SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
(Mark One)
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1999
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the transition period from____________ to _____________
Commission file number 0-22245
NEXMED, INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Nevada 87-0449967
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
350 Corporate Boulevard, Robbinsville, NJ 08691
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(Address of Principal Executive Offices)
(609) 208-9688
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(Issuer's Telephone Number, Including Area Code)
N/A
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(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
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N/A N/A
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Securities registered under Section 12(g) of the Exchange Act:
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Common Stock, $0.001 par value
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(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |X|
State issuer's revenues for its most recent fiscal year: $1,491,796
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days. (See definition of
affiliate in Rule 12b-2 of the Exchange Act.): As of March 7, 1999, the
aggregate market value of the voting stock held by non-affiliates was
$336,086,674. The aggregate market value was computed based on the average of
the bid and asked prices of NexMed, Inc.'s common stock, par value $0.001 per
share, as reported by the National Quotation Bureau for such date. This
calculation does not reflect a determination that persons are affiliates for any
other purpose.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: as of March 7, 2000,
19,379,048 shares of Common Stock, par value $0.001 per share, were issued and
outstanding.
Transitional Small Business Disclosure Format (check one):
Yes |_| No |X|
Portions of the NexMed, Inc.'s definitive proxy statement to be issued in
conjunction with NexMed, Inc.'s annual meeting of shareholders to be held on May
15, 2000 are incorporated by reference in Part III of this Form 10-KSB.
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Part I
Item 1. Description of Business.
OUR BUSINESS.
We, NexMed, Inc., were incorporated in Nevada in 1987. In 1994, after a
period of inactivity, we became a development stage medical and pharmaceutical
technology company. Since 1994, we have focused on developing and
commercializing therapeutic products based on proprietary delivery systems. We
are currently focusing on developing and commercializing the following products:
(1) the Alprox-TD and Femprox topical alprostadil treatments that incorporate a
penetration enhancement technology known as NexACT(R), and (2) the Viratrol(R)
device, a proprietary therapeutic medical device that may treat herpes simplex
disease by topically delivering an electrical current to an infected site and
blocking lesions from forming or shortening healing time for preexisting
lesions. Our goals are to (1) continue to research, develop and market,
domestically and internationally, our proprietary pharmaceutical products, and
(2) develop a business strategy to attract strategic partners with resources
sufficient to further develop and market our proposed products.
Development of Topical Treatment Products.
Drug Delivery Enhancement Technology. In October 1996, we acquired rights
and interests, including patents, patent applications, trade secrets and
know-how, relating to absorption enhancers for topical pharmaceutical
formulations from Odontex, Inc., a Kansas-based company, in exchange for 75,000
shares of our common stock. We registered the trademark NexACT(R) as the name
for the transdermal drug delivery technology. The NexACT(R) technology is
designed to enhance absorption of an active drug through the skin, overcoming
the skin's natural barrier properties and enabling high concentrations of the
active drug to rapidly penetrate the desired site of the skin or extremity.
Successful application of the NexACT(R) technology may improve therapeutic
outcomes and reduce gastrointestinal or other systemic side effects that often
accompany oral medications. In addition to combining this technology with
alprostadil to develop new topically-applied products to treat male and female
sexual dysfunction, we intend to explore applying the NexACT(R) to drugs such as
(1) ibuprofen and ketoprofen for a new topical medication for pain management of
arthritis, and (2) anti-fungal compounds for an effective topically-applied
fungal infection treatment.
We acquired two U.S. patents, a pending U.S. patent application and a
pending international patent application from Odontex, Inc. The international
patent application is currently pending in Canada, China, the European Patent
Office, New Zealand and the Russian Federation. We have filed four additional
patent applications in the U.S. and three corresponding international
applications under the Patent Cooperation Treaty relating to the NexACT(R)
technology.
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We intend to continue our efforts developing topical treatments based on
the NexACT(R) technology, with immediate system development efforts directed to
drugs (1) previously approved by the FDA, (2) with proven efficacy and safety
profiles, (3) with patents expiring or expired and (4) with proven market
records and potential. In furtherance of these efforts and for the next twelve
months, we will continue to use laboratory space at the Higuchi Biosciences
Center of the University of Kansas pursuant to a research agreement with the
university. We have retained advisors, consultants and employees at the Higuchi
Biosciences Center to assist with our development efforts.
NexACT(R) Products under Development. We are currently focussing research
and development efforts on the following leading candidates for topical
treatment products:
(1) Alprox-TD(R) is an alprostadil-based topical treatment cream
intended to treat mild to moderate male erectile dysfunction
(impotence), commonly referred to as "ED." Our clinical studies have
demonstrated that NexACT(R) enhancers promote the absorption of
alprostadil and improve clinical responses. In February 1998, we
completed a 60-patient (30 male and 30 female) Phase I study on the
Alprox-TD(R) cream in the United States. In October 1999, we
completed the pre-Phase II toxicology studies in the United States.
In December 1999, we initiated the U.S. Phase II clinical program to
determine the efficacy of the Alprox-TD(R) cream and to expand the
safety and efficacy data in humans. Internationally, we completed
Phase III double blind and open label clinical studies in China that
evaluated a total of 143 men, and submitted in January 1999, a "New
Drug Application" to the China State Drug Administration for
approval to distribute the product in China.
(2) Femprox(TM) is an alprostadil-based cream product intended for the
treatment of female sexual arousal disoder, commonly referred to as
"FSAD". We completed in 1998, an eight-patient Phase I clinical
study for safety and efficacy. Results from our clinical study
demonstrated a positive effect on increasing blood flow to the
clitoris and labia in the subjects tested. No systemic side effects
were evidenced and local side effects were minimal. We intend to
initiate the proposed U.S. Phase II program during second quarter
2000, pending FDA approval.
Advisors, Consultants, Researchers and Employees in the Absorption
Enhancement Field. We currently employ Dr. Servet Buyuktimkin as Director of
Drug Delivery Research and Dr. Nadir Buyuktimkin as Director of Formulation
Research to conduct research at our laboratories at the Higuchi Biosciences
Center of the University of Kansas. Dr. Servet Buyuktimkin and Dr. Nadir
Buyuktimkin are co-developers and authors of several publications and
presentations relating to our NexACT(R) enhancers. Dr. J. Howard Rytting, a
co-developer of the NexACT(R) enhancers and professor in the Department of
Pharmaceutical Chemistry of the School of Pharmacy of the University of Kansas,
is a member of our Scientific Advisory Board. Pursuant to a research agreement
with the University of Kansas, we are funding Dr. Rytting's research efforts to
develop
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new methodologies involving penetration enhancement research. Although the
university would own any patents resulting from Dr. Rytting's research efforts,
we have the right to exclusively license any technology resulting from such
efforts.
Viratrol(R) Herpes Treatment Device.
The Viratrol(R) device is a hand-held non-invasive therapeutic device
designed to treat herpes simplex diseases. The device topically delivers a
minute electrical current to an infected site and may block lesions from forming
and/or shorten healing time once lesions develop. We developed the commercial
prototype of Viratrol(R) from technology and patents that have materialized
through our development efforts on a device designed for similar use that we
acquired in 1994. In 1997, we completed a Phase II study on the Viratrol(R)
device. The results indicated that all ten patients with recurrent herpes
labialis (cold sores) involved in the study experienced full remission of
symptoms after one to three days of the device-application regimen. Although we
initiated a 60-patient double-blind study in China that we expected to complete
in 1998, we discontinued the study because the organization we hired to manage
the study was unable to timely complete and provide us with the data.
We have two patents on the current version of the device, a Notice of
Allowance on our "Continuation-In-Part" patent application, and one patent
application currently under review by the U.S. Patent and Trademark Office. We
have filed international patent applications corresponding to the application
currently pending under the Patent Cooperation Treaty, in Japan, China, Taiwan,
Korea, Israel, Canada, Mexico and the European Economic Community. We plan to
file additional patents to continue expanding the protective coverage of the
device. However, patent approval does not assure regulatory approval.
In October 1998, we transferred to our wholly-owned subsidiary, New
Brunswick Medical, Inc., a Delaware corporation, our rights to develop,
manufacture and market the Viratrol(R) herpes treatment device in the United
States in exchange for 9,500 shares of its common stock. Subsequently, New
Brunswick Medical, Inc. issued 500 shares of its common stock to a private
investor in exchange for $500,000. In June 1999, we acquired all 500 shares from
the private investor in exchange for a consideration of approximately $500,000,
consisting of 233,333 shares of our common stock and the forgiveness of a
$150,000 note receivable from the private investor. We have allocated sufficient
proceeds for finalizing the product design for marketing in the United States,
and for initiating the United States Phase I/II study in late 2000.
International Agreements.
China Joint Venture.
We have recently decided and taken steps to concentrate our efforts on
proprietary product development rather than devoting additional efforts to
selling and marketing
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generic drugs. On May 17, 1999, our wholly-owned subsidiary, NexMed
International Limited, a British Virgin Islands company, sold all of the issued
and outstanding capital stock of its wholly-owned subsidiary, NexMed (Asia)
Limited, to Vergemont International Limited, a Turks and Caicos Islands company
with operations based in Hong Kong. Vergemont International Limited obtained the
primary asset of NexMed (Asia) Limited, its 70% holding in NexMed
Pharmaceuticals (Zhongshan) Ltd., a Chinese joint venture company we formed
through NexMed (Asia) Limited with Zhongshan Xiaolan Pharmaceutical Factory (the
"Factory") in 1997. The assets of the Chinese joint venture company included,
among other things, the Factory's (1) sales and customer base, (2) distribution
network, (3) licenses to market 141 generic drugs in China, (4) 17 registered
trademarks for the Chinese market, (5) import and export licenses for finished
products and raw materials, and (6) equipment and technology for the production
of various pharmaceutical dosage forms, including tablets, capsules, oral
solutions and injections.
Through our participation and recent sale of our interest in the Chinese
joint venture company, we achieved four significant goals: (1) we successfully
completed Phase II studies on the Befar(TM) cream, which is a different name
under which we plan on marketing the Alprox-TD(R) product, in China and filed an
application for marketing approval with the China State Drug Administration; (2)
we gained valuable clinical data for ongoing discussions with potential
co-development partners for selected markets, including the United States and
Europe, and for our proposed Phase II studies in the United States; (3) we
substantially completed the construction of a state-of-the art manufacturing
facility meeting good manufacturing practice standards for the production of the
Befar(TM) cream; and (4) we have concentrated our efforts on proprietary product
development rather than devoting additional efforts to the sale and marketing of
generic drugs.
In exchange for all the issued and outstanding shares of capital stock of
NexMed (Asia) Limited, (1) through NexMed International Limited, we received
$4,000,000, comprised of $2,000,000 in cash and two promissory notes each for
$1,000,000, due on November 12, 1999 and June 30, 2000, respectively and (2) we
granted Vergemont International Limited warrants to purchase 2,000,000 shares of
our common stock, exercisable at $3.00 per share. In addition, NexMed
International Limited and Vergemont International Limited entered into a license
agreement pursuant to which (1) Vergemont International Limited has the
exclusive right to manufacture and market in China and Asian Pacific countries
our ED treatment cream and four other of our proprietary products under
development and (2) we will receive royalty on sales and supply to NexMed (Asia)
Limited, on a cost plus basis, the NexACT(R) enhancers that are essential in the
formulation and production of our proprietary topical treatments. We have also
agreed that until May 2000, Dr. Joseph Mo, our President and Chief Executive
Officer will assist in managing the joint venture company's operations and
anticipated approval and launch of our proprietary ED treatment in China. In
February 2000, Vergemont International Limited paid the $2,000,000 in promissory
notes.
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Sales and Distribution Joint Venture in Peru.
In December 1997, NexMed International Limited concluded an agreement to
form a joint venture with two local partners for the establishment of a sales
office and showroom in Lima, Peru. Under the agreement, we own 70% of the joint
venture. In February 1999, the joint venture, NexMed (Peru) S.A., obtained
registration as an accredited supplier of pharmaceutical products to government
agencies in Peru. The joint venture currently has no sales and limited
operational activities.
License Agreementfor the Alprox-TD(R) Cream in Taiwan.
In January 1997, NexMed International Limited entered into a license
agreement with Lotus Medical Supply, Inc., a Taiwanese company, whereby Lotus
secured certain manufacturing and marketing rights for the Alprox-TD(R) cream in
Taiwan. In exchange for those rights, Lotus Medical Supply, Inc. was obligated
to seek regulatory approval in Taiwan and to conduct all research and testing
required for the purpose of obtaining such regulatory approval. Lotus Medical
Supply, Inc. did not perform its obligation under the terms of the agreement,
and both parties terminated the agreement.
Agreement Market the Alprox-TD(R) Cream in Argentina and Uruguay.
On October 2, 1997, we, through NexMed International Limited, entered into
a Supply and Distribution Agreement with Finadiet S.A.C.I.F.I., an Argentinean
manufacturer and distributor of urological pharmaceutical products, for the
distribution of the Alprox-TD(R) cream in Argentina and Uruguay. Under the
agreement, Finadiet S.A.C.I.F.I. was obligated to obtain regulatory approval by
July 1998 in exchange for a five-year exclusive sales and distribution right for
the two countries. Finadiet S.A.C.I.F.I. was not able to reach the regulatory
milestone, and both parties terminated the agreement.
Potential Corporate Alliances.
We are currently discussing and negotiating potential corporate alliances
relating to the research and development and marketing of our proprietary
products under development with various United States and international
pharmaceutical and medical companies. We are hopeful, but cannot assure you,
that we will consummate one or more definitive agreements as a result of our
discussions and negotiations.
Research and Development.
Our research and development expenses for the twelve months of operation
of 1999 and 1998, were $2,374,024 and $2,302,148, respectively. Since January 1,
1994, when we repositioned ourselves as a medical and pharmaceutical technology
company, we have spent $9,730,884 on research and development. We anticipate
that our expenses for research and development will continue to increase as we
enter into advance clinical development.
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We will need significant funding to pursue our research, development and
commercialization plans. We intend to focus our current development efforts on
the Alprox-TD(R) and Femprox(TM) creams and the Viratrol(R) device. These
products are currently in the research and development stage. We have not begun
to market or generate revenues from the commercialization of our products under
development. Our products under development will require significant
time-consuming and costly research and development, clinical testing, regulatory
approval and significant additional investment prior to their commercialization.
There can be no assurance that (1) the research and development activities we
will be successful, (2) products under development will prove to be safe and
effective, (3) any of the clinical development work will be completed, or (4)
the anticipated products will be commercially viable or successfully marketed.
We cannot assure you that (1) we will obtain regulatory approval or develop any
additional products, (2) if successful, we will attract sufficient capital to
complete any development and commercialization undertaken or (3) any such
development and commercialization will be successful.
Competition.
We are engaged in a highly competitive industry. We expect increased
competition from numerous existing companies, including large international
enterprises, and others entering the industry. Most of these companies have
greater research and development, manufacturing, marketing, financial,
technological, personnel and managerial resources. Acquisitions of competing
companies by large pharmaceutical or healthcare companies could further enhance
such competitors' financial, marketing and other resources. Competitors may
complete clinical trials, obtain regulatory approvals and commence commercial
sales of their products before we could enjoy a significant competitive
advantage. Products developed by our competitors may be more effective than our
products.
Certain treatments for ED, such as needle injection therapy, vacuum
constriction devices, penile implants, transurethral absorption and oral
medications, currently exist, have been approved for sale in certain markets and
are being improved. Products on the market for the treatment of ED include: (1)
Caverject(R), the needle injection alprostadil therapy by Pharmacia & Upjohn;
(2) Viagra(R), an oral medication by Pfizer, Inc.; and (3) MUSE(R), the device
for intra-urethral delivery of a suppository containing alprostadil by Vivus,
Inc.. In addition, the following products are currently under development: (1)
Topiglan(R), a topical alprostadil treatment based on a proprietary drug
delivery system by Macrochem Inc.; (2) Vasomax(R), an oral medication through a
collaborative effort of Zonagen, Inc. and Schering Plough Pharmaceuticals; and
(3) IC351, an oral formulation by the joint venture between ICOS and Eli Lilly &
Co.
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Licensing for Marketing and Distribution.
We are discussing licensing arrangements with large pharmaceutical
companies for the right to market and distribute one or more of our products
under development. Although we are engaged in discussions with potential
partners, we cannot assure you that we will be able to attract a partner or
conclude a satisfactory licensing arrangement.
We will need to devote substantial marketing efforts to achieve market
acceptance for products based on the NexACT(R) technology, the Viratrol(R)
device and any of our other proposed products. We will need to spend significant
funds to inform potential customers, including third-party distributors, of the
distinctive characteristics and benefits of our products. Our operating results
and long term success will depend on our ability to establish (1) successful
arrangements with domestic and international distributors and marketing partners
and (2) an effective internal marketing organization. We currently have no sales
force or marketing organization and will need, but may be unable, to attract and
retain qualified or experienced marketing and sales personnel.
Dependence on Third Party Suppliers and Manufacturers.
We do not own a manufacturing facility and will rely on outside
manufacturers to produce our proposed products. To be successful, manufacturers
must produce our products in commercial quantities at acceptable costs and in
compliance with regulatory requirements of the FDA or comparable foreign
agencies. The FDA periodically inspects manufacturing facilities within the
United States and manufacturing facilities outside the United States whose drugs
are marketed in the United States. Failure of third-party suppliers or
manufacturers of our proposed products to meet good manufacturing practice
standards and comply with FDA or foreign regulatory requirements would adversely
affect our business, financial condition and results of operations.
We currently have three suppliers of alprostadil. Prices of alprostadil
have fallen and we do not anticipate any problems in obtaining alprostadil or
other supplies in commercial quantities for the manufacture of our proposed
products. We currently have relationships with two contract manufacturers for
production of our key NexACT(R) enhancers.
Government Regulation.
Governmental authorities in the United States and other countries heavily
regulate the testing, manufacture, labeling, distribution, advertising and
marketing of our proposed products. None of our products under development have
been approved for marketing in the United States or elsewhere. Before we market
any pharmaceutical products we develop or license, we must obtain FDA and
comparable foreign agency approval through an extensive approval process. Our
failure to obtain requisite governmental approvals timely or at all or our
failure to obtain approvals of the scope requested will delay or preclude us
from licensing or marketing our products or limit the commercial use of our
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products, which could adversely affect our business, financial condition and
results of operations.
The studies involved in the approval process are conducted in three
phases. In a Phase I studies, researchers assess safety or the most common acute
adverse effects of a drug and examine the size of doses that patients can take
safely without a high incidence of side effects. Generally, 20 to 100 healthy
volunteers or patients are studied in the Phase I study for a period of several
months. In Phase II studies, researchers determine the drug's efficacy with
short-term safety by administering the drug to subjects who have the condition
the drug is intended to treat, assess whether the drug favorably effects the
condition, and begin to identify the correct dosage level (dose ranging). Up to
several hundred subjects may be studied in the Phase II study for approximately
6 to 12 months, depending on the type of product tested. In Phase III studies,
researchers further assess efficacy and safety of the drug. Several hundreds to
thousands of patients may be studied during the Phase III studies for a period
of from 12 months to several years. Upon completion of Phase III studies, a New
Drug Application is submitted to the appropriate governmental regulatory
authority for review and approval.
The requirements governing the conduct of pre-clinical testing, clinical
trials, product licensing, manufacturing, pricing and reimbursement vary widely
from country to country. Variations of foreign requirements could delay our
introduction of products into countries outside the United States and limit our
marketing scope. Although approval in one major market may assist in obtaining
approval elsewhere, the regulatory review process in each country can be lengthy
and unpredictable. Our failure to meet each foreign country's requirements could
delay our introduction of our proposed products in the respective foreign
country and limit our revenues from sales of our proposed products in foreign
markets.
Even if we obtain regulatory approvals, the FDA and comparable foreign
agencies continually review and regulate marketed products. A later discovery of
previously unknown problems or our failure to comply with the applicable
regulatory requirements could subject us to regulatory or judicial enforcement
actions. These actions could result in the following:
o recalls or seizures of our proposed products,
o restrictions on marketing of our proposed products,
o regulatory authorities' refusal to approve new products or
withdrawal of existing approvals,
o enhanced product liability exposure,
o injunctions,
o civil penalties, or
o criminal prosecution.
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Patents, Licenses and Proprietary Rights.
To justify the substantial investment of time and expense required to
develop and commercialize our products, we seek proprietary protection for our
pharmaceutical products 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. Our
success depends in part on our ability to (1) obtain effective patent protection
for our proprietary technologies and products, (2) defend patents we own, (3)
preserve our trade secrets and (4) 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, no consistent policy addresses the breadth of claims allowed
in or the degree of protection afforded under the patents of medical and
pharmaceutical companies.
We acquired two patents, one pending U.S. patent application and one
pending international pending application, upon the completion of the
transaction with Odontex. One of the patents expires in 2007 and the other
expires in 2009. In connection with our recent development of a new generation
of absorption technology, we filed four patent applications in the U.S. and
three patent applications under the Patent Cooperation Treaty for specific
compositions of the NexACT(R) enhancers with certain active ingredients. To
date, we have received Notices of Allowance on two of the pending U.S. patent
applications. We also have one U.S. patent application pending for the
Femprox(TM) cream, and one patent application pending for the applicator for
administering the Alprox-TD(R) cream. We own two patents on the Viratrol(R)
device, have one continuation-in-part application and one patent application
pending with respect to the technology, inventions and improvements that are
significant to the Viratrol(R) device and intend to file additional patent
applications to continue expanding the coverage on the device. In April 1999, we
received a Notice of Allowance on the pending continuation-in-part application.
One of the patents expires in 2009 and the other patent expires in 2015.
The patent application and issuance process may take several months, if
not years, and entail considerable expense. We might not obtain patents for
Viratrol(R) or NexACT(R) or other technology or products that we may develop.
Our existing patent and any patents resulting from our applications might (1)
not be sufficiently broad to afford protection against competitors with similar
technology, (2) infringe upon the claims of third-party patents or (3) be
invalidated or circumvented. Moreover, we do not have international patents
covering all of the claims of our U.S. patents.
Our commercial success depends on our ability to avoid infringement of
patents issued to competitors. Because a United States pending patent
application is confidential, we cannot know the inventions claimed in pending
patent applications filed by third parties. We may need to defend or enforce our
parent and license rights to determine the scope and validity of the proprietary
rights of others. Defense and enforcement of patent
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claims can be expensive and time-consuming, even when the outcome is in our
favor. Defense and enforcement actions may use substantial resources originally
allocated to other activities. In the event of an unfavorable outcome, we may be
required to (1) assume significant liabilities to third parties, (2) obtain
licenses from third parties, (3) alter our products or processes, or (4) cease
altogether any related research and development activities or product sales. Any
of these outcomes could adversely affect our business, financial condition and
results of operations.
We rely on agreements with third parties to protect our rights to certain
technology. We may encounter disputes regarding the proprietary rights to
technological information that employees, consultants, advisors or other third
parties independently develop and apply to any of our proposed products. These
disputes might not be resolved in our favor. We may also rely on trade secrets
and proprietary know-how that may become known to others despite our efforts to
keep them confidential. Although we seek to protect our trade secrets and
proprietary know-how in part by our confidentiality agreements with employees,
consultants, advisors or others, these parties may breach their agreements and
we might not obtain adequate remedies. Similarly, competitors may discover or
independently develop our trade secrets or proprietary know-how in such a manner
that we have no legal recourse.
Foreign Operations.
We initially plan to license and market our products outside of the United
States. Our 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.
Product Pricing and Reimbursement: Health Care Reform and Related Measures.
Efforts of governmental and third-party payers to contain or reduce the
costs of health care, may adversely affect the levels of revenues and
profitability of medical and pharmaceutical technology products and companies.
In certain foreign markets, pricing or profitability of prescription
pharmaceuticals is subject to government control. In the United States, federal
and state agencies have proposed similar governmental control and the United
States Congress has recently considered legislative and regulatory reforms that
could adversely companies engaged in the healthcare industry. Pricing
constraints on our products in foreign markets and possibly the United States,
could adversely effect our business. Successful commercialization of our
products will depend on the availability of reimbursement to the consumer from
third-party healthcare payers, such as government and private insurance plans.
Even if we succeed in bringing one or more products to market, reimbursement to
consumers may not be available or sufficient to allow us to realize an
appropriate return on our investment and product development or sell our
products on a competitive basis.
