SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES ACT OF 1934
NEXMED, INC.
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(Name of Small Business Issuer in Its Charter)
Nevada 87-0449967
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6087 Triangle Drive, Commerce, CA 90040
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(Address of Principal Executive Offices) (Zip Code)
(213) 890-0881
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(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
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N/A N/A
Securities to be registered under Section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of Class)
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PART I
Item 1. Description of Business
Business
NexMed, Inc. ("NexMed"), which has been in existence since 1987 and is in
the development stage (see "Company History and General Information" in this
Item 1), has, since 1994, positioned itself as a medical and pharmaceutical
technology company with a focus on developing and commercializing therapeutic
products based on proprietary delivery systems. NexMed (together with its
subsidiaries, the "Company") currently intends to focus its efforts on: (i)
topical treatment products based on a penetration enhancement technology known
as NexACT(TM), which may enable the active drug to be better absorbed through
the skin; (ii) the Viratrol(TM) device, a therapeutic medical device for the
treatment of herpes simplex diseases which does not require the use of any
drugs; and (iii) through a joint-venture with Asian partners, research and
development, production and distribution in China and other international
markets of medical and pharmaceutical products, including generic
pharmaceuticals currently approved and sold in China and products incorporating
new and advanced technologies. The Company intends to conduct research and
development both domestically and abroad on proprietary pharmaceutical products,
with the goal of eventually achieving a level of development sufficient to
enable the Company to attract potential strategic partners with the resources
necessary to further develop, commercialize and market the products. The Company
also intends to undertake the commercialization of new products in particular
international markets through strategic partners, licensees, importers and
brokers.
Development of Drug Delivery Enhancement Technology
Acquisition of Technology; Research and Development
In October 1996, the Company acquired rights and interests, including
patents, patent applications, trade secrets and know-how, relating to absorption
enhancers for topical pharmaceutical formulations from Odontex, Inc.
("Odontex"), a Kansas-based company, in exchange for 75,000 shares of the
Company's Common Stock, $.001 par value per share ("Common Stock"). The Company
has filed a trademark application for this newly-acquired transdermal drug
delivery technology under the name NexACT(TM). The Company believes, based on
preliminary in-vitro data generated to date, that this technology, when applied
to drugs such as alprostadil, acyclovir, ibuprofen and ketoprofen, may have
application in the development of products or treatments for diseases and
disorders such as male erectile dysfunction (impotence), herpes labialis (cold
sores), genital herpes, arthritis and pain management.
The Company acquired two U.S. patents, a pending U.S. patent application
and a pending international patent application from Odontex, which application
is currently pending in Canada, China, the European Patent Office, New Zealand
and the Russian Federation. In addition, the Company is developing the next
generation of absorption enhancement technology, which is in the process of
being patented.
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During the next twelve months, the Company intends to continue its focus
on developing topical treatments based on the NexACT(TM) technology at the
Higuchi Biosciences Center of the University of Kansas, where the Company is
using laboratory space pursuant to a research agreement with the university. The
drugs to which the Company currently intends to direct the topical delivery
system development efforts of its advisors, consultants and employees at the
Higuchi Biosciences Center (see "Advisors, Consultants, Researchers and
Employees in Absorption Enhancement Field" below) are drugs previously approved
by the Food and Drug Administration ("FDA") with proven efficacy and safety
profiles, with patents expiring or expired and with proven market records and
potential. Leading candidates for topical treatment products currently under
research and development by the Company include:
(i) for treatment of male erectile dysfunction (impotence), an
alprostadil cream, which the Company believes may have a higher patient
compliance for usage as compared to the currently-marketed alprostadil
injectable dosage form and the recently-approved alprostadil
intra-urethral dosage form. The NexACT(TM) alprostadil topical cream is
expected to be effective in men with mild to moderate erectile
dysfunction, whether the cause is psychological or physiological. The
NexACT(TM) enhancers have been demonstrated to promote the absorption of
alprostadil in in-vitro and animal models and to improve the clinical
responses in pilot clinical studies;
(ii) for sports medicine and arthritis treatment, ibuprofen and
ketoprofen creams. In-vitro data indicate that the Company's new cream
formulations have higher drug penetration, suggesting the potential to
provide improved clinical benefits; and
(iii) for the treatment of herpes simplex, an acyclovir anti-viral
cream, which exhibits an improved in-vitro penetration profile as compared
to a top-selling European acyclovir ointment, indicating the potential for
better delivery of the anti-viral drug to the active site.
Advisors, Consultants, Researchers and Employees in Absorption Enhancement
Field
The Company has retained the Chief Executive Officer of Odontex, Dr. John
J. Hefferren, as a consultant. In exchange for Dr. Hefferren's research
consultation and collaboration services as an independent contractor three days
per month at the Higuchi Biosciences Center of the University of Kansas, the
Company has agreed to pay Dr. Hefferren $5,000 quarterly. In addition, the
Company has granted Dr. Hefferren options to purchase 40,000 shares of Common
Stock at an exercise price of $1.00 per share. As of January 31, 1997, 30,000 of
such options have vested and the balance will vest effective as of April 30,
1997. The consulting agreement is for a one-year term, with the Company's option
to renew the agreement annually for up to two years.
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Dr. Servet Buyuktimkin and Dr. Nadir Buyuktimkin, co-inventors of the
Company's patented NexACT(TM) enhancers, are employed by the Company as Managers
of the Company's Drug Delivery Laboratories, which is conducting research at the
Higuchi Biosciences Center of the University of Kansas using space made
available pursuant to a research agreement with the university. Dr. J. Howard
Rytting, a co-inventor of the NexACT(TM) enhancers and professor in the
Department of Pharmaceutical Chemistry of the School of Pharmacy of the
University of Kansas, is a member of the Company's Scientific Advisory Board. In
addition, pursuant to a research agreement between the Company and the
University of Kansas, the Company is funding a research effort by Dr. J. Howard
Rytting for the development of new enhancers and new methodologies. The Company
has the right to become the exclusive licensee of such new technology, for which
the University of Kansas would hold the patents.
Taiwanese License Agreement
In January 1997, the Company, through its wholly-owned subsidiary, NexMed
International Limited ("Nexmed International"), a British Virgin Islands company
based in Hong Kong, entered into a license agreement with Lotus Medical Supply,
Inc. ("Lotus"), a Taiwanese company (the "Lotus License Agreement"), whereby
Lotus secured certain exclusive rights in Taiwan to make use of and sell
products which incorporate the Company's penetration enhancement technology or
other know-how regarding absorption of alprostadil. Lotus has the obligation to
seek regulatory approval in Taiwan and to conduct all research and testing
required to be performed for the purpose of obtaining such regulatory approval.
Although the Company is sponsoring similar research and testing work currently
being done or to be carried out in China, and anticipates conducting additional
similar research in the U.S. or elsewhere, the Company believes that the work to
be performed pursuant to the Lotus License Agreement may provide the Company
with valuable clinical data which may supplement and accelerate its other
efforts. NexMed International and Lotus share equally the cost of pre-clinical
work and Lotus pays the costs of clinical studies and regulatory approvals.
NexMed International retains ownership of all trademarks and proprietary
information. In February 1997, Lotus paid a non-refundable licensing fee in
connection with the signing of the Lotus License Agreement and additional
minimum payments and royalties will be due if certain milestones with regard to
the regulatory approval process are reached, of which there can be no assurance.
The Lotus License Agreement will terminate ten (10) years from the date on which
any product is approved by the appropriate Taiwanese governmental authority.
Viratrol(TM) Herpes Treatment Device
Another of the Company's proposed products, which is still in the
development stage, is the Viratrol(TM) device, a hand-held non-invasive
therapeutic device designed to deliver a minute electrical current for the
treatment of herpes simplex diseases. The product currently being developed by
the Company is based on a new generation of technology and patents resulting
from development work undertaken by the Company subsequent to its acquisition in
1994 of earlier technology for a device designed for
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similar use. The Company has completed the first commercial prototype of the
redesigned Viratrol(TM) device and, if the results of the clinical trials, which
commenced in China in January 1997, are satisfactory, intends shortly thereafter
to commence the regulatory notification process to market the Viratrol(TM)
device in Canada, limited to the treatment of herpes labialis (cold sores). The
Company has two issued patents on the current version of the device and one
pending patent application currently under review by the U.S. Patent and
Trademark Office, and recently filed its first application under the Patent
Cooperation Treaty on the new device. The Company plans to file additional
patents as a strategy to continue expanding the protective coverage of the
device. Patent approval does not assure regulatory approval.
Agreement to Conduct Clinical Studies
In October 1996, the Company entered into agreements with Innapharma,
Inc., a contract research organization based in New Jersey with branch offices
in Tokyo and Beijing, pursuant to which Innapharma has initiated clinical
studies for the Company in China on the Viratrol(TM) device and on the
alprostadil cream, in a formulation incorporating the NexACT(TM) absorption
enhancement technology. Innapharma will verify that such studies conform with
U.S. Good Clinical Practices. The first phase of the 60-patient study on the
Viratrol(TM) device commenced in January 1997 and the first phase of the
600-patient study on the alprostadil cream is expected to commence in April
1997. Both studies are expected to conclude, with final reports, during the
first half of 1997. If the results of the clinical trials are satisfactory, the
Company plans to use the resulting data in connection with obtaining regulatory
approval for further trials and for the sale of the alprostadil cream in China
and other Asian countries and for the sale of the Viratrol(TM) device in Canada,
limited to the treatment of herpes labialis (cold sores). These data may also be
used by the Company to complete the pre-clinical requirements for the filing
with the FDA of an Investigational New Drug ("IND") application for the
alprostadil cream incorporating the NexACT(TM) technology and an Investigational
Device Exemption ("IDE") for the Viratrol(TM) device, both of which the Company
intends to file by the end of 1997.
Joint Venture in China
In August 1996, the Company, through NexMed International, concluded an
agreement, subject to Chinese government approval, (the "1996 JV Agreement") to
form a Chinese joint-venture company, NexMed (Zhongshan) Pharmaceuticals, Ltd.
(the "JV"), with Zhongshan (ShiQi) Pharmaceutical Manufacturing Factory (the
"Factory") and Guangdong Province Medicine, Pharmaceutical and Health Products
Import-Export Company (the "Import-Export Company"). The purpose of the JV would
be to carry out research and development, production and distribution of medical
and pharmaceutical products, both for the internal markets of China and
internationally. Under the terms of the 1996 JV Agreement, which (as described
below) is currently being renegotiated and expanded, the Company would be
obligated to contribute approximately $1.5 million and production technology for
at least two new products, with a particular emphasis on sustained- or
controlled-release pharmaceutical products. The other co-venturers would
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be obligated to contribute equity and a factory building which would be
retrofitted into a laboratory and manufacturing facility for pharmaceutical
products. The term of the agreement would be 20 years. In December 1996, NexMed
International advanced $300,000 to the Factory as a good-faith step in forming
the JV. In the event that the 1996 JV Agreement is not approved by the Chinese
government, either in its current or renegotiated form, the $300,000, which is
currently held by the Factory, will be returned to the Company, unless in the
interim, the Company determines to use the $300,000 as a line of credit for the
funding of purchase orders for the Factory's pharmaceutical products. The JV is
subject to various governmental approvals, which have not, as of the date
hereof, been obtained.
The parties are currently in discussions to expand the scope of the 1996
JV Agreement. As presently contemplated, the revised JV agreement would have a
term of 30 years and would provide the Company with a majority controlling
interest in the JV. The Factory would contribute not only the facility
referenced above, but also the rights to use an expanded manufacturing complex
consisting of real estate, which has a total gross area of approximately 200,000
square feet and factory buildings on the real estate, which have a total gross
floor area of approximately 80,000 square feet. Additional assets to be provided
by the Factory would include regulatory approvals for manufacturing and
marketing of approximately 360 drug products produced by the Factory; its
existing sales revenue; its sales and distribution network in China; trademarks;
goodwill; intellectual property; all production equipment (mostly foreign made),
currently being used by the Factory to manufacture liquid and sterile powder for
injections, capsules, tablets, eye drops, granules and unit-dose oral liquid
dosage forms, as well as for fluid-bed granulation-drying, wet granulation,
mixing and injection-molding bottle production.
The revised JV agreement would require a significantly greater capital
contribution by the Company, approximating $15 million, to be paid in
installments over three years.
It is anticipated during the first quarter of 1997, a basic contract
regarding the terms of the revised JV agreement will be entered into, followed
thereafter by the definitive documentation, which, in turn, would be subject to
various governmental approvals. Any JV, whether based on the agreement entered
into in August of 1996 or the proposed revised JV agreement, would require that
the Company raise additional capital to fulfill its commitments. While the
Company believes that it will be able to obtain outside sources of financing for
this purpose, there is no assurance that such sources of financing will be
available or, if available, will be on terms acceptable to the Company.
Potential Corporate Alliances
The Company is currently in preliminary discussions regarding potential
corporate alliances relating to the supply, distribution, marketing, research
and development of pharmaceutical products. Although no assurances can be given,
the
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Company is hopeful that such negotiations will result in the consummation of one
or more definitive agreements.
Research and Development
In 1996, the Company spent $1,040,396, and in 1995, the Company spent
$169,073, on research and development. Since January 1, 1994, when the Company
repositioned itself as a medical and pharmaceutical technology company, the
Company has spent $1,872,763 on research and development. These amounts for
1996, 1995 and from January 1, 1994 to December 31, 1996 include $696,838,
$8,275 and $1,079,613, respectively, of non-cash compensation and stock and
option issuances.
The Company will need significant funding to pursue its research,
development and commercialization plans (see Part I, Item 2, "Plan of
Operation"). The potential products upon which the Company intends to focus its
initial development efforts, including the Viratrol(TM) device and the
NexACT(TM) topical treatment technology, are in the research and development
stage. Although the Company has begun to receive payments from licensing fees
(see "Development of Drug Delivery Enhancement Technology - Taiwanese License
Agreement" above), the Company has not begun to market or generate revenues from
the commercialization of any of these products under development. The Company's
products under development will require significant time-consuming and costly
research, development, preclinical studies, clinical testing, regulatory
approval and significant additional investment prior to their commercialization.
There can be no assurance that the research and development activities funded by
the Company will be successful, that products under development will prove to be
safe and effective, that any of the preclinical or clinical development work
will be completed, or that the anticipated products will be commercially viable
or successfully marketed. In addition, there can be no assurance that the
Company will be successful in obtaining regulatory approval or developing any
additional products, that if successful, it will be able to attract sufficient
capital to complete any development and commercialization undertaken or that any
such development and commercialization will be successful.
Marketing and Distribution
If regulatory approval is obtained for the Viratrol(TM) device, any
products based on the NexACT(TM) technology and any other products, of which
there is no assurance, achieving market acceptance will still require
substantial marketing efforts and the expenditure of significant funds to inform
potential customers, including third-party distributors, of the distinctive
characteristics and benefits of these products. The Company currently has no
sales force or marketing organization. Therefore, the Company's operating
results will depend largely on its ability to establish successful arrangements
with domestic and international distributors and marketing partners. The Company
intends to utilize this method of product distribution at least for the next two
or three years, although the Company anticipates having an immediate sales and
distribution presence in China if the JV, as contemplated, is implemented (see
"Business - Joint
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Venture in China" above). There is no assurance that the Company will be able to
establish appropriate distribution or marketing arrangements or that any such
distributors and marketing partners will be successful in marketing the
Company's products. The Company's long-term success may also depend, to a
significant extent, on its ability to establish an effective internal marketing
organization for which the Company will, among other things, have to attract and
retain experienced marketing and sales personnel. No assurance can be given that
the Company will be able to attract and retain qualified or experienced
marketing and sales personnel or that any efforts undertaken by such personnel
will be successful.
Dependence on Third Party Suppliers and Manufacturers
The Company presently does not have any manufacturing capacity of its own
but instead intends to rely on outside manufacturers. To be successful, the
Company must be able to manufacture its products in commercial quantities at
acceptable costs and, whether the Company manufactures its own products or
contracts with third parties to do so, such manufacturing must comply with U.S.
Good Manufacturing Practices ("GMP") or similar requirements of the countries in
which the products will be marketed. Regulatory authorities such as the FDA
generally will periodically inspect manufacturing facilities in order to assure
compliance with applicable GMP or equivalent requirements. Foreign manufacturing
facilities also are inspected if drugs manufactured at such facilities are
imported for sale into the jurisdiction. The inability or failure of a contract
supplier or manufacturer to comply with GMP or similar foreign regulations or
other regulatory requirements could have a material adverse effect on the
Company's business in the relevant jurisdiction and therefore, depending on the
size of the market, on the Company's financial condition and results of
operations.
The Company currently has one supplier of alprostadil, a chemical
manufacturing subsidiary of a major European pharmaceutical company, and intends
to complete a supply agreement with an additional qualified supplier within the
next six months. Prices of alprostadil have been falling and the Company does
not anticipate any problems in obtaining alprostadil or other supplies in
commercial quantities for the manufacture of its proposed products.
The Company currently has one supplier of its key NexACT(TM) enhancers, a
medium-sized U.S. fine chemical manufacturer, and intends to establish at least
one additional supplier or an internal source within the next 12 months.
Competition
Competition in the pharmaceutical and medical products industries is
intense and characterized by extensive research efforts and rapid technological
progress. The Company competes with numerous firms, many of which are large,
multi-national organizations with worldwide distribution. Even if the proposed
products are approved for marketing, the Company will face major competitors in
the transdermal drug-delivery sector of the industry and in the field of herpes
treatment. With regard to erectile
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dysfunction, certain treatments exist, such as needle injection therapy, vacuum
constriction devices, penile implants, transurethral absorption and oral
medications, and the manufacturers of these products are expected to continue to
improve these therapies. In July 1995, the FDA approved the use of alprostadil
in The Upjohn Company's needle injection therapy product for erectile
dysfunction. Previously, Upjohn had obtained approval in a number of European
countries. Additional competitive therapies under development include an oral
medication by Pfizer, Inc. Other large pharmaceutical companies may also become
actively engaged in the development of therapies for the treatment of erectile
dysfunction. Such companies would have substantially greater research and
development capabilities as well as substantially greater marketing, financial
and human resources than the Company. In addition, these companies have
significantly greater experience than the Company in undertaking preclinical
testing, human clinical trials and other regulatory approval procedures.
There are also small companies, academic institutions, governmental
agencies and other research organizations that are conducting research and
developing products in the area of erectile dysfunction. For instance, Zonagen,
Inc. and Pentech Pharmaceutical, Inc. have oral medications under development
and Harvard Scientific Corp. is developing a system which uses a bottle and
catheter to deliver a liquid containing micro-encapsulated alprostadil into the
urethra. These entities may also market commercial products either on their own
or through collaborative efforts. Furthermore, in October 1996, Vivus, Inc.
received FDA approval for their MUSE(R) system, which is a device for the
intra-uretheral delivery of a suppository containing alprostadil. Vivus, Inc.
has sought to enter partnerships and has signed agreements for the distribution
of MUSE(R) in various countries, including China. The Company's competitors may
develop technologies and products that are available for sale prior to the
Company's proposed products, or that are more effective than those being
developed by the Company. Such developments would render the Company's products
less competitive or possibly obsolete. If the Company is permitted to commence
commercial sales of products, it will also be competing with respect to
marketing capabilities and manufacturing efficiency, areas in which it has
limited experience.
Government Regulation
The testing, manufacture, distribution, advertising and marketing of drug
products are subject to extensive regulation by governmental authorities in most
countries, including the United States. Prior to marketing in a particular
jurisdiction, any pharmaceutical products developed or licensed by the Company
will in most cases have to undergo an extensive regulatory approval process
required by the governmental agencies in the intended market, such as the FDA in
the United States and comparable agencies in other countries. This process,
which may include preclinical studies and clinical trials of pharmaceutical
products to establish safety and effectiveness and confirmation by the
regulatory authority of the maintenance of the equivalent of U.S. GMP during
testing and manufacturing, can take many years, requires the expenditure of
substantial resources and gives larger companies with greater financial
resources a competitive advantage over the Company. Although approval in one
major market may
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assist in obtaining approval elsewhere, the regulatory review process in each
country can be lengthy and unpredictable, and the Company may encounter delays
or rejections of one or more of its applications when submitted. If questions
arise during the regulatory review process in a given country, approval may take
a significantly longer period of time.
After completion of clinical trials of a new product, which can take
several months or years to complete, most countries require the approval of the
relevant regulatory authority. If questions arise during the regulatory review
process, approval may take a significantly longer period of time. The testing
and approval processes require substantial time and effort and there can be no
assurance that any approval will be granted on a timely basis, if at all. Even
if regulatory clearances are obtained, a marketed product is subject to
continual review, and later discovery of previously unknown problems or failure
to comply with the applicable regulatory requirements may result in restrictions
on the marketing of a product or withdrawal of the product from the market as
well as possible civil or criminal sanctions. The requirements governing the
conduct of clinical trials, product licensing, pricing and reimbursement vary
widely from country to country. None of the Company's products under development
has been approved for marketing in the United States or elsewhere. No assurance
can be given that the Company will be able to obtain regulatory approval in any
country for any such products under development or that, if the products under
development are approved by the FDA or foreign regulatory authorities, the
Company will ever achieve significant revenues or profitable operations. Failure
to obtain requisite governmental approvals or failure to obtain approvals of the
scope requested will delay or preclude the Company or its licensees or marketing
partners from marketing their products, or limit the commercial use of the
products in one or more markets, and thereby could have a material adverse
effect on the Company's business, financial condition and results of operations.
Patents, Licenses and Proprietary Rights
In order to justify the substantial investment of time and expense
required to develop and commercialize its products, the Company will seek
proprietary protection for its pharmaceutical products so as to prevent others
from commercializing equivalent products in substantially less time and at
substantially lower expense. The pharmaceutical industry places considerable
importance on obtaining patent and trade secret protection for new technologies,
products and processes. The Company's success will depend in part on the ability
of the Company to obtain effective patent protection for the Company's
proprietary technologies and products, defend such patents, preserve its trade
secrets and operate without infringing upon the proprietary rights of others,
both in the United States and in other countries. The patent position of firms
relying upon medical and pharmaceutical technologies is highly uncertain and
involves complex legal and factual questions. To date, there has emerged no
consistent policy regarding the breadth of claims allowed in such patents or the
degree of protection afforded under the patents.
