September 28, 2000


         Mr. Mark Zigler
         Koskie Minsky
         Barristers and Solicitors
         Suite 900, 20 Queen St.W.
         Toronto, ON M5H 3R3

         Dear Sir:


                                                                      Box 25, Commerce Court West
                                                                      199 Bay Street
                                                                      Toronto, Ontario, Canada
                                                                      M5L 1A9
                                                                      Deliveries: 28th Floor
                                                                      Telephone: 416.863.2400
                                                                      Facsimile: 416.863.2653

                                                    Randy V. Bauslaugh
                                                                      Direct Dial: 416.863.2960

                                                                      Reference: 41705/12 
Re: Contributory Pension Plan for Salaried Employees of 
McMaster University (the "Plan")
Re: Pension Surplus Sharing Proposal

We trust that the following now reflects the principal terms of agreement in respect of the surplus sharing proposal which we have been discussing over the past several weeks.
The University administration agrees with the fundamental principles set out in your letter of July 26, 2000, that is, that the proposal should be seen to provide equal benefits to the University and Plan members and that it be a simple one that can be readily understood by a broad range of persons with differing ongoing beneficial interests in the Plan. In keeping with these principles, the University administration believes that the agreement should be concluded without reference to ongoing commitments that extend beyond the surplus pay-out and without reference to the future structure, design or contribution obligations of the University or Plan members under the Plan.
The cash distribution proposed in your letter is higher than anticipated; however, the University administration is of the view that it has the merit of being simple and understandable. Accordingly, the University administration is pleased to confirm that it agrees with your client's proposal for an all cash arrangement and will recommend that the Board of Governors enter into an agreement consistent with the terms set out below.
    1. Surplus in an amount equal to the lesser of (a) $150 million and (b) such amount as the pension standards regulator allows, will be withdrawn from the Plan. One half of this amount will be paid to consenting Plan members and the other half will be paid to the University.

    3. Allocations to individual consenting Plan members shall be prorated to their individual ongoing Plan liabilities, but there is a minimum individual allocation of $5,000 per pensioner, and $500 plus $250 per year of service to a maximum of ten years for all other consenting Plan members or persons claiming through them. The Committee may vary the minimum individual allocation upon written notice to the University, provided the minimum allocation is not materially inconsistent with the foregoing.

    5. Subject to applicable laws, the University shall amend the Plan to provide flexible settlement options to maximize tax-sheltering opportunities relating to the distribution of individual shares to consenting Plan members. This shall be done on a reasonable group basis and on the basis of established distribution and tax-sheltering methods. For greater certainty, it is agreed that no settlement option shall be required to be provided, if in the opinion of the University's professional advisors,
      1. it would be prudent to apply for an advance income tax ruling, technical interpretation or regulatory approval, and it appears that such application could delay implementation of the surplus sharing agreement; or

      3. if the form of settlement was likely to substantially increase the cost of administering the benefits to be provided under the surplus sharing agreement.

      It is also agreed that the University shall provide full information about the available settlement options, but shall not be required to provide tax or financial planning advice to individual consenting Plan members.
    1. The signatories shall use best efforts to pay all third party expenses of the University and the consenting Plan members and their representatives (including errors and omissions insurance for members of the Committee and the undersigned associations) relating to the negotiation and implementation of the proposed surplus distribution from the Plan fund as incurred and not from surplus shares. If any such disbursements or expenses are not permitted to be paid as incurred from the pension fund, such portion as cannot be paid from the pension fund shall be a first charge against the surplus available for sharing. All legal or actuarial opinions paid for from the pension fund or from surplus shall be protected by solicitor client privilege and all personal information relating to individual Plan members shall remain confidential.

    3. The McMaster University Futures Fund ("MUFF") shall not be continued after its next expiry date which is April 30, 2001. Money allocated to the MUFF prior to that date will remain in the fund until spent on then-existing initiatives.

    5. The formal surplus sharing agreement shall not be subject to, nor incorporate any agreement with respect to the future design or funding of the Plan, including any division of the Plan (except any transfer that may be required to effect the surplus sharing contemplated by paragraph 9 of this agreement), minimum contribution requirements or any requirement relating to a supplementary retirement plan. Any further discussion of such issues that occurs shall be carried on by University administration with affected Plan members separately and is not to be part of the surplus sharing agreement.

