NOV Enerflow ULC (NOV Pressure Pumping ULC) v Enerflow Industries Inc, 2017 ABQB 248

Court of Queen’s Bench of Alberta Citation: NOV Enerflow ULC (NOV Pressure Pumping ULC) v Enerflow Industries Inc, 2017 ABQB 248 Date: 20170405 Docket: 1401 02364 Registry: Calgary Between: NOV Enerflow ULC (formerly NOV Pressure Pumping ULC), Grant Prideco, Inc., and Dreco Holding ULC Applicants - and - Enerflow Industries Inc. (an Alberta Corporation), Willind Holdings Inc., LGL Two Holdings Ltd., MKW Two Holdings Ltd., Larmar Holdings Inc. (an Alberta Corporation), LGL One Holdings Ltd., MKW One Holdings Ltd., Lindholm Family Holdings Ltd., Lindholm Family Trust, Williamson Family Holdings Ltd., Williamson Family Trust, Larry Lindholm and Mark Williamson Respondents _______________________________________________________ Memorandum of Decision of the Honourable Mr.

Justice J.T. McCarthy _______________________________________________________ [ 1 ] These are the reasons for my decision on two applications: (

i) the Plaintiffs’ application to compel answers from the Defendants to questions during questioning, and (ii) the Defendants’ application to compel answers to the Plaintiffs’ undertakings and the additional production of records. [ 2 ] The underlying issue is a dispute related to a purchase and sale agreement (the “PSA”) entered into between the Plaintiffs and the Defendants on March 4, 2012. As Case Management Justice, I heard the Plaintiffs’ application and part of the Defendants’ application on March 27, 2017.

[3] Dealing first with the Plaintiffs’ application. The Plaintiffs’ basis for asking some of the questions in dispute was a “furtherreply” to the Defendants’ request for particulars, filed by the Plaintiffs on October 17, 2016 (the “Third Particulars”). The Defendantssubmit that the Third Particulars are an improper attempt by the Plaintiffs to amend the pleadings. [4] The general purpose of particulars is to allow the other side to frame a defence, and to narrow the issues for trial: 1021018Alberta Ltd v Bazinet, 2015 ABQB 151 at para 27.

Particulars may be ordered after the close of pleadings in a proper case for thepurpose of saving expense and for the purpose of preventing surprise at trial: Canadian Commercial Bank (Liquidator of) vMcLaughlan (1988), (AB KB), 92 AR 105. [5] In my view, all questions that rely on the Third Particulars should be allowed for the following reasons: 1. In my view, the Third Particulars do not disclose a new cause of action; they detail how the Accounting Records are allegedto be inaccurate using common accounting terminology. The definition of Accounting Records in the PSA is broad. 2.

The Defendants invited further particulars when they were first requested on January 8, 2016 and, more importantly, duringthe questioning of Mr. Williamson eight days prior to the filing of the Third Particulars, when counsel for the Defendants stated [Tab Bto Tom Hewitt Affidavit, filed Nov. 24, 2016]: If you have allegations about US books and records, then go ahead and particularize them. Until you do, I am not permitting questions onit, and I am not going to be ambushed at trial. 3. The filing of the Third Particulars may be late, but the Plaintiffs have provided an explanation.

Further, they were filed onlyeight days after the questions were refused at the questioning of Mr. Williamson. 4. The Defendants could have brought an application to strike the Third Particulars if they thought they were not appropriate:see Interclaim Holdings Ltd v Down, 2000 ABQB 614 where a similar application was brought in the context of court orderedparticulars. [6] Attached as

Schedule A to this memorandum are my decisions on the 41 questions contained in the Plaintiffs’ application. [7] Next, with regard to the Defendants’ application, many of the issues in that application were dealt with at the hearing onMarch 27, 2017. There was only one outstanding issue relating to the Jeff Mann Undertaking No. 8: Question: Deliverables and working papers of the type described in Mann Undertaking No. 7 above for permits other than APIcertificates. Defendants’ Basis for Request: Relevant in determining which permits were significant to the Plaintiffs in acquiring the business.