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The Company acquired two patents and two pending patent applications upon
the completion of the transaction with Odontex. In addition, the Company has
developed the next generation of absorption technology, which is in the process
of being patented. The Company also owns two patents on the Viratrol(TM) device,
has two pending patent applications with respect to the technology, inventions
and improvements that are significant to the Viratrol(TM) device and intends to
file several additional patent applications as a strategy to continue expanding
the coverage on the device.
The patent application and issuance process can be expected to take
several months, if not years, and could entail considerable expense to the
Company. There can be no assurance that patents, whether as to the Viratrol(TM)
device, the NexACT(TM) absorption enhancement technology or otherwise, will
issue as a result of any applications or that the existing patent and any
patents resulting from such applications will be sufficiently broad to afford
protection against competitors with similar technology. In addition, there can
be no assurance that such patents will not infringe upon the claims of
third-party patents or be invalidated or circumvented, or that the rights
granted thereunder will provide competitive advantages to the Company. Moreover,
the Company does not have international patents covering all of the claims of
its U.S. patents. The commercial success of the Company also will depend upon
its avoidance of infringement of patents issued to competitors. A United States
patent application is maintained under conditions of confidentiality while the
application is pending, so the Company cannot determine the inventions being
claimed in pending patent applications filed by third parties. Litigation may be
necessary to defend or enforce the Company's patent and license rights or to
determine the scope and validity of the proprietary rights of others. Defense
and enforcement of patent claims can be expensive and time-consuming, even in
those instances in which the outcome is favorable to the Company, and can result
in the diversion of substantial resources from the Company's other activities.
An adverse outcome could subject the Company to significant liabilities to third
parties, require the Company to obtain licenses from third parties, or require
the Company to alter its products or processes, or cease altogether any related
research and development activities or product sales, any of which may have a
material adverse effect on the Company's business, financial condition and
results of operations.
To the extent that consultants, key employees or other third parties apply
technological information independently developed by them or by others to any of
the proposed projects of the Company, disputes may arise as to the proprietary
rights to such information which may not be resolved in favor of the Company. In
addition, the Company may also rely from time to time on trade secrets and
proprietary know-how that it may seek to protect in part by its confidentiality
agreements with its employees, consultants, advisors or others. There can be no
assurance that these agreements will not be breached, that the Company would
obtain adequate remedies for any breach, or that the Company's trade secrets or
proprietary know-how will not otherwise become known or be independently
developed by competitors in such a manner that the Company has no legal
recourse.
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Foreign Operations; Approval of JV by Chinese Regulatory Authorities
The Company initially plans to market its products outside of the United
States. The Company's results from operations may be affected by currency
exchange rate fluctuations and other factors affecting international business,
including legal or political changes in foreign countries. The formation of the
JV is subject to the approval of Chinese regulatory authorities, which approval
has not yet been obtained (see "Business - Joint Venture in China" above). While
the Company believes, based upon discussions with NexMed International's
partners in the JV, that approval will be obtained, such approval cannot be
assured.
Product Pricing and Reimbursement; Health Care Reform and Related
Measures
The levels of revenues and profitability of medical and pharmaceutical
technology products and companies may be affected by efforts of governmental and
third-party payers to contain or reduce the costs of health care through various
means. For example, in certain foreign markets, pricing or profitability of
prescription pharmaceuticals is subject to government control. In the United
States, there have been, and the Company expects that there will continue to be,
a number of federal and state proposals to implement similar government control.
The United States Congress has recently considered a number of legislative and
regulatory reforms that may affect companies engaged in the health care industry
in the United States. Pricing constraints on the Company's products, if
approved, could have a material adverse effect on the Company. In addition, the
Company's ability to commercialize potential medical and/or pharmaceutical
technology products may be adversely affected to the extent that such proposals
have a material adverse effect on other companies that are prospective
collaborators with respect to any of the Company's product candidates.
In the United States and elsewhere, successful commercialization of the
Company's products will depend in part on the availability of reimbursement to
the consumer from third-party health care payers, such as government and private
insurance plans. There can be no assurance that such reimbursement will be
available or will permit price levels sufficient to realize an appropriate
return on the Company's investment and product development. Third party
healthcare payers are becoming increasingly cost-conscious in determining which
pharmaceutical products they will and will not reimburse. If the Company
succeeds in bringing one or more products to the market, there can be no
assurance that these products will be considered cost-effective and that
reimbursement to the consumer will be available or will be sufficient to allow
the Company to sell its products on a competitive basis.
Employees
As of March 1, 1997, the Company had ten full-time employees, three of
whom were executive management. The Company believes its employee relationships
are satisfactory.
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Company History and General Information
The Company was organized under the laws of the state of Nevada in October
1987 under the name Target Capital, Inc. The Company raised initial funds in
1988 through an offering pursuant to Regulation A of the Securities Act, selling
1,000,000 shares of its Common Stock. Subsequently, the Company issued Common
Stock to purchase twenty unpatented mining claims, which claims ultimately
reverted to the government when not exploited by the Company. Its early business
plans did not prove to be productive, and the Company became inactive until
early 1994, when the Company acquired a patent for an unrefined research
prototype of a medical device for the treatment of herpes simplex diseases, in
exchange for the issuance of shares of Common Stock. In 1994, the Company
changed its name to BioElectric, Inc. In 1995, the Company changed its name to
NexMed, Inc., reflecting its broader-based business objectives. The Company's
Common Stock has been quoted on the Over-the-Counter Bulletin Board since
October 1995 under the symbol "NEXM." The Company intends to become a reporting
company under the Securities Exchange Act of 1934, as amended, with the filing
of this Form 10-SB.
The Company's principal executive offices are in Commerce, California. The
Company, through NexMed International, has also established an office in Hong
Kong and is currently working with several trading companies on the
commercialization, outside of the U.S. in developing world markets, of a number
of the products manufactured by one of its prospective JV partners (see
"Business - Joint Venture in China" above).
Item 2. Plan of Operation.
In 1997, the Company intends to expand its research, development and
marketing activity and capability, both domestically and internationally, with
regard to its proprietary pharmaceutical products, and intends to execute a
business strategy with the goal of achieving a level of development and
commercialization sufficient to enable the Company to attract potential
strategic partners with resources sufficient to further develop and market its
products. The Company also intends to undertake the commercialization of new
products in particular international markets through strategic partners,
licensees, importers and brokers. With respect to the United States, the Company
intends to commence the FDA application and approval process for an alprostadil
cream incorporating the NexACT(TM) technology and the Viratrol(TM) herpes
treatment device.
The first step in the Company's plan for 1997 with regard to the research,
development and commercialization of the alprostadil cream and the Viratrol(TM)
device is the completion of the clinical studies currently in progress on each
of the two proposed products in China. It is expected that these studies will be
concluded in the first half of 1997. The data from such studies will permit the
Company to submit an application for manufacturing and marketing approval of the
alprostadil cream in China (anticipated before the end of 1997) and to complete
the Canadian regulatory and marketing
13
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notification process for the Viratrol(TM) device, which will allow the Company
to commence the sale of the device in Canada.
With respect to the approval of its products in the United States, the
Company plans, by the end of 1997, to generate all pre-clinical data necessary
to file with the FDA an IND application for the alprostadil cream and an IDE for
the Viratrol(TM) device. In addition, the Company expects to start Phase I and
II clinical studies on the alprostadil cream.
As part of the Company's strategy for developing, protecting and marketing
its technology, the Company intends during 1997 to file additional patent
applications with respect to its products and hopes to secure at least one U.S.
and two international strategic partners for the Viratrol(TM) device and/or
products incorporating NexACT(TM) technology. Furthermore, the Company, through
NexMed International, anticipates finalizing the revised JV agreement and
establishing the proposed JV, subject to approval from Chinese regulatory
authorities (see Part I, Item 1, "Business - Joint Venture in China"). The JV,
if formed, is expected to have the rights to market certain generic drugs and
Chinese herbal products approved for sale in China and other countries, in which
case the Company, through NexMed International, plans to establish an
international generic drug and health-product trading business.
Concurrently with the foregoing marketing efforts, the Company plans to
expand its laboratory research capability by commencing the funding and
operation of new biosciences laboratories in Fort Worth, Texas, in collaboration
with the University of North Texas Health Science Center, at which Robert W.
Gracy, Ph.D., one of the Company's Directors and a member of the Company's
Scientific Advisory Committee, and S. Dan Dimitrijevich, Ph.D., also a
Scientific Advisory Committee member, are faculty members.
As a result of the recent closings of two private placements, in which the
Company has received net proceeds of $1,995,000, management believes that the
Company has sufficient cash to sustain its current day-to-day operations for the
next 12 months, including operations at the headquarters office in Los Angeles,
the topical formulation development laboratories in Lawrence, Kansas, NexMed
International's Hong Kong office and proposed new biosciences laboratories in
Fort Worth, Texas. The Company believes that it has adequate funding to complete
any additional pre-clinical studies required for the filing of an IND
application with the FDA for the alprostadil cream in order to initiate clinical
studies for the proposed product in the U.S.
NexMed International expects to enter into additional licensing agreements
and receive certain licensing payments from its international licensing partners
during the upcoming 12 months. It has concluded the licensing agreement with
Lotus in Taiwan and received a licensing fee payment in February 1997. Most of
the development expenses incurred in Taiwan will be paid for by Lotus, and the
Company expects that it will need to spend only a small amount for research and
development in Taiwan on alprostadil. In addition, since November 1996, the
Company has received inquiries from pharmaceutical
14
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companies worldwide regarding the licensing of its products, which the Company
believes may lead to the conclusion of additional licensing agreements in the
coming 12 months and the receipt of additional licensing fees.
The Company has also received inquiries from major pharmaceutical
companies regarding the work of the topical formulation development laboratories
in Lawrence, Kansas, including requests regarding the utilization of the
Company's patented NexACT(TM) penetration enhancement technology and the
co-development of proprietary new drugs that have absorption or penetration
difficulties. The Company believes that such inquiries could lead to the receipt
of contract development fees from certain of these potential client companies
within the next 12 months.
The Company expects to spend no more than $200,000 for the Biosciences
laboratories in Fort Worth, Texas within the next 12 months. The Company intends
to establish the laboratories as part of a special small-company incubator
program sponsored by the city of Fort Worth. For the first 24 months of
operation, companies participating in this program would expect to receive
minimum payments toward overhead expenses for their operations. The Company also
plans to apply for grants from local and state governments.
Although management believes that the Company has adequate resources for
day-to-day operations for the next 12 months, the Company has incurred
cumulative net operating losses of $4,102,163 since its inception as a medical
and pharmaceutical technology company in 1994 and expects to incur substantial
additional losses in completing the research, development and commercialization
of its technologies (see "Notes to Consolidated Financial Statements" in Part
F/S). Accordingly, the Company will require additional funding to reach certain
goals. Assuming the acceptance of the proposed IND application by the FDA later
in 1997, the Company would need to raise an additional $4 million in order to
initiate the proposed Phase I and II studies on the alprostadil cream in the
U.S. In addition, if the outcome of the clinical studies conducted in China on
the Viratrol(TM) device is satisfactory, the Company would expect, upon filing
of the appropriate regulatory notification, to launch the product in Canada
later this year at a projected budget of $1.5 million. Furthermore, of the $15
million anticipated to be contributed by the Company in connection with the
revised JV Agreement (see Part I, Item 1, "Business - Joint Venture in China"),
it is anticipated that $8 million, including $4 million for the first payment,
would have to be paid over the first 12 months following receipt of necessary
governmental approvals, with the balance payable in the 24 months thereafter. In
order to meet the aforementioned additional funding requirements for the next 12
months, the Company will need to raise $10 million, which it will seek to do
through a private placement in the third quarter of 1997.
The Company does not expect to acquire any significant or expensive
large-scale equipment or instruments within the coming 12 months. The Company
believes that the renovation work proposed for the JV plant in China in order to
upgrade its operations to GMP standards will be covered by the initial $4
million capital contribution.
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<PAGE>
Over the next 12 months, the Company expects to increase the current
number of employees from 10 to approximately 20. It is expected that most of the
new employees will be middle-management and laboratory technicians and that the
additional cost which the Company expects to incur over the next 12 months with
regard to salary and benefits will be approximately $200,000. The Company
believes that the increase in the number of employees should not significantly
affect cash needs.
The Company's operations are subject to numerous risks associated with the
establishment and development of products based upon innovative or novel
technologies. As a result, the Company must be evaluated in light of the
problems, delays, uncertainties and complications encountered in connection with
newly founded businesses. Some of these unanticipated problems may include
development, regulatory, manufacturing, distribution and marketing difficulties
that may be beyond the Company's financial or technical abilities to resolve
satisfactorily.
Item 3. Description of Property.
The Company presently leases approximately 500 square feet of office space
at its headquarters at 6087 Triangle Drive, Commerce, California 90040, pursuant
to a month-to-month arrangement. The Company's rent for such space is $1,000 per
month. Pursuant to a research agreement between the Company and the University
of Kansas, which expires on August 31, 1997, the Company has paid $31,100 for
access to and use of laboratory space at the University's Higuchi Biosciences
Center during the 15-month term of the research agreement.
The Company's subsidiary, NexMed International, leases 600 square feet of
office space in Hong Kong pursuant to a month-to-month arrangement. The rent for
such space is $3,000 per month.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information, as of February 28, 1997, with
respect to the beneficial ownership of Common Stock by (a) each person known by
the Company to be the beneficial owner of more than 5% of the Company's
outstanding Common Stock, (b) the directors and executive officers of the
Company, individually, and (c) directors and executive officers of the Company
as a group.
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Name, Position Number of Shares Percent of
and Address(1) Beneficially Owned(2) Shares(%)
-------------- --------------------- ---------
Y. Joseph Mo, Ph.D., 1,410,000(3) 21.48
Chairman of the Board of
Directors, President and
Chief Executive Officer
James L. Yeager, Ph.D., 165,000(4) 2.67
Vice President, Business
Development
Vivian H. Liu, 235,000(5) 3.74
Vice President,
Treasurer and Secretary
Gilbert S. Banker, Ph.D., 110,000(6) 1.77
Director
Robert W. Gracy, Ph.D., 110,000(7) 1.76
Director
Yu-Chung Wei -- --
Director
All Executive Officers 2,030,000(8) 29.59
and Directors as a
Group (six persons)
Lian-Yin Chen 875,000 14.22
F19-2, #314
Jen-Ai Road, Section 4
Taipei, Taiwan
China Venture Investment 500,000 8.12
(H.K.) Ltd.
25F Wing On Centre
111 Connaught Road
Central, Hong Kong
(1) The address for the Executive Officers and Directors is: NexMed, Inc.,
6087 Triangle Drive, Commerce, California 90040.
(2) All shares are solely and directly owned, with sole voting and dispositive
power.
(3) Includes 410,000 shares issuable upon exercise of immediately exercisable
stock options.
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<PAGE>
(4) Includes 15,000 shares issuable upon exercise of immediately exercisable
stock options.
(5) Includes 130,000 shares issuable upon exercise of immediately exercisable
stock options.
(6) Includes 60,000 shares issuable upon exercise of immediately exercisable
stock options.
(7) Includes 90,000 shares issuable upon exercise of immediately exercisable
stock options.
(8) Includes 705,000 shares issuable upon exercise of immediately exercisable
stock options.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
Executive Officers and Directors
The Executive Officers and Directors of the Company are set forth below.
Name Age Title
- ---- --- -----
Y. Joseph Mo, Ph.D. 49 Chairman of the Board of
Directors, President and
Chief Executive Officer
James L. Yeager, Ph.D. 50 Vice President, Business
Development
Vivian H. Liu 35 Vice President, Treasurer and
Secretary
Gilbert S. Banker, Ph.D. 65 Director
Robert W. Gracy, Ph.D. 56 Director
Yu-Chung Wei 34 Director
Y. Joseph Mo, Ph.D. Dr. Mo has been Chairman of Board of
Directors, President and Chief Executive Officer of the Company since
joining the Company in 1995. Prior to joining the Company, Dr. Mo was
president of Sunbofa Group, Inc., an investment consulting company.
From 1991 to 1994, he was President of the Chemical Division, and from
1988 to 1994 the Vice President of Manufacturing and Medicinal
Chemistry, of Greenwich Pharmaceuticals, Inc. Prior thereto, he served
in various executive positions with several major pharmaceutical
companies, including Johnson & Johnson, Rorer Pharmaceuticals, and
predecessors of SmithKline Beecham. Dr. Mo received his Ph.D. in
Industrial and Physical Pharmacy from Purdue University in 1977.
James L. Yeager, Ph.D. Dr. Yeager has been Vice President,
Business Development since June 1996. Prior to joining the Company, Dr.
Yeager was the Vice
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<PAGE>
President of Research and Development for Pharmedic Company, during which time
he specialized in the building and managing of new product development programs.
From 1989 to 1992, Dr. Yeager held international managerial positions with
Abbott Laboratories. Dr. Yeager received his Ph.D. in Industrial and Physical
Pharmacy from Purdue University in 1978. Dr. Yeager is also a member of the
Company's Scientific Advisory Committee. Dr. Yeager commenced full-time
employment with the Company on January 1, 1997.
Vivian H. Liu. Ms. Liu has been Vice President, Treasurer and Secretary of
the Company since September, 1995. In 1994, while the Company was in a
transitional period, Ms. Liu served as its Chief Executive Officer. From 1985 to
1994, she was a business and investment adviser to the government of Quebec and
numerous Canadian companies with respect to product distribution, technology
transfer and investment issues. Ms. Liu received her Masters Degree in
International Finance from the University of Southern California, and a Bachelor
of Arts degree in International Trade from the University of California,
Berkeley.
Gilbert S. Banker, Ph.D. Dr. Banker has been a Director of the Company
since September 1995. Since 1992, Dr. Banker has been Dean and a distinguished
professor of the College of Pharmacy at the University of Iowa. From 1985 to
1992, he was Dean and Professor of the College of Pharmacy at the University of
Minnesota. Prior to that time, he was the Department Head of Industrial and
Physical Pharmacy at Purdue University for 18 years. Dr. Banker has authored
numerous publications, lectures internationally and consults to several major
pharmaceutical companies. Dr. Banker received his Ph.D. in Industrial Pharmacy
from Purdue University in 1957. Dr. Banker is also a member of the Company's
Scientific Advisory Committee.
Robert W. Gracy, Ph.D. Dr. Gracy has been a Director of the Company since
January 1997. Dr. Gracy is the Dean for Research and Biotechnology and Associate
Dean for Basic Science at the University of North Texas Health Science Center in
Fort Worth, Texas. Since 1985, Dr. Gracy has received over $5 million in
research grants and contracts. His current projects focus on three aspects of
the biochemical changes associated with aging: changes at the cellular level,
wound and tissue repair, and vision impairment. Dr. Gracy is a consultant to
number of the major pharmaceutical companies. Dr. Gracy lectures internationally
and has published over 140 papers regarding his research. Dr. Gracy received his
Ph.D. in Biochemistry from the University of California, Riverside in 1968 and
completed a postdoctoral in Molecular Biology at the Albert Einstein College of
Medicine in New York in 1970. Dr. Gracy is also a member of the Company's
Scientific Advisory Committee.
Yu-Chung Wei. Mr. Wei has been a Director of the Company since March 1997.
Mr. Wei is Chairman of the Board of Directors and Chief Executive Officer of
Alfa Romeo (Taiwan) Motor Company. From 1993 to 1994, he served as Special
Advisor to Tai-Lung Holding Co., Ltd., a Taiwan-based investment conglomerate.
From 1989 to 1993, Mr. Wei held various managerial positions at Kidder, Peabody
Incorporated and
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Merrill Lynch & Co., Inc., in New York City. Mr. Wei received his MBA in Finance
and Management Information Systems from Pace University in New York.
Dr. Gracy and Mr. Wei are Class I Directors with terms that expire at the
1997 annual meeting of shareholders, Dr. Banker is a Class II Director with a
term that expires at the 1998 annual meeting of shareholders and Dr. Mo is a
Class III Director with a term that expires at the 1999 annual meeting of
shareholders. At each annual meeting of shareholders, the successors to the
class of Directors whose terms expire at that meeting shall be elected for a
three-year term.
Scientific Advisory Committee
The members of the Company's Scientific Advisory Board are Gilbert S.
Banker, Ph.D., J.R. Chen, Ph.D., S. Dan Dimitrijevich, Ph.D., Robert W. Gracy,
Ph.D., Neal S. Penneys, M.D., Ph.D., J. Howard Rytting, Ph.D. and James L.
Yeager, Ph.D. Summaries of the backgrounds of Scientific Advisory Committee
members who are not Executive Officers or Directors of the Company are set forth
below.
J.R. Chen, Ph.D. Dr. Chen is the President and Chief Executive Officer of
Sage Pharmaceuticals, Inc., a manufacturer and distributor of pharmaceutical and
health care products, including generic and proprietary formulations and skin-
and wound-care products, which he founded in 1991. Dr. Chen has 20 years of
experience in the field of drug development. Dr. Chen received his Ph.D. in
Physical Pharmacy from the University of Iowa.
S. Dan Dimitrijevich, Ph.D. Dr. Dimitrijevich is an Associate Research
Professor at the Department of Biochemistry and Molecular Biology and Department
of Surgery, and a Faculty member of the Cardiovascular Research Institute at the
University of North Texas Health Science Center at Fort Worth. Since 1969, Dr.
Dimitrijevich has carried out original research in synthetic organic chemistry
of carbohydrates, nucleosides, and nucleotides, and was involved in the New Drug
Application for the antiviral drug Ribovirin(R)/Virazole(R). Dr. Dimitrijevich
received his Ph.D. in Carbohydrate Chemistry from the University of Bath,
England in 1969, and from 1969 to 1974, completed research fellowships at the
Department of Chemistry, University of Alberta, Canada, the Institute of
Molecular Biology at Syntex Research in Palo Alto, California, and the
Glycoprotein Research Unit at the University of Durham, England.
