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 February 27th, 2003 25

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

1 TABLE OF CONTENTS 2 Page 3 Tyrone Thomas Bakti, Sworn 4 Examination In-chief by 5 Mr. Patrick Moore 6 6 Cross-Examination by 7 Mr. Fraser Berrill 90 8 Cross-Examination by 9 Mr. Hugh MacKenzie 155 10 Cross-Examination by 11 Ms. Linda Rothstein 158 12 Re-direct Examination 13 Mr. Patrick Moore 163 14 15 Certificate of Transcript 167 16 17 18 19 20 21 22 23 24 25

1 EXHIBITS 2 Exhibit No. Description Page No. 3 4 22 Bound document titled 5 "NETTEC Report" tabs 1-23 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

1 --- Upon commencing at 10:00 a.m. 2 3 MADAM COMMISSIONER: Good morning. 4 Good morning, Mr. Moore. 5 MR. PATRICK MOORE: Good morning, 6 Commissioner. 7 8 TYRONE THOMAS BAKTI, Sworn: 9 10 MADAM COMMISSIONER: Good morning. 11 THE WITNESS: Morning. 12 MR. PATRICK MOORE: This morning, 13 Commissioner, we have something quite different from the way 14 that evidence has been presented thus far at this Inquiry. 15 This morning, we have Mr. Bakti, who will give 16 us a presentation on leasing. 17 I'll take him through his background, 18 experience and qualifications, and then he can speak from 19 notes which are contained in a book, which we will make an 20 exhibit, in the Inquiry; the next exhibit. 21 REGISTRAR: That will be Exhibit 22. 22 MR. PATRICK MOORE: Thank you. 23 24 --- EXHIBIT NO. 22: Bound document titled "NETTEC 25 Report" tabs 1-23

1 MR. PATRICK MOORE: Mr. Bakti, is the 2 President and Founder of NETTEC Associates, which is a 3 company which provides leasing consulting and analysis 4 services. 5 6 EXAMINATION IN-CHIEF BY MR. PATRICK MOORE: 7 Q: Mr. Bakti, how long have you been involved 8 with the NETTEC organization? 9 A: Since 1994. 10 Q: Now, I understand, Mr. Bakti, that you 11 attended the University of Western Ontario, in the business 12 school back in the 70's? 13 A: That's correct. 14 Q: And that you attended Mohawk College and 15 Sheridan College in business programs, specializing in 16 purchasing? 17 A: Yes, I did. 18 Q: And that your work experience includes a 19 position as purchasing manager in 1974, with the Reid 20 R-E-I-D, Dominion Packaging Division of Moore Corporation? 21 A: Yes, sir. That's correct. 22 Q: And that you've held various corporate 23 management positions over the years, including the position 24 of Vice-President of Plan Financial, a private label vendor 25 program, for GE Capital?

1 A: Yes, sir. That's correct. 2 Q: Then in 1994, you began the NETTEC Lease 3 Management business, and I wonder if you might just tell us, 4 in general terms, what the business of NETTEC Associates was 5 and is? 6 A: NETTEC is a specialized company, unique to 7 the industry that the mandate of NETTEC was to reduce funding 8 costs and expenses to corporations and organizations, 9 optimize the deal structure, according to the client's status 10 and priorities. 11 And primarily to ensure that proper disclosure 12 was provided to the funder. It was project and -- I'm sorry, 13 project and portfolio management. 14 And pre-lease or pre-agreement management, 15 including RFP analysis. We help designed RFP's for 16 corporations, organizations in the MUSH sector. 17 Q: Now, Mr. Bakti, I understand that in 1995, 18 you and others with backgrounds in leasing, banking, 19 purchasing and education, designed a program of study for 20 Mohawk College. Do I have that right? 21 A: That's correct. And actually, it 22 commenced in 1994, the planning of it. It actually launched 23 in 1995. 24 Q: Tell us, if you would, what the title of 25 the course was, and -- and how the course was put together

1 and rolled out? 2 A: Well, in 1994, a group of individuals that 3 I organized with backgrounds in purchasing, leasing, banking 4 and education, was instrumental in designing a leasing 5 program of study. 6 It was eleven (11) week, three (3) hour per 7 night, continuing education program. The course itself was 8 called a program of study and professional leasing. 9 The course itself, was designed to attract 10 brokers -- to train brokers in the industry. However, what 11 it did attract and was very successful in doing was to 12 attract industry and organizations to take the course. 13 Q: Did you fill in the program? 14 A: The course was filled within three (3) 15 weeks time of posting and the press, to the point where when 16 the calendar came out at Mohawk, there were no seats left. 17 Q: You mentioned the term, brokers. I wonder 18 if you might just tell us what a broker is, in the context of 19 leasing? 20 A: I'll be covering a little bit about 21 brokers in the presentation. However, a broker is an 22 individual that sells to any number of funder or lessor that 23 has any number of clients in the leasing industry. 24 The course was designed to attract individuals 25 to train them properly, with the support at the time, of GE

1 Capital, to go about in, as GE said, a more ethical manner, 2 and trained manner to attract business. 3 Q: And while we're on the subject of 4 education, Mr. Bakti, I gather that you have put together a 5 four (4) module course of study for internet study now, have 6 you? 7 A: Yes, we have. We -- as I -- as I will be 8 addressing the condensed version in this presentation, the 9 contracts portion of the second module, will not be presented 10 here today. 11 That's presented by Mr. Tony Powell, a lawyer 12 for the law firm of Pelech, Otto, Powell in Hamilton. I'll 13 be making mention of that, as well. 14 But, that course is designed in the long 15 version to commence in the spring of this year, 2003. 16 Q: The condensed version is a work that 17 you've done at the request of Commission Counsel for purposes 18 of presentation here today? 19 A: That is right. 20 Q: Now, I understand that in 2001 and 2002 21 you wrote feature articles and were published in the 22 Certified Management Association magazine and the Municipal 23 World magazine? Do I have that right? 24 A: That is correct. 25 Q: And you contributed a feature article that

1 appeared in the National Post business magazine? 2 A: Yes, sir. 3 Q: And you've been a guest speaker in June of 4 2002 at the Municipal Financial Officers of Ontario training 5 symposium? 6 A: Yes, that's correct. 7 Q: And that you've also been approached for 8 interviews by television networks and another national 9 magazine? 10 A: Yes, sir. 11 Q: All right. Now, Commissioner, with that 12 as background, I wonder if I might -- 13 MADAM COMMISSIONER: Hmm hmm. 14 MR. PATRICK MOORE: -- ask Mr. Bakti to give 15 us the benefit of his condensed course? 16 MADAM COMMISSIONER: Okay. Okay, go ahead. 17 THE WITNESS: As -- as condensed as I can make 18 it. 19 20 (BRIEF PAUSE) 21 22 THE WITNESS: I'd like to first thank you, Mr. 23 -- Mr. Moore. The -- the program, as Mr. Moore has 24 indicated, was not designed for this Inquiry. The program, 25 even as a condensed version, is part of the general overview

1 of the leasing industry and the benefits that it would 2 present and awareness and knowledge to the lessee. The 3 program was not designed, as I say, for the Inquiry. It is 4 designed -- not -- is not designed to slight the leasing 5 industry or that of the lessee. As I reiterate, it is to 6 bring a better awareness and balance of understanding to the 7 lessee. 8 With that, throughout this presentation in the 9 short version, as well, I may be touching on a few topics and 10 subjects that may sound to be duplicated. There's reasons 11 for this. We reiterate several times that some areas of 12 concern and interest and value to the recipient or the 13 registrant of the course. 14 As we said, in 1995 the course was a success 15 with Mohawk College in Hamilton, Ontario. In 1996, we were 16 requested by Mohawk College, Sheridan College and Centennial 17 Colleges to run a fall semester at their respective schools, 18 as well. This -- this never happened. The course, at that 19 time, was passed over to the colleges to run it themselves as 20 we were not in the education business at the time. 21 The schools did not have the capacity to do 22 this so the courses sat. Realizing a pressing need for 23 expanded seminar series in the spring of 2002 and in 24 cooperation with individuals from the leasing industry, 25 NETTEC developed the Lease Management Seminar series, what we

1 were just talking about and the series will go online this 2 spring. 3 Several people from the leasing industry, 4 current and past, as well as accounting firms, major, have 5 reviewed both the long and short version of NETTEC series and 6 have suggested that the program would be of value -- of great 7 value to anyone leasing equipment. 8 In the marketing and distribution of the 9 program itself, NETTEC has formed partnerships with Colleges 10 of Ontario Network for Education and Training, that's -- the 11 acronym, I believe, is CONNECT, C-O-N-N-E-C-T, Genemax 12 Learning which is the production house of the online webcast 13 downloadable series of modules and NETTEC is currently 14 negotiating with Ontario Learn, which is another wing that 15 offers continuing education to community colleges throughout 16 Ontario. 17 The mission of the Lease Management Seminar 18 series is to generate and increase level of awareness with 19 regards to utilizing lease financing as part of a financing 20 strategy, that is the purpose, and to offer suggestions that 21 address the challenges facing today's lessees. 22 In my background of purchasing, being head of 23 purchasing for one of Moore's divisions, I was subjected to 24 leasing -- I have been sugge -- subjective to leasing now for 25 thirty (30) years plus. I was responsible for leasing back

13
  1  then.  The extended series demonstrates how proposals
  2  containing less than full disclosure, when combined with
  3  relative inexperience, with leasing agreements, take their
  4  toll on lessees bottom line.
  5                 It is very important to note, that the seminar
  6  series will not make the registrant an expert in equipment
  7  leasing; this is not designed for that.
  8                 However, the information provided in the lease
  9  management seminar series, is designed to afford awareness
 10  and knowledge that will make a difference in the way one (1)
 11  considers acceptance of the next funding agreement, and
 12  possibly how to avoid unexpected expenses.
 13                 That is very important to know.  The purpose
 14  of NETTEC Lease Management program is to offer a closer
 15  balance between funder and borrower, or lessor and lessee.
 16                 The seminar series will offer each participant
 17  different benefits and values, depending upon their present
 18  and specific knowledge and awareness of the leasing industry
 19  as it stands.
 20                 How it functions and the complexities that may
 21  be contained in the funding agreement.  This program will be
 22  of interest to public and private sector, mid to senior level
 23  financial personnel.
 24                 It would be important to college and business
 25  students and especially the overall membership of operations,

1 such as Chartered Accountants, Certified Management 2 Accountants, Certified General Accountants, Purchase and 3 Management Association of Canada, Ontario Public Buyers 4 Association -- 5 MADAM COMMISSIONER: Mr. Bakti, I wonder if I 6 could just interrupt at this point. 7 Is what you're telling us now, is this 8 contained in the material somewhere? 9 THE WITNESS: Yes -- 10 MADAM COMMISSIONER: What you're saying now? 11 Because I think, if it is in the materials, then I don't want 12 to waste your time and ours, by having you tell us something 13 that we can read in terms of -- 14 THE WITNESS: Right -- 15 MADAM COMMISSIONER: -- what the usefulness of 16 the course would be. What would be helpful for us, is to 17 actually get down to the nitty gritty as it were, of the 18 leasing. 19 Is that all right? 20 THE WITNESS: Yes, absolutely. 21 MADAM COMMISSIONER: And I don't want to cut 22 your off if there's something that's -- 23 THE WITNESS: No, Commissioner -- 24 MADAM COMMISSIONER: -- important for us to 25 know.

