Affidavit of Bernie Simpson

Sworn August 31,2010

Bankruptcy No. BKO1-094004

IN THE COURT OF QUEEN’S BENCH OF ALBERTA

IN THE MATTER OF THE BANKRUPTCY
OF NETWORC HEALTH INC.

Action No. 1001-06509

IN THE COURT OF QUEEN’S BENCH OF ALBERTA

JUDICIAL DISTRICT OF CALGARY

ALBERTA HEALTH SERVICES

Plaintiff
- and -

NETWORC HEALTH INC.

Defendant

AFFIDAVIT OF BERNIE W. SIMPSON

(Sworn August 31, 2010)

1. I, BERNIE W. SIMPSON, of the City of Calgary, in the Province of Alberta,

MAKE OATH AND SAY THAT:

2. I am the Chief Operating Officer of Networc Health Inc., carrying on business as

Health Resource Centre (“HRC”), and as such have personal knowledge of the matters herein
deposed to, except where stated to be based on information, in which case I believe the same to
be true.

3. I make this Affidavit in response to any applications by Alberta Health Services

(“AilS”) in these proceedings which have not been fully disposed of, and in support of an
application by HR.C for an Order:

(a) declaring that there has been good and sufficient service and notice of this
application and the time for service of this application and materials in support
thereof be and is hereby abridged, if necessary, so that this application is properly
 returnable on September 2, 2010 and any further service of this application upon
any interested party is hereby dispensed with;

(b) setting a hearing date and litigation schedule for hearing of HRC’ s application for
the relief claimed below;

(c) recognizing and declaring the special relationship between AHS and HRC
requiring collaboration, mutual respect and trust and a duty to deal with each
other in good faith, pursuant to the Agreement for the Provision of Orthopedic
Surgical Services between Calgary Health Region (“CHR”) and HRC dated
December 20, 2006, as amended (the “Surgical Services Agreement”);

(d) recognizing and declaring that at least since the commencement of these
proceedings, AHS has breached the Surgical Services Agreement (including,
without limitation, sections 4.6(c) and 20.1) by refusing or neglecting to:

(i) negotiate in good faith with HRC the terms of amendment of the Surgical
Services Agreement associated with CHR’s notification to HRC that it
desired HRC to increase its capacity to provide 3,500 inpatient stay
procedures annually thereunder (“requested expansion of capacity”); and

(ii) utilize all reasonable efforts to resolve the dispute between AHS and HRC
regarding the Surgical Services Agreement promptly and in a professional
and amicable manner by good faith negotiations;

(e) recognizing and declaring that AHS further breached the Surgical Services
Agreement (including, without limitation, section 20.1 thereof) by commencing
Court of Queen’s Bench of Alberta Action No. 1001-06509 against HRC and by
filing application against HRC on July 6, 2010 to lift the general stay to allow
AHS to terminate the Surgical Services Agreement;

(f) directing AHS to promptly enter into and conduct good faith negotiations with
HRC, in the presence of the Interim Receiver, regarding:
 (i) the terms of amendment of the Surgical Services Agreement associated
with CHR’s requested expansion of capacity; and

(ii) all disputes between HRC and AHS which touch upon the validity,
construction, meaning, performance or effect of the Surgical Services
Agreement or the rights or liabilities of the parties or any matter arising
out of, or in connection with the Surgical Services Agreement;

(collectively, the “Directed Negotiations”)

(g) directing the Interim Receiver to report to this Honourable Court by November 1,
2010 regarding the results of the Directed Negotiations;

(h) cost of this application on a solicitor/client basis including reasonable

disbursements; and

(i) such further and other relief as HRC may seek and this Honourable Court deems
just.

Introduction and Summary

4. One of the most serious social challenges of our time is finding a way to provide
sustainable, affordable and timely, quality health care for our aging population. To successfully
address this challenge, historically the Alberta government recognized the need to utilize the
resources, creativity and efficiencies of private enterprise to privately deliver publicly-funded,
quality health care.

5. HRC conceived, developed and, in collaboration with CHR, implemented its main
business of private delivery to the public of publicly-funded orthopaedic surgical services. In
substance it provides a privately-operated surgical facility, including nurses and other staff, for
hip, knee and anide replacements and other orthopaedic surgical procedures. Its services are
available to any patient referred by his or her family doctor to any orthopaedic surgeon who
chooses to perform the necessary surgery at HRC’ s privately-operated surgical facility. Just as
the patient does not pay for the surgeon, he or she does not pay for the hospital or surgical
facility. Both are funded by the Alberta government.
 6. HRC’s business is unique. It is the only privately-operated surgical facility in
Alberta accredited to provide orthopaedic procedures that require inpatient (overnight) stays. The
surgical services it provides are demonstrably better, faster and cheaper than anything available
in our public hospitals. Indeed, the benefits of reduced wait times and better access were the
Alberta government’s justification in the first place for publicly funding HRC’ s surgical services.
I have included charts at paragraphs 36, 38, 39 and 44 outlining how much better, faster and
cheaper FIRC is than AHS.

7. The Surgical Services Agreement between HRC and CHR (now AHS) is also
unique. It expressly attests to their special relationship requiring collaboration, mutual trust and
respect and their duty to deal with each other in good faith.

8. At all times HRC relied heavily on this special relationship and its associated
rights and obligations. The CHR (now AHS) has a monopoly over publicly-funded health care.
HRC cannot carry on its business of publicly-funded, privately-delivered surgical services except
as and to the extent AHS agrees.

9. HRC’s vulnerability is obvious. The Surgical Services Agreement does not

provide for any minimum number of surgical procedures, yet it requires HRC to increase its
capacity to provide up to a maximum of 3,500 inpatient stay procedures annually if notified by
CHR of the latter’s desire that it do so. The parties are then required to negotiate in good faith the
pricing and other terms associated with the requested expansion of capacity. Further, in the event
of any dispute, the parties are required to negotiate resolution thereof in good faith before
resorting to arbitration or litigation against each other.

10. Shortly after entering into the Surgical Services Agreement in December 2006,
CHR notified HRC that it desired HRC to increase its capacity to do the 3,500 procedures
annually. This would require a much larger facility than HRC’s current facility at the former
Grace Hospital (“Old Grace Hospital”) which has a maximum capacity of about 1,750 surgical
inpatient procedures annually.

11. HRC and CHR then began the lengthy process of negotiating, collaborating and
working together to bring to pass CHR’s requested expansion of capacity, including, without
 limitation, identifying, settling on and committing to a new location, developing and considering
the design and layout of the new facility, negotiating pricing for the expanded number of
procedures, scheduling the timeline for completion and transition to the new facility and
negotiating consequential amendments to the Surgical Services Agreement, including addressing
the long-term financial commitments associated with the new facility.

12. With substantial involvement, encouragement and approval of CHR (and later
AHS), HRC entered into construction and long-term lease agreements with Clark Builders and
Cambrian (as defined below), respectively, to develop and relocate to a new surgical facility
(“Cambrian Facilities” as defined below) with the capacity to do the 3,500 procedures
requested by CHR.

13. On or about May 15, 2008, CHR was consumed by and became a part of AHS.
AHS went through several changes in senior management and took almost a year before it
resumed discussions with HRC regarding the requested expansion of capacity and negotiation of
consequential amendments to the Surgical Services Agreement. Based on discussions in July
2009 between Tom Saunders of HRC and Ken Hughes, Chairman of AHS’ Board of Directors,
HRC was initially optimistic that AHS would honour the commitments and obligations of CHE.
regarding the requested expansion of capacity. However, AHS did not appear to appreciate or
accept the special relationship between HRC and CHR (now AHS) of collaboration, mutual trust,
respect and good faith, or the associated obligations flowing from CHR’s requested expansion of
capacity. AHS delayed, then waffled and then reneged on CHR’s commitments and obligations
to HRC regarding the requested expansion of capacity.

14. HRC warned AHS that its delay and failure to keep the commitments CHR had
made were causing HRC serious financial stress and unless remedied would destroy its business.
HRC warned AHS that it could last perhaps 6 months (to the spring of 2010) but eventually
lawsuits would ‘crater’ its business.

15. Eventually, on March 26, 2010, AHS made a written proposal to HRC to increase
its procedures to 2,733 annually, for a five-year term ending March 31, 2016, and prepayment of
$5 million to help HRC pay obligations to its creditors related to the requested expansion of
capacity.
 16. On April 1, 2010, Cambrian commenced a bankruptcy application against it (the
“Bankruptcy Application”). On May 3, 2010 PriceWaterhouseCoopers Inc. was appointed
interim receiver of HRC (the “Interim Receiver”). On May 11, 2010 HRC applied to dismiss
the bankruptcy application with Cambrian’s agreement but AHS objected. By then AHS had
purchased HRC’s debt and security with Canadian Imperial Bank of Commerce (“CIBC”) in
order to gain status as a creditor in the proceedings.

17. Although HRC has sought to negotiate in good faith with AHS amendments to the
Surgical Services Agreement relating to the requested expansion of capacity, AHS will not do so.
HRC requested a meeting to discuss the subject and the soonest AHS would meet was June 28,
2010. Discussions at the meeting were without prejudice and lasted less than an hour. }{RC
waited for AHS’ response.

18. AHS’ response was to file an application on July 6 (returnable July 8) to lift the
general stay to allow AHS to terminate the Surgical Services Agreement. On July 7, 2010,
HRC’s counsel wrote to AHS’ counsel (“July 7 Letter”) requesting that AHS honour its
obligations under the Surgical Services Agreement and return to the negotiating table to
conclude agreement on terms for provision of the increased number of procedures. Until AHS
received HRC’s Notice of Motion for this application, AHS did not reply to the July 7 Letter.
When AHS did reply (by its counsel) on August 30, 2010, the reply was not responsive. AHS
will not negotiate at all with HRC except terms for cessation of its business and orderly transition
of its patients and staff to the McCaig Tower. That is not good faith and is contrary to AHS’
express contractual obligations to HRC.

19. AHS’ conduct since the commencement of the present proceedings is rife with
lack of candour and callous indifference toward HRC. AHS has acted contrary to its duty of
collaboration, trust, respect and good faith. For example:

(a) It filed sworn affidavit evidence leaving the impression that HRC’s services under
the Surgical Services Agreement were only intended to be temporary until the
McCaig Tower was completed. That is false. It was clearly intended by both AHS
and HRC that its services would continue after McCaig Tower was up and
running;
 (b) AHS also filed false evidence to the effect that the relationship between AHS and
HRC fundamentally (adversely) changed in February, 2010, when in fact the next
month AHS offered to amend the Surgical Services Agreement to extend the term
to March 31, 2016, increase the annual procedures to 2,733 and prepay $5 million
towards HRC’s expansion costs;

(c) AHS sued HRC by issuing a Statement of Claim against it in breach of AHS’
contractual duty to first negotiate in good faith any disputes between them;

(d) AHS also launched an application against HRC to terminate the Surgical Services
Agreement again in breach of AHS’ contractual duty to first negotiate in good
faith any disputes between them;

(e) AHS agreed to provide a backstop offer to HRC’s staff to employ them in the
event I{RC should cease business operations. The purpose of this initiative was to
keep the team of staff together while HRC and AHS sorted out their dispute, by
giving staff assurance of a job to go to in the event HRC ceased carrying on
business. Instead of a backstop offer, AHS prepared offers open for acceptance
until August 27, to employ HRC staff commencing November 15, 2010. This was
a poorly-veiled attempt to confiscate HRC’s staff and ensure its demise on
November 15. To make matters worse, when HRC’s management refused to
support the confiscation offer, AHS further disrupted HRC’s business and
relations with its staff by spinning AHS’ message to the media in a manner to
suggest that it was just trying to preserve jobs for HRC’ s staff but the initiative
failed due to lack of HRC management’s support;

(f) AHS has tried to restrict HRC’s legal representation by objecting to further
payment of HRC’ s counsel’s legal costs of representing it in these proceedings.
AHS claims that some of the legal costs are “restructuring costs”. However, all
legal costs incurred relate to representing HRC in these proceedings and are for
the purpose of assisting HRC in these proceedings, preserving its business and
bringing these proceedings to an end. To that end, some legal costs have been
expended in without prejudice negotiations with Cambrian and Clark Builders.
 However, no restructuring proceeding (whether under the Bankruptcy and
Insolvency Act or Companies’ Creditors Arrangement Act) have been drafted or
pursued. Moreover, AHS is well aware from the Interim Receiver’s cash-flow
reporting of the limited funds available to support HRC’ s legal representation in
these proceedings. Yet AHS brought and then unilaterally withdrew two
applications which were doomed to fail and has done so without offering or
agreeing (despite written requests by HRC) to pay HRC’s throw-away costs of
these costly and wasteful abandoned applications. AHS, however, has not
abandoned its attempt to put the chill on payment of HRC’s further legal costs. It
has purported not to withdraw but simply to not proceed at this time with its
application to prevent further payment of F1RC’s legal costs. I do not know
whether it intends to unilaterally adjourn this part of its application or not. I do
know that based on the letter it sent to this Honourable Court withdrawing or not
proceeding at this time with its various applications, AHS was no longer willing
to produce its deponent for cross-examination on the affidavits he had sworn.
AHS unilaterally cancelled the times scheduled by agreement for Chris
Mazurkewich’ s cross-examination; and

(g) AHS has repeatedly published negative articles and comments regarding HRC
that wrongly suggest that HRC’s current financial difficulties are a result of
business mistakes on its part, when their root cause is AHS’ failure to honour the
obligations and commitments of its predecessor, CHR.