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Employees.
As of March 6, 2000, we have 20 full-time employees, three of whom are
executive management, and 6 part-time employees. We are in the process of hiring
6 additional full-time employees for expanding and supporting our R&D
activities, and expect to fill those positions during the next three months. We
believe our employee relationships are satisfactory.
Company History and General Information.
We were organized under the laws of the state of Nevada in October 1987
under the name Target Capital, Inc. We raised initial funds in 1988 through an
offering pursuant to Regulation A of the Securities Act, selling 1 million
shares of our common stock. Subsequently, we issued common stock to purchase
twenty un-patented mining claims, which claims ultimately reverted to the
government when not exploited by us. Our early business plans were not
productive and we became inactive until early 1994. In 1994, we issued 276,375
shares (giving effect to the 20-for-1 reverse stock split on October 2, 1995) to
10 individuals, and acquired the patent and royalty rights and the unfinished
prototype of a medical device for the treatment of herpes simplex diseases. Our
common stock was valued at $.20 per share, with an aggregate value of $55,275.
In 1994, we changed our name to BioElectric, Inc. In September 1995, we changed
our name to NexMed, Inc., reflecting our broader-based business objectives. Our
common stock has been quoted on the Over-the-Counter Bulletin Board since
October 1995 under the symbol "NEXM." In February 2000, we submitted an
application for listing on the Nasdaq SmallCap Market, but do not know when our
application will be approved, if at all. We have been a reporting company under
the Securities Exchange Act of 1934, as amended, since May 1997 upon the
effectiveness of the registration statement on Form 10-SB which we filed
voluntarily in March 1997 pursuant to Section 12(g) of the Exchange Act of 1934.
Our principal executive offices are located at 350 Corporate Boulevard,
Robbinsville, New Jersey 08691, and our telephone number is (609) 208-9688. Our
website is "www.nexmed.com".
Risk Factors.
Our results from operations and ability to pay dividends on our securities
may be affected by the risk factors set forth below. All investors should
consider the following risk factors before deciding to purchase our securities.
We have incurred and expect to continue to incur operating losses in the
future. Our current business operations began in 1994 and we have a limited
operating history. We may encounter delays, uncertainties and complications
typically encountered by newly found businesses. We have not marketed or
generated revenues from our products under development. We are not profitable
and have incurred significant
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operating losses since our inception, and we have an accumulated deficit of
$15,228,128 at December 31, 1999. Even if we eventually generate revenues from
sales of our products currently under development, we expect to incur
significant operating losses over the next several years. Our ability to become
profitable will depend on (1) our ability to continue to obtain financing
necessary to develop and commercialize our proposed products, (2) development of
our proposed products, (3) obtainment of regulatory approvals of our proposed
products and (4) success in manufacturing, distributing and marketing our
proposed products. Our independent accountants have included an explanatory
paragraph stating that our financial statements have been prepared assuming that
we will continue as a going concern and that we have suffered recurring losses
from operations and have a working capital deficiency which cause substantial
doubt as to our ability to do so.
Our proposed products are in the early stage of development and may fail.
We do not currently sell any proprietary products and do not expect to have any
products commercially available for several years. Our proposed products,
including products utilizing the NexACT(R) technology and the Viratrol(R)
device, are in an early stage of development and require (1) additional research
and development, (2) preclinical studies, (3) clinical testing, (4) regulatory
approval, and (5) additional investment prior to their commercialization. Our
proposed products are subject to the risks of failure associated with the
establishment and development of products based upon innovative or novel
technologies. Among these risks are the following:
o research and development activities we fund may not be successful;
o our products under development may not prove to be safe and
effective;
o we may not complete our preclinical or clinical development work;
o we may not obtain FDA or foreign regulatory approvals of our
products;
o our products may not be commercially viable or successfully
marketed.
o third parties may hold proprietary rights that could preclude us
from marketing our products; and
o we may never achieve significant revenues from our products under
development even if the FDA or foreign authorities approve them.
Our failure to receive governmental approvals for our proposed products on
a timely basis, or ever, could damage our business, financial condition and
results of operations. Governmental authorities in the United States and other
countries heavily regulate the testing, manufacture, labeling, distribution,
advertising and marketing of our proposed products. None of our products under
development have been approved for marketing in the United States or elsewhere.
Before we market any pharmaceutical products we develop or license, we must
obtain FDA and comparable foreign agency approval through an extensive approval
process. This process includes costly and time-consuming procedures to establish
product safety and effectiveness, including the following:
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o lengthy and detailed preclinical studies;
o clinical trials;
o sampling activities;
o testing and questions by the FDA and comparable foreign agencies;
and
o confirmation by the FDA and comparable foreign agencies that good
laboratory, clinical and manufacturing practices were maintained
during testing and manufacturing.
Our failure to obtain requisite governmental approvals timely or at all or our
failure to obtain approvals of the scope requested will delay or preclude us
from licensing or marketing our products or limit the commercial use of our
products, which could adversely affect our business, financial condition and
results of operations.
Variations of foreign requirements could delay our introduction of
products into countries outside the United States and limit our marketing scope.
If we sell our products outside the United States, we will be subject to foreign
regulatory requirements governing the conduct of clinical trials, product
licensing, pricing and reimbursements. These requirements vary widely from
country to country. Our failure to meet each foreign country's requirements
could delay our introduction of our proposed products in the respective foreign
country and limit our revenues from sales of our proposed products in foreign
markets.
Our failure to comply with regulatory requirements could subject us to
regulatory or enforcement actions. Even if we obtain regulatory approvals, the
FDA and comparable foreign agencies continually review and regulate marketed
products. A later discovery of previously unknown problems or our failure to
comply with the applicable regulatory requirements could subject us to
regulatory or judicial enforcement actions. These actions could result in the
following:
o recalls or seizures of our proposed products,
o restrictions on marketing of our proposed products,
o regulatory authorities' refusal to approve new products or
withdrawal of existing approvals,
o enhanced product liability exposure,
o injunctions,
o civil penalties, or
o criminal prosecution.
We need, but may be unable, to raise additional funds to continue our
operations. We need substantial additional funding to research and further
develop our proposed products and to manufacture and market any of our products
that may be approved by the FDA or foreign regulatory agencies. Our cash
requirements may vary depending on the following:
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o the progress of our research and development programs,
o results of our clinical studies,
o the timing of our regulatory submissions, and
o our acquisition of additional proprietary pharmaceutical
technologies and their requisite research and development programs.
Although we expect to raise more funds through joint ventures and/or additional
debt or equity financing, we have not made arrangements and may not be able to
obtain additional financing on acceptable terms, or at all. If we cannot obtain
additional financing, we may need to modify our business objectives or reduce or
cease certain or all of our product development programs and other operations.
As a result, you could lose much or all of your investment.
We depend on patents, licenses and proprietary rights to protect us
against competitors. We will seek proprietary protection for our medical and
pharmaceutical products to prevent others from commercializing equivalent
products in substantially less time and at substantially lower expense. Our
success depends on our ability to (1) obtain effective patent protection for our
proprietary technologies and products, (2) defend patents we own, (3) preserve
our trade secrets and (4) operate without infringing upon the proprietary rights
of others.
Patents, licenses and other proprietary rights may not fully protect us.
Our patent position in the United States and other countries is highly uncertain
and involves complex legal and factual questions. No consistent policy addresses
the breadth of claims allowed in or the degree of protection afforded under
patents of medical and pharmaceutical companies. Patents we currently own or may
obtain might not be sufficiently broad to protect us against competitors with
similar technology. Any of our patents could infringe upon the claims of
third-party patents or be invalidated or circumvented.
Our patent applications may not be approved on a timely basis or ever. The
patent application and issuance process takes several months, if not years, and
may be expensive. We might not obtain patents for NexACT(R) or Viratrol(R) or
other technology or products that we may develop. In addition, we do not have
and may never obtain international patents covering all of the claims of our
U.S. patents.
Our commercial success depends upon our avoidance of infringement of
patents issued to competitors. Because a United States pending patent
application is confidential, we cannot know the inventions claimed in pending
patent applications filed by third parties. We may need to defend or enforce our
patent and license rights or determine the scope and validity of the proprietary
rights of others through litigation. Defense and enforcement of patent claims
may be expensive and time-consuming, even when the outcome is in our favor.
Defense and enforcement actions may use substantial resources
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originally allocated to other activities. In the event of an unfavorable
outcome, we may be required to:
o assume significant liabilities to third parties,
o obtain licenses from third parties,
o alter our products or processes, or
o cease altogether any of our related research and development
activities or product sales.
We rely on agreements with third parties to protect our rights to certain
technology. We may encounter disputes regarding the proprietary rights to
technological information that employees, consultants, advisors or other third
parties independently develop and apply to any of our proposed products. These
disputes might not be resolved in our favor. We may also rely on trade secrets
and proprietary know-how that may become known to others despite our efforts to
keep them confidential. Although we seek to protect our trade secrets and
proprietary know-how in part by our confidentiality agreements with employees,
consultants, advisors or others, these parties may breach their agreements and
we might not obtain adequate remedies. Similarly, competitors may discover or
independently develop our trade secrets or proprietary know-how in such a manner
that we have no legal recourse.
We do not have manufacturing capability and will depend on third-party
manufacturers. We do not own a manufacturing facility and will rely on outside
manufacturers to produce our proposed products. To be successful, manufacturers
must produce our products in commercial quantities at acceptable costs and in
compliance with regulatory requirements of the FDA or comparable foreign
agencies. The FDA periodically inspects manufacturing facilities within the
United States and manufacturing facilities outside the United States whose drugs
are marketed in the United States. Failure of third-party suppliers or
manufacturers of our proposed products to meet good manufacturing practice
standards and comply with FDA or foreign regulatory requirements would adversely
affect our business, financial condition and results of operations.
We lack marketing and distribution expertise and will depend on third
parties to market and distribute our products. We will need to devote
substantial marketing efforts to achieve market acceptance for products based on
the NexACT(R) technology, the Viratrol(R) device and any of our other proposed
products. We will need to spend significant funds to inform potential customers,
including third-party distributors, of the distinctive characteristics and
benefits of our products. Our operating results and long term success will
depend on our ability to establish (1) successful arrangements with domestic and
international distributors and marketing partners and (2) an effective internal
marketing organization. We currently have no sales force or marketing
organization and will need, but may be unable, to attract and retain qualified
or experienced marketing and sales personnel.
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Healthcare reform may cause uncertainty of product pricing and
reimbursement. Reduction of healthcare costs may reduce revenues and
profitability of our medical and pharmaceutical technology products. In certain
foreign markets, pricing or profitability of prescription pharmaceuticals is
subject to government control. In the United States, federal and state agencies
have proposed similar governmental control and the United States Congress has
recently considered legislative and regulatory reforms that may affect companies
engaged in the healthcare industry. Pricing constraints on our products in
foreign markets and possibly the United States, could adversely effect our
business. Successful commercialization of our products will depend on the
availability of reimbursement to the consumer from third-party healthcare
payers, such as government and private insurance plans. Even if we succeed in
bringing one or more products to market, reimbursement to consumers may not be
available or sufficient to allow us to realize an appropriate return on our
investment and product development or sell our products on a competitive basis.
We depend on key personnel and consultants whose continued service is not
guaranteed. We depend on our officers and directors, Scientific Advisory Board
members, consultants and collaborating scientists, including Y. Joseph Mo,
Ph.D., Chairman of our Board of Directors, President and Chief Executive
Officer; James L. Yeager, Ph.D., Vice President, Research and Development and
Business Development, and director; and Vivian H. Liu, Vice President, Chief
Financial Officer and Secretary. Loss of their services could adversely affect
our business. We may not be able to attract and retain additional management or
other key personnel capable of developing our proposed products.
The medical and pharmaceutical industry is highly competitive and many of
our competitors have greater financial and technological resources. We are
engaged in a highly competitive industry. We expect increased competition from
numerous existing companies, including large international enterprises, and
others entering the industry. Most of these companies have greater research and
development, manufacturing, marketing, financial, technological, personnel and
managerial resources. Acquisitions of competing companies by large
pharmaceutical or healthcare companies could further enhance such competitors'
financial, marketing and other resources. Competitors may complete clinical
trials, obtain regulatory approvals and commence commercial sales of their
products before we could enjoy a significant competitive advantage. Products
developed by our competitors may be more effective than our products.
Certain treatments for ED, such as needle injection therapy, vacuum
constriction devices, penile implants, transurethral absorption and oral
medications, currently exist, have been approved for sale in certain markets and
are being improved. Currently known products for the treatment of ED developed
or under development by our competitors include the following: (1) Caverject(R),
Pharmacia & Upjohn Company's needle injection therapy; (2) Viagra(R), Pfizer,
Inc.'s product to treat ED that was approved by the FDA in
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March 1998 and has exceeded one billion dollar in sales since its introduction;
and (3) MUSE(R), Vivus, Inc.'s device for intra-urethral delivery of a
suppository containing alprostadil have each been approved for sale in the U.S.
and several international markets. In addition, the following products are
currently under development: (1) Topiglan(R), a topical treatment based on a
proprietary drug delivery system under development by Macrochem Inc.; (2)
Vasomax(R), an oral medication to be marketed through a collaborative effort of
Zonagen, Inc. and Schering Plough Pharmaceuticals; and (3) IC351, an oral
formulation under development by the joint venture among ICOS and Eli Lilly &
Co.
We do not maintain product liability insurance and a claim against us
could adversely effect our business. Adverse effects on consumers of our
proposed products from the use or misuse of pharmaceutical products manufactured
or licensed for manufacture by us could expose us to product liability claims.
We do not carry product liability insurance and have not had any discussions
with insurance underwriters. Although we intend to obtain product liability
insurance coverage before commercialization of our proposed products, we may not
be able to obtain adequate insurance coverage at an acceptable cost, if at all.
Even if we obtain insurance coverage, a product liability claim could adversely
affect our business, financial condition and results of operations.
We do not expect to pay dividends on our common stock in the foreseeable
future. Although our shareholders may receive dividends if, as and when declared
by our board of directors, we do not intend to pay dividends on our common stock
in the foreseeable future. Therefore, you should not purchase our common stock
if you need immediate or future income by way of dividends from your investment.
We may issue additional shares of our capital stock that could dilute the
value of your shares of common stock. We are authorized to issue 50,000,000
shares of our capital stock, consisting of 40,000,000 shares of our common stock
and 10,000,000 shares of our preferred stock. At March 7, 2000, 19,379,048
shares of our common stock and no shares of our preferred stock were issued and
outstanding, 4,793,432 shares of our common stock are immediately issuable upon
the exercise of immediately exercisable options and/or warrants. We may issue
authorized and unissued shares of common or preferred stock that could dilute
the earnings per share and book value of your shares of our common stock.
We may need but be unable to attract and retain a corporate partner to
develop our products. We do not currently have a corporate partner relationship
with respect to any of our technologies or potential products. Given the high
cost of funding clinical trials and bringing a proposed product through the
governmental approval process to the commercial market, successful development
and commercialization of our technologies and products may depend largely on our
ability to establish one or more corporate partner relationships. We may not be
able to establish these relationships on favorable terms, if at all.
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Item 2. Description of Property.
We currently have our principal executive offices and one analytical
laboratory in Robbinsville, NJ. We lease 19,270 square feet of space for $16,069
per month, pursuant to a five-year lease.
Pursuant to our research agreement with the University of Kansas, which
expires on August 31, 2000, we pay $61,740 for access to and use of laboratory
space at the University's Higuchi Biosciences Center during the 12-month term of
the research agreement.
NexMed (Americas) Limited, leases 1,000 square feet of office space in
Mississauga, Ontario, Canada for $850 per month pursuant to a month-to-month
arrangement.
Item 3. Legal Proceedings.
In November 1998, Genie Total Products, Inc., a Nevada Corporation,
refiled a complaint (the "Complaint") against us in the District Court, Third
Judicial District, Salt Lake County, State of Utah (the "Court"). Genie Total
Products, Inc. alleged in the Complaint, which was served in May 1999, that it
entered into a three-year agreement on December 1, 1993 to provide us with
consulting and marketing services for a stated monthly amount, but that no
payments were made. The Complaint, which claimed breach of contract, unjust
enrichment and anticipatory breach of contract, requested damages of
$388,312.50, plus interest, costs and attorney's fees. In January 1997, Genie
Total Products, Inc. filed a similar complaint which was dismissed without
prejudice on November 12, 1997 on procedural grounds. At a hearing held on
February 9, 2000, the judge granted from the bench our motion to dismiss the
Complaint, which grant shall become effective upon the filing of an appropriate
written order signed by the judge with the Court clerk. Should the plaintiff
appeal the judge's decision to grant our motion to dismiss, we intend to
continue defending our position vigorously.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
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Part II
Item 5. Market Price for Common Equity and Related Stockholder Matters.
Our 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
-------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
1999
High $ 2.4375 $ 1.8750 $ 2.9375 $ 4.4375
Low 1.7500 0.9375 0.9375 2.8750
1998
High $ 1.7500 $ 4.1250 $ 3.7500 $ 3.6250
Low 1.2500 0.8750 1.2500 1.2500
As of March 7, 2000, we have 300 registered shareholders and 19,379,048 shares
of Common Stock issued and outstanding.
Dividends.
We anticipate that for the foreseeable future, earnings will be retained
for the development of our business. Accordingly, we do 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 our Board of Directors and will
depend on, among other things, future earnings, capital requirements, general
financial condition of the Company and general business conditions.
Recent Sales of Unregistered Securities.
In January 1997, we issued a $100,000 promissory note bearing interest at
10% per annum to one note holder. The note must be repaid by December 31, 1998
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, we granted the purchaser of such note 7,500 shares of our common stock. We
have valued these shares at $15,000 ($2.00 per share).
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In February 1997, we completed a Regulation S offering of 1 million shares
of our common stock to four individuals and an offering of 62,500 shares of our
common stock to five individuals pursuant to an exemption for registration under
the Securities Act provided by Rule 506 of Regulation D promulgated thereunder.
The price of our common stock in both offerings was $2.00 per share and the
total offering prices were $2 million and $125,000, respectively.
In February 1997, we issued 13,750 shares of our common stock with a total
value of $27,500, or $2.00 per share, to one individual as part of a unit
offering including promissory notes, in reliance upon Section 4(2) of the
Securities Act.
In March 1997, we issued 5,000 shares of our common stock pursuant to
exercise of one individual's option to purchase our common stock at $.25 per
share.
In November 1997, in conjunction with the issuance of $1.82 million of
unsecured subordinated notes, due on November 16, 1998 and bearing interest at
six percent, we issued to the noteholders 455,000 warrants to purchase shares of
our common stock, exercisable for 12 months at $4.00 per share, in a private
placement pursuant to Regulation S. In connection with the placement, we issued
455,000 of such warrants as a commission to the placement agent, China
Everbright Investment Agency. Thee warrants were cancelled due to non-exercise.
In December 1997, we issued warrants to purchase 50,000 shares of common
stock at $4.00 per share to a consultant. The fair value of our common stock was
$2.00 per share at the time of issuance. The warrants have a term of five years
and are immediately exercisable.
In January 1998, we issued 15,000 shares of our common stock upon the
exercise of options at a price of $0.25 per share, in reliance upon Section 4(2)
of the Securities Act.
In March and April 1998, we sold 323,500 shares of our common stock, with
a total value of $404,375, or $1.25 per share, to seventeen individual investors
pursuant to an exemption from registration under the Securities Act provided by
Rule 506 of Regulation D promulgated thereunder.
In April 1998, we issued 51,038 shares of our common stock, at a price of
$1.25 per share in exchange for services rendered, pursuant to an exemption from
registration under the Securities Act provided by Rule 506 of Regulation D
thereunder.
In April 1998, we issued 100,000 shares of our common stock upon the
exercise of options at a price of $0.25 per share, in reliance upon Section 4(2)
of the Securities Act.
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In May 1998, we sold 1,360,000 shares of our common stock with a total
value of $2,040,000 or $1.50 per share, to twelve investors, pursuant to an
exemption from registration under the Securities Act provided by Rule 506 of
Regulation D thereunder.
In June 1998, we issued 95,000 shares of our common stock upon the
exercise of options at a price of $0.25 per share, in reliance upon Section 4(2)
of the Securities Act.
In July 1998, we issued 50,000 shares of our common stock upon the
exercise of options at a price of $0.25 per share, in reliance upon Section 4(2)
of the Securities Act.
In September 1998, we issued 10,000 shares of our common stock upon the
exercise of options at a price of $0.25 per share, in reliance upon Section 4(2)
of the Securities Act.
In September 1998, we sold 106,667 shares of our common stock with a total
value of $160,000 or $1.50 per share, to nine investors, pursuant to an
exemption from registration under the Securities Act provided by Rule 506 of
Regulation D thereunder.
In October 1998, we issued 10,000 shares of our common stock upon the
exercise of options at a price of $0.25 per share, in reliance upon Section 4(2)
of the Securities Act.
In November 1998, we issued 80,000 shares of our common stock with a total
value of $100,000, or $1.25 per share, to one individual as part of a unit
offering including promissory notes, in reliance upon Section 4(2) of the
Securities Act.
In November 1998, we issued 5,000 shares of our common stock upon the
exercise of options at a price of $0.25 per share, in reliance upon Section 4(2)
of the Securities Act of 1933, as amended.
In December 1998, we issued 40,400 shares of our common stock with a total
value of $50,500, or $1.25 per share, to five individuals as part of a unit
offering including promissory notes, in reliance upon Section 4(2) of the
Securities Act.
In June 1999, as consideration of approximately $500,000 in exchange for
the remaining 5% minority interest in our subsidiary, New Brunswick Medical,
Inc., from one minority stockholder, we issued 233,333 shares of our common
stock, $0.001 par value per share, with an estimated fair value of $350,000, in
reliance upon Section 4(2) of the Securities Act of 1933, as amended, and
forgave a $150,000 promissory note issued to us by the minority stockholder.
In June 1999, we issued a total of 50,000 shares of our common stock with
a total value of $62,500, to five individuals upon conversion of promissory
notes, in reliance upon Section 4(2) of the Securities Act.
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In August 1999, we issued a total of 370,000 shares of our common stock
with a total consideration of $310,000, to nine individuals upon conversion of
promissory notes issued in July 1999, in reliance upon Section 4(2) of the
Securities Act of 1933, as amended.
In September 1999, we completed an offering of 5,671,652 shares of our
common stock at a total offering price of $8,507,478, as part of a unit offering
with each unit consisting of two shares of common stock and one warrant to
purchase one share of common stock at 2.25 per share, for $3.00 per unit, to 52
accredited individuals and financial institutions pursuant to an exemption from
registration under the Securities Act of 1933, as amended, provided by Rule 506
of Regulation D.
In November 1999, we issued a total of 752,100 shares of common stock with
a total consideration of $1,504,199 to 13 individuals upon conversion of
promissory notes issued in November 1997 and November 1998, in reliance upon
Section 4(2) of the Securities Act.
In December 1999, we issued a total of 553,334 shares of common stock with
a total consideration of $710,000 to two individuals upon conversion of
promissory notes issued in August 1999 and September 1999, respectively, in
reliance upon Section 4(2) of the Securities Act.
Item 6. Management's Discussion and Analysis or Plan of Operation.
General.
We have been in existence since 1987. Since 1994, we have positioned
ourselves as a medical and pharmaceutical technology company with a focus on
developing and commercializing therapeutic products based on proprietary
delivery systems. We, together with our subsidiaries, are currently focusing our
efforts on:
(i) new and patented pharmaceutical products based on a penetration
enhancement topical delivery technology known as NexACT(R), which may enable the
active drug to be better absorbed through the skin. Currently, the primary
topical treatment products under development by the Company are Alprox-TD(R), an
alprostadil cream for the treatment of male erectile dysfunction and
Femprox(TM), an alprostadil-based product for the treatment of female sexual
arousal disorder. We are currently discussing with large pharmaceutical
companies the licensing of the Alprox-TD(R) cream but we cannot assure you that
we will be able to conclude an arrangement on a timely basis, if at all, or on
terms acceptable to us; and
(ii) the Viratrol(R) device, a therapeutic medical device for the
treatment of herpes simplex diseases which does not require the use of any
drugs. We believe that the minute electrical current, which is topically
delivered by the device to an infected site,
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may block lesions from forming or may significantly shorten healing time once
lesions develop.
