Q: A non-recourse deal and factoring means 4 that you're selling the deal to a third party? 5 A: That's right. A life insurance company, a 6 bank, for example. 7 Q: Clarica would be -- 8 A: Well, no it's not selling, you're selling 9 the receivables as opposed to selling -- 10 Q: Yes -- 11 A: -- we would be entitled to the asset but 12 sell the receivables, correct. 13 Q: You're selling the income stream? 14 A: That's right. 15 Q: And I take it when you do that, the -- you 16 sell it at some discount as to the present value of that 17 income stream? 18 A: We would sell it at a discount rate that 19 is negotiated between ourselves and the buyer and typically 20 it is spread -- it reflects the credit of the company with 21 whom we're writing the lease. The quality of the receivable, 22 I suppose. 23 Q: You retain title to all the assets? 24 A: Most of the assets. 25 Q: Most of the assets.

1 A: Yeah. 2 Q: And what does it mean when you say it's 3 non-recourse? Does that mean that he has no risk? 4 A: Well, what we have at risk is whatever -- 5 you know, what it means, I guess, is that if our -- if our 6 lessee goes bankrupt the lender -- the -- the financier of 7 the transaction doesn't have recourse back to MFP. 8 Q: All right. 9 A: But where our recourse is, I suppose, in 10 that is it -- is that the extent that we have a residual. An 11 investment in the equipment and a residual on our books where 12 it's not likely we're going to recover that. We'd end up 13 writing that off. 14 Q: All right. Now, in addition to the 15 operations of the company that you've described, you also 16 have a generated policies incorporated in the MFP corporate 17 manual. Is that right? 18 A: Yes, that's right. 19 Q: Now, some of those policies we've 20 extracted are in Tabs 190 -- well actually, I'll put it -- in 21 Volume 2, Tab 90 to Tab 93 -- 94. Now they're -- they are 22 not, as yet, entered into our system so we have no document 23 numbers for those. 24 Now, if you'll turn to -- if you turn to those 25 tabs for -- for a moment, Mr. Wolfraim, these are entitled,

1 at Tab 90 "Code of conduct", Tab 91 "Conflict of interest", 2 Tab 92 "Donations and sponsorships", Tab 93 "Expense 3 reports", Tab 94 "Expenses to be reimbursed". 4 How were those policies developed? Over what 5 period of time? 6 A: They would have been developed in the 7 early to mid-nineties. There are dates up on the right hand 8 corner which refers to the last time the -- the policy was 9 updated but the policies would have initially been developed 10 back in the early nineties. Early to mid-nineties, '93, '94. 11 Q: Now, you are -- you are shown as the 12 sponsor and the contact is Chris Long. Could you explain 13 what that means? That you're shown to be the sponsor, upper 14 left hand corner, for example, on Tab 90. 15 A: Well, I -- I -- that -- that, I guess, 16 the overall policy is my responsibility. If you want to look 17 at it, maybe one way to look at is that so strategically I'm 18 responsible for it on a tactical level as Chris Long. 19 Chris Long is our Director of Human Resources 20 so if you had a suggestion regarding this policy, you would 21 go initially to Chris Long. 22 Q: Wou -- is -- would Chris Long be the 23 person that would police, for example, the code of conduct or 24 would you or somebody else? 25 A: I don't know that I'd say we actively

1 police our code of conduct. It's -- I think these are 2 standards that we put up expecting people to conform to them. 3 So if -- if -- 4 Q: Let's take a new employee. Would a new 5 employee -- would there be a process in place where -- 6 A: Yeah, absolutely. 7 Q: -- a new employee would be -- 8 A: Yes. 9 Q: -- sat down and -- and code of conduct 10 gone over by -- 11 A: Yeah. 12 Q: -- with and by -- with -- by Human 13 Resources? 14 A: That would be Chris. Chris would point 15 them to the policies and take them through them and explain 16 what the consequences were. 17 Q: The -- the code of conduct, conflict of 18 interest, has that been materially the same to February 2000? 19 In other words, was it -- was it, in all respects, materially 20 the same in 1999? 21 A: Yes. 22 Q: And that's both the code of conduct, 23 conflict of interest, donations and sponsorships, expense 24 reports and expenses to be reimbursed? 25 A: Yes, I don't think that any of these have

1 changed considerably in the last five (5) or six (6) years. 2 Q: Have you ever had occasion in the -- in 3 the 90's to speak to any employees about the code of conduct 4 or about conflict of interest in terms of their own conduct, 5 or is this something that is rarified or doesn't happen at 6 MFP? 7 A: No, no, it's happened once or twice. In 8 fact, I guess some of these aren't mutually exclusive. For 9 example, sometimes when we have a code of conduct and an 10 expense policy, you know, those two (2) policies aren't 11 necessarily mutually exclusive for -- I guess for fairly 12 obvious reasons. 13 Q: If we can go, just take this moment and go 14 through this code of conduct at Tab 90, in order to introduce 15 it to the Commissioner. 16 This code of conduct in amongst other things 17 defines unacceptable behaviour, which includes but is not 18 limited to: 19 "Engaging in dishonesty, fraud, theft or 20 mis-use of authority, unauthorized 21 possession of or use of company property, 22 falsifying records, mis-use of company 23 provided technology, violating criminal 24 laws while at MFP, or on the property of 25 any organization with which MFP has a

1 business relationship. 2 Acts of discrimination and or 3 harassment, behaving or participating in 4 activities whether legal or not, outside 5 the company that are detrimental to the 6 image of the company, continued unnecessary 7 rudeness to others and or disrespect for 8 others and insubordination." 9 Now, that unacceptable behaviour is pretty 10 much business standard? 11 A: Yes. 12 Q: And I take it in developing this code of 13 conduct and the code, in general, what you did was to canvas 14 other businesses and put together what you felt was 15 appropriate for MFP's standards of integrity and conduct? 16 A: Yes, that's right. 17 Q: Falsifying records, would that be 18 falsifying MFP records or any records? 19 A: Any records. 20 Q: And in terms of violating criminal laws 21 while at MFP, would falsifying expense records be -- fall 22 into the category, would you say of violating criminal law, 23 as well at MFP? 24 MR. DAVID MOORE: Well, I -- I don't know 25 whether it's helpful to put it in those terms. Obviously, I

1 mean, inherent in that there's a legal opinion involved. 2 Certainly falsifying expense records would, 3 I'm sure, violate the policies one (1) way or the other. 4 MADAM COMMISSIONER: You're saying that 5 falsifying expense records would violate the policy, is that 6 what I hear? 7 MR. DAVID MOORE: I don't think there is any 8 doubt or debate about that, it's just whether that 9 constitutes -- asking this witness, whether that does or does 10 not constitute a criminal offence, I'm not sure how helpful 11 or relevant that is coming from this witness. 12 MADAM COMMISSIONER: Well, I guess it depends 13 on how one (1) defines criminal laws, which can include non- 14 criminal code offences. 15 Mr. Manes, where do you want to go with this? 16 MR. RONALD MANES: Well, I'm going to move on 17 because I'll ask the witness the question in a different -- 18 different way. 19 I was only asking that question because Mr. 20 Wolfraim had said that he had canvassed other companies and 21 included this in his own code of conduct. But -- 22 MR. DAVID MOORE: I don't wish to interfere 23 with Mr. Manes examination -- 24 MADAM COMMISSIONER: I'm sorry, Mr. Moore, I 25 think we're having a little bit of trouble hearing you