20. HRC has resisted counterclaiming against AHS for the substantial damages AHS
has caused HRC because of HRC’s contractual duties to first attempt resolution through good-
faith negotiations. However, HRC cannot get AHS to come to the bargaining table. If AHS were
to return to the bargaining table, HRC will continue to negotiate in good faith and remains
flexible and willing to consider staying at the Old Grace Hospital as an alternative to moving to
the Cambrian Facilities. (HRC has heard an unverified rumour that Cambrian is in the process of
leasing Building A of the Cambrian Facilities to AHS for use for non-orthopaedic health
services. If the rumour is true, AHS’ failure to deal openly with HRC concerning Cambrian is
 another breach of AHS’ duty to collaborate and deal with HRC with mutual trust, respect and
good faith. Nevertheless, as stated, HRC remains flexible.)

21. Notwithstanding the current dispute between HRC and AHS, HRC has continued
to provide uninterrupted better, faster and cheaper services to Albertans. HRC (not AHS or the
taxpayer) has paid the cost of these court proceedings through the revenue generated from its
business. It should also be noted that since the date of the Bankruptcy Application (as defined
below) to the end of August 2010, HRC estimates it will have saved Alberta taxpayers an
additional $1.7 million. Total taxpayer savings from the date of the Bankruptcy Application to
December 31, 2010 are estimated to be $3.3 million for hip and knee procedures alone. (See
paragraph 46 below.)

22. It appears to HRC that far from dealing with it in a collaborative manner
involving mutual respect, trust and good faith, AHS is now bent on destroying HRC. Until
recently, HRC has resisted answering media inquiries regarding its dispute with AHS. It has
resisted doing so in the hope that AHS would wake up to its obligations, come back to the
bargaining table and work with HRC as its predecessor did with mutual trust, respect and good
faith. However, having regard to AHS’ worsening conduct since the beginning of these
proceedings, its unwillingness to accept any responsibility for the financial difficulties it caused
HRC, its unwillingness to negotiate in good faith in accordance with its contractual obligations
and its continuing negative comments to the press about HRC, HRC must act. It must respond to
AHS’ negative and inaccurate press with its explanation of the relevant facts. It must also apply
to court for the relief set out above.

23. Without the directions and other relief sought as set forth above, HRC believes
that AHS will not comply with its contractual obligations, but will leave HRC to bleed to death
(metaphorically speaking) from the burden of professional charges and the uncertainty caused by
AHS’ disruptive actions.

24. HRC cannot afford to litigate an expensive and lengthy damage claim. A damage
claim is a hollow remedy without the wherewithal to pursue it. HRC needs to get its dispute with
AHS resolved quickly and summarily. The Surgical Services Agreement represents by far the
most substantial asset of HRC. Without prompt protection of that asset including enforcement of
 -10-

HRC’s rights thereunder there will be no business left for protection by this Honourable Court in
these proceedings and loss of the unique better, faster, cheaper services that the public needs and
deserves. In short, HRC will suffer irreparable harm unless the relief it has requested is granted.

HRC’s Business

25. Founded in 1996, HRC is a unique private health care service provider located in
Calgary, Alberta that provides medical assessments, surgical procedures and post-operative
rehabilitation services. It is accredited by the College of Physicians and Surgeons of Alberta (the
“College”) and designated by the Ministry of Health and Weilness to perform total joint
replacement, spinal procedures and other orthopaedic procedures that require an overnight stay at
its facility in the Old Grace Hospital. In addition to work for Workers Compensation Boards
across Canada (collectively, “WCB”), HRC can perform a maximum of about 1,750 inpatient
(overnight) procedures annually for AHS at the Old Grace Hospital as that facility is currently
configured. HRC’s work consists primarily of elective orthopaedic procedures performed under
contract to AHS and WCB.

26. HRC’s ability to provide services better, faster and cheaper than other health care
providers is in large part due to the calibre and team work of its employees (the “Employees”).
The Employees are vital to HRC’s continued performance and its efforts to continue operating.
The Employees possess unique skills, knowledge and experience that are vital to HRC. The
Employees are intimately familiar with HRC’s operations and most cannot be quickly, easily or
cost-effectively replaced, if they can be replaced at all.

27. HRC employs approximately 140 employees, which includes nurses, clinical
staff, account managers, assistants, management (including me) and other positions.

28. HRC’s management team is comprised of me, Tom Saunders, Chief Executive
Officer and Dr. Stephen Miller, Chief Medical Officer. Biographical sketches of each of the
members of the management team are attached and marked as Exhibit “A”.

College of Physicians and Surgeons

 -11-

29. The College is a self-regulating body authorized by statute to govern the practice
of medicine in Alberta. To help ensure patient safety, the College accredits, inspects and sets
standards for a variety of medical facilities. These include laboratories, diagnostic imaging
facilities, non-hospital surgical facilities, pulmonary and neurophysiology diagnostic facilities,
cardiac exercise stress testing facilities, hyperbaric oxygen therapy services, sleep medicine
facilities, ECG and vestibular testing facilities.

AIlS’ History and Mandate

30. AHS is responsible for delivering health services to the approximately 3.5 million
people living in Alberta and its stated mission is to provide a patient-focused, quality health
system that is accessible and sustainable for all Albertans. AHS has a multi-billion dollar annual
budget and a monopoly over the provision of all publicly-funded health services in Alberta.

31. The creation of AHS was announced on or about May 15, 2008 and brought
together 12 formerly separate health entities in the province: 9 geographically-based health
authorities (Chinook Health, Palliser Health Region, CHR, David Thompson Health Region,
East Central Health, Capital Health, Aspen Regional Health, Peace Country Health and Northern
Lights Health Region) and 3 provincial entities working specifically in the areas of mental health
(Alberta Mental Health Board), addictions (Alberta Alcohol and Drug Abuse Commission) and
cancer (Alberta Cancer Board).

32. AHS is governed by a board of directors (the “AHS Board”) that is chaired by
Ken Hughes. The AHS Board reports directly to Alberta’s Minister of Health and Weliness.

33. Dr. Stephen Duckett, President and Chief Executive Officer of AHS, leads a staff
of approximately 90,000 individuals who make up the AHS workforce. He is responsible to the
AHS Board for AHS’ day-to-day operations.

34. In addition to Ken Hughes and Dr. Duckett, HRC dealt with numerous employees
of AHS and CHR regarding the matters outlined in this Affidavit. For convenience, HRC has
prepared a list of such employees and their respective job titles (the “ABS Employees List”).
The AHS Employees List is attached and marked as Exhibit “B”.
 -12-

Better.. Faster, Cheaper

35. HRC has implemented an innovative team-orientated approach to the delivery of

surgical services which is better, faster and cheaper than the equivalent services provided by
hospitals run by AHS. Accordingly, HRC reduces the over-all cost to taxpayers, while at the
same time providing efficient and effective patient care.

36. Patients who receive treatment at HRC spend significantly less time in hospital
following surgery than patients treated at other Alberta facilities. The length of stay is one of the
objective measurements used to determine the efficiency and quality of care. For patients that
receive hip and knee surgeries at HRC’s facility, the average length of stay from the time of
surgery to when a patient is discharged to his/her home is approximately 3 days. I am advised by
Dr. Stephen Miller and believe that he was informed by Stephen Weiss, Chief Operating Officer
for the Alberta Bone & Joint Health Institute (“ABJIU”),’ on or about August 19, 2010, that the
average length of stay for such surgeries in Alberta is approximately 4.9 days in acute care and
an additional 1.4 days in sub-acute care for a total of approximately 6.3 days.
2 When I remove
procedures performed by HRC from the Alberta average, I calculate that the average length of
stay in Alberta for such surgeries at hospitals run by AHS is approximately 5.2 days in acute care
and an additional 1.4 days in sub-acute care for a total of approximately 6.6 days.
3 Accordingly,
the average number of days a patient spends in the hospital is 120% higher at AHS run hospitals
than at HRC. As background, sub-acute care is inpatient care for people who are recovering from
orthopaedic surgery and need time in a hospital to regain their strength before returning home.
HRC does not refer its patients to sub-acute care. When they leave HRC they are ready to go
directly home. The graph below is a summary illustration of the foregoing:

ABJHI is an independent not-for-profit organization with its own Board of Directors. It is the umbrella
organization for bone and joint health care, research and education in Alberta.
2
I have calculated what follows based on my understanding that when Stephen Weiss stated to Dr. Stephen Miller
that the numbers he was providing included all hip and knee surgeries in Alberta, he was also including hip and
knee surgeries performed by HRC.

Now shown to me and marked as Exhibit “C” but not attached pursuant to Rule 312 of the Alberta Rules of Court,
are various calculations I have made that are referenced in footnotes 3 to 8. See Schedule “A” of Exhibit “C” for
calculations of average length of stay in hospitals run by AHS.
 - 13 -

37. The types of patients treated by HRC for hip and knee procedures are comparable
to the patients treated in hospitals run by AHS for hip and knee procedures, which is significant
when you consider that HRC performs the same service as AHS in less than half the time. A
presentation prepared for AHS titled Bone & Joint Clinical Network dated April 8, 2010 (the
“Bone & Joint Presentation”) and presented by Stephen Weiss comments on whether HRC’s
performance is as a result of the type of patients treated by HRC. The speaking notes in the Bone
& Joint Presentation for slide number 22 state that “there is not a great difference in co
morbidities or age by site so this can’t be used as an excuse(!) for variance in [length of stayj.”
Accordingly, when comparing the length of stay at HRC compared to hospitals run by AHS,
such comparison is of the same service provided to comparable sample groups. The Bone &
Joint Presentation, which includes speaking notes, is now shown to me and marked as Exhibit
“D” but not attached.

38. The Bone & Joint Presentation provides a graph at slide number 23 (the
“Graph”) that measures the percentage of hospital stays greater than the provincial benchmark
of 4 days for primary elective hip and knee replacements (the “Benchmark”). The Graph
indicates that HRC is second only to the Royal Alexandra Hospital in Edmonton in number of
hip and knee replacements performed in Alberta. The Graph further illustrates that HRC was
 - 14 -

within the Benchmark for approximately 92% of its procedures, which was by far the best
performing facility in Alberta. The Royal Alexandra Hospital in Edmonton and Peter Lougheed
Centre in Calgary are two of the other large providers of orthopaedic surgeries and they were
only able to meet the Benchmark approximately 48% and 23% of the time, respectively. The
Graph also illustrates that 11,963 hospital days would be saved in Alberta if the Benchmark were
reached each time. if the hospitals run by AHS were as efficient as HRC, the number of hospitals
days over the Benchmark would be reduced by 11,418 hospital days to approximately 545
hospital days each year for the all hip and knee replacements performed in Alberta.
4 This is
approximately a 95% reduction in hospital days over the Benchmark and, assuming an average
cost of $1,537 per day for a hospital bed, this translates into potential yearly savings of about
$17.6 million to the Alberta health care system, not to mention the freeing up of 11,418 days of
hospital beds for other patients in the health care system each year. The graph below is a
summary illustration of the foregoing:

100%
92% Table 2: Procedures Performed Within
90% Four Day Benchmark (Hip and Knee)
80%

70%

60%
48°/0
50%

40%

30%
23%
20%

10%

0%
HRC RoyalAlexandra Peter Lougheed

See Exhibit “C”, Schedule “B” for calculations of the percentage of procedures performed within the Benchmark
and approximate annual hospital bed day savings.
 - 15 -

39. HRC has very low wait-times for surgical procedures, which is an important
indicator of the public’s access to health care and a reflection of the efficient use of resources.
AHS published a statement on its website titled “How Long Are Patients Waiting For Acute
Care Services?”, which provides, among other things, an analysis of wait-times in Alberta for
primary elective hip and knee replacements (the “AHS Wait-Times Report”). The provincial
benchmark established by AHS for wait-times for such surgeries is 26 weeks (the “Wait-Time
Benchmark”). From April 1 to June 30, 2009 (the dates examined in the most current AHS
Wait-Times Report), HRC performed 93% of primary elective hip replacements and 96% of
primary elective knee replacements within the AHS Wait-Time Benchmark. A second indication
of wait-times is the number of weeks by which 90% of patients receive their primary elective hip
and knee replacements. HRC patients during this period of time had their hip replacements
within 22.3 weeks and their knee replacements within 22.1 weeks. By comparison, the average
wait-time at hospitals run by AHS during this period of time for elective hip and knee surgeries
was approximately 35.1 and 48.1 weeks, respectively.
5 Accordingly, wait-times at AHS run
hospitals during the applicable period were approximately 57% longer for primary elective hip
surgeries and approximately 118% longer for primary knee surgeries. A copy of the AHS Wait-
Times Report is now shown to me and marked as Exhibit “E”. The graph below is a summary
illustration of the foregoing:

See Exhibit “C”, Schedule “C” for calculations of the average number of weeks by which 90% of patients have had
their hip and knee surgeries.
 - 16 -

Table 3: Number of Weeks by which 90% of

60 Patients had their Surgery

50
48.1
40
AHS takes
A 118% longer HRC
AHStakes 35.1
30
57% longer AHS-riin hospitals
I P

20 22.3 22.1

10

0
Primary Hip Surgeries Primary Knee Surgeries

40. HRC performs primary hip and knee replacements at a substantially lower cost
than AHS. On or about June 14, 2010, Stephen Weiss contacted me to obtain information from
HRC respecting its costs per procedure as part of ABJHI’ s examination and comparison (as
between HRC and hospitals run by AHS) of orthopaedic surgery costs on an “apples to apples”
basis. HRC provided ABJHI with its cost information and ABJHI provided HRC with
information it had obtained from AHS respecting orthopaedic surgical costs at the three AHS-run
hospitals in Edmonton that perform hip and knee replacements. On or about June 23, 2010, I met
with Stephen Weiss and Kim Kerrone, former Director of Finance for CHR, to review these
costs and our discussion focused around documents prepared by AHS titled Average Cost Per
Case, By Site, with Functional Level 5 Detail (collectively, the “Average Cost Report”). This
document was provided to me by ABJHI. I do not have access to similar data for Calgary
facilities. The Average Cost Report is now shown to me and marked as Exhibit “F”.

