20081219 Edwafin Letter About Non Payment

19 December 2008

EDWAF1N'M

Dear Investor, I am writing this letter in order to be totally transparent with you as a valuable stake holder in the Edwafin Group and its income producing subsidiary companies. Your hard earned capital is invested in the above and you have a right to know the current position of the Group. In the unlikely event of things going wrong (as they sometimes do), more specifically, the current global recession which has impacted heavily on our country, this company has to react proactively and do what it deems necessary to ensure the protection and security of all our valued clients' investments. Naturally, if we don't then you run the risk of losing your money due to the fact that your debentures are an unsecured investment. Iwish to emphasise at this point that every client is of paramount importance to the company. Let me once again refer to my recent correspondence and state that we encountered problems paying electronically through our new system, which resulted in the need for manual payments by cheque. The matter has for all intents and purposes now been resolved. It is important to be cognizant of the fact that Edwafin is not a financial services company. Our core subsidiary companies are in the business of manufacturing paint and producing motor vehicles. Hence, you have invested in a business that is similar to any other kind of public manufacturing enterprise. As stated briefly above, I am sure that you are all very aware of the economic crisis facing the first world economies, which in most instances are now in recession. Emerging economies such as South Africa have not escaped the crisis and we, unfortunately have also been directly and indirectly affected. Besides the high inflationary pressures, including interest rate and fuel price increases that have had a devastating impact on the economy over the past three years, South Africa is now feeling the negative consequences of the worldwide credit crunch. We are presently finding ourselves in a constricting economy as the demand for SA export products is rapidly diminishing. A broad spectrum of companies across most industry sectors in the country are currently in the process of streamlining operations and retrenching staff. Businesses are also trying to deal with the rippling effect of delayed creditor and debtor payments. In addition, an alarming number of homes, furniture and motor vehicles are being repossessed every month. As mentioned above, Edwafin has not been immune to a combination of these 'on the ground' economic issues. We are presently facing a short term liquidity problem, resulting in our ability to service our investors over the next few months, probably until the end of February 2009 at the very latest. We will therefore effect an electronic payment into your account on or before 28 February 2009, which covers your interest payments from November to February, including the two month 1% bonus on annuity interest. It is therefore my duty as the Chairman of the Group to inform you that we will not be in a position to service your interest payment until the end of February, due to our current tightening liquidity situation. Unfortunately, this has resulted in the need to stop the November and December cheques. However, let me assure you that the company is solvent and if we can defer payment of interest to end February 2009, your capital investment will be safe. The fact is that our management accounts are currently reflecting a profit of Rl0 million. However the problem does not lie with our asset base (which is profitable), but at this stage our problems lie with our liquidity, or cash flow, which is at an all time low. I fully understand that some of you are very worried and possibly even annoyed. However, let me again emphasise that this is a short term measure, which will be resolved in the New Year. Our primary objective is to judiciously manage and consolidate our current position and in so doing ensure the protection and security ofthe Group's entire investment portfolio. Edwafin is an honorable company and fully intends to fulfill its financial commitments to you on an ongoing basis. In the eight year long history of our company clients have been paid on time and Edwafin is very proud of the credible track record that has been built amongst 4000 investors. You are a valued stakeholder in the Edwafin Group and we would therefore appreciate your patience and understanding with us through these tough economic times.

as you walk

HEAD OFFICE: Physical Address: Strangeways Office Park, 6 Delamore Road Hillcrest, 3610, KZN, South Africa Postal Address: P.O. Box 2180, Hillcrest, 3650, KZN, South Africa I Telephone: +27 (031) 7654570 Telefax: +27 (031) 765 4842 Website: www.edwafin.com I Email: [email protected] Executive Directors: PRStapleton (Executive Chairman); MH Winchester (Chief Financial Officer); DG Hutchinson (CEO : ECO); LR Klynsmith (CEO : DMC); GRStapleton (CEO : Rainbow Paints); MJ 5tapleton (CEO : TEF); ML Chaplin; CM Gardiner; SE Hutchinson Non-Executive Directors: SL Beets (Protea Trading: Australia); DG Francois; M Naicker; JB5 Osborne; 5J Read; PD Smith Company Secretary: MJ Bester Edwafin Investment Holdings Limited. Reg No:. 2003/027119/06

CERTAIN INVESTORS, DUE TO THEIR WORRY AND CONCERN, HAVE LEVIED THREATS AGAINST US, WHICH THEY ARE WITHIN THEIR RIGHTS TO BE CONCERNED ABOUT (AND OF COURSE WE DO UNDERSTAND HOW THEY FEEL). HOWEVER WE NEED TO MENTION THAT IN TAKING THE MATIER FURTHER BY GOING PUBLIC OR INSTIGATING ANY OTHER FORM OF ACTION AGAINST THE COMPANY, WOULD NOT ONLY PUT YOUR CAPITAL IN JEOPARDY, BUT THE CAPITAL INVESTMENTS OF ALL OUR CLIENTS WILL SIMULTANEOUSLY BE PUT AT RISK.

The good news is that we are looking forward to the release of significant capital funds within the next six to eight weeks, which will immediately resolve our liquidity problem and enable us to get back on track with regular interest payments to all our investors. In addition, we will be starting 2009 on a strong trading platform to manufacture and sell the Damara, a South African 4 x 2 allterrain vehicle now that we have our long-awaited SABS homologation license. In fact we already have an order enquiry book of nearly 400 vehicles, selling at a starting price of R129,900-00 each ex vat. Our Paint Company, Rainbow Paints, which celebrated its 21't birthday this year, has secured a massive contract to manufacture material products for the largest paint company in SA, including their sub Saharan African markets.

raw

Indeed, business for next year is looking excellent. I am of course acutely aware and deeply concerned about the fact that a small percentage of our investors rely on their monthly interest payment in order to survive and earnestly apologise for the difficult financial constraints you will undoubtedly find yourselves in, especially over the Christmas and New Year season. Unfortunately this course of action is an absolute requirement in order to rectify the liquidity position and ensure the continued protection of your investment. As a valued stakeholder circumstances.

in the Edwafin Group we sincerely call on you to partner with us during these tough economic

let us look to a brighter future in 2009! Sincerely,

Patrick Stapleton Group Executive Chairman