1 because of where the -- 2 MR. DAVID MOORE: I'm sorry -- I don't wish to 3 interfere with -- 4 MADAM COMMISSIONER: Much better -- 5 MR. DAVID MOORE: -- I don't wish to interfere 6 with Mr. Manes' examination, perhaps I'm overly sensitive 7 about witnesses expressing legal opinions where they're not 8 lawyers. 9 But, that said, as I indicated I don't think 10 there was any doubt whatsoever that falsifying an expense 11 record would be a breach of this policy in one (1) form or 12 another and so I'll -- I'll -- I'm content to let Mr. Manes 13 carry on. I'll leave it at that. 14 MADAM COMMISSIONER: All right. Thank you. 15 16 CONTINUED BY MR. RONALD MANES: 17 Q: Falsifying expense record would be 18 dishonest? 19 A: Yes. 20 21 (BRIEF PAUSE) 22 23 Q: Now, according to the -- the last 24 paragraph, 25 "Any staff member who participates in any

1 of the above activities or behaviours or 2 any similar activity that discredits the 3 company or could damage MFP's reputation or 4 relationship with any organization will be 5 subject to discipline up to and including 6 termination of employment." 7 A: Correct. 8 Q: All right. The -- tho -- those things 9 are brought to the attention of every new employee? 10 A: Yes. 11 Q: And things like falsifying expense 12 records, for example, you don't have to be a rocket scientist 13 to know that if you do that kind of thing, you're subject to 14 termination? 15 A: That's right. 16 Q: If -- if you can take -- if we can go to 17 conflict of interest. It's at Tab 91. 18 19 (BRIEF PAUSE) 20 21 Q: This is under conflicts of interest and 22 first part of it goes into conflicts of interest such as 23 other business interests or employment commitments outside 24 the company. Participating in competing businesses. 25 Correct?

1 A: Yes. 2 Q: That's the first page and the second page 3 at Tab 91 is gifts. 4 5 (BRIEF PAUSE) 6 7 Q: Let me read to you the paragraph on gifts 8 because I appreciate that this is very challenging for -- for 9 any company. 10 "MFP staff must not accept gifts from 11 suppliers or anyone seeking to do business 12 with MFP, if the acceptance of the gift 13 could be constituted ..." 14 MADAM COMMISSIONER: Construed. 15 16 CONTINUED BY MR. RONALD MANES: 17 Q: "... construed as an influence on MFP's 18 decision to either to hire or continue 19 dealing with the organization." 20 Now, let me just stop at that point. 21 Staff must not accept a gift from a supplier 22 or anyone else seeking to do business with MFP if the 23 acceptance of the gift could be construed as an influence on 24 MFP's decision to hire or continue to deal with the 25 organization.

1 So the standard here is not whether it 2 actually does influence an MFP decision, but whether it has 3 the potential to influence? 4 A: In -- in addition, I guess what we are 5 doing is putting the judgement in the hands of the company as 6 opposed to the hands of the employee. 7 Q: Could you explain that? 8 A: Wh -- what we don't want is -- is -- is a 9 policy that's vague enough that one (1) employee could -- 10 could construe -- influence one way and a second employee 11 could construe it another way. So suddenly you have two (2) 12 different policies instead of just one (1). 13 So what we're saying here is that it could be 14 construed -- it's not as -- as articulate as it could be, but 15 what the intention is that it's the company that's going to 16 make that decision so we don't want the employee making the 17 decision as to whether or not he or she should accept the 18 gift. 19 Q: So, what you really are explaining to the 20 employee is if there is any question that a gift or an offer 21 of a gift could be construed as an influence, that you want 22 the person to come to Chris -- 23 A: Right. 24 Q: -- and -- 25 A: Correct.

36
  1                 Q:   -- talk.
  2                 A:   Yes.
  3                 Q:   So, in so far as that process is
  4  concerned, the onus is on the -- the employee to use their
  5  good sense when they're in a situation to come and clear that
  6  situation with the company.  
  7                 A:   Yeah.  I don't know how else you'd do it
  8  unless you put all your suppliers on notice what your policy
  9  is and many people do that.  That's so -- prepare our
 10  conflict policy and have suppliers sign back that they've
 11  read and acknowledge it and so forth.
 12                 Q:   Well, one more thing --
 13                 A:   Well, that's one (1) -- many others --
 14  many others --
 15                 Q:   -- many others, now.
 16                 A:   Yeah.  Yeah.
 17                 Q:   This is a policy in the -- in the -- in
 18  the private that -- that is evolving over time and the
 19  standards are becoming more strict over times as -- as I
 20  understand it.  Is my understanding right?
 21                 A:  No, absolutely, I think a lot of it has to
 22  do with the company's specific circumstances.  Organization
 23  specific circumstances.  Some encourage people to get out and
 24  do more and the same in the public sector.  
 25                 I guess we see a variety of conflict of

37
  1  interest policies in the public sector.  Some that are very
  2  specific that will say, you know, no gifts.  A gift is a
  3  lunch, a gift is a dinner, a gift is a ticket to a sporting
  4  event.
  5                 And others that will say, you know, we're
  6  encouraging people to get out and do business development, it
  7  kind of goes back and forth, public and private sector.
  8                 Q:  The whole purpose, I take it, of the let's
  9  call it the gift policy, is that accepting gifts can
 10  compromise the objectivity of the person accepting the gift?
 11                 A:  That's right and then there's a perception
 12  issue as well. For example, when we got into the PC
 13  distribution business in the early 90's, one (1) of the sort
 14  of standard practices in that business, was with
 15  manufacturers, such as IBM and others, and in fact, some
 16  resellers like GE Capital and others; would -- would provide
 17  what they call stiffs to sales reps or organizations like
 18  ourselves.
 19                 So, what could happen was and I gather in some
 20  cases, and I don't mean to be specific to those names, but,
 21  the stiffs were a way of doing business.  And up to 25
 22  percent of a sales reps compensation could be paid by a third
 23  party, as an inducement to move that third parties product,
 24  there was a reward to move that third parties product.
 25                 And we've always prided ourselves on vendor

1 independence, so we didn't want there to be the appearance -- 2 we wouldn't allow people to pay our sales force basically and 3 we didn't want there to be the appearance that there was a 4 reason for salesmen at MFP to favour an IBM product over a 5 Compaq product, for example. 6 Q: Really, when it comes right down to it, 7 the purpose of a gift in these circumstances is to varying 8 degrees to influence ones relationship with the recipient by 9 -- 10 A: I don't know that I'd go that far, based 11 on the way I define gift. I mean I believe that if -- if -- 12 if people are going to lunch or dinner, it's necessary to any 13 kind of process that people get to know each other better and 14 open the lines of communication and try to understand the 15 organizations and the opportunities and challenges so forth 16 better. 17 If an organization wants to preclude its 18 staff, I guess it's a policing and a due diligence and a 19 perception issue, in the sense that if an organization wants 20 to -- doesn't want to discourage its staff from accepting 21 gifts, like a hockey ticket, for example, then all you really 22 do, is you say, we don't want MFP to give us a hockey ticket. 23 We may want to attend the hockey game, but if 24 we're going to do so, then our organization should be paying 25 for it. So, there's a perception issue.