41. Based on the Average Cost Report, the average price at Edmonton hospitals run
by AHS for a hip replacement is approximately $14,205 (the “ABS Hip Replacement Cost”)
and for a knee replacement is approximately $11,998 (the “ABS Knee Replacement Cost”).
6

6
See Exhibit “C”, Schedule “D” for details on calculations of AIlS Hip Replacement Cost and AIlS Knee
Replacement Cost and adjusted costs.
 - 17 -

Kim Kerrone advised me and I do believe that these figures include the costs of implants,
laboratory costs and indirect costs of equipment amortization, but do not include building
amortization/cost of capital and sub-acute care (approximately 1.4 days per surgery, as noted
above). In comparison, HRC charges AHS $8,187 for a total hip or knee replacement (the “HRC
Cost”). It should be noted that the HRC Cost is based on providing approximately 1,000 annual
surgeries for AHS and would be reduced to approximately $7,750 for a total hip or knee
replacement if HRC provided 3,500 procedures as promised by AHS (the “HRC Cost at 3500
Procedures”).

42. FLRC is provided implants by AHS at no charge, receives laboratory services from
AHS at no charge, does not discharge patients to a sub-acute facility (patients are ready to go
home when treated by HRC) and includes building amortization/capital costs in the HRC Cost.
To be able to properly compare the costs for hip and knee replacements provided by HRC with
those provided in AHS-run hospitals, I adjusted the HRC Cost to include the costs of implants
and laboratory services. These adjusted costs are $12,019 for hip replacements (the “Adjusted
HRC Hip Replacement Cost”) and $10,654 for knee replacements (the “Adjusted HRC Knee
Replacement Cost”). I also adjusted the AHS Hip Replacement Cost and the AHS Knee
Replacement Cost to include estimated costs of capital/building amortization and sub-acute care.
These adjusted costs are, respectively, $16,826 (the “Adjusted AHS Hip Replacement Cost”)
and $14,619 (the “Adjusted AilS Knee Replacement Cost”).

43. The difference between the Adjusted AHS Hip Replacement Cost and the
Adjusted HRC Hip Replacement Cost is approximately $5,000. Accordingly, an AHS total hip
replacement costs 40% more than one performed by HRC. If AHS had kept its commitment for
HRC to provide 3,500 procedures per year, this cost of a hip replacement performed by HRC
would be approximately $437 lower and AHS would be performing hip replacements for a price
approximately 45% higher than HRC.

44. The difference between the Adjusted AHS Knee Replacement Cost and the HRC
Cost is approximately $4,000. Accordingly, an AHS knee replacement costs 37% more than one
performed by HRC. If AHS had kept its commitment for HRC to provide 3,500 procedures per
year, this cost of a knee replacement performed by HRC would be approximately $437 lower and
 - 18 -

AHS would be performing knee replacements for a price approximately 43% higher than HRC.
The graph below is a summary illustration of the foregoing:

Table 4: Adjusted Cost per Procedure

$18 000 AHS1s4O% to 45%
—
— more expensive
$16,000 $16,826
AHSis37% to 43%
+ —I— Amoreexpensive
$14,000 $14,619
I’,’ I
1+ [N
+$3,96 °
$12,000 + —
— $12,019 1+
11,582
;34j71_
$10,000 $10,654
$10,217

$8,000
AHS
‘- $6,000
HRCcurrent
$4,000
HRCat 3500
procedures
$2,000

$-
Hip Replacement Knee Replacement

45. If all 6,500 hip and knee replacements performed in Alberta each year could be
performed at the same cost as HRC currently performs these procedures, the Alberta healthcare
system would save about $22 to $27 million each year.
7 If these replacements were performed at
the cost HRC would charge for 3,500 procedures per year, the additional savings to the Alberta
health care system would increase to about $25 to $30 million each year.

46. From January 1 to March 31, 2010, HRC performed 156 hip replacements and
147 knee replacements for AHS. This means that in those three months alone, I{RC’ s services
saved Alberta taxpayers an estimated $1.3 million.
8 Since the date of the Bankruptcy Application

See Exhibit “C”, Schedule “D” for details on calculations of potential cost savings if Al-IS hip and knee procedures
were performed for the same price as HRC performs its procedures.
8
See Exhibit “C”, Schedule “E” for calculations of estimated savings.
 -19-

to the end of August 2010, HRC estimates it will have performed an additional 194 hip
replacements and 193 knee replacements for AHS, saving Alberta taxpayers an additional $1.7
million. Total taxpayer savings from the date of the Bankruptcy Application to December 31,
2010 are estimated to be $3.3 million for hip and knee procedures alone. Note that these figures
do not include any additional savings to taxpayers from foot and ankle procedures performed by
HRC for AHS.

47. In summary, HRC is better, faster and cheaper than AHS at providing hip and
knee replacements. HRC has very low wait-times for surgical procedures. On average, 90% of
patients at HRC receive their primary hip replacements within 22.3 weeks and 90% of patients at
HRC receive their primary knee replacements within 22.1 weeks. By comparison, the average
wait-time for these procedures at AHS-run hospitals is 35.1 and 48.1 weeks, respectively. The
average length of stay at HRC from the time of surgery to when a patient is discharged to his/her
home is less than half the time spent for the same procedure at hospitals run by AHS. HRC was
within the Benchmark for approximately 92% of its procedures, while comparable hospitals run
by AHS were only able to meet the Benchmark approximately 48% and 23% of the time for hip
and knee procedures. If AHS-run hospitals were as efficient as FIRC, it would reduce the number
of hospital days over the Benchmark in Alberta by approximately 95% or 11,418 hospital days
for a cost savings of $17.6 million each year (in addition to the 11,418 hospital bed days made
available to other patients). Finally, AHS performs hip and knee replacements at a cost of
approximately 40% and 37% higher than HRC currently charges. These cost savings to taxpayers
would increase by approximately $437 per procedure if AHS and CHR had kept their
commitment for HRC to provide 3,500 procedures annually, meaning AHS’ costs of hip and
knee replacements would be approximately 45% and 43% higher than HRC, respectively. If all
hip and knee replacements performed in Alberta each year could be performed at the same cost
as HRC currently performs these procedures, the additional savings to the Alberta health care
system would be about $22 to $27 million each year and would rise to about $25 to $30 million
each year if performed at the cost HRC would charge for 3,500 procedures.

48. According to the press in an article entitled “Sending surgeries to private clinics
won’t cost extra, Duckett insists”, in February 2010 Dr. Stephen Duckett said he would release a
public benefit analysis that will explain the costs of private versus public health facilities. He has
 - 20 -

yet to do so. At the same time, the press reported that Chris Mazurkewich released preliminary
numbers for costs of private and public health care and stated that “[tjhere has to be a value to
the public. Otherwise why would you contract out”. Now shown to me and marked as Exhibit
“G” but not attached is the text of the Edmonton Journal article dated February 19, 2010, in
which the foregoing statements were reported.

Background to the Special Relationship between AHS and HRC

49. One of the most serious social challenges of our time is finding a way to provide
sustainable, affordable and timely health care for our aging population. The oldest of the baby
th
65
boomer generation celebrate their birthday next year. As this generation retires over the next
3 decades, the workforce ratio will fall by approximately 50%, declining from 5 working-aged
Canadians for every person over the age of 65 to about 2½. Not only will we have approximately
half the workforce to sustain our retirees, but the cost of caring for our aging population is
expected to rise dramatically. After approximately age 45, the average health care expenditure
per person rises exponentially.

50. This year the Alberta Government spent approximately 44% of the total
provincial budget on health care. AHS is reportedly spending more than $30 million per day and
even this amount is not sufficient to fully staff and operate newly constructed centres (such as the
JR (Bud) McCaig Tower, the “McCaig Tower”). As we have described above, HRC services are
better, faster and cheaper than the equivalent services provided by hospitals run by AHS and are
therefore an integral part of any solution to the problem of exponentially-rising health care costs.
This success was nurtured by a special relationship between CHR and HRC based on
collaboration and mutual trust, respect and good faith.

51. To help our public health system respond to the needs of Albertans, the Alberta
government encouraged health authorities such as CHR to look at ways to improve the delivery
of services to Albertans. In keeping with such direction, in or about October 2004, CHR entered
into an agreement with HRC to provide for a two-year term a minimum of 625 and a maximum
of 1,250 total hip and knee replacement procedures, including pre-and-post-operative stays (the
“2004 Surgical Services Agreement”). Such services are insured services under the Canada
Health Act.
 -21-

52. Alberta Health and Weliness assessed the 2004 Surgical Services Agreement and
provided the Minister’s rationale for approving such agreement in the “Rationale of Minister’s
Approval of Under the Health Care Protection Act” dated November 9, 2004 (the “Rationale
for Approval”). The Rationale for Approval indicates that a team of policy experts fully
analyzed the proposed arrangement between CFIR and HRC to ensure that it met all legislated
and regulatory requirements. The Minister also noted that the proposed arrangement with HRC
“will provide patients with better access to hip and knee replacement surgeries, limiting the time
people wait in pain and returning them to active living as soon as possible.” A copy of the
Rationale for Approval is now shown to me and marked as Exhibit “H” but not attached.

53. In or about April 2005, the ABJHI commenced a pilot project to evaluate a
significantly improved evidence-based hip and knee replacement care model, called the Alberta
Hip and Knee Replacement Project (the “Pilot Project”). The Pilot Project involved 1,125 hip
and knee replacement patients who followed the new model for their assessment, diagnosis,
surgery and recovery, and 513 patients who followed the conventional service approach. Three
health regions participated in the Pilot Project. HRC was chosen as the southern-Alberta site and
performed approximately 500 of the Pilot Project’s 1,125 procedures.

54. The Pilot Project was a success. As stated in a press release issued by the ABJHI
on June 18, 2007, a copy of which is now shown to me and marked as Exhibit “I” but not
attached:

Alberta is leading the way nationally on hip and knee care thanks to a successful
pilot project that resulted in an 85 per cent reduction in wait times. The current
non-pilot wait time of 145 days was reduced to 21 days, from accepted referral
to first orthopaedic consultation.

55. As a result of HRC’s excellent patient outcomes during the term of the 2004
Surgical Services Agreement, HRC and CHR negotiated the Surgical Services Agreement dated
December 20, 2006. The Surgical Services Agreement provides for a maximum of 3,500 annual
procedures and has a fixed term from February 1, 2007 to March 31, 2012. CHR has 5 options to
renew for one year, which if exercised, extend the Surgical Services Agreement to 2017. A copy
of the Surgical Services Agreement is now shown to me and marked as Exhibit “J” but not
attached.
 - 22 -

56. As noted above, under the Surgical Services Agreement, HRC is authorized to
perform up to 3,500 procedures annually. To date HRC has performed approximately 1,000
procedures per year for AHS. It should be noted that AHS is not involved in the timing of
individual surgical procedures. Doctors individually schedule with HRC their own patients’
procedures roughly 2 to 6 weeks in advance of surgery.

57. In conjunction with the Surgical Services Agreement entered into by CI-IR and
HRC in December 2006, the Alberta government prepared a report entitled “Health Protection
Act Report to Albertans”, a copy of which is now shown to me and marked as Exhibit “K” but
not attached. In the report, Paddy Meade, then Deputy Minister of Alberta Health and Wellness,
recommended the Surgical Services Agreement on the basis that the relationship between CHR
and HRC was successful, specifically noting that:

The CHR’s relationship with HRC with respect to these insured surgical
services has been successful to date. Renewal of the service agreement benefits
the public by providing an alternate surgical site to meet the continued growth of
demands for joint replacements and other related surgical procedures. It
continues to provide the CHR with the ability to increase regional operating
room capacity to meet the health needs of the population, increase accessibility
and reduce wait lists within the region.

The expected average cost of a hospital stay per arthroplasty performed in

hospital in the CHR is $9,263 excluding physician fees and prosthesis costs.
—

The comparable contracted price for arthoplasties performed at HRC is $7,724

per procedure for the first 1,000 procedures and $7,442 for 1,001 to 1,500
procedures. CHR’s calculations indicate that it costs the region approximately
$1,539 less per procedure to perform arthoplasties at HRC.

58. HRC and CHR had a special relationship based on collaboration and mutual trust,
respect and good faith. This special relationship will be shown below in the dealings between
CHR and HRC, but was also part of the Surgical Services Agreement:

Whereas

B. The Operator has the demonstrated experience, capability and capacity to

provide Services which the Region wishes to have provided within Region 3;

F. In relation to the provision of the Services, the Parties wish to work in a

collaborative manner towards achieving the goal of health improvement in
Region 3. This collaborative relationship is to be governed by the principles of
 - 23 -

mutual trust and respect, respect for the autonomy and independence of each
Party within existing frameworks, shared learning and the acknowledgement of
each Partys complementary expertise[.]