1 THE WITNESS: -- well, it is definitely, as 2 perhaps I should have stated at the very beginning, that the 3 text material is in the binders that you have. That you may 4 or may not have read already. 5 What I am presenting here, I thought to put 6 into testimony was to read from the script, if you will, that 7 is designed for the course itself. 8 For me to elaborate on certain points. I 9 would only possibly miss certain important parts, but, 10 certainly Commissioner -- 11 MADAM COMMISSIONER: All I'm saying is, rather 12 than tell us who is going to -- 13 THE WITNESS: Certainly -- 14 MADAM COMMISSIONER: -- benefit from the 15 course and what not, I'm sure you want to get all in that 16 information out -- 17 THE WITNESS: Sure, okay. 18 MADAM COMMISSIONER: -- but, from our point of 19 view, from my point of view, in any event, it would be more 20 useful for me to get some of the understanding of the 21 components of leasing, that your target audience would be 22 getting. 23 THE WITNESS: Okay. 24 MADAM COMMISSIONER: All right. 25 THE WITNESS: And so, also may I ask then, the

1 benefits for seminar participants. Everything that I'm 2 talking about today, there are certain areas that I may just 3 elaborate on. 4 However, the benefits for some of our 5 participants are in -- they're in the binder as well. 6 MADAM COMMISSIONER: Okay, perfect. Perfect. 7 THE WITNESS: So everything pretty well is 8 there. 9 MADAM COMMISSIONER: Well, Mr. -- I know Mr. 10 Patrick Moore, has gone through it with you. 11 THE WITNESS: Yes. 12 MADAM COMMISSIONER: And what I suggested to 13 Mr. Moore, is that if there's anything that you haven't done 14 that he thinks is important for us to know about, then he'll 15 bring that out at the end, in the question and answer period. 16 All right. But, for my purposes, I'd like to 17 get right down to the nitty gritty. 18 THE WITNESS: Well, then we could review the 19 two (2) major components to our course, is the pre-lease and 20 the gap analysis. 21 MADAM COMMISSIONER: Okay. 22 THE WITNESS: Now, that is also in the 23 binder -- 24 MADAM COMMISSIONER: That's okay -- 25 THE WITNESS: -- but, I think it's very

1 important to cover those areas. 2 MADAM COMMISSIONER: Mr. Moore, is this 3 affecting anything from your perspective? 4 MR. PATRICK MOORE: Not at all. This is very 5 helpful Commissioner. 6 MADAM COMMISSIONER: Okay. 7 MR. PATRICK MOORE: What we need to know is 8 these two (2) -- particularly these two (2) areas that have 9 just been identified the pre-lease and the GAP analysis. 10 MADAM COMMISSIONER: Okay. 11 Thank you. 12 THE WITNESS: I also feel that it's important 13 perhaps to make mention of the characteristics of the lessee 14 itself and -- and again, Commissioner, this is in the book 15 but it's something that we come across in our business 16 everyday from the NETTEC's approach rather than from the 17 educational side. The components of the -- the lessee, I can 18 cover that if you like. 19 MADAM COMMISSIONER: Well, I -- I'm leaving 20 it up to Mr. Moore to get this going. I just don't want this 21 to be -- I guess what I'm trying to say is what would be more 22 useful for us here. The people you see here act for the 23 City, for MFP, for Wanda Liczyk who was the CFO for the City 24 at the time and for Mr. Jim Andrew who was the Executive 25 Director of Information and Technology at that time. These

1 are the people who are in the room right now, and me. We -- 2 and then there are people who read the transcripts, 3 obviously. 4 So what would be important for us is to have 5 an understanding of leasing and what that's about and what 6 the pitfalls are and stuff like that. So, Mr. Moore, could 7 you maybe assist here? 8 MR. PATRICK MOORE: Yeah. 9 MADAM COMMISSIONER: Thanks. 10 11 CONTINUED BY MR. PATRICK MOORE: 12 Q: Mr. Bakti, just by way of general 13 background, let me just confirm one thing with you and this 14 -- it is this: have you read the documents in the database 15 for this Inquiry? 16 A: No, I have not. 17 Q: All right and have you spoken to any of 18 the parties with standing at this Inquiry? 19 A: I can say not to any great length at all. 20 Q: And so what you're giving is an overview 21 which is not grounded in the facts of -- that are an issue in 22 this Inquiry but of general interest to all people involved 23 in leasing, including the people in this Inquiry. Is that 24 fair? 25 A: Ab -- absolutely, that is correct.

1 Q: All right. So, if we can go to the book 2 of documents that you have in front of you. One of the items 3 that you have separated out at Tab 3 is the "Determing Your 4 Awareness". So I wonder if you might just tell us what the 5 importance is of determining of a person entering into a 6 leasing transaction focussing on or determining one's 7 awareness? 8 A: Certainly. I think it's very important 9 to note this that as a lessee, one either fully understands 10 leasing going into a transaction because either he or she is 11 from the background or have had specific training. Number 2, 12 somewhat understand leasing because they're supposed to in 13 their job and if I could elaborate on that briefly. 14 In one case while I was explaining what NETTEC 15 services were all about to a client -- or actually a 16 potential client, the person's obvious boss came into the 17 room and -- and said, what do we need these guys for and he 18 looked at the buying influence and said isn't this what 19 you're paid to do? 20 Now, in support of that I would like to say 21 that in review, which is not in the binder, of certificate 22 courses offered by the PMAC, Purchasing Management 23 Association of Canada, the CICA, CMA, CGA -- 24 Q: Sorry. Can you help us with what those 25 acronyms mean?

1 A: Yes, sir. 2 Q: What they stand for. Thank you. 3 A: PMAC is Purchasing Management Association 4 of Canada. 5 Q: And is that an organization that people 6 involved in purchasing seek to belong to? 7 A: Yes, sir. 8 Q: It offers some level of training program, 9 does it? 10 A: Well, it -- it offers to the members a 11 number of different vehicles, networking as well as training 12 courses and there's an opportunity -- when I was part of the 13 PMAC at the time was to get a PP designation, Professional 14 Purchaser and it's now something else. I -- I can't recall 15 the name of the designation. 16 Q: But as part of that designation, does the 17 student study leasing itself as opposed to other aspects of 18 purchasing? 19 A: That's a very good question. Not only 20 the Purchasing Management Associates of Canada, Charted 21 Accountants, Certified Management Accountants or Certified 22 General Accountants, none of the organizations treat leasing 23 in -- in my estimation, in my opinion, the way it should be 24 treated. 25 What they do offer, and which I took as well

1 during the PMAC, was the advantages and disadvantages of 2 leasing and tax implications. 3 Q: Let me just stop you there because at Tab 4 4 -- sorry, at Tab 5 of your book at documents after 5 Discussion of the industry, you talk about some of the 6 advantages of leasing and I wonder if you can just elaborate 7 for the Commissioner on what you see, from your experience in 8 the field, as being some of the advantages to leasing? 9 A: Prior to a talk I gave at the Municipal 10 Financial Offices Association, the Delawana Training 11 Symposium in June of this -- of 2002. 12 Several municipal officials came up to me, 13 because they knew what I was going to be talking about, as 14 they called the traps -- tips and traps of leasing, which I 15 didn't like it to be called, but, they came to me and said, 16 they would never lease again, in view of what was transpiring 17 in the press. 18 There was -- I have to say, there was a 19 definite place for lease financing. And Mr. Moore, the 20 positives -- and I could elaborate on them quickly. 21 Fixed rate financing. There are many 22 positives to leasing. Fixed rate financing. And in the text 23 it does relate to certain exceptions to the rule, such as, 24 adjustable rates and escalation clauses without giving 25 definitions -- definitions of those two (2).

1 Number two (2), is conservation and efficient 2 management of capital as an option over outright purchase, 3 which is a big one for budget constraints with corporations, 4 large and small. 5 Matching of the expense of the acquired 6 equipment or assets to the use and benefits of the equipment. 7 For antiquation purposes. 8 Q: Is that important also for budgeting? 9 A: Oh, absolutely, yes, it is. 10 Q: And just while I think of it, Mr. Bakti, 11 when you're talking about leasing, we haven't made it clear 12 and perhaps it might be helpful if we did, what you're really 13 focussing on is, Information and Technology leasing, for the 14 purposes of this discussion today, are you? 15 A: Yes. 16 Q: But, the advantages of leasing, in your 17 experience go beyond that? 18 A: They certainly do. As I say, I recall in 19 my days in purchasing, leasing forklifts, leasing production 20 equipment and that's going back thirty (30) years. 21 Q: Okay. Flexibility is an item that you've 22 highlighted for us in your materials. What can you tell us 23 about the advantageous of leasing, from a flexibility 24 standpoint? 25 A: Well, unlike bank financing, by nature,

1 leasing allows for options in terms of repayment, which is a 2 benefit. 3 A lease can be structured in any number of 4 ways, in order to meet the exact needs of the lessee. For 5 example, irregular payments, I make mention in the binder. 6 Golf courses that make money at certain times of the year, 7 ski resorts. 8 They can't afford sometimes to make payments 9 so they skip payments. 10 Q: All right. Now, if we can move forward 11 then to the lease financing transaction, tell us, at Tab 8, 12 about the typical perspectives? 13 14 (BRIEF PAUSE) 15 16 A: Well, as we all know, equipment does not 17 normally increase in value, it depreciates. Not only in 18 computers, but, in any type of machinery, materials, CNC 19 presses that come about, new computerized technology, people 20 want to replace it for production means. 21 So, when cash is tied up in fixed assets, it's 22 no longer available to finance inventory or profit producing 23 activities or production. 24 That's why we lease, again for budget, as 25 well, as extending the payments over a period of time,

