9.1. Investment

9.1.1. Holding Company

A holding company will be created in July 1997 by the four co-founders with a capital contribution of $80,000. This company will be called "Keystone, Inc.", and its purpose is to finance the expenses for the first six months of the BOOMERANG Pharmaceutical Communications operations.

The shareholding of Keystone, Inc. is as follows

The holding company will be created for ownership of shares of the BOOMERANG Pharmaceutical Communications operational company. A founder's agreement will regulate potential future concerns such as the sale of shares by one of the founding partners.

9.2. Operational Company

To be able to meet the Cash Flow requirements (See Appendix G), an initial funding of $300,000 is needed. The capital will be opened to investors as follows:

The nominal value of one share is set at $20. A premium on stock value of $40 per share will result in a 48% share of capital owned by investors. The premium on stock value is justified by the valuation of what the holding company brings to BOOMERANG Pharmaceutical Communications during 1997.

The amount of $300,000 is required for working capital in 1998, which will meet the cash flow requirements for the first year and will permit the team to start up BOOMERANG Pharmaceutical Communications. This amount is divided into $65,000 of investment for the first month and $340,000 of EBIT until the month of September, 1998. This EBIT is decomposed into $114,000 of cost of goods sold, $309,000 of operating expenses, and $83,000 of cash earnings from our clients.

9.2.1. Return on Investment

Using a discount rate of 25%, a $220,000 investment will result in an Internal Rate of Return (IRR) of 42% over 5 years which accounts for 48% of the common stock (see Appendix F for the company valuation method).

9.2.2. Exit Strategy

Should the partners or the management wish to sell their equity, the growth of the company will make the following exit strategies possible:

• Return capital to investors through dividends or borrowed funds for a management buyout by Keystone, Inc.
• Seek new financial partners for the exchange of shares (investment companies, private investors)
• Introduction of the Company to the "Nouveau March6", which is the French equivalent to the NASDAQ.

It is asked that the stockholders retain their capital investment for a minimum period of three years after the BOOMERANG Pharmaceutical Communications launch.

9.3. Company Projections

9.3.1. Revenue and Not Income

The first sales will begin in June 1998. Total turnover for the year will be $614,000 with an operating loss of $6,000. At the end of Year 5, we expect to reach sales of $3.6 million and a net income of $702,000.

9.3.2. Margin

From 1998 to 2002, our contribution margins remain stable and will fully absorb fixed costs starting from the second year. The initial -1% net income margin will increase to a positive 19% in 2002.

9.3.3. Working Capital

During the first year of activity in 1998, working capital will represent approximately 2 months of turnover. By 2002, it will represent 1 month of turnover. The $220,000 contributed by the investors will allow BOOMERANG Pharmaceutical Communications to cover the negative cash flow through the end of 1998. Thus, cash flows will be positive at the end of 1998.

9.4. Conclusion

Taking into account the above assumptions and our financial projections, the $220,000 investment sought by BOOMERANG Pharmaceutical Communications will yield a 42% internal rate of return.