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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of report (date of earliest event reported):
February 6, 1998
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NEXMED, INC.
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(Exact name of Registrant as specified in its charter)
Nevada
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(State or other jurisdiction of incorporation)
0-22245 87-0449967
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(Commission File No.) (I.R.S. Employer
Identification No.)
350 Corporate Boulevard, Robbinsville, New Jersey 08691
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(Address of Principal Executive Offices) (Zip Code)
(609) 208-9688
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(Registrant's telephone number, including area code)
6087 Triangle Drive, Commerce, California 90040
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(Former Name or Former Address, if Changed Since Last Report)
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Item 2. Acquisition or Disposition of Assets.
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As of February 6, 1998, upon the release of funds held in escrow,
NexMed, Inc. ("NexMed" or the "Company"), through its wholly-owned subsidiary,
NexMed (Asia) Limited ("NexMed Asia"), completed the payment of $1.87 million of
the $2.17 million initial paid-in capital necessary to acquire a 70% controlling
interest in NexMed Pharmaceuticals (Zhongshan) Ltd., a recently-established
joint-venture company in China (the "JV"). The JV was formed pursuant to an
agreement between NexMed Asia and Zhongshan City Xiaolan Pharmaceuticals Factory
(the "Factory"), located in Zhongshan City, China, and is licensed to
manufacture, market and distribute pharmaceutical products both in China and
internationally.
Pursuant to the joint-venture agreement, and as set forth in the
schedule below, NexMed Asia is committed to invest $3.5 million over three years
for a 70% controlling interest in the JV, while the Factory has initially
contributed certain equipment and other tangible and intangible assets, which
will be followed by cash payments over the same period, for a 30% interest. In
addition to the assets contributed by the Factory to establish its 30% interest
in the JV, the JV has purchased other tangible and intangible assets from the
Factory for approximately $709,000, paid with a portion of the $1.87 million
invested to date of NexMed Asia's first-year commitment to the JV of $2,170,000.
As a result of the assets contributed by and purchased from the Factory, the
JV's assets include the Factory's sales and customer base, distribution network,
156 drug product licenses, 17 registered trademarks, and a manufacturing
facility for producing various pharmaceutical dosage forms, including tablets,
capsules, oral solutions and injections. The Factory is also obligated to
provide the JV with a $1,566,265 line of credit for working capital. As of
September 26, 1997, the JV received all necessary Chinese governmental
approvals.
As set forth in the joint-venture agreement, the schedule of the capital
contribution, assuming a conversion rate of $1U.S. = 8.3 RMB, is as follows:
<TABLE>
<CAPTION>
The Factory NexMed Asia
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<S> <C> <C>
Initial Contribution: $930,000 in assets $2,170,000 in cash
During Year 2: $300,000 in cash $ 700,000 in cash
(9/26/98 - 9/25/99)
During Year 3: $270,000 in cash $ 630,000 in cash
(9/26/99 - 9/25/2000)
</TABLE>
Pursuant to Chinese law relating to sino-foreign joint ventures, and in
accordance with the understanding between and intention of NexMed Asia and the
Factory, NexMed Asia must invest the outstanding $300,000 balance of its initial
commitment within the first year following the JV's receipt of a business
license, which was obtained by the JV on September 26, 1997. Otherwise, at the
end of such period, NexMed Asia and the Factory shall redivide the percentage
ownership of the JV according to the ratio of actual investments, which would
result in NexMed Asia's ownership of approximately 66.8% of the JV until
subsequent contributions are made.
Towards meeting NexMed Asia's initial investment commitment, in
November 1997, the Company completed a private placement of $1.82 million of
unsecured subordinated debt, maturing on November 15, 1998 with interest at six
percent, and 455,000 warrants to purchase shares of the Company's common stock,
exercisable for 12 months at $4 per share. In addition, the Company raised
$660,000 through the issuance of short-term promissory notes, which the Company
expects to repay in the next few months as part of its intention to raise
additional equity capital. The Company intends to finance NexMed Asia's further
capital contributions either from operating income or through placements of debt
and/or equity. The parties agreed on February 6, 1998 that the effective date
of the completion of the $1.87 million payment would be January 1, 1998.
