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Crossroads DMD Mortgage Investment Corporation

August 16, 2018 Update on Legal Actions
March 22, 2018 The Redemption Queue
March 20, 2018 Update on Dissenting Shareholders
January 19, 2018 Update on Dissenting Shareholders Court Application
January 6, 2018 Update to Crossroads Shareholders

Deloitte Report

Filed Affidavit of Brian Menges

Crossroads DMD Mortgage Investment Corporation – Offering Memorandum

September 29, 2017 Letter to Shareholders
September 1, 2017 Letter to Shareholders
July 28, 2017 Letter to Shareholders
June 16, 2017 Note to Shareholders
February 17, 2017 Letter to Shareholders
December 9, 2016 Letter to Shareholders

August 16, 2018

READER ADVISORY: THE CONTENT OF THIS LETTER IS SUBJECT TO THE DISCLAIMER LANGUAGE CONTAINED ON THE LAST PAGE OF THIS LETTER

OVERVIEW

The primary purpose of this shareholder update is to update you on the various legal proceedings involving Crossroads, summarized below. The first two of these matters have had recent developments of significance. The first is Crossroads’ lawsuit against its Directors, CMS Financial Services Ltd., and five other defendants. The second is a recently filed application to remove the Directors and have them replaced with a new board of directors.

Please take the time to read this update in its entirety.

DEFINITIONS

Caplink Caplink Financial Corporation, the manager
Crossroads Crossroads-DMD Mortgage Investment Corporation
Directors The directors of Crossroads-Gerry Macdonald, Gerry Garvey and James Devlin
DMD DMD Mortgage Investment Corporation
DMD II DMD II Mortgage Investment Corporation
DMD III DMD III Mortgage Investment Corporation
Other MICs Sun Country Mortgage Investment Corporation, DMD Mortgage Investment Corporation, DMD II Mortgage Investment Corporation, DMD III Mortgage Investment Corporation
Respondents Per Court File 1701 – 11656, include Crossroads-DMD Mortgage Investment Corporation, Gerry Macdonald, Gerry Garvey, James Devlin, 485380 Alberta Ltd., 702653 Alberta Ltd., Donna Devlin, Gina Devlin, DRB Holdings Inc., Robert Dressler, Marian Dressler, Maureen Macdonald and Blair Robertshaw

LEGAL ACTIONS

1. Derivative Lawsuit, Alberta Court of Queen’s Bench File Number 1701–11656 - On August 31, 2017, Crossroads filed a $12.4 million statement of claim against nine defendants. Included among those defendants are the Directors, CMS Financial Management Services Ltd, CMS Real Estate Ltd. and four other related parties. Since filing the statement of claim, Caplink has worked through multiple issues facing Crossroads only to discover several more concerns that needed to be addressed. As a result, on August 1st, 2018 Crossroads filed an amended statement of claim, increasing the damages claimed from $12.4 million to $66.1 million and adding three additional defendants.

Since the amended statement of claim has been filed and served, the defendants have now been asked to file their statements of defence by September 28, 2018.

A copy of the amended statement of claim in the derivative lawsuit can be found at the following link:

Amended Statement of Claim filed August 1, 2018

2. Application to Remove Directors, Alberta Court of Queen’s Bench File Number 1801–08982 -
On June 25, 2018, Crossroads Class B shareholder Roberta Ott filed an originating application to have the Court remove the Directors and replace them with a new board of directors. This application was amended on July 13, 2018. On July 13, 2018, Brian Menges, the CEO and President of Caplink, filed an affidavit in support of Roberta Ott’s application. The Respondents have been served and we are awaiting their responses.

Copies of the Originating Application, Roberta Ott’s affidavits and Brian Menges’ affidavit can be found at the following link:

Originating Application filed June 25, 2018
Filed Affidavit of Brian Menges – July 13, 2018
Roberta Ott Affidavit filed June 25, 2018 – Part 1
Roberta Ott Affidavit filed June 25, 2018 – Part 2
Roberta Ott Affidavit filed June 25, 2018 – Part 3
Roberta Ott Affidavit filed June 25, 2018 – Part 4

3. Alberta Court of Queen’s Bench File Number 1503–12929 - On April 18, 2016, two shareholders with investments in three of the Other MICs (i.e. DMD, DMD II and DMD III) filed a $1,400,000 claim against Crossroads, the Directors and others for damages suffered as a result of their investments in those MICs. This action is ongoing.

4. Alberta Court of Queen’s Bench File Number 1601–08132 - On June 20, 2016, a statement of claim was filed by five Crossroads Class B shareholders against Crossroads, the Other MICs, CMS Financial Management Services Ltd., the Directors and ten others. To date Caplink has successfully settled with three of the Plaintiffs. This lawsuit as it pertains to the remaining two Plaintiffs is still open.

5. Class Action, Alberta Court of Queen’s Bench File Number 1701–10174 - On May 29, 2017, a class action lawsuit against Crossroads and nineteen other Defendants was commenced by a representative shareholder. The claim sought unspecified damages. On July 31, 2017, a second class action was started by the same law firm. It added several additional representative Plaintiffs and a number of Defendants. Crossroads remained a named Defendant. The allegations in the two class action proceedings were similar. The first action was discontinued on August 21, 2017. On April 3, 2018, counsel for the Plaintiffs ceased to act in the second action and to our knowledge, that action is not active at this time.

OTHER TOPICS OF CONCERN

DIVIDENDS

Although Crossroads’ situation is improving, it will not be in a position to declare any dividends until its deficit is either covered by future income or eliminated by a further reduction in share capital.

REDEMPTIONS

It is Caplink’s opinion that Crossroads meets the financial tests in section 36 of the Business Corporations Act (Alberta) and as such, is able to commence processing redemption requests. Crossroads does have cash on hand to move forward with redemptions and this issue is being reviewed by the Directors.

AUDITED FINANCIAL STATEMENTS

The 2016 audited financial statements (draft) have been under review by the Directors since May 2018. To date they have not been approved by the Directors. The 2017 audit cannot be initiated until the 2016 audit has been concluded with the Director’s approval of the 2016 audited financial statements.

Disclaimer:

Forward-looking Statements

Certain statements contained in this letter may constitute forward-looking information and statements. All statements in this letter, other than statements of historical fact that address events or developments concerning Caplink Financial Corporation (hereinafter referred to as "Caplink") and/or Crossroads-DMD Mortgage Investment Corporation (hereinafter referred to as "Crossroads") that Caplink expects to occur are "forward-looking information and statements". Forward-looking information and statements are often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "propose", "potential", "targeting", "intend", "could", "might", "should", "believe", "budgeted", "goal", "objective", "scheduled" and "forecasts", and similar expressions and variations (including negative variations).

In particular, but without limiting the foregoing, this letter contains forward-looking information and statements pertaining to Caplink's intention address Crossroads' current financial situation and manage its mortgage portfolio to help generate positive returns for Crossroads' shareholders, including statements with respect to anticipated or projected future results. The forward-looking statements and information are based on certain key expectations and assumptions made by Caplink. Although Caplink believes that the expectations and assumptions on which such forward-looking statements and information are based to be reasonable, readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. Since forward-looking statements and information address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks.

All of the forward-looking information and statements contained in this presentation are qualified by these cautionary statements. The reader of this presentation is cautioned not to place undue reliance on any forward-looking information and statements. Caplink expressly disclaims any intention or obligation to update or revise any forward-looking information and statements, whether as a result of new information, events or otherwise, except in accordance with applicable securities laws.


March 22, 2018

THE REDEMPTION QUEUE

Further to our March 20, 2018 notice regarding the resolution of the dissenting shareholder legal action, we were intending to inform you that Crossroads had settled with the dissenting shareholders. Please note the difference between dissenting shareholders and redeeming shareholders.

Shareholders who exercised their dissent rights (by written notice) at or prior to the Crossroads special shareholder meeting held on April 21, 2016 are dissenting shareholders. Dissenting shareholders cease to have any rights as a shareholder other than to be paid the fair value of the shares as at the day prior to the vote.