59. This special relationship of mutual trust, respect and good faith was particularly
important when HRC was expanding its capacity to perform surgical services. The Surgical
Services Agreement provides no minimum number of surgical procedures, but it does require
HRC to increase its capacity to perform surgical services if CHR informs HRC that it may
require an increased number of procedures:

Schedule “B” Part “A” Services and Procedures

3.3 In each Fiscal Year of the Term after the first Fiscal Year, if the Region
requires more than one thousand (1000) Procedures, the Region may
periodically inform the Operator of the incremental increases in Procedures that
the Region may require in excess of one thousand (1000) Procedures and the
Operator shall be obligated to provide the Services to facilitate the performance
of such additional number of Procedures requested, up to thirty-five hundred
(3500) Procedures.

60. The above provision places HRC in a very vulnerable position. CHR could
require HRC to increase its capacity, a time-consuming and costly undertaking. HRC’s
protection was not only the collaboration and mutual trust and respect between the parties, but
also a contractual duty to negotiate in good faith any request for expansion. Section 4.6(c) of the
Surgical Services Agreement provides that:

In the event that the Region desires to obtain a volume of Procedures greater
than the number of extended stay procedures that the Operator is authorized by
the College to perform on an annual basis, the Parties agree to negotiate in good
faith the expected additional number of Procedures that the Region may request
and the process and timeline by which the Operator shall obtain and be
Accredited and Designated to have the capacity to provide such additional
volume of Procedures.

61. The parties are required to determine pricing for the expanded procedures in
accordance with criteria set out in section 3.4 of Schedule “C” to the Surgical Services
Agreement.

62. In addition to the duty to negotiate any expansion in good faith, HRC and CHR.
are obligated to utilize all reasonable efforts to resolve disputes by good faith negotiations before
resorting to litigation or arbitration:
 - 24 -

20.1 Resolution by Negotiation

The Region and the Operator agree to utilize all reasonable efforts to resolve any
dispute, whether arising during the Term or at any time after the expiration or
termination of this Agreement, which touches upon the validity, construction,
meaning, performance or effect of this Agreement or the rights or liabilities of
the Parties or any matter arising out of, or in connection with this Agreement,
promptly and in a professional and amicable manner by negotiation between the
appointed representatives of the Parties, or depending upon the nature and extent
of the dispute, by good faith negotiations conducted between the senior
management of both Parties.

63. In keeping with the relationship of mutual trust, respect and good faith, HRC
accommodated requests by CHR to perform other services without waiting to first reduce the
requested arrangements to formal writing. In or about September 2007, HRC began performing
surgical consultations on behalf of CHR at its central intake facility. HRC performed these
services notwithstanding that a written agreement was not finalized until early 2008; the signed
agreement between HRC and CHR was backdated and made effective September 3, 2007. Again
in keeping with the relationship of mutual trust, respect and good faith, HRC did not receive
payment for performing these services until March 26, 2008. HRC currently performs
approximately 1,000 surgical consultations per year.

64. HRC has entered into several other agreements with AHS. On February 1, 2007,
CFIR and HRC entered into the Services Agreement for the Provision of Acute Post-Operative
and Sub-Acute Care Services (the “Care Services Agreement”), in which HRC provides
inpatient nursing care to patients who do not require full hospital services. As noted in the
recitals to the Care Services Agreement, CHR was experiencing a shortage of inpatient bed
capacity at various acute hospitals and HRC was the only accredited facility in Calgary with the
experience, capability and capacity to perform these services.

Reguest to Increase Capacity

65. In or about January 2007, Dr. Stephen Miller, Allison Shaw (Director of
Operations) and I for HRC, met with Tracy Wasylak, Vice President — South West Community
Portfolio for CHR and at least one other CHR representative. I do not recall whether the other(s)
from CHR included Shawna Syverson, then Director, Bone and Joint Health for CHR and/or
 - 25 -

rd
3
Kim Kerrone, Director of Finance for CHR. The meeting was held at HRC’ s premises in the
floor meeting room. In that meeting Tracy Wasylak (Shawna Syverson’s boss at the time)
informed us of CHR’s desire to have HRC expand its surgical capacity to perform the maximum
3,500 annual procedures.

66. J{RC explored several options to expand its capacity to perform 3,500 annual
procedures for CHR. HRC concluded that given the high cost of renovating the Old Grace
Hospital, the best option was to build a new facility on the Cambrian lands, subsequently called
the Cambrian Foothills Medical Campus (the “Cambrian Facilities”). On or about January, 30,
2007, Frank King, Chairman of the HRC’s Board of Directors, Tom Saunders and I met with
Bob Holmes, Senior Vice President, Planning & Capital Development for CHR to obtain CHR’s
input on the proposed expansion and relocation to the Cambrian Facilities. Bob Holmes
evaluated the Cambrian Facilities to determine whether they would fit into CHR’s long-term
plans and, subsequently, agreed with HRC’s relocation to such facilities. HRC’ s relocation to the
Cambrian Facilities was discussed at subsequent meetings with Tracy Wasylak and Kim Kerrone
in or about February, 2007 and they were also supportive of relocating there.

67. In or about February to March 2007, I attended approximately 3 meetings with

Kim Kerrone and Tracy Wasylak at the Rockyview General Hospital (“Rockyview”). The
purpose of these meetings was to come to an arrangement for pricing for 1,500 to 3,500
procedures. The Surgical Services Agreement provided criteria, but no fixed numbers, for
pricing more than 1,500 procedures. At this meeting we discussed surgical procedure fees, costs
of capital and administration expenses for the requested 3,500 annual procedures. On or about
March 12, 2007, Kim Kerrone provided me with a copy of a spreadsheet prepared by CHR
which summarized fixed costs, variable costs per case and total variable costs for different levels
of procedures, including for 3,500 procedures (the “March 12 Spreadsheet”). Specifically, the
HRC Financial template projected HRC costs for what is described as “Phase 2 Incr volume
Q4/06-Q1/07 3,500 cumulative”. A copy of such chart is now shown to me and marked as
Exhibit “L” but not attached. (I have not included as part of this Exhibit some CHR budget
information that was provided at the same time and which I do not believe is relevant but I can
provide it if requested). Kim Kerrone, Tracy Wasylak and I agreed that such costing information
would form the basis of FIRC’s pricing for the 3,500 procedures.
 - 26 -

68. HRC complied in good faith with CHR’s request for HRC to expand its capacity
to provide 3,500 procedures and, in or around May 2007, began design work on new space at the
Cambrian Facilities to handle the increased volume of procedures. Construction of the Cambrian
Facilities commenced in or about August 2007. To date, HRC has paid approximately
$2,029,246 in costs related to construction of the Cambrian Facilities, including fees paid for
architects, contractors, building permits, consultants, project managers and lawyers.

69. In addition to discussions regarding the requested expansion of capacity to

provide 3,500 procedures, I am advised by Tom Saunders that on or about December 10, 2007 he
met with Shawna Syverson and others at CI-IR to discuss moving to the Cambrian Facilities the
services performed by the Musculoskeletal (“MSK”) unit at the Glenmore Auxiliary Hospital
(“Glenmore”) which is adjacent to Rockyview. The MSK unit at Glenmore performed inpatient
hospital care services, including some of the same services CHR authorized HRC to perform on
February 2, 2007 under the Care Services Agreement. The rationale behind this move was that it
would free up Glenmore to return to its intended function as a long-term care facility.

70. Section 4.4 of the Surgical Services Agreement requires HRC to provide a
minimum 60-days notice of any proposed relocation. At the request of AHS, on September 15,
2008, I wrote to AHS advising of HRC’s intention to relocate to the Cambrian Facilities by
January 2, 2010. A copy of such letter is now shown to me and marked as Exhibit “M” but not
attached. The next day, on September 16, 2008, AHS wrote back accepting the proposed move to
the Cambrian Facilities (the “September 16 Letter”). A copy of such letter is now shown to me
and marked as Exhibit “N” but not attached. The September 16 Letter states:

I appreciate the proactive contract compliance and accept the proposed new
location of Networc Health, Inc.

The proposed location will mark an exciting new beginning in your continued
provision of quality patient care.

71. Having received AHS’ approval to transfer its services to the Cambrian Facilities,
HRC entered into two Lease Agreements with 4040 Properties Corp. (“Cambrian”) on
November 13, 2008 concerning the lease of Building A and Building B at the Cambrian
 - 27 -

Facilities collectively, the “Cambrian Leases”), copies of which are now shown to me and
marked as Exhibits “0” and “P “, respectively, but not attached.

72. The next step in the development of the Cambrian Facilities was to find a third
party to upgrade the internal space at such facilities to meet HRC’ s needs. HRC entered into the
construction management contract with Clark Builders (“Clark”) on or about January 1, 2009
for such upgrades, a copy of which is now shown to me and marked as Exhibit “Q” but not
attached.

Collaboration between CHR and HRC

73. From 2007 to the fall of 2008, HRC and CHR engaged in good-faith negotiations
to complete the arrangements for HRC’s expansion and relocation to the Cambrian Facilities, by
negotiating pricing for the expanded number of procedures, scheduling the timeline for
completion and transition to the Cambrian Facilities, negotiating consequential amendments to
the Surgical Services Agreement and dealing with the space leased by HRC at the Old Grace
Hospital.

74. RRC’s existing lease with NorthWest Healthcare Properties Corporation

(“NorthWest”) for space at the Old Grace Hospital (the “NorthWest Lease”) was set to expire
on or about January 31, 2009. To exercise its right to renew such lease, HRC had to provide
notice of its intention to renew to NorthWest by January 31, 2008.

75. Jim Strome, Executive Director of Corporate Real Estate, CHR, contacted
NorthWest directly and requested that it extend HRC’s deadline to exercise its option to renew
its lease with NorthWest. I am advised by Tom Saunders that on or about January 2008 CHR
advised him that it wanted the deadline extended because it was considering using the space as a
women’s health centre.

76. HRC and NorthWest extended HRC’s deadline to exercise its option to renew
from January 31, 2008 to March 31, 2008. Copies of NorthWest’s letter dated February 1, 2008
confirming this extension and a signed agreement evidencing the extension dated January 29,
2008 are now shown to me and marked as Exhibit “R” but not attached.
 - 28 -

77. I am advised by Tom Saunders that CHR expressed to him its strong interest in
assuming the NorthWest Lease or otherwise taking over such space upon HRC relocating to the
Cambrian Facilities. I am advised by Tom Saunders that CHR informed him that it had even
developed a business plan for use of the space as a women’s health centre. The lease assumption
or arrangements to take over the lease were not finalized by March 31, 2008 so HRC renewed
the NorthWest Lease in order to continue to provide uninterrupted services to CHR and its other
clients through the transition to its new space at the Cambrian Facilities. Based on the special
relationship of collaboration, mutual respect, trust and good faith HRC was confident that as part
of the overall arrangements to meet CHR’s request to expand HRC’s capacity to do 3,500
procedures, HRC and CHR would conclude mutually agreeable arrangements for CHR to
assume the NorthWest Lease or otherwise take over HRC’s space at the Old Grace Hospital.

78. On or about April 3, 2008, Shawna Syverson of CHR sent an email to Dr. James
MacKenzie, a Calgary orthopaedic surgeon, and HRC (the “April 3 Email”) in which she
discussed CHR’s plans, and stated that CHR’s commitment to stay involved with HRC and, in
particular with the Cambrian Facilities, has a five-year horizon. She also wrote that she was
hopeful that they could move the MSK beds from Glenmore to the Cambrian Facilities, noting
“it does appear as though the region and HRC will be in partnership with a variety of services in
the future”. The April 3 Email is now shown to me and marked as Exhibit “S” but not attached.

79. I am informed by Tom Saunders that on or about April 23, 2008, Shawna
Syverson requested that he meet with Dr. John Latter to discuss moving MSK sub-acute beds
from Glenmore to the Cambrian Facilities. I am also informed by Tom Saunders that at a
meeting between him and Dr. John Latter they reviewed the layout of the Cambrian Facilities to
ensure that it was adequate for beds, rehabilitation and office space to meet CHR’s needs.

80. On or about July 29, 2008, Tom Saunders sent an email to Shawna Syverson (the
“July 29 Email”) with an agenda for a meeting scheduled for August 12, 2008 (the “August 12
Agenda”). The purpose of such meeting was to discuss services and space requirements that
CHR may require at the Cambrian Facilities. In addition to the foregoing, the August 12 Agenda
references as an item for discussion:

Surgery as per contract 3500 cases, discussion, timeframe to different volumes.

—
 - 29 -

The July 29 Email is now shown to me and marked as Exhibit “T” but not attached.

81. In response to the July 29 Email (the “June 29 Response Email”), Shawna
Syverson responded by email on the same day to Tom Saunders, “Great agenda, I look forward
to it.” The June 29 Response Email is now shown to me and marked as Exhibit “T” but not
attached.

82. I am informed by Tom Saunders that on or about August 12, 2008, he met with
Shawna Syverson to discuss the items in the August 12 Agenda and HRC’s move to the
Cambrian Facilities (the “August 12 Meeting”). During the August 12 Meeting the discussion
was a collaborative and cooperative effort to move matters forward for HRC to increase its
capacity to provide the annual 3,500 procedures requested by CHR.

