.UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-K
(Mark
One)
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
fiscal year ended
December 31,
2009
OR
¨
|
TRANSITION
REPORT PURSUANT TO 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.
(Exact
Name of Registrant as Specified in Its Charter)
Nevada
|
87-0449967
|
(State
or Other Jurisdiction of Incorporation or
Organization)
|
(I.R.S.
Employer
Identification
No.)
|
6330 Nancy Ridge Drive,
Suite 103, San Diego, CA 92121
(Address
of Principal Executive Offices) (Zip Code)
(858)
222-8041
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Title of Each Class
|
Name of Exchange on Which
Registered
|
Common
Stock, par value $.001
|
The
NASDAQ Capital Market
|
Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes
o
No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes __ No
x
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such
files). Yes
¨
NO
x
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K.
x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of “large accelerated filer”, “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check
one): Large accelerated filer
o
Accelerated
filer
o
Non-accelerated
filer
o
(do not check if a
smaller reporting company) Smaller reporting company
x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes
¨
No
x
As of
March 26, 2010, 126,902,281 shares of the common stock, par value $.001, of the
registrant were outstanding. The aggregate market value of the common
stock held by non-affiliates, based upon the last sale price of the registrant’s
common stock on June 30, 2009, was approximately $41.5 million.
DOCUMENTS
INCORPORATED BY REFERENCE
Certain
information required to be disclosed in Part III of this report is incorporated
by reference from the registrant’s Proxy Statement for the 2010 Annual Meeting
of Stockholders, which Proxy Statement will be filed no later than 120 days
after the end of the fiscal year covered by this report.
NEXMED,
INC.
INDEX TO
ANNUAL REPORT ON FORM 10-K FILED WITH
THE
SECURITIES AND EXCHANGE COMMISSION
YEAR
ENDED DECEMBER 31, 2009
ITEMS IN FORM
10-K
PART
I.
|
|
|
|
|
|
Item
1.
|
BUSINESS.
|
3
|
|
|
|
Item
1A.
|
RISK
FACTORS
|
10
|
|
|
|
Item
1B.
|
UNRESOLVED
STAFF COMMENTS
|
17
|
|
|
|
Item
2.
|
PROPERTIES.
|
17
|
|
|
|
Item
3.
|
LEGAL
PROCEEDINGS.
|
17
|
|
|
|
Item
4.
|
RESERVED.
|
17
|
|
|
|
PART
II.
|
|
|
|
|
|
Item
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES.
|
17
|
|
|
|
Item
6.
|
SELECTED
FINANCIAL DATA.
|
|
|
|
|
Item
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
|
18
|
|
|
|
Item
7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|
|
|
|
|
Item
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
24
|
|
|
|
Item
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
|
25
|
|
|
|
Item
9A(T).
|
CONTROLS
AND PROCEDURES
|
25
|
|
|
|
Item
9B.
|
OTHER
INFORMATION
|
25
|
|
|
|
PART
III.
|
|
|
|
|
|
Item
10.
|
DIRECTORS, EXECUTIVE
OFFICERS AND CORPORATE GOVERNANCE.
|
25
|
|
|
|
Item
11.
|
EXECUTIVE
COMPENSATION.
|
25
|
|
|
|
Item
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
|
26
|
|
|
|
Item
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
|
26
|
|
|
|
Item
14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
26
|
|
|
|
PART
IV.
|
|
|
|
|
|
Item
15.
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
|
26
|
PART
I.
Some of
the statements contained in this Report discuss future expectations, contain
projections of results of operations or financial condition or state other
“forward-looking” information. Those statements include statements regarding the
intent, belief or current expectations of NexMed, Inc. (“we,” “us,” “our” or the
“Company”) and our management team. Any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and actual
results may differ materially from those projected in the forward-looking
statements. These risks and uncertainties include but are not limited to those
risks and uncertainties set forth under the heading “Factors That Could Affect
Our Future Results” in Item 1A of this Report. In light of the
significant risks and uncertainties inherent in the forward-looking statements
included in this Report, the inclusion of such statements should not be regarded
as a representation by us or any other person that our objectives and plans will
be achieved.
Corporate
History
We are a
Nevada corporation and have been in existence since 1987. We have
operated in the pharmaceutical industry since 1995, focusing on research and
development in the area of drug delivery. Our proprietary drug
delivery technology is called NexACT
®
.
In 2005
and 2007 we entered into licensing agreements with Novartis International
Pharmaceutical Ltd. (“Novartis”) and Warner Chilcott Company, Inc. (“Warner”),
respectively, pursuant to which we granted to Novartis and Warner rights to
develop and commercialize products we developed using the NexACT
®
technology. Please see the NexACT
®
Drug
Delivery Technology section below for a detailed discussion about NM100060, our
proprietary topical nail solution for the treatment of onychomycosis (nail
fungal infection), which we licensed to Novartis in 2005 and Vitaros
®,
,
a
topical alprostadil-based cream treatment intended for patients with erectile
dysfunction, which we licensed to Warner in 2007. Also see Note 4 of
the Notes to the Consolidated Financial Statements for a description
of the licensing agreements and their current status.
On
December 14, 2009, we acquired Bio-Quant, Inc. (“Bio-Quant”), the largest
specialty biotechnology contract research organization (CRO) based in San Diego,
California and one of the industry's most experienced CROs for non-GLP (good
laboratory practices)
in
vitro
and
in
vivo
contract drug discovery and pre-clinical development services,
specializing in oncology, inflammation, immunology, and metabolic diseases.
Bio-Quant has over 300 clients world-wide and performs hundreds of studies a
year both in
in vitro
and
in vivo
pharmacology, pharmacokinetics (PK) and toxicology to support
pre-investigational new drug (“IND”) enabling packages.
Bio-Quant’s
revenue to date has been derived from pre-clinical contract services, sales of
diagnostic kits and housing services. To date, approximately 80% of
Bio-Quant’s revenue has been generated from pre-clinical contract
services. The CRO industry in general continues to be dependent on
the research and development efforts of pharmaceutical and biotechnology
companies as major customers, and we believe this dependence will
continue. The current uncertain economic conditions have caused
customers to re-evaluate priorities resulting in increases in contracts for the
more promising projects, while scaling back and/or canceling other
projects.
As a
result of our acquisition of Bio-Quant, we now have two operating segments:
designing and developing pharmaceutical products (“The NexACT
®
drug
delivery technology business”) and providing pre-clinical CRO services (“The
Bio-Quant CRO business”). The sales of diagnostic kits by Bio-Quant
does not constitute a reporting segment as the assets and revenues are not
material in relation to our operations as a whole.
Growth
Strategy
We are
currently focusing our efforts on new and patented pharmaceutical products based
on our patented drug delivery technology known as NexACT
®
and on
growing the newly acquired CRO business through both organic growth within
Bio-Quant’s current business operations and through the acquisition of
small cash flow positive entities who have complimentary capabilities to those
of Bio-Quant but are not operating at full capacity due to insufficient business
development efforts. We believe this strategy will allow Bio-Quant to
expand its operations by broadening its service capabilities and going into new
markets.
We intend
to continue our efforts developing topical treatments based on the application
of NexACT
®
technology to drugs: (1) previously approved by the U.S. Food and Drug
Administration (“FDA”), (2) with proven efficacy and safety profiles, (3) with
patents expiring in the near term or expired and (4) with proven market track
records and potential. Further, with the pre-clinical and formulation
expertise derived from the acquisition of Bio-Quant, we have begun to develop
new formulations based on the application of NexACT
®
technology to drug compounds in the areas of oncology, inflammation, immunology,
and metabolic diseases. We will also intend to actively promote the
NexACT technology to Bio-Quant clients as well as other companies seeking
innovative alternatives and solutions to their development
problems.
Our
broader goal is to generate revenues from the growth of our CRO business while
aggressively seeking to monetize the NexACT
®
technology through out-licensing agreements with pharmaceutical and
biotechnology companies worldwide. At the same time we are actively
pursuing partnering opportunities for our clinical stage NexACT
®
based
treatments in the areas of dermatology and sexual dysfunction as discussed
below.
The
successful licensing or sale of one or more of these products would generate
additional revenues for funding our growth strategy.
NexACT
Drug Delivery Technology
The
NexACT
®
drug
delivery technology is designed to enhance the delivery of an active drug to the
patient. Successful application of the NexACT
®
technology would improve therapeutic outcomes and reduce systemic side effects
that often accompany existing oral and injectable medications. We have applied
the NexACT
®
technology to a variety of compatible drug compounds and delivery systems, and,
on our own or through development partnerships, are in various stages of
developing new topical treatments for male and female sexual dysfunction, nail
fungus, psoriasis, and other dermatological conditions.
Through
the acquisition of Bio-Quant we have expanded our research and development
capabilities with NexACT
®
into the
areas of oncology, inflammation, immunology, and metabolic
diseases. As a result, we are conducting additional studies to extend
the validation of the NexACT technology into the oral or subcutaneous delivery
of classes of drugs for these indications.
On
January 12, 2010, we announced results from a pre-clinical study which supported
the ability of the NexACT technology to deliver an oral formulation of Taxol®
(paclitaxel) and to enhance the drug’s bioavailability by approximately ten-fold
through this oral administration. Taxol, a first line chemotherapy drug used to
treat breast, lung and ovarian cancers, is currently administered through an
intravenous infusion that can take up to 24 hours to complete.
On March
17, 2010, we announced results from a pre-clinical study which successfully
demonstrated the ability of the NexACT technology to deliver insulin and other
large molecule drugs such as Taxol subcutaneously, in a depot-like fashion (or
slow release) over a 24 hour period from a single injection. Specifically,
rodents that received insulin injections incorporating the NexACT technology
showed bio-equivalency to Lantus
®
in
controlling glucose levels in the blood. Further studies in rodents
showed that NexACT was able to deliver Taxol
®
subcutaneously in levels similar to those previously observed in NexACT-based
oral Taxol formulation without any apparent toxicity. Lantus
®
,a
product of Sanofi Aventis, is a commonly prescribed insulin injection for
treating diabetes.
In March
2010, we acquired PrevOnco™, a marketed anti-ulcer compound, lansoprazole, for
the treatment of solid tumors. The current data we already have with
human hepatocellular carcinoma (HCC)
in vivo
in mice are very
promising. PrevOnco™ has already received Orphan Drug Designation by
the US FDA for HCC. We are in the process of designing the
initial Phase 2 clinical trial with HCC. On March 25, 2010, we
filed the IND for PrevOnco™ Phase 2 trials for HCC
.
We
intend to run the Phase 2 proof of concept of PrevOnco™ in HCC. Following
positive data from the clinical trials we intend to formulate PrevOnco™ with
NexAct for sub-cutaneous delivery.
NM100060
Anti-Fungal Treatment
We had an
exclusive global licensing agreement with Novartis International Pharmaceutical
Ltd. (“Novartis”) for NM100060, our proprietary topical nail solution for the
treatment of onychomycosis (nail fungal infection). Under the agreement,
Novartis acquired the exclusive worldwide rights to NM100060 and had assumed all
further development, regulatory, manufacturing and commercialization
responsibilities as well as costs. Novartis agreed to pay us up to $51 million
in upfront and milestone payments on the achievement of specific development and
regulatory milestones, including an initial cash payment of $4 million at
signing. In addition, we were eligible to receive royalties based
upon the level of sales achieved.
The
completion of patient enrollment in the Phase 3 clinical trials for NM100060
triggered a $3 million milestone payment from Novartis to be paid 7 months after
the last patient enrolled in the Phase 3 studies. However, the
agreement also provided that clinical milestones paid to us by Novartis would be
reduced by 50% until we received an approved patent claim on the
NM100060. As such, we initially received only $1.5 million from
Novartis.
On
October 17, 2008, the U.S. Patent and Trademark Office issued the Notice of
Allowance on our patent application for NM100060. This triggered a $2
million milestone payment from Novartis. On October 30, 2008 we
received a payment of $3.5 million from Novartis consisting of the balance of
$1.5 million of the patient enrollment milestone and the $2 million patent
milestone.
In July
2008, Novartis completed the Phase 3 clinical trials for
NM100060. The Phase 3 program required for the filing of the New Drug
Application (“NDA”) in the U.S. for NM100060 consisted of two pivotal,
randomized, double-blind, placebo-controlled studies. The parallel
studies were designed to assess the efficacy, safety and tolerability of
NM100060 in patients with mild to moderate toenail
onychomycosis. Approximately 1,000 patients completed testing in the
two studies, which took place in the U.S., Europe, Canada and
Iceland. On August 26, 2008, we announced that based on First
Interpretable Results of these two Phase 3 studies, Novartis had decided not to
submit the NDA at that time.
In July
2009, Novartis completed final analysis of the comparator study which they had
initiated in March 2007 in ten European countries. The study results
were insufficient to support marketing approval in Europe. As such,
on July 8, 2009, we announced the mutual decision reached with Novartis to
terminate the licensing agreement. In accordance with the terms of
the termination agreement, Novartis has provided us with all of the requested
reports to date for the three Phase 3 studies that they conducted for NM100060
and is assisting and supporting us in connection with the assignment, transfer
and delivery to us of all know-how and data relating to the
product.
In
consideration of such assistance and support, we will pay to Novartis 15% of any
upfront and/or milestone payments that we receive from any future third party
licensee of NM100060, as well as a royalty fee ranging from 2.8% to 6.5% of
annual net sales of products developed from NM100060 (collectively, “Products”),
with such royalty fee varying based on volume of such annual net
sales. In the event that the Company, or a substantial part of our
assets, is sold, we will pay to Novartis 15% of any upfront and/or milestone
payments received by us or our successor relating to the Products, as well as a
royalty fee ranging from 3% to 6.5% of annual net sales of any Products, with
such royalty fee varying based on volume of such annual net sales. If
the acquirer makes no upfront or milestone payments, the royalty fees payable to
Novartis will range from 4% to 6.5% of annual net sales of any
Products.
We have completed our analysis of the
two pivotal Phase 3 studies completed by Novartis. Based on this
analysis, we believe the product’s potential for treating patients with mild
onychomycosis and warrants further studies for regulatory
approval. We are sharing the clinical database and our conclusion
with potential partners interested in licensing NM100060 for further development
or for Over The Counter (OTC) direct approval due to its safety
profile.
Vitaros
®
We also
have under development a topical alprostadil-based cream treatment intended for
patients with erectile dysfunction (“Vitaros
®
”), which
was previously known as Alprox-TD
®
. Our
NDA was filed and accepted for review by the FDA in September and November 2007,
respectively. During a teleconference with the FDA in early July
2008, our use of the name Vitaros
®
for the
ED Product was verbally approved by the FDA.
On
November 1, 2007, we licensed the U.S. rights of Vitaros
®
to
Warner Chilcott Company, Inc. (“Warner”). Warner paid us $500,000
upon signing and agreed to pay us up to $12.5 million on the achievement of
specific regulatory milestones and to undertake the manufacturing investment and
any other investment for further product development that may be required for
product approval. Additionally, Warner was responsible for the
commercialization and manufacturing of Vitaros
®
.
On July
21, 2008, we received a not approvable action letter (the “Action Letter”) from
the FDA in response to our NDA. The major regulatory issues raised by
the FDA were related to the results of the transgenic (“TgAC”) mouse
carcinogenicity study which NexMed completed in 2002. The TgAC
concern raised by the FDA is product specific, and does not affect the
dermatological products in our pipeline, specifically NM100060.
On
October 15, 2008, we met with the FDA to discuss the major deficiencies cited in
the Action Letter and to reach consensus on the necessary actions for addressing
these deficiencies for our Vitaros
®
NDA. Several key regulatory concerns were addressed and
agreements were reached at the meeting. The FDA agreed to: (a) a review by the
Carcinogenicity Advisory Committee (“CAC”) of the 2 two-year carcinogenicity
studies which were recently completed; (b) one Phase 1 study in healthy
volunteers to assess any transfer to the partner of the NexACT
®
technology and (c) one animal study to assess the transmission of sexually
transmitted diseases with the design of the study to be
determined. The FDA also confirmed the revision on the status of our
manufacturing facility from “withhold” to “acceptable”, based on our having
adequately addressed the deficiencies cited in their Pre-Approval Inspection
(“PAI”) of our facility in January 2008. It is also our understanding
that at this time the FDA does not require a one-year open-label safety study
for regulatory approval. After the meeting we estimated that an
additional $4 to $5 million would be needed to be spent to complete the above
mentioned requirements prior to the resubmission of the NDA.
On
February 3, 2009, we announced the sale of the U.S. rights for Vitaros
®
and the
specific U.S. patents covering Vitaros
®
to
Warner which terminated the previous licensing agreement. Under the
terms of the agreement, we received gross proceeds of $2.5 million as an
up-front payment and are eligible to receive an additional payment of $2.5
million upon Warner’s receipt of an NDA approval from the FDA. In
addition, Warner has paid us a total of $350,000 for the manufacturing equipment
for Vitaros
®
.
The purchase agreement with Warner gives us the right to reference their work on
Vitaros
®
in our
future filings outside the U.S., which may benefit us in international
partnering opportunities because the additional data may further validate the
safety of the product and enhance its potential value. While Warner is not
obligated by the purchase agreement to continue with the development of
Vitaros
®
and the
filing of the NDA, as of the date of this report, Warner submitted the CAC
assessment package to the FDA during the 4
th
quarter
of 2009. Based on previous discussion with the FDA, we had expected them
to make their decision during the first quarter of 2010. However, as
of the date of this report, we have nothing new to report.
In
Canada, we filed the New Drug Submission (“NDS”) for Vitaros in February 2008
and received a Notice of Non-Compliance (“Notice”) on January 19, 2010.
The Notice was an end-of-review communication from Health Canada when additional
information was needed to reach final decision on product approval. The
deficiencies cited in the Notice were related specifically to the product’s CMC
(Chemistry, Manufacturing and Controls), and no pre-clinical or clinical
deficiencies cited in the Notice. In February 2010, we met with Health
Canada to discuss their concerns and were able to reach agreement with them on
the necessary action steps which would be completed and included in our response
to the Notice due on or before April 14, 2010. Assuming that we
successfully submit our response before the 90 day deadline, our NDS would then
undergo a 45 day screening process by Heath Canada’s Regulatory Project
Management group to determine the adequacy of our response and if deemed
adequate, our response to the Notice would then go through a 150 day review
cycle by the NDS reviewers.
For
Europe, we are currently pursuing a decentralized filing strategy and our first
Marketing Authorization Application (“MAA”) is planned for the United
Kingdom. The Medicines and Healthcare Products Regulatory Agency (the
“MHRA”) has confirmed that due to the backlog of MAA filings, they would not be
able to receive and start reviewing our MAA until October 2010. Our
intention is to pursue filing of the MAA with a local European partner.
With that goal in mind, we are actively pursuing licensing partners and have
engaged a business development consultant to assist us in that endeavour.
There is no assurance that we will be able to find a partner, file our MAA on a
timely basis or obtain regulatory approval.
Femprox
®
and
Other Products
Our
product pipeline also includes Femprox
®
, which
is an alprostadil-based cream product intended for the treatment of female
sexual arousal disorder. We have completed nine clinical studies to date,
including one 98-patient Phase 2 study in the U.S. for Femprox
®
, and
also a 400-patient study for Femprox
®
in
China, where the cost for conducting clinical studies was significantly lower
than in the U.S. We do not intend to conduct additional studies for
this product until we have secured a co-development partner, which we are
actively seeking.
We have
also continued early stage development work for our product pipeline with the
goal of focusing our attention on product opportunities that would replicate the
model of our previously licensed anti-fungal nail treatment. We have
in our pipeline a viable topical treatment for psoriasis, a common
dermatological condition
.
Since the acquisition on December 14, 2009, our Bio-Quant team has been
reviewing and studying the pre-clinical stage topical products in our pipeline
to determine if additional value can be created through further testing
in-house. These products include the above-mentioned treatment for psoriasis,
cancer inflammation and also treatments for pain and wound
healing.
.
Bio-Quant
CRO Business
Bio-Quant
has over 300 clients world-wide and performs hundreds of studies a year both in
in vitro
and
in vivo
pharmacology,
pharmacokinetics (PK) and toxicology to support pre-IND enabling packages.
Bio-Quant performs studies for its clients in the early stages of drug
development and discovery. To provide the needed flexibility, this
discovery work is best performed by Bio-Quant’s highly experienced and trained
scientists who know how to recognize and address the unusual and unexpected
outcomes that are the norm during discovery. Because the path to success at the
discovery stage is through the process of failing fast and failing often, the
optimal discovery research methodology focuses on the fastest and most
cost-effective methods for getting correct scientific answers to direct further
research.
To date,
approximately 80% of Bio-Quant’s revenue has been generated from pre-clinical
contract services. The CRO industry in general continues to be
dependent on the research and development efforts of pharmaceutical and
biotechnology companies as major customers, and we believe this dependence will
continue. The current uncertain economic conditions have caused
customers to re-evaluate priorities resulting in increases in contracts for the
more promising projects, scaling back and/or canceling other GLP projects
towards clinical trials. The biopharmaceutical industry is reducing
costs and, often, their workforce. Bio-Quant may benefit from
increased outsourcing on the part of its customers, or it may be harmed by a
reduction in spending if the biopharmaceutical industry scales back on
pre-clinical projects. Bio-Quant views the current conditions as an
opportunity to attract well qualified candidates to strengthen and improve its
operations. Another trend in the industry is the decline in
prescription drug sales caused by cost conscious patients opting for less
expensive generic drugs or none at all. This presents both an
opportunity and a challenge to Bio-Quant, as its customers will need to find
less costly, or more efficient research options often through the establishment
of strategic alliances or partnerships. Bio-Quant believes it is well
positioned for this development.
With
access to our NexACT technology, we intend to differentiate the Bio-Quant
business from its competitors because it now can offer a proprietary drug
delivery technology as a service to current and potential clients who need
innovative alternatives and solutions to their development
problems.
Bio-Quant
has two labs and housing facilities along with an experienced scientific staff
of 19 employees.
There are
many different types of clients that need these types of studies performed
during these early stages of drug discovery and
development. Bio-Quant’s clients range from larger global
pharmaceutical companies to midsize and small biotechnology
companies.
Patents
We hold
ten U.S. patents out of a series of patent applications that we have filed in
connection with our NexACT
®
technology and our NexACT
®
-based
products under development. To further strengthen our global patent position on
our proprietary products under development, and to expand the patent protection
to other markets, we have filed under the Patent Cooperation Treaty
corresponding international applications for our issued U.S. patents and pending
U.S. patent applications.
The following table identifies the ten
U.S. patents issued for NexACT
®
technology and/or our NexACT
®
-based
products under development as of March 31, 2010, and the year of expiration for
each patent:
Patent Name
|
|
Expiration Date
|
|
|
|
Compositions
and Methods for Amelioration of Human Female Sexual
Dysfunction
|
|
2017
|
Topical
Compositions for PGE1 Delivery
|
|
2017
|
Topical
Compositions for Non-Steroidal Anti-Inflammatory Drug
Delivery
|
|
2017
|
Medicament
Dispenser
|
|
2019
|
Crystalline
Salts of dodecyl 2-(N, N-Dimethylamino)-propionate
*
|
|
2019
|
Topical
Compositions Containing Prostaglandin E
1
|
|
2019
|
CIP:
Topical Compositions Containing Prostaglandin E
1
|
|
2019
|
Topical
Stabilized Prostaglandin E Compound Dosage Forms
|
|
2023
|
Antifungal
Nail Coat Method of Use
|
|
2026
|
Stabilized
Prostaglandin E Composition
|
|
2026
|
*
Composition of matter patent
on our NexACT
®
technology
While we have obtained patents and have
several patent applications pending, the extent of effective patent protection
in the U.S. 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 be invalidated or
circumvented.
While we
believe that our patents would prevail in any potential litigation, the holders
of competing patents could determine to commence a lawsuit against us and may
even prevail in any such lawsuit. Litigation could result in
substantial cost to and diversion of effort by us, which may harm our business.
In addition, our efforts to protect or defend our proprietary rights may not be
successful or, even if successful, may result in substantial cost to
us. Additionally, in February 2009, we sold two patents to Warner and
are obligated to indemnify Warner against challenges those patents which could
result in additional costs to us.
Segment
and Geographic Area Information
You can
find information about our business segments of business in Note 17 of the Notes
to Consolidated Financial Statements in Item 8.
Employees
As of
March 23, 2010, we had 34 full time employees, 5 of whom are executive
management and 20 of whom are engaged in research and development
activities. We also rely on a number of
consultants. None of our employees are represented by a collective
bargaining agreement. We believe that we have a good relationship
with our employees.
Executive
Officers of the Registrant
The
Executive Officers of the Company are set forth below.
Name
|
|
Age
*
|
|
Title
|
|
|
|
|
|
Dr.
Bassam Damaj
|
|
41
|
|
Director,
President and Chief Executive Officer
|
|
|
|
|
|
Vivian
H. Liu
|
|
48
|
|
Director,
Chairman and Executive Vice President
|
|
|
|
|
|
Mark
Westgate
|
|
40
|
|
Vice
President, Chief Financial Officer and Treasurer
|
|
|
|
|
|
Dr.
Henry Esber
|
|
71
|
|
Director,
Executive Vice President
|
|
|
|
|
|
Edward
Cox
|
|
29
|
|
Vice
President, Investor Relations and Corporate Development and
Secretary
|
*As of
March 1, 2010
Effective
December 14, 2009, as contemplated under the terms of the merger agreement
entered into in connection with our acquisition of Bio-Quant, Dr. Damaj was
appointed to serve as the Company’s new President and Chief Executive Officer
and Vivian H. Liu, the Company’s existing Chief Executive Officer, was appointed
to serve as the Company’s Executive Vice President and Chairman of the Board of
Directors..
Bassam B. Damaj
has been a
director since December 2009, when he was appointed to the Board pursuant to the
terms of the merger agreement that we entered into in connection with our
acquisition of Bio-Quant, Inc. He is a co-founder of Bio-Quant, Inc.
and has served as the Chief Executive Officer and Chief Scientific Officer and a
director of Bio-Quant since its inception in June 2000. He has also
served as the Group Leader for the Office of New Target Intelligence and a Group
Leader for immunological and inflammatory disease programs at Tanabe Research
Laboratories, U.S.A., Inc., as a senior scientist and member of the senior staff
board of the drug discovery department at Pharmacopeia Inc., and as a visiting
scientist at Genentech Inc., Pfizer Inc. and the National Institutes of Health
(NIH). Dr. Damaj holds a Ph.D. degree in Immunology/Microbiology from
Laval University and completed a postdoctoral fellowship in molecular oncology
from McGill University.
Vivian H. Liu
is, and has
been, our Executive Vice President and Chairman of the Board from December
2009. She has served as a director from June 2007, and was our
President and Chief Executive Officer from June 2007 to December 2009, and our
Secretary from 1995 to December 2009. Ms. Liu also served as our Vice
President of Corporate Affairs from September 1995 until December 2005, Acting
Chief Executive Officer from December 2005 until January 2006, Executive Vice
President and Chief Operating Officer from January 2006 to June 2007, Chief
Financial Officer from January 2004 until December 2005, Acting Chief Financial
Officer from 1999 to January 2004 and Treasurer from September 1995 through
December 2005. In 1994, while we were in a transition period, Ms. Liu
served as Chief Executive Officer. From 1985 to 1994, Ms. Liu 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 B.A. from the University of
California, Berkeley.
Mark Westgate
has been our
Vice President, Chief Financial Officer and Treasurer since December
2005. From March 2002 to December 2005, Mr. Westgate served as our
Controller. He has over seventeen years of public accounting and
financial management experience. From August 1998 to March 2002, Mr.
Westgate served as Controller and Director of Finance for Lavipharm Laboratories
Inc., a company specializing in drug delivery and particle
design. Prior to joining Lavipharm, he was a supervisor at Richard A.
Eisner & Company, LLP where he performed audits and provided tax advice for
clients in various industries including biotech. Mr. Westgate is a
Certified Public Accountant and a member of the New York State Society of
Certified Public Accountants. He holds a B.B.A. in public accounting
from Pace University.
Henry J. Esber
has been a
director since December 2009, when he was appointed to the Board pursuant to the
terms of the merger agreement that we entered into in connection with our
acquisition of Bio-Quant, Inc. He has served as the Senior Vice
President and Chief Business Development Officer and a director of Bio-Quant,
Inc. since January 2006. From September 2000 to December 2005, Dr.
Esber served as the executive director of business development at Charles River
Laboratories, Inc., a global provider of research models and preclinical,
clinical, and support services. Prior to that, Dr. Esber was an
executive director at Primedica Corporation and Genzyme Transgenics Corporation,
vice president at Bio-Development Laboratories, vice president at TSI
Corporation, director at EG&G Mason Research Labs and the director of the
Department of Immunology and Clinical Services at Mason Research
Laboratories. Dr. Esber has also served as an affiliate professor at
Anna Maria College Graduate School and the University of
Connecticut. Dr. Esber holds a B.S. degree in Pre-Medicine from
Norfolk College of William and Mary (now Old Dominion), a Master of Science
degree in Public Health in Parasitology and Public Health from the University of
North Carolina, Chapel Hill and a Ph.D. degree in Immunology/Microbiology from
West Virginia University Medical Center, Morgantown.
Edward Cox
has been our Vice
President, Investor Relations and Corporate Development since December
2009. Mr. Cox has been the President and a director of Bio-Quant,
Inc. since January 2007. Prior to that, from June 2006 to November
2006, Mr. Cox served as a director of TomCo Energy PLC, a private oil mining
company, which has since become listed on the London AIM market. He
has also acted as a Business Strategist and Consultant for several other
companies, including Tequesta Marine Biosciences. Mr. Cox holds a
Masters of Science degree in Business from the University of
Florida.
WHERE
YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special
reports, proxy statements and other information with the Securities and Exchange
Commission, and we have an Internet website address at
http://www.nexmed.com
.
We make available free of charge on our Internet website address our annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, and amendments to those reports filed or furnished pursuant to Sections
13(a) or 15(d) of the Exchange Act as well as our proxy statements as soon as
reasonably practicable after we electronically file such material with, or
furnish it to, the SEC. You may also read and copy any document we
file at the Securities and Exchange Commission's public reference room located
at 100 F Street, N.E., Washington, D.C. 20549. Please call the Securities and
Exchange Commission at 1-800-732-0330 for further information on the operation
of such public reference room. You also can request copies of such documents,
upon payment of a duplicating fee, by writing to the Securities and Exchange
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 or obtain copies of
such documents from the Securities and Exchange Commission's website at
http://www.sec.gov
.
FACTORS
THAT COULD AFFECT OUR FUTURE RESULTS
RISKS RELATED TO THE
COMPANY
We
continue to require external financing to fund our operations, which may not be
available.
We expect
our current cash reserves to provide us with sufficient cash to fund our
operations into the second half of 2011. While our newly acquired
subsidiary, Bio-Quant, is projected to be cash flow positive in 2010,
we do not believe that Bio-Quant will generate sufficient cash to fund the
development of our current products under development and the annual costs to
remain a public company, including legal, audit and listing fees. We
intend to seek development partners to advance our products under development
because we will also need significant funding to pursue our overall product
development plans. In general, products we plan to develop will require
significant time-consuming and costly research and development, clinical
testing, regulatory approval and significant investment prior to their
commercialization. Even if we are successful in obtaining partners who can
assume the funding for further development of our products, we may still
encounter additional obstacles such as research and development activities may
not be successful, our products may not prove to be safe and effective, clinical
development work may not be completed in a timely manner or at all, and the
anticipated products may not be commercially viable or successfully
marketed. During 2010 we intend to focus on generating more positive
cash flow by expanding the CRO business through organic growth within
Bio-Quant’s current business operations and through acquiring small cash flow
positive entities who have complimentary capabilities to those of Bio-Quant but
are not operating at full capacity due to insufficient business development
efforts. There is no assurance that we can expand Bio-Quant’s current
business operations or successfully identify and acquire small cash flow
positive entities as described above. Should we not be able to find
development partners or successfully increase Bio-Quant’s positive cash flow, we
would require external financing to fund our operations.
Additionally,
we have substantial notes payable issued in connection with the acquisition of
Bio-Quant due within 12 months as discussed in Notes 3 and 9 of the Notes to the
Consolidated Financial Statements, which if not converted to common stock, would
significantly impact liquidity when due in December 2010.
Our
current cash reserves of approximately $3.25 million as of the date of this
report, should provide us with sufficient cash to fund our operations into the
second half of 2011 assuming we convert upon shareholder approval or extend the
maturity date of significant amounts due in 2010 and 2011 under notes
payable. This projection is based on the monthly operating expenses
of maintaining our public listing together with Bio-Quant’s business growing at
an assumed rate of 11% over 2009 levels with no additional acquisitions in
2010.
We
will continue to incur operating losses.
We may encounter delays, uncertainties
and complications typically encountered by businesses with future revenues tied
to products under development. We have not marketed or generated sales revenues
in the U.S. from our products under development. We are not profitable and have
incurred an accumulated deficit of $171,731,862 since our inception through
December 31, 2009. Our ability to generate revenues and to achieve profitability
and positive cash flow will depend on the successful licensing or
commercialization of our products currently under development and the ability to
grow Bio-Quant’s pre-clinical service business to a level sufficient to generate
sufficient operating income to cover the costs of our operations, including
maintaining our public listing. Our ability to become profitable will
depend, among other things, on our (1) development of our proposed products, (2)
obtaining of regulatory approvals of our proposed products on a timely basis,
(3) success in licensing, manufacturing, distributing and marketing our proposed
products and (4) increasing the profitability of Bio-Quant through acquisitions
and organic growth of its current operations.
Our
independent registered public accounting firm has doubt as to our ability to
continue as a going concern.
