placing and admission to trading on aim - · pdf fileplacing and admission to trading on aim....

Cyprotex PLC

Placing andAdmission to trading on AIM

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in doubt about thecontents of this document or about what action you should take, you should immediately seek your own personal advice from yourstockbroker, bank manager, solicitor, accountant or other independent ®nancial adviser authorised under the Financial Servicesand Markets Act 2000 who specialises in advising on the acquisition of shares and other securities.

Application will be made for the Placing Shares and the existing issued Ordinary Shares to be admitted to trading on theAlternative Investment Market of the London Stock Exchange (``AIM''). AIM is a market designed primarily for emerging orsmaller companies to which a higher investment risk tends to be attached than to larger or more established companies. AIMsecurities are not Of®cially Listed. A prospective investor should be aware of the risks of investing in such companies and shouldmake the decision to invest only after careful consideration and, if appropriate, consultation with his or her own independent®nancial adviser. The rules of AIM are less demanding than those of the Of®cial List of the UK Listing Authority. It is emphasisedthat no application is being made for admission of these securities to the Of®cial List of the UK Listing Authority. Further, neitherthe London Stock Exchange nor the UK Listing Authority have themselves examined or approved the contents of this document.

A copy of this document, which comprises a prospectus drawn up in accordance with the Public Offers of SecuritiesRegulations 1995 (as amended) (``the Regulations''), has been delivered to the Registrar of Companies in England and Walesin accordance with regulation 4(2) of the Regulations.

Altium Capital Limited (``Altium Capital''), which is regulated by the Financial Services Authority, is acting for CyprotexPLC (``Cyprotex'' or ``the Company'') in relation to the Placing and Admission and is not acting for any other person inrelation thereto. Altium Capital will not be responsible to anyone other than Cyprotex for providing the protections affordedto its customers or for advising any other person in connection with the matters described herein.

CYPROTEX PLC(Incorporated in England and Wales under the Companies Act 1985 Registered Number 4311107)

Placing of 22,413,793 Ordinary Shares at 29p per shareand

Admission to trading on AIM

SHARE CAPITAL

(immediately following the Placing)Authorised Issued and fully paid

£ Number £ Number

160,000 160,000,000 Ordinary shares of 0.1p each 90,413.79 90,413,793

The Placing Shares will rank in full for all dividends or other distributions hereafter declared, made or paid on the ordinaryshare capital of the Company and will rank pari passu in all other respects with all other Ordinary Shares.

This document does not constitute an offer to sell, or a solicitation of an offer to acquire, Ordinary Shares in any jurisdictionin which such offer or solicitation is unlawful. In particular, this document is not for distribution in or into the United States ofAmerica, Canada, Australia, South Africa, the Republic of Ireland or Japan. The Ordinary Shares have not been and will notbe registered under the United States Securities Act of 1933 (as amended) nor under the securities legislation of any state of theUnited States of America or any province or territory of Canada, Australia, South Africa, the Republic of Ireland or Japan.Accordingly, the Ordinary Shares may not, subject to certain exceptions, be offered or sold directly or indirectly in or into theUnited States of America, Canada, Australia, South Africa, the Republic of Ireland or Japan.

Altium Capital is acting as nominated adviser to the Company. In accordance with the AIM Rules, Altium Capital hascon®rmed to the London Stock Exchange that it has satis®ed itself that the Directors have received advice and guidance as tothe nature of their responsibilities and obligations to ensure compliance by the Company with the AIM Rules and that, to thebest of its knowledge and belief, all relevant requirements of the AIM Rules have been complied with. Altium Capital has notmade its own enquiries except as to matters which have come to its attention and which it considered necessary to satisfy itself.No liability whatsoever is accepted by Altium Capital for the accuracy of any information or opinions contained in thisdocument or for the omission of any material information for which the Directors are solely responsible. Altium Capital hasnot authorised the contents of this document for the purposes of Regulation 13(1)(g) of the Regulations or otherwise and norepresentation or warranty, express or implied, is made by Altium Capital as to any of the contents or completeness of thisdocument.

It is expected that Admission will occur and that trading in the Ordinary Shares will commence on 15 February 2002.

Copies of this document will be available free of charge during normal business hours on any weekday (except Saturdays andpublic holidays) at the of®ces of Altium Capital, 30 St James's Square, London SW1Y 4AL for a period of one month from15 February 2002.

THE WHOLE TEXT OF THIS DOCUMENT SHOULD BE READ. THE ATTENTION OF INVESTORS IS DRAWN INPARTICULAR TO THE RISK AND OTHER FACTORS SET OUT ON PAGES 18 AND 19 OF THIS DOCUMENT.

CONTENTS

Page

Expected timetable of principal events 3

Placing statistics 3

Directors, secretary and advisers 4

De®nitions 5

Glossary 6

Key information 7

Part I Information on Cyprotex 8

Part II Risk and other factors 18

Part III Accountants' report on Cyprotex 20

Part IV Accountants' report on Cyprotex Services 23

Part V Additional information 43

2

EXPECTED TIMETABLE OF PRINCIPAL EVENTS

2002

Admission effective and dealings expected to commence in the OrdinaryShares on AIM 15 February

CREST accounts credited 15 February

Despatch of de®nitive share certi®cates 25 February

PLACING STATISTICS

Placing Price 29p

Number of Placing Shares 22,413,793

Net proceeds of the Placing c. £5.5 million

Number of Ordinary Shares in issue following the Placing and Admission 90,413,793

Approximate market capitalisation of the Company at the Placing Price £26.2 million

Percentage of the enlarged issued Ordinary Share capital represented by thePlacing Shares 24.79 per cent.

3

DIRECTORS, SECRETARY AND ADVISERS

Directors Jeremy Paul Scudamore Non-executive ChairmanDr Mark Egerton Non-executive Director*John Andrew Nicholson Chief Operating Of®cerDr David Edward Leahy Chief Scienti®c Of®cerRobert William Long Non-executive DirectorDr Rosemary Ann Lucy Drake Non-executive DirectorDr Colin Picton Non-executive Director*Chief Executive Of®cer with effect from no later than 1 August 2002

All of:

13±15 Beech Lane, Maccles®eld, Cheshire SK10 2DR

Secretary AB & C Secretarial Limited

Registered Of®ce 100 Barbirolli Square, Manchester M2 3AB

Head Of®ce 13±15 Beech LaneMaccles®eldCheshireSK10 2DR

Nominated Adviser Altium Capital Limited30 St James's SquareLondonSW1Y 4AL

Broker to the Placing Gilbert Eliott & Co. LimitedPrinces House95 Gresham StreetLondonEC2V 7NA

Registered Auditors and

Reporting Accountants

Ernst & Young LLP100 Barbirolli SquareManchesterM2 3EY

Solicitors to the Company Addleshaw Booth & Co.100 Barbirolli SquareManchesterM2 3AB

Solicitors to the Nominated

Adviser

Halliwell LandauSt. James's CourtBrown StreetManchesterM2 2JF

Registrar Northern Registrars LimitedNorthern HouseWoodsome ParkFenay BridgeHudders®eldHD8 0LA

4

DEFINITIONS

The following de®nitions apply throughout this document unless otherwise stated or the context otherwiserequires:

`Àct'' the Companies Act 1985, as amended

`Àdmission'' the effective admission of the existing issued Ordinary Shares andthe Placing Shares to trading on AIM in accordance with the AIMRules

`ÀIM'' the Alternative Investment Market of the London Stock Exchange

`ÀIM Rules'' the rules for AIM companies and their nominated advisers issuedby the London Stock Exchange in relation to AIM traded securities

`Àltium Capital'' Altium Capital Limited

``Board'' or ``Directors'' the directors of the Company whose names are set out on page 3 ofthis document

``CREST'' the relevant system (as de®ned in the Uncerti®cated SecuritiesRegulations 1995, as amended) for the paperless settlement of sharetransfers and the holding of shares in uncerti®cated form in respectof which CRESTCo Limited is the Operator (as de®ned in thoseRegulations)

``Company'' or ``Cyprotex'' Cyprotex PLC

``Cyprotex Services'' Cyprotex Services Limited, the Company's wholly-ownedsubsidiary

`ÈMI Option'' a qualifying option within the meaning of paragraph 1 of schedule14 to the Finance Act 2000, granted pursuant to the Services EMIPlan

``Gilbert Eliott'' Gilbert Eliott & Co. Limited

``Group'' or ``Cyprotex Group'' the Company and its wholly-owned subsidiary, Cyprotex ServicesLimited

`ÌCTA'' the Income and Corporation Taxes Act 1988, as amended

``London Stock Exchange'' London Stock Exchange plc

``Medeval'' Medeval Limited

`Òrdinary Shares'' ordinary shares of 0.1 pence each in the capital of the Company

``Placing'' the conditional placing of the Placing Shares at the Placing Pricepursuant to the Placing Agreement

``Placing Agreement'' the conditional agreement dated 12 February 2002 between theCompany, the Directors, Altium Capital and Gilbert Eliott relatingto the Placing, further details of which are set out in paragraph11.1(c) of part V of this document

``Placing Price'' 29 pence per share

``Placing Shares'' the 22,413,793 new Ordinary Shares which are the subject of thePlacing

``Regulations'' the Public Offers of Securities Regulations 1995, as amended

``Services EMI Plan'' the Cyprotex Services Enterprise Management Incentive Plan

``Shareholders'' holders of Ordinary Shares

``Share Option Scheme'' the Cyprotex discretionary share option scheme

``TAP'' The Automation Partnership

`ÙK Listing Authority'' the Financial Services Authority acting in its capacity as thecompetent authority for the purposes of the Financial Services andMarkets Act 2000

`ÙK'' or `Ùnited Kingdom'' the United Kingdom of Great Britain and Northern Ireland

`ÙS'' or `ÙSA'' the United States of America

``Warrants'' the warrants to subscribe for 431,034 Ordinary Shares at thePlacing Price constituted pursuant to the warrant instrument of theCompany dated 12 February 2002

``$'' US dollars

5

GLOSSARY

The following glossary of terms applies throughout this document, unless otherwise stated or the contextotherwise requires:

`ÀDME'' absorption, distribution, metabolism and elimination of adrug in the human body

`ÀDMET'' ADME and toxicity of a drug in the human body

`àssay'' a procedure to measure a speci®c characteristic of acompound

``BasePlateTM'' automated sample handling robot used for HTS

``DDI'' drug-to-drug interaction

``HTS'' high-throughput screening

``Human Genome Project'' worldwide project to map the genetic code of humanbeings, completed in 2000

``pharmacokinetics'' the study of how long a drug remains in the body andwhich tissues it reaches

`ÙHTS'' ultra high-throughput screening

6

KEY INFORMATION

The following information is derived from and should be read in conjunction with the full text of this document.

Introduction

The Cyprotex business was founded in April 1999 as a division of Medeval. Since that time, Dr DavidLeahy, formerly Head of Physical Sciences at Zeneca Pharmaceuticals, has led the development of theCyprotex business, working closely with academic groups at the University of Manchester specialising inpredictive drug candidate testing.

Cyprotex predictive system

The Group's predictive software simulates the distribution of a drug to the organs of the body usingestimates of the ADME properties of the drug generated by the screening systems. Using detailedmathematical models of human physiology and knowledge management processes, the software is alsocapable of estimating the ADME properties given only the chemical structure of the candidate drug. Theseestimates are derived using models generated and continuously re®ned from the testing database.

Mission statement

To radically improve the ef®ciency of drug discovery via the introduction of industrial scale testing and theuse of proprietary software to predict ADMET and DDI properties.

Key strengths

The Directors believe that the key strengths of the Cyprotex business include:

* a capacity for mass compound screening together with information database and predictive softwareenhances the Group's ability to predict candidate compound performance;

* its position as an independent service provider targeting the outsourcing trend prevalent amongstpharmaceutical, biotechnology and chemical companies;

* an experienced Board and operational team with considerable knowledge in pharmacokinetics andrelated ®elds;

* computer models of human and clinical data used continually to improve the database and to predictdrug action early in the discovery process; and

* established commercial relationships with leading pharmaceutical companies, chemical suppliers andbiotechnology companies.

Bene®ts to customers

The Directors believe that the bene®ts to customers of the Group's services include:

* reduced time and cost for customers to identify promising drug candidates within a chemical library;

* higher success rate in discovering compounds that can be developed cost effectively throughtargeting critical success factors;

* lower clinical trial costs as a result of improved trial design for clients; and

* reduced risk of late stage failure and product withdrawal through unrecognised DDI toxicity.

Use of proceeds of the Placing

The net proceeds of the Placing will be used to:

* provide working capital for the Group;

* fund the purchase of an HTS facility and the acquisition of other necessary capital equipment;

* discharge existing ®nancial liabilities of the Group;

* expand into overseas markets, focusing initially on the USA;

* implement the integration of the Group's software platform; and

* formalise and implement the Group's sales and marketing strategy.

7

PART I

INFORMATION ON CYPROTEX

Introduction

The Cyprotex business was founded in April 1999 as a division of Medeval. Since that time, Dr DavidLeahy, formerly Head of Physical Sciences at Zeneca Pharmaceuticals, has led the development of theCyprotex business, working closely with academic groups at the University of Manchester specialising inpredictive drug candidate testing. Over the past two years, the Cyprotex business has advanced its originalconcept of compound screening services for drug discovery to its current stage of development, where it isnow selling its services to the pharmaceutical, chemical and biotechnology industries. The Directors believethat there is signi®cant potential demand for services of this nature which can be exploited following theimplementation of increased HTS capacity.

Software platform


Mission statement

To radically improve the ef®ciency of drug discovery via the introduction of industrial scale testing and the use

of proprietary software to predict ADMET and DDI properties.

Key strengths

The Directors believe that the key strengths of the Cyprotex business include:

* a capacity for mass compound screening together with information database and predictive softwareenhances the Group's ability to predict candidate compound performance;

* its position as an independent service provider targeting the outsourcing trend prevalent amongstpharmaceutical, biotechnology and chemical companies;

* an experienced Board and operational team with considerable knowledge in pharmacokinetics andrelated ®elds;

* computer models of human and clinical data used continually to improve the database and predictdrug action early in the discovery process; and

* established commercial relationships with leading pharmaceutical companies, chemical suppliers andbiotechnology companies.

Bene®ts to customers

The Directors believe that the bene®ts to customers of the Group's services include:

* reduced time and cost for customers to identify promising drug candidates within a chemical library;

* higher success rate in discovering compounds that can be developed cost effectively throughtargeting critical success factors;

* lower clinical trial costs as a result of improved trial design for clients; and

* reduced risk of late stage failure and product withdrawal through unrecognised DDI toxicity.

The market

The primary goal of pharmaceutical research and development (``R&D'') expenditure is to discover``blockbuster'' drugs that can deliver high revenues. Studies indicate that, during the past 15 years, globalpharmaceutical companies have doubled their total R&D spend to over $45,000 million per annum yet theoutput of ``blockbuster'' drugs has halved.

Whilst the R&D process generates a number of lower value commercialised drugs, without the contributionof a ``blockbuster'' drug, these may not cover the cost of R&D on drugs that do not progress tocommercialisation. Industry analysts estimate that fewer than 40 such breakthrough drugs are in the

8

pipeline to 2003. By 2000 the average cost of drug development had risen to approximately $600 million perdrug.

Set out below is a graphical representation of the poor success rate over time of initial drug candidates. Asdescribed above, of the total number of potential drugs that begin the drug discovery process, less than 1per cent. are successful, of which only a small percentage ever become ``blockbusters''.

Drug discovery success rate

1 2 3 4 5 6 7 8 9 10less than 1%success rate

Clinical TrialsAnimal and

Human SafetyBiological TestingHTS

Year:

Phase:

Numberof

successfulprojects

A signi®cant proportion of R&D expenditure worldwide is spent on the identi®cation of candidate drugsbefore any clinical testing takes place. The Directors believe that it is widely accepted by pharmaceuticalcompanies that the current drug discovery process costs too much, take too long and must be improved.

Automated chemical synthesis and testing has substantially increased the number of compounds availableas potential drugs. The Human Genome Project has identi®ed approximately 30,000 genes and led to adramatic improvement in the related understanding of the proteins which they express. Each of theseproteins is a potential new drug target that could lead to the discovery of a new drug. To date, thepharmaceutical industry has concentrated on only a small proportion of the products of these genes.

This has led to a bottleneck in identifying which compounds have the required safety pro®le and the abilityto circulate long enough in the human body to be useful (that is, those compounds with suitable ADMETand DDI properties).

The Group's services are aimed at the segment of the drug discovery market concerned with the pre-clinicalidenti®cation of new drug candidates. The Group's aim is that its services will signi®cantly improve thesuccess rates of the drug discovery industry.

The role of ADMET and DDI testing in drug discovery

The principal causes of delay and high failure rates in the development of new drugs are:

* ADMET (Absorption, Distribution, Metabolism, Elimination and Toxicity of a drug in the humanbody) de®ciencies; and

* adverse DDI (Drug-to-Drug interaction) in candidate drugs.

Currently, these de®ciencies are often identi®ed late in the drug discovery pipeline, after signi®cant R&Dexpenditure has already been incurred.

Analysts estimate that adverse drug reactions may cause as many as 135,000 fatalities per annum in the USalone, which would make adverse drug reactions at least the sixth leading cause of death there. Examples ofdif®culties with recent pharmaceutical products include Baycol ± Lipobay (Bayer), Posicor (Roche) andTerfenodine (Aventis).

The key to improving drug output is to increase the ef®ciency of the discovery process by eliminatingwasted resource on projects that will ultimately fail and allowing the resource to be targeted towards other

9

projects with a higher probability of success. This can be achieved by predicting which candidatecompounds have good ADMET properties and identifying potentially adverse DDI early in the process.

Cyprotex predictive screening system

The Group's ability to identify candidate compounds with the characteristics to stay in the human bodylong enough without causing harm in the early stages of drug discovery should substantially reducedevelopment costs by eliminating unproductive effort on candidate drugs that fail before or during clinicaltrials.


Potential impact of Cyprotex on pre-clinical drug discovery

Automated chemicalsynthesis and testingincreases number ofavailable compounds

Compound library

HTS

Leadoptimisation

Potentialimpact ofCyprotex

Clinicaltrials

Economically filterscompound collectionsand reduces wastedresource

Cyprotex predictive datacapability adds valueto HTS/UHTS services

Enhances chance ofsuccess by:

● identifying optimum compounds; and

● increasing quality of drug candidates

Reduced costs ofclinical trials throughbetter understandingof ADMET propertiesand DDI

Human Genome Projectmay deliver c.30,000 newpotential drug targets

Drug

The predictive data market for drug discovery

The market for the provision of predictive data to the drug discovery industry is embryonic andinformation on its size is limited although the Directors believe that the potential demand is signi®cant.Analysts estimate that current spend in this area by pharmaceutical companies is in the region of£360-£720 million per annum.