Neal S. Penneys, M.D., Ph.D. Dr. Penneys is the director of Dermatology
and Professor of Medicine, Pathology and Pediatrics at the St. Louis University
School of Medicine, and is also a staff physician at the St. Louis University
Hospital and St. Mary's Hospital in Missouri. He has served on numerous
governmental advisory committees, including the FDA Dermatological Drugs
Advisory Committee from 1985 to 1989, the FDA Advisory Panel on Orphan Drugs
from 1992 to 1994 and the Panel on OTC Agents in 1994. Dr. Penneys has also been
a senior FDA consultant since 1989. He has published over 200 books and papers
regarding his work and has earned international recognition for his expertise.
Dr. Penneys received his M.D. from the University of
20
<PAGE>
Pennsylvania in 1967 and his Ph.D. in Biochemistry from the University of Miami
in 1973.
J. Howard Rytting, Ph.D. Dr. Rytting is a Professor of Pharmaceutical
Chemistry at the University of Kansas, and the Editor-in-Chief of the
International Journal of Pharmaceutics. Dr. Rytting has published over 100
articles and over 100 abstracts regarding his research in the areas of solution
thermodynamics and its applications to drug designs and delivery, and the
stability of oral, rectal, transdermal and intestinal drug delivery. He was
designated a Fellow of the American Association of Pharmaceutical Scientists in
1990. Dr. Rytting received his Ph.D. in Physical Chemistry from Brigham Young
University in 1969.
Item 6. Executive Compensation.
Summary Compensation Table
The following table sets forth the compensation paid by the Company during
the fiscal years ended December 31, 1996, 1995 and 1994 to the Chief Executive
Officer and its two other most highly compensated executive officers:
Summary Compensation Table
Annual Compensation Long-Term
Fiscal ------------------- Compensation
Name and Position Year Salary Other Restricted Stock Awards(4)
- ----------------- ---- ------ ----- --------------------------
Y. Joseph Mo, Ph.D. 1996 $120,000 $ -- $500,000
Chairman of the Board of 1995 -- 20,000 --
Directors, President 1994 -- -- --
and Chief Executive
Officer(1)
James L. Yeager, Ph.D. 1996 -- 20,000 75,000
Vice President, 1995 -- -- --
Business Development(2) 1994 -- -- --
Vivian H. Liu 1996 63,666 -- 50,000
Vice President, 1995 16,000 -- --
Treasurer and 1994 -- -- 7,000
Secretary(3)
(1) In 1995, Dr. Mo was paid a $20,000 consulting fee. He began receiving a
salary of $120,000 per year in 1996.
(2) In 1996, Dr. Yeager was paid a $20,000 consulting fee. He began receiving
a salary of $100,000 per year in 1997.
(3) Ms. Liu began receiving a salary of $48,000 per year on September 1, 1995.
On May 1, 1996, her salary was increased to $80,000 per year. On February
3, 1997, Ms. Liu began receiving a salary of $88,000 per year.
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<PAGE>
(4) In February 1996, Drs. Mo and Yeager and Ms. Liu received 1,000,000,
150,000 and 100,000 shares of Common Stock, respectively, valued at $.50
per share, for services provided to the Company. In addition, in 1994, Ms.
Liu received 5,000 shares of Common Stock, valued at $1.40 per share, for
services provided to the Company.
Employment Agreements
There are currently no employment agreements between the Company and any
of its executive officers.
Stock Option Information
The following table sets forth information concerning options granted
during fiscal 1996 to the executives named in the Summary Compensation Table
above.
Stock Option Grants In Last Fiscal Year
% of Total Market
Number of Options Price of
Securities Granted to Exercise Underlying
Underlying Employees Price Security on
Options in Fiscal ($ per Date of Expiration
Name Granted(1) Year share) Grant(2) Date
---- ---------- ---- ------ -------- ----
Y. Joseph Mo, 760,000 61.04 2.00 2.00 12/04/06
Ph.D.
James L. Yeager, 180,000 14.46 2.00 2.00 12/04/06
Ph.D.
Vivian H. Liu 130,000 10.44 2.00 2.00 12/04/06
(1) Includes 750,000, 170,000 and 120,000 shares of Common Stock underlying
options granted to Dr. Mo, Dr. Yeager and Ms. Liu, respectively, which
options will vest over a three-year period commencing in 1997.
(2) Based on a selling price of $2.00, the price of the Common Stock sold by
the Company in recent private placements.
The following table sets forth information concerning the value of
unexercised options as of December 31, 1996 held by the executives named in the
Summary Compensation Table above. No options were exercised during 1996.
22
<PAGE>
Fiscal Year-End Option Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at Fiscal Year End Fiscal Year End
[Exercisable (E)/ [Exercisable(E)/
Name Unexercisable (U)] Unexercisable (U)] (1)
---- ------------------ ----------------------
Y. Joseph Mo, Ph.D. 410,000 (E) $700,000 (E)
850,000 (U) 175,000 (U)
James L. Yeager, 15,000 (E) 8,750 (E)
Ph.D. 170,000 (U) 0 (U)
Vivian H. Liu 130,000 (E) 210,000 (E)
150,000 (U) 52,500 (U)
(1) Based on the amount by which $2.00, the price of the Common Stock sold by
the Company in recent private placements, exceeds the exercise price of
the options.
Stock Option and Incentive Award Plans
On December 4, 1996, the Company adopted the NexMed, Inc. Stock Option and
Long-Term Incentive Compensation Plan (the "Stock Option Plan"), for the purpose
of attracting, retaining and maximizing the performance of executive officers
and key employees, and the NexMed, Inc. Recognition and Retention Stock
Incentive Plan (the "Recognition Plan"), for the purpose of attracting and
retaining individuals with renown, ability and intelligence to serve the Company
as directors and consultants and to provide a direct link between the
compensation of such individuals with shareholder value. 1,500,000 shares of
Common Stock have been reserved by the Company for issuance of awards under the
Stock Option Plan and 500,000 shares of Common Stock have been reserved for
awards under the Recognition Plan. Both the Stock Option Plan and the
Recognition Plan have a term of ten years.
Stock Option Plan. The Stock Option Plan provides for the grant of
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, non-statutory stock options, stock
appreciation rights and restricted stock awards. It is contemplated that the
Stock Option Plan will eventually be administered by a Compensation Committee of
the Board of Directors (the "Compensation Committee"), which Committee has not
yet been created. The exercise price for non-statutory stock options may be
equal to or less than 100 percent of the fair market value of shares of Common
Stock on the date of grant. The exercise price for incentive stock options may
not be less than 100 percent of the fair market value of shares of Common Stock
on the date of grant (110 percent of fair market value in the case of incentive
stock options granted to employees who hold more than ten percent of the voting
power of the Company's issued and outstanding shares of Common Stock).
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<PAGE>
Options granted under the Stock Option Plan may not have a term of more
than a ten-year period (five years in the case of incentive stock options
granted to employees who hold more than ten percent of the voting power of the
Company's Common Stock) and generally vest over a three-year period. Options
generally terminate three months after the optionee's termination of employment
by the Company for any reason other than death, disability or retirement, and
are not transferable by the optionee other than by will or the laws of descent
and distribution.
The Company's Board of Directors granted options to purchase 1,185,000
shares of Common Stock at an exercise price of $2.00 per share to six employees,
including grants of 750,000 options to Dr. Mo, 170,000 options to Dr. Yeager and
120,000 options to Ms. Liu. Such options have a term not in excess of ten years
and vest over a three-year period. In addition, the Board of Directors granted
options to purchase 50,000 shares of Common Stock at an exercise price of $2.00
per share to five employees for services rendered to the Company, including the
grants of 10,000 options to each of Dr. Yeager and Ms. Liu. Such options have a
term not in excess of ten years.
In February 1997, the Board of Directors granted additional options to
purchase a total of 75,000 shares of Common Stock at an exercise price of $2.00
per share to three new middle-management employees. Such options have a term not
in excess of ten years and vest over a three-year period.
The plan also provides for grants of stock appreciation rights ("SARs")
which entitle a participant to receive a cash payment, equal to the difference
between the fair market value of a share of Common Stock on the exercise date
and the exercise price of SAR. The exercise price of any SAR granted under the
Stock Option Plan will be determined by the Board of Directors in its discretion
at the time of the grant. SARs granted under the Stock Option Plan may not be
exercisable for more than a ten year period. SARs generally terminate one month
after the grantee's termination of employment by the Company for any reason
other than death, disability or retirement. Although the Board of Directors has
authority to grant SARs, it does not have any present plans to grant SARs.
Restricted stock awards which consist of grants of shares of Common Stock
subject to a restricted period during which the restricted common shares may not
be sold, assigned, transferred, made subject to a gift, or otherwise disposed
of, mortgaged, pledged, or otherwise encumbered may also be made under the Plan.
At this time, the Board of Directors has not granted, and does not have any
plans to grant, restricted shares of Common Stock.
Recognition Plan. The Recognition and Retention Plan provides for
incentive award grants that are substantially similar to those made under the
Stock Option Plan. It is contemplated that the Recognition and Retention Plan
will also eventually be administered by a Compensation Committee. An eligible
director or consultant selected for participation in this Plan may be granted a
non-statutory stock option, a stock
24
<PAGE>
appreciation right or a restricted stock award. Incentive stock options will not
be granted under this Plan. Recognition Plan awards generally vest over a
three-year period and will be subject to attainment of performance goals, with
all such terms to be specified in the written grant agreement between the
Company and the award holder.
The Board of Directors made initial grants under the Recognition Plan of
options to purchase 60,000 shares at an exercise price of $2.00 per share to Dr.
Banker. Such options have a term not in excess of ten years and vest over a
three-year period. In addition, the Board of Directors granted options to
purchase 230,000 shares at an exercise price of $2.00 per share to certain
directors and consultants for services rendered to the Company, including the
grant of 10,000 options to Dr. Mo. Such options have a term not in excess of ten
years. The Board of Directors also granted one sales representative an option to
purchase up to 50,000 shares of Common Stock at an exercise price of $2.00 per
share and for a term not in excess of ten years. The representative's option
shall only vest if he introduces and completes sales transactions for the
Company or a subsidiary, where the aggregate gross proceeds from resulting
executed contracts, agreements or firm commitments are equal to or greater than
$1,000,000 and all such proceeds are received within the 1997 calendar year.
In February 1997, the Board of Directors granted additional options to
purchase 85,000 shares at an exercise price of $2.00 per share, 75,000 of such
options to Mr. Wei and 10,000 of such options to Dr. Dimitrijevich. Mr. Wei's
options have a term not in excess of ten years and vest over a three-year period
and Dr. Dimitrijevich's options were granted for services rendered to the
Company.
Item 7. Certain Relationships and Related Transactions.
Pursuant to a unanimous written consent of the Board of Directors on
February 16, 1996, a number of persons, including certain of the Company's
officers, directors, Scientific Advisory Committee members, attorneys and
consultants received a total of 1,600,000 shares of Common Stock valued at $.50
per share, issued in reliance upon Section 4(2) of the Securities Act. In
addition, certain of the Company's Executive Officers and Directors hold options
to purchase an aggregate of 735,000 shares of Common Stock at an exercise price
of $.25 per share. With regard to the Company's issuance of additional stock
options to senior management, see Part I, Item 6, "Executive Compensation -
Stock Option and Incentive Award Plans."
In November 1996, the Company issued warrants to purchase 150,000 shares
of Common Stock to Pryor, Cashman, Sherman & Flynn, its outside legal counsel.
Such warrants have a ten-year term, are exercisable for a price of $1.00 per
share and vest over three years.
Item 8. Description of Securities.
The Company is authorized to issue 40,000,000 shares of Common Stock,
$.001 par value per share, and 10,000,000 shares of Preferred Stock, par value
$.001 per share.
25
<PAGE>
Each share of Common Stock entitles the holder thereof to one vote on all
matters submitted to shareholders. Holders of Common Stock are entitled to
receive such dividends as are declared by the Board of Directors from time to
time. Payment of dividends will depend upon the earnings, capital requirements
and operating and financial condition of the Company, among other factors. There
is no present intention by the Company to pay dividends. In the event of a
liquidation, dissolution or winding up of the Company, holders of Common Stock
will be entitled to share ratably in the assets remaining after payment in full
to creditors and holders of any Preferred Stock (if subsequently issued by the
Company) having liquidation preference over the Common Stock. There are no
preemptive, conversion, redemption or cumulative voting rights applicable to the
Common Stock. As of February 28, 1997, 6,155,098 shares of the Company's Common
Stock were issued and outstanding.
The Board of Directors is empowered by the Company's Articles of
Incorporation, as amended, to designate and issue from time to time one or more
classes or series of Preferred Stock without any action of the shareholders. The
Board of Directors may authorize issuance's in one or more classes or series,
and may fix and determine the relative rights, preferences, and limitations of
each class or series so authorized. Such action could adversely affect the
voting power of Common Stock or could have the effect of discouraging or making
difficult any attempt by a person or group to obtain control of the Company.
26
<PAGE>
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters
The Company's Common Stock has been quoted on the Over-the-Counter
Bulletin Board since October 1995 under the symbol "NEXM." The following table
sets forth, based on information received from the National Quotation Bureau,
the high and low bid prices for the Common Stock for the quarters indicated. The
quotations represent bid between dealers and do not include retail mark-up,
mark-down or commissions, and do not represent actual transactions.
Three Months Ended
-------------------------------------------------------------
1996 March 31 June 30 September 30 December 31
- --------------- -------- ------- ------------ -----------
High $ .875 $ 2.00 $ 2.75 $ 1.00
Low .50 .75 1.00 .875
1995(1)
- ---------------
High .20 .20 .20 .625
Low .20 .20 .10 .10
(1) On October 2, 1995, a reverse stock split of 20 to one became effective
for all of the issued and outstanding shares of Common Stock. All 1995
quotations have been restated based on the reverse stock split.
As of February 28, 1997, there were 206 holders of record of 6,155,098
shares of Common Stock.
Shares Eligible for Sale
Sales in the market of substantial amounts of currently outstanding Common
Stock could have an adverse effect on the price of the Common Stock. A total of
3,061,348 shares of the 6,155,098 shares of Common Stock currently issued and
outstanding are, or within the next 12 months will be, eligible for resale,
subject, in certain cases, to the applicable volume and other limitations set
forth in Rule 144 of the Securities Act. Of the remaining 3,093,750 shares of
Common Stock, 322,500 shares will be eligible for resale in November 1997 and
62,500 shares will be eligible for resale in February 1998, subject to Rule 144
limitations. In addition, 1,000,000 shares issued by the Company in reliance
upon Regulation S of the Securities Act, as currently in effect, will also be
eligible for resale in February 1998 to U.S. persons, as defined in Regulation
S, pursuant to subscription agreements between the Company and the subscribers
for such shares which specify one-year restricted periods (see Part II, Item 4,
"Recent Sales of Unregistered Securities").
27
<PAGE>
Dividends
The Company anticipates that for the foreseeable future, earnings will be
retained for the development of its business. Accordingly, the Company does not
anticipate paying dividends on the Common Stock in the foreseeable future. The
payment of future dividends will be at the sole discretion of the Company's
Board of Directors and will depend on, among other things, future earnings,
capital requirements, the general financial condition of the Company and general
business conditions.
Item 2. Legal Proceedings.
In January 1997, a complaint was filed against the Company in the District
Court, Third Judicial District, Salt Lake County, State of Utah, by Genie Total
Products, Inc., a Nevada Corporation, in connection with a consulting and
marketing agreement. The President of Genie Total Products, Inc. is Clealon B.
Mann, a resident of Salt Lake City, Utah. The suit, which claims breach of
contract, unjust enrichment and anticipatory breach of contract, requests
damages of $388,062.50, including interest, plus costs and attorney's fees. The
Company believes that this lawsuit is without merit and intends to defend its
position vigorously. On March 3, 1997, the Company filed a motion for dismissal,
which is currently pending before the Court.
Item 3. Changes in and Disagreements With Accountants.
At a meeting on February 1, 1997, the Company's Board of Directors
confirmed the appointment of Price Waterhouse LLP as the Company's outside
auditors and dismissed Boros & Farrington, its former auditors. The decision to
engage Price Waterhouse LLP did not result from disagreements with Boros &
Farrington. The Company intends to retain Boros & Farrington for other services.
There were no disagreements with Boros & Farrington regarding accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure. Boros & Farrington's reports for the years ended December 31, 1994
and 1995 did not contain an adverse opinion or a disclaimer of an opinion or
qualifications as to uncertainty, audit scope or accounting principles. Prior to
retaining Price Waterhouse LLP, the Company had not consulted Price Waterhouse
LLP regarding the application of accounting principles, the type of audit
opinion that might be rendered on the Company's financial statements, or any
event that was either a reportable event or the subject of a disagreement.
Item 4. Recent Sales of Unregistered Securities.
In August 1995 the Company completed a Regulation S offering, selling
33,000,000 shares of Common Stock, for gross proceeds of $330,000. After
offering expenses and commissions the Company received net proceeds of
approximately $267,000. Also in August 1995, the Company issued 827,500 shares
of Common Stock to acquire the outstanding royalty rights to a device for the
treatment of herpes simplex, in reliance upon Section 4(2) of the Securities
Act.
28
<PAGE>
On October 2, 1995, a reverse stock split of 20 to one became effective
for all of the issued and outstanding shares of Common Stock.
On February 16, 1996, the Company issued a total of 1,600,000 shares of
Common Stock, valued at $.50 per share, to 19 individuals, including certain of
the Company's Officers, Directors, Scientific Advisory Committee members,
attorneys and consultants, in reliance upon Section 4(2) of the Securities Act.
In April 1996, the Company issued 12,500 shares of Common Stock to three
noteholders as part of a unit offering including promissory notes, in reliance
upon Section 4(2) of the Securities Act.
In May 1996, the Company completed a Regulation S offering of 500,000
shares of Common Stock for gross proceeds of $1,000,000. In connection with the
offering, 75,000 shares of Common Stock were issued as a commission.
In October 1996, the Company acquired technology relating to absorption
enhancers for topical pharmaceutical formulations from Odontex, Inc. in exchange
for 75,000 shares of Common Stock, issued in reliance upon Section 4(2) of the
Securities Act.
In November 1996, the Company issued a total of 322,500 shares of Common
Stock at a price of $2.00 per share to five individual investors pursuant to an
exemption from registration under the Securities Act provided by Rule 506 of
Regulation D promulgated thereunder.
In February 1997, the Company completed a Regulation S offering of
1,000,000 shares of Common Stock and an offering of 62,500 shares of Common
Stock pursuant to an exemption for registration under the Securities Act
provided by Rule 506 of Regulation D promulgated thereunder. The price of the
Common Stock in both offerings was $2.00 per share. Also in February 1997, the
Company issued 21,250 shares of Common Stock as part of a unit offering
including promissory notes, in reliance upon Section 4(2) of the Securities Act.
Item 5. Indemnification of Directors and Officers.
Pursuant to Article XI of the Company's Amended and Restated Articles of
Incorporation, the Company shall indemnify any and all persons who may serve at
any time as directors or officers or who at the request of the Board of
Directors of the Company may serve or at any time have served as directors or
officers of another corporation in which the Company at such time owned or may
own shares of stock or which it was or may be a creditor, and their respective
heirs, administrators, successors, ad assignees, against any and all expenses,
including amounts paid upon judgments counsel fees and amounts paid in
settlement (before or after suit is commenced), actually and necessarily
incurred by such persons in connection with the defense or settlement of any
claim, action, suit or proceeding in which may be asserted against them or any
of
29
<PAGE>
them, by reason of being or having been directors or officers or a director or
officer of the Company, or such other corporation, except in relation to matters
as to which any such director or officer or former director or officer or person
shall be adjudged in any action, suit or proceeding to be liable for his own
negligence or misconduct in the performance of his duty.
Pursuant to Section 8.1 of the Company's By-laws, no officer or director
shall be personally liable for any obligations arising out of any acts or
conduct of said officer or director performed for or on behalf of the Company.
The Company shall indemnify and hold harmless each person and his heirs and
administrators who shall serve at any time hereafter as a director or officer of
the Company from and against any and all claims, judgments and liabilities to
which such persons shall become subject by any reason of his having been a
director of officer of the Company, or by reason of any action alleged to have
been taken or omitted to have been taken by him as such director or officer, and
shall reimburse each such person for all legal and other expenses reasonably
incurred by him in connection with any such claim or liability; including power
to defend such person from all suits as provided for under the provisions of the
Nevada Business Corporation Act; provided, however, that no such person shall be
indemnified against, or be reimbursed for, any expense incurred in connection
with any claim or liability arising out of his own negligence or willful
misconduct. The Company, its directors, officers, employees and agents shall be
fully protected in taking any action or making any payment or in refusing so to
do in reliance upon the advice of counsel.
Section 78.751 of the Nevada General Corporation Law permits a corporation
to indemnify a present or former director, officer, employee or agent of the
corporation, or of another entity which such person is or was serving in such
capacity at the request of the corporation, against expenses, including legal
expenses, arising by reason of service in such capacity if such person acted in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interest of the corporation had no reasonable cause to believe his
conduct was unlawful. In the case of actions brought by or in the right of
corporation, indemnification may be made if the person acted in good faith and
in a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation; provided, however, that no indemnification may be
made for any claim, issue or matter as to which such person has been adjudged by
a court of competent jurisdiction, after exhaustion of all appeals therefrom, to
be liable to the corporation, unless and only to the extent that the court in
which the action or suit was brought or other court of competent jurisdiction
determines upon application that in view of all the circumstances of the case,
the person is fairly and reasonably entitled to indemnity for such expenses as
the court deems proper.
30
<PAGE>
PART F/S
FINANCIAL STATEMENTS
NexMed, Inc.
(A development stage company)
Consolidated Financial Statements
December 31, 1996 and 1995
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
NexMed, Inc.
In our opinion, based upon our audit and the reports of other auditors, the
accompanying consolidated balance sheet and the related consolidated statements
of operations, of changes in stockholders' equity and of cash flows present
fairly, in all material aspects, the financial position of NexMed, Inc. and its
subsidiary (a development stage company) at December 1996, and the results of
their operations and their cash flows for the year then ended and the period
from inception (January 1, 1994) through December 31, 1996, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We did not audit the
financial statements of NexMed, Inc. for the period from inception (January 1,
1994) through December 31, 1995, which statements reflect 24% of the cumulative
net loss and 28%, 0% and 21% of the cumulative net cash flows from operating,
investing and financing activities, respectively, from inception (January 1,
1994) through December 31, 1996. These statements were audited by other auditors
whose reports thereon have been furnished to us, and our opinion, insofar as it
relates to the amounts for the period from inception (January 1, 1994) through
December 31, 1995 is based solely on the reports of the other auditors. We
conducted our audit of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit and the reports of other auditors provide a reasonable basis for the
opinion expressed above.