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
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(a) Financial Statements of Business Acquired.
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It is impracticable to provide the financial information required under
Item 7(a) as of the required filing date of this Form 8-K. Such required
financial information will be filed under cover of Form 8-K/A as soon as
available and in no event later than the date permitted pursuant to Item 7 of
Form 8-K.
(b) Pro Forma Financial Information.
-------------------------------
It is impracticable to provide the pro forma financial information
required under Item 7(b) as of the required filing date of this Form 8-K. Such
required pro forma financial information will be filed under cover of Form 8-K/A
as soon as available and in no event later than the date permitted pursuant to
Item 7 of Form 8-K.
(c) Exhibits.
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10.10 English Translation of Joint-Venture Agreement Between NexMed
(Asia) Limited and Zhongshan City Xiaolan Pharmaceuticals Factory
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
NexMed, Inc. has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: February 23, 1998
NEXMED, INC.
By: /s/ Vivian H. Liu
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Vivian H. Liu
Vice President and Secretary
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Exhibit Index
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10.10 English Translation of Joint-Venture Agreement Between NexMed (Asia)
Limited and Zhongshan City Xiaolan Pharmaceuticals Factory.
<PAGE>
Contract for the Establishment of
NexMed Pharmaceuticals (Zhongshan) Ltd.
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Table of Contents
Chapter One General Principles
Chapter Two Parties to the Joint Venture Company
Chapter Three Establishment of the Joint Venture Company
Chapter Four Objectives and Business Scope
Chapter Five Total Investment and Registered Capital
Chapter Six Rights, Duties and Responsibilities of Contracting Parties
Chapter Seven Equipment and Technology
Chapter Eight Production Material and Product Sales
Chapter Nine Board of Directors
Chapter Ten Operation and Management Organizations
Chapter Eleven Financial Management
Chapter Twelve Labor Management
Chapter Thirteen Term of the Joint Venture Company
Chapter Fourteen Insurance
Chapter Fifteen Amendment, Change or Termination of Contract
Chapter Sixteen Breach of Contract and Responsibilities for Breach
Chapter Seventeen Settlement of Disputes [SEAL APPEARS HERE]
After proofreading & check-
Chapter Eighteen Effectiveness of Contract ing I hereby verify that
the English version of this
document is in consistency
with the Chinese original
in meaning. 30 Aug. '97.
[CHINESE SCRIPT APPEARS
HERE]
ZHUHAI TRANSLATORS ASSOCIATION
Pages of English version checked [SIGNATURE APPEARS HERE]
15 pages ------------------------
Date of Confirmation: 97 _ 8_30_ Chairman
<PAGE>
Contract for the Establishment of
NexMed Pharmaceuticals (Zhongshan) Ltd.
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Chapter One General Principles
After friendly consultations, Zhongshan Xiao Lan Pharmaceutical Factory (Party
A) and NexMed (Asia) Limited (Party B) have agreed to jointly invest in and
establish a joint venture company in Zhongshan City, Guangdong Province,
People's Republic of China on the basis of equality and mutual benefits and in
accordance with the "Corporate Law for Sino-Foreign Joint Ventures in the
People's Republic of China" and other Chinese laws, rules and regulations, and
have formulated the following joint venture contract (the "Contract").
Chapter Two Parties to the Joint Venture Company
Article 1 Parties Signing This Contract:
Party A: Zhongshan Xiao Lan Pharmaceutical Factory
(registered in Zhongshan City, Guangdong
Province, China)
Legal address: 63 Hongshan Road, Xiaolan Town, Zhongshan City,
Guangdong Province, People's Republic
of China
Legal Representative: Wei-Jie Zeng
Position: Director of the Factory
Nationality: People's Republic of China
Party B: NexMed (Asia) Limited
(a wholly owned subsidiary of NexMed Inc., U.S.A.)