For those Crossroads shareholders that have submitted a redemption request form, you are a redeeming shareholder. At this time, however, no redemptions have been scheduled.

As outlined in the January 6, 2018 communication, scheduling of redemptions is subject to:

I. available cash,
II. solvency tests in the Business Corporations Act (Alberta); and
III. the authorization of the Board of Directors (Caplink has no control over such authorization)

Based on both redemption requests currently in the queue and guidelines for redemptions established in the corporate articles, Caplink proposes the following redemption plan:

Requests Dated Shares Redemption Payout
Q1 2012 – Q2 2014 8,143,344 2018
Q3 2014 – Q2 2015 8,247,658 2019
Q3 2015 – Q4 2015 9,061,023 2020
Q1 2016 – Q2 2016 4,565,121 2021
Q3 2016 – present 3,062,616 2022

Shares shall be redeemed in priority and in the order in which the related redemption notices were received by Crossroads. Prior to redemptions being processed, Caplink will confirm each request and the redemption price (NAV) with shareholders. Based on discussions with some shareholders, it is Caplink’s view that some redemption requests may be withdrawn based on updated financial information on Crossroads.

Regards,

Caplink Investor Relations


March 20, 2018

READER ADVISORY: THE CONTENT OF THIS LETTER IS SUBJECT TO THE DISCLAIMER LANGUAGE CONTAINED ON THE LAST PAGE OF THIS LETTER

Dear Shareholder,

The Application for the Court to fix the fair value of Crossroads’ Class “B” shares proceeded on January 15, 2018 before Justice P. R. Jeffrey. Justice Jeffrey determined that the valuation date was April 20, 2016, the day before voting on the special resolutions took place. He fixed the fair value of the shares at $0.525 per share. Crossroads was required to pay the dissenting shareholders the fair value of the shares on or before February 23, 2018 with simple interest of 1.5% per annum on the fair market value of the shares payable from June 16, 2016 to the date on which payment is made.

No appeal of Justice P.R. Jeffrey’s ruling on the fair value of Crossroads’ Class “B” shares had been filed and the deadline to do so expired this past February. The dissenting shareholders were then paid the fair value of $0.525 per share on a total of 1,822,024 shares on February 23, 2018. The total amount paid, including interest, was $980,817.27.

Crossroads considers the matter involving the dissenting shareholders to have been fully resolved.

Regards,

Caplink Investor Relations

Disclaimer:

Forward-looking Statements

Certain statements contained in this letter and its attachments (collectively this ‘letter’) may constitute forward-looking information and statements. All statements in this letter, other than statements of historical fact that address events or developments concerning Caplink Financial Corporation (hereinafter referred to as "Caplink") and/or Crossroads-DMD Mortgage Investment Corporation (hereinafter referred to as "Crossroads") that Caplink expects to occur are "forward-looking information and statements". Forward-looking information and statements are often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "propose", "potential", "targeting", "intend", "could", "might", "should", "believe", "budgeted", "goal", "objective", "scheduled" and "forecasts", and similar expressions and variations (including negative variations).

In particular, but without limiting the foregoing, this letter contains forward-looking information and statements pertaining to Caplink's intention address Crossroads' current financial situation and manage its mortgage portfolio to help generate positive returns for Crossroads' shareholders, including statements with respect to anticipated or projected future results. The forward-looking statements and information are based on certain key expectations and assumptions made by Caplink. Although Caplink believes that the expectations and assumptions on which such forward-looking statements and information are based to be reasonable, readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. Since forward-looking statements and information address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks.

All of the forward-looking information and statements contained in this presentation are qualified by these cautionary statements. The reader of this presentation is cautioned not to place undue reliance on any forward-looking information and statements. Caplink expressly disclaims any intention or obligation to update or revise any forward-looking information and statements, whether as a result of new information, events or otherwise, except in accordance with applicable securities laws.


January 19, 2018

READER ADVISORY: THE CONTENT OF THIS LETTER IS SUBJECT TO THE DISCLAIMER LANGUAGE CONTAINED ON THE LAST PAGE OF THIS LETTER

Dear Shareholder,

Further to our update of January 6, 2018, we wish to advise you on the outcome of the January 15, 2018 dissenting shareholder Court Application.

DISSENTING SHAREHOLDERSCOURT APPLICATION

The Application for the Court to fix the fair value of Crossroads’ Class “B” shares proceeded on January 15, 2018 before Justice P. R. Jeffrey. Justice Jeffrey determined that the valuation date was April 20, 2016, the day before voting on the special resolutions took place. The fair value range proposed in the November 16, 2017 Deloitte report was between 49.189¢ and 53.217¢. Justice Jeffery exercised his discretion to fix the fair value of the shares at 52.500¢ per share. Crossroads is required to pay the dissenting shareholders the fair value of the shares on or before February 23, 2018 with simple interest of 1.5% per annum payable from June 16, 2016 to the date on which payment is made.

Pursuant to rule 14.8 of the Alberta Rules of Court, a notice of appeal with respect to an order of a Justice of the Alberta Court of Queen’s Bench must be filed within one month of the “date of decision”. In this case, the “date of decision” is January 15, 2018 and as such, the deadline to file a notice of appeal in this case is February 15, 2018.

If no notice to appeal is filed before the deadline, Crossroads intends to pay each shareholder the fair value of his or her shares, plus interest, in accordance with Justice Jeffrey’s Order as soon as is practicable.

For management, the completion of this fair value Application is a significant milestone as it brings to an end, months of intensive accounting, due diligence, and adjustments that were necessary to determine Crossroads’ Net Asset Value.

Regards,

Caplink Investor Relations

Disclaimer:

Forward-looking Statements

Certain statements contained in this letter and its attachments (collectively this ‘letter’) may constitute forward-looking information and statements. All statements in this letter, other than statements of historical fact that address events or developments concerning Caplink Financial Corporation (hereinafter referred to as "Caplink") and/or Crossroads-DMD Mortgage Investment Corporation (hereinafter referred to as "Crossroads") that Caplink expects to occur are "forward-looking information and statements". Forward-looking information and statements are often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "propose", "potential", "targeting", "intend", "could", "might", "should", "believe", "budgeted", "goal", "objective", "scheduled" and "forecasts", and similar expressions and variations (including negative variations).

In particular, but without limiting the foregoing, this letter contains forward-looking information and statements pertaining to Caplink's intention address Crossroads' current financial situation and manage its mortgage portfolio to help generate positive returns for Crossroads' shareholders, including statements with respect to anticipated or projected future results. The forward-looking statements and information are based on certain key expectations and assumptions made by Caplink. Although Caplink believes that the expectations and assumptions on which such forward-looking statements and information are based to be reasonable, readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. Since forward-looking statements and information address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks.

All of the forward-looking information and statements contained in this presentation are qualified by these cautionary statements. The reader of this presentation is cautioned not to place undue reliance on any forward-looking information and statements. Caplink expressly disclaims any intention or obligation to update or revise any forward-looking information and statements, whether as a result of new information, events or otherwise, except in accordance with applicable securities laws.


January 6, 2018

READER ADVISORY: THE CONTENT OF THIS LETTER IS SUBJECT TO THE DISCLAIMER LANGUAGE CONTAINED ON THE LAST PAGE OF THIS LETTER

Further to our update of July 28, 2017, we wish to advise you of a number of developments.

ACTION COMMENCED AGAINST THE DIRECTORS

On August 31, 2017, Caplink Financial Corporation (“Caplink”) brought an Application, supported by the Affidavit of Brian Menges, President, CEO and a director of Caplink, seeking leave of the Alberta Court of Queen’s Bench to commence a derivative action in the name of Crossroads-DMD Mortgage Investment Corporation (“Crossroads”) against the directors of Crossroads, Gerry Macdonald, Gerry Garvey and James Devlin. Leave was granted and a Statement of Claim bearing Action No. 1701–11656 (“the Derivative Action”) was filed that same day. Additional Defendants named include the former Investment Fund Manager of Crossroads, CMS Financial Management Services Ltd., Maureen Macdonald and CMS Real Estate Ltd. Service of the Derivative Action was made on all of the Defendants. To date, no Statements of Defence have been filed.