<PAGE>
To the Board of Directors and Stockholders of
NexMed, Inc.
Page 2
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company is a development stage company and has
suffered operating losses since inception. These and other factors, as discussed
in Note 1, raise substantial doubt about its ability to continue as a going
concern. As such, the Company is dependent on capital infusions from existing
and new investors to fund operations. Management's plans in regard to these
matters are also described in Note 1. The accompanying consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
PRICE WATERHOUSE LLP
New York, New York
February 25, 1997
<PAGE>
Independent Auditor's Report
Board of Directors
NexMed, Inc.
In our opinion, the accompanying consolidated statements of operations, of cash
flows and of changes in stockholders' equity for the year ended December 31,
1995 present fairly, in all material respects, the results of operations and
cash flows of NexMed, Inc. for the year ended December 31, 1995, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above. We have not
audited the consolidated financial statements of NexMed, Inc. for any period
subsequent to December 31, 1995.
BOROS & FARRINGTON, APC
San Diego, California
May 10, 1996
<PAGE>
NexMed, Inc. 4
(A development stage company)
Consolidated Balance Sheet
December 31, 1996
- --------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 194,577
Prepaid expenses 30,000
-----------
Total current assets 224,577
-----------
Equipment 83,705
Furniture 5,455
-----------
Total equipment and furniture 89,160
Less accumulated depreciation (4,258)
-----------
84,902
-----------
Advance to Joint Venture 300,000
-----------
Total Assets $ 609,479
===========
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ 50,000
Accounts payable 85,408
Accrued expenses 5,998
-----------
Total current liabilities 141,406
-----------
Commitments and contingencies (Notes 1, 3, 9 and 10)
Stockholders' equity:
Preferred stock, $.001 par value, 10,000,000 shares authorized,
none issued and outstanding --
Common stock, $.001 par value, 40,000,000 shares authorized,
5,071,348 shares issued and outstanding 5,071
Additional paid-in capital 4,847,032
Accumulated deficit (4,323,968)
-----------
528,135
Less: Deferred compensation (60,062)
-----------
Total stockholders' equity 468,073
-----------
Total liabilities and stockholders' equity $ 609,479
===========
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
NexMed, Inc. 5
(A development stage company)
Consolidated Statement of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
January 1, 1994
(inception of
For the year ended development stage)
December 31, to December 31,
1996 1995 1996
<S> <C> <C> <C>
Revenue $ -- $ -- $ --
----------- ----------- -----------
Operating expenses
Selling, general and administrative 2,076,360 92,211 2,222,909
Research and development 1,040,396 169,073 1,872,763
----------- ----------- -----------
Total operating expenses 3,116,756 261,284 4,095,672
----------- ----------- -----------
Loss from operations (3,116,756) (261,284) (4,095,672)
Interest expense, net 1,637 3,104 6,491
----------- ----------- -----------
Net loss $(3,118,393) $ (264,388) $(4,102,163)
=========== =========== ===========
Loss per common share $ (0.72) $ (0.19)
=========== ===========
Weighted average common shares outstanding 4,327,548 1,400,244
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
NexMed, Inc. 6
(A development stage company)
Consolidated Statement of Changes in Stockholders' Equity
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Common Additional Total
Stock Stock Paid-In Accumulated Deferred Stockholders'
(Shares) (Amount) Capital Deficit Compensation Equity
<S> <C> <C> <C> <C> <C> <C>
Balance at inception of
development stage (January
1, 1994) 296,465 $ 296 $ 224,865 $ (221,805) $ -- $ 3,356
Issuance of common stock
for patents and other devices 267,500 268 374,232 -- -- 374,500
Issuance of common stock for
services 135,214 135 189,164 -- -- 189,299
Issuance of common stock for
cash 95,794 96 134,014 -- -- 134,110
Net loss -- -- -- (719,382) -- (719,382)
---------- ------ ----------- ----------- -------- ---------
Balance at December 31, 1994 794,973 795 922,275 (941,187) -- (18,117)
Issuance of common stock for
cash 1,650,000 1,650 265,062 -- -- 266,712
Issuance of common stock for
royalty rights 41,375 41 8,234 -- -- 8,275
Net loss (264,388) -- (264,388)
---------- ------ ----------- ----------- -------- ---------
Balance at December 31, 1995 2,486,348 2,486 1,195,571 (1,205,575) -- (7,518)
Issuance of common stock for
services 1,600,000 1,600 798,400 -- -- 800,000
Issuance of common stock
with notes payable 12,500 13 6,237 -- -- 6,250
Issuance of common stock for
cash 575,000 575 985,521 -- -- 986,096
Issuance of compensatory
options to a consultant -- -- 51,200 -- (5,632) 45,568
Vesting of performance based
options -- -- 665,000 -- -- 665,000
Issuance of common stock for
patents and other technology 75,000 75 149,925 -- -- 150,000
Issuance of common stock for
cash 322,500 322 619,678 -- -- 620,000
Issuance of compensatory
warrants to an advisor -- -- 109,500 -- -- 109,500
Issuance of compensatory
options to consultants -- -- 209,000 -- -- 209,000
Issuance of compensatory
options to a consultant -- -- 57,000 -- (54,430) 2,570
Net loss (3,118,393) -- (3,118,393)
---------- ------ ----------- ----------- -------- ---------
Balance at December 31, 1996 5,071,348 $5,071 $ 4,847,032 $(4,323,968) $(60,062) $ 468,073
========== ====== =========== =========== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
NexMed, Inc. 7
(A development stage company)
Consolidated Statement of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
January 1, 1994
(inception of
For the year ended development stage)
December 31, to December 31,
1996 1995 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) $(3,118,393) $(264,388) $(4,102,163)
Adjustments to reconcile net loss to net cash
from operating activities
Depreciation 4,258 -- 4,258
Stock issued for patents and other rights 150,000 8,275 532,775
Non-cash compensation expense 1,837,888 -- 2,027,187
Increase in prepaid expenses (30,000) -- (30,000)
Decrease in other assets 9,800 -- 1,825
Increase (decrease) in accounts payable 79,731 (22,339) 85,407
Increase in accrued liabilities 5,998 -- 5,998
----------- --------- -----------
Net cash used in operating activities (1,060,718) (278,452) (1,474,713)
----------- --------- -----------
Cash flows from investing activities:
Capital expenditures (89,160) -- (89,160)
Advance to joint venture (300,000) -- (300,000)
----------- --------- -----------
Net cash used in investing activities (389,160) -- (389,160)
----------- --------- -----------
Cash flows from financing activities:
Issuance of common stock, net of offering costs 1,606,096 266,712 2,006,918
Issuance of notes payable 140,000 25,000 165,000
Repayment of notes payable (115,000) -- (115,000)
----------- --------- -----------
Net cash from financing activities 1,631,096 291,712 2,056,918
----------- --------- -----------
Net increase in cash and cash equivalents 181,218 13,260 193,045
Cash and cash equivalents:
Beginning of period 13,359 99 1,532
----------- --------- -----------
End of period $ 194,577 $ 13,359 $ 194,577
=========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
NexMed, Inc. 8
(A development stage company)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. Organization and Basis of Presentation
Organization
The Company, formerly known as BioElectric, Inc. and previously as Target
Capital, Inc., was incorporated in Nevada in 1987. In January 1994, the
Company began research and development of a device for the treatment of
herpes simplex. The Company, since 1995, has conducted research and
development both domestically and abroad on proprietary pharmaceutical
products, with the goal of growing through acquisition and development of
pharmaceutical products and technology. Prior to January 1994, the Company
was engaged in other businesses which were not successful.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. Since its inception as
a medical and pharmaceutical technology company in 1994, the Company has
incurred cumulative net operating losses of $4,102,163 and expects to incur
substantial additional losses in completing the research, development and
commercialization of its technologies. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. The
Company's ability to continue as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its obligations as they come
due. Management is actively pursuing various options which include securing
additional equity and/or debt financing and believes that sufficient funding
will be available to meet its planned business objectives (see note 10). The
financial statements do not include any adjustments relating to the
recoverability of the carrying amount of recorded assets or the amount of
liabilities that might result from the outcome of these uncertainties.
2. Summary of Significant Accounting Principles
Significant accounting principles followed by the Company in preparing its
financial statements are as follows:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, NexMed International Limited, a British Virgin
Islands Company based in Hong Kong. All significant intercompany transactions
have been eliminated.
Cash and Cash Equivalents
For purposes of the statement of cash flows, cash equivalents represent all
highly liquid investments with an original maturity date of three months or
less.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, and accounts payable and
accrued expenses approximates fair value due to the relatively short maturity
of these instruments.
<PAGE>
NexMed, Inc. and Subsidiary 9
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Equipment
Depreciable assets are stated at cost less accumulated depreciation.
Depreciation is provided on a straight-line basis over the estimated useful
lives of the assets (five years).
Research and Development
Research and development costs are expensed as incurred and include the cost
of third parties who conduct research and development, pursuant to
development and consulting agreements, on behalf of the Company.
Income Taxes
Income taxes are accounted for under the asset and liability method
prescribed by Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Deferred income taxes are recorded for
temporary differences between financial statement carrying amounts and the
tax basis of assets and liabilities. Deferred tax assets and liabilities
reflect the tax rates expected to be in effect for the years in which the
differences are expected to reverse. A valuation allowance is provided if it
is more likely than not that some or all of the deferred tax asset will not
be realized.
Loss per Common Share
Loss per common shares is calculated by dividing net loss by the weighted
average common shares outstanding during the year. Common stock equivalents
have not been included in the calculation of weighted average shares
outstanding as their effect is antidilutive.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
Accounting for Stock Based Compensation
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
its stock-based compensation plans. Had compensation cost for option grants
to employees pursuant to the Company's stock option plans been determined
based upon the fair value at the grant date for awards under the plan
consistent with the methodology prescribed under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," the
Company's net loss and net loss per share, for the years ended December 31,
1996 and 1995, would have been increased by approximately $91,200 and $5,600,
respectively, or $.02 and less than $.01 per share, respectively.
Concentration of Credit Risk
The Company has cash in bank accounts that exceed the FDIC insured limits.
The Company has not experienced any losses on its cash accounts. No allowance
has been provided for potential credit losses because management believes
that any such losses would be minimal.
<PAGE>
NexMed, Inc. and Subsidiary 10
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Supplemental Cash Flow Information
The Company paid interest of $2,734 and $3,926 in 1996 and 1995,
respectively.
3. Joint Venture Agreement
The Company, through its wholly-owned subsidiary, has an agreement to form a
Chinese joint-venture company, NexMed (Zhongshan) Pharmaceuticals, Ltd. (the
"Joint Venture"), with Guangdong Pharmaceutical and Health Products
Import-Export Company and Zhongshan Shiqi Pharmaceutical Factory. The Joint
Venture plans to carry out research and development, production, and
distribution in China and other international markets. The term of the Joint
Venture is 20 years. The formation of the Joint Venture is subject to the
approval of Chinese regulatory authorities, which approval has not been
obtained. Under the proposed agreement, the Company will contribute $1.75
million to the Joint Venture, representing 70 percent of its registered
capital. The Company has advanced $300,000 to its Joint Venture partner to
form the Joint Venture. In the event that the Joint Venture is not launched,
these funds will be returned to the Company. In January 1997, the Company and
its JV partners began discussing an expansion of the scope of the JV (see
Note 10).
4. Notes Payable
At December 31, 1996, the Company has notes payable of $50,000 which bear
interest at 10% per annum and are due through February 21, 1997. The note
holders may convert the unpaid principal into common stock at a conversion
price of $2 per share. In conjunction with the issuance of these notes, and
other notes totaling $75,000 which have been repaid, the Company granted the
purchasers of such notes 12,500 shares of common stock. The common stock was
valued at $6,250 ($.50 per share) which is being accounted for as debt
discount and amortized over the lives of the notes.
5. Common Stock
On September 1, 1995, the Company's Board of Directors authorized a 20-for-1
reverse stock split of the Company's common stock which was effective on
October 2, 1995. All shares of common stock, common stock options and
warrants and per share amounts included in these financial statements have
been restated to give retroactive effect to the reverse stock split for all
periods presented.
On September 15, 1996, the Company's Board of Directors amended the
Certificate of Incorporation of the Corporation to authorize 10,000,000
shares of preferred stock and decrease the number of authorized shares of
common stock from 50,000,000 to 40,000,000.
During August 1995, the Company sold 1,650,000 shares of common stock at an
offering priced at $0.20 per share. The Company recorded net proceeds of
$266,712 from the sale.
In August 1995, the Company issued 41,375 shares to acquire the outstanding
royalty rights to its device for the treatment of herpes simplex, which the
Company will attempt to develop into a viable product. These shares were
valued at $8,275 ($.20 per share), resulting in a
<PAGE>
NexMed, Inc. and Subsidiary 11
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
charge to research and development expense.
During February 1996, the Company issued 1,600,000 shares of common stock to
employees and consultants, primarily in consideration of past services,
valued at $.50 per share, resulting in a charge to operations of $800,000.
During April 1996, the Company issued 12,500 shares of common stock in
conjunction with notes issued in December 1995, January 1996 and February
1996. These shares were valued at $.50 each resulting in a charge to interest
expense of $6,250 (see Note 4).
During May 1996, the Company received net proceeds of $986,096 in connection
with the private placement of 500,000 shares of its common stock at $2 per
share. In connection with this offering, the Company issued 75,000 shares to
the placement agent as compensation for the private placement.
During October 1996, the Company issued 75,000 shares of common stock to
acquire the rights to certain technology which the Company will attempt to
develop into a viable product. The shares were valued at $150,000 ($2 per
share), resulting in a charge to research and development expense.
During November 1996, the Company sold 322,500 shares of common stock at $2
share and received net proceeds of $620,000.
6. Stock Options
In November 1995, the Company granted options to certain employees and key
individuals to purchase 340,000 shares of its common stock at an exercise
price of $0.25 per share, which was the estimated fair value of the common
stock at that time. These options are fully vested and expire on December 1,
1998.
In November 1995, the Company also granted options to certain officers and
directors to purchase up to 560,000 shares of its common stock at an exercise
price of $0.25 per share, which was the estimated fair value of the common
stock at that time. The vesting of these options is contingent upon reaching
certain market capitalization levels, as defined in the option agreements.
135,000 options vest if market capitalization reaches $2,000,000 by December
31, 1997 and an additional 135,000, 140,000 and 150,000 options vest if
market capitalization reaches $3,000,000, $5,000,000 and $10,000,000,
respectively, by December 31, 1998. These options expire on December 1, 2002.
During 1996, the market capitalization, as defined, of the Company exceeded
$5,000,000, resulting in the vesting of 410,000 of these options and the
recording of $665,000 of expense.
During October 1996, the Company adopted a Non-Qualified Stock Option Plan
("Stock Option Plan") and reserved 100,000 shares of common stock for
issuance pursuant to the Plan. During December 1996, the Company also adopted
The NexMed, Inc. Stock Option and Long-Term Incentive Compensation Plan ("the
Incentive Plan") and The NexMed, Inc.
<PAGE>
NexMed, Inc. and Subsidiary 12
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Recognition and Retention Stock Incentive Plan ("the Recognition Plan"). A
total of 2,000,000 shares were set aside for these two plans.
In connection with the acquisition of technology in October 1996 described in
Note 5, the Company entered into a consulting agreement with the developer of
the technology. Under the terms of the agreement, the Company issued options
to purchase 40,000 shares of common stock at an exercise price of $1 per
share. The estimated fair value of the Company's common stock was $2 per
share at that time. Under the option agreement, 20,000 shares vest
immediately, 10,000 shares vest as of January 31, 1997, and 10,000 shares
vest as of April 30, 1997. The Company recorded $45,568 of research and
development expense in 1996 related to this option agreement. Deferred
compensation related to these options is recorded as a reduction of
stockholders' equity and will be amortized over the remaining option vesting
period.
In December 1996, under the Incentive Plan, the Company issued 1,185,000
options to key employees at an exercise price of $2 per share, which was the
estimated fair value of the common stock at that time. Provided the employee
remains in service to the Company, the options vest at December 31, 1997,
1998 and 1999 and expire in December 2006.
In December 1996, under the Stock Option Plan, the Company also issued 50,000
options to key employees with an exercise price of $2 per share, which was
the estimated fair value of the common stock at that time. These options
expire in December 2006.
In December 1996, under the Recognition Plan, the Company also issued 230,000
options to directors and consultants at an exercise price of $2 per share,
which was the estimated fair value of the common stock at that time.
Compensation expense of $209,000 was recorded for this grant.
In December 1996, under the Recognition Plan, the Company also issued 60,000
options to a director at an exercise price of $2 per share that vest in
December 1997, 1998 and 1999 provided the director remains in service to the
Company. Compensation expense of $2,570 was recorded for these grants.
Deferred compensation relating to these options is recorded as a reduction in
stockholders' equity and will be amortized over the remaining option vesting
period.
In December 1996, under the Recognition Plan, the Company also issued 50,000
options to a consultant at an exercise price of $2 per share, which was the
estimated fair value of the common stock at that time. If the consultant
meets certain performance goals the options would vest in December 1997 and
expire in December 2006. If he does not meet the performance goals, the
options expire on December 31, 1997.
The fair value of each option and warrant (see Note 7) is estimated on the
date of grant using the Black-Scholes option-pricing model. The following
assumptions were used in the model:
<PAGE>
NexMed, Inc. and Subsidiary 13
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Dividend yield 0.0%
Risk-free yields 5.89% - 6.71%
Expected volatility 0.0%
Option terms 3-10 years
A summary of stock option activity is as follows:
Number of Option Price
Shares Per Share
Outstanding at December 31, 1994 - -
Granted 900,000 $.25
---------
Outstanding at December 31, 1995 900,000 $.25
Granted 1,615,000 $1.00-$2.00
---------
Outstanding at December 31, 1996 2,515,000 $.25-$2.00
=========
Exercisable at December 31, 1996 1,110,000 $.25-$2.00
=========
No options have been exercised or canceled as of December 31, 1996.
7. Warrants
During November 1996, the Board of Directors approved the issuance of
warrants to purchase 150,000 shares of common stock at $1 per share to its
outside legal counsel as consideration for legal services performed relating
to the sale of common stock in November 1996 and other matters. The estimated
fair value of the Company's common stock was $2 per share at that time. The
warrants have a term of ten years and vest in equal installments over a three
year period. The issue of these warrants resulted in additional legal expense
of $109,500. No warrants have been exercised as of December 31, 1996.
8. Income Taxes
The Company has incurred losses since inception which have generated net
operating loss carryforwards of approximately $4,180,000 for federal and
state income tax purposes. These carryforwards are available to offset future
taxable income and expire in 2011 for federal income tax purposes. Internal
Revenue Code Section 382 places a limitation on the utilization of Federal
net operating loss carryforwards when an ownership change, as defined by tax
law, occurs. Generally, an ownership change, as defined, occurs when a
greater than 50 percent change in ownership takes place. The actual
utilization of net operating loss carryforwards generated prior to such
changes in ownership will be limited, in any one year, to a percentage of
fair market value of the Company at the time of the ownership change. Such a
change may have already resulted from the additional equity financing
obtained by the Company since its formation.
The net operating loss carryforwards result in a noncurrent deferred tax
benefit at December 31, 1996 of $1,546,237. In consideration of the Company's
accumulated losses and the uncertainty of its ability to utilize this
deferred tax benefit in the future, the Company has recorded a valuation
allowance of an equal amount on such date to fully offset the deferred tax
benefit amount.
For the years ended December 31, 1996 and 1995, the Company's effective tax
rate differs from the federal statutory rate principally due to net operating
losses and other temporary differences for which no benefit was recorded,
state taxes and other permanent differences.
<PAGE>
NexMed, Inc. and Subsidiary 14
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
9. Commitments and Contingencies
The Company is a party to several short-term consulting and research
agreements which, generally, can be cancelled at will by either party.
The Company leases office space under a short-term lease agreement. Rent
expense was $8,500 and $600 in 1996 and 1995, respectively.
10. Subsequent Events
In January 1997, the Company issued a $100,000 promissory note bearing
interest at 10% per annum. The note must be repaid by December 31, 1997 and
the note holders may convert the unpaid note into common stock at a
conversion price of $2.50 per share. In conjunction with the issuance of the
note, the Company granted the purchaser of such note 7,500 shares of common
stock. The Company has valued these shares at $15,000 ($2.00 per share) which
is being accounted for as debt discount and amortized over the life of the
note.
In January 1997, discussion began between the Company and its Joint Venture
partners regarding the expansion of the scope of the proposed Joint Venture.
The revised agreement, which is subject to the successful completion of the
discussions and the receipt of necessary governmental approvals, is expected
to require the Company to contribute approximately $15 million over a 24
month period.
In January 1997, the Company entered into a license agreement with Lotus
Medical Supply, Inc. ("Lotus"). Lotus received certain exclusive rights to
manufacture and sell products in Taiwan using the Company's penetration
enhancement technology in return for certain license fees, including a
non-refundable fee of $50,000 paid in February 1997. The agreement provides
that the Company and Lotus share equally the cost of certain pre-clinical
testing.
In January 1997, a complaint was filed against the Company by a corporation
claiming breach of contract, unjust enrichment and anticipatory breach of
contract relating to a marketing and consulting agreement. The corporation is
requesting damages of $388,062, plus interest, costs and attorney's fees. The
Company believes that this lawsuit is without merit and intends to defend its
position vigorously.
In February 1997, the Company issued 1,062,500 shares at $2.00 each in a
private placement. The Company received net proceeds of $1,995,000 from the
issuance.
In February 1997, the holder of a $25,000 note payable (see Note 4) elected
to convert the principal and interest due into 13,750 shares of common stock.
In February 1997, under the Recognition Plan and Incentive Plan, the Company
issued 85,000 and 75,000 options, respectively, to a director, a consultant
and employees at an exercise price of $2 per share, which was the estimated
fair value of the common stock at that time. Provided they remain in service
to the Company, the options vest at December 31, 1997, 1998 and 1999 and
expire in 2007.