Strategy

It is the Directors' intention to expand the screening services that the Group currently offers byimplementing a high throughput screening (``HTS'') system initially screening approximately 80,000compounds per annum based on one shift per day (current screening capacity is 4,000 per annum), and todevelop its information database and predictive software. In due course, subject to market demand andavailability of funding, it is planned that capacity will be scaled up to 1,000,000 compounds per annumthrough a UHTS system.

10

Commercialisation of the predictive screening system

The Directors' objectives for the Group's development are as follows:

Estimated Date Objectives

Currently ADME and DDI data and screening services at a capacity of 4,000compounds per annum

Q1 2002 New automated sample handling robots (``BasePlatesTM'') willbecome operational facilitating an increase in HTS capacity from4,000 compounds per annum to c.80,000 per annum

Q2 2003 Fully integrated ADMET software becomes operational.Development work continues including future on-line services

Q3 2003 On-line ADMET information services launched

Q4 2003 DDI software becomes available online resulting in full integrationof software platform

Q4 2003 Fully automated UHTS facility to be commissioned and capacityfurther increased to c.400,000 compounds per annum, subject tomarket demand and availability of funding

2004 Fully automated UHTS facility operating at capacity of up to1,000,000 compounds per annum.

Stages of development

Current: ADME and DDI Data provision and screening services

Currently, the Group provides ongoing ADME and DDI data provision and screening services to anumber of biotechnology, pharmaceutical and combinatorial chemistry companies. The screening servicesare being actively marketed by substantial compound suppliers in conjunction with the Group. TheGroup's current screening capacity is 4,000 compounds per annum.

Stage 1: Semi-automated compound screening with initial predictive data

This service will comprise screening for ADMET together with the provision of some initial predictive data.Screening capacity will increase with the proposed purchase in January 2002 of two semi-automatedBasePlatesTM from The Automation Partnership (``TAP''), a supplier of automation solutions to thepharmaceutical industry. Negotiations are at an advanced stage with TAP to specify and subsequently tocommission a fully-automated custom-built facility in 2003. This facility could then be utilised to marketthe services of the Group and TAP jointly. In addition, the relationship with TAP gives Cyprotex theopportunity to provide its services to certain of TAP's existing customers. Using a semi-automated HTSBasePlateTM, the Directors believe that Cyprotex can screen potentially 80,000 compounds per annum bythis method at a reduced cost compared to the internal screening costs of the major pharmaceuticalcompanies.

The price of this service will be positioned to encourage growth in overall compound testing volumes and tosecure a signi®cant market share following scale-up to approximately 80,000 compounds per annum basedon one daily shift.

The Directors plan to use approximately 40 per cent. of the semi-automated HTS facility's capacity toscreen compounds for customers. The remainder will be used to screen compounds and use the data derivedto enhance the Group's proprietary information database and predictive software.

11

Stage 2: Fully automated UHTS system

The Group intends to commission, subject to market demand and availability of funding, a UHTS systemthat can test hundreds of thousands of candidate drug compounds per year for ADMET and DDIproperties. Cyprotex will use the results from these tests to create proprietary software and databases thatwill predict the properties of candidate compounds.

Example of TAP HTS System

Stage 3: Virtual Screening

In addition to its physical screening and predictive services, the Directors intend that, before the compoundhas even been made, the Cyprotex predictive screening system will ultimately be able to:

* screen large compound collections for candidate compounds economically;

* assess these candidates for their ability to stay long enough in the human body to act as a drug; and

* assess these candidates for their potential for adverse effects, particularly those arising from theinteraction with other drugs in the human body.

Cyprotex will use its databases and predictive software to assist customers in the creation of chemicalcompounds with optimised ADMET and DDI properties.

Software platform

Information database and predictive software implementation

The Group has developed its predictive software. Further integration work is underway to make theCyprotex software applications available directly to its customers. It is intended that this software platformwill enable the customer to access both Cyprotex's software and its HTS services.

12

Drug-to-drug interaction prediction

A further application of the software platform currently being developed by the Group is aimed atpredicting potentially adverse DDI at a very early stage, thereby reducing the cost of failure associated withwithdrawal following launch.

The combination of the ADMET and DDI software packages on a single fully-integrated platform willenable Cyprotex to provide a comprehensive predictive screening service to its clients. The predictivecon®dence level of the software will continually improve through the feedback loop of the database andsoftware and eventually reduce the need for physical screening. This will gradually free up the HTS facilityto provide a broader range of assay services.

It is intended that access to the proprietary platform and database will be licensed to the R&D teams ofpharmaceutical companies and biotechnology ®rms to assist in the selection and elimination of compounds.The end result is that many drugs destined to fail before or during the clinical testing stage can bediscounted earlier, freeing valuable resources which can be refocused on other projects to increase theoutput of successful breakthrough drugs.

Competition

Currently, there are a limited number of competitors providing ADMET screening services and predictivesoftware. The Directors believe that Cyprotex's main competitors are Cerep, Camitro, Simulations Plusand Lion Biosciences and that none of these competitors provides cost effective HTS combined withpredictive modelling focused on the speci®c area of ADMET and DDI testing to as high a standard as theGroup.

Intellectual property

The Group uses a number of software packages. With the exception of standard off-the-shelf packages, allsoftware has been developed by employees of the Group. The tests used by the Group to analysecompounds and the equations used in the Group's proprietary software are in the public domain.

Cyprotex Services is the proprietor of a UK trade mark CYPROTEX covering, inter alia, contract researchfor pharmaceutical and biotechnology industries and a number of domain names, includingwww.cyprotex.com.

Details of the Placing

Pursuant to the Placing, the Company is to issue 22,413,793 new Ordinary Shares at the Placing Price. ThePlacing Shares have been conditionally placed with institutional and other investors. The Placing has notbeen underwritten.

The Placing Shares will represent approximately 24.79 per cent. of the Ordinary Shares in issue onAdmission. The Placing Shares will be issued credited as fully paid and will rank pari passu with the existingOrdinary Shares including the right to receive all dividends and other distributions hereafter declared,made or paid.

The Placing is conditional, inter alia, on:

(a) the Placing Agreement becoming unconditional (save for Admission) and not having beenterminated in accordance with its terms prior to Admission; and

(b) Admission becoming effective no later than 15 February 2002 or such later date as Altium Capitalmay agree.

Further details of the Placing Agreement are set out in paragraph 11.1(c) of part V of this document.

Reasons for the Placing and Admission

The net proceeds of the Placing, being approximately £5.5 million, will be used to enable Cyprotex tocapitalise on the growth opportunities in its marketplace. The Directors believe that the Placing andAdmission will:

* assist the funding of the Group's expansion;

* raise the Group's public pro®le; and

* give certain of the Group's employees the opportunity to have an interest in the business via shareoption schemes.

13

Use of proceeds of the Placing

The net proceeds of the Placing will be used to:

* provide working capital for the Group;

* fund the purchase of an HTS facility and the acquisition of other necessary capital equipment;

* discharge existing ®nancial liabilities of the Group;

* expand into overseas markets, focusing initially on the USA;

* implement the integration of the Group's software platform; and

* formalise and implement the Group's sales and marketing strategy.

Current trading and prospects

The Group currently has contracts with customers in the biotechnology, combinatorial chemistry andpharmaceutical areas and has a strong potential sales pipeline. The Directors believe a solid platform forgrowth has been established and the funds available to the Group from the Placing should enable theCyprotex business to invest in the equipment and infrastructure necessary to grow the business signi®cantlyon a commercial basis.

Directors

Jeremy Scudamore, Non-executive Chairman (aged 54)

Jeremy is currently chief executive of®cer of Avecia Group, a leading ®ne and speciality chemical companywith annual sales of $1.2 billion. Avecia was formerly the speciality chemicals business of Zeneca, itself splitfrom ICI in 1993. Avecia's ®ne chemicals division carries out custom manufacturing for a number ofpharmaceutical and biotechnology companies. Previously, Jeremy held various positions within ICI andZeneca in Europe, the Americas and Japan. Jeremy is a fellow of the Royal Society of Arts andManufacturing and a member of the North West Science Council.

Dr Mark Egerton, Non-executive Director (Chief Executive Of®cer with effect from 1 August 2002) (aged38)

Mark's career to date has spanned 12 years in the pharmaceutical and biotechnology industries, duringwhich time he has gained a great depth of knowledge of the drug discovery process and the pharmaceuticalindustry. He is currently vice-president of European business operations with Incyte Genomics Limited,based in Cambridge, and prior to that was vice-president of research and development forpharmacogenomics with Incyte Genomics Inc. (based in Palo Alto, California). Incyte providesgenomics technologies and products to biotechnology and pharmaceutical companies. Mark is currentlya Non-executive Director but has committed to join Cyprotex as Chief Executive Of®cer after expiry of hiscontractual notice period which would mean his employment with the Company would commence no laterthan 1 August 2002, although he is negotiating for an earlier start date with the Company.

John Nicholson, Chief Operating Of®cer (aged 52)

John has over 20 years' experience in the chemical industry, including senior managerial roles within ICI'sChemicals and Polymers subsidiaries, including a business development role in Japan and the Asia-Paci®cregion. He subsequently worked as managing director of Akcros' ¯exible stabilisers business. He hasconsiderable experience in handling mergers, acquisitions, business restructurings and start-ups. John isalso a non-executive director of Optokem Limited.

Dr David Leahy, Chief Scienti®c Of®cer (aged 47)

David is a founder of the Cyprotex business having been involved since its early origins as part of Medeval.He was previously Head of Physical Sciences with Zeneca Pharmaceuticals. David has held a variety ofpositions spanning his 15 years at ICI and Zeneca, during which time he gained a detailed understanding ofthe drug discovery process. He is a champion of the value of novel technologies in improving R&Dproductivity and improving the drug discovery process.

Robert Long, Non-executive Director (aged 43)

Robert Long has been involved with the Cyprotex business since its acquisition from Medeval. From 1994until he joined Cyprotex Services, Robert was the managing director of Akusta-IFE Limited. Previously, hespent many years working as a project engineer with a number of major companies associated with the

14

North Sea oil industry. Robert was, until recently, a director of Oystertec plc and is currently a director ofGalileo Innovation Public Limited Company.

Dr Rosemary Drake, Non-executive Director (aged 47)

Rosemary is currently manager of new business for TAP. Rosemary was involved in developing major newhigh value products for new markets, including ultra HTS systems. Rosemary has also performed a varietyof other roles with The Technology Partnership, PA Technology and Unilever Research.

Dr Colin Picton, Non-executive Director (aged 50)

Colin has 17 years of drug discovery experience in the pharmaceutical industry in the UK and Japan. He isa founder and director of Picton Discovery Consulting, a consultancy which specialises in the drugdiscovery process, discovery portfolio management and advising on novel discovery technologies. He wasalso formerly a research director with Glaxo Research Laboratories in Japan.

Financial controller

Gill Ritchie joined Cyprotex on 4 February 2002 as ®nancial controller to re¯ect the size of the Group'soperations. It is anticipated that a ®nance director will be appointed in the future as required by thedevelopment of the Group.

Shareholder arrangements

There are lock-in arrangements in place in respect of an aggregate of 59,722,302 Ordinary Sharescomprising approximately 66.05 per cent. of the issued share capital of the Company immediately followingAdmission.

Corporate governance

The Board recognise the value of the Principles of Good Governance and Code of Best Practice publishedby the Committee on Corporate Governance chaired by Sir Ronald Hampel and published in June 1998(the ``Combined Code'') and they will take appropriate measures to ensure that the Company complieswith the Combined Code as appropriate for the size of the Group.

The Board has established an Audit Committee and a Remuneration Committee with formally delegatedduties and responsibilities. Each of the Committees will consist of at least two non-executive directors.

The Audit Committee will determine the terms of engagement of the Group's auditors and will determine,in consultation with the auditors, the scope of the audit. It will receive and review reports frommanagement and the Group's auditors relating to the interim and annual accounts and the accounting andthe internal control systems in use throughout the Group. The Audit Committee will have unrestrictedaccess to the Group's auditors.

The Remuneration Committee will review the scale and structure of the executive Directors' remunerationand the terms of their service contracts, including share option schemes. The remuneration and the termsand conditions of appointment of the non-executive Directors will be set by the Board as a whole.

Accounts and dividend policy

The accounting reference date for the Group will be 30 June and the Group's ®rst report and accounts willbe in respect of the period from incorporation of the Company on 25 October 2001 to 30 June 2002.

The Directors intend to commence the payment of dividends when it is commercially prudent to do so andsubject to the availability of distributable reserves. They consider that during a period of growth, it is likelyto be more prudent to retain cash generated to fund the expansion of the Group. It is thereforeinappropriate to give an indication of the likely level or timing of any future dividends.

Share options

The Directors believe that it is in the interests of the Company to reward and incentivise the Group'semployees through the opportunity to acquire shares in the Company.

Accordingly, and in order to re¯ect their input since the inception of the Cyprotex business, CyprotexServices adopted the Services EMI Plan on 7 December 2001 and granted EMI Options to Dr David Leahyand 14 other employees to acquire a total of 12,000,000 ordinary shares in Cyprotex Services at a price of0.175 pence per share, being the market value of a share in Cyprotex Services which had been agreed withthe Inland Revenue. Following the acquisition of the whole of the issued share capital of Cyprotex Services

15

by the Company, these options have been exchanged for options to subscribe for the same number ofOrdinary Shares at the same option price. Details of the EMI Option granted to Dr Leahy are set out inparagraph 6.1 of part V of this document and a summary of the principal features of the Services EMIPlan, under which no further options will be granted, is contained in paragraph 8.1 of part V of thisdocument.

The Company has adopted the Share Option Scheme and has granted an option under its rules to JohnNicholson to subscribe, conditionally inter alia on Admission, for 2,048,276 Ordinary Shares at the PlacingPrice. Details of this option are set out in paragraph 6.1 of part V of this document and a summary of theprincipal features of the Share Option Scheme, under which it is intended that further options will begranted after Admission, is contained in paragraph 8.2 of part V of this document.

The Company has also granted options to Jeremy Scudamore and Mark Egerton to subscribe,conditionally inter alia on Admission, for 1,024,138 and 5,120,690 Ordinary Shares respectively at thePlacing Price. Details of these options are set out in paragraph 6.1 of part V of this document.

Directors' interests

The Directors' aggregate interests in Ordinary Shares immediately following Admission will amount to7,022,417 Ordinary Shares (which is equivalent to approximately 7.77 per cent. of the enlarged issued sharecapital of the Company).

The Directors and certain Shareholders including Paul Davidson (``the Locked-In Persons'') have enteredinto lock-in arrangements in respect of their shareholdings and any interests in Ordinary Shares derivedfrom the Services EMI Plan, Mr. Scudamore's option (as referred to in paragraph 6.1 of part V) or theShare Option Scheme whereby they have each agreed for a period of 12 months from Admission (``the FirstPeriod''), other than in certain limited circumstances, not to dispose of any such interest in Ordinary Shareswhich are held as at Admission nor any shares acquired during such period deriving from such shares orinterests in such shares (``the Locked-in-Shares'') without the prior written consent of Altium Capital andthe Company. For the period of 12 months immediately following the First Period each of the Locked-inPersons has agreed only to make disposals of the Locked-in Shares through the broker to the Company insuch orderly manner as the broker shall reasonably determine. Further details of these lock-inarrangements are set out in paragraph 11.1 of part V of this document.

Paul Davidson and certain other shareholders who are expected, together with Mr. Davidson, to haveinterests in 53,184,483 Ordinary Shares immediately following Admission (which is equivalent toapproximately 58.82 per cent. of the enlarged share capital of the Company) have entered into anagreement whereby they have agreed, inter alia, not to act in concert with each other and not to enter intoarrangements with the Company on anything other than an arms length basis. Further details are set out inparagraph 11.1(e) of part V of this document.

Galileo Innovation Public Limited Company (``Galileo'') is a company that aims to identify products withdefensible intellectual property rights where the addition of resources such as management, marketing,strategy and ®nance may result in an acceleration in the process of turning invention and proprietarytechnology into a commercial company. Paul Davidson, Robert Long, Angus Monro and Martin Varley(all of whom are shareholders in the Company) are shareholders in Galileo. Galileo will, conditional onAdmission, receive fees totalling £250,000 from the Company in respect of, inter alia, management servicessince the formation of the Company.

Directors' subscriptions under the Placing

Jeremy Scudamore, John Nicholson, Robert Long, Mark Egerton, Colin Picton and Rosemary Drake haveundertaken to subscribe for an aggregate of 172,417 new Ordinary Shares under the Placing. Furtherdetails of these subscriptions are set out in paragraph 6.1 of part V of this document.

Issue of Warrants

In connection with the services provided by Altium Capital in relation to the Placing and Admission, theCompany has agreed, conditional upon Admission, to issue 431,034 Warrants to Altium Capital.

Further details of the Warrants can be found at paragraph 3.6 of part V of this document.

Settlement and dealings

Application has been made to the London Stock Exchange for the existing Ordinary Shares and the PlacingShares to be admitted to trading on AIM. It is expected that Admission will take place, and that dealingson AIM in the issued ordinary share capital of the Company will commence, on 15 February 2002.

16

Application will be made for all the issued and to be issued Ordinary Shares to be admitted to CREST witheffect from Admission. Accordingly, settlement of transactions in the Ordinary Shares following Admissionmay take place within CREST.

It is expected that, subject to the Placing Agreement becoming unconditional, the Placing Shares will beregistered in the names of the placees and issued either:

(a) in certi®cated form, where the placee so elects, with the relevant share certi®cate expected to bedespatched by post, at the placee's risk, by 25 February 2002; or

(b) in CREST, where the placee so elects and only if the placee is a ``system member'' (as de®ned in theUncerti®cated Securities Regulations) 2001 in relation to CREST, with delivery (to the designatedCREST account) of the Ordinary Shares subscribed for expected to take place on 15 February 2002.

Regardless of the form of delivery of the Placing Shares elected for by placees, no temporary documents oftitle will be issued. All documents or remittances sent by or to a placee, or as he may direct, will be sentthrough the post at his risk.

