Statement of Defence of Stronach Consulting Corp.

Court File No. CV-18-606163-00CL ONTARIO SUPERIOR COURT OF JUSTICE (COMMERCIAL LIST)

B E T W E E N: FRANK STRONACH and ELFRIEDE STRONACH Plaintiffs - and – BELINDA STRONACH IN HER PERSONAL CAPACITY AND IN HER CAPACITY AS TRUSTEE OF THE BELINDA STRONACH 445 FAMILY TRUST, THE ANDREW STRONACH 445 FAMILY TRUST AND THE 445327 TRUST; ALON OSSIP IN HIS PERSONAL CAPACITY AND IN HIS CAPACITY AS TRUSTEE OF THE ANDREW STRONACH 445 FAMILY TRUST AND THE 445327 TRUST; FRANK WALKER IN HIS CAPACITY AS TRUSTEE OF THE BELINDA STRONACH 445 FAMILY TRUST AND THE ANDREW STRONACH 445 FAMILY TRUST; NICOLE WALKER IN HER CAPACITY AS TRUSTEE OF THE BELINDA STRONACH 445 FAMILY TRUST AND THE ANDREW STRONACH 445 FAMILY TRUST; and STRONACH CONSULTING CORP. Defendants STATEMENT OF DEFENCE OF STRONACH CONSULTING CORP.

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TSG cur curren rently tly includ includes es fou fourr main main lines lines of busine business: ss: racing racing and gamin gaming, g, real real esta estate te

development, agriculture, and Thoroughbred racing and breeding: (a)

Racing and Gaming: Within its Racing and Gaming Group (“ RGG”), TSG owns and operates racetrack properties and training centres across the United States. It also owns and operates technology and content companies in the racing and gaming area.

(b)

Real Estate: TSG also holds extensive real estate. Among other things, its real estate group focuses on converting excess RGG real estate into commercial/residential commercial/residential mixed-use facilities.

(c)

Agriculture: TSG’s agriculture business (“ AG”) includes cow/calf raising and breeding, a slaughterhouse, slaughterhouse, beef distribution, distribution, and land land holding and management.

(d)

Thoroughbreds: The Thoroughbred racing and breeding operation (“ TBR”) acquires and breeds stallions and broodmares, and maintains a racing stable and







-3(c) (c) 7.

Andr Andrew ew Stro Strona nach ch 44 445 5 Fami Family ly Trus Trustt (the (the “ Andrew Trust”), the beneficiaries of which include Andrew Stronach (“ Andrew”) and his daughter Selena Stronach.

The Pl Plaintiff Fr Frank St Stronach (“ (“Frank”), who is 86 years old, is neither a trustee nor a

beneficiary of any of the Family Trusts. 8.

SCC’ SCC’ss seni senior or exec execut utiv ives es are are Beli Belind ndaa Stro Strona nach ch (“Belinda”), who is the Chairman and

President, and Alon Ossip (“ Alon”), who is Chief Executive Officer. Alon’s status at SCC and his ownership interest in certain TSG entities are addressed further below . 9.

SCC SCC has has sev several eral inter nteres ests ts in this this act action: ion: (a)

As the the Stat Stateme ement nt of of Claim Claim assert asserts, s, SCC SCC is the “pr “princ incipa ipall busin business ess entity entity that that owns owns and operates a number of important assets of The Stronach Group, either directly or indirectly.” SCC’s interest is in maximizing the overall value of the SCC S CC group of companies for the benefit of its stakeholders.







-4B.

SCC’ SCC’S S RES RESPO PONS NSE E TO TO THE THE POSI POSITI TION ON OF THE THE PLA PLAIN INTI TIFF FFS S

12.

The Stat Stateme ement nt of of Claim Claim relat relates es princ principa ipally lly to the the manner manner in which which Fran Frank k allege allegess he was was

treated from 2010/2011 to the present when he sought to be involved in running the TSG enterprise. Although she is a plaintiff, Elfriede does not assert in the Statement of Claim that she was ever involved in running SCC or the overall TSG enterprise. Nor does she appear to seek such a role now. 13.

The thr thrust ust of of the Plai Plainti ntiff ffs’ s’ pos positi ition on is is that that Frank Frank was, was, at vari variou ouss times, times, exclu excluded ded from from

various TSG businesses, disrespected, deprived of financial information and denied the control that he asserts was rightfully his (which SCC denies). Frank also alleges that the TSG business was not managed properly by those who were and are in charge. He seeks through this litigation to take control of the entities listed in Schedule A to the Statement of Claim.