<PAGE>
PART III
Item 1. Index to Exhibits.
2.1 Amended and Restated Articles of Incorporation of the Company
2.2 By-laws of the Company
2.3 Amendment to By-laws of the Company
3.1 Specimen Common Stock Certificate
5.1 Form of Voting Trust Agreement
6.1 Technology Acquisition Agreement between the Company and Odontex,
Inc.
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
/s/ ______________________________
NEXMED, INC.
Date: March 14, 1997 By: /s/ Y. Joseph Mo
-------------------------------
Y. Joseph Mo
Chairman of the Board of Directors,
President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
registration statement has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Date: March 14, 1997 By: /s/ Y. Joseph Mo
-------------------------------
Y. Joseph Mo
Chairman of the Board of Directors,
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 14, 1997 By: /s/ Vivian H. Liu
-------------------------------
Vivian H. Liu,
Vice President, Treasurer and
Secretary (Principal Financial and
Accounting Officer)
Date: March 14, 1997 By: /s/ Gilbert S. Banker
-------------------------------
Gilbert S. Banker
Director
Date: March 14, 1997 By: /s/ Robert W. Gracy
-------------------------------
Robert W. Gracy
Director
Date: March 14, 1997 By: /s/ Yu-Chung Wei
-------------------------------
Yu-Chung Wei
Director
<PAGE>
Exhibit Index
2.1 Amended and Restated Articles of Incorporation of the Company
2.2 By-laws of the Company
2.3 Amendment to By-laws of the Company
3.1 Specimen Common Stock Certificate
5.1 Form of Voting Trust Agreement
6.1 Technology Acquisition Agreement between the Company and Odontex,
Inc.
Exhibit 2.1
AMENDED & RESTATED
ARTICLES OF INCORPORATION
OF
NEXMED, INC.
FIRST: The name of the corporation is NexMed, Inc. (the "Corporation").
SECOND: The principal office of the Corporation in the State of Nevada is
located at 1 East 1st Street, Reno, Nevada, Washoe County, 89501. The name and
address of the registered agent of the Corporation is Corporation Trust Company
of Nevada, 1 East 1st Street, Reno, Nevada 89501.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the Nevada General
Corporation Law.
FOURTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
A. The governing board of this Corporation shall be known as
the board of directors (the "Board of Directors" or the "Board") and its members
all be known as directors, and the number of directors may from time to time be
increased or decreased by resolution of the Board of Directors, provided that
the number of directors shall not be reduced to less than three (3). The Board
of Directors shall be divided into three classes, as nearly equal in number as
possible, and the term of office for each respective class of directors shall be
so arranged that the term of office of directors of one class shall expire at
each successive annual meeting of stockholders, and in all cases as to each
director until their successor shall be elected and shall qualify, or until his
earlier resignation, removal from office, death or incapacity. At each annual
meeting of stockholders after the first annual meeting, the number of directors
equal to the number of directors of the class whose term expires at the time of
such meeting (or such greater or lesser number as would be required by an
increase or decrease in the size of the Board of Directors) shall be elected to
hold office until the third succeeding annual meeting of stockholders after
their election. This Article FOURTH may not be amended or repealed without the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of the shares entitled to vote thereon.
<PAGE>
B. Special meetings of stockholders of the Corporation may be
called only by the Chairman of the Board or the President or by the Board of
Directors acting pursuant to a resolution adopted by a majority of the Whole
Board. For purposes of these Amended and Restated Articles of Corporation, the
term "Whole Board" shall mean the total number of authorized directors whether
or not there exist any vacancies in previously authorized directorships.
FIFTH: A. The total number of shares of all classes of stock
which the Corporation shall have authority to issue is fifty million
(50,000,000), consisting of forty million (40,000,000) shares of common
stock, par value one-tenth of one cent ($0.001) per share (the "Common
Stock") and ten million (10,000,000) shares of preferred stock, par value
one-tenth of one cent ($0.001) per share (the "Preferred Stock").
B. COMMON STOCK. The shares of Common Stock shall have no
pre-emptive or preferential rights of subscription concerning further issuance
or authorization of any securities of the Corporation. Each share of Common
Stock shall entitle the holder thereof to one vote, in person or by proxy. The
holders of the Common Stock shall be entitled to receive dividends if, as and
when declared by the Board of Directors.
The Common Stock may be issued from time to time in one or
more series and shall have such other relative, participant, optional or special
rights, qualifications, limitations or restrictions thereof as shall be stated
and expressed in the resolution or resolutions providing for the issuance of
such Common Stock from time to time adopted by the Board of Directors pursuant
to authority so to adopt which is hereby vested in the Board of Directors.
C. PREFERRED STOCK. The Preferred Stock may be issued from
time to time in one or more series and (a) may have such voting powers, full or
limited, or may be without voting powers; (b) may be subject to redemption at
such time or times and at such prices; (c) may be entitled to receive dividends
(which may be cumulative or noncumulative) at such rate or rates, on such
conditions, and at such times, and payable in preference to, or in such relation
to, the dividends payable on any other class or classes or series of stock; (d)
may have such rights upon the dissolution of, or upon any distribution of the
assets of, the Corporation; (e) may be made convertible into, or exchangeable
for, shares of any other class or classes or of any other series of the same or
any other class or classes of stock of the Corporation, at such price or prices
or at such rates of exchange, and with such adjustments and (f) shall have such
other relative, participating, optional or special rights, qualifications,
limitations or restrictions thereof as shall hereafter be stated and expressed
in the resolution or resolutions providing for the issuance of such Preferred
Stock from time to time adopted by the Board of Directors pursuant to authority
so to do which is hereby vested in the Board of Directors.
<PAGE>
At any time from time to time when authorized by resolution of the
Board of Directors and without any action by its shareholders, the Corporation
may issue or sell any shares of its stock of any Class or series, whether out of
the unissued shares thereof authorized by these Amended and Restated Articles of
Incorporation, as amended, or out of shares of its stock acquired by it after
the issue thereof, and whether or not the shares thereof so issued or sold shall
confer upon the holders thereof the right to exchange or convert such shares for
or into other shares of stock of the Corporation of any class or classes or any
series thereof. When similarly authorized, but without any action by its
shareholders, the Corporation may issue or grant rights, warrants or options, in
bearer or registered or such other form as the Board of Directors may determine,
for the purchase of shares of the stock of any class or series of the
Corporation within such period of time, or without limit as to time, of such
aggregate number of shares, and at such price per share, as the Board of
Directors may determine. Such rights, warrants or options may be issued or
granted separately or in connection with the issue of any bonds, debentures,
notes, obligations or other evidences of indebtedness or shares of the stock of
any class or series of the Corporation and for such consideration and on such
terms and conditions as the Board of Directors, in its sole discretion, may
determine. In each case, the consideration to be received by the Corporation for
any such shares so issued or sold shall be such as shall be fixed from time to
time by the Board of Directors.
D. The capital stock, after the amount of the subscription
price, or par value, has been paid in, shall not be subject to assessment.
E. No holder of shares of stock of the Corporation shall be
entitled as of right to purchase or subscribe for any part of any unissued stock
of this Corporation or of any new or additional authorized stock of the
Corporation of any class whatsoever, or of any issue of securities of the
Corporation convertible into stock, whether such stock or securities be issued
for money or for a consideration other than money or by way of dividend, but any
such unissued stock or such new or additional authorized stock or such
securities convertible into stock may be issued and disposed of to such persons,
firms, corporations and associations, and upon such terms as may be deemed
advisable by the Board of Directors without offering to stockholders of record
or any class of stockholders upon the same terms or upon any terms.
SIXTH: A. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
the number of directors shall be fixed from time to time exclusively by the
Board of Directors pursuant to a resolution adopted by a majority of the
Whole Board.
B. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, newly created directorships resulting from any
increase in the authorized number of directors or any vacancies in the Board of
Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause shall, unless otherwise provided by law or by
resolution of the Board of Directors, be filled
<PAGE>
only by a majority vote of the directors then in office, though less than a
quorum, and directors so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to which
they have been chosen expires. No decrease in the authorized number of directors
shall shorten the term of any incumbent director.
C. Advance notice of stockholder nominations for the election
of directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in the
by-laws of the Corporation.
D. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, any directors, or the entire Board of
Directors, may be removed from office at any time, but only for cause and only
by the affirmative vote of the holders at least fifty percent (50%) of the
voting power of all of the then-outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend or
repeal by-laws of the Corporation. Any adoption, amendment or repeal of the
by-laws of the Corporation by the Board of Directors shall require the approval
of a majority of the Whole Board. The stockholders shall also have power to
adopt, amend or repeal the by-laws of the Corporation; provided, however, that,
in addition to any vote of the holders of any class or series of stock of the
Corporation required by law or by these Amended and Restated Articles of
Corporation, the affirmative vote of the holders of at least fifty percent (50%)
of the voting power of all of the then-outstanding shares of the capital stock
of the Corporation entitled to vote generally in the election of directors,
voting together as a single class, shall be required to adopt, amend or repeal
any provision of the by-laws of the Corporation.
EIGHTH: The Corporation reserves the right to amend or repeal any
provision contained in this Amended and Restated Articles of Incorporation in
the manner prescribed by the laws of the State of Nevada and all rights
conferred upon stockholders are granted subject to this reservation; provided,
however, that, notwithstanding any other provision of this Amended and Restated
Articles of Incorporation or any provision of law that might otherwise permit a
lesser vote or no vote, but in addition to any vote of the holders of any class
or series of the stock of this Corporation required by law or by this Amended
and Restated Articles of Incorporation, the affirmative vote of the holders of
at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all
the then-outstanding shares of the capital stock of the Corporation entitled to
vote generally in the election of Directors, voting together as a single class,
shall be required to amend or repeal this Article EIGHTH, Article SIXTH, Article
SEVENTH, or Article NINTH.
<PAGE>
NINTH: The Board of Directors of the Corporation, when evaluating any
offer of another party to (a) make a tender or exchange offer for any equity
security of the Corporation, (b) merge or consolidate the Corporation with
another corporation or (c) purchase or otherwise acquire all or substantially
all of the properties and assets of the Corporation, may, in connection with the
exercise of its judgment in determining what is in the best interests of the
Corporation and its stockholders, give due consideration to (i) all relevant
factors, including without limitation the social, legal, environmental and
economic effects on the employees, customers, suppliers and other affected
persons, firms and corporations, and on the communities and geographical areas
in which the Corporation and its subsidiaries operate or are located and on any
of the businesses and properties of the Corporation or any of its subsidiaries,
as well as such other factors as the directors deem relevant, (ii) not only the
financial consideration being offered in relation to the then current market
price for the Corporation's outstanding shares of capital stock, but also in
relation to the then current value of the Corporation in a freely negotiated
transaction and in relation to the Board of Directors' estimate of the future
value of the Corporation (including the unrealized value of its properties and
assets) as an independent going concern, and (iii) the obligations of the
Corporation, and any of its subsidiaries, to provide stable, reliable public
utility services on a continuing or long term basis.
TENTH: A director or officer of the Corporation shall have no personal
liability to the Corporation or its stockholders for damages for breach of
fiduciary duty as a director or officer, except for (a) acts or omissions which
involve intentional misconduct, fraud or a knowing violation of law; or (b) the
payment of dividends in violation of the applicable statutes of Nevada. If the
Nevada General Corporation Law is amended after approval by the stockholders of
this Article TENTH to authorize corporate action further eliminating or limiting
the personal liability of directors or officers, the liability of a director or
officer of the Corporation shall be eliminated or limited to the fullest extent
permitted by the Nevada General Corporation Law, as so amended from time to
time. No repeal or modification of this Article TENTH by the stockholders shall
adversely affect any right or protection of a director or officer of the
Corporation existing by virtue of this Article TENTH at the time of such repeal
or modification.
ELEVENTH: A. The Corporation shall indemnify and hold harmless any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or was
or has agreed to become a director or officer of the Corporation or is serving
at the request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise or by reason of actions alleged to have been taken or omitted in such
capacity or in any other capacity while serving as a director or officer. The
indemnification of directors and officers by the Corporation shall be to the
fullest extent authorized or permitted by applicable law, as such law exists or
may hereafter be amended (but only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than permitted prior to
the amendment). The
<PAGE>
indemnification of directors and officers shall be against all loss, liability
and expense (including attorneys fees, costs, damages, judgments, fines, amounts
paid in settlement and ERISA excise taxes or penalties) actually and reasonably
incurred by or on behalf of a director or officer in connection with such
action, suit or proceeding, including any appeal; provided, however, that with
respect to any action, suit or proceeding initiated by a director or officer,
the Corporation shall indemnify such director or officer only if the action,
suit or proceeding was authorized by the Board of Directors of the Corporation,
except with respect to a suit for the enforcement of rights to indemnification
or advancement of expenses in accordance with Section C below.
B. The expenses of directors and officers incurred as a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative shall be paid by the
Corporation as they are incurred and in advance of the final disposition of the
action, suit or proceeding; provided, however, that if applicable law so
requires, the advance payment of expenses shall be made only upon receipt by the
Corporation of an undertaking by or on behalf of the director or officer to
repay all amounts so advanced in the event that it is ultimately determined by a
final decision, order or decree of a court of competent jurisdiction that the
director or officer is not entitled to be indemnified for such expenses under
this Article ELEVENTH.
C. Any director or officer may enforce his or her rights to
indemnification or advance payments for expenses in a suit brought against the
Corporation if his or her request for indemnification or advance payments for
expenses is wholly or partially refused by the Corporation or if there is no
determination with respect to such request within 60 days from receipt by the
Corporation of a written notice from the director or officer for such a
determination. If a director or officer is successful in establishing in a suit
his or her entitlement to receive or recover an advancement of expenses or a
right to indemnification, in whole or in part, he or she shall also be
indemnified by the Corporation for costs and expenses incurred in such suit. It
shall be a defense to any such suit (other than a suit brought to enforce a
claim for the advancement of expenses under Section B of this Article ELEVENTH
where the required undertaking, if any, has been received by the Corporation)
that the claimant has not met the standard of conduct set forth in the Nevada
General Corporation Law. Neither the failure of the Corporation to have made a
determination prior to the commencement of such suit that indemnification of the
director or officer is proper in the circumstances because the director or
officer has met the applicable standard of conduct nor a determination by the
Corporation that the director or officer has not met such applicable standard of
conduct shall be a defense to the suit or create a presumption that the director
or officer has not met the applicable standard of conduct. In a suit brought by
a director or officer to enforce a right under this Section C or by the
Corporation to recover and advancement of expenses pursuant to the terms of an
undertaking, the burden of proving that a director or officer is not entitled to
be indemnified or is not entitled to an advancement of expenses under this
Section C or otherwise, shall be on the Corporation.
<PAGE>
D. The right to indemnification and to the payment of expenses
as they are incurred and in advance of the final disposition of the action, suit
or proceeding shall not be exclusive of any other right to which a person may be
entitled under these Amended and Restated Articles of Incorporation or any
by-law, agreement, statute, vote of stockholders or disinterested directors or
otherwise. The right to indemnification under Section A above shall continue for
a person who has ceased to be a director or officer and shall inure to the
benefit of his or her heirs, next of kin, executors, administrators and legal
representatives.
E. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any loss, liability or expense, whether or not the Corporation would
have the power to indemnify such person against such loss, liability or expense
under the Nevada General Corporation Law.
F. The Corporation shall not be obligated to reimburse the
amount of any settlement unless it has agreed to such settlement. If any person
shall unreasonably fail to enter into a settlement of any action, suit or
proceeding within the scope of Section A above, offered or assented to by the
opposing party or parties and which is acceptable to the Corporation, then,
notwithstanding any other provision of this Article ELEVENTH, the
indemnification obligation of the Corporation in connection with such action,
suit or proceeding shall be limited to the total of the amount at which
settlement could have been made and the expenses incurred by such person prior
to the time the settlement could reasonably have been effected.
G. The Corporation may, to the extent authorized from time to
time by the Board of Directors, grant rights to indemnification and to the
advancement of expenses to any employee or agent of the Corporation or to any
director, officer, employee or agent of any of its subsidiaries to the fullest
extent of the provisions of this Article ELVENTH subject to the imposition of
any conditions or limitations as the Board of Directors of the Corporation may
deem necessary or appropriate.
TWELFTH: In the event of a conflict between the terms of these Amended and
Restated Articles of Incorporation and the By-Laws of the Corporation, the terms
and provisions of these Amended and Restated Articles of Incorporation shall
govern.
<PAGE>
WE, THE UNDERSIGNED, being the members of the Board of Directors of
the Corporation, for the purpose of adopting these Amended and Restated Articles
of Incorporation under the laws of the State of Nevada do make, file and record
these Amended and Restated Articles of Incorporation, do certify that the facts
herein stated are true, and, accordingly, have hereto set our hand and seal this
23rd day of December, 1996.
_____________________ (SEAL)
By: /s/ Y. Joseph Mo
--------------------------
Name: Y. Joseph Mo
Title: Director
By: /s/ Gilbert S. Banker
--------------------------
Name: Gilbert S. Banker
Title: Director
By: /s/ Robert W. Gracy
--------------------------
Name: Robert W. Gracy
Title: Director
Exhibit 2.2
BY-LAWS
OF
NEXMED, INC.
TABLE OF CONTENTS
Page
----
ARTICLE I OFFICE 1
ARTICLE II SHAREHOLDERS' MEETING 1
Section 2.1 Annual Meetings 1
Section 2.2 Special Meetings 1
Section 2.3 Notice of Shareholders' Meeting 2
Section 2.4 Place of Meeting 2
Section 2.5 Record Date 3
Section 2.6 Quorum 3
Section 2.7 Voting 4
Section 2.8 Proxies 4
Section 2.9 Informal Action by Shareholders 4
ARTICLE III BOARD OF DIRECTORS 5
Section 3.1 General Powers 5
Section 3.2 Number, Tenure and Qualifications 5
Section 3.3 Regular Meetings 6
Section 3.4 Special Meetings 6
Section 3.5 Quorum 6
Section 3.6 Manner of Acting 7
Section 3.7 Vacancies 7
Section 3.8 Removals 8
Section 3.9 Resignations 8
Section 3.10 Presumptions of Assets 8
Section 3.11 Compensation 9
Section 3.12 Emergency Power 9
Section 3.13 Chairman 9
Section 3.14 Informal Action by Directors 9
ARTICLE IV OFFICERS 10
Section 4.1 Number 10
Section 4.2 Election and Term of Office 10
Section 4.3 Resignations 10
<PAGE>
Section 4.4 Removal 11
Section 4.5 Vacancies 11
Section 4.6 President 11
Section 4.7 Vice-President 12
Section 4.8 Secretary 12
Section 4.9 Treasurer 13
Section 4.10 General Manager 14
Section 4.11 Other Officers 14
Section 4.12 Salaries 14
Section 4.13 Surety Bonds 15
ARTICLE V COMMITTEES 15
Section 5.1 Executive Committee 15
Section 5.2 Other Committees 16
ARTICLE VI CONTRACT, LOANS, CHECKS & DEPOSITS 16
Section 6.1 Contracts 16
Section 6.2 Loans 16
Section 6.3 Deposits 17
Section 6.4 Checks and Drafts 17
Section 6.5 Bonds and Debentures 17
ARTICLE VII CAPITAL STOCK 18
Section 7.1 Certificates of Shares 18
Section 7.2 Transfer of Shares 19
Section 7.3 Transfer Agent and Registrar 19
Section 7.4 Lost or Destroyed Certificates 19
Section 7.5 Consideration for Shares 20
Section 7.6 Registered Shareholders 20
ARTICLE VIII INDEMNIFICATION 21
Section 8.1 Indemnification 21
Section 8.2 Other Indemnification 22
Section 8.3 Insurance 22
Section 8.4 Settlement by Corporation 23
ARTICLE IX WAIVER OF NOTICE 23
ARTICLE X AMENDMENTS 23
ARTICLE XI FISCAL YEAR 24
ARTICLE XII DIVIDENDS 25
ARTICLE XIII CORPORATE SEAL 25
ARTICLE XIV RIGHTS AND POWERS 25
<PAGE>
BY-LAWS
OF
NEXMED, INC.
ARTICLE I
OFFICE
Section 1.1 Office. The Corporation shall maintain such offices, within or
without the State of Nevada, as the Board of Directors may designate. The Board
of Directors has the power to change the location of the principal office.
ARTICLE II
SHAREHOLDERS' MEETING
Section 2.1 Annual Meetings. The annual meeting of the shareholders of the
Corporation shall be held at such place within or without the State of Nevada as
shall be set forth in compliance with these By-Laws. The meeting shall be held
on the 2nd Wednesday in April of each year beginning with the year 1996 at 3:00
p.m. If such day is a legal holiday, the meeting shall be on the next business
day. This meeting shall be for the election of directors and for the transaction
of such other business as may properly come before it.
Section 2.2 Special Meetings. Special meetings of shareholders, other
than those regulated by statute, may be called at any time by the President, or
a majority of the directors, and must be called by the President upon written
request of the holders of not less than ten percent (10%) of the
<PAGE>
issued and outstanding shares entitled to vote at such special meeting. Written
notice of the special meeting stating place, date and hour of the meeting, the
purpose or purposes for which it is called, and the name of the person by whom
or at whose direction the meeting is called shall be given. Notice shall be
given to each shareholder of record in the same manner as notice of the annual
meeting. No business other than that specified in the notice of meeting shall be
transacted at any such special meeting.
Section 2.3 Notice of Shareholders' Meetings. The Secretary shall give
written notice stating place, date and hour of the meeting, and in the case of a
special meeting the purpose or purposes for which the meeting is called, which
notice shall be delivered not less than ten (10) nor more than fifty (50) days
before the day of the meeting, either personally or by mail, to each shareholder
of record entitled to vote at such meeting. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail addressed to the
shareholders at his address as it appears on the books of the Corporation, with
postage thereon prepaid.
Section 2.4 Place of Meeting. The Board of Directors may designate any
place, either within or without the State of Nevada, as the place of meeting for
any annual meeting or for any special meeting called by the Board of Directors.
A waiver of notice signed by all shareholders entitled to vote at a meeting may
designate the place, either within or without the State of
<PAGE>
Nevada, as the place for the holding of such meeting. If no designation is made,
or if a special meeting be otherwise called, the place of meeting shall be the
principal office of the Corporation.