If sufficient funding is forthcoming, we intend to (1) pursue our
research, development, and marketing activities and capabilities, both
domestically and internationally, with regard to our proprietary pharmaceuticals
products and (2) execute a business strategy with the goal of achieving a level
of development sufficient to enable us to attract potential strategic partners
with resources sufficient to further develop and market our proprietary
products.
With respect to the regulatory approval of our products that incorporate
the NexACT(R) technology, we completed Phase I studies on the Alprox-TD(R) and
Femprox(TM) creams. During October 1999, we initiated the Phase II clinical
trial on the Alprox-TD(R) cream and intend to begin the proposed Phase II
program on the Femprox(TM) cream in April 2000, pending FDA approval.
Comparison of Results of Operations between the Year Ended December 31, 1999 and
1998.
Revenues. We recorded revenues of $1,491,746 during the twelve months of
operations in 1999 as compared to $5,709,083 during the same period in 1998. The
revenues were from NexMed Pharmaceuticals (Zhongshan) Limited, a joint venture
in China which we sold in May 1999.
Cost of Products Sold. The cost of products sold was $1,415,002 and
$5,186,308 in 1999 and 1998, respectively and is attributable to the
manufacturing operations of the China joint venture. With the sale of the China
joint venture, we ceased to record the corresponding cost of sales in May 1999.
Research and Development Expenses. Research and development expenses for
1999 and 1998, were $2,374,024 and $2,302,148, respectively. The increase is
primarily attributable to the initiation of clinical programs during the fourth
quarter of 1999. We expect that total research spending in 2000 will increase
with the initiation and progression of advanced and costly clinical activities
in the U.S.
General and Administrative Expenses. General and administrative expenses
were $1,203,982 during 1999 as compared to $2,635,114 in 1998. The decrease is a
result of the sale of our Asian operations including our holding in the China
joint venture.
Interest Income and Expense. We recognized $315,740 in net interest
expense during 1999, compared with an expense of $600,337 during 1998. The
decrease is due to our ceasing to record the interest expense for the lines of
credit of the China joint venture.
Gain on Sale of NexMed (Asia) Limited. We realized a gain of $1,810,296 in
1999, compared to $0 in 1998, as a result of the divestiture of our Asian
properties.
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Net Loss. The net loss applicable to common shareholders was $(2,490,600)
or a loss of $(0.18) per share for 1999, compared with ($4,779,002) or ($0.64)
per share for 1998. The decrease in net loss is primarily attributable to the
gain on the sale of NexMed (Asia) Limited and reduction in expenses associated
with the divestiture of our Asian operations.
Liquidity and Capital Resources.
We have experienced net losses and negative cash flow from operations each
year since our inception. Through December 31, 1999, we had an accumulated
deficit of $15,438,332. Since we became a medical and pharmaceutical technology
company in 1994, we have financed our operations primarily through private
placements of equity and debt securities.
Our expenditures and capital requirements will depend on numerous factors,
but will mainly be affected by the progress of (1) our research and development
programs, (2) our pre-clinical and clinical testing, (3) our ability to raise
adequate funding, and (4) our ability to complete additional corporate
partnership agreements. In the course of our development and operation
activities, we have incurred significant losses and expect to incur substantial
additional development costs.
On September 30, 1999, we completed a private placement of our common
stock and warrants for total gross proceeds of approximately $8.5 million. In
accordance with the terms of the warrant agreements issued as part of the
private placement, on December 14, 1999, when the closing price per share of our
common stock reached $4.00 for at least fifteen consecutive trading days, we
issued a notice for redemption for the exercise of the warrants at $2.25 per
share, or for them to be redeemed at the par value of our common stock. 83,332
of the warrants were exercised in December 1999 and 2,723,494 warrants were
exercised in January 2000. Proceeds received in January 2000 were approximately
$6.1 million. We also redeemed 29,000 warrants at $0.001 per warrant share.
In May 1999, in exchange for all the issued and outstanding shares of
capital stock of NexMed (Asia) Limited, we (1) received $4,000,000, comprised of
$2,000,000 in cash and two promissory notes, each for $1,000,000, due on
November 12, 1999 and June 30, 2000, respectively and (2) granted Vergemont
International Limited warrants to purchase 2,000,000 shares of our common stock,
exercisable at $3.00 per share. In February 2000, we received full payment for
the two promissory notes and interest due. We anticipate that we will also
receive by June 30, 2000, an additional $6 million from the exercise of warrants
by Vergemont International Limited.
We have allocated our cash reserve for our operational requirement, which
is currently at $400,000 per month, for the next twelve months, repayment of
short-term indebtedness and the planned Phase II U.S. clinical studies on the
Alprox-TD(R) and Femprox(TM) creams. As of January 31, 2000, we repaid all of
our short-term indebtedness.
26
<PAGE>
In addition, we have initiated the Phase II program on the Alprox-TD(R) cream
and expect to complete the study by June 30, 2000.
In October 1998, as part of the total consideration of $500,000 for 500
shares of common stock of New Brunswick Medical, Inc., a Delaware company and
one of our subsidiaries, a private investor issued a $150,000 promissory note to
New Brunswick Medical, Inc. The promissory note bore an interest at 4% per annum
and was due on April 11, 1999. In June 1999, we acquired the private investor's
500 shares of common stock of New Brunswick Medical, Inc. in exchange for total
consideration of approximately $500,000, consisting of 233,333 shares of our
common stock, with a then estimated fair market value of $350,000, and the
forgiveness of the $150,000 note from the private investor.
During 1998 and 1999, Dr. Y. Joseph Mo, one of our officers and directors,
advanced us an aggregate of $600,500 under an informal agreement. The advances
bore interest at 12% per annum and were due at various intervals in 1999. During
1999, we repaid an aggregate of $567,408 of such advances and principal and
interest payments to Dr. Mo.
We will require additional financing for the next phase of our development
programs and are seeking financing from private and public sources and from
collaborative licensing arrangements with third parties, of which there is no
assurance that such funds will be available to us on acceptable terms, if at
all.
Computer Systems and Year 2000 Issues.
The Year 2000 issue concerned the potential exposures related to the
automated generation of business and financial misinformation resulting from the
application of computer programs which were written using two digits, rather
than four, to define the applicable year of business transactions. We believe
that through our compliance review process we adequately addressed the Year 2000
concerns as they related to our internal information technology as we
experienced no system failures or computer errors associated with the Year 2000.
We have concluded our compliance review process and anticipate no further Year
2000 compliance issues or expenditures. Our total expenditures on our Year 2000
program initiatives to date were nominal.
Disclosure Regarding Forward-Looking Statements.
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, including statements regarding
our plans, objectives, expectations and intentions. Although we believe the
statements and projections are based upon reasonable assumptions, actual results
may differ from those that we have projected.
27
<PAGE>
Item 7. Financial Statements.
Report of Independent Accountants
To the Board of Directors and Stockholders of
NexMed, Inc.
In our opinion, 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 subsidiaries (the "Company") at December 31, 1999, and the
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. 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 audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, 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
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
March 1, 2000
28
<PAGE>
NexMed, Inc.
Consolidated Balance Sheet
- --------------------------------------------------------------------------------
December 31, 1999
Assets
Current assets
Cash and cash equivalents $ 5,118,849
Notes receivable 2,000,000
Prepaid expenses and other current assets 169,995
-----------
Total current assets 7,288,844
Fixed assets, net 344,489
-----------
Total assets $ 7,633,333
===========
Liabilities and Stockholders' Equity
Current liabilities
Notes payable $ 133,838
Due to officer 33,092
Accounts payable and accrued expenses 556,664
-----------
Total current liabilities 723,594
-----------
Commitments and contingincies (Note 12)
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,
16,127,134 shares issued and outstanding 16,127
Additional paid-in capital 22,356,112
Accumulated other comprehensive income 115
Accumulated deficit (15,451,036)
-----------
6,921,318
Less: Deferred compensation (11,579)
-----------
Total stockholders' equity 6,909,739
-----------
Total liabilities and stockholders' equity $ 7,633,333
===========
The accompanying notes are an integral part of these consolidated financial
statements.
29
<PAGE>
NexMed, Inc.
Consolidated Statement of Operations
- --------------------------------------------------------------------------------
For the Year Ended
December 31,
1999 1998
Revenue
Product sales $ 1,491,746 $ 5,709,083
------------ ------------
Costs and expenses
Cost of products sold 1,415,002 5,186,308
Selling, general and administrative 1,761,796 2,635,114
Research and development 2,374,024 2,302,148
------------ ------------
Total costs and expenses 5,550,822 10,123,570
------------ ------------
Loss from operations (4,059,076) (4,414,487)
Gain on sale of NexMed Asia (1,810,296) --
Interest income (92,385) (15,878)
Interest expense 408,125 616,215
------------ ------------
Loss before minority interest (2,564,520) (5,014,824)
Minority interest 73,920 235,822
------------ ------------
Net loss (2,490,600) (4,779,002)
Other comprehensive loss
Foreign currency translation adjustments (16,318) (44,284)
------------ ------------
Comprehensive loss $ (2,506,918) $ (4,823,286)
============ ============
Basic and diluted loss per share $ (.18) $ (.64)
============ ============
Weighted average common shares outstanding
used for basic and diluted loss per share 13,724,052 7,505,588
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
30
<PAGE>
NexMed, Inc.
Consolidated Statement of Changes in Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended
December 31,
1999 1998
<S> <C> <C>
Cash flows from operating activities
Net (loss) $(2,490,600) $(4,779,002)
Adjustments to reconcile net loss to net cash
from operating activities
Depreciation and amortization 56,378 341,217
Minority interest (73,920) (235,822)
Noncash compensation expense 565,381 137,883
Noncash interest expense 277,329 70,100
Gain on sale of NexMed Asia (1,810,296) --
Increase in accounts receivable -- (1,289,483)
Decrease (increase) in inventories 8,898 (699,651)
Decrease (increase) in prepaid expense (114,315) (124,007)
(Decrease) increase in accounts payable and accrued expenses (875,345) 1,405,189
----------- -----------
Net cash used in operating activities (4,456,490) (5,173,576)
----------- -----------
Cash flows from investing activities
Capital expenditures (247,745) (498,758)
Proceeds from sale of subsidiary, net 343,441
Increase in notes receivable - related party -- (150,000)
Advances to joint ventures -- 1,870,000
----------- -----------
Net cash used in investing activities 95,696 1,221,242
----------- -----------
Cash flows from financing activities
Net borrowings under line of credit -- 2,174,412
Net decrease in due to joint venture partner -- (522,075)
(Decrease) increase in due to offices (567,408) 600,500
Issuance of common stock, net of offering costs 8,444,947 2,675,625
Sale of stock by subsidiary -- 500,000
Issuance of notes payable 1,132,500 527,735
Repayment of notes payable (1,228,050) (500,000)
----------- -----------
Net cash from financing activities 7,781,989 5,456,197
----------- -----------
Effect of foreign exchange on cash 16,318 44,284
----------- -----------
Net (decrease) increase in cash and cash equivalents 3,437,513 1,548,147
Cash and cash equivalents
Beginning of period 1,681,336 133,189
----------- -----------
End of period $ 5,118,849 $ 1,681,336
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
31
<PAGE>
NexMed, Inc.
Consolidated Statement of Changes in Stockholders' Equity
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
Common Common Additional Other
Stock Stock Paid-In Accumulated Comprehensive
(Shares) (Amount) Capital Deficit Income
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 6,180,098 $ 6,180 $ 7,300,453 $ (8,181,434) $ --
Issuance of common stock for cash 1,790,167 1,790 2,602,585 -- --
Issuance of common stock upon
conversion of notes payable 120,400 120 150,380 -- --
Embedded discount on convertible notes payable -- -- 70,100 -- --
Issuance of common stock
upon exercise of stock options 285,000 285 70,965 -- --
Issuance of common stock for services 51,038 51 63,747 -- --
Issuance of compensatory
options to consultants -- -- 36,960 -- --
Shares cancelled in settlement (25,000) (25) 25 -- --
Sale of stock by subsidiary -- -- 475,000 -- --
Issuance of note receivable - related party
Amortization of deferred compensation expense -- -- -- -- --
Cumulative translation adjustment -- -- -- -- (44,284)
Net loss -- -- -- (4,779,002) --
---------- ------------ ------------ ------------ ------------
Balance at December 31, 1998 8,401,783 $ 8,402 $ 10,770,214 $(12,960,436) $ (44,284)
Issuance of common stock upon
conversion of notes payable 1,725,434 1,725 2,644,976 -- --
Embedded discount on convertible notes payable 64,348 -- --
Issuance of common stock and warrants
for cash 5,671,652 5,672 7,820,640 -- --
Issuance of common stock
upon exercise of warrants, net 83,332 83 173,352 -- --
Issuance of common stock for services 11,600 12 50,739 -- --
Issuance of common stock for purchase of minority
interest in subsidiary 233,333 233 349,767 -- --
Adjustment due to acquisition of minority
in subsidiary -- -- (475,000) -- --
Sale and issuance of warrants in connection with
sale of subsidiary -- -- 445,200 -- --
Compensation exprense related to vesting
of performance options -- -- 499,688 -- --
Unearned Compensation -- -- 12,188 -- --
Amortization of deferred compensation expense -- -- -- -- --
Cumulative translation adjustment -- -- -- 44,399
Net loss -- -- -- (2,490,600) --
---------- ------------ ------------ ------------ ------------
Balance at December 31, 1999 16,127,134 $ 16,127 $ 22,356,112 $(15,451,036) $ 115
========== ============ ============ ============ ============
<CAPTION>
Note Total
Deferred Receivable Stockholders'
Compensation Related Party Equity
<S> <C> <C> <C>
Balance at December 31, 1997 $ (51,458) -- (926,259)
Issuance of common stock for cash -- -- 2,604,375
Issuance of common stock upon
conversion of notes payable -- -- 150,500
Embedded discount on convertible notes payable -- -- 70,100
Issuance of common stock
upon exercise of stock options -- -- 71,250
Issuance of common stock for services -- -- 63,798
Issuance of compensatory
options to consultants (25,800) -- 11,160
Shares cancelled in settlement -- -- --
Sale of stock by subsidiary -- -- 475,000
Issuance of note receivable - related party (150,000) (150,000)
Amortization of deferred compensation expense 62,925 -- 62,925
Cumulative translation adjustment -- -- (44,284)
Net loss -- -- (4,779,002)
------------ ------------ ------------
Balance at December 31, 1998 $ (14,333) $ (150,000) $ (2,390,437)
Issuance of common stock upon
conversion of notes payable -- -- 2,646,701
Embedded discount on convertible notes payable 64,348
Issuance of common stock and warrants
for cash -- -- 7,826,312
Issuance of common stock
upon exercise of warrants, net -- -- 173,435
Issuance of common stock for services -- -- 50,751
Issuance of common stock for purchase of minority
interest in subsidiary -- 150,000 500,000
Adjustment due to acquisition of minority
in subsidiary -- -- (475,000)
Sale and issuance of warrants in connection with
sale of subsidiary -- -- 445,200
Compensation exprense related to vesting
of performance options -- -- 499,688
Unearned Compensation (12,188) -- --
Amortization of deferred compensation expense 14,942 -- 14,942
Cumulative translation adjustment -- -- 44,399
Net loss -- -- (2,490,600)
------------ ------------ ------------
Balance at December 31, 1999 $ (11,579) $ -- $ 6,909,739
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
32
<PAGE>
NexMed, Inc.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
1. Organization and Basis of Presentation
Organization
The Company 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 financial statements have been prepared on a basis which
contemplates the realization of assets and the satisfaction of liabilities
and commitments in the normal course of business. The Company has an
accumulated deficit of $15,451,036 at December 31, 1999 and expects that it
will incur additional losses in completing the research, development and
commercialization of its technologies. Management anticipates that it will
require additional financing, which it is actively pursuing, to fund
operations and continued research and development. Management believes that
the Company has the ability to obtain such additional financing and that its
cash and cash equivalents balance at December 31, 1999 together with
additional financing raised through February 2000 (Note 14) will be
sufficient to fund existing operations through at least December 31, 2000.
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 majority and wholly owned subsidiaries. All significant intercompany
transactions have been eliminated.
Translation of foreign currencies
The functional currency of the Company's foreign subsidiaries is the local
currency. Assets and liabilities of the Company's foreign subsidiaries are
translated to United States dollars based on exchange rates at the end of the
reporting period. Income and expense items are translated at average exchange
rates prevailing during the reporting period. Translation adjustments are
accumulated in a separate component of stockholder's equity. Transaction
gains or losses are included in the determination of income.
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.
33
<PAGE>
NexMed, Inc. 2
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
Fair value of financial instruments
The carrying value of cash and cash equivalents, notes payable and accounts
payable and accrued expenses approximates fair value due to the relatively
short maturity of these instruments.
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, generally five to ten years.
Revenue recognition
Revenues from product sales are recognized upon delivery of products to
customers, less allowances for estimated returns and discounts. Revenues from
license fees are recognized when earned in accordance with the underlying
agreement.
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. Deferred
income taxes are recorded for temporary differences between financial
statement carrying amounts and the tax bases 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
Basic earnings per share ("Basic EPS") is computed by dividing income
available to common stockholders by the weighted average number of common
shares outstanding during the period. Diluted earnings per share ("Diluted
EPS") gives effect to all dilutive potential common shares outstanding during
the period. The computation of Diluted EPS does not assume conversion,
exercise or contingent exercise of securities that would have an antidilutive
effect on earnings.
At December 31, 1999 and 1998, outstanding options to purchase 2,432,700 and
2,676,700 shares of common stock, respectively, with exercise prices ranging
from $.25 to $3.00 have been excluded from the computation of diluted loss
per share as they are antidilutive. Outstanding warrants to purchase
5,705,726 and 200,000 shares of common stock, respectively, with exercise
prices ranging from $2.00 to $4.00 have also been excluded from the
computation of diluted loss per share as they are antidilutive. Additionally,
500,000 common shares that were issuable upon conversion of notes payable
have been excluded from the computation of Diluted EPS at December 31, 1998,
as they are 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
34
<PAGE>
NexMed, Inc. 3
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
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
As provided by SFAS 123, the Company has elected to continue to account for
its stock-based compensation programs according to the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Accordingly, compensation expense has been recognized to the
extent of employee or director services rendered based on the intrinsic value
of compensatory options or shares granted under the plans. The Company has
adopted the disclosure provisions required by SFAS 123.
Concentration of credit risk
From time to time, the Company maintains cash in bank accounts that exceed
the FDIC insured limits. The Company has not experienced any losses on its
cash accounts.
Supplemental cash flow information
The Company paid interest of $66,576 and $10,000 in 1999 and 1998,
respectively.
Comprehensive income
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS 130"),
which requires the presentation of the components of comprehensive income in
the company's financial statements. Comprehensive income is defined as the
change in the company's equity during a financial reporting period from
transactions and other circumstances from non-owner sources (including
cumulative translation adjustments, minimum pension liabilities and
unrealized gains/losses on available for sale securities). Accumulated other
comprehensive income included in the Company's balance sheet is comprised of
translation adjustments from the Company's foreign subsidiaries.
Segment reporting
Effective January 1, 1998 the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosure about Segments of an Enterprise and
Related Information" ("FAS 131"), which requires disclosure of information
about operating segments in annual financial statements for reporting periods
beginning subsequent to December 15, 1997. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker
in deciding how to allocate resources and in assessing performance. See Note
15 for additional disclosures regarding segments and geographic information.
3. Joint Venture Agreements
In July 1997, the Company, through its wholly-owned subsidiary, NexMed (Asia)
Limited, entered into an agreement to form a Chinese joint-venture company,
NexMed Pharmaceuticals (Zhongshan) Ltd. (the "JV") with Zhongshan Xiaolan
Pharmaceuticals Factory (the "JV Partner"). In September 1997, the JV
received all necessary Chinese government approvals. Under the terms of the
agreement, the Company was required to make an initial contribution of
$2,170,000, and was
35
<PAGE>
NexMed, Inc. 4
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
required to make additional contributions of $700,000 and $630,000 by
September 1999 and 2000, respectively, in exchange for a 70% equity interest
in the JV. Effective January 1, 1998, the Company completed its first year
funding requirement of $2,170,000 and, as a result, the financial position
and results of operations of the JV were included in the consolidated
financial statements of the Company as of January 1, 1998.
On March 29, 1999, the Company entered into a stock purchase agreement (the
"Purchase Agreement") with Vergemont International Limited ("Vergemont"), for
the sale of all the issued and outstanding capital stock of NexMed (Asia)
Limited, which became effective on May 17, 1999, for $4,000,000, consisting
of $2,000,000 in cash and two promissory notes, each in the amount of
$1,000,000, due on November 12, 1999 and June 30, 2000, respectively. In
addition, the Company granted Vergemont warrants to acquire 2,000,000 shares
of the Company's common stock, exercisable at $3.00 per share. In conjunction
with this transaction, the Company agreed to pay a consulting firm a 6%
commission on the $4,000,000 in proceeds, as such proceeds are received, and
issued the consulting firm warrants to acquire 200,000 shares of the
Company's common stock at $3.00 per share.
At the date of sale, the Company's basis in the assets and liabilities of
NexMed (Asia) Limited was $1,504,204. The Company has estimated the fair
value of the warrants issued to Vergemont and the consulting firm to be
approximately $372,000 and $73,000, respectively, resulting in a net gain on
the transaction of $1,810,296. Such gain was initially deferred due to
uncertainty regarding the ultimate realization of the two promissory notes
issued. In February 2000, the Vergemont repaid the $2,000,000 in promissory
notes. As a result, the Company has recorded the gain on the sale of NexMed
(Asia) Limited during 1999.
4. New Brunswick Medical
In June 1999, the Company acquired the remaining 5% minority interest in its
subsidiary, New Brunswick Medical, Inc. ("NBM") in exchange for total
consideration of approximately $500,000, consisting of 233,333 shares of the
Company's common stock, with an estimated fair value of $350,000, and the
forgiveness of a $150,000 note receivable from the former minority
stockholder.
5. Fixed Assets
Fixed assets at December 31, 1999 are comprised of the following:
Machinery and equipment $ 267,601
Furniture and fixtures 98,863
Leasehold improvements 113,843
---------
Less: accumulated depreciation (135,818)
---------
$ 344,489
---------
36
<PAGE>
NexMed, Inc. 5
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
6. Notes Payable
In October 1998, the Company issued a promissory note in the aggregate
principal amount of $120,000. The note bore interest at 15% per annum and was
payable together with accrued interest in January 1999. In January 1999, the
holder of the note agreed to roll-over the outstanding principal and unpaid
interest into a new note, in the aggregate principal amount of $124,500. The
new note bears interest at 15% per annum and is payable, together with
accrued but unpaid interest, in July 1999. In July 1999, the holder of the
note agreed to roll-over the outstanding principal and unpaid interest into a
new note, due on January 25, 2000 in the aggregate principal amount of
$138,838. The Company repaid the note in January 2000.
In November 1997, the Company completed a private placement of unsecured
subordinated notes bearing interest at 6% per annum (the "6% Notes"), in the
cumulative principal amount of $1,820,000. The 6% Notes, together with
accrued but unpaid interest, were initially due on November 16, 1998. In
November 1998, holders of an aggregate principal amount of $1,000,000 of the
6% Notes agreed to extend the maturity date of their notes until November 16,
1999. In addition, the interest rate on their notes was increased to 10% per
annum and the holders were given the right to convert their notes into common
stock at $2.00 per share, which was the estimated fair value of the Company's
common stock. During 1999, the holders of such notes converted their
principal and interest into 580,000 shares of the Company's common stock. The
Company was in default of the remaining 6% Notes, in the aggregate principal
amount of $820,000. During 1999, the holders of an aggregate principal amount
of $300,000 of 6% Notes in default agreed to convert their principal and
unpaid interest into 172,100 shares of common stock, based upon the estimated
fair value of the Company's common stock on the date of conversion. Also
during 1999, the Company repaid the remaining $520,000 of 6% Notes.
In December 1998, the Company issued a promissory note, in the aggregate
principal amount of $324,678. The note bore interest at 12% per annum and was
payable, together with accrued but unpaid interest, in June 1999. In June
1999, the Company repaid the note.
