Eron Lenders
Eron Mortgage Corporation ("EMC") and Bare Trustee Companies for which Price Waterhouse Limited ("PWL") has been substituted as Judicial Trustee
Lender update

March 17, 1998

This letter is being sent to all lenders, however it deals with a specific issue which is the allocation of lenders from Eron Investment Corporation ("EIC") to specific projects in the spring of 1997. The reason for distribution to all lenders is that the method in which EIC is dealt with may very well impact all lenders involved in EMC whether they were directly involved with EIC or not.Further to our letter dated November 5, 1997 we are writing to update you on the status of the above noted mortgage.

We do now have a list of the EIC lenders which are aeffected by the allocation issue and would be happy to make this available to you. , Pplease contact us at the numbers listed below to obtain a copy.

As many of you are now aware, questions have been raised as to the methods that were used to make the assignments from EIMIC to the specific mortgages. From the records which are available at EMC and discussions with former staff it appears that the allocation method used was not a fair and impartial allocation method to many of the lenders in EIC as well as lenders in certain projects which had EIC lenders allocated to them.


History

EIC was originally set up as a pool of funds which paid an interest rate higher than may be available on other investments within EMC but provided the lender with no specific security. Participants in EIC would not know which EMC project their funds had been put in to, as they would receive monthly interest cheques directly from EIC.

In the fall of 1996 EMC was informed by the Financial Institutions Commission that EIC was in violation of certain of the regulations of the Mortgage Brokers Act as well as the BC Securities Regulations. EMC was told to accept no further funds into EIC and to allocate wind the certain EIC lenders into specific mortgages. This unwinding of EIC was not commenced until the spring of 1997.

The method used by EMC to unwind EIC has been described as an alphabetical sorting of lenders and investments which were then matched. Two problems arise from this, the first is that certain lenders were given the opportunity to change where they had been assigned and, others were not given this option. Secondly, some investors were assigned to projects which never received any funds from EIC, therefore diminishing the return of all lenders in a project which may have had nothing to do with EIC.


Current Situation

We are now faced with a difficult decision on what recommendation we should make to the Court in order to deal with the EIC assignment issue. This issue will need to be determined prior to any further distributions as it will effect the distribution of virtually all of the remaining investments. Therefore, we will hold an informational meeting on the subject of the EIC allocation on April 8, 1998 at the Vancouver Trade and Convention Centre, Ballroom B, located at 999 Canada Place, Vancouver Empire Landmark Hotel 1400 Robson Street at 87:00 PM. We will provide a presentation as to exactly what has happened, the alternatives available and finally a summary of what ourare current recommendation is. This general meeting is being held immediately following a meeting of EIC lenders. We hope to have two steering committees established at the end of the evening, one who will represent EIC lenders and a second who will represent the non EIC lenders who will be affected by the allocation. We note that our position is not yet this is not our definitive. We are encouraging dialogue prior to making our recommendation to the Court and we look forward to liaising directly with these committees in formulating this recommendation.


Example of how this may effect non EIC lenders

If you are a lender in a project which had no cash investment at any time from EIC and yet former EIC lenders were allocated to the project during the above mentioned allocation, you may receive a lower return on your investment due to the fact that you are sharing with investors who never had their funds invested in the project.

By way of an example we will use a project which had $8 million raised. Let us assume that on the allocation of EIC $3 million of the EIC lenders were allocated to this project, therefore the total lenders showing in the project are $11 million. However, EIC only invested $2 million in cash into the project. If the project returned $10 million (which is exactly what the actual cash invested was) and all EIC lenders remained in the project the distribution to the lenders would, assuming all lenders rank equally in any distribution, be approximately 91% of the amount invested. If the EIC investors were somehow pooled and only received credit for the actual cash investment, the lenders to the specific project, assuming all lenders rank equally in any distribution, would receive 100% of their investment back and the EIC pool would receive 67% of its investment.

We have summarized the above example in the following table:
Total funds raised for project excluding EIC - $ 8,000,000
EIC cash allocations - 2,000,000
Subtotal - 10,000,000
EIC non-cash allocations - 1,000,000
Total - 11,000,000
Realizations - net of costs - $ 10,000,000

Realizations as percentage of cash invested
- without EIC non cash allocation ($10MM/$10MM) - 100%
- with EIC non-cash allocation ($10MM/$11MM) - 91%
- EIC 'pooled' recovery cash basis ($2MM/$3MM) - 67%

We appreciate that an example such as the above is difficult to follow, which is why we have called for the meeting, which will enable us to give examples and fully explain the situation.


Lender Communications

As you are probably aware wTo 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 2182 you will hear a brief report on the status of the project. These 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 hhave 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 and other general information.

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,. wWe 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 plan to will issue another letter as soon as we have significant new information to reportwith respect to the distribution. 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 EICMorewood - Project Lead.


Yours truly

Price Waterhouse Limited

Judicial Trustee





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