Pending the despatch of de®nitive share certi®cates (as applicable), instruments of transfer will be certi®edagainst the register. Holders of existing Ordinary Shares will receive new share certi®cates in respect of thenumber of Ordinary Shares held by them at Admission. Should Shareholders wish to hold their OrdinaryShares in CREST, they will need to follow the requisite CREST procedures.

United Kingdom taxation

Investors are referred to paragraph 15 of Part V which provides information, inter alia, on EIS and VentureCapital Trust relief.

17

PART II

RISK AND OTHER FACTORS

In addition to the other relevant information set out in this document, the following speci®c factors should be

considered carefully in evaluating whether to make an investment in the Company. The investment offered inthis document may not be suitable for all its recipients. If you are in any doubt about the action you should

take, you should consult a person authorised under the Financial Services and Markets Act 2000 who

specialises in advising on the acquisition of shares and other securities. In addition to the usual risks associated

with an investment in a business at an early stage of its development, the Directors consider that the factors

and risks described below are the most signi®cant and should be carefully considered, together with all other

information contained in this document, prior to investing in the Ordinary Shares. It should be noted that this

list is not exhaustive.

Investment in unlisted securities

Investment in shares traded on AIM is perceived to involve a higher degree of risk than investment incompanies whose shares are listed on the Of®cial List of the UK Listing Authority.

Stage of development of Cyprotex

The Group has only recently begun to trade and, whilst it has not yet achieved signi®cant sales volumes orpro®tability, current contracts indicate a certain acceptance of the Group's services in the market.

Competition and competing services

Services are not available generally that could compete with the Group's services under development. In thefuture, new services launched by existing organisations, including large pharmaceutical companies, or newentrants to the markets in which the Group will operate, may adversely affect the Group's business. Therecan be no assurance that companies will not be able to reproduce the Group's services to achieve essentialsimilarity which could therefore lead to the Group's services encountering competition.

Reliance on intellectual property rights

The Group carries out the screening of compounds for pharmaceutical companies predicting ADMET.Whilst the methodologies which the Group uses are accepted as best practice, if the Group fails to carry outthose methodologies correctly then it could be the subject of a claim. Given the high sums involved indeveloping of drugs, this claim could be substantial and, whilst professional indemnity insurance is in place,it may not be suf®cient to cover any such claim. At present, no claims have been received and the Group isnot aware that any claims will be made.

Requirements for additional funds

It may be necessary for the Company to raise additional capital to enable the Group to progress through itsstages of growth. It cannot be guaranteed that further funds will be available if and when required in thefuture. In addition, future equity offerings to investors could result in dilution for Shareholders andinvestors who subscribe under the Placing.

Industry risk

The Company is involved with the pharmaceutical industry which may from time to time attract theattention of protest groups.

Reliance on suppliers

The success of the Group is to some extent dependent on the delivery and performance of systems andservices by certain suppliers, including TAP.

Predictive con®dence level

The strategy of the Group assumes a level of improvement in the predictive con®dence of Cyprotex'ssoftware.

Retention of key employees

The Group will be heavily reliant upon the skills of its management and scienti®c team and the loss of keymembers of staff, particularly David Leahy, could reduce the Group's ability to achieve its planned

18

development objectives. The Group has endeavoured to ensure that the principal members of itsmanagement and scienti®c team are incentivised, but the retention of such staff cannot be guaranteed.

Operational risk

* The Cyprotex business has experienced operating losses since inception and there can be noassurance that the Group will achieve signi®cant revenues or pro®tability.

* There is no guarantee that the pharmaceutical industry will accept virtual services as substitutes forservices and processes currently in existence.

* The internal logistics and infrastructure of the Group will need to be scaled up to accommodate theincrease in volumes anticipated by the Company.

* New technology may supercede or eliminate the need for ADMET and DDI testing and prediction.

Environment licences

The Group requires a number of environmental licences to carry on its business. Whilst the Group seeks tocomply with the terms of the licences, there is no guarantee that the licences will be renewed or that theywill not be terminated for any reason.

Share price volatility and liquidity

The share price of publicly traded, emerging companies can be highly volatile and illiquid. The price atwhich the Ordinary Shares are quoted and the price which investors may realise for their Ordinary Shareswill be in¯uenced by a large number of factors, some speci®c to the Group and its operations and somewhich may affect the quoted pharmaceutical sector or quoted companies generally. These factors couldinclude the performance of Cyprotex, large purchases or sales of the Ordinary Shares, currency¯uctuations, legislative changes in the healthcare environment and general economic, political or regulatoryconditions.

Fluctuation of operating results

The operating results of the Group may ¯uctuate signi®cantly as a result of a variety of factors, many ofwhich are outside Cyprotex's control. Period-to-period comparisons of the Group's operating results maynot be meaningful and investors should not rely on them as indications of the Group's future performance.Cyprotex's operating results may fall below the expectations of securities analysts and investors. In thatevent, the trading price of the Ordinary Shares would almost certainly fall.

Assay risk

Estimates of current and future capacity are based on an average of 10 assays per compound. Actualcapacity will be dependent upon the exact mix of assays required by individual customers. This may lead toan increase or decrease in the number of compounds tested. The choice of assays materially affects thevalue of individual contracts and may therefore have an impact on machine utilisation.

19

PART III

ACCOUNTANTS' REPORT ON CYPROTEX

ERNST &YOUNGErnst & Young LLP

100 Barbirolli SquareManchester M2 3EY

The DirectorsCyprotex PLC100 Barbirolli SquareManchesterM2 3AB

The DirectorsAltium Capital Limited30 St James's SquareLondonSW1Y 4AL

12 February 2002

Dear Sirs

1. INTRODUCTION

We report on the ®nancial information set out in paragraphs 2 and 3 below. This ®nancial information hasbeen prepared for inclusion in the prospectus dated 12 February 2002 of Cyprotex PLC (``Cyprotex'').

Basis of preparation

The ®nancial information contained set out in paragraphs 2 and 3 below is based upon the audited ®nancialstatements of Cyprotex for the period from 25 October 2001 to 31 October 2001, to which no adjustmentswere considered necessary.

Cyprotex was incorporated on 25 October 2001 under the name of Inhoco 2437 Limited. The name of thecompany was changed to Cyprotex Services Limited on 4 December 2001. On 7 January 2002, CyprotexServices Limited changed its name to Cyprotex Limited and was re-registered as a public limited company.

The audited ®nancial statements for the period ended 31 October 2001 were prepared for the purposes ofthe prospectus.

Responsibility

Such ®nancial statements are the responsibility of the directors of Cyprotex who approved their issue.

The directors of Cyprotex are responsible for the contents of the prospectus in which this report is included.

It is our responsibility to compile the ®nancial information set out in our report from the audited ®nancialstatements and to form an opinion on the ®nancial information and to report our opinion to you.

Basis of opinion

We conducted our work in accordance with the Statements of Investment Circular Reporting Standardsissued by the Auditing Practices Board. Our work included an assessment of evidence relevant to theamounts and disclosures in the ®nancial information. The evidence included that previously obtained by usrelating to the audit of the ®nancial information and whether the accounting policies are appropriate to theentity's circumstances, consistently applied and adequately disclosed.

We planned and performed our work so as to obtain all the information and explanations which weconsidered necessary in order to provide us with suf®cient evidence to give reasonable assurance that the®nancial information is free from material misstatement whether caused by fraud or other irregularity orerror.

20

Opinion

In our opinion, the ®nancial information gives, for the purposes of the prospectus dated 12 February 2002,a true and fair view of the state of affairs of Cyprotex as at 31 October 2001.

Consent

We consent to the inclusion in the prospectus dated 12 February 2002 of this report and acceptresponsibility for this report for the purposes of paragraph 45(8)(b) of Schedule 1 to the Public Offers ofSecurities Regulations 1995.

2. BALANCE SHEET

Notes

At31 October

2001£

CURRENT ASSETS

Debtors 1

1

CAPITAL AND RESERVES 2 1

3. NOTES TO THE FINANCIAL INFORMATION

1. Accounting Policies

The ®nancial information has been prepared under the historical cost convention and in accordance withapplicable Accounting Standards in the United Kingdom.

2. Share Capital

Authorised

Number

At31 October

2001£

Ordinary shares of £1 each 1,000 1,000

Allotted, called up and fully paid

Number

At31 October

2001£

Ordinary shares of £1 each 1 1

On incorporation, Cyprotex had an authorised share capital of £1,000 divided into 1,000 ordinary shares of£1 each of which one was issued fully paid.

21

3. Post Balance Sheet Events

On 4 December 2001, one ordinary share of £1 was issued at par fully paid to Medeval Group Limited.

On 4 January 2002 each of the two issued ordinary shares of £1 each and the 998 authorised but unissuedordinary shares of £1 each in the capital of Cyprotex was sub-divided into 1,000 ordinary shares of0.1 pence each.

On 4 January 2002 the authorised share capital was increased from £1,000 to £160,000 by the creation of159,000,000 ordinary shares of 0.1 pence each to rank pari passu in all respects with the existing ordinaryshares of 0.1 pence each in the capital of Cyprotex.

On 4 January 2002, Cyprotex issued 67,998,000 ordinary shares of 0.1 pence each, in each case at par fullypaid in connection with the acquisition of the whole of the issued share capital of Cyprotex ServicesLimited (formerly Cyprotex Limited).

On 7 February 2002, 22,413,793 ordinary shares of 0.1 pence each were, subject to Admission, issuedpursuant to the Placing at a price of 29 pence per ordinary share.

Apart from these transactions and the issue of shares described in note 2, Cyprotex has not entered into anyother transactions since incorporation.

Yours faithfully

Ernst & Young LLP

22

PART IV

ACCOUNTANTS' REPORT ON CYPROTEX SERVICES LIMITED

ERNST &YOUNGErnst & Young LLP

100 Barbirolli SquareManchester M2 3EY

The DirectorsCyprotex PLC100 Barbirolli SquareManchesterM2 3AB

The DirectorsAltium Capital Limited30 St James's SquareLondonSW1Y 4AL

12 February 2002

Dear Sirs

1. INTRODUCTION

We report on the ®nancial information set out in paragraphs 2 to 5 below. This ®nancial information hasbeen prepared for inclusion in the prospectus dated 12 February 2002 of Cyprotex PLC (``Cyprotex'').

On 4 January 2002, Cyprotex acquired the entire issued share capital of Cyprotex Services Limited(``Cyprotex Services'') on a share for share basis.

Cyprotex Services was incorporated on 21 March 2001 and acquired the business and assets of theCyprotex Division (``the Division'') of Medeval Limited (``Medeval'') on 1 June 2001.


The Division comprised part of Medeval and did not constitute a statutory entity. Consequently, no®nancial statements have been prepared in respect of the four months ended 31 July 1999, the year ended 31July 2000 and the ten months ended 31 May 2001 contained within this report for the Division. Financialstatements have been prepared for the ®ve months ended 31 October 2001 for Cyprotex Services.

The ®nancial information set out in paragraphs 2 to 5 on pages 24 to 41 presents the results, totalrecognised gains and losses, cash ¯ows, assets and liabilities, share capital and reserves of the trade of theDivision and Cyprotex Services. The following summarises the accounting and other principles that havebeen applied in preparing the ®nancial information:

* the pro®t and loss accounts to 31 May 2001 include a share of Medeval's corporate head of®ce costswhich have historically been recharged by Medeval to its underlying business units. These principallycomprise salary costs, rent, rates, services and other related items. The level of costs may not berepresentative of costs that will be incurred following the acquisition of the Division by CyprotexServices;

* capital employed represents all reserve movements. When the acquisition was effected the capitalemployed was replaced by share capital, pro®t and loss account and other reserves;

* trading and other balances due to and from Medeval represent the internal funding arrangements ofMedeval. These balances have arisen due to the divisional accounting and the internal fundingstrategy that is peculiar to Medeval and may not represent the funding requirements of the Divisionhad it not been part of Medeval or the funding requirements that exist following the acquisition;

The ®nancial information contained within this report in respect of the four months ended 31 July 1999, theyear ended 31 July 2000 and the ten months ended 31 May 2001 is based on the unaudited managementaccounts packs of the Division, which were incorporated into the audited accounts of Medeval.

23

The ®nancial information contained within this report in respect of the ®ve months ended 31 October 2001is based upon the audited ®nancial statements for the ®ve months ended 31 October 2001.

Responsibility

The Division's management accounts packs are the responsibility of the directors of Medeval whoapproved their preparation.

The ®nancial statements for the ®ve months ended 31 October 2001 are the responsibility of the directors ofCyprotex Services who approved their issue.

The directors of Cyprotex are responsible for the contents of the prospectus dated 12 February 2002 inwhich this report is included.

It is our responsibility to compile the ®nancial information set out in our report from the managementaccounts packs and ®nancial statements and to form an opinion on the ®nancial information and to reportour opinion to you.

Basis of opinion

We conducted our work in accordance with the Statements of Investment Circular Reporting Standardsissued by the Auditing Practices Board. Our work included an assessment of evidence relevant to theamounts and disclosures in the ®nancial information. The evidence included that obtained by us relating tothe ®nancial information for the four months ended 31 July 1999, the year ended 31 July 2000, the tenmonths ended 31 May 2001 and the ®ve months ended 31 October 2001. It also included an assessment ofsigni®cant estimates and judgements made by those responsible for the preparation of the managementaccounts packs for the periods to 31 May 2001, and the ®nancial statements for the ®ve months ended 31October 2001, underlying the ®nancial information and whether the accounting policies are appropriate tothe Division and Cyprotex Services circumstances, consistently applied and adequately disclosed.

We planned and performed our work so as to obtain all the information and explanations which weconsidered necessary in order to provide us with suf®cient evidence to give reasonable assurance that the®nancial information is free from material misstatement whether caused by fraud or other irregularity orerror.

Opinion

In our opinion, the ®nancial information gives, for the purposes of the prospectus dated 12 February 2002,a true and fair view of the state of affairs of the Division and Cyprotex Services as at the dates stated and oftheir losses, cash ¯ows and recognised gains and losses for the four months ended 31 July 1999, the yearended 31 July 2000, the ten months ended 31 May 2001 and the ®ve months ended 31 October 2001.

Consent

We consent to the inclusion in the prospectus dated 12 February 2002 of this report and acceptresponsibility for this report for the purposes of paragraph 45(8)(b) of Schedule 1 to the Public Offers ofSecurities Regulations 1995.

24

2. PROFIT AND LOSS ACCOUNTS

4 months Year 10 months 5 monthsended ended ended ended

31 July 31 July 31 May 31 Oct1999 2000 2001 2001

Notes £000 £000 £000 £000

Turnover 2 Ð 106 365 99Cost of sales 20 86 89 4

Gross (Loss)/Pro®t (20) 20 276 95Administrative expenses (134) (723) (657) (476)Other operating income Ð 119 19 Ð

Operating Loss 3 (154) (584) (362) (381)Interest payable and similar charges 5 Ð (10) (9) (5)

Loss on Ordinary Activities Before

Taxation (154) (594) (371) (386)Tax on loss on ordinary activities 6 Ð Ð Ð Ð

Loss on Ordinary Activities after

Taxation 16 (154) (594) (371) (386)

Illustrative loss per share 7 (0.23)p (0.87)p (0.55)p (0.57)p

Statement of Recognised Gains and Losses

There are no recognised gains and losses other than those shown in the above pro®t and loss accounts.

25

3. BALANCE SHEETS

At 31 July1999

At 31 July2000

At 31 May2001

At 31 Oct2001

Notes £000 £000 £000 £000Fixed Assets

Tangible assets 8 312 446 376 327

312 446 376 327Current Assets

Stocks 9 17 31 21 21Debtors 10 65 134 32 93Cash at bank and in hand 4 2 Ð Ð

86 167 53 114Creditors: amounts falling due within

one year 11 474 1,220 1,444 546

Net Current Liabilities (388) (1,053) (1,391) (432)

Total Assets Less Current Liabilities (76) (607) (1,015) (105)Creditors: amounts falling due after

more than one year 12 78 141 104 85Provision for Liabilities and Charges 14 Ð Ð Ð Ð

(154) (748) (1,119) (190)

Equity Shareholders' Funds

Share capital 15 Ð Ð Ð ÐShare premium 16 Ð Ð Ð 196Capital employed 16 (154) (748) (1,119) ÐPro®t and loss account 16 Ð Ð Ð (386)

(154) (748) (1,119) (190)

26

4. STATEMENT OF CASH FLOWS

4 monthsended

31 July1999

Yearended

31 July2000

10 monthsended

31 May2001

5 monthsended

31 Oct2001

Notes £000 £000 £000 £000Net Cash Out¯ow From Operating

Activities 17(a) (78) (622) (366) (123)

Returns on Investments and Servicing of

Finance

Interest element of ®nance lease rentalpayments Ð (10) (9) (5)

Taxation

Corporation tax paid Ð Ð Ð Ð

Capital Expenditure and Financial

Investment

Payments to acquire tangible ®xedassets (139) (106) (26) (12)

Receipt of government grants Ð 119 19 ÐPurchase of Cyprotex Division 23 Ð Ð Ð (21)

(139) 13 (7) (33)

Net Cash Out¯ow Before Financing (217) (619) (382) (161)

Financing

Increase in Medeval balances 17(b) 221 657 395 ÐIncrease in short term loans 17(b) Ð Ð Ð 150Repayments of capital element of

®nance leases and hire purchasecontracts 17(b) Ð (40) (35) (21)

221 617 360 129

Increase/(Decrease) in Cash 17(b) 4 (2) (22) (32)

27

Reconciliation of Net Cash Flow to Movement in Net Debt

4 monthsended

31 July1999

Yearended

31 July2000

10 monthsended

31 May2001

5 monthsended

31 Oct2001

Notes £000 £000 £000 £000

Increase/(decrease) in cash 4 (2) (22) (32)Cash in¯ow from increase in amounts

due to Medeval (221) (657) (395) ÐCash in¯ow from increase in short

term loans Ð Ð Ð (150)Repayments of capital element of

®nance leases and hire purchasecontracts Ð 40 35 21

Change in net debt resulting from cash¯ows 17(b) (217) (619) (382) (161)

Other non cash movements 17(b) (95) (131) Ð 1,293

Movement in Net (Debt)/Funds (312) (750) (382) 1,132Net Debt at Beginning of Period 17(b) Ð (312) (1,062) (1,444)

Net Debt at End of Period 17(b) (312) (1,062) (1,444) (312)

5. NOTES TO THE FINANCIAL INFORMATION

1. Accounting Policies


The ®nancial information has been prepared under the historical cost convention and in accordance withapplicable Accounting Standards in the United Kingdom.