In January 1998, the Company issued a $100,000 promissory note. The note bore
interest at 15% per annum and was due in January 1999. In January 1999, the
holder of the note agreed to roll-over the outstanding principal and unpaid
interest into a new note, in the aggregate principal amount of $115,000. The
new note bore interest at 12% per annum and was payable, together with
accrued but unpaid interest, in June 1999. In May 1999, the Company repaid
the note.
In July and August 1998, the Company issued promissory notes in the aggregate
principal amount of $131,750. The notes bore interest at rates ranging from
12% to 15% per annum and were initially payable together with accrued
interest on various dates through February 1999. The holders of the notes
agreed to roll-over the outstanding principal and unpaid interest into new
notes, in the aggregate principal amount of $138,718. The new notes bore
interest at rates ranging from 12% to 15% per annum and were payable,
together with accrued but unpaid interest, on various dates through January
2000. The Company repaid the notes in June 1999.
37
<PAGE>
NexMed, Inc. 6
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
In February 1999, the Company issued a $50,000 note payable. The note bore
interest at 15% per annum and was initially due May 1999. The Company repaid
the note in November 1999.
From April to September 1999, the Company issued an aggregate of $1,082,500
of convertible promissory notes. The notes bore interest at rates ranging
from 12% to 15% per annum. The notes were convertible at the option of the
holder at prices ranging from $1.00 to $1.50 per share. The Company has
recorded additional interest expense in the amount of $64,348, based upon the
difference between the fair value of the common stock on the date of issuance
and the conversion price per share. During 1999, the note holders converted
such notes into 973,334 shares of the Company's common stock.
7. Related Party Transactions
Amounts due to an officer of the Company at December 31, 1999 represents
advances from an officer and director of the Company under an informal
agreement. The advances bear interest at 12% per annum and were repaid in
January 2000.
During 1999 and 1998, the JV paid approximately $120,000 and $253,000 in rent
and management fees, respectively, to the JV Partner.
8. Common Stock
In September 1999, the Company completed a private placement of its
securities at $3.00 per unit (the "Unit"), raising gross proceeds of
$8,507,478 and net proceeds, after deducting commissions and offering
expenses, of $7,826,312. Each Unit consisted of two shares of common stock
and a warrant to purchase an additional share of common stock at $2.25 per
share (the "Warrant"). Each warrant is redeemable by the Company if the
closing price per share of common stock should reach $4.00 per share for 15
consecutive trading days. In addition, the Company issued warrants to acquire
553,232 shares of its common stock to the placement agent in the offering.
In December 1999, Warrants to acquire 83,332 shares of common stock were
exercised, providing gross proceeds of $187,497 and net proceeds, after
deducting commissions and offering expenses, of $173,435.
In December 1999, the Company issued 11,600 shares of its common stock to
employees and vendors for services rendered. The Company has recorded $50,750
as compensation expense based upon the fair value of the shares on the date
of issuance.
During 1998, the Company issued 1,790,167 shares of its common stock in a
number of private placement transactions, raising proceeds of $2,604,375.
In April 1998, the Company issued 51,038 shares of common stock to
consultants in exchange for services. The Company has recorded approximately
$63,798 of expense based upon the estimated fair value of the Company's
common stock at the time of issuance.
38
<PAGE>
NexMed, Inc. 7
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
During 1998, options to acquire 285,000 shares of common stock at $.25 per
share were exercised. The Company received net proceeds of $71,250.
During 1998, a stockholder returned 25,000 shares of the Company's common
stock in settlement of an outstanding dispute. The returned shares were
cancelled by the Company.
9. Stock Options
In November 1995, the Company 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 1998, the period to reach a market
capitalization of $10,000,000 was extended to December 1999 for 130,000 of
these options. In December 1999, the market capitalization, as defined,
exceeded $10,000,000, resulting in the vesting of 130,000 of these options
and the recording of $499,688 in 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. Recognition and Retention Stock
Incentive Plan ("the Recognition Plan"). A total of 2,000,000 shares were set
aside for these two plans. In May 1998, the Stockholders' approved an
increase in the number of shares reserved for the Incentive Plan and
Recognition Plan to a total of 4,000,000.
During 1998, the Company granted 80,000 options to acquire shares of the
Company's common stock to consultants under the Recognition Plan. The
exercise prices of the options range from $2.00 to $2.50 per share, based
upon the estimated fair value of the Company's common stock on the date of
grant. The Company has recorded a total of $36,960 of expense related to
these options during the year ended December 31, 1998.
39
<PAGE>
NexMed, Inc. 8
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
A summary of stock option activity is as follows:
Weighted
Average
Number of Exercise
Shares Price
Outstanding at December 31, 1997 2,930,000 $ 1.49
Granted 396,700 2.51
Exercised (285,000) 0.25
Forfeited (80,000) 0.25
Cancelled (285,000) 2.00
--------- --------
Outstanding at December 31, 1998 2,676,700 1.73
Granted 90,000 2.00
Exercised -- --
Forfeited -- --
Cancelled (309,000) 2.34
--------- --------
Outstanding at December 31, 1999 2,457,700 $ 1.66
========= ========
Exercisable at December 31, 1999 2,366,700 $ 1.64
========= ========
Options available for grant at December 31, 1999 1,842,300
=========
The following table summarizes information about options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------ ----------------------------------
Weighted Average
Range of Number Remaining Weighted Average Number Weighted Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
<S> <C> <C> <C> <C> <C>
$ .25 510,000 2.9 years $ 0.25 510,000 $ 0.25
1.00 40,000 6.8 years 1.00 40,000 1.00
2.00-3.00 1,907,700 7.4 years 2.05 1,816,700 2.05
----------- ------- --------- -------
2,457,700 $ 1.66 2,366,700 $ 1.64
=========== ======= ========= =======
</TABLE>
40
<PAGE>
NexMed, Inc. 9
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
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 FAS 123, the Company's net loss and net loss per share, for
the years ended December 31, 1999 and 1998, would have been increased by
approximately $464,000 and $803,200, respectively, or $.03 and $.11 per
share, respectively.
The fair value of each option and warrant (see Note 10) is estimated on the
date of grant using the Black-Scholes option-pricing model. The following
assumptions were used in the model:
Dividend yield 0.0%
Risk-free yields 5.50% - 6.71%
Expected volatility 65.0% - 80.0%
Option terms 1-10 years
10. Warrants
During November 1996, the Board of Directors approved the issuance of
warrants to purchase 150,000 shares of common stock at $1.00 per share to its
outside legal counsel as consideration for legal services performed relating
to the sale of common stock in November 1997 and other matters. The estimated
fair value of the Company's common stock was $2.00 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 in 1996. No warrants have been exercised as of December
31, 1999.
In December 1997, the Company issued warrants to purchase 50,000 shares of
common stock at $4.00 per share to a consultant. The estimated fair value of
the Company's common stock was $2.00 per share at the time of issuance. The
warrants have a term of five years and are immediately exercisable. The
Company recognized expense of $44,000 for the year ended December 31, 1997
related to these warrants. No warrants have been exercised as of December 31,
1999.
In May 1999, the Company issued warrants to acquire an aggregate of 2,200,000
shares of common stock at $3.00 per share in connection with the sale of
NexMed (Asia) Limted (Note 3). The warrants expire on June 30, 2000. No
warrants have been exercised as of December 31, 1999.
In September 1999, the Company issued warrants to acquire an aggregate of
3,389,058 shares of common stock at $2.25 per share in connection with a
private placement (Note 8). As of December 31, 1999, warrants to acquire
83,332 shares of common stock were exercised.
In conjunction with the issuance of the 6% Notes (see Note 6), the note
holders received warrants to purchase 455,000 shares of the Company's common
stock at an exercise price of $4.00. The warrants are immediately exercisable
and have a term of one year. The estimated fair value of the Company's common
stock was $2.00 per share at the time of issuance. The Company has valued the
warrants at $68,705 which has been accounted for as a debt discount and is
being amortized over the life of the 6% Notes. Additionally, the Company
issued 455,000 warrants to purchase shares of the Company's common stock at
an exercise price of $4.00 per share to a placement agent. The warrants
41
<PAGE>
NexMed, Inc. 10
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
are immediately exercisable and have a term of one year. The estimated fair
value of the Company's common stock was $2.00 per share at the time of
issuance. The Company has valued the warrants at $68,705, which was
classified as debt issuance costs and amortized over the life of the 6%
Notes. These warrants expired in November 1998.
11. Income Taxes
The Company has incurred losses since inception which have generated net
operating loss carryforwards of approximately $14,500,000 for federal and
state income tax purposes. These carryforwards are available to offset future
taxable income and expire beginning 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 during any three-year
period. 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, 1999 of approximately $5,800,000. 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, 1999 and 1998, 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.
12. 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 and research facilities under operating lease
agreements expiring in February 2003. Future minimum payments under
noncancellable operating leases with initial or remaining terms of one year
or more, consist of the following at December 31, 1999:
2000 $ 238,200
2001 226,200
2002 200,800
2003 38,700
---------
Total $ 703,900
=========
42
<PAGE>
NexMed, Inc. 11
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
The Company also leases office space under a short-term lease agreements.
Rent expense was $310,326 and $344,200 in 1999 and 1998, respectively.
Litigation
In November 1998, Genie Total Products, Inc., a Nevada Corporation, refiled a
complaint (the "Complaint") against us in the District Court, Third Judicial
District, Salt Lake County, State of Utah (the "Court"). Genie Total
Products, Inc. alleged in the Complaint, which was served in May 1999, that
it entered into a three-year agreement on December 1, 1993 to provide us with
consulting and marketing services for a stated monthly amount, but that no
payments were made. The Complaint, which claimed breach of contract, unjust
enrichment and anticipatory breach of contract, requested damages of
$388,312.50, plus interest, costs and attorney's fees. In January 1997, Genie
Total Products, Inc. filed a similar complaint, which was dismissed without
prejudice on November 12, 1997 on procedural grounds. At a hearing held on
February 9, 2000, the judge granted from the bench our motion to dismiss the
Complaint, which grant shall become effective upon the filing of an
appropriate written order signed by the judge with the Court clerk. Should
the plaintiff appeal the judge's decision to grant our motion to dismiss, we
intend to continue defending our position vigorously.
13. Segment and Geographic Information
In 1998, the Company adopted FAS 131, "Disclosures about Segments of an
Enterprise and Related Information". FAS 131 establishes standards for
reporting information regarding operating segments and related disclosures
about products and services, geographic areas and major customers.
The Company is active in one business segment: designing, developing,
manufacturing and marketing pharmaceutical products. The Company maintains
development and marketing operations in the United States, Hong Kong and
Canada. Through May 1999, the Company also maintained a manufacturing
facility through the in China through the JV (Note 3).
Geographic segment data
Geographic information as of December 31, 1999 and 1998 are as follows:
1999 1998
Net revenues
United States $ -- $ --
China 1,491,774 5,709,083
Other foreign countries -- --
----------- -----------
$ 1,491,774 $ 5,709,083
----------- -----------
Net loss
United States $(4,041,824) $(3,743,963)
China (172,509) (544,939)
Other foreign countries 1,736,437 (490,100)
----------- -----------
$(2,477,896) $(4,779,002)
----------- -----------
Total assets
United States $ 5,497,834 $ 277,119
China -- 5,539,329
Other foreign countries 2,084,798 108,180
----------- -----------
$ 7,582,632 $ 5,924,628
=========== ===========
43
<PAGE>
NexMed, Inc. 12
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
14. Subsequent Events
In January 2000, the Company received $6,127,862 million in gross proceeds
from the exercise of the Warrants (Note 8) and issued 2,723,494 shares of is
common stock. Each warrant was redeemable by the Company at $.001 per warrant
if not exercised by close of business on January 14, 2000. The Company
redeemed a total of 29,000 Warrant shares.
In January 2000, an officer and director exercised his options to acquire
400,0000 shares of common stock at $0.25 per share.
In January 2000, the Company granted 1,425,700 options to employees and
directors under the Incentive Plan at an exercise price of $4.00 per share,
which was the estimated fair value of the common stock on the date of grant.
All of such options vest in equal installments over three years and expire in
2010.
In January 2000, the Company granted 90,000 options to three directors under
the Recognition plan at an exercise price of $4.00 per share, which was the
estimated fair value of the commons stock on the date of grant. All of such
options vest in equal installments over three years and expire in 2010.
In February 2000, three consultants exercised options to acquire 130,000
shares of common stock under the Recognition Plan at $2.00 per share.
44
<PAGE>
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
45
<PAGE>
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
Executive Officers and Directors.
The Executive Officers and Directors of the Company are set forth below.
Name Age Title
- ---- --- -----
Y. Joseph Mo, Ph.D. 52 Chairman of the Board of
Directors, President and
Chief Executive Officer
James L. Yeager, Ph.D. 53 Director, Vice President, R&D and Business
Development
Vivian H. Liu 38 Vice President, Corporate
Affairs, Chief Financial Officer and Secretary
Gilbert S. Banker, Ph.D. 68 Director
Robert W. Gracy, Ph.D. 58 Director
Yu-Chung Wei 37 Director
The Company has three classes of Directors. 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.
Y. Joseph Mo, Ph.D., is, and has been since 1995, our Chief Executive
Officer and President and Chairman and member of our board of directors. His
current term as member of our board of directors expires in 2002. Prior to
joining us in 1995, 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 to that, 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., is, and has been since December 1998, a member of
our board of directors and, since June 1996, Vice President of Research and
Development and Business Development. His current term as member of our board of
directors expires in
46
<PAGE>
2002. Before joining us, Dr. Yeager was Vice President of Research and
Development of Pharmedic Company. During that time he specialized in building
and managing 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.
Vivian H. Liu is, and has been, our Vice President of Corporate Affairs
and Secretary since September 1995 and our Chief Financial Officer since August
1999. In 1994, while we were in a transition period, Ms. Liu served as our Chief
Executive Officer. From September 1995 to September 1997, Ms. Liu was our
Treasurer. 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
MPA in International Finance from the University of Southern California and her
BA from the University of California, Berkeley.
Gilbert S. Banker is, and has been since September 1995, a member of our
board of directors. His current term expires in 2000. Dr. Banker is Dean
Emeritus and John Lach Distinguished Professor of Drug Delivery at the College
of Pharmacy, University of Iowa. Dr. Banker is also President & CEO of
Biocontrol Inc., a research firm based in Iowa City. From 1985 to 1992, he was
Dean and Professor at the College of Pharmacy at the University of Minnesota.
Prior to that time and for 18 years, he headed the Department of Industrial and
Physical Pharmacy at Purdue University. Dr. Banker has authored numerous
publications, lectures internationally and consults to several pharmaceutical
companies. Dr. Banker received his Ph.D. in Industrial Pharmacy from Purdue
University in 1957. Dr. Banker is also a member of our Scientific Advisory
Committee.
Robert W. Gracy, Ph.D. is, and has been since January 1997, a member of
our board of directors. His current term expires in 2001. 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 several major pharmaceutical
companies. Dr. Gracy lectures internationally and has published over 140 papers
regarding his research. Dr. Gracy received his Ph.D. in Biochemistry form 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 our Scientific Advisory Committee.
Yu-Chung Wei is, and has been since March 1997, a member of our board of
directors. His current term expires in 2001. Mr. Wei is President of Dacom
Capital Ltd., an investment firm focusing on the web and wireless industries.
Mr. Wei also serves as a Director on the Board of Directors of Taiwan Pineapple
Corporation. From 1989 to 1992, Mr. Wei held various managerial positions at
Kidder, Peabody Incorporated and Merrill Lynch & Co., Inc., in New York City. He
received his MBA in Finance and Management Information Systems from Pace
University in New York.
47
<PAGE>
Scientific Advisory Committee.
The members of our Scientific Advisory Committee are Gilbert S. Banker,
Ph.D., J.R. Chen, Ph.D., S. Dan Dimitrijevich, Ph.D., Robert W. Gracy, Ph.D., J.
Howard Rytting, Ph.D. and James L. Yeager, Ph.D. The Scientific Advisory
Committee provides advice and assistance to us with regard to issues that arise
within the committee members' expertise. Although Scientific Advisory Committee
members are not compensated for their services in such capacity, certain members
have received stock options for services rendered to us on an individual basis.
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.
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
48
<PAGE>
Scientists in 1990. Dr. Rytting received his Ph.D. in Physical Chemistry from
Brigham Young University in 1969.
Section 16(a) Beneficial Ownership Reporting Compliance.
Upon effectiveness on May 13, 1997 of our registration statement on Form
10-SB, filed pursuant to Section 12(g) of the Exchange Act, we voluntarily
became a reporting company.
Item 10. Executive Compensation.
The information required by Item 10 is incorporated by reference from our
definitive proxy statement for our Annual Meeting of Shareholders on May 15,
2000.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The information required by Item 11 is incorporated by reference from our
definitive proxy statement for our Annual Meeting of Shareholders on May 15,
2000.
Item 12. Certain Relationships and Related Transactions.
The information required by Item 12 is incorporated by reference from our
definitive proxy statement for our Annual Meeting of Shareholders on May 15,
2000.
Item 13. Exhibits, List and Reports on Form 8-K.
(a) Exhibits. The following exhibits are filed herewith or are incorporated by
reference to exhibits previously filed.
Exhibit Number Exhibit Title
- -------------- -------------
3.1 Amended and Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 2.1 filed with the
Company's Form 10-SB filed with the Securities and Exchange
Commission on March 14, 1997)
3.2 By-laws of the Company (incorporated by reference to Exhibit 2.2
filed with the Company's Form 10-SB filed with the Securities
and Exchange Commission on March 14, 1997)
3.3 Amendment to By-laws of the Company (incorporated by reference
to Exhibit 2.3 filed with the Company's Form 10-SB filed with
the Securities and Exchange Commission on March 14, 1997)
49
<PAGE>
4 Form of Common Stock Certificate (incorporated by reference to
Exhibit 3.1 filed with the Company's Form 10-SB filed with the
Securities and Exchange Commission on March 14, 1997)
9 Form of Irrevocable Proxy (incorporated by reference to Exhibit
5.1 filed with the Company's Form 10-SB/A filed with the
Securities and Exchange Commission on May 13, 1997)
10.1 Technology Acquisition Agreement between the Company and
Odontex, Inc. (incorporated by reference to Exhibit 6.1 filed
with the Company's Form 10-SB filed with the Securities and
Exchange Commission on March 14, 1997)
10.2 English Translation of Joint-Venture Agreement between NexMed
(Asia) limited Zhongshan City Xiaolan Pharmaceuticals Factory
(incorporated by reference to Exhibit 10.2 to the Company's Form
8-K filed with the Securities and Exchange Commission on
February 23, 1998)
10.3 The NexMed, Inc. Stock Option and Long-Term Incentive
Compensation Plan (incorporated by reference to Exhibit 6.4
filed with the Company's Form 10-SB/A filed with the Securities
and Exchange Commission on June 5, 1997)
10.4 The NexMed, Inc. Recognition and Retention Stock Incentive Plan
(incorporated by reference to Exhibit 6.5 filed with the
Company's Form 10-SB/A filed with the Securities and Exchange
Commission on June 5, 1997)
10.5 The NexMed, Inc. Non-Qualified Stock Option Plan (incorporated
by reference to Exhibit 6.6 filed with the Company's Form
10-SB/A filed with the Securities and Exchange Commission on
June 5, 1997)
10.6 Stock Purchase Agreement dated March 22, 1999 between NexMed
International Limited and Vergemont International Limited
10.7 License Agreement dated March 22, 1999 between NexMed
International Limited and Vergemont International Limited (We
have requested confidential treatment for a portion of this
exhibit, which portion has been omitted and filed separately
with the Securities and Exchange Commission.)
50
<PAGE>
10.8 Form of Unit Purchase Agreement between the Company and each
investor who purchased units relating the Company's private
placement dated September 30, 1999 (incorporated by reference to
Exhibit 10 filed with the Company's Form 8-K filed with the
Securities and Exchange Commission on October 8, 1999)
21 Subsidiaries (incorporated by reference to Exhibit 12.3 filed
with the Company's Form 10-SB filed with the Securities and
Exchange Commission on May 13, 1997)
23 Consent of PricewaterhouseCoopers LLP, independent accountants
27 Financial Data Schedule
(b) Reports on Form 8-K. We filed a Current Report on Form 8-K dated September
30, 1999 with the Securities and Exchange Commission on October 8, 1999.
51
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NEXMED, INC.
Date: March 15, 2000 By: /s/ Y. Joseph Mo
---------------------------------------
Y. Joseph Mo
Chairman of the Board of Directors,
President and Chief Executive Officer
Pursuant to the requirements of the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Date: March 15, 2000 By: /s/ Y. Joseph Mo
---------------------------------------
Y. Joseph Mo
Chairman of the Board of Directors,
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 15, 2000 By /s/ Vivian H. Liu
---------------------------------------
Vivian H. Liu
Vice President, Chief Financial
Officer and Secretary
Date: March 15, 2000 By: /s/ Gilbert S. Banker
---------------------------------------
Gilbert S. Banker
Director
Date: March 15, 2000 By: /s/ Robert W. Gracy
---------------------------------------
Robert W. Gracy
Director
Date: March 15, 2000 By: /s/ Yu-Chung Wei
---------------------------------------
Yu-Chung Wei
Director
Date March 15, 2000 By: /s/ James L. Yeager
---------------------------------------
James L. Yeager
Director, Vice-President, R&D and
Business Development
<PAGE>
Exhibit Index
Exhibit Number Exhibit Title
- -------------- -------------
3.1 Amended and Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 2.1 filed with the
Company's Form 10-SB filed with the Securities and Exchange
Commission on March 14, 1997)
3.2 By-laws of the Company (incorporated by reference to Exhibit 2.2
filed with the Company's Form 10-SB filed with the Securities
and Exchange Commission on March 14, 1997)
3.3 Amendment to By-laws of the Company (incorporated by reference
to Exhibit 2.3 filed with the Company's Form 10-SB filed with
the Securities and Exchange Commission on March 14, 1997)
4 Form of Common Stock Certificate (incorporated by reference to
Exhibit 3.1 filed with the Company's Form 10-SB filed with the
Securities and Exchange Commission on March 14, 1997)
9 Form of Irrevocable Proxy (incorporated by reference to Exhibit
5.1 filed with the Company's Form 10-SB/A filed with the
Securities and Exchange Commission on May 13, 1997)
10.1 Technology Acquisition Agreement between the Company and
Odontex, Inc. (incorporated by reference to Exhibit 6.1 filed
with the Company's Form 10-SB filed with the Securities and
Exchange Commission on March 14, 1997)
10.2 English Translation of Joint-Venture Agreement between NexMed
(Asia) limited Zhongshan City Xiaolan Pharmaceuticals Factory
(incorporated by reference to Exhibit 10.2 to the Company's Form
8-K filed with the Securities and Exchange Commission on
February 23, 1998)
10.3 The NexMed, Inc. Stock Option and Long-Term Incentive
Compensation Plan (incorporated by reference to Exhibit 6.4
filed with the Company's Form 10-SB/A filed with the Securities
and Exchange Commission on June 5, 1997)
10.4 The NexMed, Inc. Recognition and Retention Stock Incentive Plan
(incorporated by reference to Exhibit 6.5 filed with the
Company's
2
<PAGE>
Form 10-SB/A filed with the Securities and Exchange Commission
on June 5, 1997)
10.5 The NexMed, Inc. Non-Qualified Stock Option Plan (incorporated
by reference to Exhibit 6.6 filed with the Company's Form
10-SB/A filed with the Securities and Exchange Commission on
June 5, 1997)
10.6 Stock Purchase Agreement dated March 22, 1999 between NexMed
International Limited and Vergemont International Limited
10.7 License Agreement dated March 22, 1999 between NexMed
International Limited and Vergemont International Limited (We
have requested confidential treatment for a portion of this
exhibit, which portion has been omitted and filed separately
with the Securities and Exchange Commission.)
10.8 Form of Unit Purchase Agreement between the Company and each
investor who purchased units relating the Company's private
placement dated September 30, 1999 (incorporated by reference to
Exhibit 10 filed with the Company's Form 8-K filed with the
Securities and Exchange Commission on October 8, 1999)
21 Subsidiaries (incorporated by reference to Exhibit 12.3 filed
with the Company's Form 10-SB filed with the Securities and
Exchange Commission on May 13, 1997)
23 Consent of PricewaterhouseCoopers LLP, independent accountants
27 Financial Data Schedule
3
Exhibit 10.6
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made and entered into
this 22nd day of March 1999, by and between NexMed International Limited, a
corporation organized under the laws of the British Virgin Islands (the
"Seller") and Vergemont International Limited a corporation organized under the
laws of the Turks and Caicos Islands ("Acquirer").