While some of the factual underpinnings of the Derivative Action are similar to those being alleged in a proposed class action filed on behalf of Roberta Ott and others, Action No. 1701–10174 (“the Ott Claim”), the legal foundation for the claims is different. The Derivative Action alleges breaches by the Defendants of duties and obligations owed directly to Crossroads. In contrast, Crossroads is named as a Defendant (together with 28 other defendants) in the Ott Claim and the claims asserted include allegations advanced on behalf of investors in six other MICs.

At present, it is anticipated that the Derivative Action will proceed through the pleadings and document disclosure stages in the spring of 2018.

DISSENTING SHAREHOLDERSCOURT APPLICATION

After three adjournments of the Hearing to provide sufficient time for the review of Crossroads’ mortgage portfolio and preparation of an estimate of fair value report by Deloitte, the application was scheduled to be heard on December 1, 2017 before Justice Dario of the Alberta Court of Queen’s Bench. The new evidence with respect to the application was filed in Court November 17, 2017 and consisted of an affidavit by Brian Menges that attached as Exhibit “A” a lengthy report by Deloitte providing an estimate of the value of the Class “B” Preferred Shares of Crossroads as of April 20, 2016 (the “Deloitte Report”). That is the valuation date stipulated by the Business Corporations Act (Alberta) (the “BCA”) for purposes of the fair value application in this case. If you would like to review the affidavit and the Deloitte Report, you may access them by clicking on the following links:

Filed Affidavit of Brian Menges

Deloitte Report

The Deloitte Report provides a value range of 49.189 to 53.217 cents per share as of April 20, 2016. The range is based on the consideration of the various factors and assumptions made in the analysis undertaken by Deloitte.

Unfortunately, due to a failure with the Court’s audio recording system, Justice Dario could not hear the application on December 1, 2017. Justice Dario did attempt to relocate the Hearing to another Court room, but by the time that was done there was insufficient time to hear the application and as such, it was adjourned. Attempts were made to reschedule the Hearing with Justice Dario but she was not available to hear the application until the last week of January, 2018. Through discussions with the Court, counsel was able to accelerate the Hearing to January 15, 2018 at 2:00 p.m. before Justice Paul Jeffrey. We will advise you of the outcome of this application in due course.

Subject to any directions from the Court, it is Crossroads’ intention to pay out the fair value of the dissenting shareholders’ shares (about $1 million) before redeeming any shares. Pursuant to section 191 of the BCA, each of the dissenting shareholders receives judgment against Crossroads in the amount of the fair value of their shares. Crossroads intends to pay those judgments in accordance with the Court’s deadline.

THE REDEMPTION QUEUE

Section 36 of the BCA contains financial tests that must be met before a corporation can redeem its shares. Pursuant to the amended articles of incorporation of Crossroads (the “Articles”) (April 2016), it can now redeem shares at Net Asset Value (“NAV”). By amending the Articles to move from a fixed redemption price of $1.00 (subscription price) to redemption at NAV, Crossroads will always meet the solvency test for redemptions set out in the BCA.

At present, Crossroads has sufficient cash to permit some redemptions, but it cannot redeem the entire queue, which contains requests to redeem more than 33 million shares. Crossroads must first deal with dissenting shareholders in order to properly assess Crossroads’ NAV at any quarter end. For the purposes of December 2016 and September 2017 unaudited Shareholders’ Financial Update (attached), Caplink has assumed a dissenting shareholder redemption price of $0.53 per share and 1,822,024 dissenting shares to be redeemed.

After the Court fixes the fair value of the dissenting shareholders’ shares and Crossroads makes payment to the Dissenting Shareholders, Caplink can begin processing redemption requests in accordance with the provisions of the Articles based on the applicable prior quarter end NAV calculation.

The Articles provide in essence that for “Deferred Redemption Shares” (those in the queue for over 18 months after receipt of the redemption request) redemption is done on a first into the queue/first to be paid out approach on a quarterly basis. Most of the shares in the queue are Deferred Redemption Shares. If there are insufficient funds to payout 100% of the redemption value for a given quarter, each of the shareholders who put in a redemption request during that quarter will initially be paid a pro rata portion of their redemption amount. The unredeemed shares will make up part of the next quarters’ redemption of shares (again, on a first paid out basis).

All redemption requests are subject to

I. available cash,

II. solvency tests in the BCA, and

III. the authorization of the Board and Caplink has no control over if or when such authorization will be granted.

Based on Redemption Requests currently in the queue and the Articles, Caplink proposes the following redemption plan:

Requests Dated Shares Redemption Payout
Q1 2012 – Q2 2014 8,143,344 2018
Q3 2014 – Q2 2015 8,247,658 2019
Q3 2015 – Q4 2015 9,061,023 2020
Q1 2016 – Q2 2016 4,565,121 2021
Q3 2016 – present 3,062,616 2022

Prior to redemptions being processed, Caplink will confirm each request, and the redemption price (NAV) with shareholders. Based on discussions with some shareholders, it is Caplink’s view that some redemption requests may be withdrawn based on updated financial information on the Fund.

FUTURE DIVIDENDS

Section 43 of the BCA contains financial tests that must be met before a corporation can declare or pay a dividend. Although Crossroads’ situation is improving (it generated income in 2017), it will not be in a position to declare dividends in the normal course until its 2016 deficit in earnings of $12,552,647 ($32,689,139 less $20,163,492) is offset with subsequently earned net income. Based on what we currently know of Crossroads’ ability to generate interest income, and assuming redemption of approximately 33 million shares over the next several years, Caplink does not expect that the solvency test for the payment of dividends will be met until at least 2019.

The alternative to waiting for redemptions at NAV (with their corresponding contributed surplus) to offset the deficit is to further write down the share capital in such an amount as to immediately cover the shortfall in retained earnings. This is what was done on April 21, 2016 at Crossroads’ Special Shareholders’ meeting. Unfortunately, the write down at that time (about $20 million) was not large enough based on Caplink’s subsequent review of the value of Crossroads’ portfolio.

Crossroads understands that this creates a hardship for certain shareholders who assumed that they would receive a monthly cash dividend. Caplink, your Investment Fund Manager, is not taking this situation lightly and is working to find appropriate mortgages that will perform, while delivering reasonable interest income to the Fund. Now that the Cumulative 10% dividend on Class B shares has been removed, that allows more flexibility to the type of loans that can be funded by Crossroads. It is Caplink’s view that reinforcing the structure in the portfolio will dramatically reduce future losses and produce a consistent income flow from the Fund.

EXTERNAL AUDITS

In July 2017, BDO Canada LLP (“BDO”) commenced field work on Crossroads’ 2016 financial audit. Based on work that Caplink did in establishing the April 2016 fair market value for purposes of the Dissenting Shareholders proceeding, BDO is reviewing the provisions that were in place at December 31, 2015. BDO is concerned that perhaps some of those provisions belong in prior periods and as such, is conducting additional review. This review is delaying the completion of the 2016 statements.

FINANCIAL UPDATE

As you can see from the attached internal unaudited financial statements, Crossroads’ losses due to credit loss provision estimates in 2016 have almost doubled Crossroads’ deficit. The 2016 estimate includes substantial losses expected on the Winnipeg commercial loans, inter-MIC loans, and properties owned or co-owned with other MICs. More details on this can be found in the Deloitte Report, Section B, Review of Caplink Methodology.

CURRENT STATUS OF CROSSROADSBUSINESS

Notwithstanding everything that has happened, Crossroads remains, in Caplink’s view, a financially viable enterprise. The demand for mortgage loans remains strong and Crossroads is active in the mortgage lending market. Caplink has been sensitive to Crossroads’ financial circumstances and the general causes of that. It has been taking the time to review the fund’s investment criteria and develop a strategy to support the current portfolio with the addition of some lower risk profile loans. It is Caplink’s opinion that with the right mix of properly risk-rated loans, Crossroads can regain its income producing status.

