Eron Lenders
Project Name: Discovery Ridge #1168
Lender update

December 18, 1997

Further to our letter dated November 5, 1997 we are writing to update you on the status of the above noted mortgage.


Project Status

We have received information from the borrower indicating that an Area Structure Plan and Rezoning for the development are expected to be approved by the Calgary Planning Commission in February, 1998 and City Council in April, 1998. The construction start is scheduled to start in May of 1998, with building planned for June of 1998.

No payments are due under the loan agreement until the end of January, 1998, as interest payments are added to the principal balance on a monthly basis. The $4,620,000 loan matures at the end of January, but the borrower has the option to extend the term for a further six month period, subject to the payment of a fee and interest for the extension period. We have written to the borrower requesting that they provide notice as soon as possible as to whether they will be seeking to extend the term of the loan.

We have received a copy of the option agreement granted to the borrower and have estimated that the option exercise price is in the range of $11,000,000 to $12,000,000. The exact amount of the option price and the date the payment is due will be determined upon final subdivision approval. We understand that the final subdivision approval should be obtained in spring 1998.

We have arranged for an opinion of value on the property, which indicates a value range of $9,400,000 to $11,000,000.


Price Waterhouse Limited ("PWL") Activities

In previous communications we have noted the incompleteness and deficiencies in Eron's mortgage and accounting records. During the past several weeks we have been sorting and analyzing these records which are essential to the recovery and distribution of funds.

A significant portion of the accounting and sorting of mortgage records has been completed. The final accounting and determination of accurate lender listings cannot be completed for the project until the accounting is completed for all projects due to the numerous inter-project transfers. We are using the information provided to us by lenders to cross check accounting records. We therefore request that you return to us the Lender Confirmation form enclosed with our October 6, 1997 letter, if you have not already done so.

We are minimizing costs while seeking to maximize your recovery. In certain instances this goal is best served by using staff who are not PWL employees. Accordingly, we have retained the services of short term contract staff at rates significantly lower than PWL hourly rates to assist us as appropriate.


Price Waterhouse Fees and Disbursements

There are two components of PWL's fees and disbursements on each individual project, direct costs and an allocation of indirect costs. Direct costs will include costs specifically related to the project, such as, legal fees, time spent by the PWL/contract staff analyzing the project and devising a strategy to maximize recovery and creating project accounting records. Indirect costs will include such items as general lender communications, analysis and creation of non- project specific accounting records and all other costs which cannot be directly attributed to specific projects.

We are also incurring costs such as rent, utilities, insurance, appraisal fees and other costs. Certain of these costs will be direct costs to the project (e.g. appraisals) while others will be indirect (e.g. utilities). We have not discussed these costs in this letter.

At November 30, 1997 the direct fees incurred on this project totalled approximately $4,000 excluding legal fees. We are unable to estimate the future direct costs for the project with any degree of certainty.

At November 30, 1997 the indirect fees totalled approximately $851,000 for the 69 projects. These indirect costs have been incurred as follows: 31% lender communications; 25% engagement planning management; 14% office, record and employee management; 11% general project matters; 10% preparation for and attendance at court; 7% banking and accounting matters; and 2% meetings with regulators.

Ongoing indirect costs will be significantly reduced as we now have a framework for the administration in place, can increasingly shift administrative tasks from PWL staff to less expensive contract staff and have established low cost methods of communicating with lenders, such as the web site and voice mail information system discussed below. Our goal is to reduce the indirect costs to a level of approximately 20% of the total costs of administering the projects by December 15, 1997.

The method of allocating the indirect costs has not yet been determined, however, an allocation method based on the project's direct costs is considered to be an equitable method. We will seek Court approval of the selected allocation method at a later date.


Lender Communications

To facilitate communications with lenders we have established a voice mail information system with separate voice messages for several projects or groups of projects. By dialling one of the following three numbers (604) 878-4201, (604) 878-4244 or (604) 878-4248 and selecting mailbox number 2165 you will hear a brief report on the status of this project. The mailboxes will be updated regularly by the project lead. A list of mailbox numbers is attached to this letter. Please note that certain projects will not have a specific mailbox and any enquiries with respect to those projects should be directed to our general voice mail box by dialling (604) 669-5087.

We have also now established a web site at http://www.eron-pwl.com. On this site you will find project specific updates as well as related court orders.

During November, as you may be aware, the Eron Lenders' Committee ("ELC") held an election to select ELC representatives. Approximately 30% of the Lenders in the Eron projects voted in this election with the significant majority voting in favour of establishment of the ELC. The ELC has been instrumental in establishing individual project committees. We have now met with most of the individual project committees and we intend to maintain regular communication with them.

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

We will issue another letter as soon as we have significant new information to report. In the meantime, if you have any specific questions or information concerning the project please contact us in writing at 500 - 1380 Burrard Street, Vancouver, BC, V6Z 2H3 or by fax at (604) 688-6128 marked to the attention of Discovery Ridge - Project Lead.


Yours truly

Judicial Trustee

Eron Lenders





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