Exhibit SG 5- letter from Vanguard on June 20th 2001 to Philip Alderfer.

The letter explained how grant money was spent. There were 3 activities that took place at SherrardCommunity School, Aspire Community Art Fair, Hoodstock 2001, and a portion of salaries for Vanguard employees, artists and architects.

Attached invoices to the letter. Included was Carlita Kilpatrick's invoice for U.N.I.T.E. which she signed.

Shortly after sending that, Williams spoke to Kwame. Kwame told her she messed up, that Williams was not supposed to include Carlita's invoice along with the others. He told her he would call her back and never did..

Vanguard subsequently wrote a letter saying they would not give a second installment over misuse of the funds. Williams invited Alderfer to come and see what they were doing. Alderfer re-instituted grant with 2 stipulations- no more architect fees or U.N.I.T.E. fees. Vanguard had to pay back the U.N.I.T.E. fee of $37,500.

Exhibit SG 6- check for $150,000 in January 2002. Second installment of state funds to Vanguard.

Williams met with Carlita and told her that the state had released funds. Carlita said let me know if I can come back and do anything else for you.

Williams's sister works for the state U.S. Attorney's office and she is now in public corruption.

Bullotta asks if the fact that her sister is with the government if that affects her testimony. Williams says no.

11:17AM Thomas redirects. Thomas asks if the state ever asked for its money back from Kilpatrick. Lannoye said she left 3 weeks later but she did not. Lannoye excused.

11:12AM Eric Doeh redirects. Doeh asks if there was ever any transparent disclosure about Carlita Kilpatrick's involvement in the fund. No says Lannoye. If there had been transparency, asks Doeh, would that have changed things. Yes says Lannoye. "If I had known, I would not have approved those contracts." Lannoye says she did not know that U.N.I.T.E. was for profit. Doeh: The ending of violence is certainly important and the provision of supplies is important. But isn't it important that the person actually does the work? Yes says Lannoye.

11:09AM Susan Van Dusen for Bobby Ferguson cross-examines. Van Dusen says it's common for legislator to back community grants. Yes says Lannoye.The agreement on boiler plate sets forth agreements between recipients and funders. Whatever is in agreement controls whether party is fulfilling the agreement. Lannoye agrees with Van Dusen.

11:03AM Judge Edmunds calls court back to session. Defendants Exhibit D SG 5 is introduced is letter from Alderfer to Lannoye dated July 25th, 2001. The previous exhibit for VanGuard application is D SG 4. Jim Thomas says the exhibits are being re-labeled. Exhibit D SG 3 is the boiler plate agreement. Government says they call their exhibits SG. So Judge Edmunds says to add a D in front of the SG to distinguish them.

9:44AM Next witness still not available so government calls Mary Lannoye. Lannoye is sworn in.Eric Doeh for government questions. Currently she is Ingham County Controller. Responsible for all fiscal service functions. In 2000, Lannoye was State Budget Director. As such, she was responsible for running the Budget Office- presented budget to Legislature, implemented it and monitored it. Once Legislature passed budget, they reviewed it and made many recommendations to the Governor. In 2000, Lannoye became familiar with legislator Kwame Kilpatrick. Trying to finalize budget negotiations, they were trying to make sure of democratic support and talked about putting money aside for community grants. Kwame approached Lannoye and made pitch for his grants. She didn't see it as unusual because legislators make such pitches. She just listened- there were 2 types of community grants. One of them involved a competitive process and had to submit an application. They had to be a non-profit. Proposed Exhibit SG 7 put up on screen. It is a letter addressed to Lannoye from Kwame Kilpatrick thanking her for her consideration of 3Dimensional and VanGuard. Lannoye doesn't remember it specifically. Lannoye doesn't remember much of the organizations but that VanGuard was related to his church. At that point, found out that Carlita was affiliated with the organization. A year later, Kwame's office asked for second half of the grant. Lannoye asked for more documentation on how first half had been spent. They had trouble getting that documentation. Previous to that, they had not received satisfactory documentation. Finally got documentation that money had been spent on U.N.I.T.E. One of the women in the Budget office, Lisa Schumacher, recognized the company as being affiliated with Mrs. Kilpatrick. Lannoye contacted Louise Alderson and met with Kwame Kilpatrick. Lannoye thought this was a problem as she thought this was supposed to be for community and not for relative's personal gain. Doeh asks if Lannoye had known it would go to Carilta would she have allocated that money? No says Lannoye, I would not have authorized that contract. "It gives the appearance of impropriety going to a legislator's wife." Alderson and Lannoye met with Kwame and he said he did nothing wrong. "He was nonchalant." Lannoye was angry with Kwame because grants were meant to help local community and not meant to go to a legislator. Lannoye worked for Governors Engler and Grantholm. Doeh ends questioning.

9:42AM Van Dusen redirects. Sir would you think the money went towards providing employment skills would that benefit community. DeGrow answers yes. Steps down.