The ®nancial information has been prepared on a going concern basis, which assumes the availability ofadditional ®nance. This ®nance has been arranged under the placing that is subject to the admission of theissued share capital of Cyprotex to trading on the Alternative Investment Market. The placing has not beenunderwritten.

Turnover and revenue recognition

Turnover on the outright sale of services and standard software, where no signi®cant supplier obligationsexist, is recognised on delivery to the customer and pro®t is taken at that time. Turnover on ®xed contractsis invoiced in accordance with the terms of the agreement with the customer. Pro®t is attributed to eachcontract, while the contract is in progress, having regard to the proportion of the total contract that hasbeen completed at the balance sheet date and after making provision for all foreseeable future costs orlosses. Turnover in relation to licence income is invoiced to the customer at the beginning of each licence,but revenue arising from licences granted for the use of Cyprotex Services or third party software, iscredited to the pro®t and loss account over the period of the licence.

Depreciation

Depreciation is provided on all tangible ®xed assets at rates calculated to write off the cost or valuation, lessestimated residual value based on prices prevailing at the date of acquisition, of each asset evenly over itsexpected useful life as follows:

Laboratory equipment Ð over 5 yearsFixtures and ®ttings Ð over 4 yearsOf®ce equipment Ð over 10 yearsComputer equipment Ð over 3 years

The carrying value of ®xed assets are revised for impairment in periods if events or changes incircumstances indicate the carrying value may not be recoverable.

28

Government grants

Government grants of a revenue nature are credited to income so as to match them with the expenditure towhich they relate.

Stocks

Stocks are stated at the lower of cost and net realisable value.

Research and development

Research and development expenditure is written off as incurred.

Taxation

Deferred taxation is provided using the liability method on all timing differences, including those relatingto pensions and other post-retirement bene®ts, to the extent that they are expected to reverse in the futurewithout being replaced, calculated at the rate at which it is anticipated the timing differences will reverse.Advance corporation tax which is expected to be recoverable in the future is deducted from the deferredtaxation balance.

Deferred taxation assets are only recognised if recovery without replacement by equivalent debit balances isreasonably certain.

Foreign currencies

Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction or at thecontracted rate if the transaction is covered by a forward exchange contract. Monetary assets and liabilitiesdenominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet dateor if appropriate at the forward contract rate. All other exchange differences are taken to the pro®t and lossaccount.

Leasing and hire purchase commitments

Assets held under ®nance leases, which are leases where substantially all the risks and rewards of ownershipof the asset have passed to the Division and Cyprotex Services, and hire purchase contracts are capitalisedin the balance sheet and are depreciated over their useful lives. The capital elements of future obligationsunder leases and hire purchase contracts are included as liabilities in the balance sheet. The interestelements of the rental obligations are charged in the pro®t and loss account over the periods of the leasesand hire purchase contracts and represent a constant proportion of the balance of capital repaymentsoutstanding.

Rentals payable under operating leases are charged in the pro®t and loss account on a straight line basisover the lease term.

Pensions

Medeval Group Limited, the ultimate holding company of Medeval, operates a de®ned bene®t scheme, ofwhich the employees of the Division were members for the periods to 31 May 2001. The pension costscharged against pro®ts are based on actuarial methods and assumptions designed to spread the anticipatedpension costs over the service lives of the employees in the scheme, so as to ensure that the regular pensioncost represents a substantially level percentage of the current and expected future pensionable payroll.Variations from regular costs are spread over the remaining service lives of current employees in thescheme.

Cyprotex Services operates a de®ned contribution pension scheme. Contributions are charged in the pro®tand loss account as they become payable in accordance with the rules of the scheme.

Capital instruments

Shares are included in shareholders' funds. Other instruments are classi®ed as liabilities if they contain anobligation to transfer economic bene®ts and if not they are included in capital employed and shareholders'funds. The ®nance cost recognised in the pro®t and loss account in respect of capital instruments isallocated to periods over the term of the instrument at a constant rate on the carrying amount.

29

2. Turnover and Segmental Analysis

Turnover represents the amounts derived from the provision of goods and services which fall within theDivision and Cyprotex Services' ordinary activities, stated net of value added tax and trade discounts.

All turnover, losses and operating assets relate to one principal business activity, that of predictivetoxicology and DDI screening in conjunction with the pharmaceutical industry, which is wholly undertakenin the UK.

An analysis of turnover by destination is as follows:

4 monthsended

31 July1999

Yearended

31 July2000

10 monthsended

31 May2001

5 monthsended

31 Oct2001

£000 £000 £000 £000

United Kingdom Ð 104 240 94USA Ð 2 124 ÐRest of the World Ð Ð 1 5

Ð 106 365 99

3. Operating Loss

This is stated after charging/(crediting):

4 monthsended

31 July1999

Yearended

31 July2000

10 monthsended

31 May2001

5 monthsended

31 Oct2001

£000 £000 £000 £000

Auditors' remuneration ± audit services Ð 3 2 3± non-audit services Ð 21 Ð Ð

Research and development expenditure written off 154 657 573 50Depreciation of owned assets 8 56 62 18Depreciation of assets held under ®nance leases

and hire purchase contracts 4 47 34 14Operating lease rentals ± plant and machinery Ð Ð 2 1Grant income Ð (119) (19) Ð

4. Staff Costs and Directors' Remuneration

4 monthsended

31 July1999

Yearended

31 July2000

10 monthsended

31 May2001

5 monthsended

31 Oct2001

£000 £000 £000 £000

Wages and salaries 55 266 281 161Social security costs 5 24 22 16Other pension costs (note 19) 4 18 28 20

64 308 331 197

30

The average monthly number of employees during the periods was made up as follows:

4 monthsended

31 July1999

Yearended

31 July2000

10 monthsended

31 May2001

5 monthsended

31 Oct2001

£000 £000 £000 £000No. No. No. No.

Research and development 4 7 10 11Administration 1 1 1 2

5 8 11 13

Directors' remuneration

As the Division was not a legal entity during the periods to 31 May 2001 there were no directors, in a legalsense, for which to provide details of directors' remuneration. Accordingly, no details have been presented.

The directors of Cyprotex Services received no remuneration during the ®ve months ended 31 October2001.

5. Interest Payable and Similar Charges

4 monthsended

31 July1999

Yearended

31 July2000

10 monthsended

31 May2001

5 monthsended

31 Oct2001

£000 £000 £000 £000

Finance charges payable under ®nance leases andhire purchase contracts Ð 10 9 5

6. Tax on Loss on Ordinary Activities

The Division incurred losses during the periods to 31 May 2001 that have been utilised within Medeval.The historical tax charges for the periods to 31 May 2001 may not be representative of the tax charges thatwould have been presented had the Division not been part of Medeval.

There is no tax charge for the ®ve months ended 31 October 2001 for Cyprotex Services. The lossesavailable for set off against future pro®ts of the same trade are approximately £250,000.

7. Loss Per Share

Illustrative loss per share has been calculated by dividing the post tax loss of the Division and CyprotexServices by 68,000,000 being the number of ordinary shares in issue after the reclassi®cation andsubdivision on 4 December 2001.

4 monthsended

31 July1999

Yearended

31 July2000

10 monthsended

31 May2001

5 monthsended

31 Oct2001

£000 £000 £000 £000

Loss (154) (594) (371) (386)

Loss per share (0.23p) (0.87p) (0.55p) (0.57p)

31

8. Tangible Fixed Assets

Fixturesand ®ttings

Of®ceequipment

Computerequipment

Laboratoryequipment Total

£000 £000 £000 £000 £000

Cost:

Additions 9 3 18 294 324

At 1 August 1999 9 3 18 294 324Additions 38 28 61 110 237

At 1 August 2000 47 31 79 404 561Additions 1 1 23 1 26

At 31 May 2001 48 32 102 405 587Retained by Medeval (48) Ð Ð Ð (48)Additions Ð Ð 12 Ð 12

At 31 October 2001 Ð 32 114 405 551

Depreciation:

Provided during the period Ð Ð 1 11 12

At 1 August 1999 Ð Ð 1 11 12Provided during the year 9 5 16 73 103

At 1 August 2000 9 5 17 84 115Provided during the period 10 8 17 61 96

At 31 May 2001 19 13 34 145 211Retained by Medeval (19) Ð Ð Ð (19)Provided during the period Ð 1 10 21 32

At 31 October 2001 Ð 14 44 166 224

Net book value at 31 October 2001 Ð 18 70 239 327

Net book value at 31 May 2001 29 19 68 260 376

Net book value at 31 July 2000 38 26 62 320 446

Net book value at 31 July 1999 9 3 17 283 312

Included in the amounts for laboratory equipment above are amounts relating to leased assets and assetsacquired under hire purchase contracts. The net book value of such assets was £119,000, £215,000,£171,000 and £149,000 at 31 July 1999, 31 July 2000, 31 May 2001 and 31 October 2001 respectively.

9. Stocks

At 31 July1999

At 31 July2000

At 31 May2001

At 31 Oct2001

£000 £000 £000 £000

Raw materials and consumables 17 31 21 21

The difference between purchase price or production cost of stocks and their replacement cost is notmaterial.

32

10. Debtors

At 31 July1999

At 31 July2000

At 31 May2001

At 31 Oct2001

£000 £000 £000 £000

Trade debtors Ð 111 18 74VAT debtor 58 Ð Ð 2Prepayments and accrued income 7 23 14 16Other debtors Ð Ð Ð 1

65 134 32 93

11. Creditors: amounts falling due within one year

At 31 July1999

At 31 July2000

At 31 May2001

At 31 Oct2001

£000 £000 £000 £000

Bank overdraft Ð Ð 20 32Obligations under ®nance leases and hire purchase

contracts 17 45 47 45Trade creditors 227 23 38 72Other taxes and social security costs 5 15 21 66Accruals and deferred income 4 259 45 154Amounts owed to Medeval 221 878 1,273 ÐAmounts owed to related companies Ð Ð Ð 77Amounts owed to director Ð Ð Ð 100

474 1,220 1,444 546

The bank overdraft arising over the ten months ended 31 May 2001 is secured by a ¯oating charge overcertain of the Division's assets.

The amounts owed to Medeval are unsecured and have no ®xed repayment schedule. Amounts due to andfrom Medeval represent the internal funding arrangements of Medeval. These amounts have arisen due todivisional accounting and the internal funding strategy that is peculiar to Medeval and may not representthe funding requirements of the Division had it not been part of Medeval or the funding requirements thatexist following the acquisition by Cyprotex Services.

The bank overdraft arising over the ®ve months ended 31 October 2001 is secured by a ¯oating charge overcertain of Cyprotex Services assets.

12. Creditors: amounts falling due after more than one year

At 31 July1999

At 31 July2000

At 31 May2001

At 31 Oct2001

£000 £000 £000 £000

Obligations under ®nance leases and hire purchasecontracts 78 141 104 85

33

13. Obligations Under Leases and Hire Purchase Contracts

Amounts due under ®nance leases and hire purchase contracts:

At 31 July1999

At 31 July2000

At 31 May2001

At 31 Oct2001

£000 £000 £000 £000

Amounts payable:Within one year 22 56 58 57In two to ®ve years 97 175 129 105

119 231 187 162Less: ®nance charges allocated to future periods (24) (45) (36) (32)

95 186 151 130

Annual commitments under non-cancellable operating leases are as follows:

At 31 July1999

At 31 July2000

At 31 May2001

At 31 Oct2001

£000 £000 £000 £000

Operating leases which expire:Within one year Ð Ð Ð ÐIn two to ®ve years Ð Ð 2 2In over ®ve years Ð Ð Ð Ð

Ð Ð 2 2

14. Provisions for Liabilities and Charges

Deferred taxation has not been provided for the Division at 31 July 1999, 31 July 2000 nor at 31 May 2001as the Division was part of Medeval and accordingly the historical deferred tax charges may not berepresentative of the deferred tax charges that would have been presented had the Division not been part ofMedeval.

Deferred taxation for Cyprotex Services not provided in the accounts is as follows:

Notprovided

31 Oct2001£000

Capital allowances in advance of depreciation (10)Tax losses (75)

Total deferred tax asset (85)

34

15. Share Capital

Authorised

31 July 31 July 31 May 31 Oct1999 2000 2001 2001No. No. No. No.

A Ordinary shares of £1 each Ð Ð Ð 500B Ordinary shares of £1 each Ð Ð Ð 500

Ð Ð Ð 1,000

£000 £000 £000 £000

A Ordinary shares of £1 each Ð Ð Ð ÐB Ordinary shares of £1 each Ð Ð Ð 1

Ð Ð Ð 1

Allotted, called up and fully paid

31 July 31 July 31 May 31 Oct1999 2000 2001 2001No. No. No. No.

A Ordinary shares of £1 each Ð Ð Ð 70B Ordinary shares of £1 each Ð Ð Ð 15

Ð Ð Ð 85

£000 £000 £000 £000

A Ordinary shares of £1 each Ð Ð Ð ÐB Ordinary shares of £1 each Ð Ð Ð Ð

Ð Ð Ð Ð

Cyprotex Services was incorporated on 21 March 2001 with an authorised share capital of £1,000 dividedinto 1,000 ordinary shares of £1 each of which one such share was issued fully paid.

On 1 June 2001, the one issued share of £1 was redesignated as an A Ordinary share of £1 each. Also onthat date 499 of the unissued ordinary shares of £1 each were redesignated as 499 A Ordinary shares of £1each and 500 of the unissued ordinary shares of £1 each were redesignated as 500 B Ordinary shares of £1each.

On 1 June 2001, 69 A Ordinary shares of £1 each were issued fully paid. On the same date, 15 B Ordinaryshares of £1 each were issued which comprised part consideration for the acquisition of the business andassets of the Cyprotex Division of Medeval.

35

16. Reconciliation of Shareholders' Funds, Movements on Reserves and Capital Employed

Movement on reservesShare

Capital£000

Sharepremium

£000

Pro®tand lossAccount

Capitalemployed

£000

Loss for the period Ð Ð Ð (154)

At 31 July 1999 Ð Ð Ð (154)Retained loss for the year Ð Ð Ð (594)

At 31 July 2000 Ð Ð Ð (748)Retained loss for the period Ð Ð Ð (371)

At 31 May 2001 Ð Ð Ð (1,119)Losses retained within Medeval Ð Ð Ð 1,119Arising on share issue Ð 196 Ð ÐLoss for the period Ð Ð (386) Ð

Ð 196 (386) Ð

17. Notes to the Statement of Cash Flows

(a) Reconciliation of operating loss to net cash out¯ow from operating activities

4 months Year 10 months 5 monthsended ended ended ended

31 July 31 July 31 May 31 Oct1999 2000 2001 2001£000 £000 £000 £000

Operating loss (154) (584) (362) (381)Depreciation 12 103 96 32Government grant income Ð (119) (19) Ð(Increase)/decrease in debtors (65) (69) 102 (93)(Increase)/decrease in stocks (17) (14) 10 ÐIncrease/(decrease) in creditors 146 61 (193) 319

Net cash out¯ow from operating activities (78) (622) (366) (123)

(b) Analysis of net debt

At Other At1 April Cash non-cash 31 July

1999 ¯ow movements 1999£000 £000 £000 £000

Cash at bank and in hand Ð 4 Ð 4Amounts due to Medeval Ð (221) Ð (221)Finance leases Ð Ð (95) (95)

Ð (217) (95) (312)

36

At Other At1 August Cash non-cash 31 July

1999 ¯ow movements 2000£000 £000 £000 £000

Cash at bank and in hand 4 (2) Ð 2Amounts due to Medeval (221) (657) Ð (878)Finance leases (95) 40 (131) (186)

(312) (619) (131) (1,062)

At Other At1 August Cash non-cash 31 May

2000 ¯ow movements 2001£000 £000 £000 £000

Cash at bank and in hand 2 (2) Ð ÐBank overdraft Ð (20) Ð (20)

Cash 2 (22) Ð (20)Amounts due to Medeval (878) (395) Ð (1,273)Finance leases (186) 35 Ð (151)

(1,062) (382) Ð (1,444)

At Other At1 June Cash non-cash 31 Oct

2001 ¯ow movements 2001£000 £000 £000 £000

Bank overdraft (20) (32) 20 (32)Amounts owed to Medeval (1,273) Ð 1,273 ÐShort term loans Ð (150) Ð (150)Finance leases (151) 21 Ð (130)

(1,444) (161) 1,293 (312)

(c) Major non-cash transactions

The major non-cash transactions in the ®ve months ended 31 October 2001 relate to amounts retained byMedeval on the acquisition of the business and assets of the Division by Cyprotex Services.

18. Contingent Liabilities

Cyprotex Services is involved in litigation with The University of Shef®eld (``the University''). CyprotexServices is seeking a declaration from the court that it owns the copyright in various computer programsproduced by an employee of Cyprotex Services as a result of a development project entered into byCyprotex Services with the University. The University contends that it owns copyright in any softwarewritten by the employee in the course of the project belong to the University. Cyprotex Services contendsthat all such rights belong to it under the provisions of the Copyright Designs and Patents Act 1988 andunder the terms of the research agreement and that even if they are unsuccessful in this argument, that theyare entitled to a licence.

Cyprotex Services has served a Claim Form and Particulars of Claim on the University, which has alsoserved its Defence and Counterclaim (which currently does not include a claim against Cyprotex Servicesfor infringement). Cyprotex Services has in turn served its Reply and Defence to the University's Defenceand Counterclaim.

Cyprotex Services has obtained Counsel's advice on the litigation and it is the view of Counsel that title tothe software in question belongs to Cyprotex Services both in law and in equity and that the actioncommenced by Cyprotex Services ought to be successful and the Defence and Counterclaim of theUniversity ought to be dismissed.

37

Cyprotex Services has made appropriate provision for legal expenses at 31 October 2001.

19. Pension Commitments

The employees of the Division, during the periods to 31 May 2001, were members of the Medeval GroupLimited Pension Scheme. It is a de®ned bene®t scheme for the bene®t of the employees. The assets of thescheme are administered by trustees in a fund independent from those of Medeval Group Limited and itssubsidiaries.

Under this scheme, pension costs are assessed in accordance with the advice of a quali®ed actuary using theProjected Unit Method modi®ed by the use of a 20 year control period. The assumptions that have themost signi®cant effect on the results of the valuations are future returns on investments of 8% per annumand future salary increases of 6% per annum. The most recent valuation was at 1 January 1999.

