Eron Lenders
Project Name: Discovery Ridge
Lender update

January 12, 1999

Further to our letter of May 4, 1998 we are writing to update you on the status of the above noted mortgage.

Project Status

The mortgage matured on August 31, 1998 following a one month second extension, the same day the Lender's Committee and the Judicial Trustee met with Discovery Ridge's ("the Company") management to hear their final financing proposal. The Eron lenders were being asked to postpone behind approximately $25,000,000 of debt, some of which now ranks behind the Eron debt. The Company's proposal was not acceptable. A demand and notice to enforce security was issued on October 9, 1998. Foreclosure would have commenced on November 3, 1998. On the day the demand was issued, but before the Company had received it, the Judicial Trustee had a call from Company management requesting a six month extension to allow the Company time to arrange take out / development financing. To allow the Company, the Lender's Committee and the Judicial Trustee time to explore this alternative, the demand was withdrawn and the mortgage was extended to November 16, 1998.

An agreement has been reached whereby the mortgage maturity date has been extended to May 31, 1999. The Agreement contains the following provisions:

1. Interest will be capitalized and compounded at the existing mortgage rate of 15%.

2. All reasonable legal costs incurred by the Judicial Trustee in the preparation and enforcement of the Agreement will be added to the indebtedness owed by the Company.

The extension in maturity date will give management time to try and arrange financing or a sale of the development to raise funds to payout the Eron mortgage. If they are not successful the Agreement continues as follows:

3. A statement of claim will be issued signifying our intent to realize upon the mortgage security.

4. The demand period is reduced from 15 business days to one clear business day.

5. The Company has provided a waiver of the usual Notice of Intent to Enforce Security.

6. The Company has provided its acknowledgement that it has no defense of any type to the statement of claim and will not defend any action.

We would still follow the foreclose route to clear title, but unopposed by the Company.

The alternative was to proceed with foreclosure. The Company would strenuously oppose such an action, which would be expensive for both parties. It is estimated the foreclosure process would take a minimum of five months to complete and quite possibly much longer.

The agreement does not prevent the sale of the Eron mortgage to a third party. A number of parties have expressed an interest in acquiring the mortgage and if one came forward with a firm offer, we would seek the approval of the lenders before proceeding.


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 Price Waterhouse Centre, 601 West Hastings Street, Vancouver, BC, V6B 5A5 or by fax at (604) 688 6128 marked to the attention of Discovery Ridge - Project Lead.


Yours truly

Judicial Trustee


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