1 anywhere from thirty-six (36) months, forty-eight (48) 2 months, sixty (60) months, or even longer. 3 Q: Now, broadly speaking, there are two (2) 4 types of leases, as I understand and as your materials at Tab 5 9 indicate. Capital leases and operating leases. Can you 6 tell us your view of the distinction between the two (2), the 7 similarities, the differences? 8 A: As I say, very generally speaking, the 9 capital lease is normally used to finance equipment for its 10 --the major part of its useful life, where at the end of the 11 term, it's expected that the lessee will take ownership of 12 this equipment, generally for a dollar or ten (10) dollars. 13 Now, an operating lease, finances equipment 14 for less than its useful life. And at the end of the term, 15 it's a good chance that the lessee will be returning the 16 goods, to replace it with newer updated equipment, in most 17 cases. 18 Q: And just from the definition itself, can 19 you tell us anything about the length of a capital lease, 20 relative to the expected length of an operating lease? 21 A: Well, it all depends again on the value of 22 the equipment itself. If you're talking terms, they -- both 23 of them can run for thirty-six (36) months, three (3) years, 24 they could run for forty-eight (48) months, four (4) years or 25 sixty (60) months, either one. Generally, in an operating

1 lease where we're talking antiquation of the equipment, 2 especially in computers, we generally in our experience see 3 that type of leasing go for no more than three (3) years. 4 Q: But it has to do with the useful life of 5 the equipment? 6 A: Absolutely. 7 Q: All right. 8 A: It has to do with the useful life of the 9 equipment itself. 10 Q: Now, let's -- let's talk about some of the 11 fundamentals that need to be addressed when one focuses on -- 12 at the beginning of a leasing transaction and here at Tab 10 13 you've identified several, I think, that theme -- 14 A: Hmm hmm. 15 Q: -- fundamentals to be addressed. Broadly 16 speaking, without talking about each of the fifteen (15) of 17 them because they're there for us all to read, but broadly 18 speaking, what is -- what is the analysis or the fundamentals 19 that have to be focussed on at the -- at the outset? What's 20 that all about? 21 A: Well, as -- as we say in -- in the program 22 itself, the lessor is well-equipped to understand all the 23 aspects of leasing from their perspective. It is very 24 important for the lessee to understand their function 25 addressing the fundamentals of leasing and accurately

1 addressing it, as well. 2 This is covered in the pre-lease and the gap 3 analysis, Mr. Moore but generally speaking, the fundamentals 4 are the basis of what the lessee or decision maker must know 5 that -- that apply to a specific lease, master lease or 6 schedules and these are the foundations or the foundation 7 that the lessee must go into prior to signing of any 8 agreement. 9 Q: And that, of course, assumes that the 10 lessee has the financial or lease-based knowledge to know 11 what questions to ask? 12 A: Yes, that's -- that is correct. 13 Q: And so one of the -- one of the purposes 14 of your course is to help people involved in leasing, 15 particularly those who might be seeking to become lessees, to 16 identify what they know and what they don't know? 17 A: That's correct. We -- we indicate to 18 individuals, this course -- we like to s -- think that know 19 what you're getting into before you get into it. 20 Q: And apart from -- from your course, at the 21 present time to your knowledge, are there other courses being 22 taught in schools of higher education or in industry in 23 general? 24 A: No. As a matter of fact, we've done 25 extensive research, as I mentioned earlier, from different

1 associations offering courses -- accreditation courses to 2 become a CMA, et cetera. We could not find any course, 3 public or private. The only courses we did find in Canada 4 and the United States were from the perspective of the 5 lessor, training their people on how to increase sales, et 6 cetera. 7 As a matter of fact, our course is -- is so 8 unique that from our website itself, we've already been 9 contacted by two (2) colleges in the United States wishing to 10 know more about the course and present it to their people. 11 We have not started talking to -- to any great length to the 12 accounting firms, which certainly need this, we have talked 13 to a couple and on top of that, there's been three (3) -- 14 well, there's been companies in Canada, the United States, 15 Great Britain and Australia that have contacted us asking us 16 about the course and how they may participate. Not only 17 taking the course but -- distributing the course. 18 I've had the same response from two (2) of the 19 major accounting firms that thought it was a great idea, that 20 they'd like to take a look at this course and make it 21 presentable to their own clients and as well as that, Mr. 22 Moore, we look at a -- our website and it has a tab counter 23 and we have been contacted specifically, in one (1) or two 24 (2) words, send information, where it could be from over 25 twenty-one (21) countries in the world.

28
  1                 Q:  All right.  Now, before we talk about the
  2  -- the documentation package that accompanies a lease
  3  transaction or should accompany it, let me take you to Tab 13
  4  and that's the general subject of where leases come from and
  5  there you talk about several distinct sources of lease
  6  financing and you -- you group them.
  7                 For instance, you talk about direct from the
  8  leasing company.  So, tell us about that.  What leasing
  9  company's and what offers from them, fall into that category?
 10                 A:  We -- we -- in talking to -- we've had by
 11  the way, I should make mention that we've had onsite
 12  workshops, specifically for industry that have asked us to
 13  come in.
 14                 Q:  Right.
 15                 A:  And we explain to them, in general, where
 16  leases do come from and with all due respect to brokers,
 17  which is item 2, direct from leasing company is primary.
 18                 The place that we suggest that the lease is
 19  big enough, go direct.  They have their own sales personnel,
 20  employed by the company, paid commission and salary by the
 21  company directly.
 22                 And they are held high -- and this is very
 23  important, held high, to the standards of the corporation
 24  they deal with, the funder.  In other words, we say, produce
 25  or get out.  If they don't produce, they don't stick around.

1 The second part of that is, lease brokers. 2 They're no different than any insurance broker. The benefit 3 that they bring to the table, is that they deal with a number 4 -- any number of funder in the marketplace. 5 They don't deal with any one (1) specific 6 funder. But, generally brokers will deal with smaller ticket 7 items. 8 Q: What's a small ticket item? 9 A: A small ticket item could be in the amount 10 of $50,000, less than 50,000. Mid ticket could run anywhere 11 from 50,000 to $1 million. 12 Again, depending on the market and the nature 13 of the asset. And large ticket generally starts at around a 14 million dollars and goes up. 15 Q: Right. So you've got those two (2) and 16 then you've got another group that you've identified as 17 manufacturers in-house leasing representatives. 18 Tell us about those. 19 A: This is also very important. They're all 20 very important. The equipment manufacturing in-house 21 leasing, representatives, work with the manufacturers. 22 In other words, these are your vendors that 23 are trying to sell their product and in doing so, many of 24 them have on-site lessors from major corporations that work 25 for the lessor.

1 In other words, they'll strike up a deal with 2 perhaps a GE Capital, to have a person sit in the office, 3 full-time, helping the sales reps sell their product and 4 finance the product. 5 Q: And generally speaking, do you find that 6 the in-house leasing representatives tend to favour placing 7 their own employers products? 8 A: I don't think there's any doubt about it. 9 When they're dealing with the vendor, we ask the question in 10 the pre-lease, why is the vendor promoting one (1) funder 11 over another, or visa versa. 12 Q: So is -- 13 A: Why is one (1) funder promoting a vendor? 14 Is there a benefit to the lessee? 15 Q: So if the lessee has an identified leasing 16 need, how does the lessee find out about the opportunities 17 within these three (3) categories and then begin the process 18 of selecting which of the organizations within the three (3), 19 might best suit the lessee's needs? 20 A: Generally it starts historical or 21 historically speaking. Companies generally do lease 85 22 percent of the corporations and organizations lease to one 23 (1) degree or another. 24 So, if you've got a background and a history 25 with a specific funder or funders. So if they're looking at

1 leasing a particular item or asset, they generally have a 2 list of two (2) or three (3) funders they've dealt with in 3 the past, have been confident in the ability of the funder, 4 and have contacted them. 5 Another way, could be through somebody in 6 their own organization recommending a specific funder to be 7 used. Then the process would be to either put it on the 8 internet, which is Merx, or through an RFP request for 9 proposal, request for quote, starts perhaps even, request for 10 information. 11 Q: Okay -- 12 A: Then it's up to the funder at that point, 13 to respond to the needs of the lessee in their own way. 14 Q: All right. And so then the lessee, as you 15 identify at Tab 14, would -- 16 MADAM COMMISSIONER: Just before we get to Tab 17 14 -- 18 MR. PATRICK MOORE: Yes? 19 MADAM COMMISSIONER: -- did you say that about 20 80 percent of companies lease? 21 THE WITNESS: 80 to 85 percent of corporations 22 lease to one (1) degree or another. 23 MADAM COMMISSIONER: Okay. 24 Thank you. 25

1 CONTINUED BY MR. PATRICK MOORE: 2 Q: And is that so in the public and private 3 sector, as well, in your experience? 4 A: Yes, sir. 5 Q: And we're still talking about IT leasing 6 are we? 7 A: We're talking leasing, in general, we're 8 talking equipment leasing more so than real estate. We're 9 not talking real estate, we're talking totally equipment 10 leasing. 11 Q: Right. 12 A: It could be IT, it could be machinery, 13 fork lifts. 14 Q: All right. So, now, by whatever means the 15 lessee -- the proposed lessee has contacts with leasing 16 vendors from one (1) or more of the three (3) categories and 17 as you go to Tab 14, the leasing -- the le -- sorry, the 18 lessee then needs to look at what to consider in the leasing 19 vendor. Does this apply to any and all of the vendors in the 20 three (3) categories? 21 A: I'm sorry. I'm not sure when you said 22 three (3) categories? 23 Q: The three (3) that you've identified of 24 where leasing comes from -- 25 A: Oh, I see.