As a result of our losses to date,
expected losses in the future, limited capital resources and accumulated
deficit, our independent registered public accounting firm has concluded that
there is substantial doubt as to our ability to continue as a going concern, and
accordingly, our independent registered public accounting firm has modified
their report on our December 31, 2009 consolidated financial statements included
in this annual report on Form 10-K in the form of an explanatory paragraph
describing the events that have given rise to this uncertainty. These factors
may make it more difficult for us to obtain additional funding to meet our
obligations. Our continuation is dependent upon our ability to generate or
obtain sufficient cash to meet our obligations on a timely basis and ultimately
to attain profitable operations. We anticipate that we will continue to incur
significant losses at least until successful commercialization of one or more of
our products, and we may never operate profitably in the future.
If
we fail to attract and keep senior management and key scientific personnel, we
may be unable to successfully operate our business.
Our success depends in part on our
continued ability to attract, retain and motivate highly qualified management
and scientific personnel and on its ability to develop and maintain important
relationships with healthcare providers, clinicians and
scientists. We are highly dependent upon our senior management and
scientific staff, particularly Bassam Damaj, Ph.D., our Chief Executive
Officer. Although we have employment agreements with most of our
executives, these agreements are generally terminable at will at any time, and,
therefore, we may not be able to retain their services as expected. The loss of
services of one or more members of our senior management and scientific staff
could delay or prevent us from obtaining new clients and successfully operating
our business. Competition for qualified personnel in the
biotechnology and pharmaceuticals field is intense, particularly in the San
Diego, California area, where our offices are located. We may need to
hire additional personnel as we expand our commercial activities. We
may not be able to attract and retain qualified personnel on acceptable
terms.
Our ability to maintain, expand or
renew existing business with our clients and to get business from new clients,
particularly in the drug development sector, also depends on our ability to
subcontract and retain scientific staff with the skills necessary to keep pace
with continuing changes in drug development technologies.
We
will need partnering agreements and significant funding to continue with our
research and development efforts, and they may not be available.
We expect
our current cash reserves to provide us with sufficient cash to fund our
operations into the second half of 2011. We will need additional
sources of cash to fund the development and eventual marketing and sales of our
products under development. We intend to seek development partners to
advance our products under development because we will also need significant
funding to pursue our overall product development plans. In general, products we
plan to develop will require significant time-consuming and costly research and
development, clinical testing, regulatory approval and significant investment
prior to their commercialization.
Our
research and development expenses for the years ended December 31, 2009, 2008
and 2007 were $1,883,458, $5,410,513 and $5,022,671,
respectively. Through December 31, 2009, we have spent $98,786,673 on
research and development. Given our current level of cash reserves
and current revenue level of our subsidiary, Bio-Quant, we will not be able to
fully advance our products under development unless we enter into additional
partnering agreements and /or significantly grow Bio-Quant’s CRO business. If we
are successful in entering into additional partnering agreements for our
products under development, we may receive milestone payments, which will offset
some of our research and development expenses.
We
currently have no sales force or marketing organization and will need, but may
not be able, to attract marketing partners or afford qualified or experienced
marketing and sales personnel for our products under development.
In order to market our proprietary
products under development, we will need to attract additional marketing
partner(s) that 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, among other things, on our ability to establish (1)
successful arrangements with domestic and additional international distributors
and marketing partners and (2) an effective internal marketing
organization. Consummation of partnering arrangements is subject to
the negotiation of complex contractual relationships, and we may not be able to
negotiate such agreements on a timely basis, if at all, or on terms acceptable
to us.
Pre-clinical
and clinical trials are inherently unpredictable. If we or our
partners do not successfully conduct these trials, we or our partners may be
unable to market our products.
Through pre-clinical studies and
clinical trials, our products must be demonstrated to be safe and effective for
their indicated uses. Results from pre-clinical studies and early clinical
trials may not be indicative of, or allow for prediction of results in
later-stage testing. Future clinical trials may not demonstrate the
safety and effectiveness of our products or may not result in regulatory
approval to market our products. Commercial sales in the United
States of our products cannot begin until final FDA approval is
received. The failure of the FDA to approve our products for
commercial sales will have a material adverse effect on our
prospects.
Patents
and intellectual property rights are important to us but could be
challenged.
Proprietary protection for our
pharmaceutical products and products under development is of material importance
to our business in the U.S. and most other countries. We have sought and will
continue to seek proprietary protection for our products to attempt to prevent
others from commercializing equivalent products in substantially less time and
at substantially lower expense. Our success may depend on our ability to (1)
obtain effective patent protection within the U.S. and internationally 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. In addition, we have agreed to indemnify our
partners for certain liabilities with respect to the defense, protection and/or
validity of our patents and would also be required to incur costs or forego
revenue if it is necessary for our partners to acquire third party patent
licenses in order for them to exercise the licenses acquired from
us.
We currently hold ten U.S. patents out
of a series of patent applications that we have filed in connection with our
NexACT
®
technology and our NexACT
®
-based
products under development. To further strengthen our global patent position on
our proprietary products under development, and to expand the patent protection
to other markets, we have filed under the Patent Cooperation Treaty
corresponding international applications for our issued U.S. patents and pending
U.S. patent applications. We previously held two patents covering the
first generation of the NexACT
®
technology enhancer, which expired in 2008 and 2009. While we believe
there are significant disadvantages to using the permeation enhancers covered by
these expired patents, third parties may nevertheless develop competitive
products using the enhancer technology now that it is no longer patent
protected..
While we have obtained patents and have
several patent applications pending, the extent of effective patent protection
in the U.S. 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 enough to protect us against competitors with
similar technology. Any of our patents could be invalidated or
circumvented.
While we believe that our patents would
prevail in any potential litigation, the holders of competing patents could
determine to commence a lawsuit against us and even prevail in any such
lawsuit. Litigation could result in substantial cost to and diversion
of effort by us, which may harm our business. In addition, our efforts to
protect or defend our proprietary rights may not be successful or, even if
successful, may result in substantial cost to us.
Additionally,
in February 2009, we sold two patents to Warner and are obligated to indemnify
Warner against challenges to those patents, which could result in additional
costs to us.
We
and our licensees depend upon third party manufacturers for chemical
manufacturing supplies.
We and our licensees are dependent on
third party chemical manufacturers for the active drugs in our NexACT
®
-based
products under development, and for the supply of our NexACT
®
enhancers that are essential in the formulation and production of our topical
products on a timely basis and at satisfactory quality levels. If our
validated third party chemical manufacturers fail to produce quality products on
time and in sufficient quantities, our results would suffer, as we or our
licensees would encounter costs and delays in revalidating new third party
suppliers.
We
face severe competition.
We are engaged in a highly competitive
industry. We and our licensees can expect competition from numerous companies,
including large international enterprises, and others entering the market for
products similar to ours. 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.
The Bio-Quant CRO business primarily
competes against in-house departments of pharmaceutical, biotechnology and
medical device companies, academic institutions and other contract research
organizations. Competitors in Bio-Quant’s industry range from small,
limited-service providers to full service, global contract research
organizations. Many of Bio-Quant’s competitors have an established
global presence, including Quintiles Transnational Corp., Covance, Inc., Parexel
International Corporation, Pharmaceutical Product Development, Inc., Icon
Clinical Research, and Kendle International, Inc. In addition, many
of Bio-Quant’s competitors have substantially greater financial and other
resources than Bio-Quant does and offer a broader range of services in more
geographical areas than Bio-Quant does. Significant factors in
determining whether Bio-Quant will be able to compete successfully include: its
consultative capabilities; its reputation for on-time quality performance; its
expertise and experience in specific drug discovery, research and development
areas; the scope of its service offerings; its strength in various geographic
markets; the price of its services; and its size.
If Bio-Quant’s services are not
competitive based on these or other factors and Bio-Quant is unable to develop
an adequate level of new business, its business, backlog position, financial
condition and results of operations will be materially and adversely
affected. In addition, Bio-Quant may compete for fewer clients
arising out of consolidation within the pharmaceutical industry and the growing
tendency of drug companies to outsource to a smaller number of preferred
contract research organizations that have far greater resources and
capabilities.
Bio-Quant’s services may from time to
time experience periods of increased price competition that could have a
material adverse effect on its profitability and
revenues. Additionally, the CRO industry is not highly
capital-intensive, and the financial costs of entry into the industry are
relatively low. Therefore, as a general matter, the industry has few
barriers to entry. Newer, smaller entities with specialty focuses,
such as those aligned to a specific disease or therapeutic area, may compete
aggressively against Bio-Quant for clients.
We
may be subject to potential product liability and other claims, creating risks
and expense.
We are also exposed to potential
product liability risks inherent in the development, testing, manufacturing,
marketing and sale of human therapeutic products. Product liability
insurance for the pharmaceutical industry is extremely expensive, difficult to
obtain and may not be available on acceptable terms, if at all. We currently
have liability insurance to cover claims related to our products that may arise
from clinical trials, with coverage of $1 million for any one claim and coverage
of $3 million in total, but we do not maintain product liability insurance for
marketed products as our products have yet to be approved for
commercialization. We may need to acquire such insurance coverage
prior to the commercial introduction of our products. If we obtain such
coverage, we have no guarantee that the coverage limits of such insurance
policies will be adequate. A successful claim against us if we are uninsured, or
which is in excess of our insurance coverage, if any, could have a material
adverse effect upon us and on our financial condition.
INDUSTRY
RISKS
We
are vulnerable to volatile market conditions.
The market prices for securities of
biopharmaceutical and biotechnology companies, including ours, have been highly
volatile. The market has from time to time experienced significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies. In addition, future announcements, such as the results of
testing and clinical trials, the status of our relationships with third-party
collaborators, technological innovations or new therapeutic products,
governmental regulation, developments in patent or other proprietary rights,
litigation or public concern as to the safety of products developed by us or
others and general market conditions, concerning us, our competitors or other
biopharmaceutical companies, may have a significant effect on the market price
of our Common Stock.
Instability
and volatility in the financial markets and the global economic recession are
likely to have a negative impact on our ability to raise necessary funds and on
our business, financial condition, results of operations and cash
flows.
During
recent months, there has been substantial volatility and a decline
in financial markets due at least in part to the deteriorating global
economic environment. In addition, there has been substantial uncertainty in the
capital markets and access to financing is uncertain. These conditions are
likely to have an adverse effect on our industry, licensing partners, and
business, including our financial condition, results of operations and cash
flows.
To the
extent that we do not generate sufficient cash from operations, we may need to
incur indebtedness, if available, to finance plans for growth or to continue our
current operations. However, recent turmoil in the credit markets and the
potential impact on the liquidity of major financial institutions may have an
adverse effect on our ability to fund our business strategy through borrowings,
under either existing or newly created instruments in the public or private
markets on terms that we believe to be reasonable, if at all.
Changes
in trends in the pharmaceutical and biotechnology industries, including
difficult market conditions, could adversely affect our operating
results.
Industry
trends and economic and political factors that affect pharmaceutical,
biotechnology and medical device companies also affect our
business. For example, the practice of many companies in these
industries has been to hire companies like us to conduct discovery, research and
development activities. If these companies suspend these activities
or otherwise reduce their expenditures on outsourced discovery, research and
development in light of current difficult conditions in credit markets and the
economy in general, or for any other reason, our operations, financial condition
and growth rate could be materially and adversely affected. In the
past, mergers, product withdrawal and liability lawsuits, and other factors in
the pharmaceutical industry have also slowed decision-making by pharmaceutical
companies and delayed drug development projects. Continuation or
increases in these trends could have an adverse effect on our
business. In addition, numerous governments have undertaken efforts
to control growing healthcare costs through legislation, regulation and
voluntary agreements with medical care providers and pharmaceutical
companies. If future cost-containment efforts limit the profits that
can be derived on new drugs, our clients might reduce their drug discovery and
development spending, which could reduce our revenue and have a material adverse
effect on our results of operations.
The biotechnology, pharmaceutical and
medical device industries generally and drug discovery and development more
specifically are subject to increasingly rapid technological
changes. Our competitors, clients and others might develop
technologies, services or products that are more effective or commercially
attractive than our current or future technologies, services or products, or
that render our technologies, services or products less competitive or
obsolete. If competitors introduce superior technologies, services or
products and we cannot make enhancements to our technologies, services or
products to remain competitive, our competitive position, and in turn our
business, revenue and financial condition, would be materially and adversely
affected.
We
and our licensees are subject to numerous and complex government regulations
which could result in delay and expense.
Governmental authorities in the U.S.
and other countries heavily regulate the testing, manufacture, labeling,
distribution, advertising and marketing of our proposed products. None of our
proprietary products under development has been approved for marketing in the
U.S. Before any products we develop are marketed, FDA and comparable foreign
agency approval must be obtained through an extensive clinical study and
approval process.
The studies involved in the approval
process are conducted in three phases. In Phase 1 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 1 study for a period of several months. In Phase 2 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 affects the condition, and begin to
identify the correct dosage level. Up to several hundred subjects may be studied
in the Phase 2 study for approximately 6 to 12 months, depending on the type of
product tested. In Phase 3 studies, researchers further assess efficacy and
safety of the drug. Several hundred to thousands of patients may be studied
during the Phase 3 studies for a period from 12 months to several years. Upon
completion of Phase 3 studies, a New Drug Application is submitted to the FDA or
foreign governmental regulatory authority for review and approval.
The failure to obtain requisite
governmental approvals for our products under development in a timely manner or
at all would delay or preclude us and our licensees from marketing our products
or limit the commercial use of our products, which could adversely affect our
business, financial condition and results of operations.
Any failure on our part to comply with
applicable regulations could result in the termination of on-going research,
discovery and development activities or the disqualification of data for
submission to regulatory authorities. As a result of any such
failure, we could be contractually required to perform repeat services at no
further cost to our clients, but at a substantial cost to us. The
issuance of a notice from regulatory authorities based upon a finding of a
material violation by us of applicable requirements could result in contractual
liability to our clients and/or the termination of ongoing studies which could
materially and adversely affect our results of
operations. Furthermore, our reputation and prospects for future work
could be materially and adversely diminished.
Because we intend that our products
will be sold and marketed outside the U.S., we and/or our licensees 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. The failure to meet each foreign country's
requirements could delay the introduction of our proposed products in the
respective foreign country and limit our revenues from sales of our proposed
products in foreign markets.
Successful commercialization of our
products may depend on the availability of reimbursement to the consumer from
third-party healthcare payers, such as government and private insurance plans.
Even if one or more products is successfully brought to market, reimbursement to
consumers may not be available or sufficient to allow the realization of an
appropriate return on our investment in product development or to sell our
products on a competitive basis. In addition, in certain foreign markets,
pricing or profitability of prescription pharmaceuticals is subject to
governmental controls. In the U.S., federal and state agencies have proposed
similar governmental control and the U.S. 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 in the U.S. could adversely affect our business and limit our
revenues.
RISKS RELATED TO OWNING OUR
COMMON STOCK
Our
stock may be delisted from Nasdaq, which may make it more difficult for you to
sell your shares.
Currently, our Common Stock trades on
the Nasdaq Capital Market. On January 26, 2010, we received an
expected notice of non-compliance (the “Notice”) from The NASDAQ Stock Market
LLC based upon the bid price of the Company’s common stock closing at less than
$1.00 per share in violation of NASDAQ Listing Rule 5550(a)(2), which could
serve as an additional basis for the delisting of the Company’s securities from
The NASDAQ Capital Market.
We
responded to the Notice on January 27, 2010, requesting additional time to
regain compliance with the bid price listing requirement. Our January
27, 2010 response also sought an exemption, through May 24, 2010, from
compliance with another existing deficiency (failure to comply with the annual
shareholder meeting and proxy solicitation requirements) to allow the Company to
execute its plans to regain compliance.
At an
appeals hearing held in November 2009 at our request, following a series of
communications between us and NASDAQ regarding various deficiencies, including
those described above and our failure to satisfy the minimum $2.5 million in
stockholders’ equity requirement for continued listing as of August 2009, we
presented to NASDAQ our plan to regain compliance with the applicable listing
requirements. On February 1, 2010, we received the Hearing Panel’s
determination (the “Determination Letter”). The Determination
Letter confirmed that NASDAQ would continue the listing of the Company’s
securities on The NASDAQ Stock Market provided that the Company shall have (1)
solicited proxies and held its annual meeting on or before May 24, 2010 and (2)
evidenced compliance with the minimum bid price requirement and all other
requirements for The NASDAQ Stock Market on or before July 15,
2010. If the Company is not able to demonstrate compliance with all
requirements for continued listing on or before July 15, 2010, its securities
may be delisted. During this exemption period, the Company must
provide prompt notice to NASDAQ of any significant events that occur, including,
but not limited to, any event that may call into question the Company’s
historical financial information or that may impact the Company’s ability to
maintain compliance with any NASDAQ listing requirement or exemption
deadline.
If we fail to achieve the minimum bid
price requirement of the Nasdaq Capital Market by July 15, 2010 or fail to
maintain compliance with any other listing requirements during this period
(including a failure to comply with the annual shareholder meeting and proxy
solicitation requirements on or before May 24, 2010), we may be delisted and our
stock would be considered a penny stock under regulations of the Securities and
Exchange Commission and would therefore be subject to rules that impose
additional sales practice requirements on broker-dealers who sell our
securities. The additional burdens imposed upon broker-dealers by these
requirements could discourage broker-dealers from effecting transactions in our
Common Stock, which could severely limit the market liquidity of the Common
Stock and your ability to sell our securities in the secondary market. In
addition, if we fail to maintain our listing on Nasdaq or any other United
States securities exchange, quotation system, market or over-the-counter
bulletin board, we will be subject to cash penalties under investor rights
agreements to which we are a party until a listing is
obtained
.
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 declare 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 280,000,000
shares of our capital stock, consisting of 270,000,000 shares of our Common
Stock and 10,000,000 shares of our preferred stock of which 1,000,000 are
designated as Series A Junior Participating Preferred Stock, 800 are designated
as Series B 8% Cumulative Convertible Preferred Stock and 600 are designated as
Series C 6% Cumulative Convertible Preferred Stock. As of March 26, 2010,
126,902,281 shares of our Common Stock were issued and outstanding and 6,364,102
shares of our Common Stock were issuable upon the exercise or conversion of
outstanding options and warrants. As of March 26, 2010, there were no
shares of Series A, Series B or Series C Preferred Stock
outstanding. In light of our possible future need for additional
financing, we may issue authorized and unissued shares of Common Stock at below
current market prices or additional convertible securities that could dilute the
earnings per share and book value of your shares of our Common
Stock.
Additionally, we have substantial notes
payable issued in connection with the acquisition of Bio-Quant due within 12
months as discussed in Notes 3 and 9 of the Notes to the Consolidated Financial
Statements. These notes can, with approval of our shareholders, be
repaid with the issuance of Common Stock. As of the date of this
report, we would need to issue approximately 60 million shares, at a
predetermined price of $0.168 per share to repay such notes payable in
full.
In addition to provisions providing for
proportionate adjustments in the event of stock splits, stock dividends, reverse
stock splits and similar events, certain outstanding warrants and convertible
instruments provide (with certain exceptions) for an adjustment of the exercise
or conversion price if we issue shares of Common Stock at prices lower than the
then exercise or conversion price or the then prevailing market price. This
means that if we need to raise equity financing at a time when the market price
for our Common Stock is lower than the exercise or conversion price, or if we
need to provide a new equity investor with a discount from the then prevailing
market price, then the exercise price will be reduced and the dilution to
shareholders increased.
ITEM
1B.
|
UNRESOLVED
STAFF COMMENTS.
|
None.
We
currently have our corporate office, laboratories and housing facilities at 2
locations that we currently lease in San Diego, CA. In addition we
own a 31,500 square foot manufacturing facility in East Windsor,
NJ. As discussed in Note 5 of the Notes to the Consolidated Financial
Statements, we signed an agreement to lease the manufacturing facility for 10
years commencing February 1, 2010. The lease agreement also contains
an option allowing the lessee to purchase the facility during the term of the
lease.
ITEM
3.
|
LEGAL
PROCEEDINGS.
|
We are subject to certain legal
proceedings in the ordinary course of business. We do not expect any
such items to have a significant impact on our financial position.
PART
II.
ITEM
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES.
|
Our
Common Stock is traded on the NASDAQ Capital Market System (“NASDAQ”) under the
symbol “NEXM.”
On March
26, 2010, the last reported sales price for our Common Stock on NASDAQ was $0.43
per share, and we had approximately 12,300 holders of record of our Common
Stock.
The
following table sets forth the range of the high and low sales prices for our
Common Stock as reported by NASDAQ for each quarter from January 1, 2008 to
December 31, 2009.
|
|
Price
of Common Stock ($)
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
First
Quarter
|
|
|
0.28
|
|
|
|
0.08
|
|
Second
Quarter
|
|
|
0.54
|
|
|
|
0.12
|
|
Third
Quarter
|
|
|
0.46
|
|
|
|
0.15
|
|
Fourth
Quarter
|
|
|
0.51
|
|
|
|
0.12
|
|
2008
|
|
|
|
|
|
|
First
Quarter
|
|
|
1.70
|
|
|
|
1.19
|
|
Second
Quarter
|
|
|
1.37
|
|
|
|
1.04
|
|
Third
Quarter
|
|
|
1.53
|
|
|
|
0.12
|
|
Fourth
Quarter
|
|
|
0.16
|
|
|
|
0.05
|
|
Dividends
We have
never paid cash dividends on our Common Stock and do not have any plans to pay
cash dividends in the foreseeable future. Our board of directors
anticipates that any earnings that might be available to pay dividends will be
retained to finance our business.
Unregistered
sales of equity securities and use of proceeds
None.
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
|
General
In July
2008, Novartis completed testing for the Phase 3 clinical trials for NM100060 as
discussed in Note 4 of the Notes to the Consolidated Financial
Statements. On August 26, 2008, we announced that based on First
Interpretable Results of these two Phase 3 studies, Novartis had decided not to
submit the NDA.
The
decision by Novartis to not file the NDA had a negative impact on our liquidity
and financial condition. As a result, in December 2008, we began to
implement a restructuring program with the goal of reducing costs and
outsourcing basic research and development. This restructuring
program continued into 2009 as we announced the mutual decision reached with
Novartis to terminate the licensing agreement.
During
2009, under this restructuring program, we remained open to
opportunities to co-develop products utilizing our NexACT technology and we
actively pursued strategic opportunities that would leverage our NexACT platform
and generate partnership revenues to fund our development efforts.
Additionally, during 2009, we were actively trying to sell or lease our
facility in East Windsor, NJ which would further reduce our monthly operating
expenses.
In
December, 2009, we entered into an agreement to lease our facility in East
Windsor, NJ for a period of 10 years at $34,450 per month with annual 2.5%
escalations. Further, the tenant has an option to purchase the building for an
initial purchase price of $4.4 million as discussed in Note 5 of the Notes to
the Consolidated Financial Statements.
On
December 14, 2009, we acquired Bio-Quant, Inc. (“Bio-Quant”), the largest
specialty biotech contract research organization (CRO) based in San Diego,
California and one of the industry's most experienced CROs for non-GLP
in vitro
and
in vivo
contract drug
discovery and pre-clinical development services, specializing in oncology,
inflammation, immunology, and metabolic diseases. Bio-Quant has over 300 clients
world-wide and performs hundreds of studies a year both in
in vitro
and
in vivo
pharmacology,
pharmacokinetics (PK) and toxicology to support pre-IND enabling
packages. A detailed description of the terms of the acquisition are
described in Note 3 of the Notes to the Consolidated Financial
Statements.
We are
now focusing our efforts on new and patented pharmaceutical products based on
NexACT
®
and on
growing the newly acquired CRO business through both organic growth within
Bio-Quant’s current business operations and through the acquisition of
small cash flow positive entities who have complimentary capabilities to those
of Bio-Quant but are not operating at full capacity due to insufficient business
development efforts. We believe this strategy will allow Bio-Quant to
expand its operations by broadening its service capabilities and going into new
markets.
Our broader goal is to generate
revenues from the growth of Bio-Quant’s CRO business while aggressively seeking
to monetize the NexACT
®
technology through out-licensing
agreements with pharmaceutical and biotechnology companies
worldwide. At the same time, we are actively pursuing partnering
opportunities for our clinical stage NexACT
®
based treatments in the areas of
dermatology and sexual dysfunction.
The successful licensing or sale of one
or more of these products wouldl generate additional revenues for funding our
long-term growth strategy
.
Liquidity,
Capital Resources and Financial Condition.
We have
experienced net losses and negative cash flows from operations each year since
our inception. Through December 31, 2009, we had an accumulated
deficit of $171,731,862. Our operations have principally been
financed through private placements of equity securities and debt
financing. Funds raised in past periods should not be considered an
indication of our ability to raise additional funds in any future
periods.
In
January 2010, we raised gross proceeds of $2.3 million in an offering of
unsecured promissory notes (the “Notes”). The Notes accrued interest
at a rate of 10% per annum and were due and payable in full six months from the
date of issuance. The principal and accrued interest due under the Notes was
payable, at our election in either cash or shares of Common Stock (the
“Shares”). The weighted average conversion price of the Shares
issuable under the Notes was $0.37 per Share, with the conversion prices ranging
from $0.36 to $0.40 per Share.
On March
17, 2010, we repaid all outstanding principal and accrued interest under the
Notes through the issuance of an aggregate of approximately 6.2 million
shares.
In March
2010, we raised gross proceeds of $1.4 million in connection with the
re-financing of our convertible mortgage notes as discussed in Note 18 of the
Notes to the Consolidated Financial Statements.
While our
newly acquired subsidiary, Bio-Quant, is projected to be cash flow positive in
2010, we do not believe that Bio-Quant will generate sufficient cash to fund the
development of our current products under development and/or the annual costs to
remain a public company, including legal, audit and listing fees. We
intend to seek development partners to advance our products under development
because we will also need significant funding to pursue our overall product
development plans. In general, products we plan to develop will require
significant time-consuming and costly research and development, clinical
testing, regulatory approval and significant investment prior to their
commercialization. Even if we are successful in obtaining partners who can
assume the funding for further development of our products, we may still
encounter additional obstacles such as our research and development activities
may not be successful, our products may not prove to be safe and effective,
clinical development work may not be completed in a timely manner or at all, and
the anticipated products may not be commercially viable or successfully
marketed. During 2010 we intend to focus on generating more positive
cash flow by growing the CRO business through organic growth within Bio-Quant’s
current business operations and through acquiring small cash flow positive
entities who have complimentary capabilities to those of Bio-Quant but are not
operating at full capacity due to insufficient business development
efforts. We feel that this strategy will allow Bio-Quant to expand its
operations by broadening its service capabilities and going into new
markets. There is no assurance that we can grow Bio-Quant’s current
business operations or successfully identify and acquire small cash flow
positive entities as described above. Should we not be able to find
development partners or successfully increase Bio-Quant’s positive cash flow, we
would require external financing to fund our operations.
Our
current cash reserves of approximately $3.25 million as of the date of this
report, which includes the $2.3 million received from the issuance of the Notes
and the $1.4 million raised received from the convertible mortgage note
re-financing as discussed above, should provide us with sufficient cash to fund
our operations into the second half of 2011 assuming we convert or extend the
maturity of significant amounts due in 2010 and 2011 under notes
payable. This projection is based on the monthly operating expenses
of maintaining our public listing together with the Bio-Quant’s business growing
at an assumed rate of 11% over 2009 levels with no additional acquisitions in
2010.
.
As a
result of our losses to date, expected losses in the future, limited capital
resources and the maturity of more than $13 million of debt in 2010 and 2011 our
independent registered public accounting firm has concluded that there is
substantial doubt as to our ability to continue as a going concern for a
reasonable period of time, and have modified their report in the form of an
explanatory paragraph describing the events that have given rise to this
uncertainty. These factors may make it more difficult for us to obtain
additional funding to meet our obligations. Our continuation is based
on our ability to generate or obtain sufficient cash to meet our obligations on
a timely basis and ultimately to attain profitable
operations. We anticipate that we will continue to incur
significant losses at least until successful commercialization of one or more of
our products. There can be no assurance that we can operate
profitably in the future.
At
December 31, 2009 we had cash and cash equivalents and short term investments of
approximately $480,000 as compared to $2.8 million at December 31,
2008. During 2009, we received $3,000,000 from
Warner from the sale of the U.S. rights to Vitaros
®
and the
related facility license fees
as
discussed in Note 4 of the Notes to the Consolidated Financial
Statements. The receipt of this cash and the $750,000 convertible
note financing as discussed in Note 8 of the Notes to the Consolidated Financial
Statements in 2009 was offset by our cash used in operations during
2009. We spent approximately $6.1 million consisting of our average
fixed monthly overhead costs of approximately $325,000 per month in addition to
$592,000 towards a cancellation fee as discussed in Note 16 of the Notes to the
Consolidated Financial Statements. Additionally, we spent
approximately $556,000 in severance and accrued vacation paid as part of our
restructuring program implemented in December 2008, $58,000 for Nasdaq annual
listing fees, $50,000 of principal on convertible notes repaid as discussed in
Note 8 of the Notes to the Consolidated Financial Statements, $585,000 in costs
related to the acquisition of Bio-Quant, $42,000 in legal fees and $175,000 in
consulting fees related to the execution of the Warner Asset Purchase Agreement
as discussed in Note 4 of the Notes to the Consolidated Financial Statements and
$141,300 for legal fees in connection with a patent lawsuit in which we are the
plaintiff suing for patent infringement on our herpes treatment medical
device.
At
December 31, 2009 we had an other receivable of $437,794 representing the
proceeds from the sale of New Jersey state tax losses as described in Note 15 of
the Notes to the Consolidated Financial Statements. The
proceeds were not received until February 2010. In previous years the
funding of the sale of such tax credits by the State took place in the same year
as the sale and therefore was not recorded as a receivable.
At
December 31, 2009, we had $139,495 in capital lease payables as a result of
capital leases acquired through the acquisition of Bio-Quant in
2009. The terms of the lease agreements are described in Note 12 of
the Notes to the Consolidated Financial Statements.
At
December 31, 2009, we had $200,565 in deferred revenue as a result of the
licensing of our patents to Warner in connection with the Asset Purchase
Agreement, as amended, as discussed in Note 4 of the Notes to the Consolidated
Financial Statements. Additionally, we have received one month’s rent
in advance in connection with the leasing of our facility in New Jersey as
discussed in Note 5 of the Notes to the Consolidated Financial
Statements.
For the
year ended December 31, 2009 we incurred a net gain on disposal of fixed assets
(included in general and administrative expenses in our consolidated statement
of operations) of $34,450 as compared to a net loss of $904,902 in
2008. The significant loss on disposal of fixed assets in 2008
resulted from an impairment charge of approximately $884,000 to reduce the
carrying amount of our land and building to reflect the current commercial real
estate market as we have initiated efforts to sell this facility.
Off-Balance
Sheet Arrangements
We do not have any off-balance sheet
arrangements.
Critical
Accounting Estimates
Our
discussion and analysis of our financial condition and results of operations is
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. Note 2 in the Notes to the Consolidated Financial
Statements, includes a summary of the significant accounting policies and
methods used in the preparation of our Consolidated Financial
Statements. The preparation of these financial statements
requires our management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. Our accounting
policies affect our more significant judgments and estimates used in the
preparation of our financial statements. Actual results could differ
from these estimates. The following is a brief description of
the more significant accounting policies and related estimate methods that we
follow:
Income
Taxes:
In
preparing our financial statements, we make estimates of our current tax
exposure and temporary differences resulting from timing differences for
reporting items for book and tax purposes. We recognize deferred
taxes by the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred income taxes
are recognized for differences between the financial statement and tax bases of
assets and liabilities at enacted statutory tax rates in effect for the years in
which the differences are expected to reverse. The effect on deferred
taxes of a change in tax rates is recognized in income in the period that
includes the enactment date. In addition, valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.
Critical
Estimate:
In consideration of our
accumulated losses and lack of historical ability to generate taxable income to
utilize our deferred tax assets, we have estimated that we will not be able to
realize any benefit from our temporary differences and have recorded a full
valuation allowance. If we become profitable in the future at levels
which cause management to conclude that it is more likely than not that we will
realize all or a portion of the net operating loss carry-forward, we would
immediately record the estimated net realized value of the deferred tax asset at
that time and would then provide for income taxes at a rate equal to our
combined federal and state effective rates, which would be approximately 40%
under current tax laws. Subsequent revisions to the estimated net
realizable value of the deferred tax asset could cause our provision for income
taxes to vary significantly from period to period.
Long-lived
assets:
-
We
review for the impairment of long-lived assets whenever events or circumstances
indicate that the carrying amount of an asset may not be
recoverable. An impairment loss would be recognized when estimated
undiscounted future cash flows expected to result from the use of the asset and
its eventual disposition are less than its carrying amount. If such
assets are considered impaired, the amount of the impairment loss recognized is
measured as the amount by which the carrying value of the asset exceeds the fair
value of the asset, fair value being determined based upon discounted cash flows
or appraised values, depending on the nature of the asset.
Critical
Estimate
:
We
have initiated efforts to sell the facility housing our corporate office,
research and development laboratories and manufacturing plant located in East
Windsor, New Jersey. We have performed a review for impairment of our
facility based on discussions with our real estate agent regarding the likely
selling price of our facility and the commercial real estate market in
general. Accordingly, in 2008 we took a write-down of approximately
$884,000 to the carrying value of the facility to approximate the current market
value. Overestimating the potential selling price of our facility in
a planned sale may lead to overstating the carrying value of the manufacturing
facility by not identifying an impairment loss.
Revenue
recognition:
Revenues from
Bio-Quant’s performance of pre-clinical services are recognized according to the
proportional performance method whereby revenue is recognized as performance has
occurred, based on the relative outputs of the performance that has occurred up
to that point in time under the respective agreement, typically the delivery of
report data to our clients which documents the results of our pre-clinical
testing services.