Plaintiffs’ Objection: The requested records are not relevant and material, as permits other than the API Permits are not in issue in thelitigation. [8] The Objection is upheld. Permits other than API certificates are not relevant or material to the issues in the pleadings. [9] The Court directs that Mark Williamson and Larry Lindholm each attend for a further half day of questioning to answer thequestions ruled permissible in the attached

Schedule A. Heard on the 27th day of March, 2017. Dated at the City of Calgary, Alberta this 5th day of April, 2017. J.T. McCarthy J.C.Q.B.A. Appearances: Carsten Jensen Q.C. and Bryan Duguid, Q.C.

for the Applicants Michael Theroux and Laura Gill for the Respondents

SCHEDULE A

SUMMARY OF QUESTIONS/REQUESTS IMPROPERLY OBJECTED TO OR REFUSED (March 27, 2017) EXHIBIT B - QUESTIONS ABOUT ENERFLOW U.S. ACCOUNTING RECORDS (PSA s.8.11) NO. INDIVIDUAL PAGE: LINE REF QUESTION OBJECTION (Def) BASIS FOR REQUEST (Pl) JUSTICE’S DECISION 1 Mark Williamson 1351:7- 1352:2 Was it his information that the accounting people, controllers within Enerflow Canada and Enerflow U.S., utilized Excel workbooks to prepare the monthly financial statements of both Enerflow Canada and Enerflow U.S.?

All questions about financial statements and books and records of Enerflow U.S. and their set up are objected to due to lack of particularization Para. 39 of the AmAmSofC pleads misrepresentations by both Enerflow entities (including Enerflow U.S.). The Second Particulars at paras. 2 and 11 plead that the Accounting Records of both Enerflow Entities contained in Navision and in their Excel spreadsheets and associated monthly workbooks contain numerous inaccuracies which affected the financial condition of the business.

The Third Particulars, at paras. 5-10, provide detailed particulars of both Enerflow Canada and Enerflow U.S. records alleged to be inaccurate. Answer the question. Agree with submissions of the Plaintiff.

2 Mark Williamson 1359:1- 1363:2 Were the Enerflow US spreadsheets and workbooks used to prepare the monthly financial statements of Enerflow U.S.? Irrelevant as no U.S. records particularized which contain alleged inaccuracies. Relevant for the reasons noted above Answer the question. Agree with submissions of the Plaintiff. 3 Mark Williamson 1363: 4-17 Did Enerflow U.S. also input Navision data into Excel to work from there? Irrelevant. Relevant for the reasons noted above. Answer the question.

Agree with submissions of the Plaintiff. 4 Mark Williamson 1392: 1-16 Any other questions in relation to the preparation of the Excel workbooks for Enerflow U.S. All questions objected to on the basis they are not relevant, nor particularized. Relevant for the reasons noted above. Answer the question. Agree with submissions of the Plaintiff. 5 Mark Williamson 1465:27- 1466:20 In 2010 why was it decided that a review engagement would be done for Enerflow U.S., rather than an audit, as was being done for Enerflow Canada? Irrelevant to the pleadings and particulars. Relevant for the reasons noted above.

Objection upheld. Motivation for not seeking audit relevant not material to whether the records are accurate. NO. INDIVIDUAL PAGE: LINE REF QUESTION OBJECTION (Def) BASIS FOR REQUEST (Pl) JUSTICE’S DECISION

6 Mark Williamson 1467:1- 1468:16 Did he have any memory that the issue of the amounts invoiced were varying significantly, was an issue raised by Ernst & Young with respect to the U.S. business? Irrelevant to the pleadings. Para. 39 of the AmAmSofC pleads misrepresentations by both Enerflow entities (including Enerflow U.S.). The Second Particulars at paras. 2 and 11 plead that the Accounting Records of both Enerflow Entities contained in Navision and in their Excel spreadsheets and associated monthly workbooks contain numerous inaccuracies which affected the financial condition of the business.