RECITALS
WHEREAS, Seller wishes to sell and Acquirer wishes to purchase, all
of the issued and outstanding capital stock of NexMed (Asia) Limited, a
corporation organized under the laws of Hong Kong (the "Company"), consisting of
two (2) shares of Company Common Stock (as hereinafter defined), pursuant to the
terms and conditions set forth in this Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 Defined Terms. When used in this Agreement, the
following terms shall have the meanings set forth in this Article I. All article
and section numbers used in this Agreement refer to articles and sections of
this Agreement unless otherwise specifically described.
"Affiliate" means, with respect to any specified Person, a Person
that directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with, such specified Person.
"Code" means the Internal Revenue Service Code of 1986, as amended.
"Company Balance Sheet" means the audited statements of assets and
liabilities for the Company as of December 31, 1998.
"Company Income Statement" means the audited statements of income
for the Company as of December 31, 1998.
"Company Common Stock" means the ordinary shares of the Company,
HK$1.00 par value, per share.
"Contract" means all written contracts, agreements, indentures,
notes, loans, licenses, leases, commitments, insurance policies, plans,
arrangements, sales orders and purchase orders of every kind to which the
Company is bound which are not terminable at will or which do not involve the
expenditure over its unexpired life of more than US$50,000.
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"Governmental Entity" means any government or any court, arbitral
tribunal, administrative agency or commission or other governmental or other
regulatory authority or agency, federal, state, local or foreign.
"Intellectual Property" means domestic and foreign patents, patent
applications, inventions, invention disclosures, trademark and service mark
applications, registered trademarks, registered service marks, copyrights,
trademarks, service marks, trade names, material trade secrets, know-how,
formulae and processes and all other similar items of intellectual property.
"Knowledge of the Company" means the actual knowledge of the
executive officers of the Company or the Seller.
"Lien" means any adverse claim, restriction on voting or transfer or
pledge, lien, charge, encumbrance or security interest of any kind.
"Person" means an individual, a corporation, a limited liability
company, a partnership, an association, a trust or any other entity or
organization, including a Governmental Entity.
"Tax" (including with correlative meaning, the terms "Taxes" and
"Taxable") means all forms of taxation, whenever created or imposed, whether
imposed by a local, municipal, state, foreign, federal or other governmental
body or authority, and, without limiting the generality of the foregoing, shall
include income, gross receipts, ad valorem, excise, value-added, sales, use,
transfer, franchise, license, stamp, occupation, withholding, employment,
payroll, property or environmental tax or premium, together with any interest,
penalty, addition to tax or additional amount imposed by any governmental body
or authority responsible for the imposition of any such tax (a "Taxing
Authority").
"Taxable Period" means any taxable year or any other period that is
treated as a taxable year with respect to which any Tax may be imposed under any
applicable statute, rule or regulation.
"Tax Return" means any return, extension, report, statement,
information statement and the like required to be filed with any Taxing
Authority.
Section 1.2 Other Terms. Other terms may be defined elsewhere in
this Agreement and, for the purposes of this Agreement, those other terms shall
have the meanings specified in those other portions. Meanings specified in this
Agreement shall be applicable to both the singular and plural forms of such
terms and to the masculine, feminine and neuter genders, as the context
requires.
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ARTICLE II
PURCHASE AND SALE OF THE SHARES
Section 2.1 Transfer of the Shares. Subject to the terms and
conditions set forth herein, Acquirer hereby purchases from the Seller, and the
Seller hereby sells to Acquirer, two (2) shares of Company Common Stock,
representing all issued and outstanding shares of Company Common Stock, in
exchange for the Purchase Price (as defined below).
Section 2.2 The Purchase Price. The total consideration (the
"Purchase Price") to be paid by the Acquirer for the Shares shall be
US$4,000,000.
Section 2.3 Deliveries. Simultaneously with the execution and
delivery of this Agreement, (i) the Company shall deliver one or more share
certificates representing all of the shares of Company Common Stock, duly
endorsed or accompanied by executed stock powers in blank against payment of the
Purchase Price by Acquirer, (ii) the Acquirer shall deliver the Purchase Price,
as set forth in Section 2.4(a) and (b), (iii) NexMed Inc., a Nevada corporation
("NexMed"), and the Parent of the Seller, shall issue the Warrant, as set forth
in 2.4(c) below and (iii) the Seller, the Company, and Acquirer shall execute,
deliver and acknowledge, or cause to be executed, delivered and acknowledged,
such certificates and other documents related to the consummation of the
transactions contemplated hereby as may be reasonably requested by the parties
hereto.
Section 2.4 Payment of Purchase Price. The Purchase Price shall be
paid as follows:
(a) US $2,000,000 by the delivery by the Acquirer to the Seller of a
wire transfer of funds or a certified or bank cashier's checks to such account
numbers and depositories designated by the Seller by notice in writing to the
Acquirer;
(b) delivery by the Acquirer to the Seller of two (2) promissory
notes of the Acquirer substantially in the forms attached hereto as Exhibits A
and B (the "Notes"). The Notes shall be registered in the name of the Seller and
shall be dated the date of issue thereof; and
(c) issuance by NexMed of a Warrant substantially in the form of
Exhibit (C) hereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES CONCERNING
THE SELLER AND THE COMPANY
The Seller hereby represents and warrants to the Acquirer as
follows:
Section 3.1 Organization and Qualification. Each of the Seller and
the Company are duly organized, validly existing and in good standing under the
laws of their respective jurisdictions of incorporation and have the corporate
power and authority to own, lease
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and operate their properties and to carry on their businesses as are now being
conducted.
Section 3.2 Authorization and Validity of Agreement. The Seller has
the requisite corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby in accordance
with the terms hereof. The Seller's Board of Directors have duly authorized the
execution, delivery and performance of this Agreement by the Seller, and no
other corporate proceedings on the part of the Seller is necessary to authorize
this Agreement or the transactions contemplated hereby. This Agreement has been
duly executed and delivered by the Seller and, assuming this Agreement
constitutes the legal, valid and binding obligation of the Acquirer, it
constitutes the legal, valid and binding obligation of the Seller, enforceable
against it in accordance with its terms, except as such enforcement may be
limited by any bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws affecting the enforcement of creditors' rights
generally or by general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
Section 3.3 Capitalization; Subsidiaries. (a) As of the date of this
Agreement, the authorized capital stock of the Company consists of 10,000
HK$1.00 shares of Company Common Stock, of which two (2) shares of Company
Common Stock are issued and outstanding, all of which are owned beneficially by
the Seller, including the one (1) share of Company Common Stock that is recorded
in the name of Y. Joseph Mo who is the trustee and nominal owner of that one (1)
share for the Seller. No shares of the Company Common Stock are reserved for
issuance pursuant to outstanding stock options or in respect of future grants of
stock options. All of such shares so owned by the Seller are validly issued,
fully paid and nonassessable and are owned by it free and clear of any Liens,
restraints on alienation, or any restrictions with respect to the
transferability or assignability thereof (other than restrictions on transfer
imposed by federal and state securities laws). There are no outstanding
subscriptions, options, warrants, calls, rights, commitments or any other
agreements to which the Seller or the Company is a party or by which the Seller
or the Company is bound which obligate the Seller or the Company to (i) issue,
deliver or sell or cause to be issued, delivered or sold any additional shares
of the Company Common Stock or any other capital stock of the Company or any
other securities convertible into, or exercisable or exchangeable for, or
evidencing the right to subscribe for, any such shares of the Company Common
Stock or any other capital stock of the Company or (ii) purchase, redeem or
otherwise acquire any shares of the Company Common Stock or any other capital
stock of the Company.
(b) The Company has no direct or indirect subsidiaries other than
NexMed Pharmaceuticals (Zhongshan) Ltd., a joint-venture organized under the
laws of the People's Republic of China ("NexMed China").
(c) The Company is the record owner of seventy (70) percent of all
of the outstanding shares of capital stock of NexMed China, there are no proxies
with respect to any such shares, and no equity securities of NexMed China are or
may become required to be issued by reason of any options, warrants, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into or exchangeable or exercisable for, shares
of any capital stock of NexMed China, and there are no contracts, commitments,
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understandings or arrangements by which the Company or NexMed China is bound to
issue, redeem, purchase or sell additional shares of capital stock of NexMed
China or securities convertible into or exchangeable or exercisable for any such
shares. All of such shares so owned by the Company are validly issued, fully
paid and nonassessable and are owned by it free and clear of Liens, restraints
on alienation, or any other restrictions with respect to the transferability or
assignability thereof (other than restrictions on transfer imposed by federal or
state securities laws). The Company is not a party to any voting trust or other
agreement or understanding with respect to the voting of any capital stock of
NexMed China.
Section 3.4 Consent and Approvals. Neither the execution and
delivery of this Agreement by the Seller nor the consummation by the Seller of
the transactions contemplated hereby will require on the part of the Seller any
filing with or notification to any Governmental Entity, except where the failure
to make such filing or notification would not materially adversely effect the
business, assets, condition (financial or otherwise), revenues or rights
(collectively, the "Condition") of the Seller or prevent the consummation of the
transactions contemplated hereby.
Section 3.5 No Conflict or Violation. Neither the execution,
delivery or performance of this Agreement nor the consummation of the
transactions contemplated hereby will (i) conflict with or result in any breach
of any provisions of either the Seller's or the Company's Memorandum or the
Seller's or the Company's Articles of Association, (ii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation, vesting,
payment, exercise, acceleration, suspension or revocation) under, any of the
terms, conditions or provisions of any material Contract to which either the
Seller or the Company or their predecessors in interest is a party or by which
the Seller or the Company or any of their properties or assets are bound, (iii)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Seller or the Company or any of their properties or assets,
(iv) result in the creation or imposition of any Lien on any asset of the Seller
or the Company or (v) cause the suspension or revocation of any permit, license,
governmental authorization, consent or approval necessary for the Seller or the
Company to conduct its business as currently conducted, except, in the case of
clauses (ii), (iii), (iv) and (v), for violations, breaches, defaults,
terminations, cancellations, accelerations, creations, impositions, suspensions
or revocations that would not materially adversely effect the Condition of
either of the Seller or the Company.
Section 3.6 Financial Statements. The Seller has provided the
Acquirer with copies of the Company Balance Sheet and the Company Income
Statement and certain projections regarding the future performance and operating
results of the Company (the "Projections"). The Company Balance Sheet (including
any related notes and schedules thereto) fairly presents, in all material
respects, the financial position of the Company as of its date and the Company
Income Statement fairly presents, in all material respects, the results of
operations of the Company for the periods set forth therein, in accordance with
the ordinary accounting practices in Hong Kong (subject in each case to normal
year-end adjustments, footnotes and other presentation items). The Acquirer
acknowledges that the Projections were prepared for illustrative purposes only,
involve risks and uncertainties and are subject to significant business,
economic and competitive uncertainties and contingencies, many of which are
beyond the control of the Seller and that actual results could differ materially
from those anticipated in the
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Projections. Acquirer acknowledges that it is not relying on the Projections in
any respect in making its decision to acquire the Company Common Stock from the
Seller.
Section 3.7 Litigation. There is no suit, action, proceeding or
investigation (whether at law or equity, before or by any federal, state or
foreign commission, court, tribunal, board, agency or instrumentality, or before
any arbitrator) pending or, to the Knowledge of the Company, threatened against
or affecting the Company, the outcome of which would materially adversely effect
the Condition of the Company.
Section 3.8 Legal Compliance. The Company has complied with all
material applicable laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings, and charges thereunder) of all
Governmental Entities, except where the failure to comply would not materially
adversely effect the Condition of the Company.
Section 3.9 Insurance. The Company is insured and will remain so
until the date hereof, in the amounts and against risks consistent with the
Company's past practice. Effective on the date hereof, the Seller shall have no
further obligation to insure the Company.
Section 3.10 Taxes.
(a) All Tax Returns required to be filed with any Taxing Authority
on or prior to the date hereof by or with respect to the Company have been
filed, except Tax Returns for which requests for extensions have been timely
filed or where the failure to file such Tax Returns would not materially
adversely effect the Condition of the Company, and all such filed Tax Returns
are complete in all material respects;
(b) The Company has paid all Taxes shown as due and payable on Tax
Returns that have been filed;
(c) The Company has paid or accrued on the Company's balance sheet
all Taxes payable by it for all Taxable Periods ending on or before the date
hereof for which no Tax Return has yet been filed;
(d) No federal, state, local or foreign audits, examinations or
other administrative or court proceedings are presently pending with regard to
any Tax Returns or Taxes of the Company and, which, if determined adversely,
would materially adversely effect the Condition of the Company; and
(e) There are no Liens for Taxes on the assets of the Company,
except for Liens that would not materially adversely effect the Condition of the
Company.
Section 3.11 Intellectual Property. Neither the Seller nor the
Company has received any notice that the products or activities of the Company
or the use thereof violate, infringe or otherwise conflict with the Intellectual
Property of third parties, except for such violations, infringements or
conflicts that would not materially adversely effect the Condition of the
Company.
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Section 3.12 Contracts. Attached hereto is a list of all Contracts
to which the Company or NexMed China is a party. To the Seller's Knowledge, the
Company is in material compliance with all material terms under such Contracts.
Section 3.13 Actions Not in Ordinary Course. Since September 30,
1998 the Company (i) has operated only in the ordinary course, consistent with
past practices, (ii) has not (other than in the ordinary course of business),
acquired or disposed of any assets or entered into any Contracts, commitments or
leases which would have a material and adverse impact upon the Condition of the
Company, (iii) has not (a) entered into or performed any material transaction,
Contract or commitment or (b) made or awarded any wage or salary increase or
provided any bonus or material increase in any fringe benefits to any employee
of the Company, except bonus payments consistent with past practices.
Section 3.14 No Change. Since September 30, 1998, there has not been
(i) any material adverse change (whether or not in the ordinary course of
business) in the Condition of the Company as reflected on the Company's most
recent balance sheet or (ii) any damage, destruction or loss, whether or not
covered by insurance, affecting the Condition of the Company.
Section 3.15 Real Property. The Company has a valid and existing
lease or sublease for, and is in peaceful and undisturbed possession of the
property located at Room #2208, Windsor House, 311 Gloucester Road, Causeway
Bay, Hong Kong (the "Company Leased Property"). The lease for the Company Leased
Property is valid and enforceable in accordance with its terms, is in full force
and effect, and there is not under such Lease any default by the Company or, to
the Knowledge of the Company, by any landlord or lessor under such Lease.
Neither the Seller nor the Company has received any notice of any violation of
any applicable zoning ordinance, building code, use or occupancy restriction, or
violation of any thereof, or any condemnation action or proceeding with respect
to the Company Leased Property.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE ACQUIRER
The Acquirer hereby represents and warrants to the Seller and the
Company as follows:
Section 4.1 Organization. Acquirer is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation and has the corporate power and authority to own, lease and
operate its properties and to carry on its business as it is now being
conducted.
Section 4.2 Authorization and Validity of Agreement. Acquirer has
the requisite corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby in accordance
with the terms hereof. Acquirer's Board of Directors has duly authorized the
execution, delivery and performance of this
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Agreement by Acquirer, and no other corporate proceedings on the part of
Acquirer are necessary to authorize this Agreement or the transactions
contemplated hereby. The Agreement has been duly executed and delivered by
Acquirer and, assuming this Agreement constitutes the legal, valid and binding
obligation of the Seller, it constitutes the legal, valid and binding obligation
of Acquirer, enforceable against Acquirer in accordance with its terms, except
as such enforcement may be limited by any bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws
affecting the enforcement of creditors' rights generally or by general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
Section 4.3 Consents and Approvals. Neither the execution and
delivery of this Agreement by Acquirer nor the consummation by Acquirer of the
transactions contemplated hereby will require on the part of Acquirer any
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Entity, except where the failure to obtain such consent,
approval, authorization or permit, or to make such filing or notification, would
not materially adversely effect the Condition of the Acquirer or prevent the
consummation of the transactions contemplated hereby.
Section 4.4 No Conflict or Violation. Neither the execution,
delivery or performance of this Agreement by Acquirer, nor the consummation by
Acquirer of the transactions contemplated hereby, nor compliance by Acquirer
with any of the provisions hereof, will (i) conflict with or result in any
breach of any provisions of the Acquirer's charter or by-laws (ii) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation,
vesting, payment, exercise, acceleration, suspension or revocation) under, any
of the terms, conditions or provisions of any material note, bond, mortgage,
deed of trust, security interest, indenture, license, contract, agreement, plan
or other instrument or obligation to which Acquirer is a party or by which
Acquirer or any of its properties or assets may be bound or affected, or (ii)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Acquirer or any of its properties or assets, except for
violations, breaches, defaults, terminations, cancellations, accelerations,
creations, impositions, suspensions or revocations that would not, individually
or in the aggregate, materially adversely effect the Condition of the Acquirer
or its ability perform its obligations under this Agreement.
Section 4.5 Litigation. There is no suit, action, proceeding or
investigation (whether at law or equity, before or by any federal, state or
foreign commission, court, tribunal, board, agency or instrumentality, or before
any arbitrator) pending or threatened against or affecting Acquirer the outcome
of which would in any manner impair the ability of Acquirer to perform its
obligations hereunder or to consummate the transactions contemplated hereby.
Section 4.6 Brokers and Finders. In connection with the transactions
contemplated hereby, Shannon Limited, an investment consulting firm located at
Room 1602 Chit Lee Commercial Building, 30-36 Shau Kei Wan Road, Hong Kong, has
acted as a finder to facilitate the completion of the subject Agreement. The
Company, therefore, agrees to pay Shannon Limited a six (6) percent finder's fee
upon the receipt in full or in partial amounts of the proposed $4 million
proceeds as defined under Section 2.2, and a warrant to purchase 200,000
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shares of the common stock of NexMed, Inc., par value of $.001 per share, at an
exercise price of US$3.00 per share prior to March 21, 2001. Acquirer has not
incurred any other obligation to pay a brokerage, finders or other fee or
commission to any Person other than Shannon Limited heretofore mentioned.
Section 4.7 Investment Representation. Acquirer acknowledges that
the Company Common Stock is not registered under the securities laws of any
jurisdiction and that it is acquiring the Company Common Stock for its own
account, and not with a view to the distribution thereof. Acquirer is a
sophisticated investor with knowledge and experience in financial matters and
has received information from the Seller concerning the Company and has had the
opportunity to obtain additional information in order to evaluate the purchase
contemplated hereby.
ARTICLE V
COVENANTS OF THE SELLER, THE COMPANY AND THE ACQUIRER
The parties hereto agree that:
Section 5.1 Efforts. Subject to the terms and conditions of this
Agreement and applicable law, each of the parties hereto shall act in good faith
and use commercially reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the transactions contemplated hereby
as soon as practicable, including such actions or things as the other party may
reasonably request in order to cause any of the conditions to such other party's
obligation to consummate the transactions contemplated by this Agreement to be
fully satisfied.
Section 5.2 Transfer Taxes. All transfer, documentary, sales, use,
registration and other such Taxes, and any penalties, interest and additions to
such Taxes, that are incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by Acquirer. The parties to this
Agreement shall cooperate in the timely making of all filings, returns, reports
and forms as may be required in connection therewith.
Section 5.3 Implied Warranties. Except as expressly provided in this
Agreement, the Seller has not made and is not making any representation or
warranty whatsoever to Acquirer as to the Company. Without limiting the
foregoing, Acquirer acknowledges that Acquirer, together with its advisors, has
made its own investigation of the Company and is not relying on any implied
warranties (whether of merchantability or fitness for a particular purpose or
otherwise), or upon any representation or warranty whatsoever not set forth in
this Agreement.
Section 5.4 Survival of Representations and Warranties. The
representations and warranties of the parties made in this Agreement or provided
herein shall not survive the Closing Date except that the representations and
warranties made in Sections 3.1, 3.2, 3.3 and 4.1 and 4.2 hereof, shall survive
indefinitely and the representations and warranties of the Company made in
Section 3.10 shall survive the expiration of the applicable statute of
limitations relating to such matters.
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Section 5.5 Management Consulting Services. The Acquirer shall enter
into a management consulting agreement with Mr. Y. Joseph Mo substantially in
the form attached hereto as Exhibit D.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Notices. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been duly
given or made as of the date delivered, mailed or transmitted, and shall be
effective upon receipt, if delivered personally, mailed by registered or
certified mail (postage prepaid, return receipt requested) or sent by fax (with
immediate confirmation) or nationally recognized overnight courier service, as
follows:
(a) if to Acquirer, to:
Vergemont International Limited
Suite 2401-2408
24F, CITIC Tower
One Tim Mei Avenue
Central, Hong Kong
Attention: Mr. Tsu-Huang Wu
(b) if to the Seller or the Company, to:
NexMed International Limited
Room 2208, Windsor House
311 Gloucester Road
Causeway Bay, Hong Kong
Attention: Dr. Y. Joseph Mo
with a copy to:
Pryor Cashman Sherman & Flynn LLP
410 Park Avenue
New York, NY 10022
Attention: Selig D. Sacks, Esq.
or to such other Person or address or facsimile number as either party shall
specify by like written notice to the other party hereto (any such notice of a
change of address to be effective only upon actual receipt thereof).
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Section 6.2 Entire Agreement. This Agreement (including the
schedules, exhibits and other documents referred to herein), constitutes the
entire agreement between the parties hereto with respect to the subject matter
hereof and supersedes all prior written or oral and all contemporaneous oral
agreements and undertakings between any of the parties hereto with respect to
the subject matter hereof.
Section 6.3 Assignment; Binding Effect. Neither this Agreement nor
any of the rights, benefits or obligations hereunder may be assigned, in whole
or in part, by either party, except by operation of law and any such purported
assignment shall be null and void, provided, however, that, without the prior
written consent of the other party hereto, Acquirer may assign all or part of
this Agreement and their rights hereunder (a) to an Affiliate or (b) from and
after the closing to a Person, not a party to this Agreement, who acquires
substantially all of the assets of Acquirer and who assumes all of the
obligations of Acquirer hereunder, provided, further, in each such case that no
such assignment shall release Acquirer from its duties and obligations
hereunder. Subject to the preceding sentence, this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the parties and their
respective successors and assigns.
Section 6.4 Fees and Expenses. All costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby
(including, without limitation, fees and disbursements of counsel, financial
advisors and accountants) shall be borne by the party which incurs such cost or
expense.
Section 6.5 Amendments. This Agreement may only be amended or
modified by an instrument in writing signed on behalf of each of the parties
hereto.
Section 6.6 Waivers. At any time prior to the date hereof, the
Company, on the one hand, or Acquirer, on the other hand, may, to the extent
legally allowed, (a) extend the time specified herein for the performance of any
of the obligations or other acts of the other, (b) waive any inaccuracies in the
representations and warranties of the other contained herein or in any document
delivered pursuant hereto or (c) waive compliance by the other with any of the
agreements or covenants of such other party contained herein. Any such extension
or waiver shall be valid only if set forth in a written instrument signed on
behalf of the party to be bound thereby. No such extension or waiver shall
constitute a waiver of, or estoppel with respect to, any subsequent or other
breach or failure to strictly comply with the provisions of this Agreement. The
failure of either party to insist on strict compliance with this Agreement or to
assert any of its rights or remedies hereunder or with respect hereto shall not
constitute a waiver of such rights or remedies.
Section 6.7 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated thereby is not affected in any manner
materially adverse to either party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as
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possible in an acceptable manner to the end that the transactions contemplated
hereby are fulfilled to the fullest extent possible.
Section 6.8 Captions. The table of contents and headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
Section 6.9 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, and all of which
together shall be deemed to be one and the same instrument.
Section 6.10 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of Hong Kong, without regard to any
applicable principles of conflicts of law.
Section 6.11 Limitations of Remedies. Neither party hereto shall be
liable to the other for indirect, special, incidental, consequential or punitive
damages claimed by such other party resulting from such first party's breach of
its obligations, agreements, representations or warranties hereunder, provided
that nothing hereunder shall preclude any recovery by an indemnified party
against an indemnifying party for third party claims.
[The remainder of this page has been left blank intentionally.]