-518.

As refle reflecte cted d in th thee Unanim Unanimou ouss Shareh Sharehold older er Agreem Agreement entss referr referred ed to in in paragr paragraph aph 64 64 of the the

Statement of Claim, Alon also owns approximately 5 percent of certain assets of the TSG enterprise outside of the trust structure described above (a fact contested in the Statement of Claim). 19.

SCC antic anticipa ipates tes that that the the vario various us owner ownerss will will weigh weigh in in on their their cho choice ice and and prefe preferen rences ces..

However, it is clear from the Statement of Claim that if Frank assumes control, he intends to resume his past spending approach and to revive several business initiatives that have caused TSG to lose extraordinary amounts of capital in a short period of time. 20.

The Plainti Plaintiffs ffs assert assert in the the State Statemen mentt of Clai Claim m that that deci decisio sions ns made made by SCC SCC were were not not in

accordance with “sensible and prudent commercial practices”. SCC denies this allegation. In contrast and as detailed below, Frank sought to prevent the company from accepting or applying







-6(g)

SCC is is not not party party to, and did not br breac each, h, a lett letter er agree agreemen mentt dated dated May 23, 23, 2017 2017;; and and

(h)

steps steps take taken n by SCC and and vari various ous TSG entiti entities es sinc sincee 2017 2017 to to impr improve ove the fin financ ancial ial position of their their enterprises enterprises were commercially sensible, sensible, and in the best interests interests of the TSG entities and their stakeholders.

C.

BACKGROUND

22.

The Stat Stateme ement nt of of Claim Claim disc discuss usses es at leng length th the the growth growth and and acco accompl mplish ishmen ments ts of of Magna Magna

International Inc. (“Magna”) and Frank’s role in that success. While Magna was and is a very successful business, Frank was required while at Magna to operate within public company legal constraints, including in relation to board governance, audits and securities regulatory oversight oversight as well as capital markets scrutiny and discipline. 23.

One constrai constraint nt related related to Frank’s Frank’s spending spending on ventures ventures outside outside of the auto parts parts busines business. s.









-7spending patterns patterns are set forth by SCC in this Statement of Defence so that they can be addressed by the parties and the Court in the context of decision-making regarding the operation and management of SCC and TSG going forward. 27.

The initi initiati atives ves that that attra attracte cted d Frank’ Frank’ss attenti attention on varie variedd over over time. time. Prior Prior to and dur during ing the the

early years of TSG, Frank focused his attention on the purchase of large tracts of land, mostly but







-8accommodated in part on the basis of his repeated assertions that profitability was close at hand. This was tenable so long as (i) there was substantial cash remaining in the business, (ii) he continued to assert that his recommendations recommendations would be profitable and provide reasonable return to stakeholders and (iii) he left SCC and TSG management largely alone to run RGG. However, in the last part of 2015 and into 2016, with free cash in the business becoming depleted, circumstances changed. Frank became more intrusive at RGG, including by reaching out to employees and







-9returns. As of early 2018, TSG has established a real estate development division, focused primarily on the conversion of RGG real estate into commercial/residential mixed-use facilities, with the goal of providing sustainable long-term long-term wealth and cash flow for TSG. However, effective implementation of this strategy will require expenditures in the near- and mid-term. 36.

SCC plead pleadss that that it was was oblig obliged ed to take take acti action, on, thro throug ugh h manage managemen ment, t, to addr address ess the the loss loss of







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445 Family Family cur curren rently tly owns owns all all of the comm common on shar shares es of of 4453 445327 27 Onta Ontario rio Inc. Inc. (“ (“ 445327”),

which indirectly holds 95 percent of the common shares of SCC. 42.

The memo memoran randum dum also also indic indicate atess that that in 201 2013 3 Frank Frank was was aware aware of of and and in agr agreem eement ent with with

terms that would provide Alon with a 5 percent equity interest in certain assets in the TSG business. Detailed agreements reflecting these terms were executed in October 2013.







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Frank Frank asked asked Alon Alon to to join join TSG to assi assist st in runn running ing this this new new busin business ess.. Alon Alon had prev previou iously sly

led the Magna and MID transactions on behalf of the family. Alon effectively ran the enterprise from the outset, focusing initially on the major tasks of leading the management team and implementing systems as well as fixing and running the business. In late 2011, Frank and Belinda asked Alon to become the CEO of TSG. The appointment was announced to the organization in February 2012. In 2011, John (who was a former Magna and MID M ID employee also involved in the









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Statement of Defence of Stronach Consulting Corp.

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