The market value of the scheme assets as at 1 January 1999 was £772,000. The actuarial value of thoseassets was suf®cient to cover 87% of the bene®ts that had accrued to members, after allowing for expectedfuture increases in earnings. The employers contribution rate over the average remaining service lives of themembers of the scheme takes account of the de®cit of £120,000 as disclosed by the valuation.

The contributions of Medeval Group Limited and its subsidiaries, and the employees remained at 12.6%and 6.25% respectively.

Following the acquisition of the Division by Cyprotex Services the contributions of the Division'semployees were transferred into a separate de®ned contribution scheme. As part of the acquisitionagreement the employees of the Division were given the option of continuing their contributions to theMedeval Group Limited Pension Scheme for a further three months but did not do so.

Cyprotex Services operates a de®ned contribution scheme, The Cyprotex Group Stakeholder PensionScheme, for its directors and employees. The assets of the scheme are held separately from those ofCyprotex Services in an independently administered scheme. The unpaid contributions at 31 October 2001are £4,000.

20. Transactions with Directors

Included within creditors at 31 October 2001 is a loan to Cyprotex Services from P Davidson amounting to£100,000. The loan is interest free with no speci®c repayment terms. Since 31 October 2001 the loan hasbeen repaid in full.

21. Related Party Transactions

During the periods to 31 May 2001 the Division entered into the following transactions, in the ordinarycourse of business, with Medeval:

Purchases Amounts AmountsSales to from owed to owed fromrelated related related related

Related party party party party party£000 £000 £000 £000

Medeval31 July 1999 Ð Ð 221 Ð31 July 2000 Ð 66 878 Ð31 May 2001 Ð 55 1,273 Ð

The purchases from Medeval relate to the recharge of centrally incurred overheads, which are included inadministrative expenses.

Amounts due to Medeval represent the internal funding arrangements of Medeval. These amounts havearisen due to divisional accounting and internal funding strategy that is peculiar to Medeval and may notrepresent the funding requirements of the Division had it not been part of Medeval or the fundingrequirements that exist following the acquisition by Cyprotex Services.

38

During the ®ve months ended 31 October 2001, Cyprotex Services entered into the following transactions,in the ordinary course of business, with the following parties:

Purchases Amounts AmountsSales to from owed to owed fromrelated related related related

Related party party party party party£000 £000 £000 £000

Medeval 49 94 14 ÐSense-Sonic Limited Ð Ð 50 ÐOystertec PLC Ð 13 13 Ð

Medeval

Medeval owns 17.6% of the ordinary shares in Cyprotex Services as at 31 October 2001. The transactionsrepresent rent, rates, services and other related items recharged between the parties.

Sense-Sonic Limited

R W Long and P Davidson were directors of Sense-Sonic Limited during the ®ve months ended 31 October2001. The amounts owed to Sense-Sonic Limited relate to short term funding made during the ®ve monthsended 31 October 2001. The loan has been repaid since 31 October 2001.

Oystertec PLC

R W Long and P Davidson were directors of Oystertec PLC during the ®ve months ended 31 October 2001.The balance represents amounts owed arising from the ordinary course of business.

22. Financial Instruments

The principal ®nancial instruments of the Division and Cyprotex Services comprise cash, bank overdrafts,short term loans and, until 1 June 2001, intra Medeval borrowing. Leases and hire purchase contracts areused to ®nance the purchase of some assets.

The main purpose of ®nancial instruments is to raise ®nance for the operations of the Division andCyprotex Services' business. The Division and Cyprotex Services also have various other ®nancialinstruments, such as trade debtors and trade creditors that arise directly from operations.

Division

The main risks arising from the Division's ®nancial instruments are interest rate risk, liquidity risk andforeign currency risk. The Medeval board reviews and agrees policies for managing each of these risks andthey are summarised below.

Interest rate and liquidity risks

Medeval and consequently the Division manages its borrowing requirements on a group basis andaccordingly the level of external borrowings, intra Medeval borrowings and cash resources contained in the®nancial information are a function of the borrowing policies of Medeval over which the management ofthe Division have no control.

Balances due to and from Medeval represent the internal funding arrangements of Medeval and are basedon strategies and policies that are peculiar to Medeval. These balances may not represent the fundingrequirements of the Division had it not been part of Medeval or the funding requirements that will existfollowing the acquisition by Cyprotex Services.

Foreign currency risks

Medeval does not hedge against currency exposures arising from trading transactions. There is no exposureto translation differences as Medeval does not hold foreign subsidiaries and there is no use of interest rateswaps or forward rate agreements. Medeval does not undertake speculative transactions.

Management of funds

Surplus cash is placed on overnight deposit. As Medeval's treasury function is managed on a group widebasis the management of the Division have no control over the management of currency risk and interestrate risk. The Division does not enter into instruments used to hedge such risks and any treasury functionsare managed and entered into by Medeval.

39

Cyprotex Services

The main risks arising from Cyprotex Services' ®nancial instruments are interest rate risk, liquidity risk andforeign currency risk. The Cyprotex Services' board reviews and agrees policies for managing each of theserisks and they are summarised below.

Interest rate and liquidity risks

Although ®nancial risks are considered to be minimal at present, future interest rate, liquidity and foreigncurrency risks could arise and the board will review existing policies for management of these risks in thecoming period.

Cyprotex Services borrows at both ®xed and ¯oating rates of interest. The policy of Cyprotex Services isthat the board will continue to monitor this position to ensure that the interest rate risk pro®le isappropriate to the Cyprotex Services business.

The objective of Cyprotex Services is to maintain a balance between continuity of funding and ¯exibility byuse of an overdraft.

Foreign currency risks

It is the policy of Cyprotex Services to limit foreign currency exposure by concluding sales agreements,wherever possible in pounds Sterling. There are no overseas operations or foreign purchases.

Management of funds

Surplus funds are intended to ®nance the development and growth of Cyprotex Services and the effectivemanagement of these surpluses is based upon policies determined by the Board. Surplus funds are investedthrough the use of short-term deposits. It is not the Cyprotex Services's policy to invest in ®nancialderivatives.

As permitted by Financial Reporting Standard No. 13 (FRS 13), the disclosures set out below excludeshort-term debtors and creditors.

(i) Interest rate and currency pro®le

Financial assets 31 July 31 July 31 May 31 October1999 2000 2001 2001£000 £000 £000 £000

Cash 4 2 Ð Ð

Floating rates 4 2 Ð Ð

Financial liabilitiesBank overdraft Ð Ð 20 32Finance leases 95 186 151 130Amounts due to Medeval 221 878 1,273 ÐShort term loans Ð Ð Ð 150

316 1,064 1,444 312

Financial liabilities 31 July 31 July 31 May 31 October1999 2000 2001 2001£000 £000 £000 £000

Floating rate Ð Ð 20 32Fixed rate 95 186 151 130Interest free 221 878 1,273 150

316 1,064 1,444 312

All ®nancial assets and liabilities are denominated in sterling.

40

(ii) Maturity pro®le of ®nancial liabilities

31 July 31 July 31 May 31 Oct1999 2000 2001 2001£000 £000 £000 £000

In one year or on demand 238 923 1,340 227In one to two years 19 45 45 45In two to ®ve years 59 96 59 40

316 1,064 1,444 312

(iii) Weighted average interest rate

Fixed rate ®nancial liabilies

WeightedAverage

Interest rate%

Weightedaverage

period forwhich rate

is ®xedYears

31 July 1999Sterling Ð 5.0

31 July 2000Sterling 7 4.2

31 May 2001Sterling 5 3.2

31 October 2001Sterling 4 2.8

Fixed rate ®nancial liabilities consist of ®nance leases.

Floating rate of ®nancial liabilities comprise a sterling denominated bank overdraft that bears interest at arate based on LIBOR.

(iv) Undrawn committed borrowing facilities

The Division has no undrawn committed borrowing facilities in respect of any period end, due to suchfacilities being drawn and arranged by Medeval and not the Division.

Cyprotex Services has an overdraft borrowing facility available to it. The undrawn committed facilitiesavailable at 31 October 2001 in respect of which all conditions precedent had been met at that date are asfollows:

31 October2001£000

Expiring in one year or less 268

23. Acquisition of Business and Assets of the Division

On 1 June 2001 Cyprotex Services acquired the business and assets of the Cyprotex Division of Medeval fora consideration of £217,150 satis®ed by the issue of 15 ordinary shares of £1 at £13,066.67 each and cashconsideration of £21,150.

41

An analysis of the acquisition of the net assets is as follows:

Net assets at date of acquisition:

Book value Adjustments Fair value£000 £000 £000

Tangible ®xed assets 347 Ð 347Stocks 21 Ð 21Creditors due within one year (45) Ð (45)Creditors due after one year (106) Ð (106)

217 Ð 217

Discharged by:Fair value of shares (note 15) 196Cash consideration 21

217

The trading results, reserves and cash ¯ows of the Division prior to the acquisition by Cyprotex Services arepresented in the pro®t and loss account, balance sheet and cash ¯ow statement in paragraphs 2, 3 and 4respectively.

24. Post Balance Sheet Events

On 4 December 2001 each of the issued and unissued A Ordinary shares of £1 each and each of the issuedand unissued B Ordinary shares of £1 was subdivided into 800,000 ordinary shares of 0.000125 pence each.

Yours faithfully

Ernst & Young LLP

42

PART V

ADDITIONAL INFORMATION

1. Responsibility

The Directors of Cyprotex, whose names appear in paragraph 5 below, accept responsibility for theinformation contained in this document including individual and collective responsibility for compliancewith the AIM Rules. To the best of the knowledge of the Directors (who have taken all reasonable care toensure that such is the case), the information contained in this document is in accordance with the facts anddoes not omit anything likely to affect the import of such information.

2. The Company

2.1 The Company was incorporated in England and Wales on 25 October 2001 under the name Inhoco2437 Limited (registered number 4311107) as a private company limited by shares.

2.2 The Company changed its name to Cyprotex Services Limited on 4 December 2001 and to CyprotexLimited on 7 January 2002.

2.3 The Company was re-registered as a public limited company on 7 January 2002.

2.4 The registered of®ce of the Company is at 100 Barbirolli Square, Manchester M2 3AB.

2.5 The liability of the members of the Company is limited.

2.6 The accounting reference date of the Company is 30 June.

3. Share capital

3.1 The authorised share capital of the Company on incorporation was £1,000 divided into 1,000ordinary shares of £1 each of which one ordinary share of £1 was issued at par fully paid up to thesubscriber to the Company's memorandum of association.

3.2 On 4 December 2001, one ordinary share of £1 was issued at par fully paid to Medeval GroupLimited.

3.3 On 4 January 2002, resolutions were passed to the following effect;

(a) each of the two issued ordinary shares of £1 each and the 998 authorised but unissuedordinary shares of £1 each in the capital of the Company were subdivided into 1,000 ordinaryshares of 0.1 pence each.

(b) the authorised share capital of the Company was increased from £1,000 to £160,000 by thecreation of 159,000,000 new Ordinary Shares;

3.4 On 4 January 2002, 67,998,000 Ordinary Shares were allotted, in each case at par fully paid, asconsideration for the acquisition of the whole of the issued share capital of Cyprotex Servicespursuant to the share exchange agreement referred to in paragraph 11.1(b) below.

3.5 On 7 February 2002, resolutions were passed to the following effect:

(a) the Directors were authorised to allot relevant securities (within the meaning of the section80(2) of the Act) pursuant to section 80 of the Act up to a maximum nominal amount of£59,130 such authority to expire, unless sooner revoked or varied by the Company in generalmeeting, at the conclusion of the ®rst annual general meeting of the Company held next afterthe passing of the resolution or 15 months after the passing of the resolution (whichever is theearlier); and

(b) the Directors were authorised until 30 April 2003 or, if earlier, at the conclusion of the ®rstannual general meeting of the Company held next after the passing of the resolution to allotequity securities (within the meaning of section 94(2) of the Act) for cash pursuant to theauthority referred to in paragraph 3.5(a) above as if section 89(1) of the Act did not apply tothat allotment, the power being limited to:

(i) the allotment of 22,413,793 Ordinary Shares pursuant to the Placing;

(ii) the allotment of 431,034 Ordinary Shares pursuant to the Warrants to be issued toAltium Capital as referred to in paragraph 3.6 below;

(iii) the allotment of 1,024,138 Ordinary Shares and 5,120,690 Ordinary Shares pursuant tothe options granted to Jeremy Scudamore and Mark Egerton, respectively, asdescribed in paragraph 6.1 below;

43

(iv) the allotment of equity securities in connection with rights issues or other pre-emptiveoffers; and

(v) the allotment (other than described in sub-paragraph 3.5(b)(i) to 3.5(b)(iv) (inclusive)above) of equity securities up to an aggregate nominal value of £13,562.

3.6 Under the terms of the engagement letter of Altium Capital, the Company has agreed, conditional onAdmission, to grant 431,034 Warrants to Altium Capital (being that number of Ordinary Shareswhich has a value of £125,000 at the Placing Price). These Warrants are normally exercisable duringthe period commencing on the ®rst anniversary of the date of Admission and expiring on the ®fthanniversary of the date of Admission. Under the terms of the instrument constituting such warrants,provision is made for the adjustment of the subscription rights attaching to the warrants in the eventof a capitalisation issue or reorganisation of the share capital of the Company.

3.7 The provisions of section 89(1) of the Act, to the extent not disapplied pursuant to section 95 of theAct, confer rights of pre-emption on Shareholders in respect of the allotment of equity securitieswhich are, or are to be, paid up in cash (other than by way of allotment to employees under anemployee share agreement as de®ned in section 743 of the Act) and will apply to the balance of theauthorised but unissued and unreserved Ordinary Shares following the expiry of the disapplication ofsection 89 of the Act referred to in paragraph 3.5(b) above.

3.8 Following the issue and allotment by the Company of the Placing Shares, the disapplication of pre-emption rights described in paragraph 3.5(b)(v) above will extend to not more than ®fteen per cent ofthe Company's issued share capital.

3.9 The authorised and issued share capital of the Company at the date of this document (and beforeAdmission) is as follows:

Authorised Issued and fully paid£ Number £ Number

Ordinary Shares of 0.1 pence each 160,000 160,000,000 68,000 68,000,000

3.10 The authorised and issued share capital of the Company immediately following Admission isanticipated to be as follows:

Authorised Issued and fully paid£ Number £ Number

Ordinary Shares of 0.1 pence each 160,000 160,000,000 90,413.79 90,413,793

3.10 Since the date of the Company's incorporation, save as disclosed in paragraphs 3.6 and 11.1(c) of thisPart V, no commissions, discounts or brokerages or other special terms have been granted by theCompany in connection with the issue or sale of any share or loan capital of the Company.

3.11 Except for those Ordinary Shares which are the subject of the Warrants to be issued conditional onAdmission, the options granted to John Nicholson pursuant to the Share Option Scheme, theoptions granted to Jeremy Scudamore and Mark Egerton and the EMI Options as described inparagraphs 3.5, 6.1 and 8.1, no share or loan capital of the Company is under option or agreed,conditionally or unconditionally, to be put under option. Conditional upon the Placing Agreementbecoming unconditional, the Company intends to allot 22,413,793 new Ordinary Shares pursuant tothe Placing.

3.12 The Ordinary Shares are in registered form. The Articles of Association of the Company permit theholding of its shares through CREST. The Directors will apply for Ordinary Shares to be admitted toCREST with effect from Admission.

4. Subsidiaries

The Company has one wholly-owned trading subsidiary, Cyprotex Services Limited (registerednumber 4184635), whose registered of®ce is at 100 Barbirolli Square, Manchester M2 3AB.

44

5. Directors

5.1 Other than their directorships of companies in the Group, the current directorships of the Directorsand directorships held by them over the previous ®ve years are as follows:

Name Directorships and Partnerships

Jeremy Scudamore Current:Avecia 10 LimitedAvecia Corporation LimitedAvecia Holdings plcAvecia Toner Resins LimitedAvecia Finance plcAvecia Trading LimitedAvecia Investments LimitedAvecia Group plcAvecia UK Holdings LimitedAvecia Overseas Holdings LimitedAvecia LimitedIliad 3 LimitedChemical Industries Associations Limited

Previous:ICI (Nominee Holdings) LimitedZeneca International LimitedAdvanta Research LimitedAdvanta Technology LimitedStahl UK LImited

Mark Egerton None

John Nicholson Current:Delamere Forest Golf Club LimitedOptokem Limited

Previous:Britmag Refractory Products LimitedBritmag Chemicals LimitedBritmag Limited

Dr David Leahy None

Robert Long Current:Prestrek LimitedSense-Sonic LimitedGalileo Innovation Public Limited Company

Previous:GL Communications International LimitedExtek LimitedFederal Signal LimitedMillbank Telecommunications LimitedMillbank Communications LimitedAkusta IFE LimitedMillbank Electronics LimitedOystertec plc

Dr Rosemary Drake None

Dr Colin Picton Current:Picton Discovery Consulting LimitedRodaris Pharmaceuticals Limited

Previous:None

45

5.2 The business address of each of the Directors is at 13-15 Beech Lane, Maccles®eld, CheshireSK10 2DR.

5.3 At the date of this document, none of the Directors has:

(a) any unspent convictions in relation to any indictable offences; or

(b) been declared bankrupt or has made any voluntary arrangement with his creditors; or

(c) been a director of a company at the time of or within the twelve months preceding anyreceivership, compulsory liquidation, creditors' voluntary liquidation, administration,voluntary arrangement or any composition or arrangement with creditors generally or anyclass of creditors; or

(d) been a partner or in a partnership at the time of or within the twelve months preceding anasset of the partnership being subject to a receivership; or

(e) been subject to any public criticism by statutory or regulatory authorities, nor disquali®ed bya court from acting as a director of a company or from acting in the management or conductof the affairs of any company; or

(f) been a partner or in a partnership at the time or within the 12 months preceding anycompulsory liquidation, administration or partnership voluntary arrangement; or

(g) had a name other than his present name.