Disclaimer:

Forward-looking Statements

Certain statements contained in this letter and its attachments (collectively this ‘letter’) may constitute forward-looking information and statements. All statements in this letter, other than statements of historical fact that address events or developments concerning Caplink Financial Corporation (hereinafter referred to as "Caplink") and/or Crossroads-DMD Mortgage Investment Corporation (hereinafter referred to as "Crossroads") that Caplink expects to occur are "forward-looking information and statements". Forward-looking information and statements are often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "propose", "potential", "targeting", "intend", "could", "might", "should", "believe", "budgeted", "goal", "objective", "scheduled" and "forecasts", and similar expressions and variations (including negative variations).

In particular, but without limiting the foregoing, this letter contains forward-looking information and statements pertaining to Caplink's intention address Crossroads' current financial situation and manage its mortgage portfolio to help generate positive returns for Crossroads' shareholders, including statements with respect to anticipated or projected future results. The forward-looking statements and information are based on certain key expectations and assumptions made by Caplink. Although Caplink believes that the expectations and assumptions on which such forward-looking statements and information are based to be reasonable, readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. Since forward-looking statements and information address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks.

All of the forward-looking information and statements contained in this presentation are qualified by these cautionary statements. The reader of this presentation is cautioned not to place undue reliance on any forward-looking information and statements. Caplink expressly disclaims any intention or obligation to update or revise any forward-looking information and statements, whether as a result of new information, events or otherwise, except in accordance with applicable securities laws.

Crossroads Shareholders’ Financial Update

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September 29, 2017

We have received several inquiries from Class “B” shareholders (“the Investors”) expressing confusion regarding the existence of two lawsuits involving Crossroads-DMD Mortgage Investment Corporation (“Crossroads”) and communications received by the Investors from the law firm of McGuigan Nelson LLP (“the McGuigan Firm”). 

As both lawsuits are distinct we have provided you with the summary below, which explains matters from the perspective of Crossroads. 

Action No. 1701–10174, Ott et al. v. Crossroads-DMD Mortgage Investment Corporation et al. (“the Ott Claim”)

This action was filed on July 31, 2017, by the McGuigan Firm.  The named Plaintiffs consist of an individual investor from each of seven related mortgage investment corporations, including Crossroads.  Crossroads is identified as a Defendant in the Ott Claim, as are the other six related mortgage investment corporations and 22 other Defendants including the directors and officers of Crossroads, and CMS Financial Management Services Ltd. (“CMS Financial”) , the previous fund manager of Crossroads.
 
The Ott Claim seeks compensatory and punitive damages against the Defendants, the redemption of preferred shares, disgorgement of revenue or the imposition of a constructive trust.   The Ott Claim is premised on an application for leave being brought before and being granted by the Court of Queen’s Bench, certifying classes of plaintiffs based on the seven mortgage investment corporations named as Defendants, including a class for Crossroads Investors.
 
To this point, no Defences have been filed in relation to the Ott Claim.  However, as a named Defendant, Crossroads will be filing pleadings at the appropriate time.
 
The McGuigan Firm has created a page on its website,  www.mnllp.ca, describing how it proposes to manage and pursue the Ott Claim.

Action No. 1701–11656, Crossroads-DMD Mortgage Investment Corporation v. CMS Financial Management Services Ltd. et al (“the Crossroads Claim”)

Caplink Financial Corporation (“Caplink”) has been the fund manager for Crossroads since November 30, 2016, at which time it took over the responsibility from CMS Financial.  Pursuant to its agreement with Crossroads, Caplink has the authority to commence and prosecute claims in the name of Crossroads.  After reviewing the affairs of Crossroads, it was determined that a claim should be initiated in the name of Crossroads against its directors and officers, CMS Financial, the principals of CMS Financial, CMS Real Estate Ltd. and three other parties that participated in a particular mortgage transaction.  The review of Crossroads affairs is ongoing.

Out of an abundance of caution, Caplink brought an ex parte application (see Note 1 below) before the Court of Queen’s Bench seeking leave to commence a derivative action in the name of Crossroads against Crossroads’ directors and officers, for which leave was granted.  The Crossroads Claim against nine Defendants was filed on August 31, 2017.  The Crossroads Claim can be accessed by clicking on the link available in the September 1st update below. Crossroads has retained the firm of Peacock Linder Halt & Mack LLP (“Peacock”) to act on its behalf in the Crossroads Claim. The Peacock website is located at www.plhlaw.ca.  As the Crossroads Claim is being advanced directly on behalf of Crossroads rather than through its shareholders, it is not being pursued as a potential class action.
 
The Crossroads Claim asserts that the Defendants breached duties and obligations owed to Crossroads and seeks damages against the directors and officers, CMS Financial and its principals in the sum of $10,000,000 and seeks damages of $2,400,000 specific to the parties named in relation to the particular mortgage transaction.
 
Defences have not yet been filed in response to the Crossroads Claim.
 
Note 1 – An ex parte decision is one decided by a judge without requiring all of the parties to the controversy to be present.

Relationship between the Two Actions

There is an overlap between some of the parties named in the two actions and several of the factual allegations asserted in the two actions are similar.  As the Plaintiffs named in the two actions are different, the legal foundations underpinning the two claims are different. Further, as a Defendant in the Ott Claim, Crossroads will need to respond to the allegations made against it in that action.
 
Crossroads encourages Investors to inform themselves regarding their rights and the implications the two lawsuits may have on them.  Investors may wish to consult with independent counsel as an important part of that learning process.
 
Though the lawsuits are distinct both Peacock and the McGuigan Firm are discussing how best to proceed in light of the existence of the two lawsuits.


September 1, 2017

Notice of Commencement of Legal Action

Dear Shareholder,

Since November 30, 2016, Caplink Financial Corporation (“Caplink”) has been Crossroads-DMD Mortgage Investment Corporation (“Crossroads”) Investment Fund Manager, Restricted Portfolio Manager and Exempt Market Dealer. Following Caplink’s acquisition of Crossroads’ financial and mortgage records in late December 2016/early January 2017, Caplink has performed a thorough and ongoing review of Crossroads’ business and has identified numerous concerns. Some of those concerns were of such significance as to warrant legal action being taken against several persons, including the principals of Crossroads and its former fund manager, CMS Financial Management Services Ltd.

On Thursday, August 31, 2017, legal proceedings were commenced on behalf of Crossroads. Prior to the filing of the Statement of Claim, an Order was obtained from the Court of Queen’s Bench, granting Caplink leave to name as defendants in the claim the directors and officers of Crossroads, Gerry Macdonald, Gerry Garvey and James Devlin. Other Defendants named in the Statement of Claim are: Maureen Macdonald; CMS Financial Management Services Ltd.; CMS Real Estate Ltd.; Brent Isfeld; 1658062 Alberta Ltd.; and LTO Realty Ltd. (collectively the “Defendants”).

Below find a link which will take you to a copy of the Statement of Claim filed Thursday, August 31, 2017, in the Court of Queen’s Bench of Alberta (Calgary). Our review of Crossroads’ business is ongoing. To the extent that review impacts the litigation, you will be notified as part of providing you with periodic updates regarding the litigation.

Statement of Claim

We anticipate that you will have many questions relating to this legal action, but ask that you respect the fact that Caplink is limited in what we can say while this matter is in litigation.

Please be certain that Caplink, its management, staff and legal counsel are operating with your, the Crossroads’ Class B shareholders, best interest in mind.

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July 28, 2017

READER ADVISORY: THE CONTENT OF THIS LETTER IS SUBJECT TO THE DISCLAIMER LANGUAGE CONTAINED ON THE LAST PAGE OF THIS LETTER

Crossroads-DMD Mortgage Investment Corporation Shareholder Update July 2017

INTRODUCTION

As discussed in previous communications, Management and staff have been working diligently to navigate through various issues with respect to Crossroads’ accounting, mortgage and foreclosure records.