83. On or about September 16, 2008, I spoke with Shawna Syverson to develop a
proactive strategy to utilize the space at the Cambrian Facilities and our existing space at the Old
Grace Hospital in the interim. We discussed having HRC provide spinal surgeries at the Old
Grace Hospital which is notable because the Surgical Services Agreement did not include such
surgeries and this would be an expansion of the services provided by HRC to AHS. As will be
discussed in further detail below, in or around January 2010 I-IRC and AHS agreed to amend the
Surgical Services Agreement to include spinal surgeries.

84. In the same telephone conversation, Shawna Syverson and I discussed the impact
of the McCaig Tower on HRC’s expansion to the Cambrian Facilities. Shawna Syverson advised
that of the 8 new operating rooms at the McCaig Tower, there would likely be less than 5 for
orthopaedics. She also assured me that the new operating rooms at the McCaig Tower would not
impact HRC’s expansion. On that same day, I sent an email summarizing the contents of such
conversation to Tom Saunders, Dr. Stephen Miller, and Allison Shaw (the “September 16
Email”), a copy of which is now shown to me and marked as Exhibit “U” but not attached.

AilS Absorbs CHR, Delays and Sends Mixed Messages

85. The creation of AHS was announced on May 15, 2008. Throughout the fall of
2008 until the middle of 2009, CHR was consumed by and became part of AHS but this
 - 30 -

transition was not smooth. During this period, the newly-formed AHS went through several
changes in senior management. Initially, AHS employees continued discussions and made
reassurances, but as time passed it appeared that AHS simply was not willing to commit to any
positive action on the expansion CHR had requested. AHS delayed and HRC found it impossible
to get clear answers from AHS regarding its intentions. As a result, the process of negotiation,
collaboration and working together ground to a halt — a critical year was lost.

86. I am advised by Tom Saunders that during this period he met with Ken Hughes on
or about April 24, 2009 to discuss HRC’s transition to the Cambrian Facilities and emphasized
the need to document the new arrangement between AHS and HRC.

87. Dr. Stephen Duckett became President and Chief Executive Officer of AHS in
March 2009. Subsequently, in the summer of 2009 it finally appeared as if AHS might come
back to the negotiating table. To HRC’s dismay and in contrast to CHR’s clear commitment to
the expansion to do 3,500 procedures, AHS did not appear to be committed to the expansion or
to appreciate the special relationship between HRC and CHR, which was founded on
collaboration, mutual trust, respect and good faith.

88. On or about June 17, 2009, Tom Saunders, Dr. Stephen Miller and I met with Dr.
Chris Eagle, Executive Vice President Quality and Service Improvement for AHS, and Andrea
Robertson, Senior Vice President/Chief Nursing Officer for AHS (the “June 17 Meeting”). At
the June 17 Meeting, AHS requested that HRC provide a number of options for going forward as
AHS did not know if it had the money to fund 3,500 surgical procedures. In keeping with the
special relationship, HRC accommodated this request. From HRC’s perspective, it was not
necessary to perform 3,500 surgical procedures so long as HRC would perform sufficient
services for AHS to obtain the equivalent revenue. FLRC and AHS discussed a potential ramp-up
schedule of 1,126 surgical procedures in 2009, 1,500 to 1,600 surgical procedures in 2010, 2,000
to 2,100 surgical procedures in 2011, and 2,500 to 2,600 surgical procedures in 2012. HRC and
AHS also discussed a ramp-up schedule for the MSK unit projecting 10 beds in 2009 and 35
beds in 2010, 2011 and 2012. HRC also proposed providing urgent care for single-limb trauma at
the Cambrian Facilities, which we believed would have significant benefits to emergency-room
wait times. We also revisited using the Old Grace Hospital as a women’s health facility. The
 -31 -

meeting concluded with AHS and HRC agreeing to form a working group to explore options. It
was intended that this group would provide a progress report to Dr. Chris Eagle by mid-August.

89. On or about July 8, 2009, Tom Saunders and I met with Laurie Pare who was an
accountant who worked for Alvin Libin (the “July 8 Meeting”). Alvin Libin was considering
investing in HRC but was concerned about the lack of formal documentation of AHS’
commitments to HRC.

90. As a result of the July 8 Meeting, I am advised by Tom Saunders that on or about
July 16, 2009, Tom Saunders called Ken Hughes to discuss Alvin Libin’s concerns regarding
AHS’ commitment to HRC and to request that Ken Hughes personally reassure Alvin Libin that
AHS had a long-term commitment to HRC. Tom Saunders sent the following email to me on
July 16, 2009 summarizing his conversation with Ken Hughes (the “July 16 Email”):

I invited [Ken Hughes] to have a conf call tomorrow with Alvin Libin, Laurie
and myself and he agreed. we discussed the kind of commitment that Libin is
looking for and he was prepared to give us that as well as inform them of their
intent to do more and more. we discussed the opportunity to work towards
tweeking the contract to align with our lease etc etc. and he agreed we need to
do that. he feels the contracts are unfair for us, the legal guys have done us a bad
deal and it needs to change or how could they expect us to continue to do
business with them just on a whole bunch of faith and trust. there has to be a
business deal.

The July 16 Email is now shown to me and marked as Exhibit “V” but not attached.

91. I am advised by Tom Saunders that on or about July 17, 2009, Ken Hughes, Tom
Saunders and Laurie Pare had a conference call in which Ken Hughes assured Laurie Pare that
AHS had a long-term commitment to HRC.

92. In addition, on or about July 22, 2009, AHS wrote a letter to HRC, signed by Dr.
Duckett (the “July 22 Letter”). The July 22 Letter is short and worth repeating in its entirety as
it clearly illustrates AHS’ intention to continue its relationship with HRC beyond the current
contract expiry date:

Although our current contractual arrangements expire over the period March 31,
2012 to March 31, 2013, I can confirm that relationships of this kind, to use
private sector capacity to provide surgery, will be an ongoing feature of Alberta
Health Services’ arrangements.
 - 32-

The existing arrangement with you has demonstrated that the use of the private
sector in this way is a cost-effective way of providing capacity in particular
surgical specialties. The arrangements therefore are clearly an efficient use of
public funds to ensure access to surgery of this kind for Albertans.

I would also confirm that despite the financial difficulties which Alberta Health
Services will be facing over the next few years, we have build into our budget
funding for contracts with non-hospital surgical facilities such as yours into the
future.

Yours sincerely,

S.J. Duckett

93. While the July 22 Letter is expressed impersonally, I understood it to mean that
AHS, despite its fmancial difficulties, had secured funding for HRC’s services. The July 22
Letter is now shown to me and marked as Exhibit “W” but not attached.

94. I am advised by Tom Saunders that on or about August 4, 2009, he and Frank
King attended a meeting with Ken Hughes at Springbank Links Golf Course in which Ken
Hughes affirmed the special relationship of trust, mutual respect and good faith between HRC
and AHS (the “August 4 Meeting”). Now shown to me and marked as Exhibit “X” but not
attached, is a copy of Tom Saunders’ notes from the August 4 Meeting (the “August 4 Notes”). I
am advised by Tom Saunders (supported by his August 4 Notes) that Ken Hughes said, among
other things, at the August 4 Meeting that:

(a) HRC has a great track record and that there is a high degree of trust;

(b) HRC’ s services are excellent and HRC delivers a higher standard;

(c) the services provided by HRC are so unusual that that the parties need a partner
not supplier relationship;

(d) AHS has to encourage and not destabilize the relationship;

(e) everything on contracts no longer at the ministry level — it is all AHS;

(f) there is unlimited demand for procedures and plenty of work for HRC; and
 - 33 -

(g) the relationship between AHS and HRC is a “very important relationship —

critically important — Beliweather — can’t screw this up or it sends a signal to all

suppliers & private contracts that AHS can’t manage things and we’ve spent too
much political currency.”

ABS Waffles, then Reneges on its Commitment to HRC

95. Despite working together for over 2½ years to expand HRC’s surgical capacity,
making commitments to HRC, approving HRC’s transition to the Cambrian Facilities, working
to move additional AHS services to the Cambrian Facilities and making other representations
described above, AHS waffled and then reneged on its commitments to HRC.

96. I am advised by Tom Saunders that on or about August 17, 2009, he and Frank
King met with Ken Hughes at the Springbank Links Golf Course. At such meeting, Tom
Saunders expressed his growing concern with the lack of certainty on the part of AHS. Tom
Saunders proposed that AHS guarantee a $10 million loan for HRC. Ken Hughes suggested that
such loan should be sought from Royal Bank of Canada (“RBC”) as RBC had recently obtained
AHS’ account and likely would be accommodating. Ken Hughes said that he would follow up
with Tom Saunders on this proposed loan.

97. I am advised by Tom Saunders that on or about October 1, 2009, he and Frank
King attended a fundraiser for Ron Liepert, then Minister of Alberta Health and Weilness. Tom
Saunders advised me that Ken Hughes told him that on the Monday prior to such fundraiser he
had met with Minister Liepert and the Assistant Deputy Minister and fully briefed them on the
current situation between AHS and HRC. Tom Saunders advised me that at the fundraiser, he
met with Ken Hughes who told him that HRC would be “okay”. Tom Saunders advised me that
he also met with Minister Leipert who shook his hand and told him that there was so much work
to do that there was nothing for him to worry about.

98. I am advised by Tom Saunders that on or about October 26, 2009, he met with Dr.
Duckett and a lawyer from AHS. Dr. Duckett indicated AHS was agreeable to a 10-year contract
with a minimum guaranteed volume of 2,500 procedures (the “October 26 Meeting”). The
meeting was positive in the sense that AHS would provide a minimum guaranteed volume. The
 - 34 -

guarantee was important to obtain financing to complete the expansion to the Cambrian
Facilities. However, AHS had cut back HRC’s volume of procedures from 3,500 to 2,500, which
was an $8.2 million reduction. I am advised by Tom Saunders that at the October 26 Meeting
AHS’ lawyer advised Duckett against agreeing to meet with HRC’s bank to provide comfort to it
that AHS had a long term commitment to RRC. Now shown to me and marked as Exhibit “Y”
but not attached, is an email from Tom Saunders to Arthur M. Szabo (of Cambrian) summarizing
the discussion at the October 26 Meeting.

99. I am advised by Tom Saunders that on or about November 6, 2009, Dr. Duckett
called Tom Saunders and advised that AHS could not afford to provide the 2,500 procedures
which it had represented 10 days earlier (the “November 6 Phone Call”). Dr. Duckett indicated
that he had found $6 million for increased surgeries, which translated into a volume of 1,647
procedures instead of the current 926, which, although a significant expansion, was far less than
the 3,500 procedures CHR had requested. The number of procedures proposed by Dr. Duckett on
the November 6 Phone Call was within HRC’s present capacity at the Old Grace Hospital.

100. On or about November 8, 2009, Tom Saunders sent an email to Ken Hughes
warning AHS that its delay and failure to keep the commitments that CHR had made were
causing HRC serious financial stress and unless remedied would destroy its business (the
“November 8 Email”). Specifically, Tom Saunders reminded AHS that HRC was asked to build
out new facilities to perform 3,500 surgeries and had been encouraged by CHR to sign the
Cambrian Leases and utilize its cash flows to develop the Cambrian Facilities. Tom Saunders
advised that HRC could stay in the Old Grace Hospital to perform 1,647 procedures but
construction of the Cambrian Facilities would stop. He projected that HRC would survive for
approximately 6 months (until May 2010) but eventually law suits would “crater the company”.
The November 8 Email is now shown to me and marked as Exhibit “Z” but not attached.

101. On or about November 13, 2009, AHS sent a letter to HRC (the “November 13
Letter”), signed by Dr. Duckett, which repeats his earlier offer of an additional $6 million for
surgical services for each year of the Surgical Services Agreement, a copy of which is now
shown to me and marked as Exhibit “AA” but not attached.
 - 35 -

102. On or about November 17, 2009, HRC sent a letter to AHS (the “November 17
Letter”), proposing 3 changes to the Surgical Services Agreement, which HRC believed were
necessary to finance the remaining $10 million needed by HRC to complete the Cambrian
Facilities. The letter advises that HRC believed that with AHS’ commitment to such amendments
HRC’s creditors would not revert to legal actions. The November 17 Letter is now shown to me
and marked as Exhibit “BB” but not attached.

103. On or about November 27, 2009, AHS sent an email to HRC, on behalf of Chris
Mazurkewich (the “November 27 Email”), which stated there were no new monies for AHS
projected surgeries so an internal reallocation was required. AHS advised that it had instructed
its staff to further examine patient demand that may be suitable for increased activity at HRC,
recognizing that AHS had expanded physical capacity coming on stream in the near term
(McCaig Tower and South Campus). The November 27 Email was the first written
communication which hinted that the new operating rooms at the McCaig Tower might impact
the number of procedures allocated to HRC. I have no recollection of any earlier oral
communication to that effect. The McCaig Tower and South Campus as well as the Cambrian
Facilities were concurrently under development and construction throughout the period of
HRC’s discussions with CHR and AHS. A copy of the November 27 Email is shown to me and
marked as Exhibit “CC” but not attached.

104. I am advised by Tom Saunders that on or about January 14, 2010, he and Frank
King met with Ken Hughes at the Palliser Hotel in Calgary, Alberta. Tom Saunders advised me
that he told Ken Hughes that time was of the essence and HRC needed AHS to meet its
commitments. Tom Saunders advised me that Ken Hughes said that AHS was working to find
money for the additional procedures.

