Eron Lenders
Project Name: #1133 Cloverdale Mall 2nd and Nanaimo Business Centre 2nd; #1135 Cloverdale Mall 3rd
Lender Update

July 3, 1998

Further to our letter of April 16, 1998 we are writing to update you on the status of the above noted projects.

Project Status

- Nanaimo

As previously reported, a receiver of rents was appointed by the Court in February, 1998. Mr. Dan Grimble, a chartered accountant and employee of the first mortgagee, is the Receiver and has been maintaining the building.

Because Revenue Canada Excise had issued Requirements to Pay upon all the tenants in respect of a large debt ($400,000+) due to them by Bear Creek Sales Ltd., we filed a petition to have Bear Creek Sales Ltd. declared bankrupt. The Petition was filed on April 30, 1998 and heard on May 25, 1998 on which date a Receiving Order was pronounced declaring Bear Creek Sales Ltd. to be bankrupt. An appeal has been filed by the debtor but has not yet been acted upon. We have instructed counsel to have the stay of the Receiving Order lifted to the extent the debtor must deliver books and records to the trustee pending the hearing of the appeal.

As earlier advised, the property is currently listed for sale with REMAX of Nanaimo at an asking price of $2.7 million. Given the large vacancies within the building, this will be a difficult sale. A leasing agreement has been entered into with the same realtor by the Receiver.


- Cloverdale Mall (the "Mall")

We provided accounting evidence before the Registrar on April 30, 1998 and were cross examined on the evidence on June 2. The Registrar's report to the Court upheld our accounting. We also managed to obtain further evidence of the mismanagement of the Mall and on June 16, 1998, we were granted judgement against the borrower, an Order Nisi granting a six month redemption period and our application for the appointment of a Receiver was granted. On June 24, 1998 , we had the terms of the Order expanded and on that date, Campbell Saunders Ltd. was appointed Receiver of Cloverdale Mall.

We intend next to have the foreclosure petition in respect of the 'Cloverdale 3rd' mortgage heard and seek conduct of sale. We have been contacted by developers seeking to acquire this site for redevelopment. Challenges we will be dealing with include the City of Surrey seeking a 450% increase in land rents (retroactive to August, 1997), continued legal challenges by the borrower and, we expect, necessary repairs and maintenance within the Mall itself. Notwithstanding these challenges we are confident that we will be able to achieve a full recovery of the 2nd mortgage. We cannot yet predict the potential return for the '3rd mortgage' lenders with any confidence.


Schiel Group - Usury Issue

As you aware, prior to the receivership of the Eron group of companies, the Schiel group started an action seeking injunctions against the Eron group to prevent any enforcement steps being taken in respect of the Eron security pending a trial of whether the loans to the Schiel group were at criminal interest rates. On June 10, 1998, Justice Tysoe heard the Schiel group application for leave to continue that action and ordered that the Schiel group would have leave except to the extent that foreclosure actions were commenced by the Judicial Trustee prior to June 17, 1998. Foreclosure actions have been commenced on all mortgages to the Schiel group.


Lender Communications

As you are probably aware, we have a web site at http://www.eron-pwl.com. On this site you will find project specific updates as well as related court orders and other general information.

We will continue to communicate directly with all lenders, we urge you to take advantage of the web site so that you can receive first hand current information from the Judicial Trustee in the most cost effective manner we have available.

We plan to issue another letter as soon as we have significant new information with respect to the distribution. In the meantime, if you have any specific questions or information concerning the project please contact us in writing at 1400, 601 West Hastings Street, Vancouver, BC, V6B 5A5 or by fax at (604) 688-6128 market to the attention of Cloverdale/Nanaimo - Project Lead.


Yours truly,

Judicial Trustee

PricewaterhouseCoopers Inc.

601 West Hastings Street Suite 1400
Vancouver BC Canada V6B 5A5
Telephone +1 (604) 669-5087
Facsimile +1 (604) 688-6128

PricewaterhouseCoopers is a Canadian member firm of PricewaterhouseCoopers International Limited, an English company limited by guarantee.


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