Legal address: Room 2208, 22/F Windsor House, 311 Gloucester Road,
Causeway Bay, Hong Kong
Tel.: 28816718
Legal Representative: Y. Joseph Mo
Position: Chairman of the Board of Directors
Nationality: United States of America
Chapter Three Establishment of the Joint Venture Company
Article 2 Party A and Party B agree to jointly invest in and establish NexMed
Pharmaceuticals (Zhongshan) Ltd. (the "JVC") in China in accordance with the
"Corporate Law of Sino-Foreign Joint Ventures of the People's Republic of
China" and other Chinese laws, rules and regulations.
Article 3 Name of the Corporation: NexMed Pharmaceuticals (Zhongshan) Ltd.
Legal address of the Corporation: 63 Hongshan Road, Xiaolan Town,
Zhongshan City, Guangdong Province, People's Republic of China.
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Article 4 The JVC shall be a limited liability corporation. Party A and Party
B shall be liable to the JVC within the limits of their investments. They shall
share the profits, risks and losses of the JVC according to the registered
proportion of their investment. The administration agency of the JVC shall be
Zhongshan Xiaolan Industry Corporation, which shall have the right to instruct,
assist and supervise the JVC in accordance with the laws, rules, regulations and
Contract and Chapters of Incorporation as approved by the Chinese government.
Article 5 The activities of the JVC must abide by the Chinese laws, rules and
regulations.
Chapter Four Objectives & Business Scope
Article 6 Objectives of the JVC: To produce and supply quality and effective
routine medical products; to introduce and produce both domestic and foreign
newly-invented and special purpose medicine; to improve and develop new usage of
traditional medical products; to strengthen the R&D and joint development of new
pharmaceutical products by domestic and foreign researchers, to expand the
production scale and improve competitiveness through technical reform and
scientific management of the production factory.
Chapter 7 Business Scope of the JVC:
The JVC shall manufacture the following medical products:
1. Ointment: alprostadil, acyclovir, ketoprofen;
2. Tablet: maidimycin, mycostatin, furazolidone, erythromycin, griseofulcin,
ATP, inosine, prednisone, analgesic, analginum, tetracyclin, terramycin,
acetyl spiramycin;
3. Capsule: cephalosporin series, haloperidol, rifampin, leinitiding,
cimetidini, liver medicine, royal jelly;
4. Injection: gentamycin, kanamycin, lincomycin, chloromycepin, inosine,
cimetidini, ATP, dexamethasone, diphosphonic choline, analgesic,
analginum, Vitamin C, inframicrobe medicine, 50% glucose;
5. Syrup: Children's cough syrup, ginseng and Chinese magnoliavine
syrup, loquat cough syrup, pericarpium syrup, mint syrup and other oral
liquids;
6. Instant medicine: American ginseng instant medicine, chiretti instant blood
tonic, etc.; The joint venture plans to produce 20,000,000 pcs of paste,
500,000,000 tablets, 250,000,000 capsules, 100,000,000 injection ampules,
600,000 liters of syrup and 30,000 kgs of instant medicine. The annual
output value will reach USD$80,000,000.00.
7. Powder and injection ampules.
Article 8 The projected business scale of the JVC shall be as follows:
1. At the initial stage, the sales volume of the joint venture shall be
USD$20,000,000.00.
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2. The sales volume may be increased to USD$80,000,000.00 in five years with
the development of production, including USD$35,000,000.00 of the original
products of Party A and USD$45,000,000.00 of the new products.
3. The corporation shall sell its products to domestic and overseas markets,
60% of its products will be exported and 40% of the products sold to
domestic market.
Chapter Five Total Investment and Registered Capital
Article 9 The total investment of the JVC shall be USD$12,500,000.00
Article 10 The registered capital of the JVC shall be USD$5,000,000.00
Article 11 The investment proportion contributed by the parties shall be as
follows:
Party A: USD$1,500,000.00; 30% of the registered capital.