Revenues from product
sales are recognized upon delivery of products to customers, less allowances for
returns and discounts. Royalty revenue is recognized upon the
sale of the related products as reported to us by our distribution partner,
provided the royalty amounts are fixed or determinable and the amounts are
considered collectible. Revenues earned under license and research
and development contracts are recognized in accordance with the cost-to-cost
method outlined in Staff Accounting Bulletin No. 101, as amended, whereby the
extent of progress toward completion is measured on the cost-to-cost basis;
however, revenue recognized at any point will not exceed the cash
received. If the current estimates of total contract revenue and
contract cost indicate a loss, a provision for the entire loss on the contract
would be made. All costs related to these agreements are expensed as
incurred and classified within “Research and development” expenses in the
Consolidated Statements of Operations and Comprehensive Loss. Research and
development expenses include costs directly attributable to the conduct of our
research and development, including salaries, payroll taxes, employee benefits,
materials, supplies, depreciation on and maintenance of research equipment,
costs related to research and development fee agreements, the cost of services
provided by outside contractors, including services related to our clinical
trials, clinical trial expenses, the full cost of manufacturing drugs for use in
research, pre-clinical and clinical development, and the allocable portion of
facility costs.
Also,
licensing agreements typically include several elements of revenue, such as
up-front payments, milestones, royalties upon sales of product, and the delivery
of product and/or research services to the licensor. We follow the accounting
guidance of SEC Staff Accounting Bulletin No. 104 (which superseded SEC
Staff Accounting Bulletin No. 101), and ASC 605 (which became
effective for contracts entered into after June 2003). Non-refundable license
fees received upon execution of license agreements where we have continuing
involvement are deferred and recognized as revenue over the estimated
performance period of the agreement. This requires management to estimate the
expected term of the agreement or, if applicable, the estimated life of its
licensed patents.
In
addition, ASC 605 requires a company to evaluate its arrangements under which it
will perform multiple revenue-generating activities. For example, a license
agreement with a pharmaceutical company may involve a license, research and
development activities and/or contract manufacturing. Management is required to
determine if the separate components of the agreement have value on a standalone
basis and qualify as separate units of accounting, whereby consideration is
allocated based upon their relative “fair values” or, if not, the consideration
should be allocated based upon the “residual method.” Accordingly, up-front and
development stage milestone payments are and will be deferred and recognized as
revenue over the performance period of such license agreement.
Critical
Estimate
:
In
calculating the relative outputs of the performance that have occurred under the
proportional performance method for our pre-clinical testing services, we must
determine whether we have delivered sufficient value to recognize a portion of
the contract services revenue and to estimate what percentage of the total costs
has been incurred at any given point in time.
In calculating the
progress made toward completion of a research contract or licensing agreement,
we must compare costs incurred to date to the total estimated cost of the
project and/or estimate the performance period. We estimate the cost
and/or performance period of any given project based on our past experience in
product development as well as the past experience of our research staff in
their areas of expertise. Underestimating the proportion of final
data generated for pre-clinical testing services or the total cost and/or
performance period of a research contract or licensing agreement may cause us to
accelerate the revenue recognized under such contract. Conversely,
overestimating the proportion of final data for pre-clinical testing services or
the cost of a research contract may cause us to delay revenue
recognized.
Stock
based compensation:
In preparing our financial statements, we
must calculate the value of stock options issued to employees, non-employee
contractors and warrants issued to investors. The fair value of each
option and warrant is estimated on the date of grant using the Black-Scholes
option-pricing model. The Black-Scholes option-pricing model is a
generally accepted method of estimating the value of stock options and
warrants.
Critical
Estimate
:
The
Black-Scholes option pricing model requires us to estimate the Company’s
dividend yield rate, expected volatility and risk free interest rate over the
life of the option. Inaccurately estimating any one of these factors
may cause the value of the option to be under or over estimated. See
Note 2 of the Consolidated Financial Statements for the current estimates used
in the Black-Scholes pricing model. We adopted the provisions of SFAS
123R commencing January 1, 2006.
Comparison
of Results of Operations between the Years Ended December 31, 2009 and
2008
The revenues and expenses of Bio-Quant
included in the consolidated financial statements represent 17 days of activity
in 2009; from the date of the closing of the acquisition through December 31,
2009. As such, the activity is not significant to review in the
comparison of the results of operations below. Please see Note 3 of
the Notes to the consolidated financial statements to see a pro-forma
presentation as if the acquisition had taken place in 2008.
Revenues
. We recorded
revenues of $2,973,708 during 2009 as compared to $5,957,491 during
2008. The higher 2008 revenue is primarily
attributable to the milestone payments received in 2008 from Novartis under the
licensing agreement for NM100060. As discussed in Note 4 to the Consolidated
Financial Statements, we received $1.5 million from Novartis in March 2008 and
another $3.5 million in October 2008. These milestones were
recognized as revenue during 2008. We recognized no revenue
from Novartis in 2009. We expect revenues to increase significantly
in 2010 with the additional revenue to be generated by the Bio-Quant CRO
business during the entire year in 2010.
Research and
Development Expenses
. Our
research and development expenses decreased from $5,410,513 in 2008 to
$1,883,458 in 2009. Research and development expenses
significantly decreased in 2009 due to
reduced spending in 2009 on our
development programs as part of our restructuring
program. During 2009 we reduced
our research and development staff and
infrastructure.
We expect to see an increase in
research and development spending in 2010 as a result of the acquisition of
Bio-Quant and the expansion of our
NexACT
®
technology into the areas of oncology,
inflammation, immunology, and metabolic diseases.
General and Administrative
Expenses
. Our general and administrative expenses decreased
from $5,720,832 in 2008 to $4,196,359 in 2009. The decrease is
primarily due to a reduction in staff costs as a result of our restructuring
program implemented in December 2008 along with a reduction in legal fees
related to our patents as we expended over $100,000 during 2008 for one-time
national filings of patent applications related to Vitaros
®
.
Interest Expense
. We
recognized $28,696,006 and $1,006,794 in interest expense in 2009 and 2008,
respectively. The increased interest expense is the result of imputed
interest expense recognized as a result of beneficial conversions of the
convertible mortgage note as discussed in Note 8 of the Notes to the
consolidated financial statements. Non cash interest expense was
$28,352,598 and $693,316 for the years ended December 31, 2009 and 2008,
respectively.
Net Loss
. The net
loss was $32,042,562 or $0.36 per share and $5,171,198 or $0.06 per share in
2009 and 2008, respectively. The significant increase in net loss is
the result of imputed interest expense recognized as a result of beneficial
conversions of the convertible mortgage note as discussed in Note 8 of the Notes
to the consolidated financial statements.
Comparison
of Results of Operations between the Years Ended December 31, 2008 and
2007
Revenues
. We recorded
revenues of $5,957,491 during 2008 as compared to $1,270,367 during
2007. The increase in revenue in 2008 is primarily attributable to
the milestone payments received in 2008 from Novartis under the licensing
agreement for NM100060. As discussed in Note 4 to the Consolidated Financial
Statements, we received $1.5 million from Novartis in March 2008 and another
$3.5 million in October 2008. These milestones were recognized as
revenue during 2008.
Research and Development
Expenses
. Our research and development expenses increased from $5,022,671
in 2007 to $5,410,513 in 2008. Research and development
expenses in the third quarter of 2008 increased primarily due to the expense of
approximately $892,000 for a cancellation fee related to the cancellation of a
clinical research agreement for a one-year open-label study for
Vitaros®. This increase was partially offset by reduced spending in
2008 on our development programs including approximately $1.2 million
attributable to Vitaros
®
, as
compared to approximately $2 million for Vitaros
®
during
2007. We have continued to spend modestly on the early stage development of our
topical treatment for psoriasis. During 2008 we initiated, and spent
approximately $341,000 on the psoriasis project.
General and Administrative
Expenses
. Our general and administrative expenses have
increased from $5,634,479 in 2007 to $5,720,832 in 2008. The
increase is due to a loss on disposal of fixed assets in 2008 of $904,902 as
compared to $10,121 in 2007. The significant increase in the loss on
disposal of fixed assets resulted from an impairment charge of approximately
$884,000 to reduce the carrying amount of our land and building to reflect the
current commercial real estate market as we have initiated efforts to sell this
facility. The increase in loss on disposal of fixed assets was
partially offset by a decrease in salary expense of approximately $180,000 as a
result of no bonuses accrued or paid in 2008 and a reduction in consulting fees
of approximately $239,000, as our Chief Operating Officer hired in late 2007 and
Chief Executive Officer appointed in June 2007 have taken over most of the
responsibilities handled by consultants in 2007. We also reduced the cost of
printing and designing our annual report by approximately $63,000 in
2008. Additionally we had a one-time expense of approximately
$257,000 in 2007 for New Jersey State sales tax paid as a result of a sales tax
audit covering the period from 2000 to 2007.
Interest Expense
. We
recognized $1,006,794 and $481,862 in interest expense in 2008 and 2007,
respectively. The increase is primarily due to the interest on the
$5,750,000 principal amount of convertible notes issued on June 30, 2008 and the
amortization of debt issue costs for warrants issued in connection with a line
of credit obtained in May 2008 compared to interest expense on lesser debt of
$2,000,000 in 2007.
Net Loss
. The net
loss was $5,171,198 or $0.06 per share and $8,787,228 or $0.11 per share in 2008
and 2007, respectively. The decrease is primarily attributable to the
significant increase in revenues attributable to the milestone payments received
in 2008 from Novartis under the licensing agreement for NM100060. As
discussed in Note 4 to the Consolidated Financial Statements, we received $1.5
million from Novartis in March 2008 and another $3.5 million in October
2008. These milestone payments were recognized as revenue during
2008.
Quarterly
Results
The
following table sets forth selected unaudited quarterly financial information
for the years ended December 31, 2009 and 2008. The operating results
are not necessarily indicative of results for any future period.
For
the Three Months Ended
|
|
March 31, 2009
|
|
|
June 30, 2009
|
|
|
September 30, 2009
|
|
|
December 31, 2009
|
|
Total
Revenues
|
|
$
|
2,466,670
|
|
|
$
|
102,613
|
|
|
$
|
109,590
|
|
|
$
|
294,835
|
|
Income
(Loss) from Operations
|
|
$
|
773,257
|
|
|
$
|
(1,308,589
|
)
|
|
$
|
(914,438
|
)
|
|
$
|
(2,370,072
|
)
|
Net
Income (Loss)
|
|
$
|
684,772
|
|
|
$
|
(1,426,158
|
)
|
|
$
|
(1,190,616
|
)
|
|
$
|
(30,543,698
|
)
|
Basic
& Diluted Income (Loss)
Per
Share
|
|
$
|
0.01
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.34
|
).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008
|
|
|
June 30, 2008
|
|
|
September 30, 2008
|
|
|
December 31, 2008
|
|
Total
Revenues
|
|
$
|
951,787
|
|
|
$
|
1,199,612
|
|
|
$
|
305,943
|
|
|
$
|
3,500,149
|
|
Loss
from Operations
|
|
$
|
(1,520,702
|
)
|
|
$
|
(1,090,169
|
)
|
|
$
|
(2,896,791
|
)
|
|
$
|
333,808
|
|
Net
Loss
|
|
$
|
(1,642,187
|
)
|
|
$
|
(1,628,723
|
)
|
|
$
|
(3,040,094
|
)
|
|
$
|
1,139,806
|
|
Basic
& Diluted Loss
Per
Share
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
0.01
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.
|
INDEX TO
FINANCIAL STATEMENTS
|
|
PAGE
|
|
|
|
Report
of Independent Registered Public Accounting Firm 2009, 2008 and
2007
|
|
F-1
|
|
|
|
Financial
Statements:
|
|
|
|
|
|
Consolidated
Balance Sheets - December 31, 2009 and 2008
|
|
F-2
|
|
|
|
Consolidated
Statements of Operations for the years ended December 31, 2009, 2008 and
2007
|
|
F-3
|
|
|
|
Consolidated
Statements of Changes in Stockholders' Equity for years ended December 31,
2009, 2008 and 2007
|
|
F-4
|
|
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2009, 2008 and
2007
|
|
F-5
|
|
|
|
Notes
to the Consolidated Financial Statements
|
|
F-6
|
|
|
|
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors
Stockholders
of NexMed, Inc.
We have
audited the accompanying consolidated balance sheets of NexMed, Inc. and
subsidiaries (the “Company”) as of December 31, 2009 and 2008, and the related
consolidated statements of operations, changes in stockholders’ equity and cash
flows for the years ended December 31, 2009, 2008 and 2007. These
consolidated 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 in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly we express no such opinion.
Our audits of the
financial statements included 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 our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of NexMed, Inc. and
subsidiaries as of December 31, 2009 and 2008, and the results of its operations
and its cash flows for the years ended December 31, 2009, 2008 and 2007 in
conformity with accounting principles generally accepted in the United States of
America.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses and negative
cash flows from operations and expects to incur future losses. Further, the
Company has substantial notes payable and other obligations that mature within
the next 12 months. These issues raise substantial doubt about its
ability to continue as a going concern. Management’s plans in regard
to these matters are also described in Note 1. The accompanying
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
On
December 14, 2009, the Company acquired Bio-Quant Inc., a San Diego based
contract research organization. See Note 3 for further
details.
/s/
Amper, Politziner & Mattia, LLP
March 31,
2010
Edison,
New Jersey
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
479,888
|
|
|
$
|
2,862,960
|
|
Accounts
receivable
|
|
|
708,898
|
|
|
|
-
|
|
Other
receivable
|
|
|
437,794
|
|
|
|
-
|
|
Prepaid
expenses and other current assets
|
|
|
140,521
|
|
|
|
83,761
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
1,767,101
|
|
|
|
2,977,089
|
|
|
|
|
|
|
|
|
|
|
Fixed
assets, net
|
|
|
5,616,811
|
|
|
|
5,519,652
|
|
Goodwill
|
|
|
9,084,476
|
|
|
|
-
|
|
Intangible
assets, net of accumulated amortization
|
|
|
4,145,006
|
|
|
|
-
|
|
Due
from related party
|
|
|
204,896
|
|
|
|
-
|
|
Debt
issuance cost, net of accumulated amortization of $169,304 and
$129,980
|
|
|
115,047
|
|
|
|
91,139
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
20,933,337
|
|
|
$
|
8,557,512
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Notes
payable - former Bio-Quant shareholders
|
|
$
|
12,129,010
|
|
|
$
|
-
|
|
Accounts
payable and accrued expenses
|
|
|
1,453,621
|
|
|
|
1,029,486
|
|
Payroll
related liabilities
|
|
|
279,960
|
|
|
|
296,135
|
|
Deferred
revenue
|
|
|
118,115
|
|
|
|
-
|
|
Capital
lease payable - current portion
|
|
|
24,530
|
|
|
|
-
|
|
Due
to related parties
|
|
|
99,682
|
|
|
|
-
|
|
Deferred
compensation - current portion
|
|
|
70,000
|
|
|
|
74,245
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
14,174,918
|
|
|
|
1,399,866
|
|
|
|
|
|
|
|
|
|
|
Long
term liabilities
|
|
|
|
|
|
|
|
|
Convertible
notes payable
|
|
|
2,990,000
|
|
|
|
4,690,000
|
|
Deferred
revenue
|
|
|
82,450
|
|
|
|
-
|
|
Capital
lease payable
|
|
|
114,965
|
|
|
|
-
|
|
Deferred
compensation
|
|
|
865,602
|
|
|
|
935,517
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
18,227,935
|
|
|
|
7,025,383
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note 16)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
Common
stock, $.001 par value, 120,000,000 shares authorized, 104,821,571 and
84,350,361 shares issued and outstanding, respectively
|
|
|
104,822
|
|
|
|
84,351
|
|
Additional
paid-in capital
|
|
|
174,332,442
|
|
|
|
141,137,078
|
|
Accumulated
deficit
|
|
|
(171,731,862
|
)
|
|
|
(139,689,300
|
)
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
2,705,402
|
|
|
|
1,532,129
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
20,933,337
|
|
|
$
|
8,557,512
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
NexMed,
Inc.
Consolidated
Statements of Operations
|
|
For
the Year Ended
|
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
License
fee revenue
|
|
$
|
2,681,271
|
|
|
$
|
5,957,491
|
|
|
$
|
1,270,367
|
|
Contract
service revenue
|
|
|
292,437
|
|
|
|
-
|
|
|
|
-
|
|
Total
Revenue
|
|
|
2,973,708
|
|
|
|
5,957,491
|
|
|
|
1,270,367
|
|
Cost
of Services
|
|
|
128,355
|
|
|
|
-
|
|
|
|
-
|
|
Gross
Profit
|
|
|
2,845,353
|
|
|
|
5,957,491
|
|
|
|
1,270,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
1,883,458
|
|
|
|
5,410,513
|
|
|
|
5,022,671
|
|
General
and administrative
|
|
|
4,196,359
|
|
|
|
5,720,832
|
|
|
|
5,634,479
|
|
Acquisition
costs
|
|
|
585,378
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
costs and expenses
|
|
|
6,665,195
|
|
|
|
11,131,345
|
|
|
|
10,657,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(3,819,842
|
)
|
|
|
(5,173,854
|
)
|
|
|
(9,386,783
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
25,291
|
|
|
|
71,793
|
|
|
|
275,508
|
|
Other
income
|
|
|
10,201
|
|
|
|
-
|
|
|
|
-
|
|
Interest
expense
|
|
|
(28,696,006
|
)
|
|
|
(1,006,794
|
)
|
|
|
(481,862
|
)
|
Total
other income (expense)
|
|
|
(28,660,514
|
)
|
|
|
(935,001
|
)
|
|
|
(206,354
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before benefit from income taxes
|
|
|
(32,480,356
|
)
|
|
|
(6,108,855
|
)
|
|
|
(9,593,137
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
from income taxes
|
|
|
437,794
|
|
|
|
937,657
|
|
|
|
805,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(32,042,562
|
)
|
|
$
|
(5,171,198
|
)
|
|
$
|
(8,787,228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
|
$
|
(.36
|
)
|
|
$
|
(.06
|
)
|
|
$
|
(.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding used for basic and diluted loss per
share
|
|
|
88,596,829
|
|
|
|
83,684,806
|
|
|
|
82,015,909
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
NexMed,
Inc.
Consolidated
Statements of Changes in Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common
|
|
|
Common
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Stockholders'
|
|
|
|
(Shares)
|
|
|
(Amount)
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2007
|
|
|
80,285,905
|
|
|
$
|
80,287
|
|
|
$
|
137,164,658
|
|
|
$
|
(125,730,874
|
)
|
|
$
|
(9,596
|
)
|
|
$
|
11,504,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock upon exercise of stock options and warrants,
net
|
|
|
1,717,943
|
|
|
|
1,718
|
|
|
|
219,175
|
|
|
|
-
|
|
|
|
-
|
|
|
|
220,893
|
|
Issuance
of compensatory options to employees and consultants
|
|
|
-
|
|
|
|
-
|
|
|
|
776,835
|
|
|
|
-
|
|
|
|
-
|
|
|
|
776,835
|
|
Issuance
of compensatory stock to employees and consultants
|
|
|
609,000
|
|
|
|
609
|
|
|
|
89,391
|
|
|
|
-
|
|
|
|
-
|
|
|
|
90,000
|
|
Issuance
of common stock in payment of interest on notes
|
|
|
145,614
|
|
|
|
146
|
|
|
|
190,602
|
|
|
|
-
|
|
|
|
-
|
|
|
|
190,748
|
|
Issuance
of compensatory stock to the board of directors
|
|
|
304,540
|
|
|
|
305
|
|
|
|
288,693
|
|
|
|
-
|
|
|
|
-
|
|
|
|
288,998
|
|
Net
offering costs from issuance of common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,110
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,110
|
)
|
Discount
on Note payable for issuance of warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
512,550
|
|
|
|
-
|
|
|
|
-
|
|
|
|
512,550
|
|
Realized
gain on foreign currency exchange
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,596
|
|
|
|
9,596
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,787,228
|
)
|
|
|
-
|
|
|
|
(8,787,228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
|
83,063,002
|
|
|
$
|
83,064
|
|
|
$
|
139,239,795
|
|
|
$
|
(134,518,102
|
)
|
|
|
-
|
|
|
$
|
4,804,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock upon exercise of stock options and
warrants
|
|
|
526,909
|
|
|
|
527
|
|
|
|
459,221
|
|
|
|
-
|
|
|
|
-
|
|
|
|
459,748
|
|
Issuance
of compensatory options to employees and consultants
|
|
|
-
|
|
|
|
-
|
|
|
|
138,511
|
|
|
|
-
|
|
|
|
-
|
|
|
|
138,511
|
|
Issuance
of compensatory stock to employees and consultants
|
|
|
382,500
|
|
|
|
382
|
|
|
|
704,350
|
|
|
|
-
|
|
|
|
-
|
|
|
|
704,732
|
|
Issuance
of compensatory stock to the board of directors
|
|
|
377,950
|
|
|
|
378
|
|
|
|
480,451
|
|
|
|
-
|
|
|
|
-
|
|
|
|
480,829
|
|
Discount
on Note payable for issuance of warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
114,750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
114,750
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,171,198
|
)
|
|
|
-
|
|
|
|
(5,171,198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2008
|
|
|
84,350,361
|
|
|
$
|
84,351
|
|
|
$
|
141,137,078
|
|
|
$
|
(139,689,300
|
)
|
|
|
-
|
|
|
$
|
1,532,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of compensatory stock to employees and consultants
|
|
|
810,375
|
|
|
|
810
|
|
|
|
690,433
|
|
|
|
-
|
|
|
|
-
|
|
|
|
691,243
|
|
Issuance
of compensatory stock to the board of directors
|
|
|
253,488
|
|
|
|
254
|
|
|
|
211,174
|
|
|
|
-
|
|
|
|
-
|
|
|
|
211,428
|
|
Issuance
of common stock to the Bio-Quant shareholders as consideration for the
acquisition
|
|
|
4,000,000
|
|
|
|
4,000
|
|
|
|
1,596,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,600,000
|
|
Issuance
of common stock in payment of convertible notes payable
|
|
|
15,357,347
|
|
|
|
15,357
|
|
|
|
30,697,807
|
|
|
|
-
|
|
|
|
-
|
|
|
|
30,713,164
|
|
Issuance
of common stock to warrant holders for early forfeiture
|
|
|
50,000
|
|
|
|
50
|
|
|
|
(50
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
0
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(32,042,562
|
)
|
|
|
-
|
|
|
|
(32,042,562
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2009
|
|
|
104,821,571
|
|
|
$
|
104,822
|
|
|
$
|
174,332,442
|
|
|
$
|
(171,731,862
|
)
|
|
|
-
|
|
|
$
|
2,705,402
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
NexMed,
Inc.
Consolidated
Statements of Cash Flows
|
|
For
the Year Ended
|
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(32,042,562
|
)
|
|
$
|
(5,171,198
|
)
|
|
$
|
(8,787,228
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
387,708
|
|
|
|
486,420
|
|
|
|
621,869
|
|
Non-cash
interest, amortization of debt discount and deferred financing
costs
|
|
|
28,352,598
|
|
|
|
693,316
|
|
|
|
408,538
|
|
Non-cash
compensation expense
|
|
|
902,671
|
|
|
|
1,324,072
|
|
|
|
1,155,832
|
|
Net
gain on foreign currency exchange
|
|
|
-
|
|
|
|
-
|
|
|
|
9,596
|
|
(Gain)
loss on disposal of property and equipment
|
|
|
(31,345
|
)
|
|
|
904,902
|
|
|
|
10,121
|
|
Changes
in assets and liabilities, net of amounts acquired from Bio-Quant,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in accounts receivable
|
|
|
(132,960
|
)
|
|
|
-
|
|
|
|
-
|
|
(Increase)
decrease in other receivable
|
|
|
(437,794
|
)
|
|
|
-
|
|
|
|
183,700
|
|
Decrease
in prepaid expense and other assets
|
|
|
73,817
|
|
|
|
43,898
|
|
|
|
37,239
|
|
Increase
(decrease) in deferred revenue
|
|
|
189,980
|
|
|
|
(953,528
|
)
|
|
|
(740,389
|
)
|
(Decrease)
increase in payroll related liabilities
|
|
|
(16,175
|
)
|
|
|
(397,639
|
)
|
|
|
537,207
|
|
(Decrease)
increase in deferred compensation
|
|
|
(74,160
|
)
|
|
|
(50,512
|
)
|
|
|
(58,036
|
)
|
(Decrease)
increase in accounts payable and accrued expenses
|
|
|
(686,427
|
)
|
|
|
407,818
|
|
|
|
33,918
|
|
Net
cash used in operating activities
|
|
|
(3,514,649
|
)
|
|
|
(2,712,451
|
)
|
|
|
(6,587,633
|
)
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(5,526
|
)
|
|
|
(28,988
|
)
|
|
|
(100,875
|
)
|
Proceeds
from sale of fixed assets
|
|
|
350,000
|
|
|
|
75,000
|
|
|
|
-
|
|
Purchases
of short term investments
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,000,000
|
)
|
Proceeds
from sale of short term investments
|
|
|
|
|
|
|
750,000
|
|
|
|
3,250,000
|
|
Net
cash provided by investing activities
|
|
|
344,474
|
|
|
|
796,012
|
|
|
|
149,125
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of convertible notes payable, net of debt issue costs
|
|
|
686,678
|
|
|
|
5,643,711
|
|
|
|
-
|
|
Repayment
of notes payable
|
|
|
(50,000
|
)
|
|
|
(4,000,000
|
)
|
|
|
(2,000,000
|
)
|
Proceeds
from exercise of stock options and warrants
|
|
|
|
|
|
|
459,748
|
|
|
|
220,893
|
|
Issuance
of notes payable, net of debt issue costs
|
|
|
-
|
|
|
|
-
|
|
|
|
2,886,532
|
|
Issuance
of common stock, net of offering costs
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,110
|
)
|
Repayment
of convertible notes payable
|
|
|
|
|
|
|
(60,000
|
)
|
|
|
(3,000,000
|
)
|
Principal
payments on capital lease obligations
|
|
|
(601
|
)
|
|
|
-
|
|
|
|
-
|
|
Net
cash provided by (used in) financing activities
|
|
|
636,077
|
|
|
|
2,043,459
|
|
|
|
(1,894,685
|
)
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(2,534,098
|
)
|
|
|
127,020
|
|
|
|
(8,333,193
|
)
|
Cash
and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
of period
|
|
|
3,013,986
|
|
|
|
2,735,940
|
|
|
|
11,069,133
|
|
End
of period
|
|
$
|
479,888
|
|
|
$
|
2,862,960
|
|
|
$
|
2,735,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
303,652
|
|
|
$
|
324,314
|
|
|
$
|
119,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of notes to former Bio-Quant shareholders upon acquisition
|
|
$
|
12,129,010
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Issuance
of common stock in payment of convertible notes payable
|
|
$
|
3,475,377
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Issuance
of 4 million shares of common stock to former Bio-Quant shareholders upon
acquisition
|
|
$
|
1,600,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Payment
of interest in common stock
|
|
$
|
21,247
|
|
|
$
|
-
|
|
|
$
|
190,748
|
|
Amortization
of debt discount
|
|
$
|
-
|
|
|
$
|
461,295
|
|
|
$
|
178,640
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
NexMed,
Inc.
|
Notes to Consolidated Financial
Statements
|
|
1.
|
Organization,
Basis of Presentation and
Liquidity
|
NexMed,
Inc. (the “Company”) was incorporated in Nevada in 1987. The Company
has historically focused its efforts on drug development using its patented drug
delivery technology known as NexACT
®
–
see Note 4 for description of licensing agreements of its proprietary
products.
On
December 14, 2009, the merger (the “Merger”) contemplated by the Agreement and
Plan of Merger (the “Merger Agreement”) dated November 20, 2009 by and among
NexMed, Inc. (the “Company”) and BQ Acquisition Corp., a wholly-owned subsidiary
of the Company (“Merger Sub”) with Bio-Quant, Inc. (“Bio-Quant”), was
completed. Accordingly, the results of operations of the
acquired company have been included in the consolidated results of operations of
the Company from December 14, 2009, the date of the Merger. Bio-Quant
is one of the largest specialty biotech contract research
organization (“CRO”) based in San Diego, California and is one of the industry's
most experienced CROs for non-GLP (good laboratory practices)
in vitro
and
in vivo
contract drug
discovery and pre-clinical development services, specializing in oncology,
inflammation, immunology, and metabolic diseases. Bio-Quant has over 300 clients
world-wide and performs hundreds of studies a year both in
in vitro
and
in vivo
pharmacology,
pharmacokinetic (PK) and toxicology to support pre-regulatory filing
packages.
The
combined Company is currently focusing its efforts on new and patented
pharmaceutical products based on NexACT
®
and on
growing the newly acquired CRO business through organic growth within
Bio-Quant’s current business operations and through acquiring small cash flow
positive entities who have complimentary capabilities to those of Bio-Quant but
are not operating at full capacity due to insufficient business development
efforts. This strategy will ensure Bio-Quant’s expansion through
broadening its service capabilities and going into new
markets.
The
Company’s long-term goal is to generate revenues from the growth of its CRO
business while aggressively seeking to monetize the NexACT
®
technology through out-licensing agreements with pharmaceutical and
biotechnology companies worldwide. At the same time the Company is
actively pursuing partnering opportunities for its clinical stage NexACT
®
based
treatments in the areas of dermatology and sexual dysfunction as discussed
below.
The
successful licensing of one or more of these products will generate additional
revenues for funding the Company’s long-term growth strategy.
The
Company now operates in two segments – designing and developing pharmaceutical
products and providing pre-clinical CRO services through its subsidiary,
Bio-Quant.
Liquidity
The
accompanying consolidated 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 ($171,731,862) at December 31, 2009 and expects that it
will incur additional losses in the future completing the research and
development of its technologies, and integrating the operations of Bio-Quant
into its strategies. Further, the Company has substantial notes
payable due within 12 months, which if not converted to common stock or
re-financed, would significantly impact liquidity. These
circumstances raise substantial doubt about the Company's ability to continue as
a going concern. Management anticipates that the Company will require
additional financing, which it is actively pursuing, to fund operations,
including continued research and development of the Company’s NexACT technology,
integration of the Bio-Quant CRO business, and to fund potential future
acquisitions. Although management continues to pursue these plans,
there is no assurance that the Company will be successful in obtaining financing
on terms acceptable to the Company. See Note 18 for description of
funds raised to date in 2010. If the Company is unable to obtain
additional financing, operations will need to be reduced or
discontinued. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
NexMed,
Inc.
|
Notes to Consolidated Financial
Statements
|
|
2.
|
Summary
of Significant Accounting
Principles
|
Significant
accounting principles followed by the Company in preparing its financial
statements are as follows:
Principles
of consolidation
The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Cash
and cash equivalents
Cash
equivalents represent all highly liquid investments with an original maturity
date of three months or less.
Accounts
Receivable
Our
policy is that an allowance is recorded for estimated losses resulting from the
inability of our customers to make required payments. Such allowances are
computed based upon a specific customer account review of larger customers and
balances in excess of 90 days old. Our assessment of our customers’ ability to
pay generally includes direct contact with the customer, investigation into our
customers’ financial status, as well as consideration of our customers’ payment
history with us. If the financial condition of our customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required. If we determine, based on our assessment,
that it is more likely than not that our customers will be unable to pay, we
will write-off the account receivables.
Fair
value of financial instruments
The fair
value of a financial instrument represents the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than
in a forced sale or liquidation. Significant differences can arise between the
fair value and carrying amounts of financial instruments that are recognized at
historical cost amounts. Given our financial condition described in Note 1, it
is not practicable to estimate the fair value of our notes payable at December
31, 2009.
The
carrying value of cash and cash equivalents, accounts receivable, accounts
payable and accrued expenses and deferred compensation approximates fair value
due to the relatively short maturity of these instruments.
Fixed
assets
Property
and equipment are stated at cost less accumulated
depreciation. Depreciation of equipment and furniture and fixtures is
provided on a straight-line basis over the estimated useful lives of the assets,
generally three to ten years. Depreciation of our building in East
Windsor New Jersey is provided on a straight-line basis over the
estimated useful life of 31 years. Amortization of leasehold
improvements is provided on a straight-line basis over the shorter of their
estimated useful life or the lease term. The costs of additions and
betterments are capitalized, and repairs and maintenance costs are charged to
operations in the periods incurred.
NexMed,
Inc.
|
Notes to Consolidated Financial
Statements
|
Long-lived
assets
The
Company reviews for the impairment of long-lived assets whenever events or
circumstances indicate that the carrying amount of an asset may not be
recoverable. An impairment loss would be recognized when estimated
undiscounted future cash flows expected to result from the use of the asset and
its eventual disposition is less than its carrying amount. If such
assets are considered impaired, the amount of the impairment loss recognized is
measured as the amount by which the carrying value of the asset exceeds the fair
value of the asset, fair value being determined based upon future cash flows or
appraised values, depending on the nature of the asset. The Company
recorded an impairment charge of $884,271 in 2008 to reduce the carrying amount
of its land and building to reflect the current commercial real estate market,
as the Company had initiated efforts to sell its facility. The
Company leased its facility in December 2009 (See note 5). This
charge is recorded within general and administrative expenses on the statement
of operations. No such impairment losses have been recorded by the
Company during 2007 or 2009.
Other
intangible assets
Other
intangible assets consists principally of the Trade Name of Bio-Quant and the
Know-How acquired from Bio-Quant, which were recorded at fair value in
connection with the acquisition of Bio-Quant on December 14, 2009. The
Company expects to amortize Know-How over the expected useful life of 10 years
and the Trade Name over the expected useful life of 20 years
.
Management
evaluates the recoverability of such other intangible assets whenever events or
changes in circumstances indicate that the carrying value may not be fully
recoverable. The evaluation is based on estimates of undiscounted future cash
flows over the remaining useful life of the assets. If the amount of such
estimated undiscounted future cash flows is less than the net book value of the
asset, the asset is written down to fair value. As of December 31, 2009, no
such write-down was required.
Goodwill
Goodwill
was recorded in connection with the acquisition of Bio-Quant on December
14, 2009, and will be included in the CRO segment. Goodwill consists of the
excess of cost over the fair value of net assets acquired in business
combinations accounted for as purchases. See Note 3.
