Eron Lenders
Project Name: S.T.E.S. Quadra #1141
Lender update

December 19, 1997
Further to our letter dated November 5, 1997 we are writing to update you on the status of the above noted mortgage.

Project Status

Eron Mortgage Corporation placed a US $770,000 first mortgage on the S.T.E.S. Quadra. Our investigations into this asset have determined that the vessel is registered in the Cayman Islands.

The mortgage was intended to be a short term mortgage with a payout date of August 25, 1997 based on an expected sale of the vessel. This sale did not materialize. The mortgage is not currently performing and the borrower has remitted no payments since August 1997. We have therefore issued demand notices to the borrower. The demand for payment also included a request to the borrower for additional information on the vessel, including copies of a survey ("estimate of value"), insurance documentation etc.

The borrower has alleged that he did not receive all of the funds that were to be advanced. We have provided the borrower with all accounting information supporting advances of approximately CDN $834,000 to the borrower.

Recent discussions with the borrower have led us to believe there is a current survey of the vessel and we have requested a copy. We are developing our recovery strategy on this mortgage. Counsel in California and the Cayman Islands have assisted and continue to assist us with respect to assertion of our rights under the mortgage and in providing advice regarding the protection of the vessel.

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 early January 1998. 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 $3,700 excluding legal fees. 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 where we believe these mailboxes will provide a cost effective, useful means of providing current information to lenders. Please note that this project will not have a specific mailbox and any enquiries with respect it should be directed to our general voice mail box by dialling (604) 669-5087 ext. 501. Should you wish to access any of the project mailboxes, you can do so by dialling one of the following three numbers (604) 878-4201, (604) 878-4244 or (604) 878-4248 and selecting a mailbox number. A list of mailbox numbers is attached to this letter.

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 S.T.E.S. Quadra - Project Lead.


Yours truly

Judicial Trustee

Eron Lenders





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