1 Q: Because you don't want a supplier or 2 anyone else to think that a particular company has you in its 3 pocket? 4 A: Right. 5 Q: Where these gifts are concerned, as you 6 say, it depends how you define it, but you've got to draw the 7 line? 8 A: Yes, and I think it's important to draw a 9 very -- like a black and white line. 10 Q: Right. 11 A: It's -- 12 Q: So if I draw the line, looking at your 13 policy, at normal -- 14 A: Well, we're -- 15 Q: -- however we define that, would that be a 16 fair line to draw? 17 A: -- yes -- we could -- we could -- go some 18 way to making this a little crisper and I guess the easy way 19 to do it, is to define more broadly what we mean as gifts and 20 probably put a dollar value on it. 21 Q: If you were to put a dollar value on it, 22 Mr. Wolfraim, I understand that this is -- not something that 23 we have discussed previously, but what would you put a dollar 24 value on a gift, to the point where it would make you 25 uncomfortable to -- in terms of perceptions, integrity, in

1 terms of your people receiving? 2 A: Twenty five dollars ($25). 3 Q: And I see at the end of -- at the end of 4 the -- just consistent with that, at the end of your gift 5 policy, it says: 6 "For example, a promotional t-shirt might 7 be accepted without concern, but a week 8 long all expenses paid trip should not be 9 expect -- accepted.:" 10 Two (2) opposite ends of that -- 11 A: Right. 12 Q: -- gift spectrum? 13 A: Right. And again, I guess what we're 14 attempting to do here is force people to let the company make 15 the choice, not the individual. 16 Q: All right. Let's then turn just in terms 17 of this -- this policy, to tab 92, and that's donations and 18 sponsorships. 19 Now, this first paragraph reads -- reads as 20 follows: 21 "MFP receives money requests for donations 22 and/or sponsorships. MFP's philosophy is 23 to support select organizations that fall 24 into two (2) categories, organizations that 25 encourage people to help themselves, and

1 organizations that support children's 2 activities. 3 MFP does not normally support 4 organizations that serve diverse needs, 5 such as combined Health Care and service 6 campaigns." 7 Let's just take that general policy of your 8 company. 9 I take it that you have decided that your 10 company wishes to, if it's going to support a charity at all, 11 it is going to be in two (2) areas. Organizations where -- 12 that encourage people to help themselves, and organizations 13 that -- that support children's activities? 14 A: Yeah. 15 Q: That's a policy decision that -- 16 A: It's a philosophy, philosophy, yeah. 17 Q: -- right. 18 A: Yeah. 19 Q: And where charitable activities are 20 concerned: 21 "The company supports this and encourages 22 staff to use bulletin boards, et cetera, to 23 publicize their efforts, but no staff 24 member is permitted to initiate any 25 charitable activity within the company,

1 without the prior agreement of his or her 2 supervisor." 3 A: Yeah, we're a -- we're a fairly young 4 company, so we have a lot of -- a lot of young families and 5 lots of chocolate bars and raffle tickets and Girl Guide 6 cookies, and so forth, to buy. 7 Q: And you explain this in the next 8 sentence. 9 "These activities must support an 10 organization that MFP recognizes as -- as - 11 - as charitable." 12 A: Correct. 13 Q: So you don't want your employees, on 14 company time, doing charitable activities or supporting 15 charities that -- that the company does not feel are 16 charitable? 17 A: Well, we don't -- we don't mean to tell 18 them what charities they can and can't support, all we're 19 trying to -- as I say, given that we've got a young family, 20 and -- and people do get involved in different service 21 organizations, we weren't -- if you want to do it, that's 22 fine, internally, but we don't want it -- we want to make 23 sure we control how it's done. 24 Q: All right. 25 A: And -- and we'd encourage -- yeah, we

1 want people to fall within MFP's philosophy as charitable 2 organizations. 3 Q: And lastly, and this is underlined: 4 "MFP does not publicly support any 5 political organization." 6 I take it what that means is -- when you say 7 publicly support, meaning that people can privately do what 8 they'd like to do, but MFP as a company, is not going to 9 support any political organization? 10 A: Correct. 11 Q: Now, if you go to Tab 93, Expense 12 Reports, this is fairly typical: 13 "All expenses must be provided in a -- in a 14 timely manner, must be claimed and approved 15 at the end of the month." 16 Et cetera? 17 A: Yes. 18 Q: And the -- and the process is implemented 19 by expenses being placed on a standard expense claim form, a 20 spreadsheet format, and then you have to provide the date, 21 the reason for, and the amount of -- of all the expenses 22 claimed must appear on the form. So you have to justify it? 23 A: Yes. 24 Q: And somebody has to approve that 25 expenses, it's -- according to the next paragraph, it's by

1 the Senior Vice-President for -- or senior manager of the 2 union, or the Vice-President, if delegated by the Senior 3 Vice-President. 4 Let's just take our -- our sales and 5 marketing. Would the Senior Vice-President, Irene Payne, for 6 example, until December of 2000 -- 7 A: December of '99. 8 Q: -- December of '99 -- 9 A: Right, yes. 10 Q: -- have approved Mr. Domi's expenses? 11 A: She would have been responsible for them, 12 yes. 13 Q: Let me -- if you know, and you may not, 14 is there a -- an approval process of some kind, somebody just 15 throw in these expenses and then somebody just approve them 16 on the face of them, on -- on trust, or do they go through 17 them and ask questions, or is there -- in some companies, 18 they are discussing the -- even they call some of the charges 19 and ask whether so and so was really there on such and such a 20 date. 21 A: Yeah, no -- 22 Q: So what's the process at MFP? 23 A: -- no, the process at MFP is -- and well, 24 there sort of is, there's an is and a was. But was, let's go 25 there first. The process was that what expenses got approved

1 and how within the expense approval process was as it's 2 determined here, the Senior Vice-President. 3 So, expense policies, I guess are something 4 that all companies wrestle with, and there are different ways 5 of handling them as you've alluded to. 6 I mean I've seen companies that -- I 7 understand certain companies will actually call and audit 8 expenses, and -- and call customers and say, were you with 9 so-and-so on that date at that restaurant, and that may be 10 one (1) of those urban legends, I mean whether they do it or 11 not, it's going to keep people perhaps a little more honest 12 than -- than otherwise. 13 Other companies don't have any approval 14 process. I -- I think I mentioned to you that one US 15 company, multi-national, Kraft Foods, they -- they -- what 16 they do is they have a policy and you submit your expenses 17 electronically and you're automatically reimbursed. But what 18 you understand when you sign on with the company is that if 19 you've violated that policy in any way, you're immediately 20 terminated. 21 So, and -- and I think one (1) of the 22 rationales for that approach is that you can get caught with 23 our approach, in a situation where if you have three (3) or 24 four (4) Senior Vice-Presidents at MFP, you potentially have 25 three (3) or four (4) different expense policies, depending

1 on what it is they decide to approve, and what it is they 2 decide to push back on, we're going to have different Vice- 3 Presidents, they're going to ask different levels of 4 questions. 5 So I can't answer your question as to what 6 process Irene might have gone through. Our -- our -- our 7 view generally was that she had a business plan to deliver, 8 and a budget to -- to spend, and -- and -- and Mike Flannagan 9 after her, and -- and others before her, and we've relied on 10 those people to -- to make the appropriate judgments. 11 Q: Whatever the process, the -- the expense 12 has to be for a legitimate business purpose? 13 A: It has to -- and -- and in our manual, 14 the expense has to be for legitimate business purp -- 15 purposes in our manual, you need to follow the rules as laid 16 out in the manual as well. 17 Q: Urban legend has it that when sales 18 people are involved, expenses can -- can get abused? 19 A: Yes, yeah, we expect -- that's probably 20 not the right word, but there may be a level of abuse. 21 Q: Is there -- this may not be the right 22 word as well, Mr. Wolfraim, but is there a level of 23 flexibility or tolerance with -- with illegitimate business 24 expenses? 25 A: It -- it may not -- when you say

1 tolerance, I assume that you mean if -- if you discover that 2 an expense has been incorrectly submitted, then subject to 3 whatever the explanation is, it may -- may or may not be 4 grounds for termination, it may be, you know. 5 Q: All right, well let me -- 6 A: Does that answer your question? 7 Q: -- sort of. Let me give you a 8 hypothetical. Let's say you have a -- a salesperson that is 9 a very high performer, but also this person takes great 10 liberties with their expense account. Is there -- what would 11 be the company's approach to that kind of -- that kind of 12 person? 13 A: Well there's no -- we don't -- it's 14 fairly -- it's a very democratic organization, so -- so I 15 mean the gift policy applies to me as much as it applies to 16 the guy in the warehouse and the expense policies apply to me 17 as well as they apply to anybody else in the organization. 18 Otherwise, it's just indirect compensation, 19 so. 20 Q: It's just indirect compensation? 21 A: Or -- or another form of compensation I 22 suppose. 23 Q: Quite right, of -- of course that form of 24 compensation is -- is a tax free form of compensation? 25 A: Yeah, that's true.