The Third Particulars, at paras. 5-10, provide detailed particulars of both Enerflow Canada and Enerflow U.S. records alleged to be inaccurate. Answer the question. Agree with submissions of the Plaintiff. 7 Mark Williamson 1469:16- 1470:4 Did Ernst & Young raise the job-cost system and issues in relation to labour and overhead with respect to the 2010 review of the Enerflow U.S. financial statements? Irrelevant to the pleadings. Relevant for the reasons noted above. Answer the question.

Agree with submissions of the Plaintiff. 8 Mark Williamson 1470: 5-19 Was the issue with respect to the accountant receiving a written report from each foreman in relation to percentage completion so that the accountant can properly determine if there is a need for the loss accrual, was this issue raised with respect to Enerflow U.S. by Ernst & Young? Irrelevant to the pleadings. Relevant for the reasons noted above. Answer the question. Agree with submissions of the Plaintiff. NO. INDIVIDUAL PAGE: LINE REF QUESTION OBJECTION (Def) BASIS FOR REQUEST (Pl) JUSTICE’S DECISION

9 Mark Williamson 1364:20- 1365:6; Undertaking #121 To inquire and advise whether it was the case in the financial years ending May 31, 2010, May 31, 2011, or what would have been the May 31, 2012 financial year, Enerflow created the following accounting records: a standard operating procedure manual(s); a reasonable or adequate reconciliations; a general journal; monthly or year-end journal entries; a system of reviewing the accounting entries made by Ms. Ylijoki. Refused in relation to Enerflow U.S. only Para. 39 of the AmAmSofC pleads misrepresentations by both Enerflow entities (including Enerflow U.S.).

The Second Particulars at paras. 2 and 11 plead that the Accounting Records of both Enerflow Entities contained in Navision and in their Excel spreadsheets and associated monthly workbooks contain numerous inaccuracies which affected the financial condition of the business. The Third Particulars, at paras. 5-10, provide detailed particulars of both Enerflow Canada and Enerflow U.S. records alleged to be inaccurate. Answer the question.

Agree with submissions of the Plaintiff. 10 Mark Williamson 1371:27- 1372:9; Undertaking #123 With respect to NOV044411 through NOV044454, to advise as to whether Enerflow Canada or Mr. Williamson have any information that those have been changed from the state in which they were at May 11, 2012, the time of closing of the sale to the Plaintiffs for Canada and the US. Refused in relation to the U.S. records only. Relevant for the reasons noted above. Answer the question. Agree with submissions of the Plaintiff. NO. INDIVIDUAL PAGE: LINE REF QUESTION OBJECTION (Def) BASIS FOR REQUEST (Pl) JUSTICE’S DECISION

11 Mark Williamson 1473:6-18; Undertaking #141 If there was a discussion by Enerflow US or Enerflow Canada management, including Mr. Williamson, Mr. Lindholm, Mr. Besplug and Ms. Ylijoki, about whether to implement the changes referred to in the three paragraphs under the heading “Work in Progress” as referenced in NOV043276 and there was a decision not to implement those recommendations for either Enerflow Canada or Enerflow US, to advise of the rationale for the decision. Refused without explanation Relevant for the reasons noted above. Answer the question. Agree with submissions of the Plaintiff. NO.

INDIVIDUAL PAGE: LINE REF QUESTION OBJECTION (Def) BASIS FOR REQUEST (Pl) JUSTICE’S DECISION EXHIBIT C - QUESTIONS ABOUT ENERFLOW INVENTORY (PSA s. 8.24) NO. INDIVIDUAL PAGE:LINE REF. QUESTION OBJECTION (Def) BASIS FOR REQUEST (Pl) JUSTICE’S DECISION

12 Mark Williamson 1313:21- 1314:25 Does he recall providing instruction to Mr. Roux to charge out all of the major components for the Element jobs? Irrelevant to the pleadings. Paras. 39(

c) and (

d) of the AmAmSofC plead early, duplicitous or mistaken revenue recognition and failing to match revenues with costs in particular financial periods. Paragraph 39 also claims an overall misrepresentation of the financial condition of the Enrflow Entities.