The
Company follows the provision of
FASB ASC 805,
Business
Combinations,
which
requires an annual impairment test for goodwill and intangible assets with
indefinite lives. Under FASB ASC 805, the first step of the impairment test
requires that the Company determine the fair value of each reporting unit, and
compare the fair value to the reporting unit's carrying amount. To the extent a
reporting unit's carrying amount exceeds its fair value, an indication exists
that the reporting unit's goodwill may be impaired and the Company must perform
a second more detailed impairment assessment. The second impairment assessment
involves comparing the implied fair value of the reporting unit's goodwill
to the carrying amount of goodwill to quantify an impairment charge as of the
assessment date.
Application
of the goodwill impairment test requires significant judgments including
estimation of future cash flows, which is dependent on internal forecasts,
estimation of the long-term rate of growth for the businesses, the useful life
over which cash flows will occur, and determination of the Company's weighted
average cost of capital. Changes in these estimates and assumptions could
materially affect the determination of fair value and/or conclusions on goodwill
impairment for each reporting unit. The Company will perform its annual
impairment test on December 31 each year, unless triggering events occur
that would cause the Company to test for impairment at interim periods. At
December 31, 2009, no impairment was recorded.
NexMed,
Inc.
|
Notes to Consolidated Financial
Statements
|
Deferred
Financing Costs
Amounts
paid related to debt financing activities are capitalized and amortized over the
term of the loan. Our expenses incurred related to the convertible notes payable
are being amortized over the three-year term of the notes to interest expense on
a straight-line basis which approximates the effective interest rate
method.
Revenue
recognition
Bio-Quant’s
revenues are derived from two sources, the delivery of pre-clinical services and
the sale of diagnostic kits. Both of these sources are part of the
CRO services segment. Revenues from Bio-Quant’s performance of pre-clinical
services are recognized according to the proportional performance method whereby
revenue is recognized as performance occurs, based on the relative outputs of
the performance that have occurred up to that point in time under the respective
agreement, typically the delivery of data to our clients on the results of the
pre-clinical tests or the delivery of the formal report which documents the
results of our pre-clinical testing services. Deferred revenues represent
billings in advance of the recognition of revenue. When the current
estimates of total contract revenue and contract cost indicate a loss, a
provision for the entire loss on the contract is made in the period which it
becomes probable. All costs related to these agreements are expensed
as incurred and classified within “Cost of Services” expenses in the
Consolidated Statements of Operations.
Revenues
from sales of diagnostic kits are recognized upon delivery of products to
customers, less allowances for estimated returns and discounts.
Revenues
from the drug development technology segment consist principally of licensing
revenues, and revenues under research and development contracts with our
licensing partners. Revenues earned under licensing and research and
development contracts are recognized in accordance with the cost-to-cost method
whereby the extent of progress toward completion is measured on the cost-to-cost
basis; however, revenue recognized at any point will not exceed the cash
received. When the current estimates of total contract revenue and
contract cost indicate a loss, a provision for the entire loss on the contract
is made in the period which it becomes probable. All costs related to
these agreements are expensed as incurred and classified within “Research and
development” expenses in the Consolidated Statements of Operations.
Also,
licensing agreements typically include several elements of revenue, such as
up-front payments, milestones, royalties upon sales of product, and the delivery
of product and/or research services to the licensor. We follow the accounting
guidance of ASC 605. Non-refundable license fees received upon
execution of license agreements where we have continuing involvement are
deferred and recognized as revenue over the estimated performance period of the
agreement. This requires management to estimate the expected term of the
agreement or, if applicable, the estimated life of its licensed
patents.
NexMed,
Inc.
|
Notes to Consolidated Financial
Statements
|
In
addition, ASC 605 requires a company to evaluate its arrangements
under which it will perform multiple revenue-generating activities. For example,
a license agreement with a pharmaceutical company may involve a license,
research and development activities and/or contract manufacturing, and royalties
upon commercialization of the product. Management is required to determine if
the separate components of the agreement have value on a standalone basis and
qualify as separate units of accounting, whereby consideration is allocated
based upon their relative “fair values” or, if not, the consideration should be
allocated based upon the “residual method.” Accordingly, up-front and
development stage milestone payments will be deferred and recognized as revenue
over the performance period of such license agreement.
There
have been no royalties received during the years ended December 31, 2009, 2008
and 2007.
Research
and development
Research
and development costs are expensed as incurred and include the cost of salaries,
building costs, utilities, allocation of indirect costs, and expenses to 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
assets will not be realized.
The
Company also follows the provisions of “Accounting for Uncertainty in Income
Taxes” which prescribes a model for the recognition and measurement of a tax
position taken or expected to be taken in a tax return, and provides guidance on
de-recognition, classification, interest and penalties, disclosure and
transition. At December 31, 2009 the Company did not have any significant
unrecognized tax benefits.
Loss
per common share
Basic
earnings (loss) per share is computed by dividing income (loss) available to
common stockholders by the weighted average number of common shares outstanding
during the period. Diluted earnings per share gives effect to all
dilutive potential common shares outstanding during the period. The
computation of diluted earnings per share does not assume conversion, exercise
or contingent exercise of securities that would have an antidilutive effect on
per share amounts.
At
December 31, 2009, 2008 and 2007, outstanding options to purchase 2,950,702,
3,368,991 and 3,469,841 shares of Common Stock, respectively, with exercise
prices ranging from $0.55 to $12.00 have been excluded from the computation of
diluted loss per share as they are antidilutive. At December 31,
2009, 2008 and 2007, outstanding warrants to purchase 6,979,130, 12,118,044 and
12,439,954, shares of Common Stock, respectively, with exercise prices ranging
from $0.55 to $4.04 have also been excluded from the computation of diluted loss
per share as they are antidilutive. Promissory notes convertible into 1,495,000
and 2,345,000 shares of Common Stock in 2009 and 2008, respectively have also
been excluded from the computation of diluted loss per share, as they are
antidilutive. Additionally, promissory notes issued in connection with the
Bio-Quant acquisition are convertible, at the Company’s option, into 72,196,488
shares of common stock have been excluded from the computation of diluted loss
per share, as they are ant-dilutive.
NexMed,
Inc.
|
Notes to Consolidated Financial
Statements
|
Accounting
for stock based compensation
The value
of restricted stock grants are calculated based upon the closing stock price of
the Company’s Common Stock on the date of the grant. For stock
options granted to employees and directors, we recognize compensation expense
based on the grant-date fair value estimated in accordance with the appropriate
accounting guidance, and recognized over the expected service period. We
estimate the fair value of each option award on the date of grant using the
Black-Scholes option pricing model. Stock options and warrants issued to
consultants are accounted for in accordance with accounting guidance.
Compensation expense is calculated each quarter for consultants using the
Black-Scholes option pricing model until the option is fully vested and is
included in research and , development or general and administrative facility
expenses, based upon the services performed by the recipient.
Additional
disclosures required under FASB ASC 718, “Stock Compensation” are presented in
Note 9.
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.
The Company’s credit risk with respect to accounts receivable is limited, in
that the CRO segment serves a large number of customers, none of which is
individually in excess of 10% of the revenues of the segment. We
perform credit evaluations of our customers, but generally do not require
collateral to support accounts receivable.
Accounting
estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. The Company’s most significant estimates relate
to the valuation of its long-lived assets, whether revenue recognition criteria
have been met, estimated cost to complete under its research contracts, whether
beneficial conversion features exist under convertible financing instruments,
and valuation allowances for its deferred tax benefit. Actual results
may differ from those estimates.
Recent
accounting pronouncements
In June
2009, the Financial Accounting Standards Board (“FASB”) issued its final
Statement of Financial Accounting Standards (SFAS) No. 168, “The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles a replacement of FASB Statement No. 162.” SFAS No. 168
made the FASB Accounting Standards Codification (the Codification) the single
source of U.S. GAAP used by nongovernmental entities in the preparation of
financial statements, except for rules and interpretive releases of the SEC
under authority of federal securities laws, which are sources of authoritative
accounting guidance for SEC registrants. The Codification is meant to simplify
user access to all authoritative accounting guidance by reorganizing U.S. GAAP
pronouncements into roughly 90 accounting topics within a consistent structure;
its purpose is not to create new accounting and reporting guidance. The
Codification supersedes all existing non-SEC accounting and reporting standards
and was effective for the Company beginning July 1, 2009. Following SFAS No.
168, the Board will not issue new standards in the form of Statements, FASB
Staff Positions, or Emerging Issues Task Force Abstracts; instead, it will issue
Accounting Standards Updates. The FASB will not consider Accounting Standards
Updates as authoritative in their own right; these updates will serve only to
update the Codification, provide background information about the guidance, and
provide the bases for conclusions on the change(s) in the
Codification.
NexMed,
Inc.
|
Notes to Consolidated Financial
Statements
|
In
October 2009, the FASB issued FASB ASU 2009-13, Revenue Recognition (Topic 605)
– Multiple-Deliverable Revenue Arrangements. The consensus in ASU 2009-13
supersedes certain guidance in ASC 605-25,
Revenue Recognition – Multiple
Element Arrangements
, and requires an entity to allocate arrangement
consideration at the inception of an arrangement to all of its deliverables
based on their relative selling prices (i.e., the relative-selling-price
method). The consensus eliminates the use of the residual method of allocation
(i.e., in which the undelivered element is measured at its estimated selling
price and the delivered element is measured as the residual of the arrangement
consideration) and requires the relative-selling-price method in all
circumstances in which an entity recognizes revenue for an arrangement with
multiple deliverables subject to ASC 605-25. When applying the
relative-selling-price method, the determination of the selling price for each
deliverable must be consistent with the objective of determining vendor-specific
objective evidence of fair value (VSOE); that is, the price at which the entity
does or would sell the element on a stand-alone basis. This determination
requires the use of a hierarchy designed to maximize the entity’s use of
available, objective evidence to support its selling price. The entity must
consider market conditions as well as entity-specific factors when estimating
this selling price. The amendments in ASU 2009-13 require both ongoing
disclosures regarding an entity’s multiple-element revenue arrangements as well
as certain transitional disclosures during periods after adoption. The objective
of the ongoing disclosures is to provide information regarding the significant
judgments and estimates made and their impact on revenue recognition.
Additionally, disclosures will be made when changes in either those judgments or
the application of the relative-selling-price method may significantly affect
the timing or amount of revenue recognition. An entity will be required to
aggregate these disclosures for similar types of arrangements. Adoption will be
required for the year beginning January 1, 2011.
In
December 2007, the FASB updated “Business Combinations.” Among other
requirements, the update requires an acquirer to recognize the assets acquired,
the liabilities assumed and any noncontrolling interest in the acquiree at the
acquisition date, measured at their fair values as of that date, with limited
exceptions. The update also requires a.) costs incurred to effect the
acquisition to be recognized separately from the acquisition as period costs;
b.) the acquirer to recognize restructuring costs that the acquirer expects to
incur, but is not obligated to incur, separately from the business combination;
and c.) an acquirer to recognize assets and liabilities assumed arising from
contractual contingencies as of the acquisition date, measured at their
acquisition-date fair values. Other key provisions of this update include the
requirement to recognize the acquisition-date fair values of research and
development assets separately from goodwill and the requirement to recognize
changes in the amount of deferred tax benefits that are recognizable due to the
business combination in either income from continuing operations in the period
of the combination or directly in contributed capital, depending on the
circumstances. The Company adopted this update as of December 28, 2008 and has
applied its provisions prospectively to business combinations that have occurred
after adoption. In April 2009, the FASB issued “Accounting for Assets Acquired
and Liabilities Assumed in a Business Combination That Arise from
Contingencies.” This update requires that assets acquired and liabilities
assumed in a business combination that arise from contingencies be recognized at
fair value if fair value can be reasonably estimated. If fair value cannot be
reasonably estimated, the asset or liability would generally be recognized in
accordance with “Accounting for Contingencies,” and “Reasonable Estimation of
the Amount of a Loss.” Further, the FASB decided to remove the subsequent
accounting guidance for assets and liabilities arising from contingencies, and
carry forward without significant revision the guidance in “Business
Combinations.” This update is effective for assets or liabilities arising from
contingencies in business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 28, 2008. The Company adopted this update effective December 16, 2008,
and applied this guidance to our acquisition of Bio-Quant (see Note
3).
NexMed,
Inc.
|
Notes to Consolidated Financial
Statements
|
In April
2009, the FASB issued “Interim Disclosures about Fair Value of Financial
Instruments.” This update amends “Disclosures about Fair Value of Financial
Instruments,” to require disclosures about fair value of financial instruments
for interim reporting periods of publicly traded companies as well as in annual
financial statements. This update also amends Interim Financial Reporting, to
require those disclosures in summarized financial information at interim
reporting periods. This update became effective for the interim period ending
June 27, 2009 and did not have a material impact on the Company's consolidated
financial statements.
In September 2006, the FASB issued
guidance which defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles (GAAP), and expands
disclosures about fair value measurements. This guidance applies under other
accounting pronouncements that require or permit fair value measurements, the
FASB having previously concluded in those accounting pronouncements that fair
value is the relevant measurement attribute. Accordingly, this guidance does not
require any new fair value measurements.
The
provision delayed the effective date of ASC 820 for all non-financial assets and
non-financial liabilities, except for the items that are recognized or disclosed
at fair value in the financial statements on a recurring basis (at least
annually), until the beginning of the Company’s fiscal year beginning on January
1, 2009.
The application of this guidance did not have a material effect
on the December 31, 2009 Consolidated Financial Statements.
On
December 14, 2009, the Company entered into the Merger Agreement with Bio-Quant.
Pursuant to the Merger Agreement, at the effective time of the Merger (the
“Effective Time”), each outstanding share of common stock, par value $0.01 per
share, of Bio-Quant was canceled and converted into the right to receive 913.96
shares of common stock, par value $0.001 per share, of the Company (the “NexMed
Shares”), as well as a promissory note (each, a “Note”) in the original
principal amount of $2,771.37. In connection with the closing
of the Merger, the Company issued an aggregate of 4,000,000 NexMed Shares and
Notes in the aggregate original principal amount of $12,129,010 to the
shareholders of Bio-Quant.
The Notes
bear interest at a rate of 10% per annum, with all principal and interest
accrued thereunder becoming due and payable one year from the closing date of
the Merger. The terms of the Notes provide that the principal amounts
and all interest thereunder are payable by the Company in cash or, at the
Company’s option, in NexMed Shares, which shall be valued at the fixed price of
$0.168 per share. The Merger Agreement provides that if the Company
repays the Notes in NexMed Shares, the total number of NexMed Shares issuable to
Bio-Quant shareholders shall not exceed 19.99% of outstanding NexMed Shares at
the Effective Time unless the Company receives stockholder approval to do
so. If the Company receives such stockholder approval, the total
number of NexMed Shares issued to Bio-Quant shareholders in the Merger will not
exceed 45% of outstanding NexMed Shares immediately prior to the Effective
Time.
NexMed,
Inc.
|
Notes to Consolidated Financial
Statements
|
The
acquisition was accounted for under the purchase method of accounting under FASB
ASC 805
Business Combinations
,. The
Company has determined that it is the “accounting acquirer” in this transaction,
as it meets the predominance of the factors outlined in FASB ASC
805. Accordingly, the results of operations of the acquired company
have been included in the consolidated results of operations of the Company from
the date of the Merger.
The total
consideration was estimated to be approximately $13.7 million as of December 14,
2009, the date the Merger was consummated, as follows (in
thousands):
Fair value of 4,000,000 shares of
common stock issued for Bio-Quant common stock
|
|
$
|
1,600
|
|
Fair value
of promissory notes issued for Bio-Quant common
stock
|
|
|
12,129
|
|
Total
consideration
|
|
$
|
13,729
|
|
The fair
value of the shares of NexMed common stock issued was based on the closing price
of the Company’s common stock on December 14, 2009, the date the Merger was
consummated, or $0.40 per share.
The
purchase price was allocated based on the estimated fair value of the tangible
and identifiable intangible assets acquired and liabilities assumed in the
Merger. An allocation of the purchase price was made to major categories of
assets and liabilities in the accompanying consolidated balance sheet based on
management’s best estimates. The fair value of the other current assets and
assumed liabilities were estimated by management based upon the relative short
term nature of the accounts and the fair value of the machinery and equipment
was established based upon expected replacement costs.
Management
obtained the assistance of an independent third party valuation specialist in
performing its purchase price allocation analysis. The fair value of
Bio-Quant’s tangible and identifiable intangible assets were determined based on
this analysis. The excess of the purchase price over the estimated
fair value of tangible and identifiable intangible assets acquired and
liabilities assumed was allocated to goodwill.
Accordingly,
the purchase price is allocated to the assets and liabilities of Bio-Quant as
presented below (in thousands):
Cash
& cash equivalents
|
|
$
|
151
|
|
Accounts
receivable
|
|
|
576
|
|
Prepaids
and other current assets
|
|
|
105
|
|
Other
assets
|
|
|
27
|
|
Property
and equipment
|
|
|
783
|
|
Due
from related party
|
|
|
205
|
|
Accounts
payable and accrued expenses
|
|
|
(1,041
|
)
|
Related
party payable
|
|
|
(85
|
)
|
Deferred
revenue
|
|
|
(45
|
)
|
Other
current liabilities
|
|
|
(68
|
)
|
Other
long term liabilities
|
|
|
(122
|
)
|
Amortizable
intangible assets:
|
|
|
|
|
Know-How
|
|
|
3,037
|
|
Trade
Name
|
|
|
1,123
|
|
Indefinite
lived intangible assets:
|
|
|
|
|
Goodwill
|
|
|
9,083
|
|
Total
net assets acquired
|
|
$
|
13,729
|
|
NexMed,
Inc.
|
Notes to Consolidated Financial
Statements
|
Intangible
assets of $4,160,000 consist primarily of developed Know-How and the Bio-Quant
Trade Name. Developed Know-How relates to Bio-Quant’s pre-clinical service
expertise including, but not limited to, its extensive inventory of internally
developed cell lines. The Bio-Quant Trade Name represents future revenue
attributable to the reputation and name recognition of Bio-Quant within the
pharmaceutical industry where Bio-Quant is a known expert in pre-clinical
services.
Bio-Quant
is a revenue generating, cash flow positive CRO. Bio-Quant is
expected to continue its revenue growth and cash generating CRO
business. The $9,083,000 of goodwill generated from the acquisition
of Bio-Quant consists largely of the ability of the Bio-Quant CRO to continue to
grow its revenues and generate positive cash flow to contribute to the
pharmaceutical product development business segment of the
Company.
Costs
associated with the merger of $585,378 were expensed for the year ended December
31, 2009.
The
following unaudited pro forma consolidated results of operations for the period
assumes the acquisition of Bio-Quant had occurred as of January 1, 2008,
giving effect to purchase accounting adjustments. The pro forma data is for
informational purposes only and may not necessarily reflect the actual results
of operations had Bio-Quant been operated as part of the Company since
January 1, 2008 (in thousands).
Consolidated
Pro Forma Statements of Operations
(unaudited)
|
Year
Ended
December 31,
2009
|
|
Year
Ended
December 31,
2008
|
|
|
As
Presented
|
|
Pro
Forma
|
|
As
Presented
|
|
Pro
Forma
|
|
Revenues
|
|
$
|
2,974
|
|
|
$
|
8,715
|
|
|
$
|
5,957
|
|
|
$
|
10,998
|
|
Net
Loss
|
|
|
(32,043
|
)
|
|
|
(32,196
|
)
|
|
|
(5,171
|
)
|
|
|
(8,686
|
)
|
Net
loss per basic and diluted shares
|
|
$
|
(0.36
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.10
|
)
|
|
4.
|
Licensing
and Research and Development
Agreements
|
Vitaros
On
November 1, 2007, the Company signed an exclusive licensing agreement with
Warner Chilcott Company, Inc., (“Warner”) for its topical alprostadil-based
cream treatment for erectile dysfunction (“Vitaros
®
”). Under
the agreement, Warner acquired the exclusive rights in the United States to
Vitaros
®
and
would assume all further development, manufacturing, and commercialization
responsibilities as well as costs. Warner agreed to pay the Company
an up- front payment of $500,000 and up to $12.5 million in milestone payments
on the achievement of specific regulatory milestones. In
addition, the Company was eligible to receive royalties in the future based upon
the level of sales achieved by Warner, assuming the product is approved by the
U.S. Food and Drug Administration (“FDA”).
NexMed,
Inc.
|
Notes to Consolidated Financial
Statements
|
The
Company has recognized the initial up-front payment as revenue on a straight
line basis over the nine month period ended July 31, 2008 which was the
remaining review time by the FDA for the Company’s new drug application filed in
September 2007 for Vitaros
®
. Pursuant
to the agreement, NexMed was responsible for obtaining regulatory approval of
Vitaros
®
.
Accordingly, for the years ended December 31, 2008 and 2007, the Company
recognized licensing revenue of $388,889 and $111,111, respectively, related to
the Warner agreement.
On
February 3, 2009, the Company terminated the licensing agreement and sold the
U.S. rights for Vitaros
®
to
Warner. Under the terms of the Asset Purchase Agreement, the Company
received an up-front payment of $2.5 million and is eligible to receive an
additional payment of $2.5 million upon Warner’s receipt of a New Drug
Application (NDA) approval for Vitaros
®
from the FDA. As such, the
Company is no longer responsible for obtaining regulatory approval of
Vitaros
®
and
will no longer be eligible to receive royalties in the future based upon the
level of sales achieved by Warner. In addition, Warner has paid the
Company a total of $350,000 for the manufacturing equipment for Vitaros
®
.and
recognized a gain of $43,840. While the Company believes that Warner is
currently moving forward in pursuing NDA approval for Vitaros
®
, Warner
is not obligated by the Asset Purchase Agreement to continue with the
development of Vitaros
®
or
obtain approval of Vitaros
®
from the
FDA. The Company allocated $2,398,000 of the $2,500,000 purchase price to the
U.S. rights for Vitaros
®
and
the related patents acquired by Warner. The balance of $102,000 was
allocated to the rights of certain technology based patents which Warner
licensed as part of the sale of U.S. rights for Vitaros
®
. The
$2,398,000 is recognized as revenue for year ended December 31, 2009, as the
Company has no continuing obligations or rights with respect to Vitaros
®
in the
U.S. market. The $102,000 allocated to the patent license is being
recognized over a period of ten years, the estimated useful commercial life of
the patents. Accordingly, $9,350 is being recognized as revenue for
the year ended December 31, 2009. The balance of $92,650 is recorded
as deferred revenue on the Consolidated Balance Sheet at December 31,
2009.
On April
15, 2009, the Company entered into a First Amendment (the “Amendment”) to the
Asset Purchase Agreement. The Amendment provided that from May 15,
2009 through September 15, 2009, the Company would permit certain
representatives of Warner access to and use of the Company’s manufacturing
facility for the purpose of manufacturing Vitaros
®
, and in
connection therewith the Company would provide reasonable technical and other
assistance to Warner. In consideration, Warner would pay to the
Company a fee of $50,000 per month, or $200,000 in the aggregate. The
arrangement was subject to extension for successive 30 day periods for
additional consideration of $50,000 per month until terminated by either party
prior to the expiration of each successive period. On September 15,
2009, Warner decided not to extend the facility usage period. For the
year ended December 31, 2009, the Company recorded $200,000 in revenue for the
fees received from May 15
th
through
September 15
th
.
NexMed,
Inc.
|
Notes to Consolidated Financial
Statements
|
NM100060
On
September 15, 2005, the Company signed an exclusive global licensing agreement
with Novartis International Pharmaceutical Ltd. (“Novartis”) for its anti-fungal
product, NM100060. Under the agreement, Novartis acquired the
exclusive worldwide rights to NM100060 and would assume all further development,
regulatory, manufacturing and commercialization responsibilities as well as
costs. Novartis agreed to pay the Company up to $51 million in
upfront and milestone payments on the achievement of specific development and
regulatory milestones, including an initial cash payment of $4 million at
signing. In addition, the Company was eligible to receive royalties
based upon the level of sales achieved and to receive reimbursements of third
party preclinical study costs up to $3.25 million. The Company
began recognizing the initial up- front and preclinical reimbursement revenue
from this agreement based on the cost-to-cost method over the 32-month period
estimated to complete the remaining preclinical studies for
NM100060. On February 16, 2007, the Novartis agreement was
amended. Pursuant to the amendment, the Company was no longer
obligated to complete the remaining preclinical studies for
NM100060. Novartis took over all responsibilities and completed
the remaining preclinical studies. As such, the balance of deferred
revenue of $1,693,917 at December 31, 2006 was recognized as revenue on a
straight line basis over the 18 month period ended June 30, 2008 which was the
performance period for Novartis to complete the remaining preclinical studies.
Accordingly, for the years ended December 31, 2008 and 2007, the Company
recognized licensing revenue of $564,639 and $1,129,276 respectively, related to
the initial $4 million cash payment from the Novartis agreement.
On March
4, 2008, the Company received a $1.5 million milestone payment from Novartis
pursuant to the terms of the licensing agreement whereby the payment was due
seven months after the completion of patient enrollment for the Phase 3 clinical
trials for NM100060, which occurred in July 2007. Although the
completion of patient enrollment in the Phase 3 clinical trials for NM100060
triggered a $3 million milestone payment from Novartis, the agreement also
provided that clinical milestones paid to us by Novartis shall be reduced by 50%
until the Company receives an approved patent claim on the NM100060 patent
application filed with the U.S. patent office in November 2004. The
$1.5 million milestone payment was recognized on a straight-line basis over the
six month period to complete the Phase 3 clinical trial, and
therefore the $1.5 million milestone payment was recognized as
revenue during the year ended December 31, 2008.
In July
2008, Novartis completed testing for the Phase 3 clinical trials for NM100060
required for the filing of the NDA in the U.S. On August 26, 2008,
the Company announced that Novartis had decided not to submit the NDA in the
U.S. based on First Interpretable Results of the Phase 3 trials.
On
October 17, 2008, the Company received a Notice of Allowance for its U.S. patent
covering NM100060. Pursuant to the license agreement, the payment of
the issuance fee for an approved patent claim on NM100060 triggered the $2
million patent milestone payment from Novartis. Additionally, $1.5
million, which represents the remaining 50% of the patient enrollment milestone
also became due and payable. As such the Company received a payment
of $3.5 million from Novartis on October 30, 2008 and recognized it as licensing
revenue for the year ended December 31, 2008.
In total,
the Company recognized $5,564,639 and $1,129,276 of revenue related to the
Novartis agreements for the years ended December 31, 2008 and 2007,
respectively.
In July
2009, Novartis completed final analysis of the comparator study which they had
initiated in March 2007 in ten European countries. The study results
were insufficient to support marketing approval in Europe. As such,
on July 8, 2009, the Company announced the mutual decision reached with Novartis
to terminate the licensing agreement. Accordingly, pursuant to the
Termination Agreement, Novartis has provided the Company reports associated with
the Phase III clinical trials conducted for NM100060 and is assisting and
supporting the Company in connection with the assignment, transfer and delivery
to the Company of all know-how and data relating to NM100060 in accordance with
the terms of the License Agreement.
NexMed,
Inc.
|
Notes to Consolidated Financial
Statements
|
In
consideration of such assistance and support, the Company will pay to Novartis
15% of any upfront and/or milestone payments that it receives from any future
third party licensee of NM100060, as well as a royalty fee ranging from 2.8% to
6.5% of annual net sales of products developed from NM100060 (collectively,
“Products”), with such royalty fee varying based on volume of such annual net
sales. In the event that the Company, or a substantial part of its
assets, is sold, the Company will pay to Novartis 15% of any upfront and/or
milestone payments received by the Company or its successor relating to the
Products, as well as a royalty fee ranging from 3% to 6.5% of annual net sales
of any Products, with such royalty fee varying based on volume of such annual
net sales. If the acquirer makes no upfront or milestone payments,
the royalty fees payable to Novartis will range from 4% to 6.5% of annual net
sales of any Products.
Fixed
assets at December 31, 2009 and 2008 were comprised of the
following:
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
363,909
|
|
|
$
|
363,909
|
|
Building,
including impairment charge of $884,271 in 2008
|
|
|
6,042,583
|
|
|
|
6,378,587
|
|
Leasehold
improvements
|
|
|
650,991
|
|
|
|
-
|
|
Machinery
and equipment
|
|
|
2,517,256
|
|
|
|
2,599,159
|
|
Computer
software
|
|
|
622,313
|
|
|
|
600,167
|
|
Furniture
and fixtures
|
|
|
253,846
|
|
|
|
188,935
|
|
|
|
|
10,450,898
|
|
|
|
10,130,757
|
|
|
|
|
|
|
|
|
|
|
Less:
accumulated depreciation and amortization
|
|
|
(4,834,087
|
)
|
|
|
(4,611,105
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,616,811
|
|
|
$
|
5,519,652
|
|
Depreciation
and amortization expense was $372,714 , $486,420
and $621,870 for 2009, 2008 and 2007 respectively. Assets
held under capital lease, acquired with Bio-Quant and included in the above
table, amounted to $147,138 at December 31, 2009
In
December, 2009, the Company entered into an agreement to lease its facility in
East Windsor New Jersey for a period of 10 years at $34,450 per month with
annual 2.5% escalations. Further, the tenant has an option to purchase the
building for an initial purchase price of $4.4 million (plus a 2.5% annual
escalation commencing in year 5 of the sublease). The lease commencement
date was February 1, 2010. As such, the tenant moved into the
facility on February 1, 2010 and per the terms of the lease agreement, will
commence paying monthly lease payments on May 1, 2010.
NexMed,
Inc.
|
Notes to Consolidated Financial
Statements
|
Intangible
assets are listed below with associated accumulated amortization as of December
31, 2009:
Bio-Quant
Know-How
|
|
$
|
3,037,000
|
|
Bio-Quant
Trade Name
|
|
|
1,123,000
|
|
Accumulated
amortization
|
|
|
(14,994
|
)
|
|
|
|
|
|
Intangible
assets, net
|
|
$
|
4,145,006
|
|
The Company
is currently
amortiz
ing
Know-How over the expected useful life
of 10 years and the Trade Name over the expected useful life of 20 years.
Amortization expense
amounted to $14,994 for the year ended December 31,
2009
. Based on the carrying amount of intangible assets,
assuming no future impairment of underlying assets, the estimated future
amortization expense for the next five years ended December 31 and thereafter is
as follows:
2010
|
|
$
|
359,860
|
|
2011
|
|
|
359,860
|
|
2012
|
|
|
359,860
|
|
2013
|
|
|
359,860
|
|
2014
|
|
|
359,860
|
|
Thereafter
|
|
|
2,345,706
|
|
|
|
|
|
|
Total
future amortization expense
|
|
$
|
4,145,006
|
|
On
February 27, 2002, the Company entered into an employment agreement with Y.
Joseph Mo, Ph.D., that had a constant term of five years, and pursuant to which
Dr. Mo served as the Company's Chief Executive Officer and
President. Under the employment agreement, Dr. Mo is entitled to
deferred compensation in an annual amount equal to one sixth of the sum of his
base salary and bonus for the 36 calendar months preceding the date on which the
deferred compensation payments commence subject to certain limitations,
including a vesting requirement through the date of termination, as set forth in
the employment agreement. The deferred compensation is payable
monthly for 180 months commencing on termination of employment. Dr.
Mo’s employment was terminated as of December 15, 2005 and the present value of
the vested portion of the obligation was recognized. The
monthly deferred compensation payment through May 15, 2021 will be
$9,158. As of December 31, 2009 and 2008, the Company has
accrued $935,602 and $1,009,762 respectively, which is included in
deferred compensation.
NexMed,
Inc.
|
Notes to Consolidated Financial
Statements
|
|
8.
|
Convertible
Notes Payable
|
On June
30, 2008, the Company issued convertible notes (the “Convertible Notes”) in an
aggregate principal amount of $5.75 million.
The Convertible Notes are
collateralized by the Company’s facility in East Windsor, New
Jersey. $4.75 million of the principal amount of the Convertible
Notes are due on December 31, 2011 (the “Due Date”)
and $1 million of the
principal amount of the Convertible Notes were due on December 31,
2008. On October 16, 2008, the Company sold certain building
equipment and received proceeds of $60,000 which was used to prepay a portion of
the $4.75 million payment due on December 31, 2011. On December 31,
2008, the Company paid the $1 million principal payment due in cash, such that
at December 31, 2008 the amount outstanding was $4,690,000.
The
Convertible Notes are payable in cash or convertible into shares of Common Stock
with the remaining principal amount initially convertible at $2 per
share on or before the Due
Date at the holders’ option. The Convertible Notes have a coupon rate
of 7% per annum, which is payable at the Company’s option in cash or, if the
Company’s net cash balance is less than $3 million at the time of payment,
in shares of Common Stock. If paid in shares of Common Stock, then
the price of the stock issued will be the lesser of $0.08 below or 95% of the
five-day weighted average of the market price of the Common Stock prior to the
time of payment. Such additional interest consideration is considered
contingent and therefore would only be recognized upon occurrence.
2009 transactions with
respect to this convertible note are as follows:
As
discussed in Note 4, the Company sold $350,000 of manufacturing equipment to
Warner. The note holders agreed to release the lien on the equipment
in exchange for a $50,000 repayment of principal to be paid in 2009 when the
equipment is transferred to Warner. Accordingly, on May 15, 2009, the
Company repaid $50,000 to the note holders upon the transfer of the
manufacturing equipment to Warner.
On May
27, 2009, the Company agreed to convert $150,000 of the outstanding Convertible
Notes to Common Stock at a price of $0.23 per share. As such, the
Company issued 659,402 shares of Common Stock to the note holders in repayment
of such $150,000 principal amount plus interest.
On June
11, 2009, the Company agreed to convert $150,000 of the outstanding Convertible
Notes to Common Stock at a price of $0.31 per share. As such, the
Company issued 490,645 shares of Common Stock to the note holders in repayment
of such $150,000 principal amount plus interest.
On July
23, 2009, the Company agreed to convert $300,000 of the outstanding Convertible
Notes to Common Stock at a price of $0.16 per share. As such, the
Company issued 1,883,385 shares of Common Stock to the note holders in repayment
of such $300,000 principal amount plus interest.