Dissenting Shareholder Court Application

Further to our February 2017 Shareholder Update discussion on dissenting Shareholders, in late May, Caplink completed its work on Crossroads’ portfolio as at April 20, 2016 (one day prior to the April 21, 2016 meeting of the Shareholders). Deloitte was engaged to provide an estimate valuation of the fair value as at April 20, 2016, of all of the issued and outstanding shares of Crossroads. It was expected that the Deloitte report would be filed in the Court of Queen’s Bench in late June for a Court application to be heard in mid-July. The purpose of that Court application is to both determine the fair market value of the remaining forty-one dissenting Shareholder’s shares and to provide directions respecting the timing of payment and other such matters. Deloitte’s opinion on fair value will be in evidence for the Court’s consideration. This hearing would have potentially concluded the outstanding dissenting Shareholder matter. The final review of the Deloitte report is not expected before late September.

OTHER MATTERS

BDO’s 2016 financial audit scheduled July

We can now commence preparation of Crossroads’ December 2016 audited financial statements. Management has scheduled BDO to commence their audit field work on July 24 with the audit likely being finalized by late August. Financial Statements will be presented to the Directors shortly thereafter for their approval. Once approved, the 2016 financial statements will be available to all Shareholders.

SHAREHOLDER QUESTIONS

Further to our June 16, 2017 email, we would like to continue addressing some of the questions and/or comments we have received from Shareholders.

1. I received my 2016 statement from Caplink and I thought the share value change from $1.00 to $0.716 was the result of Caplink’s review.

No. This was the value established for the April 21, 2016 special Shareholders meeting.

2. Where am I in the redemption queue and can you let me see this queue?

Due to privacy legislation, we cannot publish any information relating to the redemption notices. Notwithstanding, we will undertake to provide concerned Shareholders with information about their redemption request when they contact Caplink’s office directly. For information about your redemption request, please contact Caplink’s Manager, Investor Relations, Elaine Bonilla, at elaine@caplink.ca.

3. When do you think Crossroads can start paying redemptions and dividends?

Following the audit work, Management will put together the accounting information for the appropriate quarter-ends in 2017. Based on current timing, by the end of September 2017, Management will be able to advise the Directors as to when redemptions may commence. All redemptions are subject to Directors approval and meeting the applicable BCA solvency tests. With regard to paying dividends, dividends can resume only when Crossroads meets the requirements for paying dividends under section 43 of the Business Corporations Act.

4. Is Crossroads putting aside the $1M per quarter for redemptions?

Yes, Crossroads is holding funds in reserve to pay redemptions when it is permitted to do so.

5. I do not recall receiving the two letters you sent to the shareholders in December or the one in February. Can you please resend me a copy?

If you would like to receive future Shareholder updates by mail, please contact Caplink’s Communications Coordinator, Devin Greenlaw, at devin@caplink.ca to request a copy of the previous letters.

6. Can I make an appointment to come see you at your office? I want to see who Caplink is.

Yes you can. As the new fund manager for Crossroads, Management wants to emphasize that every Shareholder is important to us. We intend to keep communication lines open to all Shareholders, which includes in-person meetings. In order to schedule a meeting, please contact Caplink’s Manager, Investor Relations, Elaine Bonilla, at elaine@caplink.ca.

7. Why is it that my statement does not match my 2016 T5?

Your 2016 statement does not include your declared November 2015 and December 2015 dividends as they would have been posted on your 2015 Statement. Dividends are reported on T5 slips in the year they are actually paid to Shareholders. That being the case, the November and December 2015 dividends were paid on June 24, 2016 and that is why they are included on your 2016 T5. Your January and February 2016 dividends were paid on July 17, 2016 and your March and April 2016 dividends were paid in October 3, 2016 and October 21, 2016, respectively. No further distributions have been approved or paid on Crossroads shares.

8. My 2015 T5 already includes my November & December 2015 dividends. Why am I paying taxes on this again?

Originally 2015 T5s were issued including the November 2015 and December 2015 dividends. CMS has advised Management that amended 2015 T5s were later issued to remove those dividends as they were not actually paid in 2015.

9. What shares were redeemed following the commencement of the Cease Trade Order in 2013 and at what price were they redeemed?

Caplink has not redeemed any Crossroads shares. CMS has advised Management as follows:
p((. 1) In 2014 no shares were redeemed.
p((. 2) In 2015, six dissenting Shareholders from the January 2014 special Shareholder meeting redeemed 436,718.61 p((. shares at $1.00 per share.
p((. 3) In 2016, five dissenting Shareholders from the April 21, 2016 special Shareholder meeting redeemed 305,505 shares at $0.716 per share.

10. Why does it say cash dividends on my statement? I don’t recall ever seeing a cash dividend.

All dividends distributed last year (whether you chose to re-invest your shares or not), were paid as cash dividends. If you are holding shares in a registered account such as an RRSP, RRIF or TFSA, the cheques would have been sent to the trustee for deposit to your registered account. If you would like to know the cash balance of your registered account, please contact the trustee who holds your shares.

11. Why do you keep calling it dividends? It’s interest, not dividends.

Crossroads operates as a Mortgage Investment Corporation (MIC) as defined under section 130.1 of the Income Tax Act (Canada). A MIC does not pay corporate-level taxes when it distributes all of its income to shareholders during the year, or within 90 days of its year end. Taxable Canadian shareholders will have all dividend payments (whether taken as cash or reinvested) treated as interest income for tax purposes.

12. I received my 2016 statements to one of my accounts by mail and the other one by email. Why were the statements not sent all together?

The 2016 statements were distributed as per the delivery method that was set up for each account prior to Caplink assuming management of Crossroads. Management sent 2016 statements in the first week of March to investors who were set up to receive their statements by mail. The remaining investor accounts were set up to receive statements via electronic delivery and we sent these statements on March 24, 2017. If you would like to change the delivery method for your statement or you are missing a statement and would like a copy, please notify our Communications Coordinator, Devin Greenlaw at devin@caplink.ca. Please note that the quickest way to receive any information regarding your Crossroads investment is by email delivery.

13. BDO already looked at Crossroads Financials. I thought a share value was established. Why do it again?

Yes, BDO did look at a sample of records in the Crossroads’ accounts as at December 2015 during their Audit of the financial statements prepared by management at that time. An audit is performed on a sample of transactions and loan files. BDO reviewed a percentage of the loans in Crossroads’ mortgage portfolio. It did not review 100% of the loans outstanding as at December 31, 2015, as that is not the purpose of an audit. The purpose of an audit is to test whether or not financial statements prepared by Management fairly represent the financial position of the fund, and is based on the information provided to the auditors by management. Share value has to be determine quarterly prior to any redemption activity.

14. Who does the accounting for Crossroads now?

Lorrain Smith and Colin Hu, both Chartered Professional Accountants with Caplink, carry out and oversee the day-to-day accounting of Crossroads’ transactions. Auditors will come into Caplink’s office annually to conduct their work and provide an opinion on Crossroads’ financial statements whether or not they fairly reflect the fund’s financial condition.

15. Did Caplink acquire cash as well as properties from Crossroads? Or is this a dollar deal? What exactly was received

Caplink did not “buy” anything from Crossroads. Crossroads was managed by CMS under a management contract. CMS’ contract was terminated when Crossroads entered into a new management contract with Caplink. Crossroads’ assets did not change when the management of the fund changed.

16. Can Investors exchange their shares for property?

No.

17. Can you provide details of any mortgages/loans that have been deemed unrecoverable or partially unrecoverable that is over $200,000?

Caplink will include a summary of Crossroads’ performing and non-preforming mortgages with its periodic financial reports.

FURTHER QUESTIONS

Please note that if you have sent us an inquiry that was not included above, your question has been recorded and added to a list of queries that requires further research.

Should you have any further questions or concerns regarding any of the above noted matters, please do not hesitate to contact Caplink’s Manager, Investor Relations, Elaine Bonilla, at elaine@caplink.ca. Your feedback is greatly appreciated.