Party B: USD$3,500,000.00; 70% of the registered capital.
Article 12 Form of Investment: Party A shall invest with machinery, equipment
and intangible assets; Party B shall invest with cash for purchase of part of
Party A's assets, introduction of equipment and GMP reconstruction. The JVC
shall lease the land and factory buildings from Party A (details see Article
13).
Article 13 Party A and Party B shall agree to: The registered capital shall be
paid in three stages. The two parties shall jointly invest a total of
USD$3,100,000.00 during the first month of the first year, a total of
USD$1,000,000.00 during the second year, and a total of USD$900,000.00 during
the third year.
The two parties agree that upon the approval of the Contract (determined by the
issuance of the JVC approval certificate), Party A shall assign USD$1,640,000.00
worth of net assets from its original assets. The net assets assigned shall
become be the initial net assets of the JVC. The assets and net assets itemized
in the attached Supplemental Documents shall become the initial total assets of
the JVC upon its establishment.
The two parties have agreed that both parties shall contribute their investments
within 30 days after the issuance of the JVC's commercial license. Party B must
deposit USD$2,170,000.00 into the JVC's account within 15 days after Party A
assigns the USD$930,000.00 worth of machinery, equipment and intangible assets
to the JVC.
During the second year (within the 13th to 24th months after the approval of the
Contract), Party A shall contribute USD$300,000.00 in cash and Party B shall
contribute USD$700,000.00 in cash to the JVC. The two parties shall contribute
their investments at the same time and complete the capital verification
process.
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During the third year (within the 25th to 36th months after the approval of the
Contract), Party A shall contribute USD$270,000.00 in cash and Party B shall
contribute USD$630,000.00 in cash to the JVC. The two parties shall contribute
their investments simultaneously and complete the capital verification process.
Article 14 After the two parties contributed investments, the JVC shall engage
an accountant registered in China to verify the investment and issue a report.
The JVC shall issue an investment certificate accordingly.
If any party fails to contribute its investment within the time limit, such
party shall pay an interest to the JVC at the foreign exchange lending interest
rate of the Bank of China. If the JVC should incur a loss as a result of the
delay, the party in fault shall be responsible for the loss.
The JVC shall not reduce the registered capital during the period of the joint
operation. Increase in registered capital or change in investment proportion
shall be approved by the Board of Directors and the original approving agency.
Article 15 If any party plans to sell or assign all or part of its investment,
it shall obtain the approval of the other party and the original approving
agency. The other party shall have a right of first refusal under the same
conditions.
Chapter Six Rights, Responsibilities and Obligations of the Parties
Article 16 Rights of Party A and Party B: Both Party A and Party B are
investors in the JVC and shall jointly share the JVC's assets and profits
according to the proportion of their investment.
Article 17 Obligations and Responsibilities of Party A and Party B: Other than
having the right to make major decisions for the JVC and assuming the limited
liability for the JVC as stipulated in the Chapters of Incorporation, both Party
A and Party B shall also assume the following responsibilities:
Party A shall:
. Be responsible for the application, registration and business license of
the JVC in China;
. Complete the legal procedures for the transfer of the assets and
liabilities into the JVC;
. Guarantee that the titles of the JVC's net assets are clean, free from
liabilities, collateral or dispute; and to guarantee the corresponding
liabilities for the assets are unique.
. Assume the responsibility for disputes related to the liabilities or
assets;
. Assist the JVC until fully operational, with issues related to the
personnel, equipment, management, sales, etc.;
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. Certify that the chimneys of the factory have been approved by the
environmental protection organization. If within five years of the
establishment of the JVC, any expense is incurred for exhaust from the
chimneys due to reasons other than amendments to the environment protection
standards, such an expense shall be covered by Party A and deducted from
Party A's profit.
