Merger Update

Pathfinder Properties PLC
21 May 2001


Pathfinder Properties PLC

21st May 2001

PATHFINDER PROPERTIES PLC RECOMMENDED OFFERS FOR PATHFINDER RECOVERY 1 PLC AND
PATHFINDER RECOVERY 2 PLC - RECOVERY DIRECTORS REBUTT KERRINGTON PROPOSALS IN
VIGOROUS TERMS

The directors of Pathfinder Recovery 1 PLC ('Recovery 1') and Pathfinder
Recovery 2 PLC ('Recovery 2'), have responded to proposals made by Kerrington
Limited ('Kerrington') that the directors of Recovery 1 and 2 be replaced by
directors nominated by Kerrington, by issuing a vigorous rebuttal of the
proposals.

In their rebuttal the Recovery directors state that, in their view, the
Kerrington's proposals are an opportunistic attempt by a minority shareholder
to take control of the Recovery companies without making shareholders an offer
for their shares. The Recovery directors say that in order to convince
shareholders to accept Kerrington's vague and unformulated proposals,
Kerrington have made a number of misleading and inaccurate assertions which
are mentioned below.

The Recovery directors have advised shareholders that the unofficial proxy
form which Kerrington sent out contains a legally invalid provision whereby
Kerrington sought to prevent shareholders from subsequently changing their
minds on the basis of new information. The Recovery directors describe
Kerrington's action as 'questionable'.

Kerrington have also been reported to the Financial Services Authority for
potential breaches of the Financial Services Act 1986 ('FSA') on the basis
that a letter sent by Kerrington to shareholders appeared to be an investment
advertisement under the provisions of section 57 of the FSA. That letter did
not contain a notice that it had been approved by an authorised person as
required by the Financial Services (Conduct of Investment Business) Rules
1990. Kerrington is not, we believe, an 'authorised person'. Kerrington's
potential breach was notified to OFEX.

The background to the rebuttal arises from proposals made by Kerrington
subsequent to two recommended offers by Pathfinder Properties PLC ('
Properties') for Recovery 1 and Recovery 2 on 9th April 2001.   The Offers
were intended to create an AIM listed group with net assets in excess of £28
million through a share-for-share offer based on net assets and a limited cash
alternative.

AIM listed Pathfinder Properties is a specialist in urban regeneration and
development projects.

Recovery 1 and Recovery 2 are property development companies, which were
originally established as BES companies and whose shares are now traded on the
OFEX facility. The two recommended offers were independent of each other and
were not inter-conditional but have been arrived at on a similar basis in that
the share offers were based on the respective net assets values of Properties
and Recovery 1 or Recovery 2, as the case may be.

Properties and Recovery 1 and Recovery 2 jointly participate in a number of
property developments, primarily in Glasgow, Manchester and Loch Lomond.
Planning consent was recently received for one of these property developments,
Merchant Village, a retail and residential scheme in the centre of Glasgow,
with an estimated resale value of £100million. In addition, planning is
currently being pursued for phase one of a similar sized scheme in
Castlefields, Manchester.

Immediately following the offers, Kerrington, a private company with an
approximate 13.4 percent interest in Recovery 1 and an approximate 18.3
percent interest in Recovery 2 contacted shareholders intimating that they
would put forward an alternative proposal. On 16th April, Kerrington
circulated Recovery 1 and Recovery 2 shareholders with proposals to remove the
existing directors and replace them with Kerrington appointees and to effect
an orderly sale of the Company's assets. The proposals also made a number of
statements and assertions in respect of the experience of the Kerrington
directors and the remuneration and activities of the common directors of
Pathfinder Properties, Recovery 1 and Recovery 2.

The directors of the Recovery companies, other than the independent director,
have responded to statements made to shareholders by Kerrington as follows:

-         Kerrington claim to be able to provide a full cash exit route via
          either the sale of or liquidation of the Recovery companies. The      
          Recovery directors note that Kerrington have provided no indication of
          the potential costs of any liquidation, timescale , or most           
          importantly the likely proceeds.

