Lenders of Gateway Project
Subject: Gateway Project Status Update

April 19, 2000

Dear Lenders:

Further to our November 26, 1999 status update sent to the Gateway Lenders Committee ("GLC") and our GLC meeting October 28, 1999, we provide the following status report for the Gateway Project:


A. General

The estimated net recovery to the Gateway Lenders is $328,000. This recovery is net of the expected allocation of indirect costs. The November 26, 1999 estimate recovery was $861,000. The decrease from November relates to three factors: timing of land sales has been delayed thereby increasing interest costs, the residential land sale estimate was reduced due to market conditions and the indirect costs allocated to Gateway are greater than estimated.

The decrease from earlier estimates, over the last two years, is based on slower sales than expected and significantly higher interest and operating costs. In addition, the prior recoveries reported did not include Judicial Trustee fees (direct and indirect) and legal fees totalling $1.4 million. The current indirect allocation method is based on: 1) the amount of direct Judicial Trustee and legal fees charged to the Project and 2) the amount of net realizations to the Project after the first allocation of indirect costs. Justice Tysoe confirmed the allocation method on March 9, 2000.

The sale of the remaining lands will be a lengthy process as Grande Prairie is a city of approximately 30,000 people in Northern Alberta and the land absorption rate is considerably lower. Therefore, we do not expect to complete the Project until 2002.

The Gateway Project had previously reported potential recoveries of $8 million and shortly thereafter $6 million. These recoveries were based on assumptions that all the lands would be sold in less than 24 months and the project would be able to secure conventional financing. Neither of these two assumptions materialized. The land sales will take at least 4 to 5 years (from 1997) and in order for the Project to proceed it had to secure distress financing at rates as high as 33% per annum.

In the fall of 1997 the Gateway Lenders agreed to pursue the development of the Project based on the analysis provided by the Judicial Trustee. Initial estimates concluded that a liquidation of the Project on an "as is" basis would have resulted in a zero return to the Gateway Lenders. It was estimated that a significant amount of equity would be available to the Gateway Lenders if the Judicial Trustee assumed certain risks and completed the Project. The risks facing the Project were cost of financing, sales prices and costs. Unfortunately all these risks came to bear on the Project resulting in a marginal return to the Lenders. First, the Court confirmed that no money could be borrowed from other Eron related projects forcing Gateway Project to use distress financing. Second, oil prices dropped dramatically in 1998 and the Northern Alberta economy cooled down considerably. The weaker economy slowed down the sales process and pushed land prices down. Third, the costs to complete the project were greater than expected due to the Project being in distress.

In addition, the sale to RealFund was delayed by almost six months and this "cost" the Project significant interest and professional expenses.

A reconciliation of the original recovery estimates to the current estimates will be provided to you in our next general correspondence.


B. Tax Issues

The Judicial Trustee has been working closely with Revenue Canada in an attempt to obtain relief for the taxes paid on interest and Lenders fees. After considerable discussions Revenue Canada has agreed to allow the following tax treatment:

1. The interest that was previously claimed on tax returns by the Gateway Lenders may be treated as a reduction of capital. This treatment allows the Gateway Lenders to recover the taxes paid on the interest claimed. In addition, Revenue Canada will pay interest on the tax refunds from the date the original taxes were paid;

2. The Lender fees that were previously claimed on tax returns by the Gateway Lenders may be treated as zero fees. Effectively all taxes paid on the Lender fees will be refunded including interest from the date the taxes were paid.

Based on a review of the T5's filed by Eron there was approximately $2.6 million of taxable interest and Lender fees.

The re-filing of tax returns to adjust for the interest and Lender fees must be done through the Judicial Trustee as this is the procedure required by Revenue Canada.

If you have any questions regarding the tax re-filing process please call Mr. David Craig at 713-6680.


C. HSBC Operating Line

As the Project's equity was rapidly deteriorating due to the excessive interest rates and with no conventional financing available (after many attempts), the Judicial Trustee obtained a guarantee from PricewaterhouseCoopers Inc. to support a $5.7 million operating line from the HSBC with an interest rate of prime plus 1%. PwCI did not charge the Gateway Project for its guarantee.

The HSBC line was used to pay out the mortgages of Paragon Capital (33% interest), Chandos Construction (14% interest) and Cormode Construction (14% interest). The HSBC line assumed the mortgages paid out holding them as primary security for the operating line.


D. Sales

The following is a summary of the recent sale activity:

1. Paragon - Sold Peavey Mart and Future Shop buildings to Paragon on October 15, 1999. The sale proceeds along with funds from the HSBC operating line were used to retire the Paragon loan;

2. Great Pacific Industries (Save-On) - We have sold the lands described as B1-B4 (6.3 acres) at $8.50/foot. The proceeds of $2.25 million were used to pay out the Wapiti (14% interest per annum) and Armstrong (14% interest per annum) mortgages (totalling $1.5 million), pay out the remaining trade debt of $225,000 and reduce the HSBC line by $500,000;

3. Ford - The sale agreement was originally entered into April 8, 1998 for $1.0 million for 4 acres. Ford has put up a $900,000 letter of credit as part of the agreement and we expect to close in July 2000. The proceeds from the Ford sale will be entirely used to complete servicing and roads adjacent to the sale lands;

4. David Will - We have entered into a sale agreement with David Will for the lands described as D2 (3.19 acres) for $6.80/foot or $945,000. Upon removal of the purchaser's conditions, the closing date for the sale is April 28, 2000; and

5. Setter Developments - A sale agreement has been entered into for lands described as D5 (3.0 acres) at $5.00/foot or $653,000. Upon removal of the purchaser's conditions, the closing date is July 31, 2000.


E. Operating Costs

As Gateway will not be developing any of the remaining lands, the operating and interest costs of the Project have been reduced to approximately $55,000 per month. These monthly costs include interest costs of $40,000, $6,500 plus expenses for the project manager, project legal costs at $5,000 per month, insurance at $1,000 and property taxes at $2,000.

These monthly costs have been included in the estimated net recovery of $328,000. Should the timing of the sales be delayed from our forecasted sales dates, the project will incur additional monthly costs that will reduce the estimated net recovery.


F. Summary

The estimated future recoveries and expenses for the Gateway Lenders is summarized below:

Should you have any questions, please contact your representative on the Gateway Project Lender Committee (Jay Mason jmason@phn.ca Ph. 732-6442, Peter Kwok pkwok@axionet.ca Ph. 730-8223 and Ian Wragge iwragge@quadrapacific.ca PH. 688-8671).


Yours very truly,

PricewaterhouseCoopers Inc. in its capacities as
Judicial Trustee of 484171 B.C. Ltd. and as Court
Appointed Receiver of Eron Financial Services Ltd.
(being all the shareholders of Gateway Developments
(Alberta) Ltd.) and not in its personal capacity


Neil Narfason
HNN:ml

Neil Narfason
Financial Advisory Services





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