1 Q: All right. I have some questions for 2 you, sir, that really are being asked by many people who are 3 familiar with -- with this matter, and some who may not be so 4 familiar with this matter. 5 Is it your view, sir, that the MFP lease deal 6 with the City was a good deal? 7 A: Oh, absolutely. I -- I've no question in 8 my mind that the City got a good deal, and we put the 9 economics in front of the City thirteen (13) months ago, 10 comparing the deal they got from us, to the deal that other 11 public sector customers, notably, the Province of Ontario, 12 and the Province of British Columbia received from other 13 companies during the same time frames, and our -- our pricing 14 was at all times very competitive and attractive compared to 15 the pricing those people were getting. 16 Q: You -- that is MFP provided the City with 17 the lowest price for a ninety (90) day period, in response to 18 the tender? 19 A: That's right, yes. 20 Q: And you say that the -- the prices that 21 ultimately the City paid for its leases were competitive? 22 A: Yes. 23 Q: And you say, I take it, that the value 24 added by MFP and its staff was valuable to the City? 25 A: Oh, absolutely, and it could have been

1 significantly more so, yes. 2 Q: Value added in terms of asset management, 3 refresh strategies -- 4 A: Some of that stuff was more the 5 in-process kind of stuff. Certainly, I mean the first stage 6 was just to get all of the books and records sorted out, get 7 the assets on lease, make sure that the assets that were 8 going on lease, were -- were assets that were in fact -- had 9 been ordered by the City, were in use by the City and -- and 10 were in use by users in existence and so forth. 11 There was a lot of administrative work at the 12 front end, sorting through invoices that we were presented by 13 the City to pay, that had already been paid. Invoices that 14 were presented to be paid, that -- that -- where the 15 equipment had been returned and so forth. And that's not to 16 cast aspersions of the City staff, they just had an 17 overwhelming job. 18 So at one (1) point we actually put people in 19 place at the City to help sort through the paperwork. 20 Q: And -- and according to your proposal 21 that was accepted by the City, there was no charge for that 22 value added service? 23 A: No, that's right. 24 Q: And when you talk about no aspersions on 25 the staff, I take it what you're saying that it was at a

1 particular time in the City's history, new City's history, 2 amalgamation, Y2K, it was quite a challenge for staff to 3 face, in addition to -- to dealing with lease technology of 4 at least $43 million? 5 A: Yes, there was enormous work to be done 6 in a relatively short period of time, by -- 7 Q: Sir, did MFP do anything wrong legally, 8 as far as you're concerned? 9 A: No, no, we've -- I guess sort of lived 10 through the initial review by the City, we then co -- then 11 cooperated with. 12 We -- we cooperated with the KPMG report that 13 was conducted under Mr. Lenczner, we conducted -- and I 14 gather there were further reviews done by the City Auditor, 15 and then laterally, reviews conducted by this Inquiry and its 16 staff, and I guess even inquiries in some aspects, conducted 17 by the OPP, and we're not aware -- I'm not aware of anything 18 that has -- we've done that's -- that's legally wrong. 19 And in fact, we put that question to the City 20 about thirteen (13) months ago, I put it to the City and -- 21 and what we were told we'd done wrong was that we had 22 violated the City's Conflict of Interest policies in two (2) 23 different ways. 24 And we were told -- when we asked what that 25 was we were told that initially we had included in our annual

1 report and on our website, an endorsement of the company by 2 City staff that wasn't authorized. And could only be 3 authorized by a Council resolution. 4 My question to that was I'm not sure how I'm 5 supposed to know that, if in fact that's the truth. 6 Secondly, we were told that we had entertained staff 7 excessively. 8 And we asked what, you know, certainly when 9 the City introduced or implemented their Conflict of Interest 10 guidelines in 2001, and they -- we became aware of them we 11 immediately complied and -- but, we did ask, what conflict of 12 interest guidelines they could show us which we violated. 13 And what I was told was, that the conflict of 14 interest guidelines that Wanda was subject to, for example, 15 Wanda Liczyk, were right in her employment letter. 16 And I asked the obvious question, that how am 17 I supposed to know what's in Wanda's employment letter. So, 18 that's the extent of what we were told by the City we'd done 19 wrong. 20 Q: In terms of doing anything wrong legally, 21 the master lease and the equipment leases were negotiated at 22 arms length? 23 A: Yes. 24 Q: The terms of the master lease and the 25 equipment lease were terms that were generally accepted in

1 leasing technology matters? 2 A: Yes. 3 Q: MFP provided lease rate factors every 4 quarter as it said it would? 5 A: Yes. 6 Q: And as far as MFP is concerned, it lived 7 up to the contract in all respects? 8 A: We did everything the City asked us to do 9 and that we said we'd do. 10 MADAM COMMISSIONER: And what sorry? 11 THE WITNESS: And which we said we'd do. 12 13 CONTINUED BY MR. RONALD MANES: 14 Q: What do you say to those that say, sir, 15 that MFP gouged the City? 16 A: We've -- we didn't gouge the City. By any 17 objective measure, the City got a very fair deal, at least 18 competitive if not better than competitive. If not as good 19 as, then better than the deal they would have had had they 20 gone to IBM or Dell or Compaq or anyone else. 21 I can't compare it with debentures because I 22 don't -- you'd have to work through a whole set of 23 assumptions. 24 But, if the decision was lease, they certainly 25 got as good as deal from us as they were going to get from

1 anybody. 2 Q: Did MFP have any involvement in the City's 3 decision to extend the lease terms from three (3) to five (5) 4 years? 5 A: Our involvement was to react to 6 discussions with the City around two (2) or three (3) 7 different areas. 8 One (1) was that the City staff were -- I 9 guess initially, the City -- just looking at the magnitude of 10 the job that took place in 1999, we -- the City staff were 11 saying, we've got to go through this every three (3) years, 12 based on a three (3) year technology refresh strategy. 13 We also heard City staff talking a number of 14 times about budget -- looking -- budget pressures and the 15 Mayor's commitment not to increase taxes. 16 And in those discussions we were -- somehow in 17 the course of some of those discussions, one (1) obvious way 18 in the leasing business to -- or in any finance business to 19 reduce your budget pressure, is to extend the term. 20 So, we were asked to -- what five (5) year 21 numbers might look like and we talked about the advantage of 22 potentially looking at longer term transactions and different 23 refresh strategies, as well. 24 Q: Did MFP have any involvement in the City's 25 decision not to re-tender --

1 A: Not to re-tender, no. 2 Q: All right. Of course, I'm talking about 3 the context when the City decided to extend the -- 4 A: They decided to extend from three (3) 5 years to five (5) years, why didn't they go back and ask for 6 five (5) year pricing? No, no we had nothing to do with 7 that. 8 Q: Did MFP have any involvement in the City's 9 decision to extend the five (5) year leases in July of 2000? 10 A: Again, I guess in discussion with the 11 City, we were working on putting together a model that was 12 sort of a multi-stage model that involved a comprehensive 13 sort of refresh strategy that gave the City some budget 14 relief. 15 We presented options to the City, we explained 16 the options to the City, we were available to answer any 17 questions they might have. 18 They took that information away and came back 19 with a course of action. So, we are, I guess in our case 20 what we're doing is we're -- we're responding to questions 21 and trying to provide information. 22 Q: Did MFP do anything wrong in your opinion, 23 from a business ethics standpoint? 24 A: No. 25 Q: Was the marketing and business promotion