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IN WITNESS WHEREOF, the parties have executed this Stock Purchase
Agreement as of the date first above written.
NEXMED INTERNATIONAL LIMITED
By:
-------------------------------
Y. Joseph Mo, Ph.D.
Managing Director
NEXMED (ASIA) LIMITED
By:
-------------------------------
Y. Joseph Mo, Ph.D.
Managing Director
VERGEMONT INTERNATIONAL LIMITED
By:
-------------------------------
Tsu-Huang Wu
Managing Director
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EXHIBIT A
TERM NOTE
US $1,000,000 Date: March 22, 1999
This Term Note is executed and delivered under and pursuant to the terms
of that certain Stock Purchase Agreement, dated as of the date hereof (as
amended, supplemented, restated or modified from time to time, the "Purchase
Agreement") by and among Vergemont International Limited, a Turks and Caicos
Islands corporation (the "Payor") with its principal place of business located
at Suite 2401-2408, 24F CITIC Tower, One Tim Mei Avenue, Central, Hong Kong and
NexMed International Limited, a British Virgin Islands corporation (the
"Payee"), with its principal place of business located at Room #2208 Windsor
House, 311 Gloucester Road, Causeway Bay, Hong Kong. Capitalized terms not
otherwise defined herein shall have the meanings provided in the Purchase
Agreement.
FOR VALUE RECEIVED, Payor hereby promises to pay to the order of the
Payee, at its principal place of business located at Room #2208 Windsor House,
311 Gloucester Road, Causeway Bay, Hong Kong, or at such other place as the
Payee may from time to time designate to Payor in writing:
(i) the principal sum of One Million U.S. Dollars (US$1,000,000.00) on
June 30, 2000; and
(ii) interest (computed on the basis of a 360-day year of twelve 30-day
months) on the unpaid principal amount hereof beginning January 1, 2000 at a
rate of six percent (6%) per annum, payable quarterly, with the first such
interest payment date being on March 31, 2000 until the principal hereof shall
have been paid in full, and on the maturity date hereof. In no event, however,
shall interest exceed the maximum interest rate permitted by law.
This Note is one of the Term Notes referred to in the Pledge Agreement and
is secured, inter alia, by the liens granted pursuant to the Pledge Agreement
and the Payee, is entitled to the benefits of the Pledge Agreement and is
subject to all of the agreements, terms and conditions therein contained.
Upon the happening of any of the following events (each, an "Event of
Default"): any breach by the Payor of the Purchase Agreement or the Pledge
Agreement; any breach by the Payor of that certain License Agreement dated the
date hereof relating to certain of the Payee's proprietary products; the
dissolution of the Payor, the commencement by the Payor of a foreclosure
proceeding; the suspension of business by the Payor, the filing by the Payor of
a petition in bankruptcy, whether voluntary or involuntary; the filing by the
Payor of an application, whether voluntary or involuntary, for reorganization or
any arrangement or readjustment of indebtedness; the appointment by the Payor of
any receiver, trustee, liquidator or any committee; an assignment by the Payor
for the benefit of creditors; or the sending by the Payor of notice of an
intended bulk sale; any Event of Default described in the Pledge Agreement; the
Payor defaults in the payment of any principal of or interest on any Note to the
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Payee when the same shall become due, whether by the terms thereof or otherwise
herein provided, and such default continues for five (5) days; then, in any such
event, this Note, if not then due, shall, at the option of the Payee or holder
hereof, become immediately due and payable without demand or notice and all
other debts or obligations of the Payor to the Payee, whether due or not due and
whether direct, indirect or contingent and howsoever evidenced, shall, at the
option of the Payee, also become immediately due and payable without demand or
notice.
All rights and remedies of the Payee under applicable law and this Note
are cumulative and not exclusive. No single, partial or delayed exercise by the
Payee of any right or remedy shall preclude full and timely exercise by the
Payee at any time of any right or remedy of the Payee without notice. No waiver
shall be effective unless made specifically in writing by the Payee.
The substantive laws of Hong Kong shall govern, without reference to its
choice of law rules, the validity, construction, enforcement and interpretation
of this Note.
In any action or other legal proceeding relating to this Note, the Payor
(i) consents to the personal jurisdiction of any court located in Hong Kong,
(ii) waives objection to the laying of venue, (iii) waives personal service of
process, (iv) consents to service of process by registered or certified mail
directed to the Payor at the last address shown in the Payee's records relating
to this Note, with such service of process to be deemed completed five (5) days
after mailing and (v) WAIVES ANY RIGHT TO TRIAL BY JURY with respect to this
Note or to assert any counterclaim or setoff or recoupment with respect to this
Note. In any proceeding, a copy of this Note kept in the Payee's course of
business shall be admitted into evidence as an original.
Payor expressly waives any presentment, demand, protest, notice of
protest, or notice of any kind.
VERGEMONT INTERNATIONAL LIMITED
By:
---------------------------
Tsu-Huang Wu
Managing Director
NEXMED INTERNATIONAL LIMITED
By:
---------------------------
Y. Joseph Mo, Ph.D.
Managing Director
15
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EXHIBIT B
TERM NOTE
US $1,000,000 Date: March 22, 1999
This Term Note is executed and delivered under and pursuant to the terms
of that certain Stock Purchase Agreement dated as of the date hereof (as
amended, supplemented, restated or modified from time to time, the "Purchase
Agreement") by and among Vergemont International Limited, a Turks and Caicos
Islands corporation (the "Payor") with its principal place of business located
at Suite 2401-2408, 24F CITIC Tower, One Tim Mei Avenue, Central, Hong Kong and
NexMed International Limited, a British Virgin Islands corporation (the
"Payee"), with its principal place of business located at Room #2208 Windsor
House, 311 Gloucester Road, Causeway Bay, Hong Kong. Capitalized terms not
otherwise defined herein shall have the meanings provided in the Purchase
Agreement.
FOR VALUE RECEIVED, Payor hereby promises to pay to the order of the
Payee, at its principal place of business located at Room #2208 Windsor House,
311 Gloucester Road, Causeway Bay, Hong Kong, or at such other place as the
Payee may from time to time designate to Payor in writing, the principal sum of
One Million U.S. Dollars (US$1,000,000.00) on November 12, 1999;
This Note is one of the Term Notes referred to in the Pledge Agreement and
is secured, inter alia, by the liens granted pursuant to the Pledge Agreement
and the Payee, is entitled to the benefits of the Pledge Agreement and is
subject to all of the agreements, terms and conditions therein contained.
Upon the happening of any of the following events (each, an "Event of
Default"): any breach by the Payor of the Purchase Agreement or the Pledge
Agreement; any breach by the Payor of that certain License Agreement dated the
date hereof relating to certain of the Payee's proprietary products; the
dissolution of the Payor, the commencement by the Payor of a foreclosure
proceeding; the suspension of business by the Payor, the filing by the Payor of
a petition in bankruptcy, whether voluntary or involuntary; the filing by the
Payor of an application, whether voluntary or involuntary, for reorganization or
any arrangement or readjustment of indebtedness; the appointment by the Payor of
any receiver, trustee, liquidator or any committee; an assignment by the Payor
for the benefit of creditors; or the sending by the Payor of notice of an
intended bulk sale; any Event of Default described in the Pledge Agreement; the
Payor defaults in the payment of any principal of or interest on any Note to the
Payee when the same shall become due, whether by the terms thereof or otherwise
herein provided, and such default continues for five (5) days; then, in any such
event, this Note, if not then due, shall, at the option of the Payee or holder
hereof, become immediately due and payable without demand or notice and all
other debts or obligations of the Payor to the Payee, whether due or not due and
whether direct, indirect or contingent and howsoever evidenced, shall, at the
option of the Payee, also become immediately due and payable without demand or
notice.
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All rights and remedies of the Payee under applicable law and this Note
are cumulative and not exclusive. No single, partial or delayed exercise by the
Payee of any right or remedy shall preclude full and timely exercise by the
Payee at any time of any right or remedy of the Payee without notice. No waiver
shall be effective unless made specifically in writing by the Payee.
The substantive laws of Hong Kong shall govern, without reference to its
choice of law rules, the validity, construction, enforcement and interpretation
of this Note.
In any action or other legal proceeding relating to this Note, the Payor
(i) consents to the personal jurisdiction of any court located in Hong Kong,
(ii) waives objection to the laying of venue, (iii) waives personal service of
process, (iv) consents to service of process by registered or certified mail
directed to the Payor at the last address shown in the Payee's records relating
to this Note, with such service of process to be deemed completed five (5) days
after mailing and (v) WAIVES ANY RIGHT TO TRIAL BY JURY with respect to this
Note or to assert any counterclaim or setoff or recoupment with respect to this
Note. In any proceeding, a copy of this Note kept in the Payee's course of
business shall be admitted into evidence as an original.
Payor expressly waives any presentment, demand, protest, notice of
protest, or notice of any kind.
VERGEMONT INTERNATIONAL LIMITED
By:
--------------------------
Tsu-Huang Wu
Managing Director
NEXMED INTERNATIONAL LIMITED
By:
--------------------------
Y. Joseph Mo, Ph.D.
Managing Director
17
<PAGE>
EXHIBIT C
THE WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE THEREOF
HAVE BEEN ISSUED BY NEXMED, INC. (THE "COMPANY") PURSUANT TO REGULATION S,
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAVE
NOT BEEN REGISTERED UNDER THE ACT OR ANY APPLICABLE STATE SECURITIES LAWS. THESE
SECURITIES MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO OR FOR THE
ACCOUNT OF A "U.S. PERSON" (AS THAT TERM IS DEFINED IN REGULATION S) DURING THE
PERIOD COMMENCING ON THE EXERCISE OF THIS WARRANT CERTIFICATE AND ENDING ONE (1)
YEAR FOLLOWING EXERCISE OF THIS WARRANT CERTIFICATE (THE "RESTRICTED PERIOD").
THE COMPANY WILL NOTIFY THE TRANSFER AGENT OF THE DATE OF THE EXPIRATION OF SUCH
RESTRICTED PERIOD. FOLLOWING EXPIRATION OF THE RESTRICTED PERIOD, THESE
SECURITIES MAY NOT BE OFFERED OR SOLD UNLESS SUCH OFFER OR SALE IS REGISTERED OR
EXEMPT FROM REGISTRATION UNDER THE ACT.
WARRANT
to Purchase Common Stock of
NEXMED, INC.
Expiring June 30, 2000
This Warrant certifies that Vergemont International Limited, or its
registered and permitted assigns (the "Holder"), is entitled to, subject to the
terms set forth below, subscribe for and purchase from NEXMED, INC., a Nevada
corporation (the "Company"), 2,000,000 (TWO MILLION) duly authorized, validly
issued, fully paid and non-assessable shares of the Company's common stock,
U.S.$.001 par value per share (the common stock, including any stock into which
it may be changed, reclassified, or converted, and as it may be adjusted
pursuant to Section 4(A) below, is herein referred to as the "Common Stock").
This Warrant is issued pursuant to the Regulation S Securities Subscription
Agreement dated ____________, by and among the Holder and the Company.
This Warrant is subject to the following provisions, terms and conditions:
Section 1. Exercise of Warrant.
To exercise this Warrant in whole or in part, the Holder shall deliver to
the Company at its principal office, (a) a written notice, in substantially the
form of the Exercise Notice appearing at the end of this Warrant, of the
Holder's election to exercise this Warrant, which notice shall specify the
number of shares of Common Stock to be purchased, (b) cash or a certified check
payable to the Company in an amount equal to the aggregate purchase price of the
number of shares of Common Stock being purchased, and (c) this Warrant. The
Company shall as promptly as practicable, and in any event within 15 days
thereafter, execute and deliver or cause to be executed and delivered, in
accordance with such notice, a stock certificate or certificates representing
the aggregate number of shares of Common Stock specified in such notice. The
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<PAGE>
stock certificate or certificates so delivered shall be in such denominations as
may be specified in such notice and shall be issued in the name of the Holder or
such other name as shall be designated in such notice. Such stock certificate or
certificates shall be deemed to have been issued and the Holder or any other
person so designated to be named therein shall be deemed for all purposes to
have become a holder of record of such shares immediately prior to the close of
business on the date such notice is received by the Company as aforesaid. If
this Warrant shall have been exercised only in part, the Company shall, at the
time of delivery of said stock certificate or certificates, deliver to the
Holder a new Warrant evidencing the rights of the Holder to purchase the
remaining shares of Common Stock called for by this Warrant, which new Warrant
shall in all other respects be identical to this Warrant, or, at the request of
the Holder, appropriate notation may be made on this Warrant and the same
returned to the Holder. The Company shall pay all expenses, taxes and other
charges payable in connection with the preparation, issue and delivery of such
stock certificates and new Warrants, except that, in case such stock
certificates or new Warrants shall be registered in a name or names other than
the name of the Holder, funds sufficient to pay all stock transfer taxes that
are payable upon the issuance of such stock certificates or new Warrants shall
be paid by the Holder at the time of delivering the notice of exercise mentioned
above.
All shares of Common Stock issued upon the exercise of this Warrant shall
be validly issued, fully paid and non-assessable.
The Company shall not be required upon any exercise of this Warrant to
issue a certificate representing any fraction of a share of Common Stock, but,
in lieu thereof, shall pay to the Holder cash in an amount equal to a
corresponding fraction (calculated to the nearest 1/100 of a share) of the
purchase price of one share of Common Stock as of the date of receipt by the
Company of notice of exercise of this Warrant.
Section 2. Terms and Conditions of Warrants.
(A) Exercise Period. Each Warrant shall be exercisable at any time on or
after the date hereof (the "Exercise Date"), and shall expire at 5:00 p.m., New
York City time, on June 30, 2000 (the "Expiration Date").
(B) Purchase Price. The purchase price per share of Common Stock shall be
US$2.50 if the Warrant is exercised on or prior to June 30, 1999 or US$3.00 if
the Warrant is exercised after June 30, 1999.
(C) Payment of Purchase Price upon Exercise. The purchase price of the
Common Stock as to which a Warrant is exercised shall be paid to the Company at
the time of exercise in cash.
(D) Transferability and Exercise of Warrants. This Warrant shall be
exercisable (a) only under circumstances such that the issue of Common Stock
issuable upon such exercise or conversion is exempt from the requirements of
registration under the Securities Act of 1933, as amended (the "1933 Act"), and
any applicable state securities law or (b) upon registration of such Common
Stock in compliance therewith. This Warrant and the Common Stock issuable upon
the exercise thereof shall only be transferable under circumstances such that
the transfer is
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exempt from the requirements of registration under the 1933 Act and any
applicable state securities law. By acceptance hereof, the Holder agrees to
comply with such laws.
(E) Investment Representation. The Holder, by acceptance hereof, (i)
hereby represents that he or she is an "Accredited Investor" under Rule 501(a)
of Regulation D promulgated under Section 4(2) of the 1933 Act, and (ii)
acknowledges that this Warrant and, to the extent not registered under the 1933
Act, any Common Stock purchased or acquired pursuant hereto is being or will be
acquired solely for the Holder's own account and not as a nominee for any other
party, and with a current investment intent and not with a view to distribution
thereof. The Holder (or any person acting under Sections 2(D) above) shall
deliver to the Company, at the time of any exercise of this Warrant or portion
thereof, a written representation that the shares of Common Stock to be acquired
upon such exercise are to be acquired for investment and not for resale or with
a view to the distribution thereof, and, if applicable, that he or she is the
original Holder of this Warrant. Delivery of such representation prior to the
delivery of any Common Stock issued upon exercise of a Warrant and prior to the
expiration of the Warrant period shall be a condition precedent to the right of
the Holder or such other person to purchase any Common Stock. In the event
certificates for Common Stock are delivered upon the exercise of this Warrant
with respect to which such an investment representation has been obtained, the
Company may cause a legend or legends to be placed on such certificates to make
appropriate reference to such representations and to restrict transfer in the
absence of compliance with applicable federal or state securities laws.
(F) Absence of Default. The Holder may not exercise the Warrant if there
has been an Event of Default (as such term is defined therein) which has not
been cured prior to the exercise of this Warrant under the Term Notes dated
March 22, 1999 which have been issued by the Holder in favor of NexMed
International Limited pursuant to that certain Stock Purchase Agreement dated
March 22, 1999 between the Holder and NexMed International Limited.
Section 3. Transfer, Division and Combination.
The Company agrees to maintain at its principal office books for the
registration and transfer of this Warrant, and, subject to the provisions of
Section 2(D) hereof, this Warrant and all rights hereunder are transferable, in
whole or in part, on such books at such office, upon surrender of this Warrant
at such office, together with a written assignment of this Warrant duly executed
by the Holder or his agent or attorney and funds sufficient to pay any stock
transfer taxes payable upon the making of such transfer. Upon such surrender and
payment, the Company shall execute and deliver a new Warrant or Warrants in the
name of the assignee or assignees and in the denominations specified in such
instrument of assignment, and this Warrant shall promptly be canceled. A Warrant
may be exercised by a new holder for the purchase of shares of Common Stock
without having a new Warrant issued. All of the provisions of this Section 3 are
subject to the provisions of Sections 2(D) above.
Section 4. General Provisions
(A) Certain Adjustments. In the event of any change in the Common Stock by
reason of any stock dividend, recapitalization, reorganization, merger,
consolidation, split-up, combination
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<PAGE>
or exchange of shares, or of any similar change affecting the Common Stock, the
number and kind of shares subject to this Warrant and the purchase price per
share thereof shall be appropriately adjusted consistent with such change in
such manner as the Board of Directors of the Company (the "Board") may deem
equitable to prevent substantial dilution or enlargement of the rights granted
to, or available for, the Holder hereunder. Any adjustment of this Warrant
pursuant to this Section 4(A) shall be made only to the extent not constituting
a "modification" within the meaning of Section 424(h)(3) of the Internal Revenue
Code of 1986, as amended from time to time, unless the Holder shall agree
otherwise. The Board shall give notice to the Holder of any adjustment made
pursuant to this Section 4(A) and, upon notice, such adjustment shall be
effective and binding for all purposes under this Warrant.
(B) Merger or Consolidation. In case of any consolidation of the Company
with, or merger of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger which does not result in any
reclassification or change of the outstanding Common Stock), the corporation
formed by such consolidation or merger shall execute or deliver to the Holder a
supplemental warrant agreement providing that the holder of each Warrant then
outstanding or to be outstanding shall have the right thereafter (until the
expiration of such Warrant) to receive, upon exercise of such warrant, the kind
and amount of shares of stock and other securities and property receivable upon
such consolidation or merger, by a holder of the number of shares of Common
Stock of the Company for which such warrant might have been exercised
immediately prior to such consolidation, merger, sale or transfer. Such
supplemental warrant agreement shall provide for adjustments, which shall be
identical to the adjustments provided in Section 4. The above provisions shall
similarly apply to successive consolidations or mergers.
(C) Taxes. The Company may make such provisions and take such steps as it
may deem necessary or appropriate for the withholding of all federal, state and
local taxes required by law to be withheld with respect to this Warrant,
including, but not limited to (i) deducting the amount required to be withheld
from any other amount then or thereafter payable to the Holder, and (ii)
requiring the Holder to pay to the Company the amount required to be withheld as
a condition of releasing Common Stock. In addition, subject to such rules and
regulations as the Board shall from time to time establish, the Holder shall be
permitted to satisfy federal, state and local taxes, if any, imposed upon the
issuance of Common Stock at a rate up to the Holder's maximum marginal tax rate
with respect to each such tax by (i) irrevocably electing to have the Company
deduct from the number of shares Common Stock otherwise deliverable upon
exercise of a Warrant such number of shares of Common Stock as shall have a
value equal to the amount of tax to be withheld, (ii) delivering to the Company
such portion of the Common Stock delivered upon exercise of the Warrant as shall
have a value equal to the amount of tax to be withheld, or (iii) delivering to
the Company such Common Stock or combination of Common Stock and cash as shall
have a value equal to the amount of tax to be withheld.
(D) General Creditor Status. The Holder shall have no right, title, or
interest whatsoever in or to any investments, which the Company may make to aid
it in meeting its obligations hereunder. Nothing contained herein, and no action
taken pursuant hereto, shall create or be construed to create a trust of any
kind, or a fiduciary relationship between the Company and the Holder or any
other person. To the extent that any person or entity acquires a right to
receive
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payments from the Company hereunder, such right shall be no greater than the
right of an unsecured general creditor of the Company.
(E) No Liability of Board Members. The Holder of this Warrant agrees that
no member of the Board shall be personally liable by reason of any contract or
other instrument executed by such member or on his or her behalf in his or her
capacity as a member of the Board nor for any mistake of judgment made in good
faith.
Section 5. Covenant to Reserve Shares of Common Stock.
The Company covenants and agrees that it will at all times reserve and set
apart and have, free from preemptive rights, a number of shares of authorized
but unissued Common Stock sufficient to enable it at any time to fulfill all its
obligations hereunder.
Section 6. Notices.
In the event that:
(a) the Company proposes to pay any dividend payable in stock (of
any class or classes) or any obligations or stock convertible into or
exchangeable for shares of Common Stock upon its Common Stock or make any
distribution (other than ordinary cash dividends) to the holders of its
Common Stock;
(b) the Company proposes to grant to the holders of its Common Stock
generally any rights or warrants (excluding any warrants granted to any
employee, director, officer, contractor or consultant of the Company
pursuant to any plan approved by the Board of Directors of the Company);
(c) the Company proposes to effect any capital reorganization or
reclassification of capital stock of the Company;
(d) the Company proposes to consolidate with, or merge into, any
other Company or to transfer its property as an entirety or substantially
as an entirety; or
(e) the Company proposes to effect the liquidation, dissolution or
winding up of the Company,
then the Company shall cause notice of any such intended action to be given to
the holder of this Warrant not less than 30 days before the date on which the
transfer books of the Company shall close or a record shall be taken for such
stock dividend, distribution or granting of rights or Warrants, or the date when
such capital reorganization, reclassification, consolidation, merger, transfer,
liquidation, dissolution or winding up shall be effective, as the case may be.
Any notice or other document required or permitted to be given or
delivered to the holder of this Warrant shall be delivered by facsimile
transmission, reliable courier or first-class mail postage prepaid to the holder
of this Warrant at the last address shown on the books of the
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Company maintained for the registry and transfer of this Warrant. Any notice or
other document required or permitted to be given or delivered to holders of
record of Common Stock issued pursuant to this Warrant shall be delivered by
facsimile, reliable courier or first-class mail postage prepaid to such holder
at such holder's address as the same appears on the stock records of the
Company. Any notice or other document required or permitted to be given or
delivered to the Company shall be delivered by facsimile transmission, reliable
courier or first-class mail postage prepaid to the principal office of the
Company or delivered to the office of one of the Company's executive officers at
such address, or such other address as shall have been furnished by the Company
to the holders of record of this Warrant and the holders of record of such
Common Stock.
Section 7. Limitation of Liability; Not Shareholders.
No provision of this Warrant shall be construed as conferring upon the
Holder the right to vote or to consent or to receive dividends or to receive
notice as a shareholder in respect of meetings of shareholders for the election
of directors of the Company or any other matter whatsoever as shareholders of
the Company. No provision hereof, in the absence of affirmative action by the
Holder to purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of Holder
for the purchase price or as a shareholder of the Company, whether such
liability is asserted by the Company, creditors of the Company or others.
Section 8. Loss, Destruction, etc, of Warrant.
Upon receipt of evidence satisfactory to the Company of the loss, theft,
mutilation or destruction of this Warrant, and in the case of any such loss,
theft or destruction upon delivery of a bond of indemnity in such form and
amount as shall be reasonably satisfactory to the Company, or in the event of
such mutilation upon surrender and cancellation of this Warrant, the Company
will make and deliver a new Warrant, of like tenor, in lieu of such lost,
stolen, destroyed or mutilated Warrant. Any Warrant issued under the provisions
of this Section 8 in lieu of any Warrant alleged to be lost, destroyed or
stolen, or of any mutilated Warrant, shall constitute an original contractual
obligation on the part of the Company.
Section 9. Amendments.
Neither this Warrant nor any term hereof may be changed, waived,
discharged or terminated orally or in writing, provided that any term of this
Warrant may be amended or the observance of such term may be waived (either
generally or in a particular instance and either retroactively or prospectively)
with, but only with, the written consent of the Company and the holders of the
Warrants that are exercisable for a number of shares of Common Stock that
represent in the aggregate at least a majority of the total number of shares of
Common Stock for which all of the Warrants are then exercisable (whether or not
the holder of this Warrant consents).