105. On or about January 18, 2010, AHS and HRC agreed to amend the Surgical
Services Agreement (the “Third Amendment”) to allow HRC to perform new types of spinal
surgeries. The Third Amendment is now shown to me and marked as Exhibit “DD” but not
attached.

106. On or about January 18, 2010, Tom Saunders sent a letter to AHS addressed to
Ken Hughes and Dr. Duckett (the “January 18 Letter”) a copy of which is now shown to me
 - 36 -

and marked as Exhibit “EE” but not attached. The January 18 Letter outlined the following items
that required immediate attention from AHS: (a) HRC needed a $10 million loan, advance or
guarantee from AHS to finish the Cambrian Facilities; (b) AHS needed to buy out the NorthWest
Lease or agree to an assignment of such lease; and (c) HRC needed a minimum volume
guarantee from AHS for 3,500 procedures. The January 18 Letter also noted the urgent nature of
resolving outstanding issues before the end of January, 2010 and, if AHS and HRC failed to
quickly reach agreement, the consequences would be that FIRC would be forced to close, 26
orthopaedic surgeons would be required to find surgical time in the public system for 1,000
surgical cases, WCB would require 1,200 surgical cases to return to the public system, 4,600
annual surgical consultations (including follow up visits) would need to come back into the
public system, lawsuits would ensue, and AHS, FIRC and Alberta Health and Weliness would
face a public relations challenge.

107. On or about February 16, 2010, AHS announced a 6-week plan to immediately
increase the number of procedures in high-priority areas. A copy of a news release announcing
this plan is now shown to me and marked as Exhibit “FF” but not attached. Notwithstanding that
AHS had reneged on its commitments to HRC, AHS asked HRC to participate in the surgery
blitz and HRC responded that it was able and willing to assist. Further, as a testament to the
efficiency of HRC’ s operation, HRC was projected to complete an additional 180 hip and knee
procedures during this 6-week blitz. By comparison, the other two surgical facilities which
perform hip and knee replacements and participated in the blitz were projected to complete 37
joint procedures combined during this period. The backgrounder which contains this information
is in AHS’ February 16, 2010 press release which is now shown to me and marked as Exhibit
“GG” but not attached.

108. On or about January 28 and February 18, 2010, AHS and HRC met to resolve the
main issues between the parties. On or about February 22, 2010, AHS sent an unsigned letter to
HRC in the name of Chris Mazurkewich, which offered that HRC would perform 2,733 surgical
procedures for a total contract value of $21.9 million, exercise the 5 one-year extensions under
the Surgical Services Agreement and provide a $5 million advance to HRC to cover HRC’s start
up costs to increase capacity to accept these higher volumes (the “February 22 Offer”). The
 - 37 -

February 22 Offer was subject to approval by AHS’ executive and the AHS Board. A copy of the
February 22 Offer is now shown to me and marked as Exhibit “HH” but not attached.

109. On or about March 1, 2010, AHS sent HRC a second offer letter (the “March 1
Offer”), signed by Dr. Duckett, a copy of which is now shown to me and marked as Exhibit “II”
but not attached. The terms of the March 1 Offer are substantially the same as the February 22
Offer. However, the March 1 Offer notes that AHS would initiate negotiations to finalize
contractual terms and conditions including financial details such as unit pricing and reporting
requirements. The March 1 Offer also noted that the $5 million payment was to cover costs HRC
had incurred to ramp up and accept a higher number of procedures.

110. On or about March 3, 2010, AHS advised by email that HRC could release the
terms of the March 1 Offer to HRC’s banker and developer (the “March 3 Email”). I believe the
reference to developer in such email was to Clark and Cambrian. The March 3 Email is now
shown to me and marked as Exhibit “JJ” but not attached.

111. Tom Saunders emailed Chris Mazurkewich on March 4, 2010 asking, “When do
you think we can get together and finalize the terms. The Bank will want to know that before
they submit for approvals to their credit dept.” Chris Mazurkewich replied to the March 4 Email
by requesting that Shawna Syverson and Jitendra Prasad meet with Tom Saunders to finalize the
terms. Shawna Syverson confirmed by reply email that she was available and asked for Jitendra
Prasad’s availability (collectively, the “March 4 Emails”). The March 4 Emails are now shown
to me and marked as Exhibit “KK” but not attached.

112. I am advised by Tom Saunders that on or about March 24, 2010, he met with
Shawna Syverson, Jitendra Prasad and David O’Brien to resolve several points mentioned in the
March 1 Offer (the “March 24 Meeting”). In particular, they discussed the repayment schedule
for the $5 million advance and determined that HRC would pay $32,000 per month for 12
months at which time the outstanding balance would be repaid. They also discussed the pricing
for surgical procedures above 1,500 and noted that a pricing criteria for such procedures was
already built into the Surgical Services Agreement. Finally, they discussed how the ramp-up of
procedures would proceed and determined that AJ{S would transfer to the Cambrian Facilities
surgical cases from Peter Lougheed Centre, Rockyview and Foothills Medical Centre.
 - 38 -

113. On or about March 26, 2010, AHS sent FIRC a third offer letter (the “March 26
Offer”) under signature of Dr. Duckett, a copy of which is now shown to me and marked as
Exhibit “LL” but not attached. The March 26 Offer is for: (a) 2,733 procedures annually for a
total contract value of approximately $21.9 million; (b) extends the term of the Surgical Services
Agreement by 4 years to March 31, 2016 and notes that no further extensions will be provided;
and (c) provides for a prepayment by AHS to HRC of $5 million to cover HRC’s costs to be able
to service the higher volumes. In the March 26 Offer, Dr. Duckett advised that the offer had
received all necessary approvals and that such changes were within the terms and conditions of
the existing contract. I understand such reference to an existing contract to mean the Surgical
Services Agreement.

114. On March 28, 2010, Tom Saunders sent Jitendra Prasad an email (the “March 28
Email”) asking for clarification to a statement in the March 26 Offer that “no further extensions
will be provided.” Tom noted that he “cannot raise money or work with the banks if they feel or
sense that 6 years is it and no more business” and asked for such statement to be removed. That
same day Jitendra Prasad replied by email (the “March 28 Reply Email”) that this was put into
the March 26 Offer to indicate that at the end of the term AHS would conduct another process of
review before committing to further extensions. The March 28 Email and March 28 Reply Email
are now shown to me and marked as Exhibits “MM” but not attached.

115. Following receipt of the March 26 Offer, discussions between AHS and HRC
continued towards resolution of the points that were discussed at the March 24 Meeting. On
April 1, 2010, Tom Saunders sent an email to David O’Brien, Vice President, Strategic
Contracting & Compliance for AHS (the “April 1 Email”) regarding a few of the points to be
finalized in order to execute a final agreement. The April 1 Email is now shown to me and
marked as Exhibit “NN” but not attached.

116. The April 1 Email was the final communication between AHS and HRC before
Cambrian’s Application for a Bankruptcy Order dated April 1, 2010 (the “Bankruptcy
Application”) and the final communication that showed any intention by AHS of negotiating
with HRC.

HRC’s Dealings with Clark

ñj
 -39-

117. By the fall of 2009, AHS’ failure to fulfill its commitments to HRC resulted in
increasing problems between HRC and its creditors. On or about December 7, 2009, HRC
entered into an amending agreement with Clark which provided that Clark would continue with
construction on the condition that HRC agree to pay financing charges at the rate of prime plus
5% calculated on a daily basis, making payments beginning December 1, 2009. If the full
balance outstanding was not received by February 28, 2010, an additional 5% interest penalty
would be applied. A copy of a letter dated December 7, 2009 evidencing such amending
agreement is now shown to me and marked as Exhibit “00” but not attached.

HRC’s Dealings with Cambrian

118. In or around the end of October 2009, Cambrian began sending HRC invoices for
rent and purported that such rent was due under the Cambrian Leases. The first of such invoices
was dated effective November 1, 2009. I am informed by Tom Saunders that on or about
November 2, 2009, he telephoned Arthur Szabo, President of Cambrian, and asked him whether
he could identify the specific terms of the lease that triggered HRC’ s obligation to pay the rent
(the “November 2 Call”). HRC did not immediately pay the invoices purportedly owing.

119. On or about November 20, 2009, Arthur Szabo sent a letter to Tom Saunders (the
“November 20 Letter”) stating that he interpreted the November 2 Call as an indirect
notification that HRC had no intention to pay rent effective November 1, 2009. Cambrian took
the position that HRC be in default under the terms of the Cambrian Leases and demanded
payment of outstanding invoices by the end of that week. The November 20 Letter also stated
that Cambrian had received occupancy permits from the City of Calgary dated November 10,
2009 for both Building A and Building B (collectively, the “Buildings”). A copy of the
November 20 Letter is now shown to me and marked as Exhibit “PP” but not attached.

120. I was aware that under the terms of the Cambrian Leases, an obligation to pay
additional rent (operating costs, utilities and realty taxes) arises upon commencement of the
terms of such leases. Basic rent is payable 3 months after the commencement of the terms of
such leases. Under the Cambrian Leases, such terms do not commence until the City of Calgary
issues an occupancy certificate in respect of the subject building.
 - 40 -

121. Since Cambrian apparently considered that HRC y be in default under the
Cambrian Leases and had confirmed that occupancy permits had been issued for the Cambrian
Facilities, HRC was under pressure to pay rents purportedly due to Cambrian or risk Cambrian
resorting to other remedies under the Cambrian Leases.

122. Thus, at Cambrian’s request, HRC sent an email to Cambrian on November 24,
2009 confirming that the commencement date for the term of each of the Cambrian Leases was
November 1, 2010 and providing for payment of the first month of base rent beginning February
1, 2010. A copy of this email is now shown to me and marked as Exhibit “QQ” but not attached.
HRC confirmed this, relying on Cambrian’s representation that occupancy permits had been
issued by the City of Calgary on November 10, 2009.

123. By December 18, 2009, AHS had reneged on its commitment to HRC and was
now proposing to fund only 1,647 procedures annually. This reversal of position meant HRC
could not afford and did not require Building B at the Cambrian Facilities. Not knowing whether
AHS would eventually commit to a higher number of procedures, HRC wrote to Cambrian by
letter on or about December 18, 2009 (the “December 18 Letter”) informing Cambrian of its
current situation and noting that it hoped to enter into a dialogue to negotiate a new arrangement
with Cambrian. A copy of the December 18 Letter is now shown to me and marked as Exhibit
“RR” but not attached.

124. On March 1, 2010, HRC did not make any payment for basic rent payment for the
Cambrian Facilities although HRC believed at that time that rent was owed. I am advised by
Tom Saunders that he, Frank King and HRC’s counsel met with Arthur Szabo on March 4, 2010
(the “March 4 Meeting”) to discuss the situation and HRC’s options going forward believing
that it was close to getting a commitment from AHS. HRC proposed a 6-month hiatus on the
Cambrian Leases, which would be added to the end of the term of such leases. HRC further
advised Cambrian of the pending deal with AHS and showed Arthur Szabo the March 4 Offer.
HRC advised that the final agreement with AHS would likely be completed following the AHS
Board meeting on March 25, 2010.

125. I am advised by Tom Saunders that at the March 4 Meeting, Arthur Szabo told
HRC that Cambrian would take our proposal under advisement and wait to see what developed
 -41-

with AHS. He gave no indication that Cambrian would take any action against HRC in the
meanwhile. On March 27, 2010, Tom Saunders emailed Arthur Szabo (the “March 27 Email”)
advising that HRC now had a confirmed commitment letter from AHS (the “March 26 Offer”)
and requested a meeting on Monday, March 29, 2010 to discuss how the parties could move
forward based on I{RC’s new arrangement with AHS. Arthur Szabo replied by email the same
day (the “March 27 Reply Email”) requesting that we forward a copy of the letter from AHS
and indicating that he was away during the week of March 29, 2010. Arthur Szabo proposed to
push back the meeting between Cambrian and HRC to the following week (the week of April 5,
2010) so that he could attend such meeting. I am advised by Tom Saunders that as requested he
forwarded the March 26 Offer to Arthur Szabo on March 28, 2010. A copy of the March 27
Email and the March 27 Reply Email are now shown to me and marked as Exhibit “SS” but not
attached.

Cambrian’s Bankruptcy Application

126. Despite representing that Cambrian would meet with I-LRC during the week of
April 5, 2010 to discuss arrangements going forward, to HRC’s surprise and dismay Cambrian
filed the Bankruptcy Application on or about April 1, 2010, without any advance notice to HRC,
alleging that HRC owed $636,358.39 to Cambrian under the Cambrian Leases and intended to
and had suspended payment of its debts to Cambrian. Although Cambrian was aware that the
Board approved the March 26 Offer and HRC’s position had changed significantly from when
HRC had sent the December 18 Letter, Cambrian purportedly relied on HRC’s December 18
Letter as evidence that HRC was no longer capable of meeting its obligations under the
Cambrian Leases.

127. Based on my calculations which were completed as part of our due diligence for
the present application, if HRC owes Cambrian rent at all (which is disputed), I believe that the
amount purportedly owed by HRC to Cambrian would be $146,997.79 at the date of the
Bankruptcy Application and not the larger figure advanced by Cambrian.