Disclaimer:

Forward-looking Statements

Certain statements contained in this letter may constitute forward-looking information and statements. All statements in this letter, other than statements of historical fact that address events or developments concerning Caplink Financial Corporation (hereinafter referred to as “Caplink”) and/or Crossroads-DMD Mortgage Investment Corporation (hereinafter referred to as “Crossroads”) that Caplink expects to occur are “forward-looking information and statements”. Forward-looking information and statements are often, but not always, identified by the use of words such as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “predict”, “propose”, “potential”, “targeting”, “intend”, “could”, “might”, “should”, “believe”, “budgeted”, “goal”, “objective”, “scheduled” and “forecasts”, and similar expressions and variations (including negative variations).

In particular, but without limiting the foregoing, this letter contains forward-looking information and statements pertaining to Caplink’s intention to assess and address Crossroads’ current financial situation and manage its mortgage portfolio to help Crossroads’ shareholders, including statements with respect to anticipated or projected future results. The forward-looking statements and information are based on certain key expectations and assumptions made by Caplink. Although Caplink believes that the expectations and assumptions on which such forward-looking statements and information are based to be reasonable, readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. Since forward-looking statements and information address future events and conditions, by their very nature, they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks.

All of the forward-looking information and statements contained in this presentation are qualified by these cautionary statements. The reader of this presentation is cautioned not to place undue reliance on any forward-looking information and statements. Caplink expressly disclaims any intention or obligation to update or revise any forward-looking information and statements, whether as a result of new information, events or otherwise, except in accordance with applicable securities laws.

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June 16, 2017

Dear Shareholders,

Please be advised that we have been working on a Shareholder Update (“Update”), but have run into a few unforeseen delays. We hope to publish an Update in the next couple of weeks.
The forthcoming Update will contain details of the following:

1. Caplink’s review of Crossroads’ mortgage portfolio and Net Asset Value findings;

2. Deloitte’s review and report on Caplink’s Net Asset Value findings;

3. The dissenting shareholder court application [note: due to timing issues, the June 13 court date was postponed. A new court date is currently being scheduled];

4. BDO’s 2016 financial audit which is scheduled to commence end of June;

5. Commencement by Caplink of monthly Crossroads financial summaries [similar to the shareholder update attached in Schedule “A” of our first communication]; and

6. Discussions on frequently asked questions received from Crossroads shareholders.

In the interim, you are welcome to contact Caplink’s Investor Relations Manager, Elaine Bonilla, at elaine@caplink.ca at any time while we work through the above-noted matters.
Your feedback is always greatly appreciated as it helps us to be the best possible fund manager for Crossroads.

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February 17, 2017

INTRODUCTION

Management appreciates how anxious you are about the state of your Crossroads-DMD Mortgage Investment Corporation (“Crossroads”) investment and we apologize for keeping you waiting. We would like nothing more than to be able to tell you where Crossroads stands today. However, the scale of the fund, coupled with the complexity of its foreclosures has left Caplink working overtime to get a firm understanding of the status of this fund.

The only way Crossroads can get back to issuing dividends and paying redemptions is to have an accurate and well maintained net asset value (“NAV”) assessment system. Caplink is currently refining and updating the assessment system. Once done, it is anticipated that management will be able to accurately and continuously assess Crossroads’ fund performance and loan loss provision requirements on a monthly basis.

At present, Caplink believes that a reasonable estimate of when the above mentioned work should be completed is end of March 2017. This may not be the news you wanted to hear, but it is the reality we are faced with. Caplink’s top priority has been, and remains, protecting Crossroads’ investors by conducting a full review of Crossroads’ mortgage portfolio. As mentioned in our December 9, 2016 shareholder letter, this work is essential to establishing a value for the fund, and to ensuring that the applicable solvency tests under the Business Corporations Act (Alberta) (“ABCA”) are met prior to any dividends or redemptions being authorized and distributed by Crossroads. There will be no dividends or redemptions scheduled for distribution prior to at least the end of March 2017 when we hope all the valuation work will be completed.

With regard to 2016 Annual Investors Statements and T5s, those will be sent out prior to the end of February 2017. This in itself will be a significant undertaking as all 1,700 statements will first have to be reviewed to ensure accuracy in reporting both the distributions and share write-downs that occurred in 2016.

OTHER MATTERS

Change of Crossroads’ Legal Counsel

On December 29, 2016 Caplink formally terminated Crossroads’ retainer with McLeod Law LLP. In the management agreement between Caplink and Crossroads, Caplink has the exclusive right to select legal counsel for Crossroads. Caplink exercised that right when it discovered that Crossroads was one of 19 defendants in a lawsuit in which McLeod Law LLP was representing all 19 defendants. Caplink was uncomfortable with the potential conflicts of interest in that situation and chose to recruit a new law firm to exclusively represent Crossroads’ interests. That law firm is Gowling WLG (Canada) LLP (“Gowling WLG”) in Calgary.
Gowling WLG is a multi-disciplinary national law firm, which has never previously represented Caplink or Crossroads. There was one possible conflict related to a legal action between a Gowling WLG client and another mortgage investment corporation formerly managed by CMS, but that conflict was such that Caplink and Gowling WLG agreed they could work around as required. Caplink is pleased with the guidance that the Gowling WLG lawyers have provided Crossroads to date and is confident that the interests of Crossroads and its shareholders are being well served.
In addition, Caplink has done something similar with its legal counsel in Manitoba. In Manitoba, Crossroads uses Levene Tadman Golub Law Corporation. To date that law firm has only represented Crossroads so it has no existing potential conflicts. Notwithstanding, Caplink has advised Manitoba counsel that the firm can only represent Crossroads should any legal actions arise going forward. Thus, if Crossroads becomes a defendant in a multi-defendant lawsuit, the other defendants in that legal action will have to obtain their own independent legal counsel.

Status of Dissenting Shareholders

As you will recall, on April 21, 2016, Crossroads’ former manager held a special meeting of the Crossroads class B shareholders to formally amend Crossroads’ Articles of Incorporation. Those amendments resulted in some Crossroads shareholders exercising their dissent rights at the time of the vote. Some dissenting shareholders filed an application in the Alberta Court of Queen’s Bench to fix the fair value of Crossroads’ shares. That application is presently scheduled to be heard on March 3, 2017. However, given the complexity of the application and the requirement to firmly establish Crossroads’ share value that Court date may have to be postponed until April 2017. All dissenting shareholders are parties to that action and will be bound by the decisions of the Court. That means the fair value established (which may be less than $0.716/share) will be applicable to all dissenting shareholders, as will the payment directions set by the Court. Pursuant to the ABCA, payments to dissenting shareholders are also subject to certain financial solvency tests, which are similar to those applicable to the payment of dividends and the redemption of shares.

Shareholders who dissented lost all their rights as a shareholder other than to be paid the fair value of their shares. The only way they can regain their shareholder rights is to revoke their dissent in writing to Crossroads. Some dissenting shareholders had also submitted redemption requests prior to dissenting but, as those individuals forfeited their shareholders rights when they dissented, we believe that they also forfeited their redemption rights and will now only be treated as part of the group of dissenting shareholders. Caplink has asked legal counsel to confirm this understanding. Should a dissenting shareholder change their mind and wish to revoke their dissent in favour of regaining their shareholder status, they can do so by agreement in writing with Crossroads prior to the fair value hearing currently set for March 3, 2017. With such agreement they will be removed from the list of dissenting shareholders and will have their shareholder rights reinstated. Going forward, should these individuals wish to redeem their shares, they would have to submit a new redemption request and would be added to the end of the redemption queue.

Retention of an Independent Class B Share Valuator

Further, at the advice of Crossroads’ legal counsel Caplink has retained valuation specialists with Deloitte LLP (Edmonton) to review Caplink’s NAV model and results. This is being done to: i) ensure accuracy and reliability of Crossroads’ counsel’s submissions to the Court in the dissenting shareholder application and ii) facilitate Crossroads’ shareholders’ future reliance on Caplink’s valuation of Crossroads’ NAV. The process will determine Crossroads’ NAV as at the date the Deloitte review is completed. After review by legal counsel, it is our understanding that NAV as at April 20, 2016 is the applicable date of valuation required for dissenting shareholder share valuation.

