Additional staff will include a senior secretary, a junior clerical assistant, an administrative assistant and additional technical staff to provide laboratory maintenance. The overall headcount will build up as detailed in the projected expenditure budget in Appendix 1.5. The overall headcount will be capped at 22 until a business case can be made for further expansion. Projected Company organization at the end of year 2 is shown in Appendix 3.

The management will consist of a Chief Executive Officer (Andy Alias), and a Chief Scientific Officer. Two suitable CSO candidates have been identified, Dr Michael Alias (currently acting director of biotechnology at British Biotech, and currently supervising the yeast GPCR project that Nepkar will inherit), and Dr John Alias, currently developing yeast-based high-throughput screens at Glaxo's Geneva research institute. Recruitment of Marketing and Business Development managers will be deferred in order to minimize the managerial salary overhead.

In addition to the CEO and CSO, the postdoctoral scientists heading the main functional area within the Company will be key appointments. Retention of these individuals will be by:

1. Hiring staff who are committed to working in an entrepreneurial environment.
2. Providing incentives in the form of share options.
3. Providing a stimulating and rewarding environment for applied research.
4. Paying competitive salaries.
5. Maintaining a stimulating, attractive work environment.
6. Allowing career progression as Nepkar grows.

Recruitment of these scientists has commenced, and suitable candidates appear to be available.

There are three elements that are central to our business strategy.

Speed.

It is important to build a group of scientists with sufficient critical mass as rapidly as possible. We believe that this fast start is essential if we are to build on our IP base.

Key Technology.

The technology which we are developing will be pivotal for drug discovery and the next generation of biosensors. By gaining control of the IP, we will drive up the asset value of the Company and hence its overall valuation.

Short-Term Milestones.

We have been careful to select short-term milestones which both prove the technology and provide an opportunity to generate revenue streams.

Our first priority will be to structure commercial arrangements with pharmaceutical companies. The emphasis will be on maximizing up-front payments at the expense of royalties. Our goal in this initial phase will be to minimize expenditure, achieve a near-neutral cash flow through successful completion of two-three projects, and build on our intellectual property base. This phase of operations will take between 18-24 months.

In the second phase we will expand our technology base with the objective of becoming the European screening partner of choice. We will seek to add more value to the projects by carrying out screens in-house, and by accessing compound libraries through deals with third parties such as combinatorial chemistry companies. We will increasingly seek to initiate our own screening projects, either alone or in collaboration with strategic partners from academia or the Biotech sector. This phase of operation will be contingent on a continued strong growth in the contract screening business. Success in this second phase will position the Company for flotation on the stock exchange in four to five years.

A key component of Nepkar's success will be its ability to secure early screening contracts. Our agreements will be structured so as to maximize early revenues while attracting sufficient corporate clients.

Agreements will be restricted to a nominated receptor target. We will not enter into therapeutic-area type deals as they are too diffuse. The client will nominate a receptor and pay an up-front contract fee. Nepkar will then deliver a yeast-based screen within twelve months. On completion of the project, Nepkar will hand over the screen in return for a success fee. The client will have exclusive access to the screen for an indefinite period in return for a small ongoing annual license fee. The client will also have a non-exclusive and non-transferable right to use Nepkar technology to carry out the screen on its own premises. There will be a 2% royalty payable on net sales of any product based on leads emerging from the Nepkar screen. The client will have the right to buy out this royalty for a sum that escalates based on the development status of the compound and the projected market size. The following details an illustrative deal structure.

As Nepkar becomes self-supporting financially, we will consider shifting the payment schedule to emphasize the downstream revenues.

The client list will remain restricted for at least the first two years (maximum of three clients), as only limited marketing, distribution, product development and after-sales support are scheduled until that point.

Control of the day-to-day scientific operations will be the responsibility of the CSO. He will, however, from time to time draw on a small group of outside scientific experts who will act as consultants to the Company and form a Science Advisory Board (SAB). Their role will be to comment on scientific strategy, to ensure the high quality of the Company's science, and to provide help on specific scientific problems. It is also expected that they will act as ambassadors for the Company, and help to establish and maintain its scientific reputation.

The composition of the SAB is as follows:

• Professor John Alias, University of Leeds. The UK's foremost authority on the structure of G-protein linked receptors.
• Professor Graeme Alias, University of Glasgow. An expert on pharmacology and G-protein function.
• Professor Stephen Alias, University of Manchester Institute of Science and Technology. A leading UK expert on yeast genetics and a key member of the yeast genome sequencing project.
• Professor Gerard Alias, ICRF, Lincoln's Inn Field. Professor is a leading cancer biologist and an expert on programmed cell death (apoptosis). He has recently started to use fission yeast to study the cell death pathways of higher organisms.

The Governing Board of Nepkar will bring a range of scientific and managerial experience. We recognize that it will be important to identify board members with extensive pharmaceutical experience and contacts.