128. On April 14, 2010, Cambrian delivered two letters to HRC purporting to
terminate the Cambrian Leases based on the position that there had been more than one “Event
of Default” under the leases (the “April 14 Letters”). Cambrian had not sent HR.C written notice
 -42-

of default of payment as required by the Cambrian Leases. Pursuant to sections 7.01(a)(i) and
10.08 of the Cambrian Leases, written notice of payment default and an opportunity to cure is
required for an “Event of Default” to be deemed to occur on non-payment of rent. Accordingly,
if any rent was payable at all no “Event of Default” has occurred and HRC treats the April 14
Letters as a wrongful repudiation by Cambrian of the Cambrian Leases. The April 14 Letters are
now shown to me and marked as Exhibit “TT” but not attached.

129. I am informed by Tom Saunders that in or around December 2009 and January
2010 he asked Cambrian to provide HRC with copies of occupancy permits that were
purportedly issued on November 10, 2009 for the Buildings. Despite his request, Cambrian did
not provide HRC with copies of such permits. After the Bankruptcy Application was filed, I
asked I-IRC’s project manager at the Cambrian Facilities how I could obtain copies of these
occupancy permits. HRC’s project manager contacted HRC and Cambrian’s joint architect on
our behalf who then provided HRC with an Application for Occupancy form on which the most
recent signature is dated November 10, 2009 (the “Application for Occupancy”), a copy of
which is now shown to me and marked as Exhibit “UU” but not attached. The Application for
Occupancy appears to be incomplete and does not appear to be an occupancy permit.

130. HRC later learned that at the time Cambrian represented that occupancy permits
had been issued, the Cambrian Facilities were not ready for occupancy. A permanent water
source was not connected to the buildings and the Buildings’ respective interiors were not
complete. As part of HRC’s due diligence performed for this application, I am advised by HRC’s
counsel that they contacted the City of Calgary’s Development & Building Approvals
Department and were advised that there is no indication on its file that occupancy permits have
been issued for the Cambrian Facilities. With no occupancy permits issued for the Buildings,
FIRC disputes whether any rent was in fact payable to Cambrian and, if it was not, HR.C has
overpaid approximately $929,845 in rent to Cambrian due to its misrepresentation.

Interim Receivership

131. On or about April 27, 2010, I was present at a meeting with Tom Saunders, Chris
Mazurkewich, HRC’ s counsel, AHS’ counsel and other AHS representatives at AHS’ counsel’s
office (the “April 27 Meeting”). At such meeting, AHS’ counsel suggested and within 48 hours
 -43 -

demanded that HRC consent to AHS’ application to appoint an interim receiver.

132. Although AHS’ conduct was not in keeping with our special relationship, HRC
recognized that the survival of its business relied on surgical procedures from AHS and, at the
time, I hoped that AHS would negotiate in good faith with HRC going forward. HRC consented
to the appointment of an interim receiver because the imposition of a stay provided an
opportunity to preserve HRC’ s assets while addressing the issues with its creditors and AHS.

133. In contravention of AHS’ duty to negotiate in good faith, any disputes with NRC
regarding the Surgical Services Agreement on April 20, 2010 AHS filed a Statement of Claim
against HRC.

134. In response to AHS’ application to appoint an interim receiver, this Honourable

Court granted a Consent Interim Receivership Order appointing the Interim Receiver on May 3,
2010 (the “Interim Receivership Order”).

135. Subsequent to the granting of the Interim Receivership Order, Cambrian decided
to withdraw or consent to dismissal of the Bankruptcy Application and entered into an agreement
with NRC to do so on a no-cost basis. Accordingly, on or about May 4, 2010, HRC filed an
application to dismiss the Bankruptcy Application and discharge the Interim Receiver (the
“Application to Dismiss and Discharge”).

136. AHS opposed the Application to Dismiss and Discharge and sought to continue
the appointment of the Interim Receiver. NRC ultimately stayed neutral on the application
because it hoped to engage AHS in good faith negotiations. On May 11, 2010, this Honourable
Court granted the Amended Consent Interim Receivership Order (the “Amended Interim
Receivership Order”) and rejected the Application to Dismiss and Discharge.

ABS Refuses to Negotiate in Good Faith

137. Although HRC has sought to negotiate in good faith with AHS amendments to the
Surgical Services Agreement relating to the requested expansion, AHS will not do so.
 - 44 -

138. In response to inquiries by Frank King of HRC, on May 16, 2010, Ken Hughes
replied by email (the “May 16 Email”) with the following revisionist interpretation of past
events that completely ignores the special relationship of mutual trust and respect between the
parties, the terms of the Surgical Services Agreement, the history of dealing between them
following the expansion requested by CHR and AHS’ contractual obligation to negotiate in good
faith:

It appears that you may have been misinformed by someone in Network, such
that you believed that discussions about amending the agreement or discussion
about additional volumes had actually resulted in an amendment to the contracts
or some other binding agreement. If you look at the facts, I think you will see
that is not the case. In particular:

1. The March 26, 2010 letter from Dr. Duckett to Tom Saunders was a letter
proposing that the parties attempt to negotiate the terms and conditions of a
potential agreement; it is clear on its terms that it is not an amendment but a
proposal for discussion;

2. The proposal was never accepted but instead countered by Networc Health
Inc. and accordingly, even if the letter was an offer, it was rejected by Networc
Health Inc.’s counteroffer

3. The March 26, 2010 letter had numerous material conditions that were never
satisfied or fulfilled;

The May 16 Email is now shown to me and marked as Exhibit “VV” but not attached.

139. HRC requested a meeting with AHS in order to discuss the history of dealings
between the parties, their obligations and I-IRC’s desire to negotiate with AHS appropriate
amendments to the Surgical Services Agreement relating to CHR’s requested expansion of
capacity. The soonest AHS would meet was June 28, 2010 (the “June 28 Meeting”).
Discussions at the June 28 Meeting were agreed then to be without-prejudice and the meeting
lasted less than an hour.

140. In paragraph 7 of the Affidavit of Chris Mazurkewich sworn on July 5, 2010 (the
“July Mazurkewich Affidavit”), Chris Mazurkewich refers to the without-prejudice June 28
Meeting and states:

AHS has carefully considered the submissions made to it by Networc. AHS is

however not prepared to directly or indirectly fund any restructuring of
Networc.
 - 45 -

This implies that the subject discussed at the meeting was AHS funding an HRC restructuring.
That is not true. Moreover, it was inappropriate for AHS to refer to the contents of without-
prejudice meetings and, even worse, for it to misrepresent the subject of the meeting.

141. At least from the filing of the Bankruptcy Application, AHS has not made any
effort or been willing to negotiate in good faith the requested expansion of capacity or resolution
of its dispute with HRC. Rather, as stated in paragraph 7 of the July Mazurkewich Affidavit,
AHS resolved to terminate the Surgical Services Agreement. On or about July 6, 2010, AHS
filed a motion seeking leave to lift the stay of proceedings imposed by the Amended Interim
Receivership Order to allow AHS to terminate the Surgical Services Agreement (the
“Termination Application”).

142. HRC responded with a formal request that AHS return to the bargaining table and
comply with its duty to negotiate in good faith. On or about July 7, 2010, HRC’s counsel wrote
to AHS’ counsel (the “July 7 Letter”) outlining its formal request that AHS honour its
obligations under the Surgical Services Agreement and negotiate in good faith. The July 7 Letter
is now shown to me and marked as Exhibit “WW” but is not attached.

143. AHS did not reply to the July 7 Letter until August 30, 2010, after it received an
unfiled copy of HRC’s present Notice of Motion (the “August 30 Email”). The August 30 Email
is not responsive to HRC’s invitation to AHS to return to the bargaining table and negotiate in
good faith. The August 30 Email is now shown to me and marked as Exhibit “XX” but not
attached.

144. AHS agreed to provide a backstop offer to HRC’s staff to employ them in the
event HRC should cease business operations. The purpose of this initiative was to keep the team
of staff together while HRC and AHS sorted out their dispute, by giving staff assurance of a job
to go to in the event HRC ceased carrying on business. Instead of a backstop offer, AHS
prepared offers open for acceptance until August 27, 2010 to employ HRC’s staff commencing
November 15, 2010. This was a poorly-veiled attempt to confiscate HRC’s business and ensure
its demise on November 15. To make matters worse, when HRC’s management refused to
support the confiscation offer, AHS further disrupted HRC’s business and relations with its staff
by spinning AHS’ message to the media in a manner to suggest that it was just trying to preserve
 -46-

jobs for HRC’s staff but the initiative failed due to lack of FIRC management’s support. (See
Exhibit “ZZ”).

145. AHS has tried to restrict HRC’s legal representation by objecting to further
payment of HRC’ s counsel’s legal costs of representing it in these proceedings. AHS claims that
some of the legal costs are “restructuring costs”. However, all legal costs incurred relate to
representing HRC in these proceedings and are for the purpose of assisting HRC in these
proceedings, preserving its business and bringing these proceedings to an end. To that end, some
legal costs have been expended in without prejudice negotiations with Cambrian and Clark
Builders. However, no restructuring proceeding (whether under the Bankruptcy and Insolvency
Act or Companies’ Creditors Arrangement Act) have been drafted or pursued. Moreover, AHS is
well aware from the Interim Receiver’s cash-flow reporting of the limited funds available to
support HRC’s legal representation in these proceedings. Yet AHS brought and then unilaterally
withdrew two applications which were doomed to fail and has done so without offering or
agreeing (despite written requests by HRC) to pay HRC’s throw-away costs of these costly and
wasteful abandoned applications. AHS, however, has not abandoned its attempt to put the chill
on payment of HRC’s further legal costs. It has purported not to withdraw but simply to not
proceed at this time with its application to prevent further payment of HRC’ s legal costs. I do not
know whether it intends to unilaterally adjourn this part of its application or not. I do know that
based on the letter it sent to this Honourable Court withdrawing or not proceeding at this time
with its various applications, AHS was no longer willing to produce its deponent for cross-
examination on the affidavits he had sworn. AHS unilaterally cancelled the times scheduled by
agreement for Chris Mazurkewich’s cross-examination

146. Finally, I believe that AHS has mischaracterized the history between HRC and
AHS/CHR to the public — attempting to distract from the fact that HRC’ s financial difficulties
were primarily due to AHS delaying, waffling and reneging on its commitments. Chris
Mazurkewich is quoted in an article published in the Edmonton Journal on June 9, 2010 as
saying that:

For six years, HRC performed extremely well with high quality
performance.. .They made a business error.

A copy of this article is shown to me and marked as Exhibit “YY” but not attached.
 -47 -

147. In a similar vein, in a letter to the press dated August 26, 2010, Dr. Stephen
Duckett states:

AHS learned that HRC was in an increasingly difficult financial position

(including a bankruptcy application being made by HRCs creditors) as a result
of its business decisions related to its planned move to another facility.

A copy of this letter is shown to me and marked as Exhibit “ZZ” but not attached.

Chris Mazurkewich’s Testimony

148. The sworn testimony of Chris Mazurkewich includes depositions which are either
false or, if true, reveal that AHS has deliberately misrepresented its intensions and commitments
to HRC over the course of three years.

149. Chris Mazurkewich provided sworn testimony in his Affidavit sworn on July 5,
2010 (the “July Mazurkewich Affidavit”) at paragraph 10 that:

Because of events since February 2010 there has been a fundamental change in the
relationship between MIS and Networc, and in the interest of public health, AHS had
to plan for the future on the basis that the Surgical Services Agreement would be
terminated. To ensure a proper transition of surgical procedures from Networc to AHS,
and to properly wind the interim receivership down, it is necessary for the stay to be
lifted to allow AHS to give notice of termination of the Surgical Services Agreement to
Networc.

150. HRC found such statement to be surprising given that the AHS Board approved
the March 26 Offer in late March 2010. If there was a fundamental adverse change in the
relationship between AHS and HRC resulting from events since February 2010, why would the
Board approve a $21.9 million agreement with I-LRC at the end of March 2010?

151. Chris Mazurkewich also deposed in his Affidavit sworn on April 29, 2010 (the
“April Mazurkewich Affidavit”) at paragraphs 8 and 9 that:

The Surgical Services Agreement was intended to assist Calgary Health Region to
Provide more efficient medical care to the residents in the Calgary area until Calgary
Health Region would be able to provide all such services itself.

The Surgical Services Agreement was entered into for a term expiring on March 31,
2012. The Calgary Health Region planned to be ready by that date to provide the
relevant surgical services itself, and AHS has continued with the implementation of
those plans. Such plans include the construction of the McCaig building with all the
required facilities to render surgical services in sufficient volumes to the residents of
 -48 -

Calgary such that there would be no further need or demand for the services performed
byNHI.

152. This Honourable Court in its Reasons for Decision dated June 1, 2010 at
paragraph 2 appears to view such statement to mean that:

Alberta Health submits that this arrangement was intended as an interim measure to
assist it in dealing with capacity constraints until a new Alberta Health-owned surgical
facility could be constructed. Currently, it is expected that this new facility will be
operational in January, 2011.

153. The development of the McCaig Tower was originally announced by CHR in late
2006, which is at least a couple months before CHR’s original request of HRC to increase its
capacity to provide 3,500 procedures. As stated above, when Shawna Syverson and I discussed
the opening of the McCaig Tower on or about September 16, 2008, she assured me that the new
operating rooms at the McCaig Tower would not impact HRC’s expansion. Chris
Mazurkewich’ s statement is totally inconsistent with the March 26 Offer that AHS had just
proposed to extend the Surgical Services Agreement to 2016 and increase the procedures to
2,733 annually.