1 Q: -- at Tab 13. 2 A: Can you repeat the question, please, Mr. 3 Moore. 4 Q: All right. Do the considerations at Tab 5 14 of what to look for in a vendor apply to all three (3) of 6 the potential vendor categories? 7 A: Generally, it does. 8 Q: Yeah. 9 A: Yes. 10 Q: So tell us what it is you -- as a lessee, 11 you're looking for in each of the vendors? 12 A: Longevity of the vendor is one important 13 factor. How big the company is, how long they've been 14 around? What type of warranties they offer, support, 15 material to the product? What type of information they're 16 giving me about the product. Specifically, it could be -- 17 again, it could be a fork lift, it could be computers. 18 Do they stand behind the product even after 19 the warranty expires? Do they give me information as far as 20 when warranties are coming due? Do they disclose this 21 information? Sometimes they d -- they do and sometimes they 22 don't. 23 Q: Is it written in contracts? 24 A: It is. If the vendor, as I mentioned 25 earlier, promotes a certain lessor, why is that? Can they

34
  1  explain to my why they're doing it and when we -- when we
  2  look at IT equipment, the IBMs and the Dells, we're not
  3  comparing them to specific other vendors, but I often say to
  4  people, have you checked the references of the vendor and
  5  possible testimonials?  Are they solid?  It's like anything
  6  else in business.  Take a look around, ask some questions and
  7  if this company has let somebody else down, why do you want
  8  to do business with them?
  9                 Q:  So this is due diligence, is it?
 10                 A:  I should have said that at the beginning. 
 11  You're right.
 12                 Q:  All right and so having done that due
 13  diligence, having focussed on those various considerations,
 14  let me take you back, then, to Tab 12, the basic document
 15  package.  The -- so the -- the proposed lessee has looked at
 16  the opportunities in the marketplace and has received input
 17  from vendors and now documentation starts to be tabled.  Can
 18  you tell us about the basic documentation package that, in
 19  your view, needs to be considered in every case?
 20  
 21                       (BRIEF PAUSE)
 22  
 23                 A:  Okay.  This is -- is come -- this comes
 24  from the lessor's point of view.  First of all, I think you
 25  understand in reading some of the text, the basic

35
  1  documentation package is put together by the lessor and --
  2  and they do a great job at doing so.  This is done for each
  3  and every deal that's booked.  
  4                 It's listed in eight (8) -- nine (9) places
  5  and they're very thorough on credit approval package, lease
  6  contract including master and any schedules, cost of funds
  7  which is important to the lessor to find out where they stand
  8  because I make mention about general administrative costs and
  9  another one is in -- in the basic package is delivery and
 10  acceptance, which I'll talk about which is very important. 
 11  It's -- it's -- it's crucial in the pre-lease and gap
 12  analysis.  Insurance, financial statements.
 13                 Again, it's now the due diligence from the
 14  lessor's side to the lessee to make sure that before the deal
 15  is signed, they have protection on the asset.
 16                 Q:  So what you're saying there is that the --
 17  that the lender is, in many cases, asking for financial
 18  information from the lessee to satisfy itself that the
 19  transaction can be funded over the period of time?
 20                 A:  That is correct.
 21                 Q:  All right.  What does vendor invoice mean? 
 22  What are you getting at there?
 23                 A:  The vendor invoice and many times, the
 24  first thing that we -- we suggest is that when I've had
 25  people say to me, I'm the lessee, I own the equipment.

36
  1                 That is incorrect.  The lessor owns the
  2  equipment until the final payment is made and the final deal
  3  is struck.
  4                 A lessee should also get a copy of the
  5  vendor's invoice to find out what they're paying for, which
  6  may include shipping charges and other charges that may or
  7  may not be hidden.
  8                 So, the basic package for the lessor, they
  9  have to know where they stand as far as what they're loaning
 10  to the individual and that's what the vendor's invoice is. 
 11  It may come from any -- any vendor, could come from IT, could
 12  come from again -- I say, I use forklifts as an example.
 13                 But, they know exactly what the cost of the
 14  asset is, and then they could apply their own costs to this.
 15                 MADAM COMMISSIONER:  This is for the lessor to
 16  know?
 17                 THE WITNESS:  That's correct.  This is all the
 18  lessor's package.  
 19                 MADAM COMMISSIONER:  All right.  
 20                 THE WITNESS:  This is the basic documentation
 21  package for the lessor.  The lender --
 22                 MADAM COMMISSIONER:  So, isn't it the lessee
 23  that should get a copy of the invoice or the lessor?
 24                 THE WITNESS:  The lessor will start and that's
 25  what they know, what they're going to loan to the lessee,

1 plus the additional monies that they put on top of this. 2 But, it's a good question too, Commissioner, 3 because more often than not, the lessee does not get a copy 4 of this invoice and they should. 5 MADAM COMMISSIONER: So, they both should, is 6 what you're saying? 7 THE WITNESS: They both should get a copy of 8 this vendor's invoice. 9 Now, some funders argue that by saying, you're 10 asking for X amount of dollars. Here's what we're giving 11 you. We own the equipment, therefore, you don't get the 12 invoice, we get it. 13 Now, you could demand it and receive it. It's 14 what to ask for. Ask and you shall receive in this case. 15 MADAM COMMISSIONER: Is it something that the 16 lessee has a right to? 17 THE WITNESS: Absolutely. The lessee 18 absolutely has a right to the vendor's invoice. Absolutely. 19 Unless they ask for it, they're not going to get it, in most 20 cases. 21 22 (BRIEF PAUSE) 23 24 CONTINUED BY MR. PATRICK MOORE: 25 Q: All right --

1 A: And maybe I could reiterate too, on that, 2 in some cases, where there is a copy of a vendor's invoice, 3 it will be an all in cost, from the funder generally, or 4 could be from the vendor. 5 In other words, here's what you're getting, 6 you know have the unit cost or extended cost. In many cases, 7 we won't see, or the lessee will not see what the shipping 8 charges are, is there any insurance? Is there any freight 9 charges? 10 Especially shipping on IT equipment, it's a 11 big one (1) and it should be broken down. 12 Q: From a financing standpoint, whether it's 13 broken down or not, you're still as the lessee, you're still 14 getting the benefit of the total dollar amount. 15 But, what you're saying is, from a management 16 standpoint, it's best to be able to break things down so you 17 know what the components of the total cost are? 18 A: It's very important. Absolutely. 19 Q: And that's because some of the costs can 20 be managed? 21 A: That's correct. If you know what you're 22 paying for, that's correct. And some of them can be -- when 23 you say, managed, can be negotiated. 24 Q: For instance, delivery costs. You may be 25 able to negotiate directly with the delivery company and get

39
  1  a bulk rate?
  2                 A:  Or actually, you probably wouldn't want to
  3  do that.  You -- you would negotiate with the funder on that. 
  4  You wouldn't want to get in the middle of dealing with the
  5  freight handler.  
  6                 Q:  Right.
  7                 A:  The funder is well equipped to do that,
  8  but, certainly the question would be to sit down with the
  9  funder and ask the breakdown of the cost of equipment, what's
 10  included in this, and then perhaps you can negotiate freight
 11  charges.
 12                 Q:  Right.  And so from the lessee's
 13  standpoint, as you point out later on at Tab 17, in your pre-
 14  lease checklist, this is an item that bears careful scrutiny
 15  by the lessee, when the document package is presented by the
 16  vendor?
 17                 A:  The entire package, Mr. Moore?
 18                 Q:  Yes.
 19                 A:  Yes, absolutely.
 20                 Q:  So, now, let's talk about the initial
 21  payment check, what -- what are you teach your students about
 22  that?  We're still in the basic document package at Tab 12
 23  and that's item 8?
 24                 A:  Tab 12.
 25                 Q:  Yes.

1 A: Well, that's a standard in the industry, 2 initial payment cheque. It could be first payment, it could 3 be first and last. I've seen it first and last quarterly 4 payments. I've even seen annually in advance payments. 5 Q: And because there are variations, in your 6 experience, is that a feature that can be negotiated? 7 A: If -- if you have strong enough credit, 8 that's a fact. If you have strong enough credit, you can 9 negotiate this as well. You know, generally, there will be a 10 payment in advance to commence the deal. It's up to the 11 individual lessee, again, based on their credit to negotiate 12 a one payment in advance is the standard in the industry. 13 Q: All right and then the final item on -- in 14 the basic document package is the pre-authorised payment plan 15 or post-dated cheques and that's just for convenience of the 16 vendor. They're trying to expedite the payment process and 17 the lessee can talk with the vendor about that and negotiate 18 what's best for both. 19 A: Well, generally, it -- it's the lessor, 20 not the vendor, because it's the lessor that makes the 21 payment to the le -- to the vendor -- 22 Q: Right. 23 A: -- buys the equipment and at that point, 24 the lessee pays the lessor for the use of this equipment 25 until the end of term and generally it -- it's -- it's been,

1 over the last few years, pre-authorized payments or, as I 2 said, PAPPs is the standard in the industry. 3 However, as we say in the pre-lease and -- and 4 Gap, once you're into a pre-authorized payment plan and 5 you're a larger corporation where we have seen invoice 6 statements come in on a quarterly basis or monthly even and 7 they have been paid in -- in error. It's not the intention, 8 the funder has this done. So whose convenience is it? 9 Sometimes, I -- I look at it if a company's not -- if they're 10 dealing with a lot of assets, to go on invoice if they can. 11 Q: All right. You teach your -- your 12 students about the importance of a pre-lease check list and 13 you've given us one in some detail at Tab 17. 14 A: Hmm hmm. 15 Q: We won't take you through every single 16 component of that check list but I would like to focus your 17 attention, if I could, at Item 7 for the moment and that's 18 the one that deals with the lease agreement itself. Is it 19 usual or unusual that a lease agreement is presented to the 20 lessee at the outset of negotiations? 21 A: The le -- the lease agreement is always 22 present at the beginning or at the signing of a lease 23 contract. The situation occurs, and it's not every funder 24 that's painted with the same brush, where the contract has to 25 be veri -- not verified, but stamped and sealed by the lessor

1 at their home base. So comments such as let's sign these 2 contracts and I'll send you a copy. Why they don't photocopy 3 copies at that point, it -- it's a mystery to us. 4 To give you an example, in one case -- case 5 was with an institution. They had several -- they had a 6 couple of hundred schedules to a master lease, a large 7 organization. We found that twenty-four (24) complete 8 contracts were missing. In receiving the contracts for the 9 client, it was discovered that five (5) of them had already 10 expired, which they may not have found out about. They were 11 already in renewal. As the contract stated, they could be 12 automatically go on renewal. They're using the equipment, so 13 they're paying for it. 14 So to answer your question, in long about 15 manner, it is very important to get contracts as soon as 16 possible. 17 Q: And can I ask how important is it, once 18 you get the contracts, to read them and understand them? 19 What do you teach about that? 20 A: We teach that in great length. In the gap 21 analysis Item 1 -- I'm not sure what tab that is. 22 Q: 18 -- sorry, 19. There you say, among 23 other things, that: 24 "Have you as a signing officer read the --" 25 A: Hmm hmm.