On July
29, 2009, the Company agreed to convert $100,000 of the outstanding Convertible
Notes to Common Stock at a price of $0.15 per share. As such, the
Company issued 670,426 shares of Common Stock to the note holders in repayment
of such $100,000 principal amount plus interest.
On
September 16, 2009, the Company agreed to convert $350,000 of the outstanding
Convertible Notes to Common Stock at a price of $0.15 per share. As
such, the Company issued 2,368,722 shares of Common Stock to the note holders in
repayment of such $350,000 principal amount plus interest.
On
October 1, 2009, the Company paid $62,825 in cash for interest on the Note for
the period July 1, 2009 through September 30, 2009.
NexMed,
Inc.
|
Notes to Consolidated Financial
Statements
|
On
October 14, 2009, the Company agreed to convert $350,000 of the outstanding
Convertible Notes to Common Stock at a price of $0.16 per share. As
such, the Company issued 2,193,455 shares of Common Stock to the note holders in
repayment of such $350,000 principal amount plus interest.
On
October 15, 2009, the Company agreed to convert $250,000 of the outstanding
Convertible Notes to Common Stock at a price of $0.15 per share. As
such, the Company issued 1,671,528 shares of Common Stock to the note holders in
repayment of such $250,000 principal amount plus interest.
On
November 10, 2009, the Company issued convertible notes in the aggregate
principal amount of $750,000 under the same terms as the original note as
described above.
On
November 10, 2009, the Company amended the 2008 Notes such that the conversion
price of $750,000 in principal amount of the Convertible Notes has been changed
from $2.00 to $0.14 per share.
On
November 24, December 7 , 9 and 14, 2009, the note holders converted $500,000,
$125,000, $35,000 and $90,000, respectively, of the outstanding Convertible
Notes pursuant to the November 10, 2009 amendment above. As such, the
Company issued 5,419,782 shares of Common Stock to the note holders
in repayment of such $750,000 principal amount plus interest.
As a
result of these prepayments and conversions, at December 31, 2009, the principal
amount outstanding of the Convertible Notes was $2,990,000, of which the
conversion price is $2.00 per share for all such principal amount.
The
Company recognized a debt inducement charge for the differential between the
original conversion rate of $2.00 per share and the agreed prices as listed
above. Non-cash interest expense recognized with respect to this note
for the year ended December 31, 2009 was 28,352,598.
To the
extent that the Company and convertible note holders agree to effect subsequent
conversions in the future at conversion rates below the original conversion rate
of $2.00, the Company will recognize additional debt inducement
charges.
Repaid
Notes
During
2006 and 2007, the Company entered into a series of notes payable aggregating $5
million, of which $3 million was paid in 2008 and $2 million was repaid in
2007. In connection with these notes and a line of credit which was
cancelled during 2008, the Company issued warrants to purchase 1,200,000 shares
of common stock at prices ranging from $.5535 to $1.52. The Company
also issued approximately 86,000 shares of common stock in payment of accrued
interest. Non-cash interest expense associated with these instruments
were $693,316 and $408,538 during the years ended December 31, 2008 and 2007,
respectively.
NexMed,
Inc.
|
Notes to Consolidated Financial
Statements
|
On
December 14, 2009, the Company issued $12,129,010 in promissory notes (the
“Notes”) in connection with the acquisition of Bio-Quant as discussed
in Note 3 above.
The Notes bear
interest at a rate of 10% per annum, with all principal and interest accrued
thereunder becoming due and payable one year from the closing date of the
Merger, or December 14, 2010. The terms of the Notes provide that the
principal amounts and all interest thereunder are payable by the Company in cash
or, at the Company’s option, in NexMed Shares, which shall be valued at the
fixed price of $0.168 per share. The Merger Agreement provides that
if the Company repays the Notes in NexMed Shares, the total number of NexMed
Shares issuable to Bio-Quant shareholders shall not exceed 19.99% of outstanding
NexMed Shares at the Effective Time unless the Company receives stockholder
approval to do so. If the Company receives such stockholder approval,
the total number of additional NexMed Shares issued to Bio-Quant shareholders in
payment of the Notes will be up to approximately 63 million
shares. The principal amount of the Notes outstanding at December 31,
2009 was $12,129,010 and is reflected as Notes payable in the current
liabilities section of the Consolidated Balance Sheet. The Company
has determined that it will recognize a beneficial conversion charge based upon
the difference between the quoted market price of the common stock and the fixed
conversion price at the time of the conversion.
On
January 11, 2010, the Company converted $297,568.72 of outstanding principal of
the Notes to Common Stock at $0.168 per share, the fixed conversion price
pursuant to the terms of the Notes. As such, the Company issued
2,107,500 shares of Common Stock to the note holders in repayment of such
$297,568.72 principal amount plus interest.
On March
17, 2010, the Company converted $1,934,160 of outstanding principal of the Notes
to Common Stock at $0.168 per share, the fixed conversion price pursuant to the
terms of the Notes. As such, the Company issued 12,940,654 shares of
Common Stock to the note holders in repayment of such $1,934,160 principal
amount plus interest.
10.
|
Related
Party Transactions
|
In
addition to the Bio-Quant notes payable described in Note 9, of which
approximately 63% are held by executives of the Company, the Company had the
following related party transactions:
|
·
|
At
December 31, 2009 $14,703 is included in due to related parties in the
accompanying consolidated balance sheets for amounts owed to the Chief
Executive Officer and affiliates for certain consulting and supplies
purchased by the Company. There are charges of $2,500 related
to such consulting services in the statement of operations for the 2009
period since the Merger.
|
|
·
|
Prior
to Merger, Bio-Quant had promissory notes receivable of approximately
$380,000 from three entities controlled by the former Bio-Quant
shareholders. Management of the Company has determined that the
fair value of these notes was $204,896, representing the value of
Prevonco™ purchased in 2010 by the Company from one of these entities in
settlement of a like-amount of the promissory note. Prevonco™
is a marketed anti-ulcer compound, lansoprazole, for the treatment of
solid tumors. The remainder of the notes receivable have been assigned no
fair value, as there is significant uncertainty as to whether any amounts
will be collectible.
|
|
·
|
Prior
to the Merger, Bio-Quant periodically borrowed and repaid funds from the
Company’s Chief Executive Officer and his affiliates pursuant to
promissory notes bearing interest rate of 10% per annum, The balance owed
by the Company at December 31, 2009 and included in due to related parties
in the accompanying consolidated balance sheet is $84,979. These amounts
have been repaid in full during the first quarter of
2010.
|
NexMed,
Inc.
|
Notes to Consolidated Financial
Statements
|
11.
|
Stock
Options and Restricted Stock
|
During
December 1996, the Company 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 2000, the Stockholders’ approved an increase in the
number of shares reserved for the Incentive Plan and Recognition Plan to a total
of 7,500,000. During June 2006, the Company adopted the NexMed, Inc.
2006 Stock Incentive Plan. A total of 3,000,000 shares were set aside
for the plan and an additional 2,000,000 shares were added to the plan in June
2008. Options granted under the Company’s plans generally vest over a
period of one to five years, with exercise prices of currently outstanding
options ranging between $0.55 to $12.00. The maximum term under these
plans is 10 years.
The
following table summarizes information about options outstanding, all of which
are exercisable, at December 31, 2009:
|
|
Options Outstanding
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
Aggregate
|
|
Range of
|
|
Number
|
|
Remaining
|
|
Weighted Average
|
|
|
Intrinsic
|
|
Exercise Prices
|
|
Outstanding
|
|
Contractual Life
|
|
Exercise Price
|
|
|
Value
|
|
$
|
.55
- 1.85
|
|
|
2,491,451
|
|
5.72
years
|
|
$
|
0.82
|
|
|
$
|
-
|
|
|
2.00
- 3.99
|
|
|
77,350
|
|
2.27
years
|
|
|
3.31
|
|
|
|
-
|
|
|
4.00
- 5.50
|
|
|
371,401
|
|
2.75
years
|
|
|
4.65
|
|
|
|
-
|
|
|
7.00
- 12.00
|
|
|
10,500
|
|
0.53
years
|
|
|
9.14
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,950,702
|
|
5.24
years
|
|
$
|
1.40
|
|
|
$
|
-
|
|
NexMed,
Inc.
|
Notes to Consolidated Financial
Statements
|
A summary
of stock option activity is as follows:
|
|
|
|
|
Weighted
|
|
Weighted
|
|
Total
|
|
|
|
|
|
|
Average
|
|
Average Remaining
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
Life
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January1, 2007
|
|
|
3,663,421
|
|
|
$
|
1.52
|
|
|
|
|
|
Granted
|
|
|
202,100
|
|
|
|
1.41
|
|
|
|
|
|
Exercised
|
|
|
(78,480
|
)
|
|
|
1.07
|
|
|
|
|
|
Cancelled
|
|
|
(317,200
|
)
|
|
|
2.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2007
|
|
|
3,469,841
|
|
|
$
|
1.41
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(55,000
|
)
|
|
$
|
0.73
|
|
|
|
|
|
Cancelled
|
|
|
(45,850
|
)
|
|
|
3.33
|
|
|
|
|
|
Outstanding
at December 31, 2008
|
|
|
3,368,991
|
|
|
$
|
1.40
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(418,289
|
)
|
|
$
|
1.40
|
|
|
|
|
|
Outstanding
at December 31, 2009
|
|
|
2,950,702
|
|
|
|
|
|
5.24 years
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
or expected to vest at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2009
|
|
|
2,950,702
|
|
|
$
|
1.40
|
|
5.24 years
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at December 31, 2009
|
|
|
2,950,702
|
|
|
$
|
1.40
|
|
5.24 years
|
|
$
|
0
|
|
Exercisable
at December 31, 2008
|
|
|
3,177,586
|
|
|
$
|
1.40
|
|
|
|
|
|
|
Exercisable
at December 31, 2007
|
|
|
3,122,740
|
|
|
$
|
1.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
available for grant at December 31, 2009
|
|
|
1,323,064
|
|
|
|
|
|
|
|
|
|
|
There
were no options granted during 2008 or 2009. The weighted average
grant date fair value of options granted during 2007 was $1.41. The
intrinsic value of options exercised during the year ended December 31, 2008 was
$43,270.
The fair
value of each stock option grant is estimated on the grant date using the
Black-Scholes option-pricing model with the following assumptions used for the
year ended December 31, 2007:
Dividend
yield
|
|
|
0.00
|
%
|
Risk-free
yields
|
|
|
1.35% - 5.02
|
%
|
Expected
volatility
|
|
|
54.38% - 103.51
|
%
|
Expected
option life
|
|
1 - 6 years
|
|
Forfeiture
rate
|
|
|
8.22
|
%
|
NexMed,
Inc.
|
Notes to Consolidated Financial
Statements
|
Expected Volatility.
The
Company uses analysis of historical volatility to compute the expected
volatility of its stock options.
Expected Term.
The expected
term is based on several factors including historical observations of employee
exercise patterns during the Company’s history and expectations of employee
exercise behavior in the future giving consideration to the contractual terms of
the stock-based awards.
Risk-Free Interest Rate
. The
interest rate used in valuing awards is based on the yield at the time of grant
of a U.S. Treasury security with an equivalent remaining term.
Dividend Yield
. The Company
has never paid cash dividends, and does not currently intend to pay cash
dividends, and thus has assumed a 0% dividend yield.
Pre-Vesting Forfeitures
.
Estimates of pre-vesting option forfeitures are based on Company experience. The
Company will adjust its estimate of forfeitures over the requisite service
period based on the extent to which actual forfeitures differ, or are expected
to differ, from such estimates. Changes in estimated forfeitures will be
recognized through a cumulative catch-up adjustment in the period of change and
will also impact the amount of compensation expense to be recognized in future
periods.
As of
December 31, 2009, there was not any unrecognized compensation cost related to
non-vested stock options.
Compensatory Share
Issuances
The value
of restricted stock grants is calculated based upon the closing stock price of
the Company’s Common Stock on the date of the grant. The value of the
grant is expensed over the vesting period of the grant in accordance with FASB
ASC 718 as discussed in Note 2. As of December 31, 2009 there was
$238,169 of total unrecognized compensation cost related to non-vested
restricted stock. That cost is expected to be recognized during
2010.
Principal
employee based compensation transactions for the year ended December 31, 2009
were as follows:
For the
years ended December 31, 2009, 2008 and 2007, the Company issued 253,488,
377,950 and 304,540 shares of common stock, respectively, to Board of
Directors members for services rendered, and recorded expenses related to such
issuances of $211,428, $480,829 and $288,998, respectively.
On
September 12, 2008, the Board of Directors approved new stock grants (“New Stock
Grants”) for Hemanshu Pandya, the Company’s then Chief Operating Officer and
Mark Westgate, the Company’s Chief Financial Officer, with each grant comprised
of 500,000 restricted shares of Common Stock. The two New Stock
Grants will vest in two equal installments on June 30, 2009 and June 30, 2010,
respectively, provided that Mr. Pandya and Mr. Westgate remain in continuous and
uninterrupted service with the Company. For the years ended December
31, 2009 and 2008, the Company recorded expenses of approximately $70,000 and
$35,000, respectively, for such grant.
NexMed,
Inc.
|
Notes to Consolidated Financial
Statements
|
The
following table indicates where the total stock-based compensation expense
resulting from stock options and awards appears in the Statements of
Operations:
|
|
Year Ended
|
|
|
|
December 31,
2009
|
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
Research
and development
|
|
$
|
86,210
|
|
|
$
|
71,833
|
|
|
$
|
111,108
|
|
General
and administrative
|
|
|
816,461
|
|
|
|
1,252,239
|
|
|
|
1,044,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stock-based compensation expense
|
|
$
|
902,671
|
|
|
$
|
1,324,072
|
|
|
$
|
1,155,832
|
|
The
stock-based compensation expense has not been tax-effected due to the recording
of a full valuation allowance against U.S. net deferred tax assets.
The
Company has entered into various capital leases for certain equipment used in
its laboratory and cell processing facility as of December 31, 2009. The lease
obligations are payable as follows:
|
|
Monthly
payment
|
|
|
Interest
rate
|
|
|
Number
of
payments
per lease
|
|
Maturity
date
|
|
Aggregate
remaining
principal
outstanding
at December
31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
1
|
|
$
|
384
|
|
|
|
10
|
%
|
|
|
60
|
|
12/1/2013
|
|
$
|
14,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
2
|
|
|
136
|
|
|
|
19.2
|
%
|
|
|
36
|
|
12/31/2011
|
|
|
2,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
3
|
|
|
441
|
|
|
|
13.7
|
%
|
|
|
60
|
|
2/1/2013
|
|
|
16,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
4
|
|
|
897
|
|
|
|
10
|
%
|
|
|
60
|
|
9/1/2013
|
|
|
41,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
5
|
|
|
1,483
|
|
|
|
13.8
|
%
|
|
|
60
|
|
12/1/2014
|
|
|
64,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
139,495
|
|
NexMed,
Inc.
|
Notes to Consolidated Financial
Statements
|
The
leases are secured by a first lien on the underlying equipment. At December 31,
2009, the assets held subject to capital leases totaled $147,138 and the related
accumulated depreciation was $6,149.
Future
maturities of capital lease obligations at December 31, 2009 are:
Years Ended
December 31,
|
|
Amount
|
|
|
|
|
|
2010
|
|
$
|
40,101
|
|
|
|
|
|
|
2011
|
|
|
40,101
|
|
|
|
|
|
|
2012
|
|
|
38,473
|
|
|
|
|
|
|
2013
|
|
|
31,374
|
|
|
|
|
|
|
2014
|
|
|
17,800
|
|
|
|
|
|
|
Total
|
|
|
167,849
|
|
|
|
|
|
|
Less
portion representing interest
|
|
|
28,354
|
|
|
|
|
|
|
Total
principal due at December 31, 2009
|
|
|
139,495
|
|
|
|
|
|
|
Less:
current maturities
|
|
|
24,530
|
|
|
|
|
|
|
Long-term
portion
|
|
$
|
114,965
|
|
13.
|
Stockholder
Rights Plan
|
On April
3, 2000, the Company declared a dividend distribution of one preferred share
purchase Right for each outstanding share of the Company's Common Stock to
shareholders of record at the close of business on April 21,
2000. One Right will also be distributed for each share of Common
Stock issued after April 21, 2000, until the Distribution Date described in the
next paragraph. Each Right entitles the registered holder to purchase
from the Company a unit consisting of one one-hundredths of a share (a Unit) of
Series A Junior Participating Preferred Stock, $.001 par value per share, at a
Purchase Price of $100.00 per Unit, subject to adjustment. Under the
Rights Plan, 1,000,000 shares of the Company’s preferred stock have been set
aside.
NexMed,
Inc.
|
Notes to Consolidated Financial
Statements
|
Initially,
the Rights will be attached to all Common Stock certificates representing shares
then outstanding, and no separate Rights Certificates will be
distributed. The Rights will separate from the Common Stock and a
Distribution Date will occur upon the earlier of (i) ten (10) business days
following a public announcement that a person or group of affiliated or
associated persons (an Acquiring Person) has acquired, or obtained the right to
acquire, beneficial ownership of 15% or more of the outstanding shares of Common
Stock , or (ii) ten (10) business days following the public announcement of a
tender offer or exchange offer that would, if consummated, result in a person or
group beneficially owning 15% or more of such outstanding shares of Common
Stock, subject to certain limitations.
Under the
terms of the Rights Agreement, Dr. Y. Joseph Mo, the Company’s former CEO, will
be permitted to increase his ownership to up to 25% of the outstanding shares of
Common Stock, without becoming an Acquiring Person and triggering a Distribution
Date.
On
January 16, 2007 the Rights Agreement was amended to exempt Southpoint Master
Fund, LP and its affiliates from becoming an Acquiring Person within the meaning
of the Rights Agreement, provided that Southpoint’s aggregate beneficial
ownership of the Company’s Common Stock is less than 20% of the shares of Common
Stock then outstanding.
On
December 8, 2009 the Rights Agreement was amended to exempt any
person who receives the Company’s Common Stock in satisfaction of the Notes
issued pursuant to the Bio-Quant Merger Agreement as discussed in Notes 3 and 9
above.
A summary
of warrant activity is as follows:
NexMed,
Inc.
|
Notes to Consolidated Financial
Statements
|
|
|
|
|
|
Weighted
|
|
Weighted
|
|
|
Common Shares
|
|
|
Average
|
|
Average
|
|
|
Issuable upon
|
|
|
Exercise
|
|
Contractual
|
|
|
Exercise
|
|
|
Price
|
|
Life
|
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2007
|
|
|
20,125,027
|
|
|
$
|
1.33
|
|
|
Issued
(Note 8)
|
|
|
450,000
|
|
|
$
|
1.52
|
|
|
Exercised
|
|
|
(2,790,495
|
)
|
|
$
|
1.83
|
|
|
Cancelled
|
|
|
(5,344,578
|
)
|
|
$
|
1.40
|
|
|
Outstanding
at December 31, 2007
|
|
|
12,439,954
|
|
|
$
|
1.23
|
|
|
Issued
(Note 8)
|
|
|
250,000
|
|
|
$
|
1.15
|
|
|
Exercised
|
|
|
(471,910
|
)
|
|
$
|
0.89
|
|
|
Cancelled
|
|
|
(100,000
|
)
|
|
$
|
1.52
|
|
|
Outstanding
at December 31, 2008
|
|
|
12,118,044
|
|
|
$
|
1.23
|
|
|
Issued
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(5,138,914
|
)
|
|
$
|
1.58
|
|
|
Outstanding
at December 31, 2009
|
|
|
6,979,130
|
|
|
$
|
1.03
|
|
1.03 years
|
Exercisable
at December 31, 2009
|
|
|
6,979,130
|
|
|
$
|
1.23
|
|
1.22
years
|
The
Company has incurred losses since inception, which have generated net operating
loss carryforwards of approximately $107 million for federal income tax
purposes. These carryforwards are available to offset future taxable
income and expire beginning in 2014 through 2028 for federal income tax
purposes. In addition, the Company has general business and research and
development tax credit carryforwards of approximately $2.4
million. 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. It is likely that such a limitation
will occur if most of the Bio-Quant notes are converted to common stock. 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 equity financing obtained
by the Company since its formation.
In 2007,
2008 and 2009,the Company was approved by the State of New Jersey to sell a
portion of its state tax credits pursuant to the Technology Tax Certificate
Transfer Program. The Company no longer has any significant NJ tax
credit benefits left available to sell at December 31, 2009, and was approved to
sell net operating loss tax benefits of $491,903 in 2009, $1,053,547 in 2008,
and $905,515 in 2007. The Company generated net revenues of $437,794,
$937,657, and $805,909 in 2009, 2008, and 2007, respectively, as a result of the
sale of the tax credits, which has been recognized as received as an income tax
benefit in the Consolidated Statements of Operations. There can be no
assurance that this program will continue in future years.
NexMed,
Inc.
|
Notes to Consolidated Financial
Statements
|
Deferred
tax assets consist of the following:
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Net
operating tax loss carryforwards
|
|
$
|
44,000,000
|
|
|
$
|
40,500,000
|
|
Research
and development tax credits
|
|
|
2,400,000
|
|
|
|
2,200,000
|
|
Deferred
compensation
|
|
|
300,000
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
Bases
of intangible assets
|
|
|
(1,660,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
deferred tax asset
|
|
|
45,040,000
|
|
|
|
43,000,000
|
|
Less
valuation allowance
|
|
|
(45,040,000
|
)
|
|
|
(43,000,000
|
)
|
Net
deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
The net
operating loss carryforwards and tax credit carryforwards resulted in a
noncurrent deferred tax benefit at December 31, 2009, 2008 and 2007 of
approximately $45, $43 million, and $39 million,
respectively. 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.
The
acquisition of Bio-Quant was the acquisition of the stock of
Bio-Quant. Therefore, the Company does not have the amortizable tax
bases in the intangible assets, including goodwill.
On
January 1, 2007, we adopted the provisions of ASC 740-10-25. ASC 740-10-25
provides recognition criteria and a related measurement model for uncertain tax
positions taken or expected to be taken in income tax returns. ASC 740-10-25
requires that a position taken or expected to be taken in a tax return be
recognized in the financial statements when it is more likely than not that the
position would be sustained upon examination by tax authorities. Tax positions
that meet the more likely than not threshold are then measured using a
probability weighted approach recognizing the largest amount of tax benefit that
is greater than 50% likely of being realized upon ultimate settlement. The
Company’s Federal income tax returns for 2001 to 2008 are still open and subject
to audit. The Company had no tax positions relating to open income
tax returns that were considered to be uncertain. Accordingly, we have not
recorded a liability for unrecognized tax benefits upon adoption of ASC
740-10-25. There continues to be no liability related to unrecognized tax
benefits at December 31, 2009.
The
reconciliation of income taxes computed using the statutory U.S. income tax rate
and the provision (benefit) for income taxes for the years ended December 31,
2009, 2008 and 2007 are as follows:
NexMed,
Inc.
|
Notes to Consolidated Financial
Statements
|
|
|
For
the years ended
|
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Federal
statutory tax rate
|
|
|
(35
|
)%
|
|
|
(35
|
)%
|
|
|
(35
|
)%
|
State
taxes, net of federal benefit
|
|
|
(6
|
)%
|
|
|
(6
|
)%
|
|
|
(6
|
)%
|
Valuation
allowance
|
|
|
41
|
%
|
|
|
41
|
%
|
|
|
41
|
%
|
Sale
of state net operating losses
|
|
|
(8.35
|
)%
|
|
|
(15.35
|
)%
|
|
|
(8.40
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
(benefit) for income taxes
|
|
|
(8.35
|
)%
|
|
|
(15.35
|
)%
|
|
|
(8.40
|
)%
|
For the
years ended December 31, 2009, 2008 and 2007, 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 offset by the
state tax benefit from the sale of the net operating losses in New Jersey and
other permanent differences.
16.
|
Commitments
and Contingencies
|
Equity
Compensation
The
Company has made commitments to issue equity awards to certain Officers of the
Company and employees of Bio-Quant. Such commitments will be
satisfied only upon approval by the shareholders of the Company to increase the
number of authorized shares in the NexMed, Inc. 2006 Stock Incentive Plan (the
“Plan”). Upon approval of the Plan, the Company will issue
approximately 2,371,000 restricted shares to certain Bio-Quant employees
pursuant to the provisions of the Plan. Additionally, the Company
will issue 3,750,000 shares to certain of its Officers pursuant to the
provisions of the Plan.
Operating
Leases
In
January 2007, Bio-Quant entered into a lease agreement for its headquarters
location in San Diego California expiring December 31, 2011. The headquarters
lease term contains a base rent of $18,400 per month with 4% annual escalations,
plus a real estate tax and operating expense charge to be determined
annually.
In
February 2008, Bio-Quant entered into a four year lease agreement for its second
location in San Diego California expiring December 31, 2015 as amended in
February 2010. The Lease term has a base rent of $13,065
per month, plus a real estate tax and operating expense charge to be determined
annually.
For the
period from Merger to December 31, 2009, rent expense under all operating
leases was approximately $18,000.
Future
minimum rental payments under the operating leases noted above are
approximately:
Years Ended
December 31,
|
|
Amount
|
|
|
|
|
|
2010
|
|
|
405,144
|
|
2011
|
|
|
420,167
|
|
2012
|
|
|
172,236
|
|
2013
|
|
|
177,396
|
|
2014
|
|
|
182,724
|
|
Thereafter
|
|
|
188,208
|
|
|
|
$
|
1,545,875
|
|
NexMed,
Inc.
|
Notes to Consolidated Financial
Statements
|
Employment
Agreements
We have
an employment agreement with Mr. Damaj, our President and Chief Executive
Officer. Pursuant to that agreement, we may terminate Mr. Damaj’s employment
without cause on ten days notice, in which event severance pay equal to twelve
months’ base salary. Under the employment agreement, if we had
terminated Mr. Damaj effective December 31, 2009, based on his 2009
compensation, he would have been paid an aggregate of $300,000, his 2009 base
salary and $100,000 of which represents twice his accrued 2009
bonus. The employment agreement further provides that in the event
that within one year after a “Change of Control” (as defined therein) of the
Company occurs, and the President and Chief Executive Officer’s employment is
terminated or resigns for cause, the President and Chief Executive Officer will
be paid a lump sum amount equal to their base salary for a 12-month period
following termination or resignation. Based on this change of control provision,
if there had been a change of control of the Company in 2009 and the President
and Chief Executive Officer’s employment had terminated effective December 31,
2009, either for “Good Reason” or without cause, then the President and Chief
Executive Officer would be entitled to termination pay equal to
$300,000.
Other
The
Company was a party to clinical research agreements with a clinical research
organization (“CRO”) in connection with a one-year open-label study for
Vitaros
®
with commitments by the Company that
initially totaled approximately $12.8 million. These agreements were
amended in October 2005 such that the total commitment was reduced to
approximately $4.2 million. These agreements provided that if the
Company canceled them prior to 50% completion, the Company will owe the higher
of 10% of the outstanding contract amount prior to the amendment or 10% of the
outstanding amount of the amended contract at the time of
cancellation. On September 30, 2008, the clinical research agreements
were cancelled as it was determined that the one-year open-label study would no
longer be required by the FDA for regulatory approval of Vitaros
®
. As
such, a cancellation fee of approximately $892,000 was accrued at September 30,
2008. Pursuant to the terms of the clinical research agreement, the
cancellation fee was not payable until December 15, 2008. On each of
December 31, 2008 and March 31, 2009, the Company paid $300,000 toward the total
cancellation fee. The balance of approximately $292,000 was paid on
July 7, 2009.
The
Company is a party to several short-term consulting and research agreements
that, generally, can be cancelled at will by either party.
We are
subject to certain legal proceedings in the ordinary course of
business. We do not expect any such items to have a significant
impact on our financial position.
17.
|
Segment
and Geographic Information
|
The
Company has two active business segments: designing and developing
pharmaceutical products and providing pre-clinical CRO services through its
subsidiary, Bio-Quant.
NexMed,
Inc.
|
Notes to Consolidated Financial
Statements
|
The
acquisition of Bio-Quant occurred on December 14, 2009 as discussed in Note 3
above. The revenue and expenses of Bio-Quant for the16 day period
ended December 31, 2009 are not material to present as a separate segment in
2009. Total assets of the CRO segment at December 31, 2009 are
approximately $15 million. Pro-forma information for NexMed and
Bio-Quant for the years ended December 31, 2009 and 2008 is shown in Note 3
above.
In
January 2010, the Company raised gross proceeds of $2.3 million in an offering
of unsecured promissory notes (the “2010 Notes”). The Notes accrue
interest at a rate of 10% per annum and are due and payable in full six months
from the date of issuance. The principal and accrued interest due under the
Notes is payable, at our election of the Company, in either cash or shares of
Common Stock, par value $0.001 per share (the “Shares”). The weighted
average conversion price of the Shares potentially issuable under the Notes is
$0.37 per Share, with the conversion prices ranging from $0.36 to $0.40 per
Share. Upon the maturity of the Notes, up to 6,243,243 Shares could
potentially be issued in satisfaction of the then outstanding principal and
accrued interest. The Notes may be prepaid at any time without
penalty.
On
January 26, 2010, the Company agreed to convert $397,988 of the outstanding
Convertible Notes (see Note 8) to Common Stock at a price of $0.50 per
share. As such, the Company issued 800,000 shares of Common Stock to
the note holders in repayment of such $397,988 principal amount plus
interest.
On March
17, 2010, the 2010 Notes were repaid in full with the issuance of 6,232,556
shares of common stock to repay such $2.3 million principal amount and
interest.
On March
2, 2010, the Company held a special meeting of stockholders to approve an
amendment to the Company’s Amended and Restated Articles of Incorporation to
increase the number of shares of Common Stock authorized for issuance by the
Company from 120,000,000 shares to 270,000,000 shares. The proposal
was approved at the special meeting and the amendment was filed with the Nevada
Secretary of State concurrently with the approval.
On
January 11, 2010, the Company converted $297,568.72 of outstanding principal of
the Notes issued in connection with the Bio-Quant acquisition (see Note 9) to
Common Stock at $0.168 per share, the fixed conversion price pursuant to the
terms of the Notes. As such, the Company issued 2,107,500 shares of
Common Stock to the note holders in repayment of such $297,568.72 principal
amount plus interest.
On March
17, 2010, the Company converted $1,934,160 of outstanding principal of the Notes
issued in connection with the Bio-Quant acquisition (see Note 9) to Common Stock
at $0.168 per share, the fixed conversion price pursuant to the terms of the
Notes. As such, the Company issued 12,940,654 shares of Common Stock
to the note holders in repayment of such $1,934,160 principal amount plus
interest.
On March
15, 2010, the Company issued convertible notes (the “2010 Convertible Notes”) in
an aggregate principal amount of $4 million to the holders of the Convertible
Notes discussed in Note 8 above.
The 2010 Convertible Notes
are collateralized by the Company’s facility in East Windsor, New Jersey and are
due on December 31, 2012. The proceeds were used to repay the
Convertible Notes then outstanding as discussed in Note 8 above. As
such, the Company received approximately $1.4 million in net
proceeds.
NexMed,
Inc.
|
Notes to Consolidated Financial
Statements
|
The
Convertible Notes are payable in cash or convertible into shares of Common Stock
at $0.58 per
share on
or before the Due Date at the holders’ option. The Convertible Notes
have a coupon rate of 7% per annum, which is payable at the Company’s option in
cash or, if the Company’s net cash balance is less than $3 million at the time
of payment, in shares of Common Stock. If paid in shares of Common
Stock, then the price of the stock issued will be the lesser of $0.08 below or
95% of the five-day weighted average of the market price of the Common Stock
prior to the time of payment. Such additional interest consideration
is considered contingent and therefore would only be recognized upon
occurrence.
The
Company has 126,902,281 shares of Common Stock issued and outstanding as of the
date of this report as a result of the repayment of the promissory notes in 2010
as discussed above.
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
|
ITEM 9A(T).
|
CONTROLS
AND PROCEDURES.
|
In
accordance with Exchange Act Rules 13a-15(e) and 15d-15(e), the Company’s
management carried out an evaluation with participation of the Company’s Chief
Executive Officer and Chief Financial Officer, its principal executive officer
and principal financial officer, respectively, of the effectiveness of the
Company’s disclosure controls and procedures as of the end of the period covered
by this report. Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded as of the end of the period
covered by this report that the Company’s disclosure control and procedures are
effective. There were no changes in the Company’s internal controls
over financial reporting identified in connection with the evaluation by the
Chief Executive Officer and Chief Financial Officer that occurred during the
Company’s fourth quarter that have materially affected or are reasonably likely
to materially affect the Company’s internal control over financial
reporting.
Management’s
Report on Internal Control over Financial Reporting
Our
Management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rule
13a-15(f). Under the supervision and with the participation of our
management, including our principal executive officer and principal financial
officer, we conducted an evaluation of the effectiveness of our internal control
over financial reporting based on the framework in
Internal Control – Integrated
Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on our evaluation under such framework,
our management concluded that our internal control over financial reporting was
effective as of December 31, 2009.
As
permitted by the Exchange Act Rules, we did not conduct an evaluation of
the effectiveness of internal controls of our CRO services division as
that division came into existence with the acquisition of Bio-Quant
on December 14, 2009. The effectiveness of internal controls of the CRO
services division will be evaluated as of December 31, 2010.
This
annual report does not include an attestation report of the Company’s
independent registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by the
Company’s independent registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit the Company to
provide only management’s report in this annual report
.
ITEM 9B.
|
OTHER
INFORMATION.
|
None.
PART III.
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE.
|
Information
called for by Item 10 is set forth under the heading “Election of Directors” and
“Committees of the Board” in our Proxy Statement for the 2010 Annual Meeting,
which is incorporated herein by reference, and “Executive Officers of the
Registrant” of Part I of this Report.
ITEM 11.
|
EXECUTIVE
COMPENSATION.
|
Information called for by Item 11 is
set forth under the headings “Executive Compensation” and “Directors
Compensation” in our Proxy Statement for the 2010 Annual Meeting, which is
incorporated herein by reference.