6. Directors' and other interests

6.1 The interests of the Directors and the persons connected (within the meaning of section 346 of theAct) with them, (all of which are bene®cial), in the issued share capital of the Company, as noti®ed tothe Company pursuant to section 324 or 328 of the Act, as they appear or will appear in the registerof directors' interests required pursuant to section 325 of the Act as at the date of this document andas they are anticipated to be immediately following Admission are as follows:

As at the date of this document Following AdmissionNumber of

OrdinaryShares

Percentage ofissued share

capital

Number ofOrdinary

Shares

Percentage ofenlarged share

capital

David Leahy nil nil 17,242 0.02Jeremy Scudamore nil nil 17,242 0.02Mark Egerton nil nil 17,242 0.02John Nicholson nil nil 17,242 0.02Robert Long 6,850,000 10.07 6,884,483 7.61Colin Picton nil nil 34,483 0.04Rosemary Drake nil nil 34,483 0.04

Dr David Leahy has an EMI Option granted to him by the Company under the Services EMI Planon 7 December 2001 to subscribe for 10,401,600 Ordinary Shares at a price of 0.175p per OrdinaryShare. The option is exercisable from the date of grant.

On 7 February 2002, John Nicholson was granted an option under the Share Option Scheme tosubscribe for 2,048,276 Ordinary Shares at the Placing Price. The right to exercise this option isconditional upon Admission and upon the achievement of performance conditions related to thegrowth in total shareholder return (``TSR'') of an Ordinary Share over the Placing Price for a periodno shorter than the period commencing on the date of Admission and ending with the announcementof the Company's interim results for the six months ending 31 December 2003 (``the initial period'').TSR growth below a compound annual rate of 15% will result in the option not being exercisable.Achievement of a compound annual rate of growth of 15% will permit the option to be exercised for50% of the Ordinary Shares comprised in it and growth at or above a compound annual rate of 30%will permit the option to be exercised in full. The option may be exercised for a correspondingpercentage between 50% and 100% where growth is at a rate falling between 15% and 30% a yearcompound. If targets are not achieved in full over the initial period, the option will remainpotentially exercisable depending on achievement against the same compound annual rates of TSRgrowth measured over extended periods commencing with the date of Admission and ending with theinterim announcements for the half years ending 31 December 2004, 2005 or 2006. This option willnormally be exercisable from the date on which the conditions are ®rst satis®ed until 7 February2012.

46

On 7 February 2002, Jeremy Scudamore and Mark Egerton were granted options to subscribe for1,024,138 and 5,120,690 Ordinary Shares respectively at the Placing Price. The right to exercise theoptions is conditional upon Admission and the achievement of the same performance conditions asapply to the option granted to John Nicholson described above in this paragraph 6.1, and isgenerally exercisable in the same manner and for the same period as that option. In relation to theoption granted to Mark Egerton, there is a further condition to exercise in that Mark Egerton musthave taken up the position of an executive director of the Company prior to 1 August 2002.

6.2 Save as disclosed above, the Directors are not aware of any interests of persons connected with themwhich would, if such connected person were a Director, be required to be noti®ed to the Companypursuant to section 324 or section 328 of the Act and would be required to be entered in the registerof directors' interests pursuant to section 325 of the Act.

6.3 The Company is aware of the following persons, other than the Directors whose interests are set outin paragraph 6.1 above, who, immediately following Admission, will be interested (within themeaning given to that excpression in Part VI of the Act) directly or indirectly, in three per cent. ormore of the issued share capital (as de®ned in section 198 (2) of the Act) of the Company:

As at the date of thisdocument Following Admission

Number ofOrdinary

Shares

Percentageof issued

sharecapital

Number ofOrdinary

Shares

Percentageof issued

sharecapital

Paul Davidson 31,750,000 46.69 31,750,000 35.12Martin Varley 6,850,000 10.07 6,850,000 7.58Angus Monro 6,850,000 10.07 6,850,000 7.583i Group plc 4,750,115 6.99 4,750,115 5.25Stephen Toon 3,454,629 5.08 3,454,629 3.82

6.4 Save as set out in paragraph 6.3 above, the Company is not aware of any person other than theDirectors and their immediate families who immediately following Admission will be interested(within the meaning given to that expression in Part VI of the Act), directly, or indirectly, in three percent. or more of the share capital (as de®ned in section 198(2) of the Act) of the Company or whodirectly or indirectly jointly or severally exercise or could exercise control over the Company.

6.5 Save as disclosed above, none of the Directors has any interest, bene®cial or non-bene®cial, in theshare or loan capital of the Company.

6.6 Save as disclosed in this document, no Director has any interest, direct or indirect, in any assetswhich have been or are proposed to be acquired or disposed of by, or leased to, the Group and nocontract or arrangement exists in which a Director is materially interested and which is signi®cant inrelation to the business of the Group.

6.7 There are no outstanding loans granted by the Company to any of the Directors, nor are there anyguarantees provided by the Company for their bene®t.

7. Service agreements, letters of appointment and remuneration

7.1 None of the Directors has a contract of employment or letter of appointment with the Company witha notice or contract period of more than one year or with provisions for predeterminingcompensation on termination of an amount which exceeds one year's salary and bene®ts in kind.

7.2 There is no arrangement under which any Director has agreed to waive future emoluments nor hasthere been any waiver of emoluments during the ®nancial year immediately preceding the date of thisdocument.

7.3 On 31 January 2002, Dr Mark Egerton entered into a service agreement with the Company, whichcommences on such date to be agreed between the parties but in any event no later than 1 August2002, from which time he has agreed to serve as Chief Executive Of®cer with an annual salary of£100,000 (to be reviewed annually), with an additional annual car allowance of £10,000. In addition,the Company has agreed to provide, for his bene®t and at the cost of the Company, life assurance (offour times basic salary), private medical expenses insurance (for himself and his spouse anddependent children) and pension entitlement (with employer's contributions of 10% of basic salary).Mark Egerton is also entitled to receive an annual bonus of up to 40% of his ®xed annual salary

47

subject to attaining performance conditions to be set by the Company's remuneration committeefrom time to time. The agreement is terminable upon 12 months' notice by either party and containsa non-compete provision for 12 months after termination.

7.4 On 10 December 2001, John Nicholson entered into a service agreement with the Company,conditional on Admission, under which he agreed to serve as Chief Operating Of®cer at a currentannual salary of £90,000 (to be reviewed annually). In addition, the Company has agreed to provide,for his bene®t and at the Company's cost, life assurance (of four times basic salary), private medicalexpenses insurance (for himself and his spouse and dependent children) and a company car. Theagreement is terminable upon 6 months' notice by either party and contains a non-compete provisionfor 12 months after termination.

7.5 On 10 December 2001, Dr David Leahy entered into a service agreement with Cyprotex Services,conditional on Admission, under which he agreed to serve as Chief Scienti®c Of®cer at a currentannual salary of £80,000 (to be reviewed annually). In addition, Cyprotex Services has agreed toprovide, for his bene®t and at the cost of Cyprotex Services, life assurance (of four times basicsalary), private medical expenses insurance (for himself and his spouse and dependent children) andpension entitlement (with employer's contributions of 10% of basic salary). The agreement isterminable upon 12 months' notice by either party and contains a non-compete provision for12 months after termination.

7.6 Jeremy Scudamore serves as non-executive Chairman of the Company under a letter of appointmentfrom the Company dated 10 December 2001 and countersigned by him on that date. Theappointment is, conditional on Admission, for an initial period of 3 months from Admission andthereafter terminable upon 6 months' notice by either party. The current annual fee payable toJeremy Scudamore is £12,500.

7.7 Dr Rosemary Drake serves as non-executive director of the Company under a letter of appointmentfrom the Company dated 10 December 2001 and countersigned by her on that date. Theappointment is, conditional on Admission, for an initial period of 3 months from Admission andthereafter terminable upon 6 months' notice by either party. The current annual fee payable toRosemary Drake is £12,500.

7.8 Dr Colin Picton serves as non-executive director of the Company under a letter of appointment fromthe Company dated 10 December 2001 and countersigned by him on that date. The appointment is,conditional on Admission, for an initial period of 3 months from Admission and thereafterterminable upon 6 months' notice by either party. The current annual fee payable to Dr Colin Pictonis £12,500.

7.9 Robert Long serves as non-executive director of the Company under a letter of appointment fromthe Company dated 7 February 2002 and countersigned by him on that date. The appointment is,conditional on Admission, for an initial period of 3 months from Admission and thereafterterminable upon 6 months' notice by either party. The current annual fee payable to Robert Long is£12,500.

7.10 Save as provided in this document, none of the Directors have any contractual entitlement to anybene®ts in kind or pension contributions.

7.11 The aggregate remuneration and bene®ts in kind payable by the Group in respect of the Directors inthe current ®nancial period ending 30 June 2002 based on the arrangements in place at the date ofthis document is estimated to be approximately £166,000 (excluding VAT).

8. Share schemes

8.1 Services EMI Plan

The Services EMI Plan was adopted by Cyprotex Services on 7 December 2001 and options weregranted on 7 December 2001 to acquire a total of 12,000,000 ordinary shares in Cyprotex Services ata price of 0.175p per share being the market value of an ordinary share in Cyprotex Services whichhas been agreed with the Inland Revenue. Following the acquisition of the whole of the issued sharecapital of Cyprotex Services by the Company, these options have been exchanged for optionsgranted by the Company under the Services EMI Plan to subscribe for the same number of OrdinaryShares at the same option price. Both the original options granted by Cyprotex Services and thereplacement options granted by the Company are intended to qualify as enterprise mangementincentive options under Schedule 14 to the Finance Act 2000 (``Schedule 14''). No further options

48

will be granted under the Services EMI Plan. The principal features of the Services EMI Plan, as theyrelate to the outstanding EMI Options, are as follows:

(a) Constitution

The Services EMI Plan is administered by the board of directors of the Company or a dulyauthorised committee of the board (in this paragraph 8 ``the Board'').

(b) Grant of Options

No payment was required for the grant of an option. The grant of options has been evidencedby an option agreement executed by the eligible employee and the grantor of the option.

Options are not transferable and may only be exercised by the persons to whom they weregranted, except in the case of death, when the options may be exercised by the individual'spersonal representative(s).

(c) Option Price

Options will entitle the holders to acquire fully paid ordinary shares in the Company at a pricedetermined by the Board at the date of grant. The option price for options granted under theEMI Plan must not be less than their nominal value.

(d) Exercise of Options

An option will generally only be exercisable if the participant remains in employment withCyprotex Services or any subsidiary of Cyprotex Services (a ``Group Company'') and willgenerally only be exercisable after such period and to such extent as the Board may determineat the time of grant. An option will lapse if not exercised within 10 years after the date it isgranted. The initial options granted to the development team, excluding David Leahy,generally only become exercisable following the second anniversary of the date of grant.

At grant, the Board may make the exercise of options conditional on the satisfaction ofspeci®ed performance criteria.

Participants must indemnify the group in respect of any tax and/or national insurancecontributions which may arise on exercise.

(e) Cessation of Employment

If a participant ceases to be employed by, or an of®cer of, Cyprotex Services or any futureGroup Company the option will lapse unless the Board determines otherwise within onemonth of the cessation of employment. An option may be exercised within one year of thedeath of the participant.

(f) Takeover or reconstruction

In the event of a change in control of the Company as a result of takeover or reconstructionthen options may be exercised in full within speci®ed periods. If options are not exercisedwithin these periods they will lapse. As an alternative to the exercise of options, participantsmay, if the acquiring company agrees, release their options in exchange for options overshares in the acquiring company.

(g) Reorganisation of share capital

In the event of a capitalisation or rights issue or the sub-division, consolidation or reductionof the Company's ordinary share capital, the exercise price of shares under option and/or thenumber of shares may be adjusted in such manner as the Board may determine, so that thetotal exercise price remains unchanged.

(h) Amendments

The Board may amend the rules of the Services EMI Plan. However:

* amendments to the advantage of participants or eligible employees shall require theprior approval by ordinary resolution of the members of the Company, except forminor amendments to bene®t the administration of the Services EMI Plan, to take intoaccount changes in legislation or to obtain or maintain favourable tax exchangecontrol or regulatory treatment for participants;

49

* amendments to the disadvantage of a participant shall require the consent in writing ofthat participant; and

* whilst options granted under the Services EMI Plan are to qualify under Schedule 14,no amendment may be made which would result in Schedule 14 no longer applying.

8.2 Share Option Scheme

The Company adopted the Share Option Scheme on 7 February 2002.

The principal features of the Share Option Scheme, the terms of which are set out in the rules of theShare Option Scheme, are as follows:

(a) Regulation

The Share Option Scheme will be regulated by the Board. In practice, operation of the ShareOption Scheme will be delegated to the remuneration committee of the Company.

(b) Eligible Employees

All employees (including executive directors) of the group are eligible for selection by theBoard to participate in the Share Option Scheme, provided that an employee who is anexecutive director of any company in the Group must work at least 25 hours a week(excluding meal breaks).

(c) Grants of options

Options may be granted by the Company or by any other person who has agreed with theCompany to do so.

Options may be granted before Admission, within the period of 42 days commencing onAdmission and during each period commencing on the third dealing day after and ending onthe 42nd day after the announcement of the Company's results for any period to the LondonStock Exchange. Options may also be granted at any time when the Board resolves thatexceptional circumstances exist which justify the grant of an option or options. Options maynot be granted more than 10 years after the Share Option Scheme was adopted by theCompany.

The Board will in its discretion determine which eligible directors and employees are to begranted options and the number of ordinary shares to be comprised in such options.

No payment is required for the grant of an option. Options granted will be personal to theparticipants to whom they are granted and may not be transferred or assigned. However, theywill be exercisable by the legal personal representative of a participant who dies beforeexercising his option.

(d) Option price

The option price per ordinary share payable on the exercise of an option will be determined bythe Board and will not be less than the market value of the Company's shares at the date ofgrant of the option, subject, in the case of options to subscribe for unissued ordinary shares,to a minimum price equal to the nominal value of an ordinary share.

(e) Performance Conditions

The Board may impose one or more performance conditions which will determine the extentto which, if at all, an option may be exercised.

The performance conditions (if any) applicable to any grants of options made in any ®nancialyear will be fully disclosed in the Company's annual report and accounts for that year.

(f) Exercise of options

Options will normally lapse if the participant ceases employment, subject to the discretion ofthe Board to permit exercise in whole or in part during a limited period thereafter.

Subject to the terms of any performance condition, exercise is allowed in the event of anamalgamation, reconstruction or takeover of the Company. Alternatively, options may, withthe agreement of the acquiring company, be exchanged for options over shares in theacquiring company or a company associated with the acquiring company. Options may alsosimilarly be exercised in the event of a voluntary winding-up or demerger of the Company.

50

An option may not be exercised after the expiry of a period of 10 years from the date of itsgrant or such shorter period as may be speci®ed at the time of grant.

(g) Issue or transfer of ordinary shares on exercise of options.

Ordinary shares issued or transferred following exercise of an option will rank pari passu in allrespects and form one class with the ordinary shares then in issue, save as regards dividendspayable by reference to a record date prior to the date of allotment or transfer.

(h) Limits on individuals' participation

No employee may be granted options over a number of ordinary shares, which, whenaggregated with the number of ordinary shares over which he has previously been grantedoptions under the Share Option Scheme, which have been exercised or remain exercisable,exceed 2 per cent. of the issued ordinary share capital of the Company immediately beforesuch grant.

(i) Limits on the issue of ordinary shares

In any 10 year period, the aggregate of:

(i) the number of unissued ordinary shares placed under option in that period under theShare Option Scheme and any other share option scheme of the Company (excludingthe Services EMI Plan but including the option granted to Jeremy Scudamoredescribed in paragraph 6.1 of part V of this document); and

(ii) the number or ordinary shares issued in that period pursuant to any other employees'share schemes of the Company;

shall not exceed 10% of the Company's issued ordinary share capital for the time being.

For the purposes of the above limit, options which have lapsed cease to count. Furthermorethe issue of ordinary shares to any employee bene®t trust for the purpose of satisfying optionsgranted by the Company under any of its share option schemes will be treated for thepurposes of the limits described above as having been issued on the date of grant of suchoptions.

(j) Adjustments

The number of ordinary shares subject to any option and the option price are subject toappropriate adjustment in the event of any capitalisation issue (other than a scrip dividendwhich is not an enhanced scrip dividend) or rights issue by the Company or anyconsolidation, sub-division or reduction of the Company's share capital or any othervariation in the Company's share capital, subject (except in the case of a capitalisation issueother than an enhanced scrip dividend) to the auditor's con®rming in writing that suchadjustment is fair and reasonable.

(k) Amendments

The Board may make minor amendments to bene®t the administration of the Share OptionScheme, to take account of changes in legislation or to obtain or maintain favourable tax,exchange control or regulatory treatment for participants in the Share Option Scheme or forthe Company or other members of the group.

Save as set out above, no amendment to the advantage of participants may be made, withoutthe prior approval of shareholders in general meeting, to the following provisions of the ShareOption Scheme:

* the de®nitions of those eligible to participate;

* the times at which and the circumstances in which options may be granted or exercised;

* the basis of calculation of the option price;

* the basis of adjustments to the option price and the number of ordinary shares subjectto options;

* the basis of calculation of the total numbers of ordinary shares available for the ShareOption Scheme;

* the basis of calculation of the limits on an individual's participation; and

* the rules relating to amendment of the Share Option Scheme.

51

(l) Bene®ts non-pensionable

Options granted and Ordinary Shares acquired under the Share Option Scheme are non-pensionable.

9. Premises

The Group operates from premises at 13-15 Beech Lane, Maccles®eld, Cheshire SK10 2DR under a leasewith Paul Davidson. The lease in respect of these premises is for a term of one year expiring on 8 January2003 at an annual rent of £95,000 per annum.

10. Memorandum and articles of association

10.1 Memorandum of association

The memorandum of association of the Company speci®es that its principal object is to carry on thebusiness of a holding company and to co-ordinate the policy and administration of any subsidiary ofthe Company. The objects of the Company are set out in clause 4 of its memorandum of association.

10.2 Articles of association

The Articles of Association of the Company (the ``Articles'') were adopted on 7 January 2002 andcontain, amongst others, provisions to the following effect:

(a) Voting

Subject to the Articles generally and to any special voting rights or restrictions attached toany class of shares, at a general meeting, every shareholder who is present in person will haveone vote on a show of hands, and on a poll every shareholder who is present in person or byproxy will have one vote for every share he holds. No shareholder will, unless the directorsotherwise determine, be entitled, in respect of any of his shares, to vote either personally or byproxy at a shareholders' meeting or to exercise any other right conferred by his shareholdingin relation to shareholders' meetings, if any call or other sum due in respect of his sharesremains unpaid.

An annual general meeting of shareholders must be held once each year within a period of notmore than 15 months after the previous annual general meeting.