55
  1  within a generally accepted business standard, as far as
  2  you're concerned, Mr. Wolfraim?
  3                 A:   Yes, yes, absolutely.  I don't -- I know
  4  we didn't do anything, we didn't treat the City any
  5  differently from we would -- the way we'd treat a normal
  6  commercial relationship of that size and type, nor did we
  7  treat the City any differently from -- from other vendors.
  8                 Q:   Do you draw a distinction between
  9  marketing business promotion in the context of a normal
 10  commercial relationship as opposed to the public sector?
 11                 A:   No, no, I -- I -- you know, we've dealt
 12  with -- over the last twenty (20) years we've dealt with the
 13  Federal Government, we've dealt with all ten (10) Provincial
 14  Governments at one (1) time or another, we've dealt with
 15  probably fifteen (15), maybe twenty (20) Municipal
 16  Governments across Canada, we've dealt with another twenty-
 17  five (25) or thirty (30) other public sector organizations,
 18  including school boards and health care organizations.  
 19                 And so we have lots of experience in -- in
 20  dealing with those types of organizations and their conflict
 21  of interest policies.  Some -- and they're -- they're all
 22  different, you know.  
 23                 We rely on -- on the people that we're dealing
 24  with in those organizations to -- to live by whatever
 25  conflict of interest guidelines bind them.  And -- and as I

56
  1  said earlier, we -- they come in all shapes and sizes.  Some
  2  public sector conflict of interest policies are a lot
  3  stricter, some are a lot looser, and -- and similarly on the
  4  private sector side, some are much stricter, and some are
  5  looser, so.
  6                 Q:   Did you, sir, speaking on your own behalf
  7  and behalf of your company, have any reason to believe that
  8  the marketing and business promotion which was being done at
  9  the City by your company was in conflict, or could be in
 10  conflict with the City's conflict of interest policy?
 11                 A:   No, we had no reason to believe it, and I
 12  guess what we're still waiting to hear or see is exactly, and
 13  I don't know whether we'll ever know, exactly what level of
 14  entertaining took place and -- and what the City's policy is,
 15  in sort of black and white.
 16                 Q:   In terms of that, I think we -- we will
 17  as you know, get into that a little bit later, and to the
 18  extent of -- of the entertaining.  Let me go on to this next
 19  question.
 20                 Did any -- as far as you're concerned, any
 21  representative or representatives of your company and City
 22  officials, deal -- let me ask the question differently.  
 23                 Do you have any reason to believe that
 24  representatives of your company and City officials did not
 25  deal at arms length and all matters relating to the leasing

1 deal with the City? 2 A: No. 3 Q: Do you have any reason to -- to believe 4 that the -- any representative of your company or 5 representatives of your company exerted undue influence, or 6 inappropriate influence or con -- conferred inappropriate 7 benefits on City staff? 8 A: No, no, I'm just trying to think, you 9 know, and -- and -- no. 10 MADAM COMMISSIONER: Was that too many 11 questions in one (1)? 12 THE WITNESS: Well, I just wasn't sure 13 whether it was one (1) or two (2) or three (3), because 14 that's I guess one (1) of the -- 15 MADAM COMMISSIONER: There's exerted undue 16 influence or inappropriate influence or conferred 17 inappropriate benefits -- 18 THE WITNESS: Hmm hmm. 19 MADAM COMMISSIONER: -- so it sounded just 20 like three (3) different things. 21 THE WITNESS: Yeah. 22 MADAM COMMISSIONER: You're welcome to piece 23 them apart if you like? 24 THE WITNESS: No, I'll just say no. 25 MADAM COMMISSIONER: Okay.

1 THE WITNESS: My answer's no. 2 3 CONTINUED BY MR. RONALD MANES: 4 Q: What would you say to -- to those who 5 allege that because of MFP's high level of expertise in 6 leasing technology, that they -- your company, sir, misled 7 the City by commission or omission? 8 A: Technology leasing is not -- we're not 9 splitting the atom, it's pretty simple business. 10 We're dealing with a -- I guess what I've 11 heard is about the fifth largest Government in Canada, the 12 fifth largest City in North America. It's a $6 billion 13 corporation that far and away employs more people in the 14 finance area than -- than we employ in total. 15 So I -- I -- from Queen and Bay there are 16 probably a hundred (100) people within three (3) blocks or a 17 thousand (1000) people within three (3) blocks, that know as 18 much about leasing as we do. 19 So, I don't see how that makes any sense. 20 Q: All right. Now, as the President and CEO 21 of your company, do you accept responsibility for the conduct 22 of your staff? 23 A: Yes. 24 Q: In giving the answers that you've just 25 given us here, for the public record, are you confident that

1 those decision -- that those answers are true and accurate? 2 A: Yes, I am. 3 Q: And is that based on your own knowledge 4 and knowledge that you've acquired from staff and information 5 that you've gathered through your company and lawyers et 6 cetera, throughout this entire process? 7 A: Yes, yes. 8 Q: Sir, do you know or have any reason to 9 know that MFP received an offer of a bribe to get the 1999 10 City lease deal? 11 A: No. 12 Q: All right. Let me take you to a more 13 general question about the leasing industry, sir. Then I 14 want to take you to another code of ethics in that regard. 15 As I understand it, the leasing industry is a 16 $40 billion a year industry in North America? 17 A: Yes, $40 billion US, around there. 18 Q: $40 billion US. 19 A: Yes. 20 Q: That makes it about a good $100 billion 21 Canadian. 22 As I understand it, in terms of acquiring 23 goods, 20 to 25 percent of the goods that are acquired at 24 through lease finance. 25 A: Yes.

1 Q: And I also understand that this huge 2 industry is generally unregulated? 3 A: Yes, it is. It's an unregulated finance 4 business. 5 Q: Now, there are associations however, in 6 the United States and in Canada, other jurisdictions that 7 voluntarily attempt to provide codes of conduct and ethics 8 and other voluntary regulation to the industry? 9 A: Yes. 10 Q: And one (1) of them is the Canadian 11 Finance and Leasing Association, or CFLA? 12 A: Yes, yes. 13 Q: And I'm going to refer to it as CFLA. And 14 you are a member of CFLA, that is MFP? 15 A: That's right, as a matter of fact, I was 16 on the Board of CFLA for a number of years. 17 Q: And every prominent company that is 18 involved in the leasing industry in any way, is a member of 19 that organization? 20 A: Most, yes. 21 Q: And their code of conduct is at Tab -- 22 Volume 2, 88. 23 24 (BRIEF PAUSE) 25

1 Q: And that is the CFLA Annual Report -- and 2 if you will turn to page, I guess it's four (4) pages in or 3 five (5) pages in, counting the cover, where it says, code of 4 ethics. 5 MADAM COMMISSIONER: It's on page 4 at the 6 bottom. 7 MR. RONALD MANES: Oh I see it's -- quite 8 right Commissioner, page 4. 9 10 (BRIEF PAUSE) 11 12 CONTINUED BY MR. RONALD MANES: 13 Q: You, as a former director, would be 14 familiar with this code of eth -- the code of ethics, sir? 15 A: Yes. 16 Q: And let me just read them into the record 17 and ask you just a few questions about them. 18 "The Canadian Finance and Leasing 19 Association represents equipment and 20 vehicle leasing and asset based finance 21 companies in Canada. 22 There are fundamental standards of 23 practice which should serve as guiding 24 principles for all engaged in the business 25 of leasing and asset based management ..."