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
|
Other
than as set forth below, information called for by Item 12 is set forth under
the heading “Security Ownership of Certain Beneficial Owners and Management” in
our Proxy Statement for the 2010 Annual Meeting, which is incorporated herein by
reference.
EQUITY
COMPENSATION PLAN INFORMATION
The
following table gives information as of December 31, 2009, about shares of our
Common Stock that may be issued upon the exercise of options, warrants and
rights under all of our existing equity compensation plans (together, the
"Equity Plans"):
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
Plan category
|
|
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
|
|
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
|
|
|
Number of securities remaining available
for future issuance under equity
compensation plans (excluding securities
reflected in column (a))
|
|
Equity
compensation plans approved by security holders
|
|
|
2,950,702
|
(1)
|
|
$
|
1.40
|
|
|
|
1,323,064
|
(2)
|
Equity
compensation plans not approved by security holders
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
2,950,702
|
|
|
$
|
1.40
|
|
|
|
1,323,064
|
|
(1)
Consists of options outstanding at December 31, 2009 under The NexMed Inc. Stock
Option and Long Term Incentive Plan (the "Incentive Plan") and The NexMed, Inc.
2006 Stock Incentive Plan (the "2006 Plan").
(2)
Consists of zero and 1,323,0643 shares of Common Stock that remain available for
future issuance, at December 31, 2009, under the Incentive Plan and 2006 Plan,
respectively.
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
|
Information called for by Item 13 is
set forth under the headings “Transactions with Related Persons, Promoters and
Certain Control Persons” and “Corporate Governance” in our Proxy Statement for
the 2010 Annual Meeting, which is incorporated herein by reference.
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES.
|
Information
called for by item 14 is set forth under the heading “Principal Accountant Fees
and Services” in our Proxy Statement for the 2010 Annual Meeting, which is
incorporated herein by reference.
PART
IV.
ITEM
15.
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES.
|
|
(a)
|
1.
|
Financial
Statements
:
|
The
information required by this item is included in Item 8 of Part II of this Form
10-K.
|
2.
|
Financial Statement
Schedules
|
EXHIBITS
NO.
|
|
DESCRIPTION
|
2.1
|
|
Agreement
and Plan of Merger by and among the Company, BQ Acquisition Corp.,
Bio-Quant, Inc., and certain other parties listed therein, dated as of
November 20, 2009 (incorporated herein by reference to Exhibit 2.1 to the
Company’s Form 8-K filed with the Securities and Exchange Commission on
November 23, 2009).
|
|
|
|
3.1
|
|
Amended
and Restated Articles of Incorporation of the Company.
|
|
|
|
3.2
|
|
Amended
and Restated By-laws of the Company (incorporated herein by reference to
Exhibit 3.1 to the Company’s Form 10-Q filed with the Securities and
Exchange Commission on May 14, 2003).
|
|
|
|
3.3
|
|
Certificate
of Amendment to Articles of Incorporation of the Company, dated June 22,
2000 (incorporated herein by reference to Exhibit 3.2 to the Company’s
Form 10-K filed with the Securities and Exchange Commission on March 31,
2003).
|
|
|
|
3.4
|
|
Certificate
of Amendment to the Company’s Articles of Incorporation, dated June 14,
2005. (incorporated herein by reference to Exhibit 3.4 to the Company’s
Form 10-K filed with the Securities and Exchange Commission on March 16,
2006).
|
|
|
|
3.5
|
|
Second
Amended and Restated By-Laws of the Company, effective as of April 18,
2008 (incorporated herein by reference to Exhibit 3.1 to the Company’s
Current Report on Form 8-K filed with the Securities and Exchange
Commission on April 24,
2008).
|
3.6
|
|
Certificate
of Amendment to Amended and Restated Articles of Incorporation of the
Company, dated March 3, 2010.
|
|
|
|
3.7
|
|
Certificate
of Correction to Certificate of Amendment to Amended and Restated Articles
of Incorporation of the Company, dated March 3, 2010.
|
|
|
|
4.1
|
|
Form
of Common Stock Certificate (incorporated herein 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).
|
|
|
|
4.2
|
|
Rights
Agreement and form of Rights Certificate (incorporated herein by reference
to Exhibit 4 to the Company’s Current Report on Form 8-K filed with the
Commission on April 10, 2000).
|
|
|
|
4.3
|
|
Certificate
of Designation of Series A Junior Participating Preferred Stock
(incorporated herein by reference to Exhibit 4 to the Company’s Current
Report on Form 8-K filed with the Commission on April 10,
2000).
|
|
|
|
4.4
|
|
Form
of Warrant dated April 21, 2003 (incorporated herein by reference to
Exhibit 4.2 to the Company’s Form 10-Q filed with the Securities and
Exchange Commission on May 14, 2003).
|
|
|
|
4.5
|
|
Form
of Common Stock Purchase Warrant dated July 2, 2003 (incorporated herein
by reference to Exhibit 4.3 to the Company’s Registration Statement on
Form S-3 filed with the Securities and Exchange Commission on July 17,
2003).
|
|
|
|
4.6
|
|
Form
of Warrant dated June 18, 2004 (incorporated herein by reference to
Exhibit 4.1 to the Company’s Form 8-K filed with the Securities and
Exchange Commission on June 25, 2004).
|
|
|
|
4.7
|
|
Form
of Common Stock Purchase Warrant A, dated December 17, 2004 (incorporated
herein by reference to Exhibit 4.1 to the Company’s Current Report on Form
8-K filed with the Securities and Exchange Commission on December 23,
2004).
|
|
|
|
4.8
|
|
Form
of Warrant, dated May 17, 2005 (incorporated herein by reference to
Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on May 19, 2005).
|
|
|
|
4.9
|
|
Form
of Warrant, dated January 23, 2006 (incorporated herein by reference to
Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on January 27,
2006).
|
|
|
|
4.10
|
|
Form
of Warrant, dated November 30, 2006 (incorporated herein by reference to
Exhibit 4.1 to the Company’s Form 8-K filed with the Securities and
Exchange Commission on December 4, 2006).
|
|
|
|
4.11
|
|
Form
of Warrant, dated December 20, 2006 (incorporated herein by reference to
Exhibit 4.1 to the Company’s Form 8-K filed with the Securities and
Exchange Commission on December 21, 2006).
|
|
|
|
4.12
|
|
Amendment
No. 1 to Rights Agreement, dated as of January 16, 2007 (incorporated
herein by reference to Exhibit 4.1 to the Company’s Form 8-K filed with
the Securities and Exchange Commission on January 22,
2007).
|
|
|
|
4.13
|
|
Form
of Warrant, dated October 26, 2007 (incorporated herein by reference to
Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on October 31,
2007).
|
|
|
|
4.14
|
|
Form
of Warrant (incorporated herein by reference to Exhibit 4.4 to the
Company’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on July 29,
2008).
|
4.15
|
|
Amendment
No. 2 to Rights Agreement dated as of December 8, 2009 (incorporated
herein by reference to Exhibit 4.1 filed with the Company’s Form 8-K filed
on December 10, 2009).
|
10.1*
|
|
Amended
and Restated NexMed, Inc. Stock Option and Long-Term Incentive
Compensation Plan (incorporated herein by reference to Exhibit 10.1 filed
with the Company's Form 10-Q filed with the Securities and Exchange
Commission on May 15, 2001).
|
|
|
|
10.2*
|
|
The
NexMed, Inc. Recognition and Retention Stock Incentive Plan (incorporated
herein by reference to Exhibit 99.1 filed with the Company's Form 8-K
filed with the Securities and Exchange Commission on May 28,
2004).
|
|
|
|
10.3
|
|
License
Agreement dated March 22, 1999 between NexMed International Limited and
Vergemont International Limited (incorporated herein by
reference to Exhibit 10.7 of the Company’s Form 10-KSB filed with the
Securities and Exchange Commission on March 16, 2000).
|
|
|
|
10.4*
|
|
The
NexMed, Inc. Non-Qualified Stock Option Plan (incorporated herein 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).
|
|
|
|
10.5*
|
|
Employment
Agreement dated February 26, 2002 by and between NexMed, Inc. and Dr.
Y. Joseph Mo (incorporated herein by reference to Exhibit
10.7 of the Company's Form 10-K filed with the Securities and Exchange
Commission on March 29, 2002).
|
|
|
|
10.6
|
|
Registration
Rights Agreement between the Company and The Tailwind Fund Ltd. and
Solomon Strategic Holdings, Inc. dated June 11, 2002 (incorporated herein
by reference to Exhibit 10.2 to the Company's Form 10-Q filed with the
Securities and Exchange Commission on August 14, 2002).
|
|
|
|
10.7
|
|
Investor
Rights Agreement, dated as of April 21, 2003, between the Company and the
Purchasers identified on Schedule 1 to the Investor Rights Agreement
(incorporated herein by reference to Exhibit 10.2 to the Company’s Form
10-Q filed with the Securities and Exchange Commission on May 14,
2003).
|
|
|
|
10.8
|
|
Investor
Rights Agreement, dated as of July 2, 2003, between the Company and the
Purchasers identified on Schedule 1 to the Investor Rights Agreement
(incorporated herein by reference to Exhibit 10.2 to the Company’s
Registration Statement on Form S-3 filed with the Securities and Exchange
Commission on July 17, 2003).
|
|
|
|
10.9*
|
|
Amendment
dated September 26, 2003 to Employment Agreement by and between Dr. Y.
Joseph Mo and NexMed, Inc. dated February 26, 2002 (incorporated herein by
reference to Exhibit 10.4 to the Company's Form 10-Q filed with the
Securities and Exchange Commission on November 12,
2003).
|
|
|
|
10.10
|
|
Registration
Rights Agreement, dated as of December 12, 2003, between the Company and
the Purchasers named therein (incorporated herein by reference to Exhibit
10.2 to the Company’s Registration Statement on Form S-3 filed with the
Securities and Exchange Commission on January 13,
2004).
|
|
|
|
10.11
|
|
Form
of 5% Convertible Note due May 31, 2007 (incorporated herein by reference
to Exhibit 10.3 to the Company’s Registration Statement on Form S-3 filed
with the Securities and Exchange Commission on January 13,
2004).
|
|
|
|
10.12
|
|
Investor
Rights Agreement, dated as of June 18, 2004, between the Company and the
Purchasers identified on Schedule 1 thereto (incorporated herein by
reference to Exhibit 10.2 to the Company’s Form 8-K filed with the
Securities and Exchange Commission on June 25, 2004).
|
|
|
|
10.13*
|
|
Stock
Option Grant Agreement between the Company and Leonard A. Oppenheim dated
November 1, 2004 (incorporated herein by reference to Exhibit 10.2 to the
Company’s Form 10-Q filed with the Securities and Exchange Commission on
November 9,
2004).
|
10.14*
|
|
Form
of Stock Option Grant Agreement between the Company and its Directors
(incorporated herein by reference to Exhibit 10.29 to the Company’s Form
10-K filed with the Securities and Exchange Commission on March 16,
2006).
|
|
|
|
10.15
|
|
Investor
Rights Agreement, dated as of December 17, 2004, between the Company and
the Purchasers named therein (incorporated herein by reference to Exhibit
10.2 to the Company’s Current Report on Form 8-K filed with the Securities
and Exchange Commission on December 23, 2004).
|
|
|
|
10.16
|
|
Preferred
Stock and Warrant Purchase Agreement, dated as of May 16, 2005, between
the Company and the Purchasers named therein (incorporated herein by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed with the Securities and Exchange Commission on May 19,
2005).
|
|
|
|
10.17
|
|
Investor
Rights Agreement, dated as of May 16, 2005, between the Company and the
Purchasers named therein (incorporated herein by reference to Exhibit 10.2
to the Company’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on December 23, 2004).
|
|
|
|
10.18+
|
|
License
Agreement, dated September 13, 2005, between NexMed, Inc., NexMed
International Limited and Novartis International Pharmaceutical Ltd.
(incorporated herein by reference to Exhibit 99.1 to the Company’s Current
Report on Form 8-K filed with the Securities and Exchange Commission on
September 15, 2005).
|
|
|
|
10.19
|
|
Common
Stock and Warrant Purchase Agreement, dated as of January 23, 2006,
between the Company and the Purchasers named therein (incorporated herein
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed with the Securities and Exchange Commission on January 27,
2006).
|
|
|
|
10.20
|
|
Investor
Rights Agreement, dated as of January 23, 2006, between the Company and
the Purchasers named therein (incorporated herein by reference to Exhibit
10.2 to the Company’s Current Report on Form 8-K filed with the Securities
and Exchange Commission on January 27, 2006).
|
|
|
|
10.21*
|
|
Employment
Agreement dated December 21, 2005 by and between NexMed, Inc. and Mark
Westgate (incorporated herein by reference to Exhibit 10.31 to the
Company’s Form 10-K filed with the Securities and Exchange Commission on
March 16, 2006).
|
|
|
|
10.22
|
|
Common
Stock and Warrant Purchase Agreement, dated January 23, 2006 (incorporated
herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed with
the Securities and Exchange Commission on January 27,
2006).
|
|
|
|
10.23*
|
|
NexMed,
Inc. 2006 Stock Incentive Plan (incorporated herein by reference to Annex
A of the Company’s Definitive Proxy Statement filed with the Securities
and Exchange Commission on April 6, 2006).
|
|
|
|
10.24
|
|
Securities
Purchase Agreement, dated November 30, 2006, between NexMed, Inc., NexMed
(U.S.A.), Inc. and Metronome LPC 1, Inc. (incorporated herein by reference
to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and
Exchange Commission on December 4, 2006).
|
|
|
|
10.25
|
|
Senior
Secured Note, dated November 30, 2006, in favor of Metronome LPC 1, Inc.
(incorporated herein by reference to Exhibit 10.2 to the Company’s Form
8-K filed with the Securities and Exchange Commission on December 4,
2006).
|
10.26
|
|
Common
Stock and Warrant Purchase Agreement, dated December 20, 2006
(incorporated herein by reference to Exhibit 10.1 to the Company’s Form
8-K filed with the Securities and Exchange Commission on December 21,
2006).
|
|
|
|
10.27
|
|
Registration
Rights Agreement, dated December 20, 2006 (incorporated herein by
reference to Exhibit 10.2 to the Company’s Form 8-K filed with the
Securities and Exchange Commission on December 21,
2006).
|
|
|
|
10.28
|
|
Amendment,
effective as of February 13, 2007, to License Agreement between Novartis
International Pharmaceutical Ltd., NexMed, Inc. and NexMed International
Limited, dated September 13, 2005 (incorporated herein by reference to
Exhibit 99.1 to the Company’s Form 8-K filed with the Securities and
Exchange Commission on February 23, 2007).
|
|
|
|
10.29
+
|
|
License
Agreement dated November 1, 2007 between NexMed, Inc. and Warner Chilcott
Company, Inc (incorporated herein by reference to Exhibit 10.31 to the
Company’s Form 10-K filed with the Securities and Exchange Commission on
March 12, 2008).
|
|
|
|
10.30
|
|
Securities
Purchase Agreement, dated October 26, 2007, between NexMed, Inc. and Twin
Rivers Associates, LLC. (incorporated herein by reference to Exhibit 10.1
to the Company’s Current Report 8-K filed with the Securities and Exchange
Commission on October 31, 2007).
|
|
|
|
10.31
|
|
Senior
Secured Note dated October 26, 2007, between NexMed, Inc. and Twin Rivers
Associates, LLC. (incorporated herein by reference to Exhibit 10.2 to the
Company’s Current Report 8-K filed with the Securities and Exchange
Commission on October 31, 2007).
|
|
|
|
10.32
|
|
Form
of Binding Commitment for Credit Line, dated May 12, 2008 (incorporated
herein by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed with the Securities and Exchange Commission on May 14,
2008).
|
|
|
|
10.33
|
|
Side
Letter, effective June 27, 2008, to License Agreement between Novartis
International Pharmaceutical Ltd., NexMed, Inc. and NexMed International
Limited, dated September 13, 2005 (incorporated herein by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on July 1, 2008).
|
|
|
|
10.34
|
|
Form
of Purchase Agreement (incorporated herein by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on July 3, 2008).
|
|
|
|
10.35
|
|
Form
of Note (incorporated herein by reference to Exhibit 10.2 to the Company’s
Current Report on Form 8-K filed with the Securities and Exchange
Commission on July 3, 2008).
|
|
|
|
10.36
|
|
Form
of Registration Rights Agreement (incorporated herein by reference to
Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on July 3, 2008).
|
|
|
|
10.37
|
|
Form
of Mortgage, Security Agreement and Assignment of Leases and Rents
(incorporated herein by reference to Exhibit 10.4 to the Company’s Current
Report on Form 8-K filed with the Securities and Exchange Commission on
July 3, 2008).
|
|
|
|
10.38
|
|
Form
of Subsidiary Guaranty (incorporated herein by reference to Exhibit 10.5
to the Company’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on July 3, 2008).
|
|
|
|
10.39
*
|
|
NexMed,
Inc. Amendment to 2006 Stock Incentive Plan (incorporated by reference to
Appendix A of the Company’s Definitive Proxy Statement filed with the
Securities and Exchange Commission on April 18,
2008).
|
10.40
|
|
Asset
Purchase Agreement, dated February 3, 2009, between Warner Chilcott
Company, Inc. and NexMed, Inc. (incorporated herein by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on February 5,
2009).
|
|
|
|
10.41
|
|
License
Agreement, dated February 3, 2009, between Warner Chilcott Company, Inc.
and NexMed, Inc. (incorporated herein by reference to Exhibit 10.2 to the
Company’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on February 5, 2009).
|
|
|
|
10.42*
|
|
Amended
and Restated Employment Agreement, dated December 14, 2009, by and between
NexMed, Inc. and Vivian H. Liu.
|
|
|
|
10.43*
|
|
Employment
Agreement, dated December 14, 2009, by and between NexMed, Inc. and Bassam
Damaj, Ph.D.
|
|
|
|
10.44
|
|
Purchase
Agreement, dated March 15, 2010, by and between NexMed, Inc. and the
Purchasers named therein.
|
|
|
|
10.45
|
|
Registration
Rights Agreement, dated March 15, 2010.
|
|
|
|
10.46
|
|
Form
of 7% Convertible Note Due December 31, 2012.
|
|
|
|
10.47
|
|
NexMed,
Inc. Subscription Agreement and Instructions.
|
|
|
|
10.48
|
|
Form
of Unsecured Promissory Note.
|
|
|
|
21
|
|
Subsidiaries.
|
|
|
|
23.1
|
|
Consent
of Amper, Politziner & Mattia, LLP, independent registered public
accounting firm.
|
|
|
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31.1
|
|
Chief
Executive Officer's Certificate, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
31.2
|
|
Chief
Financial Officer's Certificate, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
32.1
|
|
Chief
Executive Officer's Certificate, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
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32.2
|
|
Chief
Financial Officer's Certificate, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
*Management
compensatory plan or arrangement required to be filed as an exhibit pursuant to
Item 15(c) of Form 10-K.
+
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment with the Securities and Exchange Commission. Such
portions have been filed separately with the Securities and Exchange
Commission.
SIGNATURES
Pursuant
to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
NEXMED,
INC.
Dated: March
31, 2010
|
By:
|
/s/
Bassam Damaj
|
|
|
Bassam
Damaj
President
and Chief Executive
Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
SIGNATURE
|
|
TITLE
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DATE
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|
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|
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/s/ Bassam Damaj
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Director,
President and Chief Executive Officer
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March
31, 2010
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BASSAM
DAMAJ
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(principal
executive officer)
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/s/ Mark Westgate
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Vice
President, Chief Financial Officer (principal
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MARK
WESTGATE
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financial
officer and principal accounting officer)
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/s/ Vivian H. Liu
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Chairman
of the Board of Directors
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VIVIAN
H. LIU
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/s/ Henry Esber
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HENRY
ESBER
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Director
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/s/ Leonard A. Oppenheim
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LEONARD
A. OPPENHEIM
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Director
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/s/ Roberto Crea
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ROBERTO
CREA
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Director
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/s/ Russell Ray
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Director
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RUSSELL
RAY
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/s/ Richard J. Berman
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RICHARD
J. BERMAN
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Director
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|
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Exhibit 3.6
Exhibit 3.7
EXHIBIT
10.42
AMENDED
AND RESTATED
EMPLOYMENT
AGREEMENT
This AMENDED AND RESTATED EMPLOYMENT
AGREEMENT (the “
Agreement
”), dated
December 14, 2009 (the “
Effective Date
”), is
made and entered into by and between NexMed, Inc., a Nevada corporation (the
“
Company
”) and
Vivian H. Liu (the “
Executive
”), and
amends and restates that certain Employment Agreement between the parties, dated
October 3, 2007 (the “
Prior
Agreement
”).
WHEREAS, the Company desires to
continue to employ Executive and to enter into this Agreement in connection with
the Company’s acquisition of Bio-Quant, Inc. pursuant to that certain Agreement
and Plan of Merger by and among the Company, BQ Acquisition Corp., Bio-Quant,
Inc. and certain other parties thereto (the “
Merger
Agreement
”);
WHEREAS, the Company considers it
essential to its best interests and the best interests of its stockholders to
foster the continued employment of Executive by the Company during the term of
this Agreement; and
WHEREAS, Executive is willing to accept
and continue her employment on the terms hereinafter set forth in this Agreement
and to forego any severance payments to which she may otherwise be entitled
under the Prior Agreement.
NOW, THEREFORE, in consideration of the
premises and mutual covenants herein and for other good and valuable
consideration, the parties agree as follows:
1.
|
Term of
Employment
. Subject to the terms and conditions set forth in
Section 6 of this Agreement, Executive’s employment with the Company shall
be “at will,” and the Company and Executive shall each have the right to
terminate Executive’s employment hereunder. The term of Executive’s
employment hereunder is referred to herein as the “
Employment
Term
.”.
|
|
(a)
|
During
the Employment Term, Executive shall be employed by the Company as
Executive Vice President, and shall have such duties, authority, and
responsibility as are commensurate with her position, subject to the
direction of the Company's Board of Directors (the “
Board
”).
|
|
(b)
|
During
the Employment Term, Executive shall devote all of her business time and
attention to the performance of her duties hereunder faithfully and to the
best of her abilities and shall not undertake employment with, or
participate in, the conduct of the business affairs of any other person,
corporation, or entity;
provided
, that
nothing shall preclude Executive from (i) with the prior approval of the
Board, serving as a director, trustee or member of another business
organization or (ii) participating in the affairs of any recognized
charitable organizations, or in any community affairs, of Executive's
choice.
|
|
(c)
|
Executive's
duties hereunder shall be performed for the Company worldwide, with
principal business activities expected to be at the Company's offices in
East Windsor, New Jersey and/or San Diego,
California.
|
|
(a)
|
Base Salary
.
During the Employment Term, the Company shall pay Executive a base salary,
subject to increase at the discretion of the Board, at the annual rate of
$280,000 (the “
Base Salary
”),
payable in regular installments in accordance with the Company's usual
payroll practices.
|
|
(i)
|
Annual Bonus
.
With respect to each calendar year during the Employment Term, Executive
shall be eligible to earn an annual bonus award (the “
Bonus
”) in an
amount not to exceed 50% of Executive’s annual Base Salary. The amount of
the Bonus shall be determined by the Board, or the Compensation Committee
of the Board (the “
Compensation
Committee
”), in its sole discretion, based upon the achievement by
the Company of objective performance measures established and determined
by the Board or the Compensation Committee in consultation with Executive
no later than the end of the first month of such calendar year. The Bonus,
if any, with respect to each calendar year in the Employment Term shall be
paid as promptly as practicable following the delivery of the Company's
audited financial statements for such year, but not later than March 15 of
the calendar year following the calendar year for which the Bonus is
payable. Unless otherwise stated herein, the Bonus shall not accrue until
the date on which it is paid, and Executive must be employed on the date
the Bonus is paid in order to receive the
Bonus.
|
|
(ii)
|
Signing Bonus
.
In addition to the Bonus, Executive will receive a one-time signing bonus
of $50,000, payable in two installments of $25,000 each due 60 and 90 days
from the Effective Date (the “
Signing
Bonus
”).
|
|
(iii)
|
Incentive
Bonus
. In addition to the Bonus and the Signing Bonus, Executive
shall be entitled to receive a one-time bonus with a value of $100,000,
payable one-half in cash and one-half in Company common stock (valued at
the fair market value of the stock one day prior to the date of payment)
(the “
Incentive
Bonus
”). The Incentive Bonus shall be earned, if at all, within a
one-year period from the Effective Date upon the achievement of certain
performance and integration goals to be established by the Company’s
Compensation Committee. Upon the achievement of such goals, Executive’s
right to receive the Incentive Bonus shall be fully vested and not subject
to any further performance or service requirements. The Incentive Bonus,
to the extent earned, shall be paid only upon the Executive’s termination
of service with the Company.
|
|
(c)
|
Stock Option
Grants
. The Compensation Committee shall consider annually whether
to grant any equity-based compensation awards to the Executive in
accordance with the terms and subject to the conditions of the Company’s
equity compensation plans.
|
|
(d)
|
Other Equity
Awards
.
|
|
(i)
|
Commencing
with the execution of this Agreement and each anniversary thereafter
during the Employment Term, the Executive shall receive an annual grant of
restricted common stock from the Company’s equity compensation plans with
a grant-date fair value of $20,000 (measured with reference to the
Company’s closing stock price on the NASDAQ stock market on the date of
grant) and that vests over a one-year period from the date of grant. The
unvested shares shall be subject to a right of reacquisition by the
Company to the extent that the Executive does not remain in the continuous
service of the Company during the vesting period. This grant is subject to
the Company’s stockholders approving an increase in the number of shares
available under the Company’s equity compensation
plans.
|
|
(ii)
|
Commencing
with the execution of this Agreement and each anniversary thereafter
during the Employment Term, the Executive shall receive an annual grant of
250,000 shares of restricted common stock from the Company’s equity
compensation plans that vests over a one-year period from the date of
grant. This grant is subject to the Company’s stockholders approving an
increase in the number of shares available under the Company’s equity
compensation plans.
|
|
(iii)
|
As
promptly as practicable after the execution of this Agreement, Executive
shall be awarded one-time stock grant consisting of 1,000,000 shares of
the Company’s common stock. The shares shall be fully vested on the date
of grant.
|
|
(e)
|
Relocation
Expenses
. In connection with Executive’s planned move to San Diego,
California, which is expected to be completed within six months following
the consummation of this Agreement, the Company will pay $25,000 to
Executive for such relocation, payable in a lump sum on the Effective
Date.
|
4.
|
Employee
Benefits
. During the Employment Term, Executive shall be eligible
for inclusion, to the extent permitted by law, as a full-time employee of
the Company or any of its subsidiaries, in any and all of the following
plans, programs, and policies in effect at the time: (i) pension, profit
sharing, savings, and other retirement plans and programs, (ii) life and
health (medical, dental, hospitalization, short-term and long-term
disability) insurance plans and programs, (iii) stock option and stock
purchase plans and programs, (iv) accidental death and dismemberment
protection plans and programs, (v) travel accident insurance plans and
programs, (vi) vacation policy (Executive shall have six weeks of paid
vacation per calendar year), and (vii) other plans and programs sponsored
by the Company or any subsidiary for employees or executives generally,
including any and all plans and programs that supplement any or all of the
foregoing types of plans or programs. Nothing in this Agreement shall
preclude the Company or any of its subsidiaries or affiliates from
terminating or amending any employee benefit plan or program from time to
time after the date of this
Agreement.
|
5.
|
Business Expenses and
Perquisites
. The Company shall reimburse to Executive, or pay
directly, all reasonable expenses incurred by Executive in connection with
the business of the Company, and its subsidiaries and affiliates,
including but not limited to business-class travel, reasonable
accommodations, and entertainment, subject to documentation in accordance
with the Company's policy.
|
6.
|
Termination
.
Subject to this Section 6, either party may terminate this Agreement at
any time and from time to time. In the event of the termination of
Executive's employment, the Employment Term shall end on the day of such
termination.
|
|
(a)
|
By the Company for
Cause
. The Company may, for Cause, terminate Executive’s employment
hereunder at any time by written notice to Executive. For purposes of this
Agreement, the term “
Cause
” shall
mean Executive’s (i) engaging in fraud against the Company or
misappropriation of funds of the Company, (ii) disregard or failure to
follow specific and reasonable directives of the Board, (iii) willful
failure to perform her duties as Executive Vice President of the Company,
(iv) willful misconduct resulting in material injury to the Company, (v)
violation of the terms of the Intellectual Property Agreement referred to
in Section 11 below, (vi) conviction of, or Executive’s plea of guilty or
no contest to, a felony or any crime involving as a material element fraud
or dishonesty, or (vii) material breach (not covered by clauses (i)
through (vi) of this paragraph) of any of the other provisions of this
Agreement;
provided
, that, in the
case of subclauses (ii), (iii) or (vii), Cause shall not exist if the act
or omission deemed to constitute Cause is cured (if curable) by Executive
within thirty (30) days after written notice thereof to Executive by the
Company. For purposes of the foregoing, no act, or failure to act, on
Executive’s part shall be considered “willful” unless done, or omitted to
be done, by Executive other than in good faith, and without reasonable
belief that her action or omission was in furtherance of the interests of
the Company.
|
In the
event of the termination of Executive’s employment under this Section 6(a) for
Cause, the Employment Term shall end on the day of such termination and the
Company shall pay to Executive, no later than the payroll cycle following
Executive’s termination, in one lump sum: (i) any accrued but unpaid Base
Salary, less applicable deductions, including salary in respect of any accrued
and accumulated vacation due to Executive at the date of such termination; and
(ii) any amounts owing, but not yet paid, pursuant to Section 5
hereof.
Except as
specifically set forth in Section 9 hereof, the Company shall have no further
obligations to Executive under this Agreement
|
(b)
|
Disability or
Death
. If Executive should suffer a Permanent Disability, the
Company may terminate Executive’s employment hereunder upon ten (10) or
more days’ prior written notice to Executive. If Executive should pass
away during the term of this Agreement, Executive’s employment shall be
deemed terminated on his date of death. For purposes of this Agreement, a
“
Permanent
Disability
” shall be deemed to have occurred only when Executive
has qualified for benefits (including satisfaction of any applicable
waiting period) under the Company’s or a subsidiary’s long-term disability
insurance arrangement. In the event of the termination of Executive’s
employment hereunder by reason of Permanent Disability or death, the
Employment Term shall end on the day of such termination and the Company
shall pay, no later than the payroll cycle following Executive’s
termination, to Executive or Executive’s legal representative (in the
event of Permanent Disability), or any beneficiary or beneficiaries
designated by Executive to the Company in writing, or to Executive’s
estate if no such beneficiary has been so designated (in the event of
Executive’s death), a single lump sum payment of: (i) any accrued but
unpaid Base Salary, less applicable deductions, including salary in
respect of any accrued and accumulated vacation, due to Executive at the
date of such termination; (ii) any amounts owing, but not yet paid,
pursuant to Section 5 hereof.
|
In
addition, upon a termination under this Section 6(b), and upon the satisfaction
of the conditions set forth herein: (1) Executive shall receive a pro rata Bonus
for the calendar year in which such termination occurs, equal to the Bonus she
would have received, to the extent all criteria for such a Bonus have been met
(with the exception of the requirement that Executive be employed on the date
the Bonus is to be paid), for the calendar year of said termination multiplied
by a fraction, the numerator of which is the number of days in such year
preceding and including the date of termination, and the denominator of which is
365. Said pro-rata Bonus shall be paid at the same time as the Bonus would have
been paid had Executive remained employed by the Company through the date of
payment, but in any event, not later than March 15 of the calendar year
following the calendar year for which the Bonus is payable; (2) Executive shall
receive any unpaid Bonus for the calendar year preceding her termination, to the
extent that all criteria for such bonus have been met (with the exception of the
requirement that Executive be employed on the date the Bonus is to be paid).
Said Bonus shall be paid at the same time as the Bonus would have been paid had
Executive remained employed by the Company through the date of payment; and (3)
all of Executive’s outstanding but unvested equity awards granted pursuant to
Sections 3(c) and 3(d) of this Agreement shall vest immediately. The payment of
any Bonus pursuant to clause (1) or clause (2) above and the acceleration of
Executive’s options and stock pursuant to clause (3), are conditioned upon
Executive (or her legal representative) signing a release in favor of the
Company, as provided for in Section 6(f).
|
(c)
|
By the Company without
Cause
. The Company may, without Cause, terminate Executive’s
employment hereunder at any time upon ten (10) or more days’ written
notice to Executive. The Company, in its sole discretion, may provide the
Executive with ten (10) days’ pay in lieu of notice. In the event
Executive’s employment is terminated pursuant to this Section 6(b), the
Employment Term shall end on the effective date of termination of the
Employment Term (the “
Date of
Termination
”), and the Company shall pay to Executive, no later
than the payroll cycle following Executive’s termination, in one lump sum:
(i) any accrued but unpaid Base Salary, less applicable deductions,
including salary in respect of any accrued and accumulated vacation, due
to Executive at the date of such termination, and (ii) any amounts owing,
but not yet paid, pursuant to Section 5
hereof.
|
In
addition, upon a termination under this Section 6(c) and upon the satisfaction
of the conditions set forth herein: (1) Executive shall receive a pro rata Bonus
for the calendar year in which such termination occurs, equal to the Bonus she
would have received, to the extent all criteria for such a Bonus have been met
(with the exception of the requirement that Executive be employed on date the
Bonus is to be paid), for the calendar year of said termination multiplied by a
fraction, the numerator of which is the number of days in such year preceding
and including the date of termination, and the denominator of which is 365. Said
pro-rata Bonus shall be paid at the same time as the Bonus would have been paid
had Executive remained employed by the Company through the date of payment, but
in any event, not later than March 15 of the calendar year following the
calendar year for which the Bonus is payable; (2) Executive shall receive any
unpaid Bonus for the calendar year preceding her termination, to the extent that
all criteria for such bonus have been met (with the exception of the Executive
being employed on the date the Bonus is to be paid). Said Bonus shall be paid at
the same time as the Bonus would have been paid had Executive remained employed
by the Company through the date of payment; and (3) all of Executive’s
outstanding but unvested equity awards granted pursuant to Sections 3(c) and
3(d) of this Agreement shall vest immediately. The payment of any Bonus pursuant
to clause (1) or clause (2) above or the acceleration of Executive’s options and
stock pursuant to clause (3) are conditioned upon Executive signing a release in
favor of the Company, as provided for in Section 6(g).