-         The Recovery directors state that Kerrington's strategy to dispose
          of assets in return for cash is fraught with problems. The Recovery 1 
          and 2 assets mainly comprise interests in joint venture companies in  
          partnership with other Pathfinder companies, and, they say, any       
          piecemeal disposal of these interests will fail to realise their full 
          value as they are minority interests.

-         Kerrington make reference to the experience and track record  of its
          directors, particularly in administering sales and liquidations.      
          However, the Recovery directors say that Kerrington PLC issued shares 
          in 1989 and 1990 at 100p and 110p respectively which ten years later  
          when the shares in that company had a net asset value of 95p per share
          Kerrington PLC carried out a  share buy-in at 67p per share (see note 
          3 below)

-         The Recovery directors also say that shareholders in Kerrington
          Developments II PLC and Cavendish Kerrington PLC, in which Mr Lee was 
          a director , made gains on liquidation of only 2% and 4% respectively 
          over a period of seven to eight years (see note 4 below). Shareholders
          in Kerrington Developments III PLC, which was acquired by Kerrington  
          PLC lost between 27% and 40% of the value of their original investment
          (see note 5 below).

-         Kerrington cite the experience of their directors. Recovery
          directors note that the examples given of fire precaution work and
          refurbishment and the management of BES assured tenancies, in the case
          of two of the directors, would be of little benefit to a property     
          company involved in urban mixed-use developments structured through   
          joint ventures. In addition Kerrington have not proposed any board    
          member with financial qualifications or any independent directors. In 
          contrast the Recovery directors note their expertise: Malcolm Bacchus 
          is a chartered accountant with corporate finance experience, having   
          worked with some of the largest property companies in the UK, and     
          Simon Dawkins' experience includes executive directorships with a
          property finance company and a specialist property developer and      
          contractor.

-         Kerrington suggest that Recovery 1 and 2 directors Malcolm Bacchus
          and Simon Dawkins receive excessive salaries totalling £250,000 per   
          annum. In fact the directors received the equivalent of £19,447 per   
          annum each in respect of Recovery 1 and £20,584 per annum each in     
          respect of Recovery 2.  They note these salaries relate to companies  
          with £17 million of shareholders' funds under management and an       
          extensive development programme.

The Recovery directors are urging shareholders in Recovery 1 and Recovery 2 to
reject the proposal to remove the existing directors and replace them with
Kerrington appointees at the EGM convened for Wednesday 6th June. The Recovery
directors note that the two Recovery companies have been amongst the best
performing non-guaranteed exit property BES schemes with net assets at 31
December 2000 of 174p (Recovery 1) and 190p (Recovery 2) compared with
original issue prices of between 96p and 100p (see note 6 below).

The Recovery 1 Board note that a revised offer has been submitted by
Pathfinder Properties in respect of Recovery 1 and this is currently being
considered by the independent director of Recovery 1.

Messrs M Boase, M Bacchus, S Dawkins and G Heggie accept responsibility for
the information contained in this letter and to the best of their knowledge
and belief (having taken all reasonable care to ensure that such is the case),
the information contained in this letter is in accordance with the facts and
does not omit anything likely to affect the import of such information.

This letter has been approved for the purposes of section 57 of the Financial
Services Act 1986 by Nabarro Wells & Co. Limited, which is regulated by The
Securities and Futures Authority Limited.

Note to editors

1.       The independent director has not joined with his co-directors in making
         representations to shareholders in order that he can provide wholly    
         independent advice to shareholders with regard to the offers
         and proposals.

2.       The offer for Recovery 1 constitutes 33 Properties shares for every 4  
         Recovery 1 shares with a limited cash alternative of £1.48 per share.  
         The offer for Recovery 2 comprises 9 Properties shares for every
         Recovery 2 share with a limited cash alternative of £1.62 per share.   
         The cash alternatives are limited to 15% of the total shares in issue.

3.       Basis of information: company statutory financial statements

4.       Basis of information: companies statutory financial statements and     
         liquidation statements filed at Companies House

5.       Basis of information: company statutory financial statements and       
         Corpfin Worldwide

6.       Basis of information: company statutory financial statements and       
         prospectus

Further information:
Andrew Marshall
Marshall Robinson Roe
Tel: [phone]