1 MADAM COMMISSIONER: Financing. 2 MR. RONALD MANES: What did I miss? 3 MADAM COMMISSIONER: You said management, it 4 -- 5 MR. RONALD MANES: Oh, I did say that. Asset 6 based financing. 7 8 CONTINUED BY MR. RONALD MANES: 9 Q: Now and then below this, are what the 10 association has determined through its membership are 11 fundamental standards of practice in your business. 12 Is that right? 13 A: Yes. 14 Q: All right. 15 "At all times conduct our activities with 16 integrity, dignity, and professionalism and 17 encourage such conduct by others in the 18 leasing industry. 19 Maintain respect for keen competition 20 and seek no unfair advantage by dishonest 21 or unethical means. 22 At all times, adhere to the specific 23 terms of funding commitments, commission 24 agreements and purchase orders. 25 Not knowingly make false or misleading

1 statements or withhold information vital to 2 an intelligent business decision concerning 3 any aspect of a leasing transaction. 4 Disclose all relevant information as to 5 the terms and conditions of the lease which 6 may affect the lessee's decision. 7 Treat in a fiduciary capacity all funds 8 received from the lessee which may be 9 returned to the lessee. 10 Hold in strict confidence all financial 11 information supplied by the lessee on a 12 confidential basis. 13 Not make payments directly to an 14 employee of a vendor or business source 15 without the company's knowledge." 16 Do you have any reason to believe, by your 17 personal knowledge or by the extensive investigations you've 18 conducted and information that you've received from your 19 employees and otherwise, that your company breached that code 20 of ethics in any way in respect to its dealings with the City 21 of Toronto? 22 A: No. 23 24 (BRIEF PAUSE) 25

64
  1                 Q:   Now, what this seems to be saying and
  2  please correct me if I'm wrong, is that this organization had
  3  decided that in dealing with a lessee, it is not to be caveat
  4  emptor or let the buyer beware?
  5                 A:   No -- no.  Nor is -- nor would that be
  6  consistent with our approach to doing business.
  7                 Q:   For example, withholding information
  8  vital to an intelligent business decision and disclosing all
  9  relevant information as to the terms and conditions of the
 10  lease which may affect the lessee's decision.
 11                 All of those present a positive duty upon the
 12  members and I take it would be consistent with your -- your
 13  view of your company's obligations as well?
 14                 A:   Yes.
 15                 Q:   Now, this seems to say, as well, that it
 16  recognizes that the lease industry has information and
 17  experience and an expertise that may not be available in the
 18  private or public sector, generally?
 19                 A:   I don't necessarily read it that way, but
 20  -- but I -- okay.  That -- that being --
 21                 Q:   What I -- I guess what I'm saying, and I
 22  don't want you to agree with me because I'm saying it, but it
 23  -- doesn't this mean that there's no distinction here in who
 24  you're dealing with, whether it's a private sector --
 25                 A:  Oh right --

1 Q: -- lessee or a public sector lessee, these 2 duties are retained no matter who you're dealing with? 3 A: Correct. 4 Q: The -- there's something I'd like you to 5 explain, briefly sir, and it is a comment attributed to you 6 at Tab 86, in Volume 2, at page 5-- four (4) or five (5) 7 pages in, last paragraph. 8 9 (BRIEF PAUSE) 10 11 Q: This is an article that you're familiar 12 with, sir, it's the National Post Business, March 2002, page 13 56. And it's entitled -- it's written by Jeff Sanford and 14 it's entitled: 15 "MFP is Accused of Cheating Ontario 16 Municipalities Out of Millions of Dollars 17 on Fishy Lease Deals But the Real Scandal 18 May Be That Politicians Deliberately 19 Ignored the Fine Print." 20 That's the way this is introduced -- this 21 article. 22 A: Okay. I'm sorry -- 23 Q: It's Tab -- it's the second volume, are 24 you in the second volume? 25 A: No, I'm wondering what page?

1 Q: Five (5), the fifth page in, actually. 2 And this is the last paragraph. 3 A: Okay. 4 Q: Now, is this a -- first of all -- 5 MADAM COMMISSIONER: Just before we get there. 6 Is it the one that starts, even if that's -- 7 MR. RONALD MANES: Yes -- 8 MADAM COMMISSIONER: -- just to make sure I'm 9 the right page, okay. Do you want him to read it out loud 10 or? 11 12 CONTINUED BY MR. RONALD MANES: 13 Q: First of all, I'd like to know, are you 14 familiar with that paragraph, Mr. Wolfraim, have you read it 15 before? 16 A: Yes, I have. 17 Q: All right. And do you have a reaction to 18 it? 19 A: Well -- 20 Q: I'm going to read it -- 21 A: Okay -- 22 Q: -- but, I just want to know, do you have a 23 reaction to it? 24 MADAM COMMISSIONER: Why don't -- can you read 25 it into the --

1 MR. RONALD MANES: All right. I'll read it 2 into the record. 3 MADAM COMMISSIONER: I haven't read it 4 obviously, so to get the reaction before I read it, it would 5 be more helpful for me to read it first. And then -- 6 7 CONTINUED BY MR. RONALD MANES: 8 Q: Let me read the -- let me read the 9 preceding paragraph to put this all into context: 10 "A recent Ontario Municipal Association 11 Conference reaffirmed that municipalities 12 are particularly vulnerable, says Bakti [B- 13 A-K-T-I] (who admits he's not without 14 self-interest in making the claim): These 15 are officials, Mayors and Councillors and 16 only a few of them knew what was going on 17 in their own back yard. It's scary. There 18 are hundreds of millions of dollars going 19 right through the flood boards -- the floor 20 boards." 21 Now, this is the context of Waterloo. In the 22 next paragraph, I'm referring to you, starts as follows: 23 "Even if that's so, Wolfraim argues, it 24 isn't MFP's role to educate local 25 officials. And the idea that it harasses

68
  1                   them into deals [I guess that means they
  2                   don't want] is nonsense.  Quote, it's kind
  3                   of hard for us to be accused of bullying a
  4                   major municipality like this, he says of
  5                   Waterloo.  They're grown ups.  It was the
  6                   biggest financing the City of Waterloo had
  7                   ever undertaken.  Nobody said that they had
  8                   to sign anything.  They had all the time in
  9                   the world to go away and review contracts
 10                   and go and get someone to help them
 11                   calculate the payments."
 12                 Now, in the Waterloo context, and that deal,
 13  do you still hold to that view?
 14                 A:  Can I comment on a couple of things?
 15                 Q:  Yes.
 16                 A:  Okay.  Just to put Mr. Bakti in
 17  perspective, he is a consultant to primarily public sector
 18  customers as I understand it.  I haven't had much to do with
 19  him over the years, but my understanding is that he's a
 20  consultant that works with a lot of public sector customers.
 21                 And he's acknowledging here, that he's not
 22  without self-interest in -- in -- I mean the more he can, I
 23  suppose, scare people a little bit, then the more business
 24  he's going to get.
 25                 The first part of the paragraph, it isn't

1 MFP's role to educate local officials, I'm pretty sure, I 2 can't imagine saying that in isolation. 3 I think the way that was attributed and it's 4 not in quotes, was that I was asked the question, is it your 5 role to educate local governments, and my response to that 6 would have been, no. 7 And to put it in the Waterloo context, what 8 Waterloo was arguing at the time was that we had brought 9 contracts to them in a highly agitated, highly high pressure 10 state, they had to be signed as of a certain date, and the 11 Waterloo officials have acknowledged publicly that they 12 didn't check the contract, they didn't review the contract -- 13 the payments due under the contract are calculated by way of 14 a formula beyond a certain period of time in the term of the 15 financing. 16 And they acknowledged that they never -- they 17 had never taken the time to do the calculations or perform 18 the calculations. And they stated that they took the 19 position that we pressured them into signing it. 20 Q: Now, in relation to that statement, at 21 City of Toronto deal, do you say that you had no -- MFP had 22 no duty to educate City of Toronto staff on leasing 23 technology? 24 A: I think the City of Toronto staff is more 25 than capable of analyzing technology leases. I mean the City