Except as
specifically set forth in Section 9 hereof, the Company shall have no further
obligations to Executive under this Agreement.
|
(d)
|
Resignation by
Executive for Good Reason
. If any of the events described below
occurs during the Employment Term, Executive may terminate Executive’s
employment hereunder for Good Reason by written notice to the Company
identifying the event or omission constituting Good Reason not more than
one (1) month following the occurrence of such event and, in the case of
subclauses (ii), (iii), or (iv) below, a failure by the Company to cure
such act or omission within thirty (30) days after receipt of such written
notice. In the event that Executive elects to terminate employment
pursuant to this Section 6(d), the Employment Term and Executive’s
employment hereunder will be terminated effective as of the later of
thirty-one (31) days after the Company’s receipt of Executive’s notice of
termination or thirty-one (31) days after the event, and Executive’s
resignation for Good Reason pursuant to this Section 6(d) shall be treated
for all purposes as a termination without Cause pursuant to Section 6(c)
and the provisions of Section 6(c) shall apply to such termination,
including the payment of the Severance Amount. The occurrence of any of
the following events without Executive’s consent shall permit Executive to
terminate Executive’s employment for “
Good Reason
”
pursuant to this Section 6(d):
|
|
(i)
|
A
“
Change in
Control
” (as defined in
Appendix A
attached hereto) occurs;
|
|
(ii)
|
The
failure by the Company to observe or comply in any material respect with
any of the material provisions of this
Agreement;
|
|
(iii)
|
A
material diminution in Executive’s
duties;
|
|
(iv)
|
The
assignment to Executive of duties that are materially inconsistent with
Executive’s duties or that materially impair Executive’s ability to
function as the Executive Vice President of the Company;
or
|
|
(v)
|
The
relocation of Executive’s primary office from a location that is more than
50 miles from both (a) the Company’s executive office that constitutes
Executive’s primary office location at the time of relocation and (b)
Executive’s primary residence at the time of such
relocation.
|
Except as
specifically set forth in Section 9 hereof, the Company shall have no further
obligations to Executive under this Agreement.
|
(e)
|
By Executive without
Good Reason
. Executive may terminate the Employment Term and
Executive’s employment hereunder at any time without Good Reason upon
thirty (30) days advance written notice to the Company. In the event
Executive’s employment is terminated pursuant to this Section 6(e), the
Company shall pay to Executive, no later than ten (10) days after the last
day of Executive’s employment, in one lump sum, the sum of (i) any accrued
but unpaid Base Salary, less applicable deductions, including salary in
respect of any accrued and accumulated vacation, due to Executive at the
date of such termination, (ii) any amounts owing, but not yet paid,
pursuant to Section 5 hereof, and (iii) any unpaid portions of the Signing
Bonus and the Incentive Bonus.
|
Except as
specifically set forth in Section 9 hereof, the Company shall have no further
obligations to Executive under this Agreement
|
(f)
|
Release
.
Notwithstanding any other provision of this Agreement to the contrary,
Executive acknowledges and agrees that any and all payments and benefits
to which Executive is entitled under Section 6(b), 6(c) or 6(d), with the
exception of accrued salary, accrued vacation payments, and payments
pursuant to Section 5 of this Agreement, are conditioned upon and subject
to Executive’s first executing a general waiver and release (and the
expiration of any associated revocation period), in such reasonable and
customary form as shall be prepared by the Company, of all claims
Executive may have against the Company, and related entities and
individuals.
|
7.
|
Required Postponement
for Specified Executives.
|
|
(a)
|
Specified Executive
Delay
. Notwithstanding anything in this Agreement to the contrary,
if required by section 409A of the Internal Revenue Code of 1986, as
amended (the “
Code
”) and if
Executive is considered a Specified Executive (as defined herein) and
payment of any amounts under this Agreement is required to be delayed for
a period of six months after separation from service pursuant to Section
409A of the Code, payment of such amounts shall be delayed as required by
section 409A, and the accumulated amounts shall be paid in a lump sum
payment within five days after the end of the six-month period. If
Executive dies during the postponement period prior to the payment of
benefits, the amounts withheld on account of section 409A shall be paid to
the personal representative of Executive’s estate within 60 days after the
date of Executive’s death.
|
|
(b)
|
“
Specified
Executive
” shall mean an employee who, at any time during the
12-month period ending on the identification date, is a “specified
employee” under section 409A of the Code, as determined by the
Compensation Committee of the Board or its delegate. The determination of
Specified Executives, including the number and identity of persons
considered officers and the identification date, shall be made by the
Compensation Committee or its delegate in accordance with the provisions
of section 409A of the Code and the regulations issued
thereunder.
|
8.
|
No Mitigation;
Employee Benefit Plans
. Executive shall not be required to mitigate
amounts payable to her under this Agreement by seeking other employment or
otherwise, and there shall be no offset against amounts payable to
Executive under this Agreement on account of Executive's subsequent
employment. Amounts payable to Executive under this Agreement shall not be
offset by any claims that the Company may have against Executive, and such
amounts payable to Executive under this Agreement shall not be affected by
any other circumstances, including, without limitation, any counterclaim,
recoupment, defense, or other right that the Company may have against
Executive or others;
provided, however,
that
payments made to Executive as a result of the termination of Executive's
employment hereunder shall not be considered as includible compensation
with respect to any employee benefit plans maintained by the Company,
except to the extent otherwise required by
law.
|
9.
|
Indemnification
.
In the event that Executive is made a party or threatened to be made a
party to any action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (a “
Proceeding
”),
by reason of Executive's employment with, or serving as an officer of, the
Company, the Company shall indemnify and hold Executive harmless, and
defend Executive to the fullest extent authorized by the laws of the state
in which the Company is incorporated, as the same exist and may hereafter
be amended, against any and all claims, demands, suits, judgments,
assessments, and settlements (collectively the “
Claims
”),
including all expenses incurred or suffered by Executive in connection
therewith (excluding, however, any legal fees incurred by Executive for
Executive's own counsel, except as otherwise provided in this Section 9,
and excluding any Proceedings initiated by executive), and such
indemnification shall continue as to Executive even after Executive is no
longer employed by the Company hereunder, and shall inure to the benefit
of Executive's heirs, executors, and administrators;
provided, however,
that
, Executive promptly gives written notice to the Company of any
such Claims (although Executive's failure to promptly give notice shall
not affect the Company's obligations under this Section 9 except to the
extent that such failure prejudices the Company or its ability to defend
such Claims). The Company shall have the right to undertake, with counsel
or other representatives of its own choosing, the defense or settlement of
any Claims. In the event that the Company shall fail to notify Executive,
within ten days of its receipt of Executive's written notice, that the
Company has elected to undertake such defense or settlement, or if at any
time the Company shall otherwise fail to diligently defend or pursue
settlement of such Claims, then Executive shall have the right to
undertake the defense, compromise, or settlement of such Claims, in which
event the Company shall hold Executive harmless from any legal fees
incurred by Executive for Executive's counsel. Neither Executive nor the
Company shall settle any Claims without the prior written consent of the
other, which consent shall not be unreasonably withheld or delayed. In the
event that the Company submits to Executive a bona fide settlement offer
from the claimant of Claims (which settlement offer shall include as an
unconditional term thereof the giving by the claimant or the plaintiff to
Executive a release from all liability in respect of such Claims), and
Executive refuses to consent to such settlement, then thereafter the
Company's liability to Executive for indemnification hereunder with
respect to such Claims shall not exceed the settlement amount included in
such bona fide settlement offer, and Executive shall either assume the
defense of such Claims or pay the Company's attorneys' fees and other
out-of-pocket costs incurred thereafter in continuing the defense of such
Claims. Regardless of which party is conducting the defense of any such
Claims, the other party, with counsel or other representatives of its own
choosing and at its sole cost and expense, shall have the right to consult
with the party conducting the defense of such Claims and its counsel or
other representatives concerning such Claims and Executive and the
respective counsel or other representatives shall cooperate with respect
to such Claims. The party conducting the defense of any such Claims and
its counsel shall in any case keep the other party and its counsel (if
any) fully informed as to the status of such Claims and any matters
relating thereto. Executive and the Company shall provide to the other
such records, books, documents, and other materials as shall reasonably be
necessary for each to conduct or evaluate the defense of any Claims, and
will generally cooperate with respect to any matters relating thereto.
This Section 9 shall remain in effect after this Agreement is terminated,
regardless of the reasons for such termination. The indemnification
provided to Executive pursuant to this Section 9 shall not supersede or
reduce any indemnification provided to Executive under any separate
agreement, or the By-Laws of the Company; in this regard, it is intended
that this Agreement shall expand and extend Executive's rights to receive
indemnification.
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10.
|
Withholding
.
The Company shall have the right to deduct and withhold from all payments
to Executive hereunder all payroll taxes, income tax withholding and other
federal, state and local taxes and charges which currently are or which
hereafter may be required by law to be so deducted and
withheld.
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11.
|
Additional
Agreements
. As a condition to her continued employment hereunder,
Executive shall execute and deliver to the Company a Confidential
Information and Intellectual Property Agreement in the form attached
hereto as
Exhibit A
(the
“
Intellectual
Property Agreement
”), which shall be incorporated herein by
reference. Executive and the Company hereby agree that such Intellectual
Property Agreement shall supersede the Confidential Information and
Intellectual Property Agreement between Executive and NexMed (U.S.A.),
Inc., a wholly-owned subsidiary of the Company, dated October 4, 2000 (the
“
Prior IP
Agreement
”), and that upon execution and delivery of the
Intellectual Property Agreement, the Prior IP Agreement shall terminate
and be of no further force or
effect.
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12.
|
Non-Assignability
.
Executive's rights and benefits hereunder are personal to Executive, and
shall not be alienated, voluntarily or involuntarily assigned, or
transferred.
|
13.
|
Binding Effect
.
This Agreement shall be binding upon the parties hereto, and their
respective assigns, successors, executors, administrators, and heirs. In
the event the Company becomes a party to any merger, consolidation, or
reorganization, this Agreement shall remain in full force and effect as an
obligation of the Company or its successor(s) in interest. None of the
payments provided for by this Agreement shall be subject to seizure for
payment of any debts or judgments against Executive or Executive's
beneficiary or beneficiaries, nor shall Executive or any such beneficiary
or beneficiaries have any right to transfer or encumber any right or
benefit hereunder.
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14.
|
Entire Agreement;
Modification
.
|
|
(a)
|
This
Agreement supersedes all prior agreements (including the Prior Agreement
and the Prior IP Agreement), with the exception of the Intellectual
Property Agreement, and all other agreements (or portions thereof) that
deal with confidentiality or intellectual property. This Agreement sets
forth the entire understanding among the parties hereto with respect to
the subject matter hereof, may not be changed orally, and may be changed
only by an agreement in writing signed by the parties
hereto.
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(b)
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Executive
acknowledges that from time to time, the Company may establish, maintain
and distribute manuals, handbooks or personnel policies, and officers or
other representatives of the Company may make written or oral statements
relating to personnel policies and procedures. Such manuals, handbooks and
statements are intended only for general guidance. No policies, procedures
or statements of any nature by or on behalf of the Company (whether
written or oral, and whether or not contained in any manual or handbook or
personnel policies), and no acts or practices of any nature, shall be
construed to modify this Agreement or to create express or implied
obligations of any nature to
Executive.
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15.
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Notices
. All
notices and communications hereunder shall be in writing, sent by
certified or registered mail, return receipt requested, postage prepaid;
by facsimile transmission, with proof of the time and date of receipt
retained by the transmitter; or by hand-delivery properly receipted. The
actual date of receipt as shown by the return receipt therefore, the
facsimile transmission sheet, or the hand-delivery receipt, as the case
may be, shall determine the date on which (and, in the case of a
facsimile, the time at which) notice was given. All payments required
hereunder by the Company to Executive shall be sent postage prepaid, or,
at Executive's election, shall be transferred to Executive electronically
to such bank account as Executive may designate in writing to the Company,
including designation of the applicable electronic address. The foregoing
items (other than any electronic transfer to Executive) shall be addressed
as follows (or to such other address as the Company and Executive may
designate in writing from time to
time):
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To the
Company:
NexMed,
Inc.
6330
Nancy Ridge Dr., Suite 103
San
Diego, CA 92121
Attention:
Chief Executive Officer
To
Executive:
Vivian H.
Liu
c/o
NexMed, Inc.
6330
Nancy Ridge Dr., Suite 103
San
Diego, CA 92121
16.
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Section 409A of the
Code.
This Agreement is intended to comply with section 409A of the
Code and its corresponding regulations, to the extent applicable.
Accordingly, all provisions herein, or incorporated herein by reference,
shall be construed and interpreted to comply with section 409A of the Code
and any applicable exceptions thereunder. Notwithstanding anything in this
Agreement to the contrary, payments may only be made under this Agreement
upon an event and in a manner permitted by section 409A of the Code, to
the extent applicable. As used in the Agreement, the term “termination of
employment” shall mean Executive’s separation from service with the
Company within the meaning of section 409A of the Code and the regulations
promulgated thereunder. For purposes of section 409A, the right to a
series of payments under the Agreement shall be treated as a right to a
series of separate payments. Any amounts payable solely on account of an
involuntary separation from service of Executive within the meaning of
section 409A of the Code shall be excludible from the requirements of
section 409A of the Code, either as involuntary separation pay or as
short-term deferral amounts to the maximum possible extent. All
reimbursements and in-kind benefits provided under the Agreement shall be
made or provided in accordance with the requirements of section 409A of
the Code, including, where applicable, the requirement that (i) any
reimbursement shall be for expenses incurred during Executive’s lifetime
(or during a shorter period of time specified in this Agreement), (ii) the
amount of expenses eligible for reimbursement, or in-kind benefits
provided, during a calendar year may not affect the expenses eligible for
reimbursement, or in-kind benefits to be provided, in any other calendar
year, (iii) the reimbursement of an eligible expense will be made on or
before the last day of the calendar year following the year in which the
expense is incurred, and (iv) the right to reimbursement or in-kind
benefits is not subject to liquidation or exchange for another
benefit.
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17.
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Governing Law;
Jurisdiction.
This Agreement shall be governed by, and construed
and enforced according to, the domestic laws of the State of California
without giving effect to the principles of conflict of laws thereof, or
such principles of any other jurisdiction, which could cause the
application of the substantive law of any jurisdiction other than the
State of California. The Company and Executive agree that the state or
federal courts located in San Diego, California shall have exclusive
jurisdiction to hear and determine any dispute which may arise under this
Agreement.
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18.
|
Severability
.
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of
this Agreement, and each other provision of the Agreement shall be
severable and enforceable to the extent permitted by
law.
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19.
|
Headings
. The
headings of the Sections hereof are provided for convenience only and are
not to serve as a basis for interpretation or construction, and shall not
constitute a part, of this
Agreement.
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20.
|
Signature in
Counterparts
. This Agreement may be signed in counterparts, each of
which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same
instrument.
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IN
WITNESS WHEREOF, Executive has hereunto set her hand and the Company has caused
this Agreement to be executed in its name on its behalf, all as of the day and
year first above written.
/s/ Vivian H. Liu
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Vivian
H. Liu
|
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NEXMED,
INC.
|
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By:
|
/s/ Bassam Damaj
|
|
Bassam Damaj
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Chief Executive Officer
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APPENDIX
A
Change in
Control
For the
purpose of this Agreement, a “
Change in Control
”
shall be deemed to have taken place if:
A.
Individuals who, on the date hereof, constitute the Board (the “
Incumbent Directors
”)
cease for any reason to constitute at least a majority of the Board, provided
that any person becoming a director subsequent to the date hereof, whose
election or nomination for election was approved by a vote of at least
two-thirds of the Incumbent Directors then on the Board (either by a specific
vote or by approval of the proxy statement of the Company in which such person
is named as a nominee for director, without written objection to such
nomination) shall be an Incumbent Director; provided, however, that, no
individual initially elected or nominated as a director of the Company as a
result of an actual or threatened election contest with respect to directors or
as a result of any other actual or threatened solicitation of proxies or
consents by or on behalf of any person other than the Board shall be deemed to
be an Incumbent Director;
B. Any
“
Person
” (as
such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934
(the “
Exchange
Act
”) and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act)
is or becomes a “beneficial owner” (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing 50% or
more of the combined voting power of the Company’s then outstanding securities
eligible to vote for the election of the Board (the “
Voting Securities
”);
provided, however, that, the event described in this paragraph B shall not be
deemed to be a Change in Control by virtue of any of the following acquisitions:
(i) by the Company or any subsidiary of the Company in which the Company owns
more than 50% of the combined voting power of such entity (a “
Subsidiary”
), (ii) by
any employee benefit plan (or related trust) sponsored or maintained by the
Company or any Subsidiary, (iii) by any underwriter temporarily holding the
Company’s Voting Securities pursuant to a public offering of such Voting
Securities, (iv) pursuant to a Non-Qualifying Transaction (as defined in
paragraph C immediately below), (v) pursuant to any acquisition by Executive or
by any Person which is an “affiliate” (within the meaning of 17 C.F.R. §
230.405) of Executive (an “
Excluded
Person
”);
C. The
consummation of a merger, consolidation, statutory share exchange or similar
form of corporate transaction involving the Company or any of its Subsidiaries
that requires the approval of the Company’s stockholders, whether for such
transaction or the issuance of securities in the transaction (a “
Business
Combination
”), unless immediately following such Business Combination:
(i) more than 50% of the total voting power of (A) the corporation resulting
from such Business Combination (the “
Surviving
Corporation
”), or (B) if applicable, the ultimate parent corporation that
directly or indirectly has beneficial ownership of 100% of the voting securities
eligible to elect directors of the Surviving Company (the “
Parent Corporation
”),
is represented by the Company’s Voting Securities that were outstanding
immediately prior to such Business Combination (or, if applicable, is
represented by shares into which the Company’s Voting Securities were converted
pursuant to such Business Combination), and such voting power among the holders
thereof is in substantially the same proportion as the voting power of the
Company’s Voting Securities among the holders thereof immediately prior to the
Business Combination, (ii) no Person (other than (A) any employee benefit plan
(or related trust) sponsored or maintained by the Surviving Corporation or the
Parent Corporation or (B) an Excluded Person is or becomes the beneficial owner,
directly or indirectly, of 50% or more of the total voting power of the
outstanding voting securities eligible to elect directors of the Parent
Corporation (or, if there is no Parent Corporation, the Surviving Corporation)
and (iii) at least a majority of the members of the board of directors of the
Parent Corporation (or, if there is no Parent Corporation, the Surviving
Corporation) following the consummation of the Business Combination were
Incumbent Directors at the time of the Board’s approval of the execution of the
initial agreement providing for such Business Combination (any Business
Combination which satisfies all of the criteria specified in (i), (ii) and (iii)
above shall be deemed to be a “Non-Qualifying Transaction”);
D. A sale
of all or substantially all of the Company’s assets, other than to an Excluded
Person;
E. The
stockholders of the Company approve a plan of complete liquidation or
dissolution of the Company; or
F. Such
other events as the Board may designate.
Notwithstanding
the foregoing, a Change in Control of the Company shall not be deemed to occur
(i) solely as a result of the Closing or any of the transactions contemplated
under the Merger Agreement or (ii) solely because any person acquires beneficial
ownership of more than 50% of the Company’s Voting Securities as a result of the
acquisition of the Company’s Voting Securities by the Company which reduces the
number of the Company’s Voting Securities outstanding; provided, that, if after
such acquisition by the Company such person becomes the beneficial owner of
additional Company Voting Securities that increases the percentage of
outstanding Company Voting Securities beneficially owned by such person, a
Change in Control of the Company shall then occur.
EXHIBIT
A
CONFIDENTIALITY AND
INTELLECTUAL PROPERTY AGREEMENT
NEXMED,
INC.
Employee
Confidentiality and Assignment Agreement
In consideration and as a condition of
my employment or continued employment by NexMed, Inc. (the “
Company
”), I agree as
follows:
1.
Proprietary
Information
.
I agree that all
information, whether or not in writing, concerning the Company’s business,
technology, business relationships or financial affairs which the Company has
not released to the general public (collectively, “
Proprietary
Information
”) is and will be the exclusive property of the
Company. By way of illustration, Proprietary Information may include
information or material which has not been made generally available to the
public, such as: (a)
corporate information
,
including plans, strategies, methods, policies, resolutions, negotiations or
litigation; (b)
marketing
information
, including strategies, methods, customer identities or other
information about customers, prospect identities or other information about
prospects, or market analyses or projections; (c)
financial information
,
including cost and performance data, debt arrangements, equity structure,
investors and holdings, purchasing and sales data and price lists; and (d)
operational and technological
information
, including plans, specifications, manuals, forms, templates,
software, designs, methods, procedures, formulas, discoveries, inventions,
improvements, concepts and ideas; and (e)
personnel information
,
including personnel lists, reporting or organizational structure, resumes,
personnel data, compensation structure, performance evaluations and termination
arrangements or documents. Proprietary Information also includes
information received in confidence by the Company from its customers or
suppliers or other third parties.
2.
Recognition
of Company’s Rights
.
I will not, at
any time, without the Company’s prior written permission, either during or after
my employment, disclose any Proprietary Information to anyone outside of the
Company, or use or permit to be used any Proprietary Information for any purpose
other than the performance of my duties as an employee of the
Company. I will cooperate with the Company and use my best efforts to
prevent the unauthorized disclosure of all Proprietary Information. I
will deliver to the Company all copies of Proprietary Information in my
possession or control upon the earlier of a request by the Company or
termination of my employment.
3.
Rights of
Others
.
I understand that
the
Company is now
and may hereafter be subject to non-disclosure or confidentiality agreements
with third persons which require the Company to protect or refrain from use of
Proprietary Information. I agree to be bound by the terms of such
agreements in the event I have access to such Proprietary
Information.
4.
Commitment
to Company; Avoidance of Conflict of Interest
.
While an employee
of the
Company, I
will devote my full-time efforts to the Company’s business and I will not engage
in any other business activity that conflicts with my duties to the
Company. I will advise the president of the Company (or, if I am an
executive officer of the Company, the Company’s Board of Directors) or his or
her nominee at such time as any activity of either the Company or another
business presents me with a conflict of interest or the appearance of a conflict
of interest as an employee of the Company. I will take whatever
action is requested of me by the Company to resolve any conflict or appearance
of conflict which it finds to exist.
5.
Developments
.
I will make full
and prompt disclosure to the Company of all inventions, discoveries, designs,
developments, methods, modifications, improvements, processes, algorithms,
databases, computer programs, formulae, techniques, trade secrets, graphics or
images, and audio or visual works and other works of authorship (collectively
“
Developments
”),
whether or not patentable or copyrightable, that are created, made, conceived or
reduced to practice by me (alone or jointly with others) or under my direction
during the period of my employment. I acknowledge that all work
performed by me is on a “work for hire” basis, and I hereby do assign and
transfer and, to the extent any such assignment cannot be made at present, will
assign and transfer, to the
Company and its
successors and assigns all my right, title and interest in all Developments that
(a) relate to the business of the Company or any customer of the
Company or any of the products or services being researched, developed,
manufactured or sold by the Company or which may be used with such products or
services; or (b) result from tasks assigned to me by the Company; or (c) result
from the use of premises or personal property (whether tangible or intangible)
owned, leased or contracted for by the Company (“
Company-Related
Developments
”), and all related patents, patent applications, trademarks
and trademark applications, copyrights and copyright applications, and other
intellectual property rights in all countries and territories worldwide and
under any international conventions (“
Intellectual Property
Rights
”).
To
preclude any possible uncertainty, I have set forth on
Exhibit A
attached
hereto a complete list of Developments that I have, alone or jointly with
others, conceived, developed or reduced to practice prior to the commencement of
my employment with the Company that I consider to be my property or the property
of third parties and that I wish to have excluded from the scope of this
Agreement (“
Prior
Inventions
”).
If disclosure of any such
Prior Invention would cause me to violate any prior confidentiality agreement, I
understand that I am not to list such Prior Inventions in
Exhibit A
but am only
to disclose a cursory name for each such invention, a listing of the party(ies)
to whom it belongs and the fact that full disclosure as to such inventions has
not been made for that reason. I have also listed on
Exhibit A
all patents
and patent applications in which I am named as an inventor, other than those
which have been assigned to the Company (“
Other Patent
Rights
”). If no such disclosure is attached, I represent that
there are no Prior Inventions or Other Patent Rights. If, in the
course of my employment with the Company, I incorporate a Prior Invention into a
Company product, process or machine or other work done for the Company, I hereby
grant to the Company a nonexclusive, royalty-free, paid-up, irrevocable,
worldwide license (with the full right to sublicense) to make, have made,
modify, use, sell, offer for sale and import such Prior
Invention. Notwithstanding the foregoing, I will not incorporate, or
permit to be incorporated, Prior Inventions in any Company-Related Development
without the Company’s prior written consent.
As
required pursuant to Section 2872 of the California Labor Code, I acknowledge
that the Company has notified me that the provisions of this paragraph 5 do not
apply to an invention which qualifies fully under the provisions of Section 2870
of the California Labor Code. Specifically, such provisions do not
apply to, and I am not required to transfer to the Company, any invention
developed entirely on my own time without using the Company’s equipment,
supplies, facilities, or trade secret information except for those inventions
that either (a) relate at the time of conception or reduction to practice of the
invention to the Company’s business, or actual or demonstrably anticipated
research or development of the Company; or (b) result from any work performed by
the Employee for the Company. However, I will also promptly disclose
to the Company any such Developments for the purpose of determining whether they
qualify for such exclusion. I understand that to the extent this
Agreement is required to be construed in accordance with the laws of any state
which precludes a requirement in an employee agreement to assign certain classes
of inventions made by an employee, this paragraph 5 will be interpreted not to
apply to any invention which a court rules and/or the Company agrees falls
within such classes. I also hereby waive all claims to any moral
rights or other special rights which I may have or accrue in any Company-Related
Developments.
6.
Documents
and Other Materials
.
I will keep and
maintain adequate and current records of all Proprietary Information and
Company-Related Developments developed by me during my employment, which records
will be available to and remain the sole property of the Company at all
times.
All
files, letters, notes, memoranda, reports, records, data, sketches, drawings,
notebooks, layouts, charts, quotations and proposals, specification sheets, or
other written, photographic or other tangible material containing Proprietary
Information, whether created by me or others, which come into my custody or
possession, are the exclusive property of the Company to be used by me only in
the performance of my duties for the Company. Any property situated
on the Company’s premises and owned by the Company, including without limitation
computers, disks and other storage media, filing cabinets or other work areas,
is subject to inspection by the Company at any time with or without
notice. In the event of the termination of my employment for any
reason, I will deliver to the Company all files, letters, notes, memoranda,
reports, records, data, sketches, drawings, notebooks, layouts, charts,
quotations and proposals, specification sheets, or other written, photographic
or other tangible material containing Proprietary Information, and other
materials of any nature pertaining to the Proprietary Information of the Company
and to my work, and will not take or keep in my possession any of the foregoing
or any copies.
7.
Enforcement
of Intellectual Property Rights
.
I will cooperate
fully with the Company, both during and after my employment with the Company,
with respect to the procurement, maintenance and enforcement of Intellectual
Property Rights in Company-Related Developments. I will sign, both
during and after the term of this Agreement, all papers, including
without limitation copyright applications, patent applications, declarations,
oaths, assignments of priority rights, and powers of attorney, which the Company
may deem necessary or desirable in order to protect its rights and interests in
any Company-Related Development. If the Company is unable, after
reasonable effort, to secure my signature on any such papers, I hereby
irrevocably designate and appoint each officer of the Company as my agent and
attorney-in-fact to execute any such papers on my behalf, and to take any and
all actions as the Company may deem necessary or desirable in order to protect
its rights and interests in any Company-Related Development.
8.
Non-Solicitation
.
During my
employment and for a period of twelve (12) months following the termination of
my employment for any reason (the “
Restricted Period
”),
I will not, directly or indirectly, in any manner, other than for the benefit of
the Company, solicit, entice or attempt to persuade any other employee or
consultant of the Company to leave the services of the Company for any
reason. I acknowledge and agree that if I violate any of the
provisions of this paragraph 8, the running of the Restricted Period will be
extended by the time during which I engage in such violation(s).
9.
Government
Contracts
.
I acknowledge
that the Company may have from time to time agreements with other persons or
with the United States Government or its agencies which impose obligations or
restrictions on the Company regarding inventions made during the course of work
under such agreements or regarding the confidential nature of such
work. I agree to comply with any such obligations or restrictions
upon the direction of the Company. In addition to the rights assigned under
paragraph 5, I also assign to the Company (or any of its nominees) all rights
which I have or acquired in any Developments, full title to which is required to
be in the United States under any contract between the Company and the United
States or any of its agencies.
10.
Prior
Agreements
.
I hereby
represent that, except as I have fully disclosed previously in writing to the
Company, I am not bound by the terms of any agreement with any previous employer
or other party to refrain from using or disclosing any trade secret or
confidential or proprietary information in the course of my employment with the
Company or to refrain from competing, directly or indirectly, with the business
of such previous employer or any other party. I further represent
that my performance of all the terms of this Agreement as an employee of the
Company does not and will not breach any agreement to keep in confidence
proprietary information, knowledge or data acquired by me in confidence or in
trust prior to my employment with the Company. I will not disclose to the
Company or induce the Company to use any confidential or proprietary information
or material belonging to any previous employer or others.
11.
Remedies
upon Breach
.
I understand that the restrictions contained in this
Agreement are necessary for the protection of the business and goodwill of the
Company and I consider them to be reasonable for such purpose. Any
breach of this Agreement is likely to cause the Company substantial and
irrevocable damage and therefore, in the event of such breach, the
Company, in addition to
such other remedies which may be available, will be entitled to specific
performance and other injunctive relief.
12.
Use of
Voice, Image and Likeness
.
I give the
Company permission to use any and all of my voice, image and likeness, with or
without using my name, in connection with the products and/or services of the
Company, for the purposes of advertising and promoting such products and/or
services and/or the Company, and/or for other purposes deemed appropriate by the
Company in its reasonable discretion, except to the extent expressly prohibited
by law.
13.
Publications
and Public Statements
.
I will obtain the
Company’s written approval before publishing or submitting for publication any
material that relates to my work at the Company and/or incorporates any
Proprietary Information. To ensure that the Company delivers a
consistent message about its products, services and operations to the public,
and further in recognition that even positive statements may have a detrimental
effect on the Company in certain securities transactions and other contexts, any
statement about the Company which I create, publish or post during my period of
employment and for six (6) months thereafter, on any media accessible by the
public, including but not limited to electronic bulletin boards and
Internet-based chat rooms, must first be reviewed and approved by an officer of
the Company before it is released in the public domain.
14.
No
Employment Obligation
.
I understand that
this Agreement does not create an obligation on the
Company or any other
person to continue my employment. I acknowledge that, unless
otherwise agreed in a formal written employment agreement signed on behalf of
the Company by an authorized officer, my employment with the Company is at will
and therefore may be terminated by the Company or me at any time and for any
reason.
15.
Survival
and Assignment by the Company
.
I understand that
my obligations under this Agreement will continue in accordance with its express
terms regardless of any changes in my title, position, duties, salary,
compensation or benefits or other terms and conditions of employment. I further
understand that my obligations under this Agreement will continue following the
termination of my employment regardless of the manner of such termination and
will be binding upon my heirs, executors and administrators. The
Company will have the right to assign this Agreement to its affiliates,
successors and assigns. I expressly consent to be bound by the
provisions of this Agreement for the benefit of the Company or any parent,
subsidiary or affiliate to whose employ I may be transferred without the
necessity that this Agreement be resigned at the time of such
transfer.
16.
Disclosure
to Future Employers
.
I will provide a copy of
this Agreement to any prospective employer, partner or coventurer prior to
entering into an employment, partnership or other business relationship with
such person or entity.
17.
Severability
.
In case any
provisions (or portions thereof) contained in this Agreement shall, for any
reason, be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect the other provisions
of this Agreement, and this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had never been contained
herein. If, moreover, any one or more of the provisions contained in
this Agreement shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, it shall be construed by
limiting and reducing it, so as to be enforceable to the extent compatible with
the applicable law as it shall then appear.
18.
Interpretation
.
This Agreement
will be deemed to be made and entered into in the State of California, and will
in all respects be interpreted, enforced and governed under the laws of the
State of California. I hereby agree to consent to personal
jurisdiction of the state and federal courts situated within San Diego County,
California for purposes of enforcing this Agreement, and waive any objection
that I might have to personal jurisdiction or venue in those
courts.
[End of
Text]
I
UNDERSTAND THAT THIS AGREEMENT AFFECTS IMPORTANT RIGHTS. BY SIGNING
BELOW, I CERTIFY THAT I HAVE READ IT CAREFULLY AND AM SATISFIED THAT I
UNDERSTAND IT COMPLETELY.
IN WITNESS WHEREOF,
the undersigned has
executed this agreement as a sealed instrument as of the date set forth
below.
Signed:
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(Employee’s
full name)
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Type or print name:
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Social Security Number:
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Date:
|
|
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EXHIBIT
A
To: NexMed,
Inc.
From: ____________________
Date: _____________________
SUBJECT:
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Prior
Inventions
|
The following is a complete list of all
inventions or improvements relevant to the subject matter of my employment by
the Company that have been made or conceived or first reduced to practice by me
alone or jointly with others prior to my engagement by the Company:
No
inventions or improvements
See
below:
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
Additional
sheets attached
The
following is a list of all patents and patent applications in which I have been
named as an inventor:
None
See
below:
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
EXHIBIT
10.43
EMPLOYMENT
AGREEMENT
This EMPLOYMENT AGREEMENT, dated
December 14, 2009 (the “
Agreement
”), is made
and entered into by and between NexMed, Inc., a Nevada corporation (the “
Company
”), and Bassam
Damaj, Ph.D. (the “
Executive
”).
