Eron Lenders
To the Lenders in Project: #1186 - Wilmington River Development
Lender update

December 22, 1997

Further to our letter dated November 6, 1997 we are writing to update you on the status of the above noted mortgage.


Project Status

The mortgage on this property matured on September 17, 1997, and payment is now past due. We have initiated discussions with the Borrower to negotiate a payout of the mortgage. To date the Borrower has indicated that it is willing to pay the appraised value of the property, but has not attributed value to the personal guarantees (see discussion below). We have indicated to the Borrower that we require an amount beyond the appraised property value to settle the guarantees, and we are currently awaiting its response. We have given the Borrower until December 19, 1997 to submit a formal offer prior to pursuing alternate realization remedies.

We are now in receipt of a current property opinion of value. The value range has been estimated at between US$260,00 to US$325,000. We note that an appraisal previously commissioned by Eron Mortgage Corporation provided a value of US$335,000.

Our discussions with Borrower to date have established the value of the property at US$335,000 accordingly, if we are able to consummate a payout with the Borrower, including consideration for the guarantees, we anticipate gross realization proceeds in excess of US$335,000. The timing for any realization is dependent on the cooperation of the Borrower.

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 has been completed. 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 that 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 totaled approximately $7,500 excluding legal fees. We are unable to estimate the future direct costs for the project with any degree of certainty. However, we estimate that the future monthly direct costs will significantly be reduced for the remainder of our engagement.

At November 30, 1997 the indirect fees totaled 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 these administration in place, can increasingly shift administrative tasks from PW 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 dialing one of the following three numbers (604) 878-4201, (604) 878-4244 or (604) 878-4248 and selecting mailbox number 2179 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 inquiries with respect to those projects should be directed to our general voice mail box by dialing (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 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 Wilmington River Development - Project Lead.


Yours truly

Judicial Trustee

Eron Lenders





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