1 of Toronto leased -- has leased for years. 2 And within the City, whether it's part of the 3 amalgamated City, I mean we've done lease contracts with 4 Metro, we've done lease contracts with the City of 5 Scarborough. 6 We know that the City leased many vehicles, so 7 they're familiar with the concept. And so I think they were 8 -- they were more than capable of doing analysis themselves. 9 They brought in consultants, I mean and they 10 had access to all the expertise that was required. 11 Q: So, in answer to my question, in this 12 circumstance the City of Toronto, you had no duty to educate 13 the City of Toronto on -- 14 A: No we don't -- 15 Q: -- leasing technology? 16 A: -- no. 17 Q: All right. I'd just like to -- it's 18 approaching 11:30, I'd just like to finish these last series 19 of questions, if I might. It'll just take a few minutes. 20 Arising out of that, did you have any duty to 21 inform the City staff of the financial impact of any of their 22 asset management decisions? 23 A: I'm not sure I understand the question. 24 Q: Well, let me put it more particularly. 25 Did you have any duty to inform that City staff of the

1 financial impact of their decision to extend the three (3) 2 year lease agreements authorized by City Council to five (5) 3 years? 4 A: No. 5 Q: Did you have any duty to inform the City 6 staff, as to the financial impact of renewing the lease 7 agreements in July 2000? 8 A: No. I think as I said, our duty in my 9 view, is that we discuss with the customer what his 10 objectives are, we put alternatives in front of the customer. 11 The customer goes away and we'll answer 12 whatever questions the customer has, but it's then up to the 13 customer to go away, do his or her financial analysis and 14 select the appropriate course of action. 15 MR. RONALD MANES: 11:31 Commissioner, this 16 may be a convenient time. 17 MADAM COMMISSIONER: All right. Break until 18 ten (10) to. 19 20 --- Upon recessing at 11:31 a.m. 21 22 --- Upon resuming at 11:54 p.m. 23 24 THE REGISTRAR: The Inquiry will resume. 25 Please be seated.

1 (BRIEF PAUSE) 2 3 MADAM COMMISSIONER: Mr. Manes? 4 5 CONTINUED BY MR. RONALD MANES: 6 Q: Mr. Wolfraim, I'd like to talk to you a 7 bit about MFP's bus -- business approach and to lead that 8 off, if I can take you to Tab 89 of the second volume 9 10 (BRIEF PAUSE) 11 12 Q: If you could read that -- both the vision 13 of MFP and the mission -- the mission of MFP, I'd appreciate 14 that. 15 A: The vision -- it's actually been updated, 16 but the vision reads: 17 "By the year 2000 our goal is to be 18 recognized as the outstanding provider of 19 financial and technology management 20 solutions in our chosen clients." 21 The mission statement, and this is still 100 22 percent accurate or in effect: 23 "MFP succeeds by investing capital, time, 24 and collected expertise to help customers 25 satisfy their financial and technology

1 management requirements in a manner 2 tailored to their specific needs. 3 MFP is focussed on creating and retaining 4 long-term, direct customer relationships 5 through personalized service providing 6 challenging careers for staff and producing 7 maximum shareholder value." 8 9 (BRIEF PAUSE) 10 11 Q: The -- the reference to retaining long- 12 term, direct customer relationships and maximum shareholder 13 value. Is there any relationship between the two (2)? Is -- 14 is maintaining these direct customer relationships critical 15 to producing maximum shareholder value? 16 A: We do believe it is. It -- it -- it's -- 17 we believe -- we take great pride in the fact that many of 18 our customers are very long-term customers. We don't lose 19 many customers or have not lost many customers over time. 20 In the technology market, many customers have 21 stayed with us from mainframes through midrange computing and 22 now through PCs. 23 We -- it's a lot easier and less expensive to 24 do more business with existing cust -- well, an existing 25 customer than it is to go out and find a new customer.

1 Finding new customers is expensive or it can be expensive. 2 Q: Now, you told us before that, as well, 3 you found that you can't just compete on the basis of price? 4 A: No. No. 5 Q: And it is then on the basis of not only 6 price but relationships and value added that you compete in 7 the market? 8 A: Yes. 9 Q: Now the relationships -- I take it, in 10 maintaining those relationships, respond to the fundal -- 11 fundamental adage, "Know your customer or know your client". 12 A: No -- that's right. We're -- we strive 13 to learn through our relationships is what our customers 14 business is, what his business processes is, what his 15 objectives are, what his problems and opportunities are and 16 we attempt to craft solutions that try and help him meet his 17 or her objectives. 18 Q: And that learning about your -- your 19 customer or customers, is sometimes called intelligence 20 gathering? 21 A: Yes. 22 Q: Now, that sounds like a some kind of spy 23 ring, but it's actually just gathering information to inform 24 you about your customers needs and preferences, et cetera? 25 A: That's right, yes.

1 Q: And we've talked about value added in 2 terms of asset management and acquisition and refresh 3 programs, can you tell us about what you refer to in an 4 article as life cycle management? 5 A: Life cycle management is the -- is the 6 concept of helping to manage or -- an asset for a customer 7 throughout its life cycle. 8 What leasing companies do very well, we make 9 our money by owning and managing assets. So, we consider 10 ourselves to be very good at kind of the cradle to grave 11 aspects of a life -- of the life of an asset, from ordering 12 to purchasing to owning and managing the asset to disposing 13 of it at the end. 14 So, the life cycle management, that life cycle 15 of the product is from the time its ordered to the time it's 16 disposed of by the customer and so our services, our 17 expertise, where we can help our customers is, subject to 18 where their needs take us, providing input at any one (1) of 19 those stages. 20 Q: Now, at Tab 87, this is Volume 2, in an 21 article in Computing Canada, August 16th, 1995, page 15, the 22 authors -- 23 MADAM COMMISSIONER: I'm sorry, which Tab? 24 MR. RONALD MANES: Tab 87. 25 MADAM COMMISSIONER: Oh, 87.

1 2 CONTINUED BY MR. RONALD MANES: 3 Q: The author of the article, not identified 4 on my copy anyhow, does a profile of you, Mr. Wolfraim, and 5 you, at the second page of this profile, in the next to the 6 last paragraph -- 7 MADAM COMMISSIONER: Do we know what this 8 comes from? 9 MR. RONALD MANES: Yes, Computing Canada -- 10 MADAM COMMISSIONER: Is that the name of a 11 magazine? Or is that the -- 12 MR. RONALD MANES: Yes. 13 MADAM COMMISSIONER: Okay. All right. 14 15 CONTINUED BY MR. RONALD MANES: 16 Q: August 16th, 1995, page 15. And I've 17 taken you to an anecdote that you gave this -- this 18 publication, that basically as far as I can see says it all 19 about what you -- your philosophy is towards life cycle 20 management. 21 Do you want to give us that anecdote? 22 A: Sure. 23 "Wolfraim recounted a conversation in a 24 release announcing life cycle management 25 last May. I recently asked the senior