Party B shall:
. Submit its investment according to the Contract;
. Provide import channel for foreign technology and equipment and the price
shall be approved by both parties;
. Provide technical services, including the technique, equipment selection,
installation, and testing, technical training, equipment testing,
trial-production, inspection, production, etc., and ensure the product
quality meets the standards;
. Assist the JVC with GMP retrofitting;
. Assist the JVC in developing sales in overseas markets;
. Provide international marketing information for the JVC.
Chapter Seven Equipment and Technology
Article 18 Equipment of the Joint Venture Company
. Upon its establishment the JVC shall have the original production equipment
contributed as Party A's investment. Party A shall deliver to the JVC the
entire factory and a list of equipment, parts, tools, and auxiliary fuels
at each workshop. The list shall also include the quantity and maintenance
record of each equipment.
. When delivering the original production equipment to the JVC, the equipment
shall be clean, complete, and in working condition.
. In the future, when purchasing new equipment, the JVC shall comply with the
normal trading procedures. When the purchase involves overseas trip, Party
A's representative shall also attend.
. The JVC shall formulate complete management, maintenance and care
regulations for its production equipment.
Article 19 Technology of the Joint Venture Company
. Upon its establishment, the JVC shall use the production technology of
Party A. Party A shall completely deliver the entire technical and
industrial standards, pharmaceutical certificates, production and
inspection techniques, inspection standard and original technical
management measures to the JVC.
. When delivering the aforementioned technology and documents, Party A shall
sign a declaration acknowledging that the JVC shall hereafter be the sole
legal owner of the aforementioned technology
. Upon the JVC's establishment, Party B shall expeditiously transfer to the
JVC the production licenses for two or more patented medicines or any new
medicines or
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relative production technique suitable for the Chinese or Asian markets,
and shall assist the JVC with the domestic sales and export of the
products;
. The aforementioned new medicines and their production techniques shall
include sustained-release and controlled-release dosage forms;
. The JVC shall reprioritize the research on the existing and new products
provided by Parties A and B. Party B shall supply the JVC's research
program with new foreign information and technical training. Results of the
new research shall be evaluated in accordance with the requirements of the
regulatory agency in China.
. The production factory of the JVC shall be retrofitted in accordance with
GMP standards. Party B shall supervise the GMP retrofitting of the factory
and Party A shall supply the necessary cooperation. The JVC shall strive
for the factory to comply with the GMP standard of the US FDA within three
years.
Chapter Eight Production Materials and Product Sales
Article 20 The raw materials used by the JVC shall comply with the following
principles:
. If the price and quality of the raw materials from domestic and foreign
sources are the same, the materials shall be purchased domestically;
. When importing high quality raw materials, price comparisons shall be fully
conducted.
Article 21 Product sales of the JVC shall comply with the following
principles:
. An overall market strategy for the domestic market shall be formulated.
Total sales volume and sales cost shall be considered when allocating
between the traditional sales channels and the company's own sales
channels;
. Sales in the international market shall be increased each year. The JVC
shall set its export target at over 60% after the advanced new medicines
are in production. The JVC shall first utilize Party B's sales network for
global or regional distribution. If the conditions should be insufficient,
the JVC shall use overseas sales agent as major sales channels.
. The JVC's products shall be registered with the Chinese Industrial &
Commercial Administration Bureau as mandated by the "Trademark Law of the
People's Republic of China".
Chapter Nine Board of Directors
Article 22 The registration date of the JVC shall be the establishment
date of its Board of Directors.
Article 23 The Board of Directors shall consist of seven directors, two
appointed by Party A and five by Party B. The Chairman shall be appointed by
Party B and the Vice-
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Chairman shall be appointed by Party A. The tenure of the Chairman, Vice-
Chairman and directors shall be one year and renewable if re-appointed.
Article 24 The Board of Directors shall be the highest decision making
organization in the JVC. The following matters require the unanimous approval by
the Board of Directors (or by the designated representatives) prior to
submission to the original approving agency for its approval:
. Supplementing and amending the Chapters of Incorporation and Contract.