1 Q: "-- entire funding agreement?" 2 A: Hmm hmm. 3 Q: It's simple and basic. Very simple, very 4 basis. I've reviewed RFP's for organizations where there are 5 three (3) pages to a contract and some have thirty (30) 6 pages. The same item is leased. Some of the larger ones, I 7 know for a fact from talking to people, they get a thirty 8 (30) page contract, it's an awful lot of reading. 9 Generally, they're used to leasing with 10 specific companies, so they pass through this or pass it down 11 to someone in another department to read it. 12 So, the first question is, have you read as 13 signing officer? When you put your name on the bottom of the 14 contract, have you specifically read the entire contract and 15 do you fully understand all your obligations? 16 Not just some of them, but, all your 17 obligations and responsibilities? 18 Q: These lengthy lease contract documents 19 contain a good many clauses, I should imagine. Tell me this, 20 Mr. Bakti, in your experience, are the terms and conditions 21 of lease documents negotiable between lessor and lessee? 22 A: That's an excellent question. The leasing 23 industry is largely unregulated, that's why we say to people, 24 it's so important when you're requesting information or a 25 quote, to design your RFP accordingly.

1 Because what you're going to ask for, you're 2 going to get. Now, the good news about any RFP because it is 3 unregulated, many of the terms and conditions, or expenses, 4 administrative costs, et cetera, et cetera can be negotiated, 5 if you know what to look for. 6 And if you read the entire contract. 7 Q: All right. One (1) of the things that you 8 refer to in the pre-lease check list is the importance of 9 reading the documentation with respect to, for instance, 10 identifying purchase and return dates. 11 Let's just talk about that for a moment. At 12 the end of some leases and opportunity presents to acquire 13 the assets on lease, you're familiar with that? 14 A: Yes. 15 Q: Now, does it happen in the industry that 16 there's a period of notice to the lessor by the lessee that 17 gives notice to the lessor of an intent to purchase? 18 A: Absolutely. 19 Q: What -- 20 A: I'm sorry -- 21 Q: Go ahead, finish you -- 22 MADAM COMMISSIONER: First of all, where are 23 you, which Tab? 24 MR. PATRICK MOORE: I'm at Tab 17 -- 25 MADAM COMMISSIONER: Okay, I'm there.

1 MR. PATRICK MOORE: -- and we're at item 7 at 2 the bottom of the page. 3 MADAM COMMISSIONER: Oh, still 7, okay. 4 5 CONTINUED BY MR. PATRICK MOORE: 6 Q: And we're talking about the notice to the 7 lessor of an intention in this example, to purchase the goods 8 on lease? 9 A: Was that on Tab 17, or is that the gap 10 that you're looking at? 11 Q: No, this is pre-lease checklist Tab 17. 12 A: And it's item number 7, did you say? 13 Q: Item 7, bottom of the page: 14 "You may miss your option date to purchase 15 or return." 16 A: Oh, okay. Every contract there's an 17 option date to exercise your option to either buy the 18 equipment at the end of term, this may not apply in a capital 19 lease that you're going to own it for a dollar or ten dollars 20 ($10). 21 You could extent the lease -- you have several 22 options. You could renew the lease. But, there are dates 23 given or times given, either thirty (30) days notice to the 24 funder, to exercise your option, sixty (60), ninety (90) even 25 a hundred and twenty (120) days.

1 Now, again it depends on the size of the 2 corporation or an organization. But, what happens if you 3 miss you date to notify the funder of your option, as 4 specified in the contract, they have the right, to extend it 5 automatically into renewal. 6 Because their equipment, you haven't decided 7 what you want to do with it and they have the right to charge 8 you that period payment per month if it is, or quarterly, the 9 same as it is during the lease. 10 Now, when you finally decide what you want to 11 do, if indeed sometimes people forget, there's two (2) points 12 of that. You notify the funder of your option. However, if 13 it's ninety (90) days and you're making monthly payments, 14 then you owe the funder three (3) more months payment, unless 15 that's negotiated with the funder. 16 If you're a big enough client, you could 17 probably waive that. 18 Q: Let me -- let me just stop you there for a 19 moment, Mr. Bakti. Because this is a -- this may be an 20 important point. What you're saying is, that you've got a 21 lease contract and it has terms and conditions in it -- 22 A: Hm mmm -- 23 Q: -- but, the parties, in your experience is 24 this case, parties from time to time, will negotiate changes 25 to the terms and conditions of a lease, during the term?

1 A: Not usually. Th -- that's why it's so 2 important, Item 1, is to -- is to -- have you read -- do you 3 know your obligations, your responsibilities? Because once 4 you sign the contract, and this is another point in here 5 delivery and acceptance, once you sign that, whether you've 6 got all the components to your product or not, you're 7 notifying the funder that you've agreed to all of the terms 8 and conditions and there shouldn't' be any room for 9 negotiations afterwards. 10 Q: There shouldn't be any need for them. 11 A: N -- should be any -- there should be no 12 need for it. You know your obligations at the beginning 13 going in because once you're in, you're in and you've 14 accepted the terms and conditions accordingly because you've 15 signed the bottom line. 16 Q: Okay. 17 A: Now, if there's something to negotiate at 18 that point, then that's when you speak for it and negotiate 19 the terms. 20 Q: Now, let's go to the end of the lease and 21 over the page, Item 9. Assume with me that you've exercised 22 the -- the notice or provision properly and you've told the 23 lessor that you want to return the goods. Item 9 seems to be 24 telling your students, by way of pre-lease checklist, to keep 25 a handle on the location of your leased equipment. What's

48
  1  the significance of that?
  2                 A:  When you have an asset that you're
  3  funding, whether you want to keep it or return it, especially
  4  when you have several items and I will use the example of
  5  computers, several hundred or several thousand computers. 
  6  They do get misplaced.  They get moved from department to
  7  department.  They get separated.  Especially computers, the
  8  box from the -- from the monitor.
  9                 The very important, as I say, handle on the
 10  location of your leased equipment and we say if you can't do
 11  it yourself, then there are companies that can do this for
 12  you, asset management companies, because at the end of term
 13  when it's time to re -- respond and return the equipment if
 14  you are, indeed, returning it.  
 15                 Now, if you're keeping it, that's fine if you
 16  lost the equipment.  That's your problem but if you are
 17  returning the equipment, then the lessor that's dealing with
 18  the buyer, could be a vendor, expects all the equipment to be
 19  returned and if it's not then you, as the lessee, are out of
 20  pocket.
 21                 Q:  And in your experience, is it also wise to
 22  look at the end of term obligations with a view to what you
 23  need to do in the way of packaging and who pays the cost of
 24  shipping and so on of equipment to be returned?
 25                 A:  Yes.  I -- I think that a lot of people

1 put weight on -- when we talk fair market value, a lot of 2 lessees will look at the, I say, interest rate based on fair 3 market value figuring that well, that's the best rate 4 possible, I'm sending all the equipment back. 5 However, 99 percent of the time, that doesn't 6 happen even if you are returning the goods because there are 7 built-in expenses, as you say, shipping and handling charges. 8 Some funders suggest and say in their contracts that the 9 equipment returned is returned to any location of the funders 10 choice, it could be anywhere in Canada. 11 Now, put that into thousands of computers and 12 also indicate that -- I'm not sure how many people keep 13 packaging for three (3) to five (5) years but you have to 14 repackage to the manufacturer specs -- specs or close to them 15 when you ship it back. Freight charges, insurance charges 16 and even bringing the scale of the product back to normal 17 wear and tear working order and on a small case example with 18 a hospital. 19 It was very small -- small and a few dozen 20 computers. They were invoiced for thirteen thousand dollars 21 ($13,000) thirty (30) days after they returned the goods. 22 They weren't expecting that. Now -- 23 Q: Because the goods weren't in working 24 order, reasonable wear and tear exp -- accepted? 25 A: All of the above.

1 Q: Yeah. 2 A: Not including the packaging, which they 3 took care of themselves but the freight and the working order 4 of the material. The funder in this case invoiced the lessee 5 for thirteen thousand dollars ($13,000) as their expense. 6 MADAM COMMISSIONER: Just with respect to 7 asset management companies -- 8 THE WITNESS: Hmm hmm. 9 MADAM COMMISSIONER: -- who will keep track of 10 it. Is that something that leasing companies do as well? 11 THE WITNESS: There are -- it depends on -- on 12 the nature of the product. Generally, where there's many 13 components to a lease specialized companies will have their 14 own asset management foundation or their own products. 15 MADAM COMMISSIONER: Hmm hmm. 16 THE WITNESS: You don't get that as much in -- 17 in -- unless there's a lot of say, forklifts again, but in 18 computers, there are companies who specialize specifically in 19 leasing computers, and they'll have their own asset 20 management program set up. 21 Now, Commissioner, I -- further to your 22 question on that, if I'm the lessee, then I would look at 23 possibly, if I'm dealing with the funder, look at their 24 program, and then I would look at an arm's length asset 25 management program that's not involved with the funding of

1 the -- of the product. 2 MADAM COMMISSIONER: Hmm hmm, for what 3 purpose? 4 THE WITNESS: Well, as I say, you can look at 5 both. 6 MADAM COMMISSIONER: Right. 7 THE WITNESS: You'll look at the costing, 8 you'll look at the -- and if I was the -- the signing 9 officer, I would want to know references as to who's used the 10 product before. 11 MADAM COMMISSIONER: Okay. 12 THE WITNESS: Because if I'm looking at a 13 funder, they specialize in funding, that's what they do best. 14 They specialize in specific products. Do they specialize in 15 asset management, or is that a -- an add on to the services? 16 Now, then I ask myself, I'll look at an asset 17 management company that does nothing else except asset 18 management, I'll look at their program, their costing, their 19 success and their testimonials. And then it's up to the -- 20 the -- the signing official to decide which way to go. 21 MADAM COMMISSIONER: And do you have any 22 concern then with a leasing company itself doing asset 23 management? Or is it your -- I'm just not sure what you're 24 saying is that well their real business is in getting the 25 funding. The asset management might be an add on that you do

1 or do not have to pay for, depending. 2 THE WITNESS: It -- again, is this built into 3 the price to do business. 4 MADAM COMMISSIONER: Hmm hmm. 5 THE WITNESS: That's something to break down 6 also in your costing. Secondly, if it was my decision, I 7 certainly scrutinize, due diligence on both sides, and 8 generally, I would look at somebody who specializes in that 9 specific field, and that's what they do best. 10 That's not to say that a funder, their program 11 may very well do the job, if it's fair -- maybe a limited 12 amount of -- of assets. 13 MADAM COMMISSIONER: Hmm hmm. 14 THE WITNESS: Maybe even a larger amount. 15 But if we're looking at something where there's a tremendous 16 amount of value placed, then I would look very closely at a 17 specialized operation to -- to do this. 18 MADAM COMMISSIONER: Okay, thanks. 19 THE WITNESS: You're welcome. 20 21 CONTINUED BY MR. PATRICK MOORE: 22 Q: And before leaving the subject of asset 23 management, I see at Item number 12 on your pre-lease 24 checklist, which is at the second page of Tab 17, you speak 25 of -- you ask a question, do you have a list and complete