Curbing Financial Loss

To date, Caplink has identified two major contributing factors to Crossroads’ current financial distress: i) large construction and land development loans and ii) foreclosure management.

With regard to construction and land development loans, Caplink will not authorize Crossroads to invest in those types of loans going forward. It is evident from the foreclosures Crossroads is experiencing that construction and development loans have significantly impaired its financial health.

Caplink has found the management of the existing foreclosure process to be inefficient and expensive. In Caplink’s experience, proper management of foreclosures requires timely and decisive action. Caplink feels that improving foreclosure management alone will curtail financial loss by Crossroads. Additionally, where Crossroads holds second mortgages, Caplink’s first order of business is to stop the cash out-flow incurred by servicing first mortgages where there is no equity for Crossroads.

SHAREHOLDER QUESTIONS

Further to our December 9, 2016 letter, we would like to continue addressing questions we have received from shareholders. Some of those questions include:

1. Q: What, if any, compensation will the former manager, CMS, and Gerry MacDonald, as director, receive from Crossroads now that Caplink is Crossroads’ manager?

A: Crossroads is no longer paying CMS a management fee, except for some potential real estate commissions payable to CMS Real Estate Ltd. on certain outstanding real estate listings. In addition, the Crossroads directors are not receiving any form of compensation in relation to the management of Crossroads.

2. Q: What management fee does Caplink receive for its services to Crossroads?

A: As per Article 5.1 of the November 30, 2016 Crossroads – Caplink Mortgage Administration and Management Agreement service fees payable to Caplink are as follows:

“…In consideration for the provision of the Management and Administration Services and the Mortgage Administration Services, CROSSROADS shall pay to CFC [Caplink] a monthly servicing fee (the “Service Fee”) equal to one-twelve (1/12) of one and one-half percent (1.5%) percent of the aggregate of: (i) the aggregate subscription price of all Class B Shares which are issued and outstanding at the beginning of each month during the Term; and (ii) the aggregate of all amounts drawn by CROSSROADS on its credit facilities (if any) at the beginning of each month during the Term…”

Caplink has calculated this for the time being on the projected share value of $0.716, and has not included any amounts for funds borrowed by Crossroads, even though the management agreement allows Caplink to do so.

3. Q: When will Caplink hold its town hall meetings?

A: Caplink is intent on hosting shareholder meetings. However, given the work ahead of us, we feel that holding these meetings in early February 2017 would be premature. In our view, it is more realistic to hold these meetings in April 2017. Caplink plans to advise you of meeting dates in late-March 2017.

4. Q: Will shareholders be able to access town hall meetings online as many will not be able to physically attend?

A: It is Caplink’s plan to host at least one online meeting, and we will provide appropriate information about how this will work logistically to all shareholders closer to the meeting date so that every shareholder has the opportunity to “attend”.

5. Q: Investors want to know at what rate they will likely be redeemed going forward. We were told that anyone who stayed on the redemption list would receive a maximum of the December 31, 2015 NAV and would be redeemed at a lower amount if the NAV was lower at the time their redemption came up. If the NAV went up, they would not receive the benefit unless they came off the redemption list and then went back on for redemption. Is this the case?

A: According to Crossroads’ Articles of Incorporation, which were adopted by the shareholders in April 2016, the redemption price paid to each shareholder will be based on the lesser of: i) NAV at the end of the fiscal quarter prior to the shareholder’s redemption notice (or as at December 31, 2015 for any redemption notices received by the Corporation on or prior to December 31, 2015); and ii) NAV at the end of the fiscal quarter prior to the actual redemption payment being issued. The result of this is that if NAV increases while a shareholder is in the redemption queue to be paid, their redemption price will not increase; however, if NAV decreases while a shareholder is in the redemption queue, their redemption price would decrease. However, as noted above, any redemption payment is subject to applicable financial solvency tests under the ABCA.

6. Q: If current redemptions all end up going through, what happens to Crossroads?

A: We hope that Crossroads will be in a position to raise new capital at some point. At present, approximately 44% of the outstanding shares issued are on the list of pending redemptions. Clearly, not everyone wants to exit the fund. As stated in our previous communication, our long-term intent is for Crossroads to eventually have the ability to pay dividends and redeem shares on a regular basis.

7. Q: What are Crossroads’ current lending and appraisal guidelines?

A: Crossroads is currently subject to the lending and appraisal guidelines as stated in the Crossroads offering memorandum dated September 30, 2014.

8. Q: Have the MICs that Caplink manages always stayed at 100% NAV (i.e. remained at par)? Please expand on this.

A: Caplink manages two other mortgage investment corporations (“MICs”). Those MICs are Caplink Mortgage Investors Corporation (“CapMIC”) and Cedar II Mortgage Corporation (“Cedar II”). Both CapMIC and Cedar II follow conservative lending practises, with CapMIC only lending to 75% of property value and Cedar II able to lend to 85% of property value but rarely doing so.

CapMIC is a first mortgage only MIC that has, since its 2005 inception, maintained a 100% NAV. Redemptions were held up from February to August 2009, but all redemption payments were processed in September 2009 and dividends were paid in October 2009.

Cedar II is a first and second mortgage MIC that has, since its 2000 inception, only seen its NAV drop below 100% once. That drop occurred for 12 months in 2009 and saw Cedar II’s NAV decline 6.6% (i.e. $0.934 per share). Cedar II did not pay dividends in 2009 and redemptions were held up from February to August 2009. Redemptions in August were paid at $0.934/share. In January 2010, redemptions were paid at $0.99/share. In February 2010, share value was back at $1.00 and has remained at this level ever since.

It is also important to note that during this time we were experiencing the aftermath of a global recession, which also had an impact on the housing market and mortgage lending firms in Alberta and Canada. Except for that period in 2009, Cedar II and CapMIC have always paid dividends and processed redemptions.

9. Q: If redemptions are already in the queue, and the person’s number comes up, will there still be efforts to contact the clients to double check if they still want that redemption to proceed?

A: Yes, but please note that the payout of such redemption will be subject to applicable financial solvency tests under the ABCA.

With regard to paying redemptions, management must first confirm that Crossroads meets the requirements for paying redemptions under section 36 of the Business Corporations Act. Those requirements include:
A corporation shall not make any payment to purchase or redeem any redeemable shares issued by it if there are reasonable grounds for believing that

(a) the corporation is, or would after the payment be, unable to pay its liabilities as they become due, or
(b) the realizable value of the corporation’s assets would after the payment be less than the aggregate of

(i) its liabilities, and
(ii) the amount that would be required to pay the holders of shares that have a right to be paid, on a redemption or
in a liquidation, rateably with or prior to the holders of the shares to be purchased or redeemed.

1981 cB-15 s34

10. Q: What kind of investment does Caplink have in its own funds?

A: Caplink Financial Corporation cannot invest in the funds it manages, but its two owners, Gay Andrews and Brian Menges, can and are personally invested in both CapMIC and Cedar II. Further, the board of directors for CapMIC and Cedar II (which includes five outside directors in addition to Gay Andrews and Brian Menges) are also all invested in CapMIC and Cedar II. In CapMIC the directors collectively own 14% of the class B preferred shares. In Cedar II the directors collectively own 10% of the class A investment shares.

11. Q: I am holding shares in a RRIF account. At what share value will my 2017 RRIF In-Kind payment be based on?

A: We have made an effort to contact Trustees to advise that the fair market value of the shares is, until further assessment, $0.716/share and the 2017 RRIF In-Kind payment should be calculated based on that value and not $1.00/share.

Please note that if you have sent us an inquiry that was not included above, your question has been recorded and added to a list of queries that require further comprehensive review and cannot be answered at this time. We hope to provide you with detailed answers in our next correspondence as we should be further along in our assessment of Crossroads’ financial position. The main purpose of this communication is to give you an update of what we are currently working on.

Should you have any further questions or concerns regarding any of the above noted matters, please do not hesitate to contact us. We want to keep the communication lines open to all shareholders as any feedback you can provide will assist Caplink in managing Crossroads to the best of its abilities.