Section 2.5 Record Date. The Board of Directors may fix a date not less
than ten (10) nor more than fifty (50) days prior to any meeting as the record
date for the purpose of determining shareholders entitled to notice of and to
vote at such meetings of the shareholders. The transfer books may be closed by
the Board of Directors for a stated period not to exceed fifty (50) days for the
purpose of determining shareholders entitled to receive payment of any dividend,
or in order to make a determination of shareholders for any other purpose.
Section 2.6 Quorum. A majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than a majority of the
outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
a meeting resumed after any such adjournment at which a quorum shall be present
or represented, any business may be transacted which might have been transacted
at the meeting as originally noticed. Once a quorum is established, shareholders
present at a
<PAGE>
duly organized meeting may continue to transact business until adjournment, even
if shareholders withdraw their shares in such number that less than a quorum
remain.
Section 2.7 Voting. A holder of an outstanding share entitled to vote may
vote at a meeting in person or by proxy. Except as may otherwise be provided in
the Articles of Incorporation, every shareholder shall be entitled to one (1)
vote for each voting share standing in his name on the record of shareholders.
Except as herein or in the Articles of Incorporation otherwise provided, all
corporate action shall be determined by a majority of the votes cast at a
meeting of shareholders by the holders of shares entitled to vote thereon.
Section 2.8 Proxies. At all meetings of shareholders, a shareholder may
vote in person or by proxy executed in writing by the shareholder or by his duly
authorized attorney in fact. Such proxy shall be filed with the secretary of the
Corporation before or at the time of the meeting. No proxy shall be valid after
eleven (11) months from the date of its execution, unless otherwise provided in
the proxy.
Section 2.9 Informal Action by Shareholders. Any action required to be
taken at a meeting of the shareholders, or any action which may be taken at a
meeting of the shareholders, may be taken without a meeting of a consent in
writing, setting forth
<PAGE>
the action so taken, shall be signed by all of the shareholders entitled to vote
with respect to the subject matter thereof.
ARTICLE III
BOARD OF DIRECTORS
Section 3.1 General Powers. The business and affairs of the Corporation
shall be managed by its Board of Directors. The Board of Directors shall have
power to make, modify, amend, or repeal the By-laws of the Corporation. The
Board of Directors may adopt rules, regulations and policies for the conduct of
their meetings and the management of the Corporation as they deem proper.
Section 3.2 Number, Tenure, and Qualifications. The business and affairs
of the Corporation shall be managed by or under the direction of its Board of
Directors. The number of directors that shall constitute the whole Board shall
be fixed from time to time by resolution of the shareholders or the Board of
Directors and shall consist of not more than twelve (12) members. The directors
shall be classified into three classes, with each class as nearly equal in
number as possible. To begin at the annual meeting of shareholders in 1996 these
staggered terms of office, the directors shall designate the members who shall
serve in the first class, who shall serve for a one-year
<PAGE>
term, members of the second class, who shall serve for a two-year term, and
members of the third class, who shall serve for a three-year term. At each
annual meeting of shareholders, the successors to the class of directors whose
terms expire at that meeting shall be elected for a three-year term. Directors
may be designated as "advisory directors" rather than regular voting directors
by the Board of Directors or by the shareholders at any annual or special
meeting of the shareholders. In addition, the Board of Directors may change the
status of a director from an advisory director to a voting director or from a
voting director to an advisory director. The Board of Directors may from time to
time establish minimum qualifications for eligibility to become a director.
Those qualifications may include, but shall not be limited to, a prerequisite
stock ownership in the Corporation.
Section 3.3 Regular Meetings. A regular meeting of the Board of Directors
shall be held without other notice than by this Bylaw, immediately following
after and at the same place as the annual meeting of shareholders. The Board of
Directors may provide, by resolution, the time and place for the holding of
additional regular meetings without other notice than this resolution.
Section 3.4 Special Meetings. Special meetings of the Board of Directors
may be called by order of the Chairman of the Board, the President, or by
one-third (1/3) of the Directors.
<PAGE>
The Secretary shall give notice of the time, place, and purpose or purposes of
each special meeting by mailing the same at least two (2) days before the
meeting or by telephoning or telegraphing the same at least one (1) day before
the meeting to each Director.
Section 3.5 Quorum. A majority of the members of the Board of Directors
shall constitute a quorum for the transaction of business, but less than a
quorum may adjourn any meeting from time to time until a quorum shall be
present, whereupon the meeting may be held, and adjourned, without further
notice. At any meeting at which every Director shall be present, even though
without any notice, any business may be transacted.
Section 3.6 Manner of Acting. At all meeting of the Board of Directors,
each Director shall have one (1) vote. The act of a majority present at a
meeting shall be the act of the Board of Directors, provided a quorum is
present. Any action required to be taken or which may be taken at a meeting of
the Directors may be taken without a meeting if a consent in writing setting
forth the action so taken shall be signed by all the Directors. At any meeting,
at which every Director shall be present, even though without notice, any
business may be transacted. The Directors may conduct a meeting by means of a
conference telephone or any similar communications equipment by which all
persons participating in the meeting can hear one another and such participation
shall constitute presence at a meeting.
Section 3.7 Vacancies. In case of a vacancy created by an increase in the
number of directors or any vacancy created by
<PAGE>
death, removal, or resignation the vacancy or vacancies may be filled either (a)
by remaining members of the Board of Directors, or (b) by the shareholders. In
the case of a director appointed to fill a vacancy created by an increase in the
number of directors, the director so appointed shall hold office until the next
annual meeting of shareholders called for the purpose of electing a director to
the office so created. In the case of a director appointed to fill a vacancy
created by the death, removal or resignation of a director, the newly appointed
director shall hold office for the term to which his predecessor was elected or
until his successor is elected.
Section 3.8 Removals. Except as otherwise required by law any director
may be removed for cause by vote of two thirds of the other directors or by the
holders of at least 80% of the combined voting power of all outstanding shares
entitled to vote on the election of directors, voting together as a single
class. No director may be removed without cause before the expiration of his or
her term of office.
Section 3.9 Resignations. A Director may resign at any time by delivering
written notification thereof to the President or Secretary of the Corporation.
Any resignation shall become effective upon its acceptance by the Board of
Directors; provided, however, that if the Board of Directors has not acted
thereon within ten (10) days from the date of its delivery, the resignation
shall upon the tenth (10th) day be deemed accepted.
Section 3.10 Presumption of Assent. A Director of the Corporation who is
present at a meeting of the Board of Directors
<PAGE>
at which action on any corporate matter is taken shall be presumed to have
assented to the action taken unless his dissent shall be entered in the minutes
of the meeting or unless he shall file his written dissent to such action with
the person acting as the Secretary of the meeting before the adjournment thereof
or shall forward such dissent by registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a Director who voted in favor of such action.
Section 3.11 Compensation. By resolution of the Board of Directors, the
Directors may be paid their expenses, if any, of attendance at each meeting of
the Board of Directors, and may be paid a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary as Director. No payment
shall preclude any Director from serving the Corporation in any other capacity
and receiving compensation therefore.
Section 3.12 Emergency Power. When, due to a national disaster or death, a
majority of the Directors are incapacitated or otherwise unable to attend
meetings and function as Directors, the remaining members of the Board of
Directors shall have all the powers necessary to function as a complete Board
and, for the purpose of doing business and filling vacancies, shall constitute a
quorum until such times as all Directors can attend or vacancies can be filled
pursuant to these By-laws.
Section 3.13 Chairman. The Board of Directors may elect
<PAGE>
from its own number a chairman of the Board, who shall preside at all meetings
of the Board of Directors, and shall perform such other duties as may be
prescribed from time to time by the Board of Directors.
Section 3.14 Informal Action by Directors. Any action required or
permitted to be taken at a meeting of the Directors may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the Directors entitled to vote with respect to the subject
matter thereof.
ARTICLE IV
OFFICERS
Section 4.1 Number. The officers of the Corporation shall be a President,
one (1) or more Vice-Presidents, a Secretary, and a Treasurer, each of whom
shall be elected by a majority of the Board of Directors. Such other officers
and assistant officers as may be deemed necessary may be elected or appointed by
the Board of Directors. In its discretion, the Board of Directors may leave
unfilled for any such period as it may determine any office except those of
President and Secretary. Officers may or may not be Directors or shareholders of
the Corporation.
Section 4.2 Election and Term of Office. The officers of the
Corporation are to be elected by the Board of Directors at the first meeting of
the Board of Directors held after each
<PAGE>
annual meeting of the shareholders. If the election officers shall not be held
at such meeting, such election shall be held as soon thereafter as convenient.
Each officer shall hold office until his successor shall have been duly elected
and shall have qualified or until his death or until he shall resign or shall
have been removed in the manner hereinafter provided.
Section 4.3 Resignations. Any officer may resign at any time by
delivering a written resignation either to the President or to the Secretary.
Unless otherwise specified therein, such resignation shall take effect upon
delivery.
Section 4.4 Removal. Any officer or agent may be removed by the Board of
Directors whenever in its judgment, the best interests of the Corporation will
be served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Election or appointment of an Officer
or agent shall not of itself create contract rights. Any such removal shall
require a majority vote of the Board of Directors, exclusive of the officer in
question if he is also a Director.
Section 4.5 Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, or if a new office shall be
created, may be filled by the Board of Directors for the unexpired portion of
the term.
Section 4.6 President. The President shall be the chief executive and
administrative officer of the Corporation. He shall preside at all meetings of
the shareholders and, in the absence of the Chairman of the Board, at meetings
of the Board of
<PAGE>
Directors. He shall exercise such duties as customarily pertain to the office of
President and shall have general and active supervision over the property,
business, and affairs of the Corporation and over its several officers. He may
appoint officers, agents, or employees other than those appointed by the Board
of Directors. He may sign, execute and deliver in the name of the Corporation
powers of attorney, contracts, bonds, and other obligations and shall perform
such other duties as may be prescribed from time to time by the Board of
Directors or by the By-Laws.
Section 4.7 Vice-President. The Vice-President shall have such powers and
perform such duties as may be assigned to them by the Board of Directors or the
President. In the absence or disability of the President, the Vice-President
designated by the Board or the President shall perform the duties and exercise
the powers of the President. In the event there is more than one (1)
Vice-President and the Board of Directors has not designated which
Vice-President is to act as President, then the Vice-President who was elected
first shall act as President. A Vice-President may sign and execute contracts
and other obligations pertaining to the regular course of his duties.
Section 4.8 Secretary. The Secretary shall keep the minutes of all
meetings of the shareholders and of the Board of Directors and to the extent
ordered by the Board of Directors or the President, the minutes of meetings of
all committees. He shall cause notice to be given of meetings of shareholders,
of the Board of Directors, and of any committee appointed by the
<PAGE>
Board. He shall have custody of the corporate seal and general charge of the
records, documents, and papers of the Corporation not pertaining to the
performance of the duties vested in other officers, which shall at all
reasonable times be open to the examination of any Director. He may sign or
execute contracts with the President or a Vice-President thereunto authorized in
the name of the Company and affix the seal of the Corporation thereto. He shall
perform such other duties as may be prescribed from time to time by the Board of
Directors or by the By-laws. He shall be sworn to the faithful discharge of his
duties. Assistant Secretaries shall assist the Secretary and shall keep and
record such minutes of meetings as shall be directed by the Board of Directors.
Section 4.9 Treasurer. The Treasurer shall have general custody of the
collection and disbursements of funds of the Corporation. He shall endorse on
behalf of the Corporation for collection checks, notes, and other obligations,
and shall deposit the same to the credit of the Corporation in such bank or
banks or depositories as the Board of Directors may designate. He may sign, with
the President, or such persons as may be designated for the purpose by the Board
of Directors, all bills of exchange or promissory notes of the Corporation. He
shall enter or cause to be entered regularly in the books of the Corporation
full and accurate accounts of all monies received and paid by him on account of
the Corporation; shall at all reasonable times exhibit his books and accounts to
any Director of the Corporation upon application at the office of the
<PAGE>
Corporation during business hours; and, whenever required by the Board of
Directors or the President, shall render a statement of his accounts. He shall
perform such other duties as may be prescribed from time to time by the Board of
Directors or by the By-Laws.
Section 4.10 General Manager. The Board of Directors may employ and
appoint a General Manager who may, or may not, be one of the officers or
Directors of the Corporation. If employed by the Board of Directors he shall be
the chief operating officer of the Corporation and, subject to the directions of
the Board of Directors, shall have general charge of the business operations of
the Corporation and general supervision over its employees and agents. He shall
have the exclusive management of the business of the Corporation and of all of
its dealings, but at all times subject of the control of the Board of Directors.
Subject to the approval of the Board of Directors or the executive committee, he
shall employ all employees of the Corporation, or delegate such employment to
subordinate officers, or such division officers, or such division chiefs, and
shall have authority to discharge any person so employed. He shall make a report
to the President and directors quarterly, or more often if required to do so,
setting forth the results of the operations under his charge, together with
suggestions looking to the improvement and betterment of the condition of the
Corporation, and to perform such other duties as the Board of Directors shall
require.
Section 4.11 Other Officers. Other officers shall perform such duties and
have such powers as may be assigned to them by
<PAGE>
the Board of Directors.
Section 4.12 Salaries. The salaries or other compensation of the officers
of the Corporation shall be fixed from time to time by the Board of Directors
except that the Board of Directors may delegate to any person or group of
persons the power to fix the salaries or other compensation of any subordinate
officers or agents. No officer shall be prevented from receiving any such salary
or compensation by reason of the fact that he is also a Director of the
Corporation.
Section 4.13 Surety Bonds. In case the Board of Directors shall so
require, any officer or agent of the Corporation shall execute to the
Corporation a bond in such sums and with surety or sureties as the Board of
Directors may direct, conditioned upon the faithful performance of his duties to
the Corporation, including responsibility for negligence and for the accounting
for all property, monies or securities of the Corporation which may come into
his hands.
ARTICLE V
COMMITTEES
Section 5.1 Executive Committee. The Board of Directors may appoint from
among its members an Executive Committee of not less than two (2) nor more than
seven (7) members, one (1) of whom shall be the President, and shall designate
one (1) ore more of its members as alternatives to serve as a member or members.
The Board of Directors reserves to itself alone the power to
<PAGE>
declare dividends, issue stock, recommend to shareholders any action requiring
their approval, change the membership of any committee at any time, fill
vacancies therein, and discharge any committee either with or without cause at
any time. Subject to the foregoing limitations, the Executive Committee shall
possess and exercise all other powers of the Board of Directors during the
intervals between meetings.
Section 5.2 Other Committees. The Board of Directors may also appoint
from among its own members such other committees as the Board may determine,
which shall in each case consist of not less than two (2) Directors, and which
shall have such powers and duties as shall from time to time be prescribed by
the Board. The President shall be a member ex officio of each committee
appointed by the Board of Directors. A majority of the members of any committee
may fix its rules of procedure.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 6.1 Contracts. The Board of Directors may authorize any officer
or officers, agents or agent, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances.
Section 6.2 Loans. No loan or advances shall be contracted on behalf of
the Corporation, no negotiable paper or other evidence of its obligation under
any loan or advance shall be
<PAGE>
issued in its name, and no property of the Corporation shall be mortgaged,
pledged, hypothecated or transferred as security for the payment of any loan,
advance, indebtedness or liability of the Corporation unless and except as
authorized by the Board of Directors. Any such authorization may be general or
confined to specific instances.
Section 6.3 Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board of Directors may
select, or as may be selected by any officer or agent authorized to do so by the
Board of Directors.
Section 6.4 Checks and Drafts. All notes, drafts, acceptances, checks,
endorsements and evidence of indebtedness of the Corporation shall be signed by
such officer or officers or such agent or agents of the Corporation and in such
manner as the Board of Directors from time to time may determine. Endorsements
for deposit to the credit of the Corporation in any of its duly authorized
depositories shall be made in such manner as the Board of Directors may from
time to time determine.
Section 6.5 Bonds and Debentures. Every bond or debenture issued by the
Corporation shall be evidenced by an appropriate instrument which shall be
signed by the President or a Vice-President and by the Treasurer or by the
Secretary, and sealed with the seal of the Corporation. The seal may be
facsimile, engraved or printed. Where such bond or debenture is authenticated
with the manual signature of an authorized officer
<PAGE>
of the Corporation or other Trustee designated by the indenture of trust or
other agreement under which such security is issued, the signature of any of the
Corporation's officers named thereon may be facsimile. In case any officer who
signed, or whose facsimile signature has been used on any such bond or
debenture, shall cease to be an officer of the Corporation for any reason before
the same has been delivered by the Corporation, such bond or debenture may
nevertheless be adopted by the Corporation and issued and delivered as though
the person who signed it or whose facsimile signature has been used thereon had
not ceased to be such officer.
ARTICLE VII
CAPITAL STOCK
Section 7.1 Certificate of Share. The shares of the Corporation shall be
represented by certificates prepared by the Board of Directors and signed by the
President or the Vice-President, and by the Secretary, or an Assistant Security,
and sealed with the seal of the Corporation or a facsimile. The signatures of
such officers upon a certificate may be facsimiles if the certificate is
countersigned by a transfer agent or registered by a registrar other than the
Corporation itself or one of its employees. All certificates for shares shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom shares represented thereby are issued, with the number of shares
and date of issue, shall be
<PAGE>
entered on the stock transfer books of the Corporation. All certificates
surrendered to the Corporation for transfer shall be canceled and no new
certificate shall be issued until the former certificate for a like number of
shares shall have been surrendered and canceled, except that in case of a lost,
destroyed or mutilated certificate, a new one may be issued therefore upon such
terms and indemnity to the Corporation as the Board of Directors may prescribe.
Section 7.2 Transfer of Shares. Transfer of shares of the Corporation
shall be made only on the stock transfer books of the Corporation by the holder
of record thereof or by his legal representative, who shall furnish proper
evidence of authority to transfer, or by his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary of the Corporation,
and on surrender for cancellation of the certificate for such shares. The person
in whose name shares stand on the books of the Corporation shall be deemed by
the Corporation to be the owner thereof for all purposes.
Section 7.3 Transfer Agent and Registrar. The Board of Directors shall
have power to appoint one or more transfer agents and registrars for the
transfer and registration of certificates of stock of any class, and may require
that stock certificates shall be countersigned and registered by one or more of
such transfer agents and registrars.
Section 7.4 Lost or Destroyed Certificates. The Corporation may issue a
new certificate to replace any certificate theretofore issued by it alleged to
have been lost or
<PAGE>
destroyed. The board of Directors may require the owner of such a certificate or
his legal representatives to give the Corporation a bond in such sum and with
such sureties as the Board of Directors may direct to indemnify the Corporation
and its transfer agents and registrars, if any, against claims that may be made
on account of the issuance of such new certificates. A new certificate may be
issued without requiring any bond.
Section 7.5 Consideration for Shares. The capital stock of the
Corporation shall be issued for such consideration, but not less than the par
value thereof, as shall be fixed from time to time by the Board of Directors. In
the absence of fraud, the determination of the Board of Directors as to the
value of any property or services received in full or partial payment of shares
shall be conclusive.
Section 7.6 Registered Shareholders. The Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder thereof
in fact, and shall not be bound or obligated to recognize any equitable or other
claim to or on behalf of the Corporation, any and all the rights and powers
incident to the ownership of such stock at any such meeting, and shall have
power and authority to execute and deliver proxies and consents on behalf of the
Corporation in connection with the exercise by the Corporation of the rights and
powers incident to the ownership of such stock. The Board of Directors, from
time to time, may confer like powers upon any other person or persons.
<PAGE>
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Indemnification. No officer or director shall be personally
liable for any obligations arising out of any acts or conduct of said officer or
director performed for or on behalf of the Corporation. The Corporation shall
and does hereby indemnify and hold harmless each person and his heirs and
administrators who shall serve at any time hereafter as a director or officer of
the Corporation from and against any and all claims, judgments and liabilities
to which such persons shall become subject by reason of his having heretofore or
hereafter been a director of officer of the Corporation, or by reason of any
action alleged to have been heretofore or hereafter taken or omitted to have
been taken by him as such director or officer, and shall reimburse each such
person for all legal and other expenses reasonably incurred by him in connection
with any such claim or liability; including power to defend such person from all
suits as provided for under the provisions of the Nevada Business Corporation
Act; provided, however, that no such person shall be indemnified against, or be
reimbursed for, any expense incurred in connection with any claim or liability
arising out of his own negligence or willful misconduct. The rights accruing to
any person under the foregoing provisions of this section shall not exclude any
other right to which he may lawfully be entitled. nor shall anything herein
contained restrict the right of the Corporation to indemnify or reimburse such
person in any proper
<PAGE>
case, even though not specifically herein provided for. The Corporation, its
directors, officers, employees and agents shall be fully protected in taking any
action or making any payment or in refusing so to do in reliance upon the advice
of counsel.
Section 8.2 Other Indemnification. The indemnification herein provided
shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any statute, By-law, agreement, vote of
shareholders or disinterested directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer or employee and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Section 8.3 Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer or employee
of the Corporation, or is or was serving at the request of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any capacity, or arising out of his
status as such, whether or not the Corporation would have the power to indemnify
him against liability under the provisions of this Article VIII or of subsection
(o) of Section 16-10-4 of the Nevada Business Corporation Act.
Section 8.4 Settlement by Corporation. The right of any person to be
indemnified shall be subject always to the right of the Corporation by its Board
of Directors, in lieu of such indemnity, to settle any such claim, action, suit
or proceeding
<PAGE>
at the expense of the Corporation by the payment of the amount of such
settlement and the costs and expenses incurred in connection therewith.
ARTICLE IX
WAIVER OF NOTICE
Whenever any notice is required to be given to any shareholder or
director of the Corporation under the provisions of these By-Laws or under the
provisions of the Nevada Business Corporation Act, a waiver thereof in writing
signed by the person or persons entitled to such notice, whether before or after
the time stated therein, shall be deemed equivalent to the giving of such
notice. Attendance at any meeting shall constitute a waiver of notice of such
meetings, except where attendance is for the express purpose of objecting to the
legality of that meeting.