1 description of the asset being funded, including serial 2 numbers and -- and models, and presumably locations of the 3 items in the organization. Tell us about the significance or 4 importance of looking at those features? 5 A: Well, when you look -- and I think we're 6 going to use computers here for an example. It could be any 7 asset. 8 When you sign, and I've seen this in the past, 9 when you sign a contract, especially delivery and acceptance, 10 that's one (1) of the points in here, Mr. Moore, I'm not sure 11 which one (1) it is. 12 But, when you sign an agreement, you're 13 signing again, the asset that you presume was delivered to 14 you. I've seen, and it's not intentional, where items have 15 come in with a different serial number. At terms end they 16 couldn't find the serial number that was on the contract. 17 They had to pay for it. It's very, very important that when 18 the material comes in, or the asset comes in that numbers are 19 matched to the asset and to your -- and to your contract. 20 Again, it's -- it's all in the timing of a 21 lease contract, again, where Departments sometimes are 22 pressuring the -- the signing official to sign the lease 23 agreement before the vendor will ship the product. 24 Q: All right, and I suppose the other 25 importance is that when you return the product at the end of

1 lease, if you don't have the serial number, you can't be sure 2 what you're returning is what you put on lease? 3 A: Again, I -- I've experienced where 4 someone has taken a loan of a specific product, and in this 5 case it was a forklift, here's a forklift, it's not what you 6 ordered, but yours is on back order and it'll be in within 7 thirty (30) or sixty (60) days. Out of sight, out of mind, 8 it comes in, there's so many deals going through, it was not 9 delivered. 10 Q: Right. 11 A: Five (5) years later when they're looking 12 at returning the equipment, it wasn't the right equipment. 13 Q: And I suppose that's also of significance 14 if you seek to upgrade an item that you address at paragraph 15 number 26, in your previous checklist? 16 A: What -- what lessees have to understand 17 is that the equipment is owned by the lessor. They have to 18 advise the lessor of several -- several things, one (1) of 19 them being, if you're going to move an asset from a location 20 to another location, now I'm not talking within a plant, 21 probably within the City limits, or out of the -- out of the 22 City, you have to advise the lessor of this movement. 23 The same thing happens with upgrades to 24 equipment. You don't own the equipment, the lessor does. 25 So, if you're going to make a move to upgrade the equipment,

1 either you advise the lessor of this, because you're 2 intending to purchase the equipment at the term's end, 3 otherwise you wouldn't want to upgrade it. 4 But the downfall to that is this, that if 5 there is a fair market value assessed to this equipment, 6 prior to the end of the term, once you advise the funder that 7 you're upgrading the equipment, in any significant manner, 8 your fair market value may now escalate. It's worth more. 9 So, why wouldn't the fair market value of the 10 produce be more? 11 Q: Right, and also is there a feature 12 relative to upgrades, of whether you can upgrade some or all 13 of the equipment on -- on lease? 14 A: Well, I don't think there's any 15 limitations to upgrading equipment. I believe that you can 16 upgrade just about any piece of equipment. That holds true 17 with computers, as well as any other piece of equipment. 18 Q: But in order to upgrade, you're changing 19 the leasing, so you need to look at the lease to see what 20 your rights and obligations are? 21 A: And in many contracts, it'll specify 22 upgrades, that you have to contact the funder. I mean after 23 all, it's the funder's product. If you have a car, you 24 change the motor on it and you're leasing the vehicle, you 25 can't pull the motor out at the term end, or the same with

1 your tires, it goes with the vehicle. The same holds true 2 for telephone systems, in this case, or computers, or 3 anything else. 4 Q: Now, this is moving us backward in the 5 chronology a bit, but -- 6 MADAM COMMISSIONER: Sorry, did you say they 7 have to contact the funder or the vendor? 8 THE WITNESS: Your deal -- 9 MADAM COMMISSIONER: I didn't hear what 10 you -- 11 THE WITNESS: -- your deal -- your deal is 12 with the funder. 13 MADAM COMMISSIONER: Funder, okay. 14 THE WITNESS: So you have to -- if you're 15 going to move the equipment or you're going to upgrade it, 16 the contract will probably specify to contact the funder and 17 explain what you're doing to their produce. 18 MADAM COMMISSIONER: So, when you talk about 19 the funder, you're not talking about the lessor then? 20 THE WITNESS: That is the lessor. 21 MADAM COMMISSIONER: That is the lessor? 22 THE WITNESS: Yes, the funder -- 23 MADAM COMMISSIONER: Okay, no, I've got it. 24 I mixed myself up on something, go ahead. 25

1 CONTINUED BY MR. PATRICK MOORE: 2 Q: Let me move you back in the lease process 3 to the -- the time when you are considering the wisdom of 4 entering into the lease. And at Item 20 in your previous 5 checklist, you focus on interest rate. 6 What's the significance to your students, do 7 you teach them about focussing then on interest rate? 8 9 (BRIEF PAUSE) 10 11 A: That's -- you probably cover that with a 12 comparison as gap analysis, Item number 3. 13 Q: And that would be at Tab 19, and the 14 third page in. Does the interest rate appear on the quote 15 and contract prior to signing? 16 A: Right. 17 Q: So you -- you teach your students that -- 18 that you should look for an interest rate and make sure it's 19 on an agreement before signing. Why do you do that? 20 A: Although -- although there are a number 21 of variables in any contract, they represent the bottom line 22 to the lessee and lessor. Many times we'll see in our 23 experiences, that the hat is hung on the interest rate. I 24 got this deal because I got such a great rate, such a great 25 interest rate.

1 The example here that we -- we talk about is 2 the comparison between interest rate, budget and rate factor, 3 and how important interest rate is. Because in the exercise, 4 if you look to the example, without getting into too much 5 detail, by looking at the budget itself here's what I need -- 6 here's where I need to be, anything less than this, I save 7 money for the corporation, organization. 8 Whereas, if you looked at the interest in this 9 specific example, you would have seen the difference in -- in 10 savings. Now, as I say, there were other variables. 11 However, I also have in this a quote from a 12 Mr. Jeff Taylor, who is the International Leasing Specialist 13 to the Funding Ministry. This gentleman teaches leasing to 14 lessors, and leasing specialists throughout the world. He 15 has talked to companies like GE in Canada, the United States, 16 all over the world. 17 MADAM COMMISSIONER: And where is that, where 18 does it say his name? 19 THE WITNESS: Jeff Taylor is following on 20 Item 3 -- 21 MADAM COMMISSIONER: Hmm hmm. 22 THE WITNESS: -- where is that now, it might 23 be on -- 24 MR. PATRICK MOORE: It's Tab 20. 25 THE WITNESS: Tab 20.

1 MADAM COMMISSIONER: Oh, Tab 20. 2 THE WITNESS: Tab 20. 3 MADAM COMMISSIONER: Okay. 4 THE WITNESS: Mr. Taylor, you can see his 5 website on here says: 6 "As soon as they --" 7 Referring to the lessee: 8 "-- ask you about the interest rate, you're 9 in trouble. I'd like to remind people that 10 in the leasing industry we don't have 11 rates. Clients think leases are just an 12 alternative form of a loan. Leasing is a 13 unique product." 14 He is right about that. And then he says: 15 "We do ourselves a disservice when the 16 client says, what's your rate. You can 17 either sit there and say there is no rate, 18 of course they're not going to believe you, 19 or you can say, our rates are competitively 20 driven, or you can say, I didn't know you 21 wanted a loan." 22 So, we go back and we say, discussions of 23 interest rates many times become issues briefly addressed and 24 turned around. Let's see if we can accommodate your budget, 25 instead of an interest rate.

1 So, I will always say to the people that I 2 deal with, ask for the interest rate to be put in writing, 3 and you'll get it. 4 Now, it's difficult sometimes when there's a 5 fair market value involved. What I -- there was an RFP put 6 out for a client, wherein the RFP we asked them to ask for 7 the interest rate by a funder, and all of them complied. 8 They all put it in writing, there's the interest rate, and 9 the cost -- I'm sorry, and the rate factor. 10 11 CONTINUED BY MR. PATRICK MOORE: 12 Q: So again it's a matter of doing due 13 diligence as lessee at the outset, asking all the right 14 questions? 15 A: Mr. Moore, on top of that point, you're 16 right, asking all the right questions. But it's not so much 17 just asking the questions, as -- as getting it in writing, 18 this -- this is very, very important, because when you don't 19 get something in writing, it becomes a he said, she said at 20 the end of term, and that's where the problems occur. 21 And even then in the gap, when we talk about 22 interest rates, because it's one (1) of my favourites, that 23 and fair market value. 24 MADAM COMMISSIONER: Can you explain, just 25 before you get there, what do you mean by the gap?

1 THE WITNESS: Every corporation from dealing, 2 and dealing -- going back to when I was purchasing as well, 3 and dealing in sales. A gap analysis is done as to where you 4 are in business and where you need to be, and if there are 5 holes in your sales, or your administration, that's the gap, 6 now how do we close the gap. 7 MADAM COMMISSIONER: Hmm hmm. 8 THE WITNESS: So, leasing's no different. We 9 find that there's -- there's gaps in -- in every 10 organization, when it comes to -- to leasing as well. 11 I hope that -- 12 MADAM COMMISSIONER: Yes. 13 THE WITNESS: -- explains it. Now, just 14 further on the interest rate, where we have seen it's 15 comparisons as well, when you get an interest rate in -- in 16 writing. And the written form quote, is it on the actual 17 contract, compare it to the contract, is it there? 18 19 CONTINUED BY MR. PATRICK MOORE: 20 Q: Right. 21 A: Because we have seen where quotes -- now, 22 when we've pulled amortization schedules to this quote, in 23 one (1) case there was 8.5 percent written quote for the 24 interest rate. The end schedule said it was 12.75 percent. 25 Now, was there something that the lessee missed in the