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December 9, 2016

Dear Shareholder,

As many of you are aware, effective November 30th, 2016 Caplink Financial Corporation (“Caplink”) assumed the management of Crossroads-DMD Mortgage Investment Corporation (“Crossroads”). Caplink is an Edmonton based company that has managed mortgage investments for nearly 20 years. Caplink is both an Exempt Market Dealer and Restricted Portfolio Manager in the Provinces of Alberta, British Columbia, Saskatchewan and Manitoba, and Investment Fund Manager in the Provinces of Alberta and British Columbia. In addition, Caplink is also a licensed real estate brokerage (Alberta), mortgage brokerage (Alberta & British Columbia) and Financial Corporation (Saskatchewan).

Caplink has managed mortgage portfolios since 1997 and mortgage investment corporations (“MICs”) since 2003. Caplink currently manages two MICs – Caplink Mortgage Investors Corporation (“CapMIC”) and Cedar II Mortgage Corporation (“Cedar II”).

Caplink’s management is very pleased and privileged to now be administering your investment in Crossroads-DMD Mortgage Investment Corporation (“Crossroads”) and will make every effort to ensure your Crossroads’ investment is ultimately successful.

Caplink management is transitioning Crossroads’ accounting and mortgage portfolio information to its offices. Crossroads has over 580 mortgages, recent complex capital transactions, and 1,700 investors. Caplink management intends to do a thorough review and analysis to assess Crossroads’ financial position and to address all shareholder concerns. Management appreciates that you have immediate concerns about your Crossroads investment, and though not yet fully apprised of Crossroads’ financial position, Caplink management would like to respond to some of the questions we have heard to date. In no particular order, those questions include:

1. Q: Is it Caplink’s intention to liquidate Crossroads?

A: No. It is Caplink’s intention to rehabilitate and reposition Crossroads.

2. Q: Crossroads’ target yield was reduced from 10% to 7%, is a 7% return achievable or will the return be lower?

A: Caplink management hopes that Crossroads will achieve, and eventually exceed its 7% target rate of return, but will not know if or when that is possible until we have worked through most of Crossroads’ current financial issues.

3. Q: What is Gerry and Maureen MacDonald’s involvement with Crossroads now and in the future?

A: Effective November 30th, 2016, CMS Financial Management Services Ltd. (“CMS”), which is owned by Gerry and Maureen Macdonald, terminated its management agreement with Crossroads. That termination means CMS can no longer provide Exempt Market Dealer, Restricted Portfolio Manager or Investment Fund Manager Services to Crossroads. Though CMS’ management agreement has been terminated, Caplink management has asked Gerry Macdonald to remain as a director of Crossroads for up to five years. Caplink management did this to ensure not all management history was lost with the termination of CMS’s management agreement. Maureen Macdonald will supervise the orderly transfer of Crossroads’ documents and records from CMS to Caplink after which her involvement with Crossroads will cease.

4. Q: Are you going to amalgamate Crossroads with your MICs or will it stay separate?

A: It is not Caplink’s intention to amalgamate Crossroads with either of Caplink’s two existing MICs.

5. Q: How will Caplink be able to manage Crossroads when Caplink already has two MICs to take care of?

A: Caplink has some excess capacity in staff, but has been hiring additional staff to assist in the management of Crossroads. That new staff includes a CPA as Controller to support Caplink’s CFO, a mortgage administrator, a manager of mortgage underwriting and a communications specialist to aid in investor relations.

6. Q: Given Caplink already manages CapMIC and Cedar II, how will Caplink allocate mortgage investments between CapMIC, Cedar II and Crossroads?

A: Unlike CapMIC and Cedar II, Crossroads is substantially invested in high ratio residential second mortgages, so when it comes to allocating mortgage investments between CapMIC and Crossroads, there is no conflict as CapMIC is a first-mortgage-only-MIC while Crossroads is a second-mortgage MIC. With regard to Cedar II, which funds both first and second mortgages, the type of second mortgages Crossroads has historically funded is not the type that Cedar II typically invests in. Notwithstanding, there is a potential investment overlap between Cedar II and Crossroads. Where there is an investment overlap between Cedar II and Crossroads, that overlap is managed by the Fair Allocation Investment Policy that Caplink developed prior to acquiring Crossroads.

7. Q: Why would Caplink want to take over Crossroads?

A: Caplink management has a long history of mortgage portfolio management. We believe we are adept at working out difficult administrative situations, and believe we can add significant value to Crossroads.

8. Q: Does Caplink see any value in Crossroads’ assets?

A: Absolutely Crossroads’ assets have value. What their value is exactly is currently under review. Even though some assets may have lost value, it does not preclude Caplink from restoring those assets to a higher value in order to recapture some of Crossroads’ lost share value.

9. Q: How will Caplink manage Crossroads going forward?

A: Caplink is a disciplined and risk adverse manager that pays very close attention to investment policy, accounting and reporting procedures, regulatory requirements and economic trends. As mortgages and real estate are illiquid investments relative to securities such as publicly traded stocks, Caplink’s management has historically maintained a defensive investment posture where it does not take unnecessary risk in the pursuit of investment yield. In effect, we are always preparing for the next recession, which is a strategy that is helping our two MICs easily navigate the current economic downturn. Our investment strategy will be applied to the management of Crossroads with the clear intent of ensuring Crossroads’ long-term ability to pay dividends and redeem shares.

9. Q: How will Caplink be communicating with Crossroads’ shareholders?

A: In the short term, Caplink will be very focused on providing Crossroads’ shareholders with timely and meaningful financial and investment status updates. Caplink currently provides the shareholders of its two MICs with monthly accounting and mortgage portfolio information (see Schedule “A”). Going forward, Caplink management will be seeking your input on what services we can provide you to ensure that your communication and investment needs are being met. Caplink management is planning to use email, the Crossroads’ website, webinars and public meetings to frequently and continuously communicate the performance and financial status of Crossroads to its shareholders.

10. Q: Do you know how much my investment in Crossroads is worth now?

A: This is a very complex question and is currently being reviewed. We will provide you with a detailed answer in our next correspondence.

11. Q: When will redemptions be paid?

A: This is not clear yet as Caplink management must first confirm that Crossroads meets the requirements for paying redemptions under section 36 of the Business Corporations Act. Those requirements include:

A corporation shall not make any payment to purchase or redeem any redeemable shares issued by it if there are reasonable grounds for believing that

(a) the corporation is, or would after the payment be, unable to pay
its liabilities as they become due, or
(b) the realizable value of the corporation’s assets would after
the payment be less than the aggregate of

(i) its liabilities, and
(ii) the amount that would be required to pay the holders of
shares that have a right to be paid, on a redemption or
in a liquidation, rateably with or prior to the holders of
the shares to be purchased or redeemed.

1981 cB-15 s34

12. Q: When will dividends be paid?

A: This is not clear yet as Caplink management must first confirm that Crossroads meets the requirements for paying dividends under section 43 of the Business Corporations Act. Those requirements include:

43 A corporation shall not declare or pay a dividend if there are reasonable grounds for believing that

(a) the corporation is, or would after the payment be, unable to pay
its liabilities as they become due, or
(b) the realizable value of the corporation’s assets would thereby
be less than the aggregate of its liabilities and stated capital of
all classes.

1981 cB-15 s40

13. Q: What is Caplink’s relationship with the Alberta Securities Commission (“ASC”)?

A: Caplink management has a very constructive and respectful relationship with the ASC. In 2013, Caplink management authored a paper called Realizable Value, The Real Risk to Mortgage Entity Investors, which highlighted the risks associated with MIC investment funds. That paper was well received by both the industry and the ASC. I, Brian Menges, am one of only two MIC managers to be appointed to the ASC’s Exempt Market Dealer Advisor Committee. You can obtain a copy of the paper by clicking the link below.

Realizable Value Paper

Caplink management is very aware of the frustration and discomfort both the cease trade order and restrictions on dividend and redemption payments have caused Crossroads’ shareholders. As a result, we have made it our purpose to not only earn your trust as Crossroads’ new manager, but to prove to you that a well-managed MIC can be a meaningful and financially rewarding investment for you and your family.

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