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Section 10. Governing Law and Consent to Jurisdiction.
This Warrant shall be governed by the laws of the State of New York
without regard to its conflict of laws, principles or rules. This Warrant shall
be deemed to have been executed and delivered at and shall be deemed to have
been made in New York, New York.
Any legal action, suit or proceeding arising out of or relating to this
Warrant may only be instituted in any federal court of the Southern District of
New York or any state court located in New York County, State of New York, and
the Company agrees not to assert, by way of motion, as a defense or otherwise,
in any action, suit or proceeding, any claim that it is not subject personally
to the jurisdiction of such courts, that the action, suit or proceeding if
brought in such courts, would be an inconvenient forum, that the venue of the
action, suit or proceeding, if brought in any of such courts, is improper or
that this Warrant or the subject matter may not be enforced in or by such courts
on jurisdictional grounds.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in
its name by its duly authorized officer.
Dated: ___________, 1999
NEXMED, INC.
By:
-----------------------------
Y. Joseph Mo, Ph.D.
President & CEO
24
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EXERCISE NOTICE
The undersigned, the Holder, hereby elects to exercise purchase rights
represented by such Warrant for, and to purchase thereunder, ____________ shares
of the Common Stock covered by such Warrant and herewith makes payment in full
therefor of US$_________ cash and/or by cancellation of US$__________ of
indebtedness of the Company to the Holder hereof and requests that, subject to
the terms and conditions of the Warrant, certificates for such shares (and any
securities or property deliverable upon such exercise) be issued in the name of
and delivered to ______________________ whose address is
_______________________________________, and whose social security or employer
identification number is ____________.
The undersigned agrees that, in the absence of an effective registration
statement with respect to Common Stock issued upon this exercise, the
undersigned is acquiring such Common Stock for the Holder's own account and not
as a nominee for any other party, for investment and not with a view to
distribution thereof and that the certificate or certificates representing such
Common Stock may bear a legend substantially as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY
APPLICABLE STATE SECURITIES LAWS. SUCH SHARES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM
UNDER SUCH ACT AND UNDER ANY APPLICABLE STATE SECURITIES LAWS. THESE
SHARES MAY NOT BE TRANSFERRED EXCEPT UPON THE CONDITIONS SPECIFIED IN THIS
WARRANT CERTIFICATE, AND NO TRANSFER OF THESE SHARES SHALL BE VALID OR
EFFECTIVE UNLESS AND UNTIL SUCH CONDITIONS SHALL HAVE BEEN COMPLIED WITH.
In addition, the undersigned agrees that, in the absence of an effective
registration statement with respect to Common Stock issued upon this exercise,
stop transfer instructions will be entered on the Company's stock transfer
records with respect to Common Stock issued upon this exercise.
Dated:
---------------------------
Signature
25
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EXHIBIT D
Vergemont International Limited
Suite 2401-2408
24F, CITIC Tower
One Tim Mei Avenue
Central, Hong Kong
March 22, 1999
Y. Joseph Mo, Ph.D
NexMed International Limited
Room 2208, Windsor House
311 Gloucester Road
Causeway Bay, Hong Kong
Dear Dr. Mo,
Vergemont International Limited ("the "Company") would like to
retain your services as a consultant to the Company following the consummation
of the transactions contemplated by that certain Stock Purchase Agreement, (the
"Purchase") dated the date hereof between the Company and NexMed International
Limited ("NexMed") on the terms set forth in this letter. You have served as a
key executive of NexMed and its subsidiaries, and through such service, have
acquired special and unique knowledge, abilities and expertise that would be
valuable to the Company during its transition period following the Purchase.
The Company wishes you to advise its Board of Directors, executives
and other key employees on all aspects of its business, and to continue serving
as the Legal Representative of NexMed Pharmaceuticals (Zhongshan) Ltd.,
following the Purchase for a period of twelve (12) months from the date hereof
(the "Consulting Period"). During the Consulting Period, you will make your
services available to the Company for up to five (5) days each quarter and the
Company will reimburse you for all of your reasonable out of pocket expenses in
connection with your providing such services. Additionally, should any executive
or key employee request that you travel on behalf of the Company, the Company
will reimburse you for all reasonable travel expenses; provided, however, that
you not be required to travel more than one (1) time during any quarterly
period. The Company further agrees that any such travel shall be arranged at
such time(s) as are mutually convenient to both you and the Company.
During the Consulting Period, we agree to indemnify and hold
harmless NexMed including its parent company and subsidiaries, and their
officers, directors, employees, shareholders, representatives and agents from
and against any and all losses, liabilities, claims, damages, deficiencies,
costs and expenses including reasonable attorney's fees, based upon, arising out
of, or otherwise in respect of your performance of any services hereunder
approved by us. The foregoing indemnification provisions shall survive the
expiration or earlier termination of this agreement.
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If you are in agreement with the foregoing terms, kindly execute
this letter below and return it to the undersigned.
Sincerely,
Vergemont International Limited
By:
-------------------------------
Tsu-Huang Wu
Managing Director
AGREED AND ACCEPTED
- ----------------------------
Y. Joseph Mo, Ph.D.
Managing Director
NexMed International Limited
27
Exhibit 10.7
LICENSE AGREEMENT
This License Agreement ("Agreement"), entered into as of this 22nd day of
March, 1999 by and between NexMed International Limited, a British Virgin
Islands corporation, with a principal place of business at Suite 2208, 22/F,
Windsor House, 311 Gloucester Road, Hong Kong ("NexMed") and Vergemont
International Limited, a company organized under the laws of Turks & Caicos
Islands with a principal place of business at Suite 2401-2408, 24F, CITIC Tower,
One Tim Mei Avenue, Central, Hong Kong ("Vergemont").
WHEREAS, NexMed is a medical and pharmaceutical technology company with a
focus on the development and commercialization of, among other things, topical
treatment products based on a penetration enhancement technology; and
WHEREAS, NexMed has developed and is the proprietary owner of the NexMed
Know-How (as defined below) relating to the use of Penetration Enhancement
Ingredients in conjunction with Compounds A, B,C,D (as defined below); and
WHEREAS, Vergemont desires to secure certain rights with respect to
making, using and selling certain products incorporating such Know-How.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, Vergemont and NexMed agree as follows:
I. DEFINITIONS
1.01 "Affiliate" shall mean, with respect to either party, any individual
or any legally-distinct corporation, firm or other form of business
organization, which directly or indirectly owns, controls, is controlled by, or
is under common control with, a party hereto. An entity shall be regarded as
being in control of another entity if the former entity has the direct or
indirect power to order or cause the direction of the policies of the other
entity, whether through ownership of fifty percent (50%) or more in the United
States or thirty percent (30%) or more outside the United States of the
outstanding voting securities of that entity, through other dominant equity
ownership, or by contract, statute, regulation, or otherwise.
1.02 "Agreement Year" shall mean the twelve month period ending on an
anniversary of the Approval Date.
1.03 "Application for Approval" shall mean all submissions related to
investigational use of the Licensed Products (such as an IND for the Licensed
Products filed with the FDA or the equivalent filing with a Regulatory Authority
in the Territory) and all submissions related to marketing approval (such as an
NDA or equivalent filing).
1.04 "Clinical Trials Program" shall have the meaning set forth in Section
3.02 hereof.
<PAGE>
1.05 "Combination Product" shall have the meaning set forth in Section
4.03 hereof.
1.06 "Compound A" shall mean alprostadil, "Compound B" shall mean
acyclovir, "Compound C" shall mean ketoprofen, and Compound D shall mean
vitamins A/C/E.
1.07 "Dollars" means lawful currency of the United States of America.
1.08 "Exclusive" shall mean, when used in connection with a specific grant
of a license hereunder, that (except to the extent such rights are specifically
retained herein) the granting party shall have no further right in the
Territory, for so long as such grant remains effective, to manufacture, sell or
use the Licensed Products or to grant to third parties any license in connection
with the manufacture, use or sale of the Licensed Products in the Territory.
1.09 "FDA" shall mean the United States Food and Drug Administration or
any successor Regulatory Authority in the United States.
1.10 "Field" shall mean the development and commercialization of
therapeutic products based on proprietary delivery systems including topical
treatment products based on a penetration enhancement technology which may
enable the active drug/ingredient to be better absorbed through the skin.
1.11 "Indication for Use" shall be for use as NexMed and Vergemont may
agree.
1.12 "IND" (Investigational New Drug Application) means an application for
an "Investigational Exemption for a New Drug" filed with a Regulatory Authority
(as defined below).
1.13 "Know-How" shall mean any and all technical data, drawings,
documentation, and other information, including information disclosed in an
issued patent or patent application. Know-How relating to the Field, which is
owned by NexMed as of the date hereof or is independently generated, acquired or
licensed, with the right to sublicense, by NexMed during the term of this
Agreement is referred to herein as "NexMed Know-How."
1.14 "NDA" (New Drug Application) shall mean an application submitted to a
Regulatory Authority, which contains all necessary details of the manufacture
and testing of a new drug, for purposes of obtaining regulatory approval to
market such new drug in such country or region, for a particular indication.
1.15 "Net Sales" shall mean the gross amount invoiced by Vergemont or any
sublicensee of Vergemont for arm's-length sales of Licensed Products to a third
party or parties which are not Affiliates of Vergemont, after deducting, if not
already deducted in the actual amount invoiced, normal and customary trade
discounts actually allowed, returns and credits. No deduction from the invoice
price shall be taken for any other costs, including taxes, transportation,
insurance and postage charges, in computing Net Sales except that separately
billed or invoiced transportation costs, sales taxes and value added taxes shall
not be included in the computation of Net Sales.
1.16 "Licensed Products" shall mean five (5) pharmaceutical formulations
which include an alprostadil cream for male erectile dysfunction, an alprostadil
cream for female sexual dysfunction,
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an acyclovir anti-viral cream for herpes simplex, a ketoprofen or non-steroid
anti-inflammatory drug, (NSAID) containing cream, and a vitamins A/C/E
equivalent cream, either now known or hereafter developed which utilizes or
incorporates NexMed Know-How and which is/are intended and promoted for
treatment of the Indication for Use in humans.
1.17 "Licensed Period" shall mean the ten- (10) years following the
approval of each of the Licensed Products in each country of the Territory.
1.18 "Other Item" shall mean a physiologically constituent or product sold
together with a Licensed Product in the same preparation.
1.19 "Person" shall mean any individual, estate, trust, partnership, joint
venture, association, firm, corporation, company, or other legal entity.
1.20 "Pre-Clinical Development Program" shall have the meaning set forth
in Article II hereof.
1.21 "Penetration Enhancement Ingredient" shall mean all ingredients
either now known or hereafter developed by NexMed or using NexMed Know-How that
enhances the performance and absorption of Compounds A,B,C and D.
1.22 "Proprietary Information" shall have the meaning set forth in Section
3.04(a) hereof.
1.23 "Reimbursement Price" shall mean the price for the Licensed Products
as approved by the local governments in the Territory.
1.24 "Regulatory Authority" shall mean the agency, if any, of the national
government within the Territory with which the Licensed Products must be
registered or by which the Licensed Products must be approved prior to
manufacture, use or sale in the Territory.
1.25 "Sale" or "Sold" shall mean the transfer for value (cash and/or
otherwise) in an arm's-length transaction of a Licensed Products in the
Territory by Vergemont, Vergemont Affiliate, or Vergemont sublicensee to a
nonaffiliated third-party distributor, agent or end user after obtaining all
necessary government approvals applicable to such sale. Sales shall be accounted
for when shipped, and credits and refunds shall be accounted for when booked by
Vergemont in accordance with Vergemont's standard accounting practices.
1.26 "Territory" shall mean countries in Asia, (i.e., Bangladesh, Burma,
Cambodia, China, India, Japan, Korea, Indonesia, Kazakhstan, Kyrgyzstan, Laos,
Malaysia, Mongolia, Pakistan, the Philippines, Singapore, Taiwan, Tajikistan,
Thailand, Turkmenistan, Uzbakistan, and Vietnam), as well as Australia and New
Zealand.
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II. PRE-CLINICAL DEVELOPMENT PROGRAM
2.01 Funding of Pre-Clinical Studies. Pursuant to the terms and conditions
contained herein, Vergemont shall pay for the total costs of pre-clinical and
other development programs in the Territory for the Licensed Products (such
programs hereinafter collectively referred to as the "Pre-Clinical Development
Program", even though they may continue during the period of clinical trials).
Such costs shall include all costs incurred by NexMed upon the demand of service
requested by Vergemont, including but not limited to all costs of developing the
drug master file included in the Pre-Clinical Development Program, costs of
developing good manufacturing practices for the Licensed Products, costs of
manufacturing initial quantities of the Licensed Products for clinical trials,
the costs of all necessary animal studies and trials and the costs of any other
development work.
2.02 Transfer of Pre-Clinical Data. NexMed shall provide Vergemont the
results of studies and data generated that are currently available and later
available from prior, ongoing or future studies undertaken by NexMed.
III. CLINICAL TRIALS AND REGULATORY APPROVALS
3.01 Funding of Regulatory Approvals.
(a) Vergemont shall be responsible for obtaining regulatory
approvals for investigational use and marketing of the Licensed Products from
the Regulatory Authorities in the Territory and shall use its best efforts to
conduct all pre-clinical and clinical trials as rapidly as possible and to seek
all necessary regulatory approvals for Compound A, and for Compounds B,C, and D
when available. Vergemont shall pay or cause the payment of all costs and
expenses necessary to obtain each such approval, including all costs of human
clinical trials and all costs of filing each Application for Approval.
(b) Upon determination by NexMed that sufficient data has been
compiled to permit filing of an Application for Approval for the Licensed
Products in the Territory, Vergemont shall promptly prepare and file such
Application for Approval with the Regulatory Authority in the Territory. Each
Application for Approval filed by Vergemont shall be filed in the name of
Vergemont. Vergemont shall supply to NexMed for approval, not less than 30 days
prior to filing, copies of every Application for Approval to be filed and each
document submitted in connection therewith. Vergemont shall also provide
evidence of filing within 30 days thereafter, and Vergemont will keep NexMed
informed regarding the status of each such application. NexMed shall wherever
practical be given notice of, and a right to participate in, all meetings and
discussions with Regulatory Authorities.
3.02 Clinical Trials. Unless otherwise specifically agreed by the parties,
Vergemont shall conduct, manage and pay for all clinical trials. Such clinical
trials shall hereinafter be referred to as the "Clinical Trials Program".
3.03 Grant and Term of Licenses.
(a) NexMed hereby grants to Vergemont the Exclusive right and
license (including
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the right to grant sublicenses) to make, have made, use and sell the Licensed
Products solely for human therapeutic uses throughout the Territory, as and to
the extent such activities are permitted to be conducted in the Territory.
(b) Subject to the provisions of Section 4.05 hereof and Article VII
(Term and Termination), the grant of rights by NexMed to Vergemont hereunder
with respect to the Licensed Products shall continue in the Territory for the
entire term of the Agreement. At the end of the term and upon full payment of
its royalty payments, Vergemont shall then own the respective Licensed Products.
(c) Vergemont shall be entitled to grant sublicenses during the
Licensing Period.
3.04 Availability of Information. Subject always to the obligations set
forth in Article V herein to maintain such information confidential, so long as
this Agreement remains in effect,
(a) all Know-How and all other information and materials related to
the development, manufacture, sale or use of a Licensed Products ("Proprietary
Information") shall be furnished by each party to the other, and significant
technical and other data and submissions shall furnished in the English
language; and
(b) all Proprietary Information shall be owned by NexMed and where
developed by Vergemont and its Affiliates, shall be assigned by Vergemont to
NexMed. All Proprietary Information shall be made equally available to each of
the parties, subject to any obligation by which a party is contractually bound
at the time of acquiring Proprietary Information from a third party, not to
disclose such Proprietary Information.
3.05 Diligent Efforts. Upon filing of any Application for Approval with
any Regulatory Authority to make, use or sell the Licensed Products in the
Territory, Vergemont shall use diligent, good faith, commercially reasonable
efforts (including, where appropriate, conducting, or causing to be conducted,
clinical trials) to obtain regulatory approvals and, once obtained, to
commercially exploit the Licensed Products.
IV. LICENSE FEE AND ROYALTY PAYMENTS
4.01 Royalty Payments; Rate. [*] percent royalties on Net Sales shall be
paid by Vergemont to NexMed within thirty (30) business days after the end of
each calendar quarter in which such Net Sales are made. All payments shall be
accompanied by a statement, certified to be accurate by Vergemont, of Net Sales
of the Licensed Products by Vergemont and each of its Affiliates and permitted
sublicensees during the preceding calendar quarter on a country by country
[*] WE HAVE REQUESTED CONFIDENTIAL TREATMENT FOR THIS PORTION OF THE AGREEMENT,
WHICH PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.
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basis. Such statements shall show all royalties paid since the commencement of
the current Agreement Year, the quantity, description and gross sales price,
itemized deductions from gross sales price and net sales price of each Licensed
Products that was distributed and/or sold by Vergemont and each of its
Affiliates and sublicensees during the preceding calendar quarter and the amount
of royalty due. Such statements shall be furnished to NexMed by Vergemont
whether or not any Licensed Products has been sold during the calendar quarter
in which such statements are due on a country by country basis.
4.02 Combination Products. Licensed Products may be sold in combination
with any Other Item. Vergemont must notify NexMed within thirty (30) days of the
launch of Combination Products. The invoice price of such Combination Product
shall be set by Vergemont in good faith, and Net Sales of the Licensed Products
included in the Combination Product shall be determined using the following
formulae:
(a) If the Licensed Products and Other Items contained in the
combination are available separately, the Net Sales for purposes of calculating
royalty payments will be the result obtained by multiplying the Net Sales of the
Combination Product by the fraction A/A+B, where A is the invoiced price of the
Licensed Products in the Combination Product, and B is the invoiced price of all
Other Items in the Combination Product.
(b) If the Combination Product includes Other Items which are not
sold separately (but the Licensed Products contained in the Combination Product
is available separately), the Net Sales for purposes of calculating royalty
payments will be the result of multiplying the Net Sales of the Combination
Product by the fraction A/C, where A is as defined above and C is the invoiced
price of the Combination Product.
(c) If neither the Licensed Products nor the Other Items contained
in the Combination Product are sold separately, or if only the Licensed Products
is not sold separately, Vergemont shall, in good faith, propose the percentage
of the revenue from such Combination Product that is attributable to the
Licensed Products. Unless Vergemont receives written objection from NexMed to
such proposal within 45 days following NexMed's receipt of such proposal, then
the revenue so attributed to the Licensed Products shall be the Net Sales for
the purposes of Section 4.02 hereof. In the event NexMed objects to Vergemont's
proposal, Vergemont and NexMed agree to negotiate in good faith to reach a
mutually acceptable determination of the percentage and Vergemont shall not
market such Combination Product unless and until such a determination is
reached.
4.03 Withholdings. All amounts of royalties payable by Vergemont pursuant
to this Section 4.03 shall be paid in Dollars without deducting therefrom any
tax, duty, charge, conversion or remittance fee, commission, discount or other
fee payable in respect of such royalty payment, other than taxes specified in
the next following sentence. Any and all taxes levied by a proper taxing
authority required to be withheld by Vergemont or its sublicensees on account of
royalties accruing to NexMed under this Agreement may be deducted from such
royalty payment provided that (i) such amount is promptly paid for and on behalf
of NexMed to the appropriate tax authorities, and (ii) Vergemont furnishes
NexMed with official tax receipts or other appropriate evidence of payment
issued by the appropriate tax authorities. If any tax, however denominated
(other than a withholding tax on Vergemont or sublicensee royalties), is levied
against NexMed solely because of the presence of a Vergemont facility or because
Vergemont is doing business in the Territory, then Vergemont shall pay such tax
without deduction from such royalty payment. Receipt or acceptance by NexMed of
any statement furnished pursuant to this Agreement or of any sum paid hereunder
(or the cashing of any royalty checks paid hereunder) shall not preclude NexMed
from questioning the correctness thereof at
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any time, and in the event that any inconsistency or mistake (including the
improper withholding of tax) is discovered in such statements or payments, it
shall immediately be rectified and the appropriate payment made by Vergemont.
4.04 Exploitation of the Licensed Products. Vergemont agrees to promote,
exploit and market the Licensed Products (where appropriate regulatory approval
has been obtained) through its manufacturing, marketing and sales activities,
using good faith, diligent, commercially reasonable efforts, as more
specifically set forth herein.
4.05 Non-Dollar Sales. For purposes of determining the amount of royalties
due on Net Sales pursuant to Section 4.01 hereof, where Vergemont or any
sublicensee receives payment in a currency other than Dollars, the amount of Net
Sales in such currency shall be converted into Dollars at the prevailing
commercial rate of exchange for purchasing Dollars with such foreign currency as
quoted by Citibank, N.A. in New York on the last business day of the calendar
quarter for which the relevant royalty payment is to be made by Vergemont.
4.06 Records. Vergemont shall (and shall cause, its Affiliates and
sublicensees to keep complete and accurate books and records relating to their
respective sales of the Licensed Products, in sufficient detail to allow the
royalties accruing hereunder to be accurately determined. Each of such persons
shall preserve such books and records for a period of six years following the
date of any statement delivered hereunder. NexMed (or its duly authorized
representatives) shall have the right at its own expense from time to time
during the term of this Agreement until the expiration of said six-year period
to inspect the relevant records of Vergemont or such Affiliate or sublicensee in
order to verify such report or statement. Vergemont and such Affiliate or
sublicensee shall make its records available for such inspection during regular
business hours at such place or places where such records are customarily kept,
upon reasonable notice from NexMed to the extent reasonably necessary to verify
the accuracy of the reports and payments required hereunder. NexMed agrees to
hold strictly confidential all such records and information, other than the
total amounts of royalties paid, and all information learned in the course of
any audit or inspection hereunder, except to the extent that it is necessary for
NexMed to reveal such information order to enforce any rights it may have under
this Agreement or if disclosure is required by law (subject to the restrictions
on publicity without consent set forth under the provisions of Section 5.02
hereof). The failure of NexMed to request verification of any report or
statement during said six-year period shall be considered acceptance of the
accuracy of such report. If the audit reveals an error in NexMed's favor which
is greater than five percent (5%) of the amount of royalties due to NexMed
specified on a particular report or statement, the reasonable cost of such
examination shall be borne by Vergemont or such Affiliate or sublicensee.
4.07 Late Payments. Except as otherwise determined under Section 4.02
hereof, any amount which is not paid when due hereunder shall bear interest in
Dollars at the published prime rate of Citibank, N.A., New York, New York as in
effect from time to time plus three percent.
V. CONFIDENTIALITY
5.01 Information Sharing; Confidentiality.
(a) During the term of this Agreement, each party shall promptly
furnish (and shall
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cause its Affiliates and/or sublicensees, if any, promptly to furnish) to the
other any information concerning safety or utility of the Licensed Products,
including adverse or unexpected side effects, injury or other events associated
with uses, studies, investigations or tests of the Licensed Products, whether or
not such party is required to report such events to regulatory authorities and
whether or not such event is determined to be attributable to the Licensed
Products.
(b) Vergemont recognizes that the Proprietary Information
constitutes highly valuable, proprietary, confidential information. Vergemont
agrees that during the term of this Agreement and thereafter it will keep
confidential, and will cause its Affiliates, officers, employees, consultants,
agents and sublicensees to keep confidential, all Proprietary Information.
Vergemont shall not disclose, or permit any of its Affiliates, officers,
employees, consultants, agents and sublicensees to disclose, Proprietary
Information to any other Person nor use the same for any purpose except as set
forth in this Section 5.01 or as otherwise expressly permitted in this Agreement
or in a separate written agreement with the other party or as reasonably
required in good faith for the registration and commercialization of the
Licensed Products.
(c) Vergemont agrees that any dissemination of Proprietary
Information to any of its Affiliates or sublicensees or to any officer,
employee, consultant or agent of it or any of its Affiliates or sublicensees
shall be made only if necessary to carry out the purposes set forth herein and
shall be limited to the maximum extent possible consistent with such purposes.