(b) Variation of rights

Whenever the share capital of the Company is divided into different classes of shares, thespecial rights attached to any class may, subject to the provisions of applicable English law, bevaried or abrogated in any manner either with the sanction of an extraordinary resolutionpassed at a separate meeting of the members of the class or with the written consent of theholders of three-quarters in nominal value of the issued shares of the class, but not otherwise.These rights may be so varied or abrogated either while the Company is a going concern orduring or in contemplation of a winding-up. At every separate meeting of holders of theshares of any class, the necessary quorum will be at least two persons holding, or representingby proxy, at least one third of the issued shares of the class. If the meeting is adjourned, anyholder of shares of the class present in person or by proxy may demand a poll, and everyholder of the issued shares of the class will, on a poll, have one vote for every share of the classheld by him.

(c) Alteration of share capital

The Company may, from time to time, by ordinary resolution:

(i) increase its share capital by sums to be divided into shares of such amounts as theresolution prescribes;

(ii) consolidate and divide all or any of its share capital into shares of a larger nominalamount than its existing shares;

(iii) cancel any shares that, at the date of the resolution, have not been taken, or agreed tobe taken, by any person and reduce its share capital by the amount of the shares socancelled; and

(iv) subdivide its shares into shares of a smaller nominal amount than its existing shares,subject to the provisions of applicable English law, and so that the resolution wherebyany share is subdivided may determine that, as between the holders of the sharesresulting from the subdivision, one or more of the shares may, as compared with the

52

others, have any preferred, deferred or other special rights or be subject to any suchrestrictions as the Company has power to attach to unissued or new shares.

Subject to the provisions of applicable English law, the Company may purchase, or may enterinto a contract under which it will or may purchase, any of its own shares of any class,including any redeemable shares.

Subject to the provisions of the Act and to any rights conferred on the holders of any class ofshares, the Company may, by special resolution, reduce its share capital or any capitalredemption reserve, share premium account or other undistributable reserve in any way.

(d) Dividends

Subject to applicable English law and to the provisions of the Articles, the Company may, byordinary resolution, declare dividends to be paid to its shareholders. No dividend shall exceedthe amount recommended by the directors. Where shares are not fully paid throughout therelevant period, unless the rights attached to the shares otherwise provide, all dividends willbe apportioned and paid pro rata according to the amounts paid on the shares during anyportion or portions of the period in respect of which the dividend is paid.

No dividend will be paid other than out of pro®ts available for distribution under theprovisions of the Act and every other statute for the time being in force concerning companiesand affecting the Company.

Any dividend that is unclaimed for 12 years from the date on which it was declared or becamedue for payment will be forfeited and will revert to the Company.

The directors may offer shareholders the right to receive new shares, credited as fully paid, inplace of all or part of any dividend.

(e) Distribution of assets on liquidation

On a liquidation of the Company, the surplus assets available for distribution shall be dividedamong the members of the Company in proportion to the amounts paid up on their respectiveshares at the commencement of the winding up or, with the sanction of a special resolution ofthe Company, be divided among the members in specie in such manner as shall be determinedby the liquidator.

(f) Issues of shares and pre-emptive rights

The directors may allot, grant options over, or otherwise dispose of, shares to such persons, atsuch times and on such terms as they think proper, subject to the provisions of applicableEnglish law and, where required by the Act, to the obtaining of a resolution of shareholderspassed in a general meeting for that purpose.

The directors may determine that any class of shares may be held in uncerti®cated form andthat title to such shares may be transferred by means of a relevant system or that shares of anyclass should cease to be so held and transferred.

(g) Transfer of Shares

All transfers of shares that are in certi®cated form may be effected by instrument of transfer inwriting in any common form or in any other form acceptable to the directors. The transferinstrument must be signed by or on behalf of the transferor and, except in the case of fullypaid shares, by or on behalf of the transferee. The transferor will remain the holder of theshares until the transferee's name is entered in the Company's register of members. Alltransfers of shares that are in uncerti®cated form may be effected by means of the relevantsystem in accordance with the rules and regulations which apply to such system.

The directors may decline to register any transfer instrument relating to shares in certi®catedform unless it is (1) in respect of a share which is fully paid up (2) in respect of only one classof share and (3) delivered for registration to the Company's registered of®ce, duly stamped ifrequired and accompanied by the relevant share certi®cate(s) and other evidence reasonablyrequired by the directors to show the transferor's right to make the transfer and, if the transferinstrument is executed by some other person on the transferor's behalf, evidence of theauthority of that person to do so.

The directors may in their absolute discretion and without giving any speci®c reason, refuse toregister any transfer of shares that are not fully paid, provided that the exercise of suchdiscretion does not prevent dealings of shares which are admitted to trading on the AIM or

53

which are listed on any other recognised stock exchange from taking place on an open andproper basis. The directors also may refuse to register an allotment or transfer of shares,whether fully paid or not, in favour of more than four persons jointly.

If the directors refuse to register a transfer of a share, they will send to the transferee notice ofsuch refusal within two months after the date on which the transfer was lodged with theCompany, in the case of shares held in certi®cated form, or the Operator-instruction requiredby the CREST regulations was received by the Company, in the case of shares held inuncerti®cated form.

(h) Untraced shareholders

The Company shall be entitled to sell shares held by untraceable shareholders at the best pricereasonably obtainable as long as:

(i) during the period of 12 years prior to the date of the publication of the advertisementreferred to below, at least three dividends in respect of the shares have become payableand no such dividend has been claimed;

(ii) the Company has, on expiry of this 12 year period, advertised in both a nationalnewspaper and in a newspaper circulating in the area in which the last known addressof the shareholder (or the address speci®ed by such shareholder for the service ofnotices), giving notice of its intention to sell the shares; and

(iii) during the period of three months following the publication of the advertisementsreferred to above, the Company has not received any communication from theshareholder.

(i) Failure to disclose interests in shares

If any shareholder, or any other person with an interest in a shareholder's shares, has beenduly served with a notice under Section 212 of the Act and is in default for a period of 14 daysin supplying the Company with the information required, then, unless the directors determineotherwise, the shareholder will not, for so long as the default continues, be entitled to attendor vote, either personally or by proxy, at a shareholders' meeting or to exercise any other rightconferred on shareholders in relation to shareholders' meetings in respect of the shares towhich the default relates (the ``Default Shares'').

Where the Default Shares represent 0.25% or more in nominal value of the issued shares ofthe class in question then, unless the board otherwise determines, (1) any dividend or part ofany dividend or other money that otherwise would be payable in respect of the Default Shareswill be retained by the Company, without any liability to pay interest when the dividend inrespect of the Default Shares or other money is ®nally paid to the shareholder, and theshareholder will not be entitled to elect to receive shares instead of a dividend; and (2) notransfer of any of the shares held by the shareholder will be registered unless the shareholder isnot himself in default in supplying the information required and the transfer is only part ofthe shareholder's holding and the member proves to the satisfaction of the board that noperson in default as regards supplying information is interested in any shares subject to thetransfer.

(j) Capitalisation of pro®ts and reserves

The directors may, subject to the further provisions of the Articles and with the sanction of anordinary resolution, capitalise any sum in the Company's reserve accounts, including anyshare premium account, capital redemption reserve or other undistributable reserve, or thepro®t and loss account. Sums capitalised in this manner may be appropriated to shareholderson the Company's register at the close of business on the date of the resolution, or any otherdate as may be speci®ed or determined, in proportion to their then shareholdings and appliedin paying up any amounts unpaid on shares held by them or in paying up in full unissuedshares to be allotted and distributed to them as bonus shares. The directors may do all acts orthings which they consider necessary as regards the capitalisation of any reserves. Thedirectors may make such provision as they consider appropriate in the case of shares ordebentures becoming distributable in fractions.

(k) Directors

The Articles provide that, unless otherwise determined by ordinary resolution, the board ofdirectors will consist of not fewer than two nor more than ®fteen directors. A director is not

54

required to hold any quali®cation shares. A director who is not a shareholder will neverthelessbe entitled to attend and speak at shareholders' meetings. The board may appoint one ormore directors to hold any employment or executive of®ce with the Company. The Chairmanof the board shall be appointed by the board and shall, in the case of equality of votes in anymatter to be determined, have a second or casting vote.

No person will be disquali®ed from being appointed or re-appointed a director, and nodirector will be required to vacate that of®ce, by reason only of the fact that he has attainedthe age of 70 years or any other age nor will it be necessary by reason of his age to give specialnotice under the Act of any resolution for his appointment or re-appointment.

(l) Borrowing powers

The directors may exercise all the powers of the Company to:

(i) borrow money;

(ii) mortgage and/or charge all or any part of the business, property or assets and uncalledcapital of the Company;

(iii) issue debentures and other securities; and

(iv) give security, either outright or as collateral security, for any debt, liability orobligation of the Company or those of a third party.

Save with the prior approval of an ordinary resolution of the Company's members, thedirectors are required by the Articles to restrict the Company's borrowings to an amountequal to the sum of the nominal amount of the Company's share capital which is paid up orcredited as paid up and the Group's consolidated reserves.

(m) Directors' interests

Subject to the provisions of applicable English law, and provided that he has disclosed to thedirectors the nature and extent of any interest, a director:

(i) may be party to, or otherwise interested in, any contract, transaction or arrangementwith the Company or in which the Company is otherwise interested;

(ii) may be a director or other of®cer of, or be employed by, or be a party to any contract,transaction or arrangement with, or otherwise interested in, any body corporatepromoted by or promoting or in which the Company is otherwise interested;

(iii) may act in a professional capacity for the Company, other than as auditor, and beappropriately remunerated; and

(iv) will not, except as otherwise agreed by him, be accountable to the Company for anybene®t that he derives from any contract, transaction or arrangement disclosed to thedirectors or from any of®ce or employment disclosed to the directors or from anyinterest in any body corporate, and no contract, transaction or arrangement disclosedto the directors will be voidable because of any interest or bene®t disclosed to thedirectors.

Except as provided below, a director will not vote at board meetings in respect of anycontract, arrangement or proposal in which he has any material interest, other than by virtueof an interest in shares, debentures or other securities of the Company. A director will not becounted in the quorum at a board meeting in relation to any resolution on which he is notentitled to vote at board meetings. Subject to the provisions of applicable English law, adirector generally will be entitled to vote at board meetings, and generally will be entitled tovote and be counted in the quorum at board meetings in respect of any resolution concerning:

(i) the giving of any security, guarantee or indemnity in respect of (1) money lent orobligations incurred by him or by any other person at the request of or for the bene®tof the Company or any of its subsidiaries or (2) a debt or other obligation of theCompany or any of its subsidiaries for which he himself has assumed responsibility inwhole or in part under a guarantee or indemnity or by giving security;

(ii) any proposal concerning an offer of shares, debentures or other securities by theCompany or any of its subsidiaries in which he is or may be entitled to participate as aholder of securities or as an underwriter or sub-underwriter;

(iii) any proposal concerning any other body corporate in which he is interested, directly orindirectly, as an of®cer, shareholder or otherwise, provided that he and any personsconnected with him, within the meaning of Section 346 of the Act, do not have an

55

interest in 1% or more of the issued equity share capital of any class of that bodycorporate, or of any third company through which his interest is derived, or of thevoting rights available to shareholders of the relevant body corporate;

(iv) any proposal relating to an arrangement for the bene®t of employees of the Companyor of any of its subsidiaries which does not award him any privilege or bene®t notgenerally awarded to the employees to whom the arrangement relates; or

(v) any proposal concerning the purchase of maintenance of insurance for the bene®t ofdirectors and/or of®cers of the Company.

(n) Directors' fees

The maximum aggregate annual fees payable to the directors for services in the of®ce ofdirector shall, unless the Company determines otherwise by ordinary resolution, be £250,000.Any such fees shall be distinct from salary, remuneration or other amounts payable to adirector.

(o) Directors' expenses

The directors shall be entitled to be repaid by the Company all reasonable travelling, hoteland other expenses incurred in connection with the performance of their duties as directors.

(p) Executive directors' remuneration

The remuneration of any director appointed by the Company to any employment or executiveof®ce may be either a ®xed sum or may be calculated, in whole or in part, by reference tobusiness done or pro®ts made.

(q) Directors' pensions and bene®ts

The board may provide pensions or other retirement or superannuation bene®ts, death ordisability bene®ts and other allowances or gratuities whether by insurance or otherwise for thebene®t of any current or former employee or director of the Company or the Group.

(r) Directors' indemnity

Subject to the requirements of applicable law, current and former directors of the Companyand alternate directors appointed by them shall be entitled to be indemni®ed by the Companyin respect of liabilities incurred by them in carrying out their duties.

11. Material contracts

11.1 The following contracts (being contracts otherwise than in the ordinary course of business) have beenentered into by the Company and Cyprotex Services within the two years immediately preceding thedate hereof or are relevant to the proposals contained herein and are or may be material:

(a) By an agreement dated 1st June 2001 between Medeval and Cyprotex Services (then namedInhoco 2306 Limited), Cyprotex Services acquired from Medeval the business and assets ofMedeval's Cyprotex division. The consideration paid by Cyprotex Services for such businessand assets was the allotment to Medeval of 15 ``B'' ordinary shares of £1 each in the capital ofCyprotex Services, credited as fully paid and the cash sum of £21,150 in respect of stock. Inconnection with the business sale agreement, Cyprotex Services entered into a licenceagreement dated 31 May 2001 to occupy certain premises under lease to Medeval for a periodof 1 year unless terminated by either party on the giving of 60 days' notice. Cyprotex Servicesserved on Medeval due notice to terminate its occupation of these premises and ceased tooccupy these premises on 31 January 2002. At such time as Cyprotex Services ceased tooccupy these premises, pursuant to a supply of services agreement dated 1 June 2001 betweenMedeval and Cyprotex Services, Cyprotex Services had agreed to purchase certain assetsleased to Medeval by third parties which are employed by Cyprotex Services in its business.The price payable by Cyprotex Services for such leased assets was the aggregate amountoutstanding under the leasing arrangements relating to such leased assets. Cyprotex Servicespaid to Medeval, in January 2002, approximately £150,000 for the purchase of the leasedassets by Cyprotex Services is conditional on Medeval procuring the consent of the owners ofthe leased assets.

(b) By a share for share exchange agreement dated 4 January 2002 between the Company and theshareholders of Cyprotex Services, the Company acquired 68,000,000 ordinary shares of0.000125 pence each in the capital of Cyprotex Services (being the whole of the issued share

56

capital of Cyprotex Services) in consideration for the allotment by the Company fully paid, of67,998,000 Ordinary Shares on the basis that one Ordinary Share was allotted to eachshareholder in Cyprotex Services in consideration for each share in Cyprotex Servicesacquired by the Company from that shareholder, provided that 1,000 fewer Ordinary Shareswere allotted to each of Paul Davidson and Robert Long, each of whom already held 1,000Ordinary Shares.

(c) By a Placing Agreement dated 12 February 2002 between the Company, the Directors,Gilbert Eliott and Altium Capital, Altium Capital has agreed to use its reasonable endeavoursto procure subscribers for the Placing Shares at the Placing Price. The Placing is notunderwritten.

Pursuant to the Placing Agreement, the Directors and the Company have given certainwarranties and indemnities to Altium Capital and Gilbert Eliott regarding, inter alia, theaccuracy of the information in this document. In addition, the Company has agreed toperform certain obligations.

The Placing Agreement is conditional, inter alia, on:

(i) the Company and the Directors complying with certain obligations under the PlacingAgreement;

(ii) 22,413,793 Placing Shares being subscribed for at the Placing Price;

(iii) Admission taking place no later than 8.30 am on 15 February 2002 or such later dateas Altium Capital shall agree but not later, in any event, than 28 February 2002;

(iv) the Placing Agreement not having been terminated prior to Admission.

Under the Placing Agreement, the Company has agreed to pay:

(i) to Altium Capital, a fee of £175,000;

(ii) to Gilbert Eliott, a commission of an amount equal to three per cent. of the value (atthe Placing Price) of the total number of Placing Shares; and

(iii) the agreed costs, charges and expenses incurred by Altium Capital and Gilbert Eliott inconnection with the Placing including the fees and expenses of Altium Capital's andGilbert Eliott's legal advisers.

Altium Capital is entitled in certain circumstances to terminate the Placing Agreement priorto Admission, including, inter alia, for a breach of any of the warranties which is material inthe context of the Placing.

(d) By an agreement dated 12 February 2002 (``the Lock-In Deed'') between each of theDirectors, Paul Davidson and others (``the Locked-In Persons), the Company and AltiumCapital, the Locked-In Persons have undertaken to Altium Capital and the Company not todispose, for a period of one year from the date of Admission (``the First Period''), of anyOrdinary Shares held upon Admission and any interest in Ordinary Shares they havepursuant to the Services EMI Plan, Mr Scudamore's option (as referred to in paragraph 6.1above) or the Share Option Scheme as at Admission and any Ordinary Shares acquiredduring that period derived from such shares or interests (``the Locked-In Shares'') without theprior written consent of Altium Capital and the Company save, inter alia, certain transfers tofamily members, disposals due to an intervening court order or a take-over offer relating tothe Company which is either recommended by the Board or which is unconditional as toacceptances or the death of a Locked-In Person.

For a further period of 12 months after the First Period, each of the Locked-In Persons hasagreed only to make disposals of the Locked-In Shares through the broker to the Company insuch orderly manner as such broker shall reasonably determine.

(e) By a relationship deed dated 12 February 2002 between the Company and Paul Davidson andcertain other Shareholders who will, together with Mr Davidson, have interests in 53,184,483Ordinary Shares immediately following Admission, amounting to approximately 58.82 percent. of the enlarged share capital of the Company, (``the Relevant Shareholders''), theRelevant Shareholders agreed that the Company must be able to act without the RelevantShareholders and/or any of their respective Associates (as such term is de®ned in the deed)acting in concert (as such term is de®ned in The City Code on Takeovers and Mergers) inorder to exert control over the decisions and actions of the Company. The deed contains, interalia, the following undertakings on behalf of each of the Relevant Shareholders:

(i) not to, and to procure that none of his Associates, act together whether by the exerciseat a general meeting of the Company of any voting rights attaching to the shares held

57

by him or otherwise to seek to interfere with the independent operation of the board orto seek to appoint a majority of directors to the board;

(ii) to ensure that any transaction between him and the Company, and to procure that anytransaction between his Associates and the Company, is on arms' length terms; and

(iii) not to vote on any matter, and procure that his Associates do not vote on any matter,which is subject to a con¯ict of interest between such persons and the Company or anyof its subsidiaries and to procure that any director of the Company appointed at thedirection of or an behalf of a Relevant Shareholder or any of their Associates shall notvote or participate in any board meeting on such matter.