The Third Particulars at paras. 11-16 provide detailed particulars of inappropriate and premature allocation of inventory in the Enerflow Entities’; Accounting Records to equipment projects to convert surplus and general inventory into work in progress to prematurely recognize revenue and convert inventory in excess of the payment cap in the PSA into Adjusted Working Capital for which the Defendants would be paid under the PSA. Answer the question.

Agree with submissions of the Plaintiff. 13 Mark Williamson 1314:26- 1316:16 Any other questions in relation to the allocation of inventory to jobs and how and why that happened in the time period leading up to closing. Irrelevant to the pleadings. Relevant for the reasons noted above. Answer the question. Agree with submissions of the Plaintiff. NO. INDIVIDUAL PAGE:LINE REF. QUESTION OBJECTION (Def) BASIS FOR REQUEST (Pl) JUSTICE’S DECISION

14 Mark Williamson 1316:17- 1317:22 What direction did he provide to Mr. Olson (either by himself or with others) to attempt to return surplus inventory to customers/suppliers generally? Too general – will only allow a question on a specific piece of inventory alleged to be unsaleable. Relevant to the saleability of the inventory prior to closing. Para. 39 of the AmAmSofC. Alleges that much of the inventory sold to the Plaintiffs was unsaleable and unusable. Objection upheld.

Question not relevant to accuracy of records. 15 Mark Williamson 1226:12-24; Undertaking 116 For the portion on pages 4 through 5 and carries on to the bottom of page 6 under the title “Inventory Purchasing” of EF003299, to inquire of Mr. Power as to whether he would agree that Ernst & Young has accurately captured what he advised Ernst & Young the process was with respect to inventory purchasing, or if he disagrees with any portion of it, advise of the portion with which he disagrees and the reason for the disagreement. Refused without explanation. Relevant for the reasons noted above. Answer the question.

Agree with submissions of the Plaintiff. 16 Mark Williamson 1326:1- 1327:9 Were the chem vans completed for GASFRAC or what if any work was done on them between February 23, 2012 and closing? Irrelevant to the pleadings Relevant for the reasons identified above and for the importance of knowing if the chem van orders were cancelled in relation to saleability of the inventory. Answer the question. Agree with submissions of the Plaintiff. NO. INDIVIDUAL PAGE:LINE REF. QUESTION OBJECTION (Def) BASIS FOR REQUEST (Pl) JUSTICE’S DECISION

17 Larry Lindholm 1068:10- 1069:5 Did he give any instructions to anyone as to what, if any, steps to take to try to bring inventory within the cap? Claim that Justice McCarthy ruled on the last application that there was no obligation to answer questions about how things moved from inventory into WIP. Paras. 39(

c) and (

d) of the AmAmSofC plead early, duplicitous or mistaken revenue recognition and failing to match revenues with costs in particular financial periods. Paragraph 39 also claims an overall misrepresentation of the financial condition of the Enerflow Entities. The Third Particulars at paras. 11-16 provide detailed particulars of inappropriate and premature allocation of inventory in the Enerflow Entities’ Accounting Records to equipment projects to convert surplus and general inventory into work in progress to prematurely recognize revenue. Answer the question.

Agree with submissions of the Plaintiff. 18 Larry Lindholm 1069:6- 1070:6 With regard to NOV42779 and the attached Schedules, by March 29, 2012, the Calgary inventory count had changed? Refused, because document speaks for itself and is irrelevant to the allegations of inventory complaints and in relation to financial statements. Relevant for the reasons noted above. Answer the question. Agree with submissions of the Plaintiff. 19 Larry Lindholm 1070:7- 1071:2 Did he understand that by April 10, 2012, the Calgary inventory was $22.5 million and unallocated was $8.5 million?