Vergemont shall take such action, and will cause its Affiliates, sublicensees,
and their respective officers, employees, consultants and agents to take such
action, to preserve the confidentiality of the Proprietary Information as it
would customarily take in order to preserve the confidentiality of other
valuable proprietary information owned by it, including advising all such
Persons of the confidentiality obligations set forth herein.
(d) The restrictions contained in paragraphs (b) and (c) of this
Section 5.01 shall not apply to any Proprietary Information that:
(i) is, at the time of its disclosure to Vergemont, generally
available to the public or otherwise part of the public domain or, as evidenced
by written records of Vergemont, is otherwise previously known to Vergemont;
(ii) becomes generally available to the public or otherwise
part of the public domain after its disclosure to Vergemont through no act or
omission of Vergemont or any other person owing an obligation of confidentiality
to either party hereto; or
(iii) is required to be disclosed by any court or governmental
agency having proper jurisdiction, provided that NexMed is first given an
adequate opportunity to seek a protective order or similar limits on further
disclosure.
5.02 Publicity. Neither party shall make any disclosure regarding the
existence of this Agreement nor the research hereunder except with the prior
consent of the other party to the text of the proposed disclosure, which consent
shall not be unreasonably withheld, unless the failure to make such disclosure
would (in the opinion of counsel to the disclosing party) place such party in
violation of applicable law, in which case prior notice of such disclosure shall
be given to the other party to the extent reasonably possible.
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5.03 Publication. The parties recognize the traditional right of all
scientists to publish and present promptly the results of their research.
Notwithstanding anything to the contrary contained in this Article V, the
results obtained in the course of the Pre-Clinical Development Program or the
Clinical Trials Program may be submitted for publication by Vergemont, but only
following notice to and approval by NexMed in its sole discretion. Vergemont
shall not publish information without first providing NexMed with at least
thirty (30) days prior notice of all results and information intended to be
published. NexMed shall act as expeditiously as practicable following such
notice, and shall notify Vergemont promptly of its determination. If NexMed does
not approve such publication, such results and information shall continue to be
subject to the other provisions of this Article V.
VI. MANUFACTURE AND SUPPLY
6.01 Right to Manufacture. Subject to the limitations contained in
Sections 3.03 and 6.02 hereof, Vergemont shall have the Exclusive right (with
the right to grant sublicenses) to manufacture in finished form the Licensed
Products in the Territory. Vergemont shall comply with the requirements, good
manufacturing practices and specifications for the manufacture and use of such
Licensed Products promulgated by the Regulatory Agency in the Territory where
such Licensed Products is to be manufactured or sold.
6.02 Component Supply. Notwithstanding the rights granted in Section 6.01,
NexMed shall have the exclusive right to manufacture and sell to Vergemont in
the Territory certain ingredients of the Licensed Products. NexMed shall sell to
Vergemont and Vergemont shall purchase exclusively from NexMed the Penetration
Enhancement Ingredients for the manufacture of the Licensed Products as
identified in Appendix A at a price equal to NexMed's full costs associated with
production of the Penetration Enhancement Ingredient plus [*]% thereof.
6.03 Changes in Regulations. Each party shall promptly and fully advise
the other of any new regulations, instructions or specifications required by any
Regulatory Authority in the Territory of which such party becomes aware.
Vergemont agrees that the Licensed Products will, upon delivery to the carrier
designated by customers, be in conformity with said product regulations,
instructions and specifications and will not be adulterated or misbranded.
[*] WE HAVE REQUESTED CONFIDENTIAL TREATMENT FOR THIS PORTION OF THE AGREEMENT,
WHICH PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.
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6.04 Quality Disputes. NexMed shall have the right to inspect the
manufacturing facilities of Vergemont and review Vergemont's procedures and to
take samples of the Licensed Products manufactured by Vergemont. If Vergemont
becomes aware that any quantity of a Licensed Products does not comply with
Sections 6.01 or 6.03 hereof, Vergemont shall promptly notify NexMed thereof.
NexMed shall be provided a sample of the suspect Licensed Products upon request.
Within sixty (60) days of receipt thereof, NexMed shall report to Vergemont in
writing of the fact and extent of the non-compliance. Vergemont shall have sixty
(60) days from the receipt of said report to replace the non-complying Licensed
Products by shipping replacement products which are in compliance with Sections
6.01 and 6.03, or to report that it considers that the original Licensed
Products did comply with Sections 6.01 and 6.03, in which case the parties shall
use their best efforts to resolve any dispute.
VII. TERM AND TERMINATION
7.01 Term.
(a) The term of this Agreement shall commence on the date hereof and
shall continue, unless terminated in accordance with the subsequent paragraphs
of this Article VII, for a period of ten (10) years following the Approval Date
of each Licensed Product in each country of the Territory.
(b) Vergemont may relinquish any or all of the rights granted to it
hereunder to make, sell or use a Licensed Products in the Territory at any time,
by giving to NexMed written notice of its desire to do so at least 180 days
prior to the date on which Vergemont desires such right to be terminated. Such
relinquishment will not release Vergemont from any obligation to make payments
that have accrued prior to the effective date of relinquishment of such rights
and Vergemont shall have no right to seek reimbursement of any amounts paid
prior to such relinquishment. All rights relinquished with respect to the
Territory will return exclusively to NexMed.
7.02 Events of Termination. If any of the following events shall occur and
be continuing, such event shall constitute an event of termination ("Event of
Termination"):
(a) If any representation or warranty by a party hereto contained in
this Agreement shall prove to have been incorrect in any material respect when
made or deemed made.
(b) If a party shall fail to pay any amount when due for a
particular Licensed Product hereunder or shall otherwise default in any material
respect in the performance or observance of any term, covenant or provision
contained in this Agreement or any of the other documents or instruments
delivered pursuant to, or concurrently with, this Agreement, and any such other
default shall remain unremedied for 60 days after written notice thereof to the
defaulting party from any other party with a copy to the other party. The
foregoing notwithstanding, no such other default shall constitute an Event of
Termination until 90 days after such notice, if the defaulting party shall
undertake throughout such 90-day period a reasonably diligent effort to remedy
such failure, provided, however that if by its nature such failure cannot be
cured, such failure shall constitute an Event of Termination immediately upon
occurrence.
(c) If this Agreement shall, at any time hereafter and for any
reason, cease to be in full force and effect, or shall be declared null and
void, or the validity or enforceability of this Agreement shall be successfully
contested by a party hereto or successfully contested by any other Person.
(d) Because each party acknowledges that the services to be rendered
by the other are personal in nature, inasmuch as the respective capabilities of
the parties hereto are uniquely valuable, and that the determination to enter
into this Agreement was based upon the unique ability of the other party to
fulfill its respective obligations hereunder, if
(i) such party shall make an assignment for the benefit of
creditors, file a petition in bankruptcy, petition or apply to any tribunal for
the appointment of a custodian, receiver or
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any trustee for it or a substantial part of its assets, or shall commence any
proceeding under any bankruptcy, reorganization in bankruptcy or the equivalent,
dissolution or liquidation law or statute of any jurisdiction, whether now or
hereafter in effect;
(ii) there shall have been filed any such petition or
application against such party, or any such proceeding shall have been commenced
against it, in which an order for relief is entered or which remains undismissed
for a period of 30 days or more; or
(iii) such party by any act or knowing failure to act shall
indicate its consent to, approval of or acquiescence in, any such petition,
application or proceeding or order for relief or the appointment of a custodian,
receiver or any trustee for it or any substantial part of any of its properties,
or shall suffer any such custodianship, receivership or trusteeship to continue
undischarged for a period of 30 days or more.
(e) Breach of the Stock Purchase Agreement of 3/22/99 (Appendix C
hereto).
7.03 Termination.
(a) Upon the occurrence of any Event of Termination set forth in
Section 7.02, the party not responsible for such Event of Termination shall have
the following rights, (i) if the responsible party is NexMed, Vergemont may, by
written notice to NexMed, relinquish its rights and terminate its future
obligations under this Agreement; (ii) if the responsible party is Vergemont,
NexMed may, by written notice to Vergemont terminate Vergemont's rights under
this Agreement.
(b) No termination or expiration of this Agreement shall affect any
obligation of any party which arose prior to the effective date of such
termination with respect to monies owed or to confidential information. The
right of any party to terminate this Agreement as herein above provided shall
not be affected in any way by its waiver of or failure to take action with
respect to any previous default.
7.04 Effects of Termination or Expiration.
(a) Upon termination of this Agreement by NexMed for breach by
Vergemont,
(i) Vergemont shall immediately cease to have any right to
sell, exploit or in any way deal with or in the Licensed Products or to use any
NexMed Know-How or Proprietary Information or to use any trademarks or names
associated with the Licensed Products and all royalties and other payments
theretofore accrued shall become due and payable immediately to NexMed and such
termination shall be without prejudice to any rights which NexMed may otherwise
have against Vergemont.
(ii) Vergemont shall deliver to NexMed, as soon as practicable
and within thirty days after receipt of notice of termination or the happening
of the event which terminates this Agreement where no notice is required, a
report indicating the quantity and description of Licensed Products on hand, on
order, or in the course of manufacture as of the date of expiration or
termination. NexMed shall have the right to conduct a physical inventory of
Vergemont's premises (and those of its sublicensees) to ascertain or verify such
final report. In the event Vergemont or such sublicensee
11
<PAGE>
refuses to permit NexMed to conduct such physical inventory, NexMed shall retain
all legal and equitable rights that it may have in the premises.
(iii) All rights granted to Vergemont hereunder shall
forthwith revert to NexMed, and all rights granted by Vergemont under any
sublicense shall forthwith terminate. NexMed shall be free to license others in
connection with the manufacture, sale and distribution of the Licensed Products
licensed hereunder, and Vergemont and each sublicensee shall refrain from
further use, manufacture, sale or distribution of the Licensed Products or any
product derived from the Licensed Products. Vergemont acknowledges that its (or
its Affiliate's or sublicensee's) failure (except as otherwise provided herein)
to cease the use, manufacture, sale or distribution of the articles covered by
this Agreement or any class or category thereof at the termination of this
Agreement will result in immediate and irremediable damage to NexMed and to the
rights of any subsequent licensee. Vergemont acknowledges and admits that there
is no adequate remedy at law for such failure to cease, use, manufacture, sale
or distribution, and Vergemont agrees that in the event of such failure NexMed
shall be entitled to equitable relief by way of temporary and permanent
injunctions and such other further relief as any court with jurisdiction may
deem just and proper. Each sublicense hereunder shall contain termination
provisions substantially identical to this Article VII.
(iv) Vergemont shall forthwith deliver to NexMed (and shall
cause each sublicensee to deliver) all reports, memoranda, drawings, data, flow
sheets and other documents and all copies thereof theretofore furnished by
NexMed to Vergemont or which contain or describe any Proprietary Information and
shall take all actions necessary to assign or cause to be assigned to NexMed all
of Vergemont's rights with respect to all contracts for work, results, filings,
Applications for Approval made by it or on its behalf with and approvals granted
by any Regulatory Authority.
(b) In the event of a wrongful termination by NexMed or breach by
NexMed of a material obligation to Vergemont under this Agreement, Vergemont
shall have the right to recover damages directly and proximately caused by such
wrongful termination or breach.
(c) The confidentiality provisions of Section 5.01 shall survive any
termination of this Agreement.
VIII. INDEMNIFICATION AND INSURANCE
8.01 Indemnification. For purposes of this Section 8.01, "Indemnified
Parties" refers to NexMed, its officers, directors, employees and agents.
(a) Vergemont, as indemnitor, on behalf of itself and its officers,
directors, employees, agents and representatives (including its sublicensees and
distributors, and contractors undertaking work in the Pre-Clinical Development
Program or the Clinical Trials Program) shall indemnify and hold harmless the
NexMed Indemnified Parties and each of them from any and all liability arising
out of any suit, action, legal procedures, claim or demand of whatever kind or
character based upon (i) a claim or occurrence arising from the Clinical Trials
Program, or any aspect of the Pre-Clinical Development Program undertaken by
Vergemont, or the manufacture or sale of the Licensed Products; or (ii) any
breach of any representation, warranty or agreement made by Vergemont hereunder.
12
<PAGE>
(b) Anything to the contrary in this Article VIII notwithstanding,
Vergemont shall not be obligated to indemnify an Indemnified Party for acts of
negligence or willful misconduct or for any violation of any warranty,
representation or agreement made by such Indemnified Party, hereunder.
8.02 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 Parties in connection with any
suit, action, legal proceeding, claim or demand.
(b) Compliance by Vergemont with the insurance provision of this
Agreement shall not relieve Vergemont from liability under this indemnity
provision.
(c) Vergemont acknowledges and hereby agrees that the obligations
set forth in this Section 8.02 shall survive the termination or expiration of
this Agreement for a period of eight years.
(d) The Indemnified Parties will cooperate with Vergemont at
Vergemont's expense in the defense of any suit. Vergemont shall be liable for
any costs resulting from any settlement made without its consent.
8.03 Insurance. Vergemont hereby agrees to name NexMed as an additional
insured with respect to the Licensed Products to the same extent that it
maintains product liability insurance with respect to any product or compound it
sells in countries where product liability insurance is available, but in no
event less than one (1) million U.S. dollars per product. If such insurance is
obtained, such insurance policy shall provide that it may not be canceled or
amended by the insurer in a manner which restricts coverage applicable to this
Section 8.03 without at least 30 days written notice to NexMed. Vergemont shall
furnish NexMed a Certificate of Insurance including a specimen copy of the
additional insured endorsement within 30 days after the first marketing approval
date of any given Licensed Product in any country within the Territory.
IX. IMPROVEMENTS
If NexMed, on the one hand, or Vergemont and/or its Affiliates and
sublicensee(s), on the other hand, develop or acquire Know-How relating to the
manufacture, use or sale of the Licensed Products, or make Licensed Products
improvements or process improvements, all such additional Know-How and
improvements shall be assigned to and be the property of NexMed. Such additional
Know-How and improvements shall be promptly transferred and/or communicated to
NexMed and shall become part of the NexMed Know-How, and by the provisions
hereof shall be licensed to Vergemont for use in the Territory in connection
with the Licensed Products hereunder without further or additional royalty.
X. TRADEMARKS
The parties hereto shall mutually select the name(s) or trademarks to be
used by Vergemont in
13
<PAGE>
connection with sales of the Licensed Products in the Territory. Any such
trademarks shall be registered in the name of NexMed as the owner thereof,
NexMed shall hereby license the trademarks set forth in Appendix B hereto to
Vergemont, for so long as this Agreement is in effect, solely for use in
connection with the Licensed Products in the Territory without further or
additional royalty. NexMed shall approve in advance the quality of the Licensed
Products, and all uses of the marks in association therewith, including
packaging, advertising and marketing materials using the marks. Vergemont hereby
agrees to maintain such trademarks in force and to take any and all actions
necessary to protect NexMed's rights in these trademarks.
XI. WARRANTIES AND LIMITATIONS ON RIGHTS
11.01 Warranties. Each of the parties hereto hereby represents and
warrants to the other party that, as of the date hereof: (a) such party has all
the requisite resources, power and authority to execute, deliver and perform
this Agreement; (b) the terms of this Agreement are not inconsistent with any
other contractual and/or legal obligations such party may have, or with such
party's policies or the policies of any entity with which such party is
associated; (c) such party has not engaged and shall not engage in any act
inconsistent with this Agreement, particularly that would allow any third party,
including any government or government agency, to acquire, own or possess any
right or interest inconsistent with the other party's rights under this
Agreement; and (d) this Agreement has been duly authorized and, when executed
and delivered by such party, shall constitute a legal, binding obligation,
enforceable against such party, according to its terms.
11.02 Limitation on Warranties. NexMed has not received any notice that
Compounds A, B, C, and D, the Penetration Enhancement Ingredients, or the
Licensed Products (a) are not novel entities or (b) infringe the patent rights
of others.
11.03 Disclaimer. Vergemont and NexMed each understands that neither party
can guarantee the reliability of its research findings and conclusions, and
therefore, except as expressly set forth in this Agreement, NEITHER PARTY HAS
MADE OR MAKES ANY GUARANTEES AND EXTENDS ANY WARRANTIES OF ANY KIND, EITHER
EXPRESS OR IMPLIED, EXCEPT AS EXPRESSLY PROVIDED HEREIN. there ARE NO EXPRESS OR
IMPLIED WARRANTIES OF DESIGN, MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, OR THAT ANY LICENSED PRODUCTS IDENTIFIED WILL NOT INFRINGE ANY PATENT,
COPYRIGHT, TRADEMARK, OR OTHER INTELLECTUAL PROPERTY RIGHTS OF ANY INDEPENDENT
THIRD PARTY. FURTHER, THERE ARE NO OTHER EXPRESS OR IMPLIED WARRANTIES ARISING
FROM COURSE OF DEALING, USAGE OR TRADE PRACTICES OR OF ANY OTHER KIND.
11.04 Limitations on Rights. Nothing in this Agreement shall be construed
as:
(a) conferring rights to use in advertising, publicity, promotional
or sales literature the name of the other party without the prior written
consent of the other party in each instance; or
(b) granting, by implication, estoppel, or otherwise as a result of
either this Agreement, any activities hereunder or the relationship of the
parties, any license, title, ownership or other rights to the other party's
Confidential Information or under patents or know-how of the other
14
<PAGE>
party except as necessary to accomplish the purposes of this Agreement or except
as explicitly provided herein.
Each party acknowledges that by virtue of this Agreement it acquires only
such rights as set forth under the terms and conditions of this Agreement.
XII. MISCELLANEOUS
12.01 Notices. All notices required or permitted hereunder shall be
transmitted, or at least immediately affirmed, in writing by facsimile, followed
by confirmation of that facsimile either by registered or certified mail,
postage prepaid, return receipt requested, or by overnight courier, addressed as
follows, or to such other address as may be designated from time to time by
notice given by the respective party:
If to Vergemont: Vergemont International Limited
Suite 2401-2408
22F, CITIC Tower
One Tim Mei Avenue
Central, Hong Kong
If to NexMed: NexMed International Limited
Suite 2208, 22/F, Windsor House
311 Gloucester Road
Causeway Bay, Hong Kong
12.02 Independence of Parties. The status of each party under this
Agreement is that of an independent contractor, and neither party has the right
or authority to assume or create any obligation, accept legal process, make
commitments, incur any charges or otherwise bind or act on behalf of the other
or limit the other in any manner whatsoever, except as expressly stated herein.
Neither this Agreement nor any act hereunder shall be construed as constituting
the foundation of a partnership, association, agency, joint venture or any other
entity.
12.03 No Third-Party Beneficiaries. No person or entity not a party to
this Agreement, including any employee of any party to this Agreement, shall
have or acquire any rights by reason of this Agreement, nor shall any party have
any obligations or liabilities to such person or entity by reason of this
Agreement.
12.04 No Waiver. Failure by either party to enforce, or delay in
exercising, or partial exercise of any covenants or rights or remedies under
this Agreement shall not be deemed or construed as a waiver of such rights nor
shall a waiver by either party in one or more instances be construed as
constituting a continuing waiver or as a waiver in other or subsequent
instances.
12.05 Entire Agreement. This Agreement constitutes the complete and entire
understanding between the parties with licenses conveyed hereunder, superseding
and replacing all prior oral or written agreements, communications,
representations, proposals, or negotiations specifically relating to the
activities hereunder and subject matter hereof. No change or addition to or
15
<PAGE>
variation or amendment of this Agreement, nor any cancellation or waiver of any
of the terms or provisions hereof, nor any alteration or modification of any of
the terms and conditions hereof, shall be effective or valid and binding on
either party unless in writing and signed by a duly-authorized representative of
the party against which the provision is applied.
12.06 Arbitration. (a) Solely for the purposes of determining governing
law and jurisdiction, the parties acknowledge and agree that this Agreement
constitutes a contract pertaining to a transaction covering in the aggregate not
less than $1,000,000. This Agreement is made and delivered in New York and shall
be governed by and construed in accordance with the laws of the State of New
York applicable to agreements made and to be performed entirely within the State
of New York.
(b) In the event of any dispute under this Agreement, whether as to
the validity, construction, enforce-ability or performance of this Agreement or
any of its provisions or otherwise, both parties shall endeavor to settle such
dispute amicably between themselves. In the event that the parties fail to
agree, such dispute shall be settled by arbitration. Said arbitration shall be
conducted in the New York County, New York, in accordance with the rules then
obtaining of the American Arbitration Association with one arbitrator. The award
of the arbitrator shall be final and binding upon the parties and enforcement
thereof may be obtained in any court of competent jurisdiction. The unsuccessful
party to such arbitration shall pay to the successful party all costs and
expenses, including reasonable attorney's fees incurred therein by such
successful party.
12.07 Headings. Article and Section headings are inserted in this
Agreement for convenience of reference only and no construction, meaning,
interpretation or inference shall be derived from them.
12.08 Governmental Compliance and Effect of Invalidity. This Agreement and
performance hereunder is subject to the restrictions, limitations, terms and
conditions of all applicable governmental regulations, approvals and clearances.
If any term or provision of this Agreement is held invalid, illegal or
unenforceable in any respect, for any reason, that invalidity, illegality or
unenforceability shall not affect any other term or provision hereof, and this
Agreement shall be interpreted as if such term or provision, to the extent the
same shall have been held to be invalid, illegal or unenforceable, had never
been contained herein, with the other provisions of this Agreement remaining in
force.
12.09 Assignability. This Agreement and the rights, obligations,
privileges, and interests hereof may not be assigned by either party, except
that either party may assign this Agreement and rights and interests, in whole
or in part, (i) to any of its Affiliates or (ii) with the consent of the other
party, which consent shall not be unreasonably withheld, to any purchaser of all
or substantially all of its stock or assets of such party or to any acquirer or
successor corporation resulting from any merger or consolidation with or into
such successor corporation.
12.10 Succession. This Agreement and the rights and obligations granted
and undertaken hereunder shall be binding upon and inure to the benefit of the
parties hereto, and their permitted assign(s), successor(s), trustee(s) or
receiver(s) in bankruptcy.
12.11 Government Compliance. NexMed and Vergemont shall comply with all
16
<PAGE>
supranational, federal, state, and local laws, ordinances and regulations
applicable to the shipment, handling, storage, testing, use, development, sale
and/or disposal of any compound hereunder.
12.12 Force Majeure. If either party shall be delayed, interrupted in or
prevented from the performance of any obligation hereunder by reason of Force
Majeure including fire, flood, other natural disasters, war (declared or
undeclared), public disaster, strike or labor differences, governmental
enactment, rule or regulation, or any other cause beyond such party's control,
such party shall not be liable to the other therefor; and the time for
performance of such obligation shall be extended for a period equal to the
duration of the contingency which occasioned the delay, interruption or
prevention. The party invoking such Force Majeure rights of this paragraph must
notify the other party within a period of 15 days after the first and the last
day of the Force Majeure unless the Force Majeure renders such notification
impossible, in which case notification will be made as soon as possible. If the
delay resulting from the Force Majeure exceeds six months, the party not
invoking the Force Majeure rights may terminate the contract in accordance with
the conditions stipulated in this Agreement.
17
<PAGE>
IN WITNESS WHEREOF, authorized representatives of the parties have duly
executed this Agreement in duplicate.
NEXMED INTERNATIONAL LIMITED
By:
-----------------------
Y. Joseph Mo
Managing Director
VERGEMONT INTERNATIONAL LIMITED
By:
-----------------------
Tsu-Huang Wu
Managing Director
18
<PAGE>
APPENDIX A
Penetration Enhancement Ingredients:
Alkyl (N, N-Disubstituted Amino)- Acetate and Salts thereof.
19
<PAGE>
APPENDIX B
Trademarks Covered Under License Agreement:
BEFAR
GOLDEN RHINO
NEXMED
20
<PAGE>
APPENDIX C
The Stock Purchase Agreement of March 22, 1999.
21
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-93435) of NexMed, Inc. of our report dated March
1, 2000 relating to the financial statements, which appear in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
March 15, 2000
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<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
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<SECURITIES> 0
<RECEIVABLES> 2,000,000
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<TOTAL-ASSETS> 7,633,333
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<TOTAL-LIABILITY-AND-EQUITY> 7,633,333
<SALES> 1,491,746
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<CGS> 1,415,002
<TOTAL-COSTS> 1,415,002
<OTHER-EXPENSES> 4,135,820
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<INTEREST-EXPENSE> 315,740
<INCOME-PRETAX> (2,490,600)
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