ARTICLE X
AMENDMENTS
These By-laws may be altered, amended, repealed, or added to by the
affirmative vote of the holders of at least eighty per cent of the shares
entitled to vote in the election of any director at an annual meeting or at a
special meeting called for that purpose, provided that a written notice shall
have been sent to each shareholder of record entitled to vote at such meetings
at least ten (10) days before the date of such annual or special meeting, which
notice shall state the alterations, amendments,
<PAGE>
additions, or changes which are proposed to be made in such By-laws. Only such
changes shall be made as have been specified in the notice. The By-laws may also
be altered, amended, repealed, or new By-laws adopted by a majority of the Board
of Directors at any regular or special meeting. Any By-laws adopted by the Board
may be altered, amended, or repealed by eighty per cent of the shareholders
entitled to vote.
ARTICLE XI
FISCAL YEAR
The fiscal year of the Corporation shall be fixed and may be varied by
resolution of the Board of Directors.
ARTICLE XII
DIVIDENDS
The Board of Directors may at any regular or special meeting, as they
deem advisable, declare dividends payable out of the surplus of the Corporation.
ARTICLE XIII
CORPORATE SEAL
The seal of the Corporation shall be in the form of a circle and shall
bear the name of the Corporation and the year of incorporation.
<PAGE>
ARTICLE XIV
RIGHTS AND POWERS
The Corporation, Board, Officers, and Shareholders shall have the rights
and powers provided for in law whether or not specifically provided for in the
By-laws.
Adopted by resolution of the Board of Directors on the 1st day of
September 1995.
Adopted by resolution of the shareholders on the 15th day of September
1995.
CERTIFICATION
The undersigned being the duly empowered secretary of the corporation certifies
that the By-laws were adopted on the dates set forth on the preceding page.
/s/ Vivian H. Liu
---------------------------
Secretary
Exhibit 2.3
AMENDMENT TO BY-LAWS
OF NEXMED, INC.
The By-Laws of NexMed, Inc., a Nevada corporation (the "Corporation"),
previously adopted by resolution of the Board of Directors of the Corporation on
September 1, 1995 and by the shareholders of the Corporation on September 15,
1995 (the "By-Laws"), are hereby amended as follows:
FIRST: The second and third sentences of Section 2.1 of the By-Laws are
hereby deleted and hereby replaced with the following:
"Such annual meeting shall be held on such date, and at such time as
the Board of Directors shall each year fix."
SECOND: Section 2.2 of the By-Laws is hereby deleted in its entirety and
is hereby replaced with new Section 2.2 as follows:
"Section 2.2 Special Meetings. Special Meetings of shareholders may
be called in accordance with Article Fourth (B) of the Amended and
Restated Articles of Incorporation of the Corporation."
THIRD: Section 2.9 of the By-Laws is hereby deleted in its entirety and is
replaced it with the following new Section 2.9, consistent with Section 78.320
of the Nevada General Corporation Law, followed by new Section 2.10 as follows:
"Section 2.9 Informal Action by Shareholders. Any action required to
be taken at a meeting of the shareholders, or any action which may
be taken at a meeting of the shareholders, may be taken without a
meeting if a consent in writing, setting forth the action so taken,
shall be signed by a majority of the shareholders entitled to vote
with respect to the subject matter thereof, except that if a
different proportion of voting power is required for such an action
at a meeting, then that proportion of written consents is required.
Section 2.10 Nominations and Shareholder Business.
(a) Annual Meetings of the Shareholders.
(1) Nominations of person for election to the Board of
Directors and the proposal of business to be considered by the
shareholders may be made at an annual meeting of
<PAGE>
the shareholders (i) pursuant to the Corporation's notice of
meeting, (ii) by or at the direction of the Board of Directors, or
(iii) by any shareholder of the Corporation who was a shareholder of
record at the time of giving of notice provided for in this Section
2.10(a), who is entitled to vote at the meeting and who complied
with the notice procedures set forth in this Section 2.10(a).
(2) For nominations or other business to be properly brought
before an annual meeting by a shareholder pursuant to clause (iii)
of paragraph (a)(1) of this Section 2.10, the shareholder must have
given timely notice thereof in writing to the secretary of the
Corporation. To be timely, a shareholder's notice shall be delivered
to the secretary at the principal executive offices of the
Corporation not less than sixty (60) days nor more than ninety (90)
days prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of the
annual meeting is advanced by more than thirty (30) days or delayed
by more than sixty (60) days from such anniversary date, notice by
the shareholder to be timely must be so delivered not earlier than
the ninetieth (90th) day prior to such annual meeting and not later
than the close of business on the later of the sixtieth (60th) day
prior to such annual meeting or the tenth (10th) day following the
day on which public announcement of the date of such meeting is
first made. Such shareholder's notice shall set forth (i) as to each
person whom the shareholder proposes to nominate for election or
reelection as a director, all information relating to such person
that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (the "Exchange Act") (including such person's
written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); (ii) as to any other
business that the shareholder proposes to bring before the meeting,
a brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such shareholder and of
the beneficial owner, if any, on whose behalf the proposal is made;
and (iii) as to the shareholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made,
(x) the name and address of such shareholder, as they
<PAGE>
appear on the Corporation's books, and of such beneficial owner and
(y) the class and number of shares of stock of the Corporation which
are owned beneficially and of record by such shareholder and such
beneficial owner.
(b) General.
(1) Only such persons who are nominated in accordance with the
procedures set forth in this Section 2.10 shall be eligible to serve
as directors and only such business shall be conducted at a meeting
of shareholders as shall have been brought before the meeting in
accordance with the procedures set forth in this Section 2.10. The
presiding officer of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the
procedures set forth in this Section 2.10 and, if any proposed
nomination or business is not in compliance with this Section 2.10,
to declare that such defective nomination or proposal be
disregarded.
(2) Notwithstanding the foregoing provisions of this Section
2.10, a shareholder shall also comply with all applicable
requirements of state law and of the Exchange Act and the rules and
regulations thereunder with respect to the matters set forth in this
Section 2.10."
FOURTH: Section 3.2 of the By-Laws is hereby deleted in its entirety and
is replaced with new Section 3.2 as follows:
"Section 3.2 Number, Tenure, and Qualifications. The business and
affairs of the Corporation shall be managed by or under the
direction of its Board of Directors. The number of directors that
shall constitute the whole Board shall be fixed from time to time by
resolution of the Board of Directors. Directors may be designated as
"advisory directors" rather than regular voting directors by the
Board of Directors. In addition, the Board of Directors may change
the status of a director from an advisory director to a voting
director or from a voting director to an advisory director. The
Board of Directors may from time to time establish minimum
qualifications for eligibility to become a director. Those
qualifications may include, but shall not be limited to, a
prerequisite stock ownership in the Corporation."
<PAGE>
FIFTH: Section 3.7 of the By-Laws is hereby deleted in its entirety and is
replaced with new Section 3.7 as follows:
"Section 3.7 Vacancies. Vacancies in the Board of Directors of the
Corporation shall be filled in accordance with Article Sixth (b) of
the Amended and Restated Articles of Incorporation of the
Corporation."
SIXTH: Section 3.8 of the By-Laws is hereby deleted in its entirety and is
replaced with new Section 3.8 as follows:
"Section 3.8 Removals. Removals of directors from the Board of
Directors of the Corporation shall be in accordance with Article
Sixth (b) of the Amended and Restated Articles of Incorporation of
the Corporation."
SEVENTH: The By-Laws are hereby amended by deleting all references the
"Nevada Business Corporation Act" and replacing such references with the
following:
"Nevada General Corporation Law."
EIGHTH: Section 8.3 of the By-Laws is hereby amended by deleting the
following words "of subsection (o) of Section 16-10-4 of the Nevada Business
Corporation Act." and replacing them with the following:
"Section 78.751 of the Nevada General Corporation Law."
NINTH: ARTICLE X of the By-Laws is deleted in its entirety and is replaced
with new Article X as follows:
"ARTICLE X
AMENDMENTS
Amendment of the By-Laws of the Corporation shall be in accordance
with Article Seventh of the Amended and Restated Articles of
Incorporation of the Corporation."
Except as specifically set forth in this Amendment to By-Laws of the
Corporation, the By-Laws of the Corporation shall remain unchanged and in full
force and effect pursuant to the terms thereof.
<PAGE>
The undersigned being the duly empowered Secretary of the Corporation
hereby certifies that this Amendment to By-Laws of the Corporation was adopted
by resolution of the Board of Directors of the Corporation on the 23rd day
December, 1996.
/s/ Vivian H. Liu
-----------------------------
Name: Vivian H. Liu
Title: Secretary
Exhibit 3.1
Specimen Common Stock Certificate
INCORPORATED UNDER THE LAWS
OF THE STATE OF NEVADA
[Graphics: Picture of Eagle]
Number Shares
[ ] [ ]
NexMed, Inc.
CUSIP NO. 652903 10 5
AUTHORIZED COMMON STOCK: 40,000,000 10,000,000 PREFERRED
PAR VALUE: $.001
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
NexMed, Inc.
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid until countersigned by the Transfer Agent and registered by the
Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
________________________ [SEAL] _________________________
Secretary President
Countersigned and Registered:
Continental Stock Transfer & Trust Company
Transfer Agent and Registrar
By:
Authorized Officer
<PAGE>
NOTICE: Signature must be guaranteed by a firm which is a member of a registered
national stock exchange, or by a bank (other than a savings bank), or a trust
company. The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM-- as tenants in common UNIF GIFT MIN ACT- Custodian
TEN ENT-- as tenants by the entireties (Cust) (Minor)
JT TEN--as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as Act_________________________
tenants in common (State)
Additional abbreviations may also be used
though not in the above list
For Value Received, __________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE)
________________________________________________________________________________
_______________________________________________________________________Shares of
the capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
_____________________________________________________________________Attorney to
transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated__________________________
_________________________________________________________________
NOTICE: The signature to this Assignment must correspond with
the name as written upon the face of the Certificate in
every particular without alteration or enlargement or
any change whatever
Exhibit 5.1
VOTING TRUST AGREEMENT
This Voting Trust Agreement (the "Agreement"), by and between ___________,
a ____________________ corporation (the "Stockholder"), and Y. Joseph Mo and his
successors in trust (the "Trustee"),
W I T N E S S E T H:
WHEREAS, the parties hereto believe it in the best interests of NexMed,
Inc., a Nevada corporation (the "Company"), and its stockholders, in order to
assure continuity and stability of policy and management of the Company, for the
Stockholder to deposit its stockholdings of ______________ shares of common
stock of the Company, $.001 par value (the "Shares") with the Trustee in
accordance with provisions hereinafter provided:
NOW, THEREFORE, in consideration of the mutual promises hereinafter
set forth and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound hereby, do hereby agree as follows:
1. Transfer of Stock to Trustee. The Stockholder shall, simultaneously
with the execution of this Agreement, assign and deliver its stock certificates
to the Trustee, and the Shares represented by the stock certificates so
delivered shall be transferred on the books of the Company to the Trustee, as
voting Trustee. The Trustee is hereby fully authorized and empowered to cause
such transfer to be made and also to cause any further transfers of the Shares
to be made which become necessary through any change of the person holding the
office of Trustee, as hereinafter provided.
2. Voting Trust Certificates. The Trustee shall issue and deliver to the
Stockholder a voting trust certificate for the Shares transferred by the
Stockholder to the Trustee, in substantially the form attached to this Agreement
as Exhibit A.
3. Voting By Trustee. The Trustee shall have the exclusive right to vote
all Shares held pursuant to this Agreement, in person or by proxy, at all
meetings of the stockholders of the Company and in all proceedings where the
vote or written consent of stockholders may be required or authorized by law.
The Trustee in its sole discretion shall determine the manner in which such
Shares shall be voted. The Trustee may vote in favor of the election of the
Trustee as a director or officer of the Company and may act as such.
<PAGE>
4. Trust Provisions.
(a) The trustee shall hold the Shares transferred to the Trustee in
trust hereunder for the benefit of the Stockholder under the terms and
conditions set forth herein.
(b) Notwithstanding any provision hereof, the Stockholder shall have
the right to sell, assign, transfer or pledge any or all of the Shares to third
parties and the Trustee shall use reasonable efforts to cause any Shares so
sold, assigned, transferred or hypothecated to be transferred promptly to the
purchaser, assignee, transferee or pledgee thereof against delivery of the
voting trust certificates representing the Shares; provided (i) in the case of a
pledge, that the pledgee shall not have any right to vote the Shares, (ii) in
the case of Shares sold, assigned, transferred or hypothecated to an affiliate
of the Stockholder or via a private placement transaction, the Shares shall
remain in trust hereunder subject to the terms of this Agreement; and (iii) in
the event that the Shares are sold, assigned, transferred or hypothecated to an
unaffiliated third party in a "brokered transaction", as defined in the
Securities Act of 1933, as amended, if such third party is not subject to the
reporting requirements under Section 13(d) of the Exchange Act of 1934, as
amended, the Shares shall be sold, assigned, transferred or hypothecated to such
third parties and released from the trust upon such sale or transfer, otherwise
the Shares shall remain in trust hereunder subject to the terms of this
Agreement. A third party shall be deemed "affiliated" for purposes of this
Section 4(b) if such third party is controlled by, controls or under common
control with the Stockholder or a member of the immediate family of the
Stockholder, is retained by the Stockholder or a member of the immediate family
of the Stockholder as a consultant generally operating at the direction of such
person, is employed, directly or indirectly, by such person, or has made
substantial business investments of any nature in any entity with the
Stockholder or a member of the immediate family of the Stockholder.
5. Successor Trustee. In the event of the resignation of the Trustee, the
Trustee shall have the power to appoint his successor, prior to his resignation,
by a written instrument signed by him and delivered to the successor Trustee. In
the event of failure to so appoint, or in the event of the death or incapacity
to act of the Trustee, the President of the Company shall appoint a successor
Trustee.
6. Dividends. The holders of voting trust certificates issued by the
Trustee shall be entitled to receive payment of all dividends and the Trustee
shall cause all such dividends to be distributed by the Company to such holders,
provided, however, that a pro rata distribution of additional voting securities
of the Company by way of stock dividend or partial liquidation, if any, declared
by the Company with respect to the Shares transferred to the Trustee pursuant to
this Agreement shall be issued in the name of the Trustee as additional deposits
hereunder and the Trustee shall issue additional voting trust certificates
therefor.
<PAGE>
7. Term. This Agreement shall terminate five (5) years from the date
hereof unless earlier terminated by the Trustee. Upon termination, the Trustee
shall, upon surrender of the voting trust certificates, cause to be delivered to
the holders thereof, shares of capital stock of the Company equivalent in amount
to the shares represented by the voting trust certificates surrendered.
8. Responsibility of Trustee. The Trustee agrees to use its best judgment
in voting the stock held by the Trustee in the manner considered by the Trustee
to be in the best interests of the Company and all of its stockholders. The
Trustee shall not be held liable for any act taken in good-faith attempt to
effectuate such purpose.
9. Additional Parties. The Trustee is authorized to permit such other
stockholders to become parties to this Agreement as the Trustee sees fit.
10. Parties Bound. This Agreement shall bind the parties hereto and their
respective heirs, legal representatives, successors and assigns.
11. Filing of the Agreement. Upon execution of this Agreement by the
Stockholder and the Trustee, the Trustee shall cause a copy of this Agreement to
be filed in the registered office of the Company in the State of Nevada.
12. Governing Law. This Agreement shall be governed by the laws of the
State of Nevada.
13. Counterparts. This Agreement may be executed simultaneously in any
number of counterparts. Each counterpart shall be deemed to be an original, and
all such counterparts shall constitute one in the same instrument.
[Signature page follows, remainder of page is intentionally blank]
<PAGE>
IN WITNESS WHEREOF, the undersigned Trustee, as evidence of the acceptance
of the trust hereby created, have signed and sealed this Agreement, and the
undersigned Stockholder has signed and sealed this Agreement, and set opposite
the signature of its authorized representative, the number of shares held or
owned by the Stockholder.
DATED as of the ________ day of ______________________, 199__.
STOCKHOLDER:
_____________________________
Number of shares owned by
the Stockholder _________ By:__________________________
Name:
Title:
TRUSTEE:
_____________________________(SEAL)
Name: Y. Joseph Mo
Title: Trustee
<PAGE>
EXHIBIT A
NEXMED, INC.
VOTING TRUST CERTIFICATE
CERTIFICATE NO.________
___________SHARES
This is to certify that __________________________ is the owner of ______
shares of capital stock of NexMed, Inc. (the "Company"), held by the undersigned
as Trustee subject and pursuant to the terms, conditions and stipulations of a
Voting Trust Agreement, dated _____________, 1996 (the "Agreement"), a copy of
which Agreement is on file in the registered office of the Company in
California, references being had thereto as to all the terms, conditions, and
requirements of said Agreement.
This certificates is transferable only on the books of the Trustee by the
holder thereof in person or by attorney upon the surrender of this certificates
properly endorsed.
Capitalized terms used and not defined herein shall have the meanings
ascribed to them in the Agreement.
IN WITNESS WHEREOF, the Trustee have cause this certificate to be signed
this ____ day of ___________ 199__.
________________________(SEAL)
Name:
Title: Trustee
Exhibit 6.1
TECHNOLOGY ACQUISITION AGREEMENT
This Technology Acquisition Agreement (the "Agreement") is made as of this
25th day of October, 1996, by and between NexMed, Inc., a Nevada corporation
("NexMed"), with its principal place of business located at 6087 Triangle Drive,
Commerce, CA 90040, and Odontex, Inc., a Kansas corporation ("Odontex"), with
its principal place of business located at 1321 Wakarusa Drive, Suite #2103,
Lawrence, Kansas 66049.
WHEREAS, Odontex possesses rights to development and technology, including
patents, patent applications and know-how relating to certain Topical Technology
(as defined below);
WHEREAS, NexMed desires to acquire, and Odontex desires to sell, all
rights and interests relating to the Topical Technology pursuant to the terms
and conditions set forth herein, including all patents and patent applications
relating thereto;
NOW, THEREFORE, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS
For purposes of this Agreement, the following definitions shall be
applicable:
1.1 "Closing Date" means October 25, 1996.
1.2 "Patents" means:
1. US Patent # 4,980,378 - Biodegradable Absorption Enhancers
issued December 25, 1990
2. US Patent # 5,082,866 - Biodegradable Absorption Enhancers,
A Division of Patent issued January 21, 1992.
3. US Serial # 08/133,454 - Absorption Enhancers for Topical
Pharmaceutical Formulations filed in October, 1993.
4. International Patent Application No. PCT/US94/11597 -
Absorption Enhancers for Topical Pharmaceutical Formulations filed October 7,
1994; C-1-P of US Serial No. 133,454.
1.3 "Research Consulting and Collaboration Agreement" means the
agreement, dated as of May 7, 1996, by and between NexMed and Dr. John
Hefferren.
<PAGE>
1.4 "Technical Information" means all of Odontex's trade secrets,
information, and know-how, now owned, licensed or controlled with respect to:
(i) the medical, clinical, toxicological or other scientific data or information
relating to the Topical Technology (including, without limitation, pre-clinical
and clinical data, notes, reports, models, and samples) and (ii) the
manufacture, production, and purification procedures and processes, as well as
analytical methodology, used in the testing, assaying, analysis, production, and
packaging of the Topical Technology.
1.5 "Topical Technology" means all skin permeation enhancers that
are the subject of the Patents and/or know-how owned by Odontex or the subject
of newly discovered inventions and know-how which emerges as the result of the
Research Consulting and Collaboration Agreement.
2. REPRESENTATIONS AND WARRANTIES
Each party hereby represents and warrants for itself as follows:
2.1 It is a corporation duly organized, validly existing and is in
good standing under the laws of the jurisdiction of its incorporation, is
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the conduct of its business or the ownership of its
properties requires such qualification, except where the absence of such
qualifications, individually or in the aggregate, would not have a material
adverse effect on its business, assets, condition (financial or otherwise) or
results of operations. It has all requisite power and authority, corporate or
otherwise, to conduct its business as now being conducted, to own, lease and
operate its properties and to execute, deliver and perform this Agreement.
2.2 The execution, delivery and performance by it of this Agreement
have been duly authorized by all necessary corporate action and do not and will
not (a) require any consent or approval of its stockholders, (b) violate any
provision of any law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award presently in effect having applicability to it or
any provision of its charter or by-laws or (c) result in a breach of or
constitute a default under any material agreement, mortgage, lease, license,
permit or other instrument or obligation to which it is a party or by which it
or its properties may be bound.
2.3 This Agreement is a legal, valid and binding obligation of such
party, enforceable against it in accordance with its terms and conditions,
except that (i) such enforcement may be limited by or subject to any bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect relating to or limiting creditors' rights generally and (ii) the remedy
of specific performance and injunctive and other forms of equitable relief are
subject to certain equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
<PAGE>
2.4 It is not under any obligation to any person or entity,
contractual or otherwise, that is conflicting or inconsistent in any respect
with the terms of this Agreement or that would impede the diligent and complete
fulfillment of its obligations hereunder.
3. ODONTEX REPRESENTATIONS, WARRANTIES AND COVENANTS
Odontex hereby represents, warrants and covenants to NexMed as follows:
3.1 Odontex is the legal and equitable owner, free and clear of all
liens, security interests or encumbrances whatsoever, of all right, title and
interest in and to the Topical Technology, the Patents and the Technical
Information and, except for such Patents, there are no other patents issued and
no other patent applications filed in any country, in each case owned or filed
by Odontex relating to the Topical Technology or any other product or methods of
use or manufacturing processes thereof. To the best of Odontex's knowledge, the
use of the Topical Technology or the Patents by NexMed will not infringe upon a
valid claim of any patent of a third party and will not give rise to any claim
of third party for misappropriation or unauthorized use of trade secrets or
proprietary information.
3.2 Odontex has not granted to any third party any rights or
interests to the Patents, the Topical Technology or any Technical Information
relating to any of the foregoing, and neither the execution and delivery of this
Agreement, nor consummation of the transactions contemplated hereunder, requires
to obtain any permits, authorizations or consents under current law from any
governmental body (except for health approvals or governmental regulations
necessary to sell such products) or from any other person, firm or corporation
under any existing agreement to which Odontex may be a party, and such
execution, delivery and consummation will not result in the breach of or give
rise to any termination of any agreement or contract to which Odontex may be a
party or which otherwise relates to the Patents, the Topical Technology, or any
Technical Information relating to any of the foregoing. After the date hereof,
Odontex shall neither enter into any agreement nor take or fail to take any
action which shall restrict its legal right to grant to NexMed the rights
contemplated under this Agreement.