Not a proper question and is irrelevant. Relevant for the reasons noted above. Answer the question. Agree with submissions of the Plaintiff. NO. INDIVIDUAL PAGE:LINE REF. QUESTION OBJECTION (Def) BASIS FOR REQUEST (Pl) JUSTICE’S DECISION

20 Larry Lindholm 1071:3-7 Can you tell me why it was considered that the aforementioned inventory numbers were not pretty (as per Heidi Ylijoki’s email reference)? Not a proper question and is irrelevant. Heidi Ylijoki’s email about the inventory numbers not being pretty, is Exhibit 13 to Tom Hewitt’s Affidavit in support of the Plaintiffs’ application to amend their Statement of Claim. The Defendants have long known of this document and that the particulars of this document were important to the approved amendments and underlie para. 39 of the AmAmSofC and the various responses to Requests for Particulars.

Answer the question. Agree with submissions of the Plaintiff. 21 Larry Lindholm 1071:8-14 Was there a meeting between himself, Mark Williamson, Heidi Ylijoki, Shawn Olson, Michel Roux and Grant Besplug about the inventory numbers on or about April 10, 2012? Irrelevant to the allegations in the pleadings. Paras. 39(

g) and (

h) of the AmAmSofC plead including obsolete, surplus, unsaleable inventory in the accounting records. Paras. 11-15 of the Third Particulars plead that inventory was improperly allocated to work in progress in the Accounting Records and financial statements in breach of s.8.11 of the PSA. The misrepresentations of the financial condition of Enerflow are pleaded in paras. 39(c), (

d) and (

f) of the AmAmSofC. Answer the question. Agree with submissions of the Plaintiff. 22 Larry Lindholm 1072:4-10 Did the inventory numbers in each of Calgary, Tulsa and Houston continue to fall in both the total inventory and unallocated categories? Refused because document speaks for itself and is irrelevant to allegations in the pleadings. Relevant for the reasons noted above. Answer the question. Agree with submissions of the Plaintiff. NO. INDIVIDUAL PAGE:LINE REF. QUESTION OBJECTION (Def) BASIS FOR REQUEST (Pl) JUSTICE’S DECISION

23 Larry Lindholm 1075:3-18 Did he instruct Shawn Olson to cancel the hydraulic piston order? Question does not go to the issue of whether the inventory is saleable or unsaleable. Relevant for the reasons noted above. Answer the question. Agree with submissions of the Plaintiff. 24 Larry Lindholm 1088:2-16 Did Enerflow have 51 Twin Disc transmissions available and is that why Calfrac could have 50? Not a fair question to ask about inventory levels two weeks prior to an email as inventory levels fluctuate. Relevant for the reasons noted above. Answer the question. Agree with submissions of the Plaintiff. NO.

INDIVIDUAL PAGE:LINE REF. QUESTION OBJECTION (Def) BASIS FOR REQUEST (Pl) JUSTICE’S DECISION EXHIBIT D - QUESTIONS ABOUT ENERFLOW CANADA ACCOUNTING RECORDS (PSA s. 8.11) NO. INDIVIDUAL PAGE:LINE REF. QUESTION OBJECTION (Def) BASIS FOR REQUEST (Pl) JUSTICE’S DECISION 25 Mark Williamson 1355:4-23 When he interacted with the accounting group, did he typically deal with Heidi Ylijoki and then leave it to her to instruct the appropriate person or did he interact directly with those individuals? Structure and job responsibilities of the Enerflow accounting department are irrelevant to the allegations in the pleadings.

Relevant to how the Books and Records were prepared and by whom which relates to the alleged inaccuracies and misrepresentations set forth in para. 39 of the AmAmSofC. Objection upheld. Agree with the submissions of the Defendant.