1 obligations, was there an escalation clause, was there 2 something else that he or she missed? Did they pull an 3 amortization schedule themselves, that being the lessee, to 4 confirm the interest rate, and if so, did you get a copy from 5 the lessor, are you able to do your own and confirm the rate, 6 and have you compared it, and they match up. 7 Q: Right. Let's move to the end of the 8 lease again, and we're in the gap section, Tab 19, paragraph 9 number 5, where you talk -- 10 A: So, this -- this would be the pre-lease 11 then? 12 Q: No, this -- 13 A: Tab 19 -- 14 Q: -- this -- 15 A: -- oh, Tab 19, I'm sorry. 16 Q: This is the gap analysis. 17 A: Okay. 18 Q: And -- and we're now talking about -- 19 about calculating the true cost of the lease -- 20 MADAM COMMISSIONER: Sorry, where, Mr. Moore, 21 where -- 22 MR. PATRICK MOORE: We are at paragraph 23 number 5, which is the -- one (1), two (2), three (3), four 24 (4), five (5) -- 25 MADAM COMMISSIONER: Yes, I see --

1 MR. PATRICK MOORE: -- seventh page in, 2 Commissioner. 3 MADAM COMMISSIONER: Hmm hmm. 4 MR. PATRICK MOORE: At Tab 19. 5 MADAM COMMISSIONER: Yes, I've got it. 6 7 CONTINUED BY MR. PATRICK MOORE: 8 Q: And you're talking about what you teach 9 about understanding the true cost of the lease, interest rate 10 is one (1) of the components of cost, but now you're talking 11 about the end of the lease, and you're focussing on FMV end 12 of term. 13 And I wonder if you can tell us, what is FMV, 14 and -- and is it a term that is so widely understood in the 15 industry, that there's no misunderstanding between lessor and 16 lessee, as to what it means? 17 A: I think I've said a couple of things 18 about fair market -- FMV stands for fair market value. Some 19 funders will say the definition is willing buyer, willing 20 seller, of the product. 21 We know who the willing seller is, it's the 22 funder, they want to sell the product generally. Not always, 23 but the lessee may not be the willing buyer, because the 24 funder may have the right to sell this for the highest price. 25 What we say to people when it comes to fair

1 market value, there are a number of variables there that 2 affect the fair market value of a product. 3 First and foremost, what do they understand 4 the lessee -- what does that mean to them, fair market value? 5 What does willing buyer mean? And when the willing buyer is 6 there, is it retail or wholesale, as come into computers? 7 Q: And so, what -- what you're really 8 telling your students then is to focus on the term and make 9 sure it's a defined term in the agreement, before you sign 10 off? 11 A: Yes, because as I mentioned, fair market 12 value may include shipping charges, repacking -- packaging, I 13 think we covered this. Insurance, replacement of damaged 14 goods, that's -- that all changes the fair market value at 15 the end. 16 Q: Okay. 17 A: And -- and upgrades of -- of course. 18 Q: And -- and so then moving on to the last 19 page in that tab, Tab 19, under Item 8, you have an 20 interesting question and answer that you feel that your 21 students need to ask: 22 "If you think you have a good deal, who -- 23 who says so." 24 Tell us what it is you're trying to convey 25 there, just in summary?

1 MADAM COMMISSIONER: Excuse me, where, sorry, 2 I -- 3 MR. PATRICK MOORE: Last page, Tab 19, 4 Commissioner. 5 MADAM COMMISSIONER: Okay. 6 MR. PATRICK MOORE: Item 8. 7 MADAM COMMISSIONER: Yeah. 8 MR. PATRICK MOORE: "Do you have a good deal, 9 and who says so?" 10 This summarizes the analysis that you've set 11 out in this entire tab? 12 A: As I said earlier, the -- or at the very 13 beginning, people either believe, or they either know 14 leasing, because they use it from the background, whether 15 they've had specific training in it, or they think they do. 16 We have found in our experience, several times 17 we have went in to discuss the possible review of lease 18 contracts, to assist them. 19 We've heard the words, I think we're okay, I 20 think we've got a pretty good deal. And the two (2) words 21 that come out more than anything else, is I think. Unless 22 you know you've got a good deal and you can confirm it, you 23 don't know for sure. 24 So, who says you've got a good deal? Do you 25 say it or does the funder say you've got a good deal?

1 Q: And your point is, and you teach your 2 students, as I understand. That you can't know if you've got 3 a good deal, if you don't have the -- the knowledge base, the 4 experience, to understand, as a lessee, what your deal is and 5 what it isn't. 6 A: Yes, if you're -- if you're not sure what 7 the deal is at the beginning, how could you possibly know 8 what it's going to be like at the end. 9 Q: And so you close off by admonishing your 10 students to create your own gap checklist, and follow it? 11 A: We emphasize to the students that you 12 look at our pre-lease, you follow that, you look at the gap, 13 you follow that. And if there's something there in your own 14 organization that you could add your own gap to, if indeed 15 there is one (1), then do so, and follow that. 16 There is always going to be a major -- an 17 important role in equipment finance. It'll always play a 18 major, major role. 19 So, why not be prepared when the next lease 20 comes up, to know what you're talking about and what you're 21 looking for. That's what we say to the recipients and the 22 registrants. 23 Q: Thank you and then I'll just close off 24 with that, Commissioner, and turn Mr. Bakti over for 25 questions from Counsel if they have any but I observe for

1 your benefit and all of ours that at Tab 22, Mr. Bakti has 2 included a glossary of terms frequently used in leasing 3 parlance, which may be of assistance to us as we proceed 4 forward with the Inquiry. 5 MADAM COMMISSIONER: Before -- before you do 6 that, I want to make sure. I know Mr. Bakti was expecting to 7 come here and give maybe a two (2) or three (3) hour 8 presentation and we're only at an hour and a half, so I want 9 to make sure that we have covered the important components of 10 leasing. So maybe, Mr. -- we're going to take a break right 11 now. We usually take a break around 11:30. 12 THE WITNESS: Sure. 13 MADAM COMMISSIONER: So, what I'd like you to 14 do if you wouldn't mind is to meet with Mr. Moore and make 15 sure that we have covered those components that you think are 16 important for all of us to know but especially for me to 17 know. 18 THE WITNESS: Very well. 19 MADAM COMMISSIONER: Because I'm the one in 20 the final analysis who has to make a decision. All right. 21 Would that -- 22 THE WITNESS: Yes. 23 MADAM COMMISSIONER: Would you mind doing 24 that? 25 THE WITNESS: Great.

1 MADAM COMMISSIONER: No? Okay. We'll just -- 2 3 (BRIEF PAUSE) 4 5 MADAM COMMISSIONER: Okay, thank you. We'll 6 break until quarter to. 7 THE REGISTRAR: The Inquiry will recess until 8 11:45. 9 10 --- Upon recessing at 11:25 a.m. 11 --- Upon resuming at 11:47 a.m. 12 13 THE REGISTRAR: The Inquiry will resume, 14 please be seated. 15 16 (BRIEF PAUSE) 17 18 MR. PATRICK MOORE: Upon reflection, 19 Commissioner, there are a few of the stated items or speaking 20 points that Mr. Bakti has outlined in his -- in the exhibit 21 that we have, that it may be well to touch upon just before 22 we turn the witness over for questioning. 23 24 CONTINUED BY MR. PATRICK MOORE: 25 Q: And we'll -- I'll just jump around a

1 little bit, Mr. Bakti, I hope you can stay with me on this. 2 But if we go to the last page of Tab 19, in the gap analysis, 3 there is a paragraph numbered 6, which talks about, broadly, 4 the subject of asset management, which is something that we 5 did talk about. 6 But I note that in the opening sentence of 7 that paragraph you say: 8 "Review your lease portfolio every six (6) 9 months, if you do not have an iron clad 10 method of managing your lease portfolio, 11 consider hiring the services of an asset 12 management consultant." 13 Now, you've talked about the -- the choices 14 that a lessee may have in terms of accessing and analysing 15 options regarding asset management companies. 16 But what's the wisdom of your teaching, or the 17 basis of your teaching, of reviewing the portfolio ever six 18 (6) months? 19 A: Basically it's to keep a handle on your 20 options at term's end, to -- to -- to understand what your 21 lease portfolio looks like every six (6) months. Has some 22 part of this slipped through your fingers, and it's now into 23 renewal. 24 Now, sometimes renewal's okay, if you want it 25 to be and you know what's in renewal, until replacement comes

1 into place. And if you don't have the capacity to -- to look 2 and to manage your system and your lease portfolio, then we 3 highly recommend that you look for a company that can do 4 this. 5 It's very important, I think, at least every 6 six (6) months, for Departments to get together, and to look 7 at all their leases, find out where they stand. 8 Q: And do you tell your students that that's 9 an important thing to do internally in the -- in the office 10 of the lessee, or should the lessee touch base with the 11 lessor as well, at that time, so that both parties to the 12 transaction are aware of -- of what the situation is? 13 A: I think it's important, first of all, 14 from the standpoint of the lessee, it's not important enough 15 to have to call the lessor every six (6) months to discuss 16 what their lease portfolio is, unless it's coming due, you've 17 got to say a sixty (60) or ninety (90) day term, you have now 18 the time to get in touch with the lessor. But it always 19 makes sense to keep your lessor in the loop as well, if 20 you're having meetings about the lease portfolio that you 21 have, to bring them in and -- and let's discuss this. Here's 22 what have come up, is that what you show on your -- on your 23 records? 24 Q: And -- and this may take us to another 25 point that we've talked something -- talked a bit about. But

1 if you go with me to the pre-lease checklist, the third 2 page -- 3 MADAM COMMISSIONER: Which tab is that 4 please? 5 MR. PATRICK MOORE: Tab 17, Commissioner. 6 MADAM COMMISSIONER: Yes. 7 MR. PATRICK MOORE: It's the third page, 8 paragraph 16. 9 10 CONTINUED BY MR. PATRICK MOORE: 11 Q: You say there: 12 "What are your requisite notification 13 dates, and will the lessor notify when 14 they're coming due." 15 A: Hmm hmm. 16 Q: What -- what's the -- what are you 17 getting at there in your teaching? 18 A: Some lessors will notify the lessee in 19 writing, prior to the option date. In other words if it's a 20 sixty (60) day notification, then they call the lessee or not 21 call, they may send a notice to the lessee, ninety (90) days 22 or even longer, ahead of time, to notify them that your lease 23 is coming up, what's your intention with this? Do you want 24 to extend it? And others will not call or send notification. 25 Q: And tell me, do lessors call the lessees,

1 in your experience, if there's for instance, a default in the 2 lease. If the lessee for some reason misses a payment? 3 A: Again, 90 percent of the time they will 4 call, if there's a default of missed payment for any reason, 5 I can't see a missed payment if it's on a pre-authorized 6 payment plan, because it's being debited, unless you don't 7 have the funds in the bank to cover the -- the payment. 8 If it's an invoice structure, and 9 inadvertently didn't make the payment, then a good sales rep 10 will be notified by his or her company, to advise the signing 11 official that they'd missed a payment, or there's some other 12 payment that's due. And generally, on a larger scale that 13 happens, they're very good that way. 14 Q: But the point is that you teach the -- 15 that it's wise to think about these things in advance, and 16 consider them before you draft and execute the contract 17 documents? 18 A: That's absolutely correct, and that's one 19 (1) of the reasons we've said review your contracts every six 20 (6) months with your staff. 21 MADAM COMMISSIONER: Presumably that's 22 something that could be negotiated to have put in. If you're 23 the lessee and you want the lessor to notify you, in advance, 24 you just put that into the contract? 25 Is that -- is that a problem?