154. Minutes of meetings of the Calgary orthopaedic medical community (the

“Orthopaedic Executive”) prior to the Bankruptcy Application track the developments of both
the McCaig Tower and the Cambrian Facilities and contemplate orthopaedic services being done
by both (with HR.C’s services moving to the Cambrian Facilities). Only in the Orthopaedic
Executive meeting minutes of June 17, 2010 is there an indication for the first time that it is
unclear whether or not HRC will continue to provide its services (the “June 17 Meeting”). The
minutes from the June 17, 2010 meeting of the Orthopaedic Executive are shown to me and
marked as Exhibit “AAA” but not attached.

155. I believe that AHS had no plan to phase out HRC’s services and move such
orthopaedic work to the McCaig Tower. The meeting minutes from the June 17 Meeting indicate
that Ms. Shawna Syverson, of AHS, and Dr. John Korbeek joined such meeting to discuss
surgical growth plans, including plans for the McCaig Tower and HRC. After Syverson and Dr.
Korbeek left such meeting the minutes note that:
 -49-

Dr. Kortbeek and Shawna Syverson left at 7:10 pm. There was further
discussion until 7:30. It became clear with our discussion that there really is no
clear plan or information available to us. [Emphasis added]

HRC’s Financial Position

156. HRC’ s financial difficulty is a direct result of AHS delaying, waffling and finally
reneging on its commitments. The services provided by HRC at the Old Grace Hospital continue
to be profitable and cash-flow positive. According to the First Report of the Interim Receiver
dated May 10, 2010, in the 4-month period from January 1, 2010 to April 30, 2010, HRC had
earnings before interest, taxation, depreciation and amortization (“EBITDA”) of approximately
$1,063,000 compared to $414,000 for the entire twelve months ended December 31, 2009.

157. HRC’ s financial problems arise out of the fact that once AHS reneged on its
commitment to provide additional procedures, HRC was no longer able to obtain funding to
complete the Cambrian Facilities and was left paying both the Old Grace Hospital lease and the
Cambrian Leases although it obviously would not need both. As discussed above, HRC made
numerous attempts up to the date of the Bankruptcy Application to remedy its financial situation.
AHS was well aware from summer of 2009 through spring of 2010 of HRC’s financial
difficulties, which were caused by AHS’ delay, waffling and then reneging on its commitments.
HRC attempted to negotiate various viable solutions with AHS, including a written commitment
to a specified number of procedures or having AHS guarantee a $10 million loan from RBC. If
AHS had followed through on any of the foregoing or simply stood by its original commitment,
HRC could have obtained funding necessary to complete the Cambrian Facilities. Further, in
recognition of its responsibility for HRC’s financial difficulty, AHS could reasonably be
expected to contribute to any consideration that might have been required to obtain Cambrian’s
agreement to defer commencement of the Cambrian Leases by 6 months.

158. Overall, HRC projected that it would remain cash-flow positive and profitable had
the financial terms of the March 26 Offer been implemented. Now shown to me and marked as
Exhibit “BBB” is a copy of HRC’s forecast budgets for the periods of April 30, 2010 to March

Beginning in 2008, NRC began using software with an automatic reconciliation function that looked back and
reconciled most WCB invoices going back to 2006. During the course of these proceedings, we discovered that
this software was only 90% accurate. The inaccuracy resulting from use of this software has been incorporated
into HRC’s financial information. HRC has fully resolved this issue and it does not affect HRC’s solvency.
 - 50 -

31, 2012 prepared under the assumption that the basic financial terms of the March 26 Offer
were implemented.

159. HRC planned to use AHS’ $5 million cash pre-payment to pay Clark for its
invoices to date. Furthermore, I am informed by Tom Saunders that based on his conversations
with Alvin Libin and other potential investors, if HRC had in place a signed agreement with
AHS including the business terms of the March 26 Offer, HRC could have raised at least $5
million and as much as $10 million through the sale of common and preferred shares. Such funds
would have fully paid all obligations owing to Clark by the end of November 2011 and allowed
HRC to continue to meet its day to day obligations until the increased cash flow from its
expansion was realized.

HRC’s Financial Position — Going Forward

160. HR.C remains flexible and is willing to consider staying at the Old Grace Hospital
as an alternative to moving to the Cambrian Facilities. As a result of AHS’ delay, waffling and
reneging on commitments, HR.C has suffered and continues to suffer substantial damages. In
addition to discussing repayment of the CIBC loans assumed by AHS, HRC believes that
payment by AHS of some or all of the following damages it caused FLRC to incur would properly
be part of good-faith negotiations between the parties to resolve their outstanding disputes:

(a) All costs associated with construction and improvement of the Cambrian
Facilities, including $2,029,246 in construction-related costs paid by HRC as
noted in paragraph 68;

(b) $929,845 in rent paid to Cambrian by way of cash, letter of credit and shares;

(c) Any other liabilities HRC may have to Cambrian;

(d) Any other liabilities F{RC may have to Clark;

(e) $71,097 in legal fees paid by HRC to date; and

(f) Professional charges in these proceedings.

 -51-

If there were an action (or counterclaim) by HRC against AHS, HRC might exercise set-off the
above damages against any amounts owing to AHS for the loan it assumed from CIBC.

161. With respect to damages claimed by Cambrian, HRC is satisfied that, if rent was
properly payable at all under the Cambrian Leases, the amount owed by HRC to Cambrian at the
date of the Bankruptcy Application was substantially less than Cambrian represented in the
Bankruptcy Application. Further, as a result of Cambrian’s repudiation of the Cambrian Leases,
it may have no valid claim for rent damages following the date of repudiation (April 14, 2010).

162. HRC has heard an unverified rumour that Cambrian is in the process of leasing
Building A of the Cambrian Facilities to AHS for use for non-orthopaedic health services. I note
from checking the listings with Colliers International, Cambrian’s leasing agent, that only
Building B of the Cambrian Facilities is listed for lease. If that rumour proves true, even if
Cambrian did not repudiate but rather properly terminated the Cambrian Leases, it may not have
lost future rents and therefore may not have incurred any damages. Further, if the rumour proves
true, I understand that as part of such arrangement Clark will be made whole and, accordingly,
may have no claim against HRC.

163. When professional expenses related to this proceeding are removed, HRC ‘s cash
flows are, and are projected to remain, positive overall. As forecast in the Third Report of the
Interim Receiver dated August 17, 2010, HRC’s positive net operating margin past January 2011
is expected to be $500,000, even in the more conservative “Base Case” scenario.

164. HRC is confident that it will be financially viable going forward and that its future
debts owing will be minimal. I believe that HRC is not insolvent and will remain cash-flow
positive once the professional charges from these proceedings come to an end. HRC wants to
negotiate in good faith with AHS to reach a deal on damages payable by AHS to HRC and is
flexible when it comes to staying at the Old Grace Hospital or moving to the Cambrian Facilities.
HRC is ready, willing and able to negotiate resolution of its claim for damages, payment of the
balance owing on the assigned CIBC loan and arrangements for the expanded surgical
procedures.
 - 52 -

165. Without the directions and other relief sought (as set forth above), HRC believes
that AHS will not comply with its contractual obligations, but will leave HRC to bleed to death
(metaphorically speaking) from the burden of professional charges and the uncertainty caused by
AHS’ disruptive actions.

166. HRC cannot afford to litigate an expensive and lengthy damage claim. A damage
claim is a hollow remedy without the wherewithal to pursue it. HRC needs to get its dispute with
AHS resolved quickly and summarily. The Surgical Services Agreement represents by far the
most substantial asset of HRC. Without prompt protection of that asset including enforcement of
HRC’s rights thereunder there will be no business left for protection by this Honourable Court in
these proceedings and loss of the unique better, faster, cheaper, health care services that the
public needs and deserves.

167. HRC will suffer irreparable harm unless the relief it has requested is granted.

168. HRC undertakes to abide by any order the Court may make respecting HRC’s
obligation to pay damages sustained by AHS by reason of any injunctive relief requested if such
relief is later found to be wrongly granted. That said, HRC expects that little or no damages
could result because the substance of the relief requested is merely that AHS return to the
bargaining table to negotiate with FIRC in good faith.

SWORN BEFORE ME at the City of )

Calgary, in the Province of Alberta, this )
31st day of ugust, 2010. )

A C mmissioner for in and for the ) BERNIE . SIMPSON

Province of Alberta )
ELSEY C. ARMSTRONG
Student-at-taW
A Commissioner for Oaths
in and for the Province of Alberta.
My Commission expires at the pleasure
of the Lieutenant Governor
 KELSEY C. ARMSTRONG
Student-at-Law
A Commissioner for Oaths
in and for the Province of Alberta. A
My Commission expires at the pleasure ‘r’rrrc. rc rL’rYrT rr. ft
of the Lieutenant Governor. 1 ns j £.A,F1JD11
referred to in the Affidavit of
.“,,

Sworn before me ihLc...

j
3
MANAGEMENT BIOGRAPHIES day of
AF± AD. 2L)
Dr. Stephen Miller
IN AND FOR THE PRO OF ALBERTA
Dr. Stephen Miller is a physician who has been practicing medicine for 24 years. He received his
medical degree from The University of Calgary and has since worked in the field of
orthopaedics. In 1989, Dr. Miller co-founded Western Occupational Rehabilitation Centre
(“WORC”), which performed surgeries for Alberta WCB patients with soft-tissue injuries in the
southern half of Alberta. Dr. Miller continued his work as Chief Medical Officer with expertise
in orthopaedics and soft tissue injuries when WORC became part of Columbia Health Care
(“Columbia”), a Canadian-owned and operated private healthcare and outpatient rehabilitation
operator (not affiliated with Columbia Health Care in the United States) in 1994. When HRC
was founded in 1996, Dr. Miller was made Chief Medical Officer and has fulfilled this position
ever since.

Tom Saunders

Before moving into the healthcare field, Tom Saunders worked as an accountant at BC Sugar and
spent eight years in the investment business, including as Vice President of an investment dealer
and manager of retail brokerage operations in Calgary. In 1989, Tom co-founded WORC with
Dr. Miller and acted as its President. Tom became President, Western Canada Operations of
Columbia in 1994 and by 1999 had been promoted to President and Chief Executive Officer.
During this time, the company had grown to operate approximately 30 facilities in Ontario,
British Columbia and Alberta primarily focussed on providing physical therapy services and
other WCB programs and rehabilitation for patients involved in motor vehicle accidents.

Bernie Simpson

Bernie Simpson received his Commerce degree from the University of Calgary in 1981 and spent
12 years in the investment business, including the second half of that time in the institutional
finance business and three years working overseas in London. He joined WORC in 1993 as Vice
President and was made Chief Operating Officer in 1999, a position he retains with HRC.
 TillS IS EXI1IJJJ7’ :.
referred to in the Affidavit of

Sworn before me this

L
Exhibit “B” day A.D. 22Lc?
KEY PERSONS AT CALGARY HEALTH REGION
ROVINCE OF ALBERTA
SERVICES (“AHS”)

Key Persons at Calgary Health Region (“CHR”)/Alberta Health Services II) ARMSTRONG
Student-at-Law
A Commissioner for Oaths
Dr. Stephen Duckett President and Chief Executive Officer, AHS in and for the Province of selberta.
My Commission expires at the pleasure
of the Lieutenant Governor.
Dr. Chris Eagle Executive Vice President, Quality & Service Improvement, AHS

Belle Gowriluk Director, Supported Living Services, CHR

Bob Holmes Senior Vice President, Planning & Capital Development, CHR

Ken Hughes Chair, AHS Board

Kim Kerrone Director of Finance, CHR

Chris Mazurkewich Executive Vice President and Chief Financial Officer

David O’Brien Vice President, Strategic Contracting & Compliance, AHS

Jitendra Prisad Senior Vice President, Contracting, Procurement & Supply

Chain Management, AHS

Andrea Robertson Vice President, Nursing Strategies, CHR

Senior Vice President/Chief Nursing Officer, AHS

Jim Strome Executive Director of Corporate Real Estate, CHR

Executive Director, Real Estate — South, AHS

Shawna Syverson Former Director, Bone and Joint Health, CHR

Director of Surgical Services, CHR

Vice President, Foothills Medical Centre, AHS

Tracy Wasylak Vice-President, South Health Campus, CHR/AHS

 Affidavit of Bernie Simpson
Sworn August 31, 2010

Bankruptcy No. BKO1-094004

Action No. 100 1-06509

IN TIlE COURT OF QUEEN’S BENCH OF

ALBERTA
IN THE MATTER OF THE BANKRUPTCY
OF NETWORC HEALTH INC.

IN THE COURT OF QUEEN’S BENCH OF

ALBERTA
JUDICIAL DISTRICT OF CALGARY
CLERK OF THE COURT ALBERTA HEALTH SERVICES
Plaintiff
AUG 312010 -and-

CALGARY, ALBERTA NETWORC HEALTH INC.

Defendant

AFFIDAVIT OF BERNIE SIMPSON

(Sworn August 31, 2010)

OSLER, HOSKIN & HARCOURT LLP

Barristers & Solicitors
450 1
st
Street, S.W.
Suite 2500, TransCanada Tower
Calgary, Alberta T2P 5H1

A. Robert Anderson, Q.C.

Doug Schweitzer
Daniel Yaverbaum

Telephone: (403) 260-7004 / 7075

Facsimile: (403) 260-7024
File: 1123412