26 Mark Williams 1356:26- 1357:14 Did he give instructions to the accounting people to issue invoices? Irrelevant unless it is alleged that invoices are inaccurate and that is not what is pled. See response above and paras. 2 and 11 of the Second Particulars, which specifically raises issues with the invoicing process. Revenue recognition of the Enerflow Entities began with invoicing. Navision automatically recognized invoiced revenue as revenue. The Enerflow controller had to manually adjust the Accounting Records to change unearned revenue into deferred revenue on the balance sheet. Answer the question.

Agree with submissions of the Plaintiff. 27 Mark Williamson 1386:10- 1387:18 Did he have any knowledge of how labour costs were captured in the accounting system (and more particularly, Navision), with respect to build projects, whether pressure pumping equipment or rig equipment? Irrelevant as there are no particulars pled that Navision records were inaccurate. Relevant to the reliability of Navision records in relation to labour costs, which were an important component of work in progress.

The accumulation of work in progress (including labour costs) allowed revenue to be “earned” under the percentage of completion revenue recognition system in Enerflow’s Accounting Records. Para. 39A of the AmAmSofC. Puts revenue recognition into issue. Answer the question. Agree with submissions of the Plaintiff. NO. INDIVIDUAL PAGE:LINE REF. QUESTION OBJECTION (Def) BASIS FOR REQUEST (Pl) JUSTICE’S DECISION

28 Mark Williamson 1458:6- 1459:6 Did he decide to get audited financial statements starting in 2009 because he and Mr. Lindholm were thinking of either going public or putting Enerflow Canada up for sale? Irrelevant as to why they decided to obtain audited financial statements starting in 2009. Auditors normally verify the financial statements and accounting records of a business for its shareholders. Mr. Williamson and Mr. Lindholm were top management and the beneficial shareholders of the Enerflow Entities. They ran the business.

It is reasonable to infer that they wanted auditors, not to verify the financial status of the business for themselves, but to make it more attractive to potential purchasers such as the Plaintiffs. Answer the question. Agree with submissions of the Plaintiff. 29 Mark Williamson 1459:7-15 Did he obtain audited financial statements to make Enerflow Canada more attractive to a potential purchaser? Irrelevant. Relevant for the reasons noted above. Answer the question.

Agree with submissions of the Plaintiff. 30 Mark Williamson 1460:20-26 What did he understand that the auditors (Ernst & Young) were certifying in their auditor’s report to the shareholders of Enerflow Industries Inc.? Irrelevant to the pleadings. Relevant for the reasons noted above. Answer the question. Agree with submissions of the Plaintiff. 31 Mark Williamson 1461:5-20 As he and Mr. Lindholm owned the shares of Enerflow Canada and were the real shareholders of Enerflow Industries, Inc., in 2010 were the auditors certifying to them? Irrelevant to the pleadings. Relevant for the reasons noted above.

Answer the question. Agree with submissions of the Plaintiff. NO. INDIVIDUAL PAGE:LINE REF. QUESTION OBJECTION (Def) BASIS FOR REQUEST (Pl) JUSTICE’S DECISION

32 Mark Williamson 1461:21- 1462:2 Why did he want audited financial statements in 2010 when he and Mr. Lindholm were beneficial shareholders of the company? Irrelevant. Relevant for the reasons noted above. Answer the question. Agree with submissions of the Plaintiff. 33 Mark Williamson 1470:20- 1472:21 Does Enerflow Canada have any information as to whether the Work In Progress issues were ever discussed by Enerflow US or by Enerflow Canada management including himself, Mr. Lindholm, Mr. Besplug, Ms. Ylijoki as a result of receiving the letter as part of 43276? Irrelevant.

Ernst & Young provided Enerflow U.S. with a letter following its review of the Enerflow U.S. financial statements for May 31, 2010 which recommended changes to the Enerflow U.S. accounting practices respecting revenue recognition and work in progress in relation to revenue recognition. These are issues set out in para. 39 of the AmAmSofC, the Second Particulars and the Third Particulars. Answer the question.