. Increasing and assigning the registered capital of the JVC.
. Merging with other economic entities.
. Extending, terminating, dissolving, and liquidating the JVC.
. Demerging of the JVC and establishing subsidiaries.
The following matters could be approved by a majority of the directors:
. Withholding for corporate reserve, development, employee benefits and
reward funds; from after-tax profit and determining the ratio of
withholding for such funds;
. Borrowing from banks and mortgaging the corporate assets;
. Drawing up regulations regarding wages, welfare, reward and punishment of
employees;
. Approving important reports, such as non-production capital investment,
budgeting, accounts settlement, and of the Board of Directors;
. All other matters beyond the same stated in Article 24 that require the
approval of the Board of Directors of the JVC.
Article 25 The Chairman shall be the legal representative of the JVC. The
Chairman may delegate the Vice-Chairman or another person to perform his/her
duties if he/she is unable.
Article 26 The Board of Directors shall hold one board meeting every year. The
Chairman shall call and preside at the meeting. If suggested by over one-third
of the directors, the Chairman may call an improvisational meeting and minutes
of the meeting shall be kept in the file. Unless otherwise waived, directors or
authorized representatives of both parties shall attend the meetings in order
for the resolutions adopted at the meeting to be deemed valid.
Article 27 Refer to the Chapters of Incorporation for details on the rights of
the Board of Directors, methods for calling a meeting, and policies and
procedures.
Chapter Ten Operation & Management Organization
Article 28 The JVC shall adopt the General Manager managerial system under the
guidance of the Board of Directors.
Article 29 The General Manager shall be appointed by and reporting to the
Board of Directors. The tenure of the general manager shall be one year.
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Article 30 The General Manager shall nominate candidates for the Deputy
General Manager and other senior officers subject to the approval of the Board
of Directors.
Article 31 The General Manager shall be responsible for executing the
resolutions of the board meetings and the day-to-day operation of the JVC. Refer
to the Chapters of Incorporation for description of the duties and
responsibilities of the General Manager.
Chapter Eleven Financial Management
Article 32 The JVC's financial accounting system shall comply with Chinese
laws, rules and regulations and the stipulations of the Ministry of Finance. The
General Manager shall be responsible for establishing such system and proposing
it to the Board of Directors for approval.
Article 33 In addition to complying with Chinese laws, rules and regulations
and the stipulations of the Ministry of Finance, the JVC's accounting system
shall also meet the international accounting principles.
Article 34 The fiscal year of the JVC shall be January 1 to December 31.
Accounts shall be settled on a monthly basis and closed on an annual basis. The
monetary unit shall be the RMB. The JVC shall conduct an audit on an annual
basis.
Article 35 Pursuant to the "Corporate Law for Joint Ventures in the People's
Republic of China", the "Tax Law" and the provisions and regulations as
promulgated by the Chinese government from time to time, the JVC shall pay taxes
and enjoy the beneficial treatment of tax exemption.
Article 36 The JVC shall withhold for the different funds as required by law
prior to and after the distribution of profits.
Article 37 The JVC shall adopt the internationally accepted actual accounting
system and the debit and credit bookkeeping system. The accounting books,
vouchers, reports of the joint venture shall be kept in Chinese. Copies of the
accounting books and reports in English shall be required if the accounts are
computerized.
Article 38 The JVC shall urge its employees to pay income tax as mandated by
the "Law of Personal Income Taxes".
Article 39 Management of Financial Matters and Accounting for the JVC: The
financial and accounting systems of the JVC shall be prepared by the Board of
Directors according to the "Implementation Rules of Corporate Law of
Sino-Foreign Joint Venture", "Accounting System of Sino-Foreign Joint
Venture" and the specific situation of the JVC. Such systems shall be submitted
to the local financial administration agency and taxation bureau for their files
and supervision. The JVC shall have accountants (or chief bookkeepers) to assist
the General Manager in the financial
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management of the JVC, including checking, review and settlement of income and
expenditure and submitting financial reports to the Board of Directors and
General Manager.