Further, the deed will terminate and cease to have effect at such time as the RelevantShareholders control exercise of less than 25 per cent. of the voting rights attaching to theOrdinary Shares in issue.

11.2 Save as disclosed above, there are no contracts (not being in the ordinary course of business) enteredinto by Cyprotex and Cyprotex Services which are or may be material.

12. Litigation

12.1 Cyprotex Services is involved in litigation with The University of Shef®eld (``the University'').Cyprotex Services is seeking a declaration from the court that it owns the copyright in variouscomputer programs produced by an employee of Cyprotex Services as a result of a developmentproject entered into by Cyprotex Services with the University. The University contends that it ownscopyright in any software written by the employee in the course of the project belong to theUniversity. Cyprotex Services contends that all such rights belong to it under the provisions of theCopyright Designs and Patents Act 1988 and under the terms of the research agreement and that,even if it is unsuccessful in this argument, that they are entitled to a licence.

Cyprotex Services has served a Claim Form and Particulars of Claim on the University, which hasalso served its Defence and Counterclaim (which currently does not include a claim against CyprotexServices for infringement). Cyprotex Services has in turn served its Reply and Defence to theUniversity's Defence and Counterclaim.

Cyprotex Services has obtained counsel's advice on the litigation and it is the view of counsel thattitle to the software in question belongs to Cyprotex Services both in law and in equity and that theaction commenced by Cyprotex Services ought to be successful and the Defence and Counterclaim ofthe University ought to be dismissed.

The Directors estimate that approximately £60,000 of costs has been incurred to date and theDirectors have been advised that the costs of pursuing the claim to trial would be up to an additional£130,000. If the Group's claim was unsuccessful and/or the University's counterclaim was successful,the Group would be liable to pay some of the University's costs and, if the Group's claim issuccessful, it may recover some of its costs. If the Group was unsuccessful, the Directors do notbelieve that this would have a materially adverse effect on the anticipated performance of thebusiness.

12.2 Save as provided in paragraph 12.1, the Group is not engaged in any legal or arbitration proceedings,nor, so far as it is aware, are any such proceedings pending or threatened by or against the Groupwhich are having or may have a signi®cant effect on the Group's ®nancial position.

13. Intellectual property

Save as disclosed under the heading ``Intellectual property'' in part 1 of this document, the Group isnot dependent on any patents or other intellectual property rights, licences or contracts which are offundamental importance to the business of the Group.

14. Working capital

The Directors are of the opinion that, having made due and careful enquiry and having taken intoaccount the net proceeds of the Placing, the working capital available to the Group at Admission,will be suf®cient for its present requirements, that is, for at least the twelve months followingAdmission.

15. United Kingdom taxation

15.1 The comments set out below are based on existing law and rates of tax and what is understood to be

current Inland Revenue practice. They are intended as a general guide only and apply only to

58

shareholders who are resident in the United Kingdom for tax purposes (except to the extent that speci®c

reference is made to shareholders resident outside the United Kingdom), who hold Ordinary Shares as

investments and who are the absolute bene®cial owners of those shares. It does not purport to be acomplete analysis of all potential tax relevant to a decision to invest in Ordinary Shares and any person

who is in any doubt as to their taxation position or who is subject to taxation in any jurisdiction other

that the United Kingdom, should consult their own professional advisers immediately.

15.2 EIS

Provided that the investor and the Company comply with the EIS legislation (Chapter III of Part VIIof the Taxes Act and Sections 150A-D, Schedule 5B and 5BA of the Taxation of Chargeable GainsAct 1992), which includes a requirement that the Ordinary Shares are held by investors for 3 years,UK taxpayers may qualify for EIS tax relief on their investment in the Company.

The Directors have obtained con®rmation from the Inland Revenue subject to a form EIS1 beingsubmitted that the Company is carrying on a qualifying trade for EIS purposes and intend to managethe Company so as to maintain (as far as they are able) the status of the Company as a qualifyingcompany, although no guarantee can be given in this regard.

There are ®ve EIS tax reliefs being:

(a) Income tax relief

Individuals can obtain income tax relief on the amount subscribed for ordinary shares (up to£150,000 in 2001/2002) in one or more qualifying companies, which are retained for a periodof 3 years, provided they are not connected to the issuing company. To calculate the relief, atax credit of 20 per cent. of the eligible amount subscribed is given. The relief is given againstthe individual's income tax liability for the tax year in which the ordinary shares are issuedalthough it is possible to carry back part of the relief to the preceding tax year where ordinaryshares are issued before 6 October in any tax year. The relief will be limited to an individual'stax liability before EIS relief and be limited to reducing an individual's liability to nil. EISincome tax relief is not available for individuals who own more than 30 per cent. of the issuedshare capital of the company or certain other connected individuals.

(b) Capital gains tax exemption (``CGT'')

Any capital gains realised on the disposal, after 3 years, of ordinary shares on which EISincome tax relief (up to a maximum of £150,000 of ordinary shares) has been given and notwithdrawn, are tax-free. This is not available for individuals who own more than 30 per cent.of the issued share capital of the company or other connected individuals.

(c) Loss relief

Tax relief is available where there is a loss on a disposal, subject to certain qualifyingconditions, at the time on ordinary shares on which EIS income tax relief (see (a) above) hasbeen given and not withdrawn or CGT deferral relief (see (d) below) has been given and notwithdrawn. The amount of the loss (after taking account of the income tax relief initiallyobtained) can be set against the individual's gain in the year of loss or following years or offsetagainst taxable income in the tax year in which the disposal occurs or the preceding year.

(d) Capital gains tax liability deferral

To the extent that a UK resident investing ordinary shareholder (which includes individualsand certain trustees) subscribes for qualifying ordinary shares, it can claim to defer payingcapital gains tax on all or part of a chargeable gain arising on the disposal of any asset.Although there is a limit of £150,000 for income tax relief and the exemption from CGT (see(a) and (b) above), there is no limit on the amount of gains that can be deferred in this way.

The subscription must have been made within one year before or three years after the date ofthe disposal which gives rise to the gain or the date when a previously deferred gaincrystallises. The gain is deferred until there is a chargeable event such as a disposal of ordinaryshares after the 3 year qualifying period. If the investing ordinary shareholder does not dieretain the ordinary shares for 3 years or the EIS rules are otherwise breached, the CGTdeferral originally granted will be withdrawn and tax charged based on a taxable eventoccurring at the date the rules cease to be met or, in certain instances, by reference to thenormal payment date.

59

(e) Serial EIS investor relief

Investors who defer a chargeable gain on the disposal of an EIS investment by reinvesting thegain on the growth in value of the original EIS investment in ordinary shares of another EIScompany will bene®t from taper relief on a cumulative basis. As a result, taper relief, whichreduces the amount of a chargeable gain according to how long an asset has been held after 5April 1998, will be calculated over the combined period for which both investments (andfurther investments if the gain is further deferred) are held. This relief applies where theordinary shares in the ®rst EIS company were issued after 5 April 1998 and are disposed ofafter 5 April 1999.

15.3 Venture capital trust (``VCT'')

The Company has sought and received advance clearance from the Inland Revenue of theCompany's eligibility for EIS relief and status as a qualifying VCT investment.

The advance clearance which, in accordance with customary Inland Revenue practice, relates to thequalifying status of the Company only, has been obtained on the basis of the facts supplied.

Whilst the Company cannot guarantee to conduct its activities in a way to allow and preserve EISrelief claimed by investors and to be a qualifying VCT investment, the Directors intend, as far aspossible, to do so.

15.4 Dividends

Under current United Kingdom law no taxation will be withheld from dividends paid by theCompany. In addition, there is no longer an obligation on the Company to account for advancecorporation tax on dividends paid by it.

An individual United Kingdom resident shareholder is generally entitled to a notional tax credit inrespect of the dividend, which he can set off against his total liability to United Kingdom income tax.The amount of the tax credit is equal to 1/9th of the cash dividend. The cash dividend aggregatedwith the amount of the tax credit ('the gross dividend') will be included in the shareholder's incomefor United Kingdom tax purposes and will be treated as the top slice of the shareholder's income.Thus, a shareholder receiving a dividend of £90 will be treated as having received income of £100which has a tax credit of £10 attached to it.

An individual United Kingdom resident shareholder who, after taking into account the grossdividend, pays income tax at the lower rate or basic rate will have no further liability to account forincome tax on the dividend.

An individual United Kingdom resident shareholder who, after taking into account the grossdividend, pays income tax at the higher rate will pay tax on the gross dividend at the Schedule Fupper rate of 32.5 per cent. against which he can set the tax credit. Such a shareholder will have aliability to account for additional tax equivalent to 25 per cent. of the cash dividend received.

An individual United Kingdom resident shareholder who does not pay income tax or whose liabilityto income tax does not exceed the amount of the tax credit will not be entitled to claim repayment ofthe tax credit attaching to the dividend.

In the case of a life interest trust resident in the United Kingdom the person entitled to the income ofthe trust shall not be liable to account for income tax on any dividend received by the trust if thatperson pays income tax at lower or basic rate, since the tax credit attaching to the dividend willdischarge that person's liability to tax on that dividend. However, if that person pays income tax atthe higher rate, he will have a further liability to income tax on the dividend received by the trust.

Trustees of a UK resident discretionary trust will be liable to income tax at 25 per cent. of the grossdividend provided that the income is not distributed. This will mean that such trustee shareholderswill have an additional tax liability equal to 16.67 per cent. of the cash dividend received. [Trustees ofdiscretionary trusts should, however, note that the changes to the tax treatment of dividends mayimpact adversely on the amount of income distributable to bene®ciaries from the trust]. Trustees whoare in any doubt as to their position should consult their own professional advisers.

A United Kingdom resident corporate shareholder will not generally be liable to corporation tax onany dividend received.

United Kingdom pension funds and charities are generally exempt from tax on dividends which theyreceived but are not entitled to claim repayment of the tax credit. Charities may receive somecompensation for the loss of the tax credit on dividends paid up to 2003/4.

Whether a non-United Kingdom resident shareholder is entitled to repayment of any part of the taxcredit in respect of dividends paid to him, will depend upon the provisions of the double tax treaty (if

60

any) between the country in which the shareholder is resident and the United Kingdom. Such ashareholder should be aware that changes to the value of the tax credit which took effect from 6April 1999, will in general eliminate or reduce the amount which such a shareholder will be able toreclaim. A non-United Kingdom resident shareholder should consult his own professional adviserson the possible application of such provisions, the procedure for claiming repayment and what reliefor credit (if any) may be claimed for such tax credit in the jurisdiction in which he is resident.

15.5 Taxation of capital gains

For the purpose of United Kingdom taxation on chargeable gains, the issue of Ordinary Shares toindividuals and Trustees pursuant to the Placing will be regarded as an acquisition of a new holdingin the share capital of the Company.

To the extent that a shareholder acquires Placing Shares allotted to him, the Placing Shares soallotted will be treated as acquired on the date of allotment for capital gains tax purposes.

The amount paid for the Placing Shares will constitute the base cost of a shareholder's holding. Asubsequent disposal of Placing Shares may result in a liability to United Kingdom taxation ofchargeable gains, depending upon individual circumstances. Any gain made on a disposal by anindividual or a trust of the Placing Shares subscribed for may be eligible for taper relief allowance,depending on the length of time the shares are held.

A corporate shareholder resident for tax purposes in the UK which sells or otherwise disposes of itsOrdinary Shares may, depending upon the shareholder's circumstances, and subject to any availablerelief, incur a liability to UK tax on any capital gain or deemed capital gain realised.

15.6 Stamp duty and stamp duty reserve tax

No liability to stamp duty or stamp duty reserve tax should arise on the allotment of Placing Sharesunder the Placing.

15.7 Shares held outside the CREST system

The conveyance or transfer on sale of the Ordinary Shares will usually be subject to stamp duty onthe instrument of transfer, generally at the rate of 0.5 per cent. of the amount or value of theconsideration. Stamp duty is charged in multiples of £5. An obligation to account for stamp dutyreserve tax ('SDRT') at the rate of 0.5 per cent. of the amount or value of the consideration will alsoarise if an unconditional agreement to transfer the Ordinary Shares is not completed by a dulystamped instrument of transfer before the 'accountable date' for SDRT purposes. The accountabledate is the seventh day of the month following the month in which the agreement for the transfer ismade (extended to 60 days from the date of the agreement by concession from the Inland Revenue).Any SDRT paid can be reclaimed if a duly stamped instrument is entered into within 6 years of theagreement and the appropriate stamp duty paid (although if this does not take place within the 60day period referred to above, a liability to interest and penalties may arise). It is the purchaser of theshares who is in general liable to account for stamp duty or SDRT.

15.8 Shares held within the CREST system

The transfer of the Ordinary Shares in uncerti®cated form in the CREST system will generally attracta liability to SDRT at the rate of 0.5 per cent. of the amount or value of the consideration and thiswill generally be deducted automatically.

The above statements are intended as a general guide to the current position. Certain categories ofperson are not liable to stamp duty or SDRT, and others may be liable at a higher rate or may,although not primarily liable for the tax, be required to notify and account for it under the StampDuty Reserve Tax Regulations 1986.

16. Overseas shareholders

The making of an offer in relation to Ordinary Shares to persons who are resident in, or citizens of,countries other than the UK may be affected by the law or regulatory requirements of the relevantjurisdictions. Any person outside the UK wishing to acquire Ordinary Shares must satisfy himself asto the full observance of the laws of any relevant territory in connection therewith, includingobtaining and observing any requisite formalities and paying any issue, transfer or other taxes due insuch territory.

No person receiving a copy of this document in any territory other than the UK may treat the sameas constituting an offer or invitation to him unless, in the relevant territory, such an invitation or

61

offer can lawfully be made to him without the contravention of any registration or other legalrequirements.

17. Material changes

Save as disclosed herein, there has been no signi®cant change in the ®nancial or trading position ofthe Group since 31 October 2001 being the date to which the accountants' reports on the Group, asset out in parts III and IV hereof, have been prepared.

18. Consent

Altium Capital has given and not withdrawn its written consent to the inclusion in this document ofits name in the form and content in which it appears.

19. Indebtedness

At the close of business on 29 January 2002, the Company and its subsidiary had outstandingindebtedness of £567,862 comprising a secured overdraft of £493,625, an unsecured loan of £50,000and obligations under ®nance leases and hire purchase contracts of £24,237.

At the same date, the Company and Cyprotex Services had cash balances of £nil.

Save as aforesaid, neither the Company nor Cyprotex Services had at that date any loan capital(including term loans) outstanding or created but issued, other borrowings or indebtedness in thenature of borrowing, including bank overdrafts and liabilities under acceptances (other than normaltrade bills) or acceptance credits or hire purchase commitments, mortgages or charges or guarantees,®nance leasing commitments or other material contingent liabilities.

20. General information

20.1 Altium Capital is the Company's nominated adviser for the purposes of the AIM Rules.

20.2 Gilbert Eliott & Co. Limited is the Company's broker for the purposes of the AIM Rules.

20.3 The total cash expenses payable in connection with the Placing and Admission are expected toamount to approximately £1.0 million (exclusive of any applicable VAT) which are payable by theCompany. The value of the Placing Shares at the Placing Price is £6.5 million. The net proceeds ofthe Placing receivable by the Company after expenses are estimated to be £5.5 million.

20.4 Pursuant to paragraph 21(a) of Schedule 1 of the Regulations, the minimum amount which, in theopinion of the Directors, must be raised is £6.5 million which will be applied as follows:

£million(a) Purchase of capital equipment 2.0

(b) Expenses and commissions payable in respect of the Placing 1.0

(c) Working capital 2.9

(d) Discharge existing liabilities of the Group 0.6

20.5 Monies received from applicants pursuant to the Placing will be held in escrow until such time as thePlacing Agreement becomes unconditional in all respects. If the Placing Agreement does not becomeunconditional in all respects by 8.30 a.m. on 15 February 2002 (or such later date as Altium Capitalmay agree but not later, in any event, than 28 February 2002), application monies will be returned toapplicants at their risk without interest.

20.6 The Placing Price represents a premium of 28.9 pence over the nominal value of 0.1 pence perOrdinary Share.

20.7 The following details (in relation to the Placing) are set out in the placing letters sent to prospectiveplacees: the period during which the offer constituted by the Placing is open, the arrangements forpayment of the Placing Shares and the arrangements during the period prior to the delivery of thesecurities being offered relating to the monies received from placees.

20.8 Except as detailed in this document, no person (excluding professional advisers as stated in thisdocument and trade suppliers) has received, directly or indirectly, from the Group within the twelvemonths preceding the Company's application for Admission, and no persons have entered intocontractual arrangements to receive, directly or indirectly, from the Group on or after Admission:

(a) fees totalling £10,000 or more;

(b) securities in the Company with a value of £10,000 or more calculated by reference to thePlacing Price of the Ordinary Shares on Admission; or

62

(c) any other bene®t with a value of £10,000 or more at the date of Admission, which includes allthe existing shareholders of the Company.

20.9 The ®nancial information relating to the Company set out in Part III does not comprise statutoryaccounts as referred to in section 240 of the Act. No statutory accounts have been prepared for theCompany.

20.10 The ®nancial information relating to Cyprotex Services set out in Part IV does not comprisestatutory accounts as referred to in section 240 of the Act. No statutory accounts have been preparedfor Cyprotex Services.

20.11 Application has been made to the London Stock Exchange for the Ordinary Shares to be admitted totrading on AIM. It is expected that dealings in the Ordinary Shares will commence on 15 February2002.

20.12 It is expected that de®nitive share certi®cates in respect of certi®cated shares will be dispatched byhand or ®rst class post by 25 February 2002. No temporary documents of title will be issued. Inrespect of uncerti®cated shares, it is expected that credits to shareholders' CREST stock accountswill be made on 15 February 2002.

20.13 Ernst & Young LLP, Registered Auditors, are the auditors of Cyprotex as at the balance sheet dateshown in the ®nancial information set out in Part III of this document.

20.14 The Company's registrars are Northern Registrars Limited of Northern House, Woodsome Park,Fenay Bridge, Hudders®eld, HD8 0LA.

20.15 Other than as set out in this document, there are no investments in progress which are signi®cant.

20.16 Other than set out in this document, there are no patents or intellectual property rights, licenses orparticular contracts which are of fundamental importance to the Group's business.

* February 2002

63

imprima de bussy Ð C84365

placing and admission to trading on aim - · pdf fileplacing and admission to trading on aim....

Documents