Eron Lenders
Project Name: Emerald Estates, Projects 1127, 1128, 1129, 1131, and 1132
Borrower: Endeavour Developments Ltd.
Lender update

January 14, 1998

Eron Lenders

Further to our letter dated October 29, 1997, we are writing to update you on the status of the above noted mortgages.


Project Status - Schiel Group General

As indicated in our earlier letter, all of the Schiel group mortgages are in default. No payments have been made in approximately one year and in November, 1996 the Schiel group alleged that the loans from Eron Mortgage Corporation and related bare trustee companies (the "Mortgagees") were unenforceable on the basis the charges were in excess of those permitted under the Criminal Code and they are seeking injunctive relief to prevent the Mortgagees from taking any enforcement action.

We met with Mr. Adolph Schiel, president of the borrower and guarantor of the indebtedness of the borrower to determine whether progress could be made in respect of the numerous issues to be addressed without having to resort to the courts. It seems apparent that at this time Mr. Schiel will not resolve these issues until a Court orders him to do so and he has exhausted all appeals.

With our legal counsel, we have developed and are in the course of implementing a strategy to extricate control of the underlying securities involved in this project, and connected mortgages, from Mr. Schiel and his companies. Given the facts that the borrower is uncooperative, refuses to provide information and has filed the action described above, we must expect this process will be both time consuming and expensive. However, there is no other apparent option at this time.


Project Status - Emerald Estates

This is an uncompleted development of a 300 lot mobile home park on a 74 acre site near Comox on Vancouver Island. There are unresolved issues with respect to this development including water supply, sanitary sewer works, ground water control and access.

The first mortgage holder, Pacific Playground Holdings Ltd. is attempting to commence foreclosure. They claim they are owed $686,396 as at September 23, 1997. The borrower has raised issues with this mortgagee's demand pertaining to representations made in respect of water supply. We will have counsel attend any hearing in respect of this proceeding with an objective to maximizing the length of any redemption period or obtaining conduct of sale, if possible. Lenders should be mindful that funds may have to be raised to redeem the first mortgage in the future.

We have received a draft appraisal estimating the current value to be in the range of $2 million to $2.5 million. The borrower estimated a gross value on completion of approximately $50,000 per lot (which may be on the high end of the value range) or a gross value of $15 million. Our appraiser estimates it will take one year to have any lots available to market and then an absorption period of ten years. Estimated hard costs to completion are expected to be in excess of $6 million.

It may take at least six to eight months to obtain control of this development from the borrower. At that point, a decision will be made as to whether to sell the project "as is" or arrange for a "build out". The option of building out of the development would likely produce a greater overall realization to the mortgages but would require extensive financing to be placed in priority to mortgages groups and development management to be engaged. These decisions will require analysis of the expected costs to complete, the risks of construction and regulatory approvals, and the market risks associated with a large project coming on stream in a smaller urban centre. Building out will also further delay any return on the mortgages. Other options will likely be made known as issues develop, such as building out one phase and selling out the project at that time.

We will discuss the various alternatives available to the lenders once we have good information on the estimated completion costs.

We have conducted the activities, set out above, based on the information presently available.


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 will be completed by the end of December 1997. 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 $25,200 including billed legal fees of $6,900. 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 2184 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 Emerald Estates - Project Lead.


Yours truly

Judicial Trustee

Eron Lenders





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