The JVC shall be required to submit an intermediate financial reports to within
one month after June 30 of each year and an annual financial report within two
months after the end of the fiscal year. The financial reports shall include the
following financial reports and appendixes:
. Balance sheet;
. Income statement;
. Financial situation fluctuation report;
. Profit distribution statement;
. Analysis of the JVC's financial situation.
Article 40 Distribution of Profit and Sharing of Losses: According to the
"Law of Income Tax of Business Enterprises with Foreign Investment and Foreign-
Owned Business Enterprises of People's Republic of China", the JVC shall pay
income tax on its profits and withhold for the corporate development and reserve
funds and employee bonus and benefits fund from its after-tax profit according
to the ratio determined by the Board of Directors. Then the JVC shall distribute
profit between the two parties according to the proportion of their investment.
If the JVC venture should suffer a loss, such loss shall be made up with the
profit of the following year. No profit shall be distributed prior to the making
up of losses of the previous year. Undistributed profit of the previous year may
be combined for distribution together with that of the current year.
If the JVC should incur any loss, the two parties shall share the loss according
to the proportion of their investment in the registered capital and bear the
responsibilities within the limits of their investments.
Article 41 Management of Foreign Exchange and Circulating Funds: Upon the
approval and implementation of the Contract, the JVC shall apply for a
commercial license from the Chinese Industrial & Commercial Administration
Bureau and open a foreign exchange account and a RMB account with the Bank of
China, Zhongshan Branch. Matters concerning foreign exchange shall be
administered and supervised by the Chinese Foreign Exchange Administration
Department. All matters related to foreign exchange shall be settled according
to the "Temporary Regulations on Foreign Exchange Administration of People's
Republic of China" and other rules and regulations. All income and expenditures
in foreign exchange shall be conducted through the foreign exchange account.
In case of a capital shortage during its operation and production, the JVC may
raise a loan in RMB from local bank or a loan in foreign exchange from a
domestic or foreign bank. The interest rate shall be approved by the Board of
Directors and the interest expenses shall be included in corporate operation
expenses.
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Article 42 All expenses for wages, traveling, employees training during the
preparation period (from the signing of the contract to the commencement of
production) shall be included in the organizational expenses and amortized after
the JVC is in operation.
The following documents, certificates and reports shall be evaluated and
verified by an accountant registered in China:
. Investment certificates issued by contracting parties;
. JVC's annual financial reports;
. JVC's financial reports upon liquidation.
Chapter Twelve Labor Management
Article 43 The JVC shall adopt a labor contract system for its employees and
shall commence operation with a staff of approximately 300 employees, to be
first recruited from the employees of Party A.
Article 44 Salaries of the employees of the JVC shall be based on the Chinese
industry and local salary conditions. The Board of Directors shall determine an
overall salary scale.
Article 45 Bonuses for employees shall be based on the principle of rewarding
the diligent and punishing the soldiering employees.
Article 46 The JVC shall decide on the welfare and insurance of the employees
in accordance with the administrative rules and regulations of China.
Chapter Thirteen Term of the Joint Venture Company
Article 47 The term of the JVC shall be 30 years, commencing from the issuance
of the commercial license.
Article 48 At the end of the term and the shareholders decide to continue the
operation, a written application shall be submitted to the approving agency six
months prior to the expiration.
Chapter Fourteen Insurance
Article 49 Matters of insurance for the JVC shall be decided by the Board of
Directors and insurance shall be covered by the People's Insurance Company of
China or other major insurance companies. The insurance fees shall be included
in the cost expenses of the JVC.
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Chapter Fifteen Revision, Amendment & Termination of Contract
Article 50 Amendments to the Contract and the appendixes shall be submitted to
the original approval agency for its approval in the form of a written agreement
between the two parties.