1 executive how many personal computers his 2 company had. He said, oh, forty thousand 3 (40,000), give or take ten thousand 4 (10,000). That says it all. Many large 5 companies don't know what assets they have, 6 what it costs to operate these assets, 7 whether or not, they're really getting what 8 they need. The proliferation of technology 9 has created a crisis of control." 10 Q: Now that statement in terms of not knowing 11 where your assets are and what it costs -- costs to operate 12 these assets, et cetera, that's as true in 1999, as it was in 13 1995? 14 A: Absolutely. It's a challenge that was 15 born really out of PC's or personal computing. Organizations 16 that went from mainframe computing where all of the data 17 processing assets were in a -- in a controlled environment, 18 in a room with raised floor and lots of air conditioning. 19 Suddenly, the computing went out to desktops 20 and all of these were networked together and it suddenly 21 became very important to know who had what assets, who was on 22 your network, and what they -- what functions they were 23 performing. 24 Q: Now, if you take the City of Toronto. If 25 that statement applies to them, it would -- it would be worse

1 at the City of Toronto 1999, given that added on to that 2 inherent problem of not knowing where you're at -- where your 3 assets are, your computers are, they would have amalgamation 4 and Y2K all rolled up -- 5 A: Yes. 6 Q: -- in that. 7 A: Yes. 8 9 (BRIEF PAUSE) 10 11 Q: Can you make the case briefly -- the MFP 12 case for technology leasing for the City as composed (sic) to 13 purchasing? 14 A: I -- I think there -- there's really two 15 (2) ways of looking at f -- at technology leasing. 16 Technology leasing is -- is a financing 17 modality and in that regard, if you need to look at what your 18 -- I guess, the City needs to start with a strategic vision 19 for IT objectives and then -- and then the rightful 20 acquisition strategy flows from that. 21 But our understanding was that at the time 22 that the City's primary goal was a three (3) year technology 23 refresh and if you're looking at replacing all of the assets 24 every three (3) years then leasing is the cheapest way of 25 acquiring the assets.

1 Q: All right. 2 A: That's kind of a quick -- 3 Q: Now, as I understand it, leasing 4 technology can be more responsive to budgetary requirements? 5 A: That -- that's the second reason is that 6 -- that budgetary requirements is the second reason for 7 leasing technology. 8 Q: And leasing can provide more flexibility 9 than purchasing? 10 A: It would depend on what the purchasing 11 policies are of the -- of the organization and how you want 12 to define flexibility, I guess. It's -- it can provide more 13 flexibility in terms of the operating budget, certainly, 14 because the operating budgets can be re-contracted or the 15 payments can be re-contracted. 16 Q: Well, flexibility in that, sir, I don't 17 want to do your job for you but you can give all these 18 computers back after -- 19 A: Oh, sorry. Yeah. 20 Q: -- three (3) years. 21 A: Certainly. 22 Q: -- and -- and you don't have to maintain 23 them beyond three (3) years. 24 A: Right. 25 Q: And so --

1 A: And at the -- 2 MADAM COMMISSIONER: He cut you off. What 3 were you going to say? 4 THE WITNESS: I was just going to say, at the 5 end of three (3) years it's -- you have the option of 6 purchasing, returning or renewing or some variant. 7 MR. RONALD MANES: Right. 8 9 CONTINUED BY MR. RONALD MANES: 10 Q: Or you just can continue to rent until 11 you -- 12 A: Yes. 13 Q: -- figure out what you're going to do. 14 A: That's right. Yes. 15 Q: And you don't have to dispose of these 16 computers? 17 A: No, that's correct. 18 Q: And there's not only the cost of 19 disposal, there's environmental concerns? 20 A: There are environmental concerns. There 21 are -- there are issues around disposing of assets from -- 22 from a variety of locations. For example, what information 23 is being left on the computer. 24 What -- there was the story that was recently 25 in the paper. It was Sears Canada got a call from somebody

81
  1  in California who'd bought a used computer that it had
  2  started at Sears and they wanted to know whether or not they
  3  wanted a strategic plan back that was left on the hard drive.
  4                 So companies like ourselves have to learn how
  5  to -- I mean, we do know how to erase the hard drive but 
  6  those are just processes.  Everything requires certain steps. 
  7  They're not difficult things to do but when you're dealing in
  8  large volumes of assets.  It's important to have people to --
  9  the cost can add up very quickly.
 10                 Q:   Now, in order -- well, you have these --
 11  these options in terms of being flexible.  You can return it,
 12  you can continue to rent it, or you can purchase it?
 13                 A:   Correct.
 14                 Q:   All right.  Now, if you return it, you
 15  have to be able to find it?
 16                 A:   Yes.
 17                 MADAM COMMISSIONER:   You have to be able to
 18  what?
 19                 MR. RONALD MANES:   Find it.
 20                 MADAM COMMISSIONER:   Find it.
 21  
 22  CONTINUED BY MR. RONALD MANES:   
 23                 Q:   Now that sometimes can be a challenge.
 24                 A:   It can be a challenge.
 25                 Q:   In that -- in -- in that article that --

82
  1  that you read from and that anecdote.  That sales executive
  2  would have a problem of finding ten thousand (10,000) if he
  3  didn't know, give or take, how many that salesman had?
  4                 A:   Right.  Yes.
  5                 Q:   And in returning these they have to be in
  6  good condition?
  7                 A:  With normal wear and tear is the standard
  8  language.
  9                 Q:  And who had the obligation, for example,
 10  under the City agreement, who had the obligation to ship 
 11  them?
 12                 A:  The City does.
 13                 Q:  And if you return it, you better have a
 14  plan for that return because you can't just up and take
 15  fifteen thousand (15,000) computers, servers, et cetera and
 16  just ship them back?
 17                 A:  No, that's right.  It's a huge logistical
 18  challenge.
 19                 Q:  Now, if it turns out that you can't find a
 20  computer or there are other considerations, you can continue
 21  to rent that computer for a period of time?
 22                 A:  Yes, what -- we've done a couple of things
 23  with customers.  One (1) is you can either -- we can agree as
 24  to what the fair market value of the asset is, and they can
 25  make that payment.

1 If it's lost, they may be able to make a claim 2 under an insurance policy. They could go into the market and 3 buy a similar unit and return that to us, or they could just 4 continue to rent it. 5 Q: And if you continue to rent, do you rent 6 at the agreed upon fair market value? 7 A: Typically the lease will say that absent 8 another agreement, you would continue to rent it at the rate 9 during the term of the contract, or in the alternative, you'd 10 -- you'd renegotiate based on fair market value at the time, 11 for an agreed term. 12 Q: Whichever is lower? 13 A: Not necessary -- it depends, sorry, I 14 guess what I'm getting at, is in the absence of any notice or 15 anything, then the rental continues at the normal rental. 16 If the customer decided that he wanted to 17 rent, made a conscious decision to renew their lease for 18 three (3) months or six (6) months or twelve (12) months; 19 then that maybe is typically at fair market value. 20 Whichever is -- obviously if there's a 21 previously negotiated rental or renewal agreement, or renewal 22 price in the agreement and the fair market value is less then 23 the customer is going to get the benefit of that, typically, 24 because he has the option of returning your units and going 25 into the market and renting from somebody else.

1 Q: Now, if it's -- if it's the normal rental 2 rate, it would be based on the original purchase price? 3 A: That's right. 4 Q: And if it's the fair market value, it 5 would be based on at least new market rates? 6 A: New market rates and used technology -- 7 Q: Yes -- 8 A: -- as well, yes. 9 Q: And the fair market value, as I understand 10 it is the retail fair market value, not a wholesale fair 11 market value? 12 A: Yes, in the --in terms of what a customer 13 would pay, it's a retail fair market value, yes. 14 Q: Now, sir, if there's anyone more expert in 15 making money in lease transactions than you, I would be 16 surprised. Can you tell us, how does MFP make money? 17 A: Well, we make our money by re-marketing 18 the assets. Basically, we invest in the assets at the 19 beginning of the lease and then we hope to re-market it at 20 the end -- sorry we invest in the asset at the beginning of 21 the lease, we re-market the asset at the end of the lease and 22 hope to make more than we invested. Hope to realize enough 23