4. NEXMED REPRESENTATIONS AND WARRANTIES
NexMed hereby represents and warrants to Odontex as follows:
4.1 Neither the execution and delivery of this Agreement, nor
consummation of the transactions contemplated hereunder, requires NexMed to
obtain any permits, authorizations or consents from any governmental body
(except for health approvals or governmental registrations necessary to sell the
products contemplated therein) or from any other person, firm or corporation,
and such execution, delivery and
<PAGE>
consummation will not result in the breach of or give rise to any termination of
any agreement or contract to which NexMed may be a party.
4.2 The Shares (as defined in Section 7.1 hereof), when issued and
delivered by NexMed pursuant to this Agreement, will be duly authorized, validly
issued, fully paid and nonassessable and will be free of preemptive and
subscription rights. Upon delivery to Odontex of one or more certificates
representing the Shares, good and valid title to such Shares will pass to
Odontex, free and clear of all liens, security interests or encumbrances
whatsoever, except for the transfer restrictions contained in this Agreement.
5. SALE AND ASSIGNMENT OF PATENTS
5.1 For good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, Odontex hereby sells and assigns to NexMed and
NexMed shall be the exclusive owner of the entire right, title and interest,
including all renewals for the entire world, in the Topical Technology, the
Patents and the Technical Information, and in all work performed, materials,
writings, documents, formulas, designs, models, drawings, photographs, reports,
information and suggestions, design inventions and other inventions made,
conceived or reduced to practice or authored relating to the Topical Technology,
the Patents and the Technical Information.
5.2 Odontex shall sign, execute and acknowledge or cause to be
signed, executed and acknowledged any and all further assignments, documents,
assurance applications and other instruments, including without limitation,
patent assignments in the form attached hereto as Exhibit A, and to perform such
acts as may be necessary, useful or convenient for the purpose of securing to
NexMed and/or its nominees patent, trademark or copyright protection throughout
the world upon all such works, materials, writings, documents, formulas,
designs, models, drawings, photographs, reports, information and suggestions,
design inventions and other inventions, title to which NexMed may acquire in
connection with or pursuant to this Agreement.
6. PURCHASE PRICE
Upon the terms and subject to the conditions set forth in this Agreement,
in reliance upon the representations, warranties, covenants and agreements of
Odontex contained herein, and in exchange for the Topical Technology, the
Patents and all Technical Information, NexMed agrees to issue to Odontex 75,000
shares of NexMed's common stock, par value $.001 per share (the "Common Stock").
Such shares of Common Stock shall be delivered to Odontex on the Closing Date.
<PAGE>
7. REGISTRATION RIGHTS
7.1 Certain Definitions. As used in this Section 7, the following
shall have the following respective meanings;
"Shares" shall mean the shares of Common Stock issued by NexMed
pursuant to Section 6 of this Agreement and any other securities that may be
issued by NexMed, or any successor of NexMed, as a distribution upon or in
exchange for such shares or any such other securities.
"Commission" shall mean the Securities and Exchange Commission, or
any other federal agency at the time administering the Securities Act, as
defined below.
"Registration Statement" shall mean a registration statement filed
or to be filed by NexMed to register under the Securities Act a sale of any of
the Shares by or for the account of Odontex. Such term includes any prospectus
included in the Registration Statement.
"Securities Act" shall mean the Securities Act of 1933 or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Transfer" shall mean any sale or other disposition of any Shares
which would constitute a sale thereof under the Securities Act.
7.2 Restrictive Legend. Each certificate representing any Shares
and, except as otherwise provided in Section 7.3 hereof, each certificate issued
upon exchange or transfer of any Shares (whether or not such exchange or
transfer shall constitute a Transfer) shall be stamped or otherwise imprinted
with a legend substantially in the following form:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER ANY
SECURITIES LAWS AND MAY ONLY BE SOLD IN COMPLIANCE WITH ANY APPLICABLE
SECURITIES LAWS. IN PARTICULAR, THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS A REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, WITH RESPECT TO SUCH SHARES SHALL THEN BE IN
EFFECT OR UNLESS THE COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT ANY PROPOSED TRANSFER OR DISPOSITION OF SUCH
SHARES IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED."
7.3 Notice of Proposed Transfer. Prior to any proposed Transfer of
any Shares (other than under the circumstances described in Securities 7.4 or
7.5 hereof), Odontex shall give written notice to NexMed of the intention to
effect such Transfer. Each such notice shall describe the manner of the proposed
Transfer and
<PAGE>
shall be accompanied by an opinion of counsel satisfactory to NexMed to the
effect that the proposed transfer of the Shares may be effected without
registration under the Securities Act and under applicable state securities or
blue sky laws. Upon confirmation that such opinion is satisfactory to NexMed,
Odontex shall be entitled to transfer such Shares in accordance with the terms
of its notice. Each certificate for Shares transferred as above provided shall
bear the legend set forth in Section 7.2 hereof, except that such certificate
shall not bear such legend if (i) such Transfer is in accordance with provisions
of Rule 144 (or any other rule permitting public sale without registration under
the Securities Act) or (ii) the opinion of counsel referred to above is to the
further effect that the transferee and any subsequent transferee (other than an
affiliate of NexMed) would be entitled to Transfer such securities in a public
sale without registration under the Securities Act.
7.4. Required Registrations.
(a) If NexMed, on one occasion at any time after the Closing Date
but before the second anniversary of the Closing Date, receives a written
request for registration from Odontex stating that it contemplates selling not
less than [fifty] percent ([50]%) of the Shares under circumstances, which shall
be described in detail in the request, requiring registration under the
Securities Act, then as soon as practicable following the date that NexMed is
eligible to register securities on Form S-3 (or any successor form thereto), but
in no event later than 24 months following the date hereof, subject to the
limitations set forth in this Section 7.4, shall file a Registration Statement
with the Commission to register the Shares contemplated to be sold.
(b) After filing the Registration Statement, NexMed shall use its
best efforts and shall take all appropriate actions to cause the Registration
Statement to become effective as soon as practicable. After the Registration
Statement becomes effective NexMed shall use its best efforts and shall take all
appropriate actions to maintain the effectiveness of the Registration Statement
for such reasonable period, not exceeding six months, as Odontex may require to
complete its contemplated sale in compliance with the Securities Act. So long as
the Registration Statement remains in effect, NexMed shall furnish to Odontex
and its underwriters such quantities of each prospectus included in the
Registration Statement as they may reasonably request.
(c) Notwithstanding the other provisions of this Section 7.4, NexMed
may postpone the filing of a Registration Statement pursuant to Section 7.4(a)
hereof for an additional period of up to 180 days if (i) the postponement will
avoid the necessity of preparing audited financial statements as of a date other
than the end of a fiscal year or (ii) the Chairman of the Board or Chief
Executive Officer of NexMed determines in good faith that the postponement is
necessary to avoid serious jeopardy to NexMed, any significant business prospect
of NexMed or the security holders of NexMed considered as a group.
Notwithstanding the other provisions of this Section 7.4, NexMed shall not be
obligated to file any Registration Statement pursuant to this Section 7.4
hereof:
<PAGE>
(1) If NexMed delivers to Odontex an opinion of qualified
counsel, selected by NexMed, that under the circumstances in which Odontex
contemplates selling its Shares, an exemption from registration under the
Securities Act, including, but not limited to, the exemption provided by Rule
144, assuming compliance with the conditions stated therein (except paragraph
(c) of Rule 144), is available and that as a result, the Shares may be sold into
the public market without being registered under the Securities Act. Odontex
shall cooperate with NexMed and its counsel in investigating and assessing the
availability of any such exemption.
(2) During the period commencing with the date of filing of a
registration statement under the Securities Act pertaining to an underwritten
public offering of securities to be sold by NexMed and ending 180 days after the
effective date of such registration statement, provided that during such period
NexMed in good faith uses reasonable efforts to cause such registration
statement to become effective and to complete the public offering covered by
such registration statement.
(3) During the period commencing with the date on which
NexMed, pursuant to Section 7.5 hereof, shall notify Odontex of its intention to
file a registration statement pertaining to an underwritten public offering of
securities by NexMed (provided such date is not more than 30 days following the
date of the initial receipt by NexMed of the request of Odontex pursuant to
Section 7.4(a) hereof) and ending with the earliest of (i) the date of filing of
such registration statement, (ii) the date of abandonment by NexMed of such
intention to file (notice of which shall be given promptly to Odontex) or (iii)
the 180th day after such notification of intention to file.
Nothing in this Section 7 shall prohibit NexMed from including in
any Registration Statement filed pursuant to Section 9.4(a) hereof other
outstanding securities of NexMed to be sold by or for the account of any other
security holder if NexMed determines that it is obligated to do so.
7.5 Incidental Registration.
(a) If NexMed determines that it will file a Registration Statement,
at any time after the Closing Date but before the second anniversary of the
Closing Date, for any public offering of securities of the same class as the
Shares, NexMed shall give written notice to Odontex, at least 30 days in advance
of filing such Registration Statement, that such filing is expected to be made.
Upon the written request of Odontex received by NexMed at least 15 days in
advance of the filing, and subject to the limitations set forth in this Section
7.5, NexMed shall include in such Registration Statement the Shares specified in
Odontex's request for the purpose of registering those Shares for sale by or for
the account of Odontex. NexMed shall have exclusive control over the filing,
amending, withdrawal and other actions regarding such Registration Statement.
<PAGE>
(b) In the event the Shares are to be sold in any underwritten
public offering, Odontex shall enter into an underwriting agreement in customary
form with the underwriter or underwriters selected by NexMed. Notwithstanding
any other provisions of this Section 7.5, if, in connection with any offering
initiated by NexMed, the managing underwriter determines that marketing factors
require a limitation of the number of securities to be included in the
underwriting, the managing underwriter and NexMed may limit the number of Shares
to be included in the underwriting for Odontex, to such quantity as will not, in
the opinion of the underwriters, jeopardize the success of the offering by
NexMed. If the total amount of securities that are to be included in such
offering exceeds the amount of securities that the underwriters reasonably
believe are compatible with the success of the offering, NexMed shall only be
required to include in the offering so many of the securities of Odontex as the
underwriters believe will not jeopardize the success of the offering. NexMed
shall so advise Odontex, and the number of shares of securities that are
entitled to be included in the offering and underwriting shall be allocated
first, to NexMed for securities being sold for its own account, and second, to
Odontex. NexMed shall advise Odontex of the number of Shares that may be
included. No Shares excluded from an underwriting by reason of such marketing
limitation shall be included in the Registration Statement. If Odontex
disapproves of the terms of the underwriting, it may elect to withdraw its
Shares by giving written notice to NexMed and the managing underwriter. After
receiving any such notice, NexMed shall withdraw those Shares from the
Registration Statement.
7.6 State Securities or Blue Sky Laws. In connection with the
registration under the Securities Act of any sale of Shares by Odontex pursuant
to Sections 7.4 or 7.5 hereof, NexMed shall file on a timely basis appropriate
applications or other instruments to register, qualify or obtain exemptions for
the sale under such state securities or blue sky laws as the managing
underwriter shall reasonably specify, or, if the sale is not to be an
underwritten public offering, such state securities or blue sky laws as Odontex
may reasonably request. NexMed, however, shall have no obligation to file any
applications or other instruments in any jurisdiction in which either (i) no
such filing is required with respect to the proposed sale of shares by Odontex,
in the opinion of qualified counsel selected by NexMed, or (ii) NexMed would be
required to execute a general consent to service of process, to register as a
broker or dealer or to cause any officer or employee of NexMed to register as a
dealer, broker, or salesman or in any similar capacity. NexMed shall use its
best efforts in good faith to obtain and maintain for a reasonable period, up to
180 days, an effective registration, qualification or exemption under the
applications or other instruments filed by NexMed pursuant to this Section 7.6.
7.7 Registration Expenses. All expenses incurred in connection with
the Registration Statement filed or prepared for filing pursuant to Section 7.4
or 7.5 hereof (excluding underwriters' discounts and commissions and the fees
and disbursements of counsel for Odontex) and in connection with all related
state securities or blue sky applications or other instruments, including
without limitation, all registration, filing and qualification fees, printing
expenses and fees and expenses of
<PAGE>
attorneys and accountants incidental to such Registration Statement, shall be
borne by NexMed.
8. TAXES AND EXPENSES
8.1 Odontex hereby covenants and agrees to assume and pay all taxes
relating to the transfer to NexMed of the Topical Technology hereunder. Except
as otherwise specifically provided for in this Agreement, Odontex shall be
responsible for and shall pay all costs, liabilities and other obligations
incurred by Odontex in connection with the performance of and compliance with
all transactions, agreements and conditions contained in this Agreement to be
performed or complied with by Odontex, including legal and accounting fees.
8.2 Except as otherwise specifically provided for in this Agreement,
NexMed will assume and pay all costs, liabilities and other obligations incurred
by NexMed in connection with the performance of and compliance with all
transactions, agreements and conditions contained in this Agreement to be
performed or complied with by NexMed, including legal and accounting fees.
9. NONCOMPETITION
9.1 Upon the terms and subject to the conditions set forth in this
Section 9, Odontex covenants and agrees that, as a material consideration
running to NexMed for NexMed's payments hereunder, for a period of five years
from and after the Closing Date, Odontex will neither permit Odontex's name to
be used by nor engage in nor carry on, directly or indirectly, either for itself
or as a member of a partnership or as a stockholder, investor, agent, associate
or consultant of any person, partnership or corporation (other than NexMed) any
business in competition with the business relating to the Topical Technology,
the Patents and/or the Technical Information as carried on by Odontex on the
Closing Date, but only for as long as such like business is carried on by (i)
NexMed or any subsidiary or affiliate of NexMed, or (ii) any person,
corporation, partnership, trust or other organization or entity deriving title
from NexMed to the business relating to the Topical Technology, the Patents and
the Technical Information being carried on by Odontex on the Closing Date, in
any county in which NexMed conducts business, or in any other county in any
state of the United States, or in any country or political subdivision of the
world. The parties intend that the covenants contained in this Section 9.1 shall
be deemed to be a series of separate covenants, one for each county in each
state of the United States and for each country and political subdivision of the
world and, except for geographic coverage, each such separate covenant shall be
identical in terms to the covenant contained in this Section 9.1. Odontex
further covenants and agrees that for a period of five (5) years from and after
the Closing Date, Odontex will not recruit, hire, assist others in recruiting or
hiring, discuss employment with, or refer to others concerning employment, any
person who is, or within the twelve-month period immediately prior to the
Closing Date was, an employee of Odontex, NexMed or a subsidiary or affiliate of
either.
<PAGE>
9.2 The term of the covenants contained in Section 9.1 hereof shall
be tolled for the period commencing on the date any successful action is filed
for injunctive relief or damages arising out of a breach by Odontex of Section
9.1 hereof and ending upon final adjudication (including appeals) of such
action.
9.3 If, in any judicial proceeding, the court shall refuse to
enforce all of the separate covenants contained in Section 9.1 hereof because
the time limit is too long, it is expressly understood and agreed between the
parties hereto that for purposes of such proceeding such time limitation shall
be deemed reduced to the extent necessary to permit enforcement of such
covenants. If, in any judicial proceeding, the court shall refuse to enforce all
of the separate covenants contained in Section 9.1 hereof because it is more
extensive (whether as to geographical area, scope of business or otherwise) than
necessary to protect the business and goodwill of NexMed, it is expressly
understood and agreed between the parties hereto that for purposes of such
proceeding, the geographical area, scope of business or other aspect shall be
deemed reduced to the extent necessary to permit enforcement of such covenants.
9.4 Odontex acknowledges that a breach of Section 9.1 hereof would
cause irreparable damage to NexMed, and in the event of Odontex's actual or
threatened breach of the provisions of Section 9.1 hereof, NexMed shall be
entitled to a temporary restraining order and an injunction restraining Odontex
from breaching such covenants without the necessity of posting bond or proving
irreparable harm, such being conclusively admitted by Odontex. Nothing shall be
construed as prohibiting NexMed from pursuing any other available remedies for
such breach or threatened breach, including the recovery of damages from
Odontex. Odontex acknowledges that the restrictions set forth in this Agreement
are reasonable in scope and duration, given the nature of the business of
NexMed.
10. CONFIDENTIALTIY
Odontex shall keep confidential and not use, for a period of ten (10)
years from the date hereof, all information relating to the Topical Technology,
the Patents and all Technical Information sold and assigned to NexMed, pursuant
to this Agreement.
11. INDEMNIFICATION
Odontex hereby agrees to indemnify and hold harmless NexMed, its
affiliates, officers, directors, agents and employees from and against any and
all suits, actions, legal proceedings, claims or demands of any kind or nature
whatsoever relating to a breach of any of the representations or warranties of
Odontex contained in this Agreement.
<PAGE>
NexMed hereby agrees to indemnify and hold harmless Odontex, its
affiliates, officers, directors, agents and employees from and against any and
all suits, actions, legal proceedings, claims or demands of any kind or nature
whatsoever relating to a breach of any of the representations or warranties of
NexMed contained in this Agreement.
11.1 Scope of Indemnification. (a) The agreement to indemnify and
hold harmless from liability set forth herein shall include, without limitation,
all damages of every kind, reasonable attorney fees, all costs and expenses
which may be levied against and out-of-pocket costs incurred by the indemnified
party in connection with any suit, action, legal proceeding, claim or demand.
(b) The parties hereto hereby acknowledge and agree that the
obligations set forth in this Section 11.1 shall survive the termination or
expiration of this Agreement for the applicable statute of limitations period.
(c) The indemnified party will cooperate with the indemnifying party
at the indemnifying party's expense in the defense of any suit.
12. GOVERNING LAW AND JURISDICTION
The terms and provisions of this Agreement shall be governed by and
construed and interpreted pursuant to the laws of the State of California,
without regard to the conflict of laws rules or principles thereof.
13. SEVERABILITY
In the event any portion of this Agreement shall be held illegal, void or
ineffective, the remaining portions hereof shall remain in full force and
effect. If any of the terms or provisions of this Agreement are in conflict with
any applicable statute or rule of law, then such term(s) or provision(s) shall
be deemed inoperative to the extent that they may conflict therewith and shall
be deemed to be modified to conform with such statute or rule of law.
14. NON-WAIVER OF RIGHTS
No failure or delay on the part of either party hereunder in either
exercising or enforcing any right hereunder will operate as a waiver of, or
impair, any such right. No single or partial exercise or enforcement of any such
right will preclude any other or further exercise or enforcement thereof or the
exercise or enforcement of any other right. No waiver of any such right will
have effect unless given in a signed writing. No waiver of any such right will
be deemed a waiver of any other right hereunder.
<PAGE>
15. NOTICE
Any report or notice required or permitted to be given hereunder shall be
effective when sent. All notices shall be in writing and given personally or by
prepaid certified mail, return receipt requested, or sent by telegram, expedited
delivery service or facsimile transmission addressed to the parties hereunder at
their respective addresses as follows:
If to NexMed: NexMed, Inc.
6087 Triangle Dr.
Commerce, CA 90040
Attention: Vivian Liu
Vice President
Telephone: (213) 890-0881
Telefax: (213) 890-1008
With a copy to: NexMed, Inc.
6087 Triangle Dr.
Commerce, CA 90040
Attention: James L. Yeager, Ph.D
Vice President, Business
Development
Telephone: (847) 948-7901
Telefax: (847) 948-7234
If to Odontex: Odontex, Inc.
1321 Wakarusa Drive
Suite #2103
Lawrence, Kansas 66049
Attention: Dr. John Hefferren
Chief Executive Officer
Telephone: (913) 841-6619
Telefax: (913) 841-8207
16. ADVICE OF COUNSEL
In entering into this Agreement, the parties represent that they have
relied upon the advice of their attorneys, who are attorneys of their own
choice, and that the terms of this Agreement have been completely read and
explained to them by their attorneys, and that those terms are fully understood
and voluntarily accepted by them. Both parties cooperated in the drafting of
this Agreement and both parties agree that no term shall be construed against
either party because that party was the drafter.
<PAGE>
17. ENTIRE AGREEMENT
This Agreement supersedes all prior negotiations and agreements, proposed
or otherwise, whether written or oral, between the parties the subject matter
hereof, and this Agreement constitutes the entire agreement between the parties
with respect thereto. This Agreement may be modified only with a written
instrument duly executed by each of the parties. No person has any authority to
make any representation or promise on behalf of any of the parties not set forth
herein and this Agreement has not been executed in reliance upon any
representations or promises except those contained herein.
18. REMEDIES
The rights and remedies of a party set forth herein with respect to
failure of the other party to comply with the terms of this Agreement are not
exclusive, the exercise thereof shall not constitute an election of remedies and
the aggrieved party shall in all events be entitled to seek whatever additional
remedies may be available in law or in equity.
19. HEADINGS
The headings contained in this Agreement are for convenience of reference
only and shall not affect or alter the meaning or effect of any provision
hereof.
20. SUCCESSORS
This Agreement and all the rights, obligations, duties, representations,
warranties and covenants of each party shall inure to the benefit, and be the
burden of, and shall be binding upon their respective successors (including by
operation of law) and permitted assigns.
21. COUNTERPARTS
This Agreement may be executed simultaneously in one or more counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
22. AMENDMENT; WAIVER
This Agreement may be amended, modified, superseded or canceled, and any
of the terms hereof may be waived, only by a written instrument executed by each
party hereto or, in the case of waiver, by the party or parties waiving
compliance. The delay or failure of any party at any time or times to require
performance of any provision hereof shall in no manner affect the rights of such
party at a later time to require any performance. No waiver by any party of any
condition or of the breach of any term
<PAGE>
contained in this Agreement, whether by conduct or otherwise, in any one or more
instances, shall be deemed to be or construed as a further or continuing waiver
of any such breach or the breach of any other term of this Agreement.
IN WITNESS WHEREOF, and intending to be legally bound, the parties
hereto have caused this Agreement to be executed by their duly authorized
representatives.
NEXMED, INC.
By: /s/ Vivian Liu
-------------------------
Name: Vivian Liu
Title: Vice President
ODONTEX, INC.
By: /s/ John J. Hefferren
-------------------------
Name: John J. Hefferren
Title: President
