Eron Lenders
Project Name: Gateway Developments (Alberta) Ltd.
Lender Update

 April 29, 2002

Lender Update

Further to our letter of April 19, 2000, we are writing to provide you with a further update on the status of the Gateway Project.


Project Status

In our last letter to you with respect to the Gateway Project we indicated that the net recovery to the Gateway Lenders was estimated at $328,000 and that a reconciliation of the original recovery estimates to the current estimates would be provide in our next general letter. In addition, we summarized the sales activity including three sales in process, Ford, David Will and Setter Developments. The Ford sale closed in August 2000, but the David Will and Setter Developments sales did not complete, as the purchaser's conditions were not removed. However, David Will did purchase another piece of property in the development, Phase 3 that closed in June 2000.

RMS Properties Inc. purchased the unserviced residential sites in Phase 5 and 6 for $0.77/ foot or $485,000. The Michaels/Winners site (D5 and D6) was sold to Cedaridge Properties (Grande Prairie) Ltd. for $3.27/foot or $1,000,000. Both sales closed in April 2001. The sale of the Michaels/Winners site represented the last of the developed sites in the Gateway Power Centre.

There are still 11 lots or parcels of serviced land totalling 17.02 acres for sale. These parcels range in size from 0.93 acres to 3.19 acres. All are zoned commercial or light industrial. The properties are listed with ReMax Grande Prairie. The list prices of the 11 lots totals $3,787,976.

Three conditional offers have been negotiated subject to court approval once the buyer's conditions have been removed.

David Will has made an offer to purchase lots 24 and 25 containing 3.47 acres at a price of $4.75 per square foot. No commission is payable on this transaction. The offer price represents 79.2% of list price. The outside closing date is August 31, 2002.

A company to be incorporated has made an offer through ReMax to purchase lot 17 containing 3.19 acres at $4.93 per square foot and lot 5 containing 0.93 acres at $3.25 per square foot. The offer prices represent 82.2% and 92.8% respectively of list prices The outside closing date is July 31, 2002 for lot 17 and August 1, 2002 for lot 5.

Art Giesbrecht or nominee has made an offer through ReMax to purchase lots 2, 3, and 4, with an option to purchase lot 1, containing a total of 4.01 acres at an average of $3.63 per square foot. This price represents 85% of list price. The outside closing date is July 31, 2002.

If all of the above potential sales close, this will reduce the unsold lots to 3, representing 5.42 acres with a total list price of $1,160,002.


Reconciliation

In our April 19, 2000 letter to you, we estimated the recovery to the Gateway lenders at $328,000 net of direct and allocated indirect costs. At the time, it was expected that the Project would be completed in 2002. The following is a reconciliation of the April 20, 2000 recovery estimate with the original December 1997 estimate.


Estimate of Potential Recovery December 1997 - $ 8,000,000
(Before direct and allocated indirect costs)

Less:

1. Real Fund did not exercise their option to purchase the 3rd phase of Phase I (Future Shop/Peavey Mart). This part of Phase I was purchased by Paragon at a 13.50% CAP rate compared to a 10.25% CAP rate under the Real Fund option. This reduced the sale proceeds of Phase I by: 1,755,000
2. Reduction in GST recovery. 400,000
3. Increase in interest costs relating to contractors secured debt, and high rates on the Paragon loan. 1,487,000
4. Reduced Real Fund offsets due to reduced purchase. 225,000
5. Increase in secured contractor outstanding amounts. 364,000
6. Increased costs to complete and contingency 1,861,000
7. Increased operating requirements 150,000
8. Legal fees (to completion) 100,000
9. Judicial Trustee fees (to completion) 590,000
10. Other costs (third party) 336,000
11. Indirect costs (estimated) 748,000
Total $7,672,000
Net Recovery forecast April 19, 2000 $328,000


Estimated Costs to Complete

There are still funds to be recovered from the sale of the remaining 11 lots. The current estimate of potential recovery at completion of the Gateway Project is a negative $1,746,882 after deducting legal, Judicial Trustee fees and disbursements to date, outstanding bank loans and estimated costs to complete the project. We have assumed it will take until the end of 2003 to sell off the remaining lands.


Recoveries $
Sale of 11 lots at list price less 20% 3,030,380
Return of Service Agreement Deposits and Holdbacks 332,000
Total Estimated Recoveries 3,362,380
Expenses
Bank Debt Including Interest - to date
- HSBC Bank Loan 1,887,127
- CIBC Bank Loan 1,268,000 3,155,127
Direct Costs and Disbursements - to date
- Legal Fees 68,294
- Trustee Fees 604,990
- Disbursements 360,266 1,033,550
Costs to Complete 56,000
Sales Commission and GST 132,585
Property Taxes (2002 and 2003) 135,000
Operating Costs to Complete 60,000
Legal Fees to Complete 50,000
Trustee Fees to Complete 100,000
Bank Loan Interest 387,000
Total Estimated Expenses 5,109,262
Estimated Expenses less Estimated Recoveries (1,746,882)


A major reason for the deterioration in estimated recovery since April 2000 is that the April 2000 estimate was based on the sale of the residual lands at appraised values. In reality, the land sales since April 2000, including the Will, Cedaridge, RMS and Ford sales were completed at prices below appraised values. These appraised values were established in 1997 and although relevant at the time, they have not represented market conditions during the past few years. Whereas the list prices of the remaining 11 lots that are $1,759,390 below the original appraised value are related to current market values taking into account the numerous restrictive covenants on these lots.

There will be no recovery to the Gateway Lenders from the Gateway Development project. The project deficit at completion of the Gateway project will form part of the indirect costs.


Tax Re-filing Status

The Gateway project was one of 17 Eron projects that received a ruling from CCRA (Canada Customs & Revenue Agency) that will allow the loss on the project to be treated as an ABIL (Allowable Business Investment Loss). We are currently underway with a separate mailing to the Gateway lenders holding non-registered investments to cover this topic. This ruling does not apply to registered (RRSP and RRIF) investments.


Lender Communications

We will continue to communicate directly with all lenders. However, we urge you to take advantage of the web site at http://www.eron-pwl.com for project specific updates as well as related court orders and other general information. If you need information on reclaiming tax on interest income in prior years, please call David Craig at (604) 713-6680.

Yours truly,

Judicial Trustee





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