1 THE WITNESS: No, Commissioner, it's just that 2 it's not considered very often. Sure it can. You could 3 negotiate just about anything within reason -- 4 MADAM COMMISSIONER: Right. 5 THE WITNESS: -- with the funder. And it 6 depends again within reason. Does it make sense for the 7 funder? Will it affect the quote? But, certainly, to answer 8 your question, most funders will accommodate your request for 9 something in writing. 10 MADAM COMMISSIONER: Okay. 11 12 CONTINUED BY MR. PATRICK MOORE: 13 Q: And while we're on the subject of the -- 14 the negotiation of the contract document, if I can move you 15 to the sixth page of Tab 19, in the GAP analysis section. 16 You reference there your co-presenter, that's 17 a lawyer who comes in during the course of your program and 18 speaks to legal issues, as are set out in some detail there. 19 But, I'm interested particularly, in the 20 opening paragraph. Which I'd ask you to read. It starts 21 with: 22 "In module two (2)" 23 And then it goes: 24 "The basics of the contract it is your 25 responsibility or that of your organization

1 to receive the opinion of your 2 organization's legal counsel or independent 3 legal counsel prior to signing of the 4 agreement." 5 Now, you or your associate teach that for what 6 reason? 7 A: Well, we -- as Mr. Tony Powell says in the 8 contracts module of the course, you have to determine before 9 you sign any agreement whose responsibility is it? 10 Where does the responsibility sit? And it's 11 with you the signing officer. So, he says, that it's a good 12 idea to contact your legal counsel for their advice prior to 13 signing. 14 In some cases, in many cases, on funding 15 agreements the funder may ask for independent legal advice, 16 as well. 17 Q: So, it's another matter of knowing what 18 you're getting and what you're getting into? 19 A: Correct. 20 Q: Can I take you back to something that we 21 did talk about, interest rates. This is the fourth page in 22 Tab 19, in the Gap analysis section. 23 But, there's a component of it, that I'm not 24 sure that we've fleshed out as well as we might. About a 25 third of the way down the page --

1 MADAM COMMISSIONER: Is this the one that 2 says, number three (3)? 3 MR. PATRICK MOORE: Yes, thank you, 4 Commissioner. 5 6 CONTINUED BY MR. PATRICK MOORE: 7 Q: It's number three (3) and it starts with: 8 "Does the interest rate appear on the quote 9 and contract prior to signing." 10 And you've spoken of that already. But, 11 farther down it says this: 12 "How important is it to know your interest 13 rate? Let us look at comparisons of 14 interest rate, lease rate, and budget." 15 And I'm interested in knowing, about what you 16 teach about the interaction of those three (3) components, 17 interest rate, lease rate, and budget? 18 A: Well, first of all, the lease rate factor 19 is your payment stream. That's what you're paying monthly, 20 quarterly. 21 If you base the quote strictly on the lease 22 rate factor, you may find yourself in a situation where you 23 don't want to be. 24 We -- as I mentioned before, we look at 25 companies that suggest that budget is more important to them

1 than anything else. 2 If it meets within a certain area, I really 3 don't care what my interest rate is. Unfortunately, we've 4 shown in an exercise here, how important it is to know what 5 your interest rate is and be able to confirm it. 6 Because it does have a bearing, contrary to 7 what people say. It does have a definite bearing and what we 8 teach is get the interest rate in writing and then confirm 9 it. 10 Because in the exercise on this one (1) 11 example, by comparing budget to interest rate, even on this 12 small scale, the person would have saved $51,000 instead of 13 $13,000, if they had stuck to the interest rate. 14 MADAM COMMISSIONER: Can you give me that 15 example? Could you just tell me what the example is? 16 THE WITNESS: Okay, the example was a financed 17 amount for half a million dollars for forty-eight (48) 18 months. The sales representative when it was asked by the 19 lessee, what is my interest rate? The sales representative 20 in this case history said, obviously we're in the ballpark, 21 or we wouldn't be on the short -- the short list. 22 Where do I need to be? What's your budget? 23 That person talking about budgets versus interest rates, the 24 influence said -- I see your quote here, it's got to be less 25 than that. Less than the twenty-three dollars and fifty

1 cents ($23.50) a thousand? To which the salesman said, I'll 2 sharpen my pencil. How's this look? Save them thirteen 3 thousand five hundred dollars ($13,500) in addition to this. 4 The buying influence said fine, let's go 5 forward because of two (2) reasons. He's done business with 6 the -- the lessor in the past and secondly, there was time 7 constraints, they had to get the deal done. Save the -- the 8 lessor saved the -- the buying in -- the buying influence 9 thirteen thousand dollars ($13,000) but if the buying 10 influence would have stuck to the -- 11 MADAM COMMISSIONER: Buying influence? 12 THE WITNESS: The lessee. 13 MADAM COMMISSIONER: Okay. 14 THE WITNESS: Sorry. If the -- in this case, 15 if the lessee had have stuck with the question of what's my 16 interest rate? I want to know what this is and dealt with 17 it, instead of thirteen thousand (13,000) they would have 18 saved fifty-one thousand four hundred dollars ($51,400). 19 MADAM COMMISSIONER: I see. 20 THE WITNESS: So there's a difference there. 21 22 CONTINUED BY MR. PATRICK MOORE: 23 Q: And -- and that's all a matter of what 24 you've said before, Mr. Bakti, that -- of knowing the 25 financial and other implications of your transaction so you

1 can best understand it and protect against what it is you're 2 trying to accomplish? 3 A: It -- it's all in what you negotiate at 4 the beginning because as -- as we say, there really are no 5 outs once the deal is signed. 6 Q: And you mentioned in your -- in your -- 7 MADAM COMMISSIONER: Without a penalty, 8 presumably? 9 THE WITNESS: Sorry? 10 MADAM COMMISSIONER: Without a penalty 11 presumably? 12 THE WITNESS: Without a penalty, that's 13 correct. Yeah, yes. Absolutely. 14 15 CONTINUED BY MR. PATRICK MOORE: 16 Q: Without financial consequences? 17 A: Yes. 18 Q: And you mentioned in your example a sales 19 representative and I recall that in your pre-lease checklist 20 at Item 3, that's Tab 17, first page, you talk about 21 salespeople and the importance of understanding the 22 experience of the salesperson. What is that you're teaching 23 under that heading? 24 A: There -- there seems, at the time, and 25 through my experiences in purchasing and this should be the

1 case today depending on, of course, the large ticket deals 2 where there's competition for your business to ask for 3 references on the sales representative. 4 How long has he -- he or she been with the 5 funding firm? Do they know your business? Do they know 6 their own business or have they been with -- just started the 7 company or have they been bouncing from funder to funder? 8 You know, what's the reason behind that. 9 It's a due diligence on the sales 10 representative on a large ticket deal. On small and mid- 11 ticket deals, that doesn't happen, because generally the 12 lessee is more concerned with getting a yes than anything 13 else. They're not even all that concerned about the rate at 14 the time, but in this case, an example there where we did a 15 review of an agreement. 16 This one specific salesman was with four (4) 17 different funders and when we went back to discuss the one 18 contract with that person, he was no longer with the firm. 19 Q: So there's -- 20 A: Now, is this the person you want to handle 21 your million dollar or $10 million contract? 22 Q: So it includes knowledge and continuity of 23 relationship both? 24 A: Yes, yes. 25 Q: Now, let me just focus you, again, on

1 something that you said earlier and this is addressed at Tab 2 19 on the first page of the GAP analysis. I think you told 3 us that the equipment leasing industry is largely unregulated 4 and it might be helpful if you could tell us what 5 regulations, if any, there are and what governing body 6 applies those regulations? 7 A: Well, in -- in our estimation, there was 8 really -- there really is not a regulatory board. The 9 association itself, the Canadian Financing Leasing 10 Association, CFLA, is an association that was started to -- 11 to offer standards within the industry itself. It's offered 12 training not only to the industry, but in their mission 13 statement to the public as well. The -- one just has to call 14 the CFLA for instructions and perhaps they'll get that 15 because it does say in the mission statement they'll be there 16 to help the public. 17 Now, having said that, each funder lives by 18 their own standards and their own ethical code and again, 19 this is not a slap to the industry, but each funder has their 20 own mission statement and mandate but just to answer your 21 question directly, there really no standard and no 22 controlling body in this industry. 23 Q: And so the CFLA then is not able to say 24 and mandate that IT lease financing contracts shall look like 25 this or that, or contain any particular clauses and

1 conditions? 2 A: No, they have no right to make any 3 determination on -- on the standard of any funder's 4 agreement. 5 They can, however, and I'm not a member of it, 6 but like any other association, I'm sure that if one (1) 7 specific funder or member of the -- of the group is standing 8 out with a sore thumb because of problems, continued 9 problems, perhaps they would ask them not to renew their 10 membership. 11 Q: Right, another area on the -- on the same 12 subject, the GAP analysis subject, is something that you've 13 talked a bit about in the discussions we've had about fair 14 market value and end of term obligations. 15 But the final paragraph on the first page in 16 my book, starts with the sentence: 17 "Is there a guaranteed residual clause in 18 your agreement?" 19 And it might be well if you could tell us what 20 a guaranteed residual clause is. It may well be a term that 21 we can find in your simple glossary of terms at Tab 22. 22 A: Hmm hmm. 23 Q: But if you can tell us what it is, and 24 what's -- what's the significance that you attach in your 25 program to discussing it?

1 A: Well, guaranteed residual is established 2 by the lessor at the beginning of the contract, where the 3 lessee reads the contract and knows their obligations, 4 they're going to be aware of this. 5 It states that: 6 "In some cases operating leases are 7 structured, whereby --" 8 As I read here: 9 "-- the residual amount is guaranteed by 10 the lessee, and should the equipment, when 11 it's returned to the lessor, if the lessor 12 suffers a shortfall on disposal of this 13 equipment, the lessee is guaranteeing that 14 shortfall." 15 Our recommendation on fair market value is -- 16 is -- which it has to be across the board to all your quotes, 17