Article 51 Procedures regarding the termination of the Contract, liquidation
and report of liquidation, as well as the termination and liquidation of the
JVC, shall be as stipulated in the Chapters of Incorporation.
Article 52 The Contract shall be voided upon the occurrence of the following:
. Expiration of the operation term;
. Impossibility to continue the operation due to serious losses;
. Force majeure factors, such as natural disasters and war;
. Impossibility to continue due to one party's breach of contract.
Termination of the Contract due to the above reasons except for reason 1 shall
be reported to the original approving agency for its approval.
Upon termination of the JVC, the Board of Directors shall prepare a liquidation
procedure and guideline and select the members of the liquidation committee for
approval by the administrative agency. The liquidation committee shall conduct
the liquidation. After the liquidation is completed in accordance with the
relative Chinese rules and regulations, the liquidation committee shall submit a
liquidation report for approval at a meeting of the Board of Directors and to be
kept in the files of the original approving agency. The registration with the
original administration agency shall be canceled. The commercial license shall
be returned.
The remaining assets after liquidation shall be distributed between the two
parties according to the proportion of their investment in the registered
capital. Party A shall have the priority to purchase the portion distributed to
Party B. If the net or remaining assets after liquidation exceeds the registered
capital, the exceeding portion shall be regarded as profits and the JVC shall
pay income tax accordingly. The accounting books and documents shall be kept by
Party A after the JVC's termination.
Chapter Sixteen Breach of Contract & Responsibilities
Article 53 Failure to contribute the investment as scheduled shall be taken as
breach of contract. The breaching party shall pay the capital immediately and a
0.5% monthly penalty shall be charged for the period of such breach. If the
period of breach exceeds six months, the non-breaching party shall have the
right to terminate the Contract.
Article 54 During its term, if the Contract cannot be executed partially or
fully due to the fault of one party, the relative losses shall be assumed by the
breaching party. If such loss is due to the fault of both parties, the two
parties shall be responsible for their own
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responsibilities and the responsibilities of breaching the contract shall be
fixed according to relative stipulations of the Contract. In case of an
impossibility to continue the operation or to achieve the goals set forth in the
Contract due to the fault of one party to perform its duties or to have breached
the Contract or the Chapters of Incorporation, such party shall be regarded to
have terminated the Contract unilaterally and the other party shall be entitled
to claim compensation from the breaching party as well as to report to the
original approving agency to terminate the Contract. In case of such situation
and both parties agree to continue operation, the breaching party shall
compensate the JVC for the incurred losses.
Chapter Seventeen Settlement of Dispute
Article 55 In case of disputes arising during the execution of the Contract,
the parties shall settle the disputes through consultation. If the disputes
cannot be settled through consultation, the parties shall submit the dispute to
the arbitration agency in Singapore. The decision of such arbitration shall be
binding on both parties.
Article 56 In case of disputes, the execution of all Chapters shall continue
except for those in arbitration.
Chapter Eighteen Effectiveness of Contract
Article 57 The Contract shall be drafted in both Chinese and English. Both
languages shall have the same binding effectiveness and the Chinese version
shall prevail in case of translation inconsistency. The Contract shall have
Supplemental Documents which are integral parts of the Contract. The
Supplemental Documents shall be in Chinese.
Article 58 All previous documents related to the cooperation and the
establishment of the JVC shall be invalidated with the signing of the Contract.
Article 59 The Contract shall have twelve original copies in both Chinese and
English.
Article 60 This Contract shall take effect upon the signing by both parties.
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Party A: Party B:
Zhongshan Xiao Lan Pharmaceutical Factory NexMed (Asia) Limited
Authorized Representative: Authorized Representative:
/s/ Wei-Jie Zeng /s/ Y. Joseph Mo
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Wei-Jie Zeng Y. Joseph Mo
Director of the Factory Chairman of the Board
of Directors
July 29, 1997
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