    7. An active Plan member or, subject to section 10.1 of the Pension Benefit Act Regulations, an inactive Plan member, who does not consent to the terms upon which surplus is to be paid out of the Plan within the time required therefor, shall receive no payment of the surplus that is to be paid out of the Plan under the surplus sharing agreement and shall obtain no right, title or interest to any additional benefits payable to consenting Plan members in connection therewith, or to any surplus remaining in the Plan or transferred to any plan, and shall have only such rights as are presently provided for under the terms of the Plan or at law.

    9. The written consent of 100% of the active Plan members and 100% of inactive Plan members (or 90% of inactive Plan members who are represented by a person appointed by a court) must be received within 60 days of the date a written request for such consent is transmitted to the last known address of the Plan members (the “Due Date”).

    11. Notwithstanding section 8, if on the Due Date, less than 100 % of the active Plan members but 90% or more of each of the active and inactive Plan members have consented to the terms upon which surplus is to be paid out of the Plan, (including the terms of any transfer to a single pension plan to effect such a payment), the University and the consenting Plan members shall use their best efforts to effect the surplus distribution contemplated herein. Notwithstanding section 8, if on the Due Date, less than 90% of either of the active or inactive Plan members have consented to the terms upon which surplus is to be paid out of the Plan, (including the terms of any transfer to another pension plan to effect such a payment), there shall be no surplus distribution, unless the University, in its absolute discretion, causes all of the consenting Plan members and all of the assets and liabilities attributed to them to be transferred to a single pension plan to effect the surplus distribution contemplated herein for the consenting Plan members. Surplus transferred from the Plan as contemplated herein shall be distributed as otherwise provided for in this agreement; provided that the amount of surplus available for distribution therefrom is consistent with the amount of surplus sought to be distributed to the University and consenting Plan members in section 1, above; and provided that such transfer shall only occur if and to the extent required to effect a payment of surplus to the University and the consenting Plan members.

    13. The University shall obtain such court orders or regulatory approvals as it deems necessary or desirable to permit the distribution of surplus to the University and the consenting Plan members. The distribution of surplus shall comply with all applicable legal and regulatory requirements. The consenting Plan members shall vigorously support any court or regulatory application made by the University to implement the surplus sharing agreement.

    15. This offer expires September 28, 2000. The University reserves the right to withdraw or modify this offer at any time prior to expiry or prior to acceptance. If the offer is withdrawn or expires, the reasonable legal and actuarial expenses incurred by the Committee and Plan Members in connection with this agreement shall be treated as administrative expenses of the Plan. Acceptance of this offer, as set out herein, shall not be binding on the University without the approval of the Board of Governors and the execution of a more detailed formal surplus sharing agreement.

    17. A formal surplus sharing agreement consistent with the terms set out above shall be duly executed by the Committee members, by the collective bargaining agents of Plan members, by an authorized representative of the McMaster University Retirees Association and by the University as soon as practicable following acceptance of this agreement in principle by the Board of Governors of the University. For this purpose it is anticipated that the Committee shall use its best efforts to be appointed by a court to represent the interests of all persons entitled to payment under the Plan from the date hereof to the effective date of withdrawal by virtue of employment with McMaster University including, without limitation, employees, former employees and persons claiming through them.
I trust you will find this helpful. The main purpose of this letter is to settle the main terms on which approval of the Board of Governors can be obtained. A final agreement will be concluded on the basis of these main terms after the Board of Governors approves this document. If you are in agreement with the terms set out above, please have your clients execute a copy of this letter in the space indicated below (in counterparts, if convenient) and return it to me directly.

                                                                                Yours very truly,

                                                                                          Randy V. Bauslaugh
c. K. Belaire, Vice-President, Administration, McMaster University
    J. Higgins, William M. Mercer Ltd.
We accept the terms set out above as of September 28, 2000:
McMaster University Faculty Association
A. Leslie Robb

The Management Group (McMaster)
Robert West

McMaster University Retirees Association
John P. Evans

McMaster University Staff Association
Barry Diacon, President

McMaster University Retirees Association
Gerry Keech, President

McMaster University Staff Association
Chris Buthcher

McMaster Clinical Faculty Association
David Clark

McMaster University Faculty Association
Bernadette Lynn, President

McMaster Clinical Faculty Association
John Gately, President