Agree with submissions of the Plaintiff. 34 Mark Williamson 1472:22- 1473:25 If there were discussions and a decision not to implement the recommendations for either Enerflow Canada or Enerflow U.S., I would like Enerflow Canada to advise of the rationale for that decision. Irrelevant to the pleadings. Relevant for the reasons noted above and with reference to the statements contained in the

Summary Memorandum (NOV04327) for Enerflow Industries, Inc. (USA), May 31, 2010, Important Accounting & Reporting Matters. Answer the question. Agree with submissions of the Plaintiff. 35 Mark Williamson 1474:4-24 Why did Enerflow Canada and Enerflow US obtain audited financial statements for 2011? Was it because the companies were being put up for sale? Irrelevant. Relevant for the reasons noted above in respect of Question 28. Answer the question. Agree with submissions of the Plaintiff. NO. INDIVIDUAL PAGE:LINE REF. QUESTION OBJECTION (Def) BASIS FOR REQUEST (Pl) JUSTICE’S DECISION

36 Larry Lindholm 1109:24- 1110:4 To confirm that he had no role at all with respect to the internal controls that were or were not in place with respect to their accounting system? Line of questioning rejected by Justice McCarthy in his earlier reasons. The Second Particulars in paras. 3-4 explain that the use of manual systems without checks or balances, as set out in para. 4 can lead to inadvertent errors or facilitate manipulation.

The Third Particulars in paras. 3-5 explain how the accounting systems of the Enerflow Entities relied heavily on manual work by their controllers and had inadequate systems in place to catch or correct errors. Objection upheld. Agree with submissions of the Defendant. 37 Larry Lindholm 1111:3-24 What was his understanding of the internal controls that were in place at Enerflow? Justice McCarthy ruled that the accounting department/internal controls were not relevant to the pleadings.

The Second Particulars in paras. 3-4 explain that the use of manual systems without checks or balances, as set out in para. 4 can lead to inadvertent errors or facilitate manipulation. The Third Particulars in paras. 3-5 explain how the accounting systems of the Enerflow Entities relied heavily on manual work by their controllers and had inadequate systems in place to catch or correct errors. Answer the question. Agree with submissions of the Plaintiff. NO. INDIVIDUAL PAGE:LINE REF. QUESTION OBJECTION (Def) BASIS FOR REQUEST (Pl) JUSTICE’S DECISION

38 Larry Lindholm 1112:5-13 Did he understand from the Ernst & Young report that internal control was the responsibility of management and not Ernst & Young? Irrelevant to the books and records allegations and the issue of whether there was a breach of that representation. Relevant for the reasons noted above. Answer the question. Agree with submissions of the Plaintiff. 39 Larry Lindholm 1130:8-20 Was he provided with the monthly financial statements? Irrelevant as no pled breach of monthly financial statements. What the internal controls were and how documents were written are irrelevant.

The monthly financial statements were part of the monthly Excel workbooks, and were the final product of those workbooks. The inaccuracy of those statements is directly in issue in para. 39A of the AmAmSofC, the Second Particulars and the Third Particulars. The Plaintiffs are entitled to ask Mr. Lindholm his involvement with those workbooks, including the financial statements tab. Answer the question. Agree with submissions of the Plaintiff. 40 Larry Lindholm 1161:11-17 Was he aware of an accounting policy in place with respect to the closing of jobs after completion? Irrelevant.

Relevant for the reasons noted above in respect of Questions 36 & 37. Answer the question. Agree with submissions of the Plaintiff. 41 Larry Lindholm 1174:27- 1175:9 Was it his understanding that the manual data entry done by Heidi Ylijoki only had limited supervision? How work was done in the account system has no relevance to the pleadings. Relevant for the reasons noted above in respect of Questions 36 & 37. Answer the question. Agree with submissions of the Plaintiff. NO. INDIVIDUAL PAGE:LINE REF. QUESTION OBJECTION (Def) BASIS FOR REQUEST (Pl) JUSTICE’S DECISION