9:39AM Bullotta redirects. Asks DeGrow if he could think of the refurbishment of an office of a contractor would fall in the criteria.

DeGrow says he couldn't think of why it would would. The refurbishment of McMorran Arena benefited the community and none of DeGrow's family members involved. DeGrow says on the surface having a family member is not inappropriate. But he could see why it would be appropriate for a wife who works for children groups to get involved. Bullotta asks if it would be appropriate for grant money to go to spouse for work not done. No says DeGrow.

9:33AM Susan Van Dusen for Bobby Ferguson cross-examines. Defendants' Exhibit 2 introduced into evidence. DeGrow says it looks familiar. Van Dusen asks if the language is broad in terms of criteria for selection. Yes says DeGrow. Priority consideration given to projects for children and school groups and/or serving senior citizen. Yes says DeGrow. Van Dusen says this goes beyond arts and culture but economic development of community being addressed. Yes says DeGrow. Total figure for all grants somewhere between $15 to $20 million.

9:16AM Jim Thomas cross-examines. DeGrow knows Kwame since 1998 when he was a minority leader in the House. Thomas asks DeGrow to explain quadrant meetings. DeGrow concedes meetings were to get budget passed. Concedes all had their own interests. There were hundreds of the quadrant meetings over the summer. Thomas says would you agree there is some horse trading at these meetings. Sure, says DeGrow, there is horse trading but make sure it is fairly distributed. Kwame does represent others in these quadrant meetings. DeGrow says that Detroit certainly entitled to get grants, that is norm for minority leader to come and ask for that.

If someone wanted an arts and culture grant, that would be brought to the table. Yes says DeGrow. One of the years DeGrow had a grant for McMorran Arena in Port Huron. There was a $2 million grant at one point for the arena. Kwame did bring a certain number of grants to the table. There were some for the state- Muskegan County Museum, Michigan Pine and Girl Scout Council, Michigan Visitors Bureau. Thomas approaches DeGrow with document listing tyops of grants given in supplemental budget in 2000. DeGrow's memory not really refreshed but yes these are the types of grants. List Thomas showed for only 2 counties. Thomas asks about arts and culture grants being around for many years. But, asks Thomas, wasn't this arts and culture grant only around for 2 years?

In 2000, they were funding arts and culture grants. DeGrow doesn't remember if they were listed line by line or if they said if you apply you will get it. If agreed with governor and legislators, commitment was kept. Applications have to be filled out and there is a process for the grants. DeGrow has no specific knowledge of Detroit 3D or Vanguard. Thomas asks about ethical rules on management of grants? DeGrow thinks there are rules and guidelines but he never handled that part of it. Amount of $500,000 not unusual figure for grants says Thomas. Correct says DeGrow. Thomas asks if you discussed that Carilta Kilpatrick's U.N.I.T.E provided services for both those grants? DeGrow says it was never discussed, to best of recollection. Thomas asks if unusual to have a relative work with a grant? DeGrow says yes unusual. There was only one other instance he can remember after he left. Nothing inappropriate on the surface.

9:05AM Michael Bullotta for the government calls Daniel Lewis DeGrow. Superintendent of Schools at St Clair County. In 2000, was a state senator for Michigan. Served for 20 years. School superintendent pays more than senate majority leader. Left in 2002. Involved in the supplemental budget. DeGrow was majority leader as elected by the caucus- elected by Republicans. Elected by his peers. There were more Republicans than Democrats at the time in the Senate. Knew Kwame Kilpatrick- at the time he was House minority leader. He dealt with Kwame on occasion. It was a long time ago and they didn't fight as much as they do now. Kwame and DeGrow talked about the supplemental budget. Going back 12 years, they were going to pass supplemental and some items. Including the arts and cultural grants, money and grants given to community non-profits to promote arts and culture. There were more than just the 2 of them. Kwame asked if they could put 2 grants in for Detroit. One of them was the Detroit 3 Dimensional Community Development Corporation. It is normal for minority to ask for some things- not out of the norm to ask for several grants. It was nothing out of the ordinary. DeGrow and others- Department of Management Budget- agreed to them. The grants were possibly in the 100s of thousands each. Bullotta asks did Kwame Kilpatrick tell you the money went to refurbishing Bobby Ferguson's offices? Defense interjects. Edmunds sustained. There was no discussion as to what the money was going to.DeGrow didn't do due diligence on money's whereabouts. DeGrow did not administer the grants. Bullotta ends.

9:04AM Judge Nancy Edmunds enters courtroom. Assume the jurors are filing in as we can't see them from the media streaming rooms outside the courtroom. Jurors are seated.

8:48AM Bernard Kilpatrick is first of the co-defendants to arrive this morning. Sits at the table taking some notes.

Bernard is closely followed by Bobby Ferguson who arrives after his lawyers Susan Van Dusen and Mike Rataj.