WHEREAS, the Company desires to employ
Executive and to enter into this Agreement in connection with the Company’s
acquisition of Bio-Quant, Inc. pursuant to that certain Agreement and Plan of
Merger by and among the Company, BQ Acquisition Corp., Bio-Quant, Inc. and
certain other parties thereto (the “
Merger
Agreement
”);
WHEREAS, the Company considers it
essential to its best interests and the best interests of its stockholders for
the Company to employ Executive during the term of this Agreement;
and
WHEREAS, Executive is willing to accept
his employment with the Company on the terms hereinafter set forth in this
Agreement.
NOW, THEREFORE, in consideration of the
premises and mutual covenants herein and for other good and valuable
consideration, the parties agree as follows:
1.
|
Term of
Employment
. Subject to the terms and conditions set
forth in Section 6 of this Agreement, Executive’s employment with the
Company shall be “at will,” and the Company and Executive shall each have
the right to terminate Executive’s employment hereunder. The
term of Executive’s employment hereunder is referred to herein as the
“
Employment
Term
.”
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(a)
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During
the Employment Term, Executive shall be employed by the Company as
President and Chief Executive Officer, and shall have such duties,
authority, and responsibility as are commensurate with his position,
subject to the direction of the Company’s Board of Directors (the “
Board
”).
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(b)
|
During
the Employment Term, Executive shall devote all of his business time and
attention to the performance of his duties hereunder faithfully and to the
best of his abilities and shall not undertake employment with, or
participate in, the conduct of the business affairs of any other person,
corporation, or entity;
provided,
that nothing
shall preclude Executive from (i) with the prior approval of the Board,
serving as a director, trustee or member of another business organization
or (ii) participating in the affairs of any recognized charitable
organizations, or in any community affairs, of Executive’s
choice.
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(c)
|
Executive’s
duties hereunder shall be performed for the Company worldwide, with
principal business activities expected to be at the Company’s offices in
East Windsor, New Jersey and/or San Diego,
California.
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(a)
|
Base
Salary
. During the Employment Term, the Company shall
pay Executive a base salary, subject to increase at the discretion of the
Board, at the initial annual rate of $300,000 (the “
Base Salary
”),
payable in regular installments in accordance with the Company’s usual
payroll practices.
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(b)
|
Annual
Bonus
. With respect to each calendar year during the
Employment Term, Executive shall be eligible to earn an annual bonus award
(the “
Bonus
”) in an
amount not to exceed 65% of Executive’s annual Base Salary. The
amount of the Bonus shall be determined by the Board, or the Compensation
Committee of the Board (the “
Compensation
Committee
”), in its sole discretion, based upon the achievement by
the Company of objective performance measures established and determined
by the Board or the Compensation Committee in consultation with Executive
no later than the end of the first month of such calendar year; it is
agreed that one of such objective performance measures shall be the
payment to Executive of a bonus of $100,000 each year for every $1 million
in revenue growth realized through non-acquisition and non-licensing
activities achieved during such year. The Bonus, if any, with
respect to each calendar year in the Employment Term shall be paid as
promptly as practicable following the delivery of the Company’s audited
financial statements for such year, but not later than March 15 of the
calendar year following the calendar year for which the Bonus is
payable. Unless otherwise stated herein, the Bonus shall not
accrue until the date on which it is paid, and Executive must be employed
on the date the Bonus is paid in order to receive the
Bonus.
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(c)
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Stock Option Grant;
Equity Awards
.
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(i)
|
Subject
to approval by the Board or the Compensation Committee and subject to
stockholder approval of an increase in the number of shares authorized for
issuance under the Company’s 2006 Stock Incentive Plan, the Company shall
grant to Executive an award for 1,500,000 shares of restricted stock (the
“
Award
”).
The Award shall vest with respect to 300,000 shares on the first
anniversary of employment, 500,000 shares on the second anniversary of
employment and the remaining 700,000 shares on the third anniversary of
employment. All unvested shares underlying the Award shall vest
immediately upon (i) a “Change in Control,” as defined in Appendix A, (ii)
Executive’s termination without Cause pursuant to Section 6(c) or (iii)
Executive’s resignation for Good Reason pursuant to Section
6(d).
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(ii)
|
In
addition, the Compensation Committee shall consider annually whether to
grant any equity-based compensation awards to the Executive in accordance
with the terms and subject to the conditions of the Company’s equity
compensation plans.
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4.
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Employee
Benefits
. During the Employment Term, Executive shall be
eligible for inclusion, to the extent permitted by law, as a full-time
employee of the Company or any of its subsidiaries, in any and all of the
following plans, programs, and policies in effect at the time: (i)
pension, profit sharing, savings, and other retirement plans and programs,
(ii) life and health (medical, dental, hospitalization, short-term and
long-term disability) insurance plans and programs, (iii) stock option and
stock purchase plans and programs, (iv) accidental death and dismemberment
protection plans and programs, (v) travel accident insurance plans and
programs, (vi) vacation policy (Executive shall have six weeks of paid
vacation per calendar year), and (vii) other plans and programs sponsored
by the Company or any subsidiary for employees or executives generally,
including any and all plans and programs that supplement any or all of the
foregoing types of plans or programs. Nothing in this Agreement
shall preclude the Company or any of its subsidiaries or affiliates from
terminating or amending any employee benefit plan or program from time to
time after the date of this
Agreement.
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5.
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Business Expenses and
Perquisites
. The Company shall reimburse to Executive,
or pay directly, all reasonable expenses incurred by Executive in
connection with the business of the Company, and its subsidiaries and
affiliates, including but not limited to business-class travel, reasonable
accommodations, and entertainment, subject to documentation in accordance
with the Company’s policy.
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6.
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Termination
. Subject
to this Section 6, either party may terminate this Agreement at any time
and from time to time. In the event of the termination of
Executive’s employment, the Employment Term shall end on the day of such
termination.
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(a)
|
By the Company for
Cause
. The Company may, for Cause, terminate Executive’s employment
hereunder at any time by written notice to Executive. For
purposes of this Agreement, the term “
Cause
” shall
mean Executive’s (i) engaging in fraud against the Company or
misappropriation of funds of the Company, (ii) disregard or failure to
follow specific and reasonable directives of the Board, (iii) willful
failure to perform his duties as President and Chief Executive Officer of
the Company, (iv) willful misconduct resulting in material injury to the
Company, (v) violation of the terms of the Confidential Information and
Intellectual Property Agreement between Executive the Company referred to
in Section 11 below, (vi) conviction of, or Executive’s plea of guilty or
no contest to, a felony or any crime involving as a material element fraud
or dishonesty, or (vii) material breach (not covered by clauses (i)
through (vi) of this paragraph) of any of the other provisions of this
Agreement; provided, that, in the case of subclauses (ii), (iii) or (vii),
Cause shall not exist if the act or omission deemed to constitute Cause is
cured (if curable) by Executive within thirty (30) days after written
notice thereof to Executive by the Company. For purposes of the
foregoing, no act, or failure to act, on Executive’s part shall be
considered “willful” unless done, or omitted to be done, by Executive
other than in good faith, and without reasonable belief that his action or
omission was in furtherance of the interests of the
Company.
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In the
event of the termination of Executive’s employment under this Section 6(a) for
Cause, the Employment Term shall end on the day of such termination and the
Company shall pay to Executive, no later than the payroll cycle following
Executive’s termination, in one lump sum: (i) any accrued but unpaid Base
Salary, less applicable deductions, including salary in respect of any accrued
and accumulated vacation due to Executive at the date of such termination; and
(ii) any amounts owing, but not yet paid, pursuant to Section 5
hereof.
Except as
specifically set forth in Section 9 hereof, the Company shall have no further
obligations to Executive under this Agreement.
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(b)
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Disability or
Death
. If Executive should suffer a Permanent
Disability, the Company may terminate Executive’s employment hereunder
upon ten (10) or more days’ prior written notice to
Executive. If Executive should pass away during the term of
this Agreement, Executive’s employment shall be deemed terminated on his
date of death. For purposes of this Agreement, a “Permanent
Disability” shall be deemed to have occurred only when Executive has
qualified for benefits (including satisfaction of any applicable waiting
period) under the Company’s or a subsidiary’s long-term disability
insurance arrangement. In the event of the termination of
Executive’s employment hereunder by reason of Permanent Disability or
death, the Employment Term shall end on the day of such termination and
the Company shall pay, no later than the payroll cycle following
Executive’s termination, to Executive or Executive’s legal representative
(in the event of Permanent Disability), or any beneficiary or
beneficiaries designated by Executive to the Company in writing, or to
Executive’s estate if no such beneficiary has been so designated (in the
event of Executive’s death), a single lump sum payment of: (i) any accrued
but unpaid Base Salary, less applicable deductions, including salary in
respect of any accrued and accumulated vacation, due to Executive at the
date of such termination; (ii) any amounts owing, but not yet paid,
pursuant to Section 5 hereof.
|
In
addition, upon a termination under this Section 6(b), and upon the satisfaction
of the conditions set forth herein: (1) Executive shall receive a pro rata Bonus
for the calendar year in which such termination occurs, equal to the Bonus he
would have received, to the extent all criteria for such a Bonus have been met
(with the exception of the requirement that Executive be employed on the date
the Bonus is to be paid), for the calendar year of said termination multiplied
by a fraction, the numerator of which is the number of days in such year
preceding and including the date of termination, and the denominator of which is
365. Said pro-rata Bonus shall be paid at the same time as the Bonus
would have been paid had Executive remained employed by the Company through the
date of payment, but in any event, not later than March 15 of the calendar year
following the calendar year for which the Bonus is payable; (2) Executive shall
receive any unpaid Bonus for the calendar year preceding his termination, to the
extent that all criteria for such bonus have been met (with the exception of the
requirement that Executive be employed on the date the Bonus is to be
paid). Said Bonus shall be paid at the same time as the Bonus would
have been paid had Executive remained employed by the Company through the date
of payment; and (3) all of Executive’s outstanding but unvested equity awards
granted pursuant to Section 3(c) of this Agreement shall vest
immediately. The payment of any Bonus pursuant to clause (1) or
clause (2) above and the acceleration of Executive’s options and stock pursuant
to clause (3), are conditioned upon Executive (or his legal representative)
signing a release in favor of the Company, as provided for in Section
6(f).
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(c)
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By the Company without
Cause
. The Company may, without Cause, terminate
Executive’s employment hereunder at any time upon ten (10) or more days’
written notice to Executive. The Company, in its sole
discretion, may provide the Executive with ten (10) days’ pay in lieu of
notice. In the event Executive’s employment is terminated
pursuant to this Section 6(c), the Employment Term shall end on the day of
such termination and the Company shall pay to Executive, no later than the
payroll cycle following Executive’s termination, in one lump sum: (i) any
accrued but unpaid Base Salary, less applicable deductions, including
salary in respect of any accrued and accumulated vacation, due to
Executive at the date of such termination, and (ii) any amounts owing, but
not yet paid, pursuant to Section 5
hereof.
|
In
addition, upon a termination under this Section 6(c) and upon the satisfaction
of the conditions set forth herein: (1) Executive shall receive a pro rata Bonus
for the calendar year in which such termination occurs, equal to the Bonus he
would have received, to the extent all criteria for such a Bonus have been met
(with the exception of the requirement that Executive be employed on date the
Bonus is to be paid), for the calendar year of said termination multiplied by a
fraction, the numerator of which is the number of days in such year preceding
and including the date of termination, and the denominator of which is
365. Said pro-rata Bonus shall be paid at the same time as the Bonus
would have been paid had Executive remained employed by the Company through the
date of payment, but in any event, not later than March 15 of the calendar year
following the calendar year for which the Bonus is payable; (2) Executive shall
receive any unpaid Bonus for the calendar year preceding his termination, to the
extent that all criteria for such bonus have been met (with the exception of the
Executive being employed on the date the Bonus is to be paid). Said
Bonus shall be paid at the same time as the Bonus would have been paid had
Executive remained employed by the Company through the date of payment; (3) all
of Executive’s outstanding but unvested equity awards granted pursuant to
Section 3(c) of this Agreement shall vest immediately; and (4) the Company shall
pay Executive an amount equal to twelve
months of Executive’s
Base Salary at the time of such termination (the “
Severance
”). The
payment of any Bonus pursuant to clause (1) or clause (2) above and the
acceleration of Executive’s options and stock pursuant to clause (3), are
conditioned upon Executive signing a release in favor of the Company, as
provided for in Section 6(f), and the Severance shall be payable in a single
lump sum within 60 days after the effective date of termination of the
Employment Term, subject to Executive’s execution, delivery and non-revocation
of a release in favor of the Company, as provided for in Section
6(f).
Except as
specifically set forth in Section 9 hereof, the Company shall have no further
obligations to Executive under this Agreement.
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(d)
|
Resignation by
Executive for Good Reason
. If any of the events described below
occurs during the Employment Term, Executive may terminate Executive’s
employment hereunder for Good Reason by written notice to the Company
identifying the event or omission constituting Good Reason not more than
one (1) month following the occurrence of such event and, in the case of
subclauses (ii), (iii), or (iv) below, a failure by the Company to cure
such act or omission within thirty (30) days after receipt of such written
notice. In the event that Executive elects to terminate
employment pursuant to this Section 6(d), the Employment Term and
Executive’s employment hereunder will be terminated effective as of the
later of thirty-one (31) days after the Company’s receipt of Executive’s
notice of termination or thirty-one (31) days after the event, and
Executive’s resignation for Good Reason pursuant to this Section 6(d)
shall be treated for all purposes as a termination without Cause pursuant
to Section 6(c) and the provisions of Section 6(c) shall apply to such
termination, including the payment of Severance. The occurrence
of any of the following events without Executive’s consent shall permit
Executive to terminate Executive’s employment for “Good Reason” pursuant
to this Section 6(d):
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(i)
|
A
“Change in Control” (as defined in
Appendix A
attached hereto) occurs;
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(ii)
|
The
failure by the Company to observe or comply in any material respect with
any of the material provisions of this
Agreement;
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(iii)
|
A
material diminution in Executive’s
duties;
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(iv)
|
The
assignment to Executive of duties that are materially inconsistent with
Executive’s duties or that materially impair Executive’s ability to
function as the President and Chief Executive Officer of the Company;
or
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(v)
|
The
relocation of Executive’s primary office from a location that is more than
50 miles from both (a) the Company’s executive office that constitutes
Executive’s primary office location at the time of relocation and (b)
Executive’s primary residence at the time of such
relocation.
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Except as
specifically set forth in Section 9 hereof, the Company shall have no further
obligations to Executive under this Agreement.
|
(e)
|
By Executive without
Good Reason
. Executive may terminate the Employment Term
and Executive’s employment hereunder at any time without Good Reason upon
thirty (30) days advance written notice to the Company. In the
event Executive’s employment is terminated pursuant to this Section 6(e),
the Company shall pay to Executive, no later than ten (10) days after the
last day of Executive’s employment, in one lump sum, the sum of (i) any
accrued but unpaid Base Salary, less applicable deductions, including
salary in respect of any accrued and accumulated vacation, due to
Executive at the date of such termination, and (ii) any amounts owing, but
not yet paid, pursuant to Section 5
hereof.
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Except as
specifically set forth in Section 9 hereof, the Company shall have no further
obligations to Executive under this Agreement.
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(f)
|
Release
. Notwithstanding
any other provision of this Agreement to the contrary, Executive
acknowledges and agrees that any and all payments and benefits to which
Executive is entitled under Section 6(b), 6(c) or 6(d), with the exception
of accrued salary, accrued vacation payments, and payments pursuant to
Section 5 of this Agreement, are conditioned upon and subject to
Executive’s first executing a general waiver and release (and the
expiration of any associated revocation period), in such reasonable and
customary form as shall be prepared by the Company, of all claims
Executive may have against the Company, and related entities and
individuals.
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7.
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Required Postponement
for Specified Executives.
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(a)
|
Specified Executive
Delay
. Notwithstanding anything in this Agreement to the
contrary, if required by section 409A of the Internal Revenue Code of
1986, as amended (the “
Code
”) and if
Executive is considered a Specified Executive (as defined herein) and
payment of any amounts under this Agreement is required to be delayed for
a period of six months after separation from service pursuant to Section
409A of the Code, payment of such amounts shall be delayed as required by
section 409A, and the accumulated amounts shall be paid in a lump sum
payment within five days after the end of the six-month
period. If Executive dies during the postponement period prior
to the payment of benefits, the amounts withheld on account of section
409A shall be paid to the personal representative of Executive’s estate
within 60 days after the date of Executive’s
death.
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(b)
|
“
Specified
Executive
” shall mean an employee who, at any time during the
12-month period ending on the identification date, is a “specified
employee” under section 409A of the Code, as determined by the
Compensation Committee of the Board or its delegate. The
determination of Specified Executives, including the number and identity
of persons considered officers and the identification date, shall be made
by the Compensation Committee or its delegate in accordance with the
provisions of section 409A of the Code and the regulations issued
thereunder.
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8.
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No Mitigation;
Employee Benefit Plans
. Executive shall not be required
to mitigate amounts payable to him under this Agreement by seeking other
employment or otherwise, and there shall be no offset against amounts
payable to Executive under this Agreement on account of Executive’s
subsequent employment. Amounts payable to Executive under this
Agreement shall not be offset by any claims that the Company may have
against Executive, and such amounts payable to Executive under this
Agreement shall not be affected by any other circumstances, including,
without limitation, any counterclaim, recoupment, defense, or other right
that the Company may have against Executive or others;
provided, however,
that
payments made to Executive as a result of the termination of Executive’s
employment hereunder shall not be considered as includible compensation
with respect to any employee benefit plans maintained by the Company,
except to the extent otherwise required by
law.
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9.
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Indemnification
. In
the event that Executive is made a party or threatened to be made a party
to any action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (a “
Proceeding
”),
by reason of Executive’s employment with, or serving as an officer of, the
Company, the Company shall indemnify and hold Executive harmless, and
defend Executive to the fullest extent authorized by the laws of the state
in which the Company is incorporated, as the same exist and may hereafter
be amended, against any and all claims, demands, suits, judgments,
assessments, and settlements (collectively the “
Claims
”),
including all expenses incurred or suffered by Executive in connection
therewith (excluding, however, any legal fees incurred by Executive for
Executive’s own counsel, except as otherwise provided in this Section 9,
and excluding any Proceedings initiated by executive), and such
indemnification shall continue as to Executive even after Executive is no
longer employed by the Company hereunder, and shall inure to the benefit
of Executive’s heirs, executors, and administrators;
provided, however,
that
Executive promptly gives written notice to the Company of any such Claims
(although Executive’s failure to promptly give notice shall not affect the
Company’s obligations under this Section 9 except to the extent that such
failure prejudices the Company or its ability to defend such
Claims). The Company shall have the right to undertake, with
counsel or other representatives of its own choosing, the defense or
settlement of any Claims. In the event that the Company shall
fail to notify Executive, within ten days of its receipt of Executive’s
written notice, that the Company has elected to undertake such defense or
settlement, or if at any time the Company shall otherwise fail to
diligently defend or pursue settlement of such Claims, then Executive
shall have the right to undertake the defense, compromise, or settlement
of such Claims, in which event the Company shall hold Executive harmless
from any legal fees incurred by Executive for Executive’s
counsel. Neither Executive nor the Company shall settle any
Claims without the prior written consent of the other, which consent shall
not be unreasonably withheld or delayed. In the event that the
Company submits to Executive a bona fide settlement offer from the
claimant of Claims (which settlement offer shall include as an
unconditional term thereof the giving by the claimant or the plaintiff to
Executive a release from all liability in respect of such Claims), and
Executive refuses to consent to such settlement, then thereafter the
Company’s liability to Executive for indemnification hereunder with
respect to such Claims shall not exceed the settlement amount included in
such bona fide settlement offer, and Executive shall either assume the
defense of such Claims or pay the Company’s attorneys’ fees and other
out-of-pocket costs incurred thereafter in continuing the defense of such
Claims. Regardless of which party is conducting the defense of
any such Claims, the other party, with counsel or other representatives of
its own choosing and at its sole cost and expense, shall have the right to
consult with the party conducting the defense of such Claims and its
counsel or other representatives concerning such Claims and Executive and
the respective counsel or other representatives shall cooperate with
respect to such Claims. The party conducting the defense of any
such Claims and its counsel shall in any case keep the other party and its
counsel (if any) fully informed as to the status of such Claims and any
matters relating thereto. Executive and the Company shall
provide to the other such records, books, documents, and other materials
as shall reasonably be necessary for each to conduct or evaluate the
defense of any Claims, and will generally cooperate with respect to any
matters relating thereto. This Section 9 shall remain in effect
after this Agreement is terminated, regardless of the reasons for such
termination. The indemnification provided to Executive pursuant
to this Section 9 shall not supersede or reduce any indemnification
provided to Executive under any separate agreement, or the By-Laws of the
Company; in this regard, it is intended that this Agreement shall expand
and extend Executive’s rights to receive
indemnification.
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10.
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Withholding
. The
Company shall have the right to deduct and withhold from all payments to
Executive hereunder all payroll taxes, income tax withholding and other
federal, state and local taxes and charges which currently are or which
hereafter may be required by law to be so deducted and
withheld.
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11.
|
Additional
Agreements
. As a condition to his employment hereunder,
Executive shall execute and deliver to the Company a Confidential
Information and Intellectual Property Agreement in the form attached
hereto as
Exhibit A
,
which shall be incorporated herein by
reference.
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12.
|
Non-Assignability
. Executive’s
rights and benefits hereunder are personal to Executive, and shall not be
alienated, voluntarily or involuntarily assigned, or
transferred.
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13.
|
Binding
Effect
. This Agreement shall be binding upon the parties
hereto, and their respective assigns, successors, executors,
administrators, and heirs. In the event the Company becomes a
party to any merger, consolidation, or reorganization, this Agreement
shall remain in full force and effect as an obligation of the Company or
its successor(s) in interest. None of the payments provided for
by this Agreement shall be subject to seizure for payment of any debts or
judgments against Executive or Executive’s beneficiary or beneficiaries,
nor shall Executive or any such beneficiary or beneficiaries have any
right to transfer or encumber any right or benefit
hereunder.
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14.
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Entire Agreement;
Modification
.
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(a)
|
This
Agreement supersedes all prior agreements between the Company and
Executive relating to the subject matter hereof, with the exception of the
Confidential Information and Intellectual Property
Agreement. This Agreement sets forth the entire understanding
among the parties hereto with respect to the subject matter hereof, may
not be changed orally, and may be changed only by an agreement in writing
signed by the parties hereto.
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(b)
|
Executive
acknowledges that from time to time, the Company may establish, maintain
and distribute manuals, handbooks or personnel policies, and officers or
other representatives of the Company may make written or oral statements
relating to personnel policies and procedures. Such manuals,
handbooks and statements are intended only for general
guidance. No policies, procedures or statements of any nature
by or on behalf of the Company (whether written or oral, and whether or
not contained in any manual or handbook or personnel policies), and no
acts or practices of any nature, shall be construed to modify this
Agreement or to create express or implied obligations of any nature to
Executive.
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15.
|
Notices
. All
notices and communications hereunder shall be in writing, sent by
certified or registered mail, return receipt requested, postage prepaid;
by facsimile transmission, with proof of the time and date of receipt
retained by the transmitter; or by hand-delivery properly
receipted. The actual date of receipt as shown by the return
receipt therefore, the facsimile transmission sheet, or the hand-delivery
receipt, as the case may be, shall determine the date on which (and, in
the case of a facsimile, the time at which) notice was
given. All payments required hereunder by the Company to
Executive shall be sent postage prepaid, or, at Executive’s election,
shall be transferred to Executive electronically to such bank account as
Executive may designate in writing to the Company, including designation
of the applicable electronic address. The foregoing items
(other than any electronic transfer to Executive) shall be addressed as
follows (or to such other address as the Company and Executive may
designate in writing from time to
time):
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To the
Company:
NexMed,
Inc.
89 Twin
Rivers Drive
East
Windsor, NJ 08520
Fax:
609-426-9116
Attention:
Chairman
To
Executive:
Bassam
Damaj, Ph.D.
c/o
Bio-Quant, Inc.
6330
Nancy Ridge Drive, Suite 103
San
Diego, California 92121
Fax:
1-858-866-0482
16.
|
Section 409A of the
Code.
This Agreement is intended to comply with section
409A of the Code and its corresponding regulations, to the extent
applicable. Accordingly, all provisions herein, or incorporated
herein by reference, shall be construed and interpreted to comply with
section 409A of the Code and any applicable exceptions
thereunder. Notwithstanding anything in this Agreement to the
contrary, payments may only be made under this Agreement upon an event and
in a manner permitted by section 409A of the Code, to the extent
applicable. As used in the Agreement, the term “termination of
employment” shall mean Executive’s separation from service with the
Company within the meaning of section 409A of the Code and the regulations
promulgated thereunder. For purposes of section 409A, the right
to a series of payments under the Agreement shall be treated as a right to
a series of separate payments. Any amounts payable solely on
account of an involuntary separation from service of Executive within the
meaning of section 409A of the Code shall be excludible from the
requirements of section 409A of the Code, either as involuntary separation
pay or as short-term deferral amounts to the maximum possible
extent. All reimbursements and in-kind benefits provided under
the Agreement shall be made or provided in accordance with the
requirements of section 409A of the Code, including, where applicable, the
requirement that (i) any reimbursement shall be for expenses incurred
during Executive’s lifetime (or during a shorter period of time specified
in this Agreement), (ii) the amount of expenses eligible for
reimbursement, or in-kind benefits provided, during a calendar year may
not affect the expenses eligible for reimbursement, or in-kind benefits to
be provided, in any other calendar year, (iii) the reimbursement of an
eligible expense will be made on or before the last day of the calendar
year following the year in which the expense is incurred, and (iv) the
right to reimbursement or in-kind benefits is not subject to liquidation
or exchange for another
benefit.
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17.
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Governing Law;
Jurisdiction.
This Agreement shall be governed by, and
construed and enforced according to, the domestic laws of the State of
California without giving effect to the principles of conflict of laws
thereof, or such principles of any other jurisdiction, which could cause
the application of the substantive law of any jurisdiction other than the
State of California. The Company and Executive agree that the
state or federal courts located in San Diego, California shall have
exclusive jurisdiction to hear and determine any dispute which may arise
under this Agreement.
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18.
|
Severability
. The
invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement, and each other provision of the Agreement shall be severable
and enforceable to the extent permitted by
law.
|
19.
|
Headings
. The
headings of the Sections hereof are provided for convenience only and are
not to serve as a basis for interpretation or construction, and shall not
constitute a part, of this
Agreement.
|
20.
|
Signature in
Counterparts
. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as
if the signatures thereto and hereto were upon the same
instrument.
|
IN WITNESS WHEREOF, Executive has
hereunto set his hand and the Company has caused this Agreement to be executed
in its name on its behalf, all as of the day and year first above
written.
|
/s/
Bassam Damaj
|
|
Bassam
Damaj, Ph.D.
|
|
|
|
NEXMED,
INC.
|
|
|
|
|
By:
|
/s/
Vivian H. Liu
|
|
Name:
|
Vivian
H. Liu
|
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Title:
|
Executive
Vice
President
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APPENDIX
A
Change in
Control
For the
purpose of this Agreement, a “
Change in Control
”
shall be deemed to have taken place if:
A.
Individuals who, on the date hereof, constitute the Board (the “
Incumbent Directors
”)
cease for any reason to constitute at least a majority of the Board, provided
that any person becoming a director subsequent to the date hereof, whose
election or nomination for election was approved by a vote of at least
two-thirds of the Incumbent Directors then on the Board (either by a specific
vote or by approval of the proxy statement of the Company in which such person
is named as a nominee for director, without written objection to such
nomination) shall be an Incumbent Director; provided, however, that, no
individual initially elected or nominated as a director of the Company as a
result of an actual or threatened election contest with respect to directors or
as a result of any other actual or threatened solicitation of proxies or
consents by or on behalf of any person other than the Board shall be deemed to
be an Incumbent Director;
B. Any
“
Person
” (as
such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934
(the “
Exchange
Act
”) and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act)
is or becomes a “beneficial owner” (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing 50% or
more of the combined voting power of the Company’s then outstanding securities
eligible to vote for the election of the Board (the “
Voting Securities
”);
provided, however, that, the event described in this paragraph B shall not be
deemed to be a Change in Control by virtue of any of the following acquisitions:
(i) by the Company or any subsidiary of the Company in which the Company owns
more than 50% of the combined voting power of such entity (a “
Subsidiary
”), (ii) by
any employee benefit plan (or related trust) sponsored or maintained by the
Company or any Subsidiary, (iii) by any underwriter temporarily holding the
Company’s Voting Securities pursuant to a public offering of such Voting
Securities, (iv) pursuant to a Non-Qualifying Transaction (as defined in
paragraph C immediately below), (v) pursuant to any acquisition by Executive or
by any Person which is an “affiliate” (within the meaning of 17 C.F.R. §
230.405) of Executive (an “
Excluded
Person
”);
C. The
consummation of a merger, consolidation, statutory share exchange or similar
form of corporate transaction involving the Company or any of its Subsidiaries
that requires the approval of the Company’s stockholders, whether for such
transaction or the issuance of securities in the transaction (a “
Business
Combination
”), unless immediately following such Business Combination:
(i) more than 50% of the total voting power of (A) the corporation resulting
from such Business Combination (the “
Surviving
Corporation
”), or (B) if applicable, the ultimate parent corporation that
directly or indirectly has beneficial ownership of 100% of the voting securities
eligible to elect directors of the Surviving Company (the “
Parent Corporation
”),
is represented by the Company’s Voting Securities that were outstanding
immediately prior to such Business Combination (or, if applicable, is
represented by shares into which the Company’s Voting Securities were converted
pursuant to such Business Combination), and such voting power among the holders
thereof is in substantially the same proportion as the voting power of the
Company’s Voting Securities among the holders thereof immediately prior to the
Business Combination, (ii) no Person (other than (A) any employee benefit plan
(or related trust) sponsored or maintained by the Surviving Corporation or the
Parent Corporation or (B) an Excluded Person is or becomes the beneficial owner,
directly or indirectly, of 50% or more of the total voting power of the
outstanding voting securities eligible to elect directors of the Parent
Corporation (or, if there is no Parent Corporation, the Surviving Corporation)
and (iii) at least a majority of the members of the board of directors of the
Parent Corporation (or, if there is no Parent Corporation, the Surviving
Corporation) following the consummation of the Business Combination were
Incumbent Directors at the time of the Board’s approval of the execution of the
initial agreement providing for such Business Combination (any Business
Combination which satisfies all of the criteria specified in (i), (ii) and (iii)
above shall be deemed to be a “
Non-Qualifying
Transaction
”);
D. A sale
of all or substantially all of the Company’s assets, other than to an Excluded
Person;
E. The
stockholders of the Company approve a plan of complete liquidation or
dissolution of the Company; or
F. Such
other events as the Board may designate.
Notwithstanding
the foregoing, a Change in Control of the Company shall not be deemed to occur
(i) solely as a result of the Closing or any of the transactions contemplated
under the Merger Agreement or (ii) solely because any person acquires beneficial
ownership of more than 50% of the Company’s Voting Securities as a result of the
acquisition of the Company’s Voting Securities by the Company which reduces the
number of the Company’s Voting Securities outstanding; provided, that, if after
such acquisition by the Company such person becomes the beneficial owner of
additional Company Voting Securities that increases the percentage of
outstanding Company Voting Securities beneficially owned by such person, a
Change in Control of the Company shall then occur.
EXHIBIT
A
CONFIDENTIALITY AND
INTELLECTUAL PROPERTY AGREEMENT
NEXMED,
INC.
Employee
Confidentiality and Assignment Agreement
In consideration and as a condition of
my employment or continued employment by NexMed, Inc. (the “
Company
”), I agree as
follows:
1.
Proprietary
Information
.
I agree that all
information, whether or not in writing, concerning the Company’s business,
technology, business relationships or financial affairs which the Company has
not released to the general public (collectively, “
Proprietary
Information
”) is and will be the exclusive property of the
Company. By way of illustration, Proprietary Information may include
information or material which has not been made generally available to the
public, such as: (a)
corporate information
,
including plans, strategies, methods, policies, resolutions, negotiations or
litigation; (b)
marketing
information
, including strategies, methods, customer identities or other
information about customers, prospect identities or other information about
prospects, or market analyses or projections; (c)
financial information
,
including cost and performance data, debt arrangements, equity structure,
investors and holdings, purchasing and sales data and price lists; and (d)
operational and technological
information
, including plans, specifications, manuals, forms, templates,
software, designs, methods, procedures, formulas, discoveries, inventions,
improvements, concepts and ideas; and (e)
personnel information
,
including personnel lists, reporting or organizational structure, resumes,
personnel data, compensation structure, performance evaluations and termination
arrangements or documents. Proprietary Information also includes
information received in confidence by the Company from its customers or
suppliers or other third parties.
2.
Recognition
of Company’s Rights
.
I will not, at
any time, without the Company’s prior written permission, either during or after
my employment, disclose any Proprietary Information to anyone outside of the
Company, or use or permit to be used any Proprietary Information for any purpose
other than the performance of my duties as an employee of the
Company. I will cooperate with the Company and use my best efforts to
prevent the unauthorized disclosure of all Proprietary Information. I
will deliver to the Company all copies of Proprietary Information in my
possession or control upon the earlier of a request by the Company or
termination of my employment.
3.
Rights of
Others
.
I understand that
the
Company is now
and may hereafter be subject to non-disclosure or confidentiality agreements
with third persons which require the Company to protect or refrain from use of
Proprietary Information. I agree to be bound by the terms of such
agreements in the event I have access to such Proprietary
Information.
4.
Commitment
to Company; Avoidance of Conflict of Interest
.
While an employee
of the
Company, I
will devote my full-time efforts to the Company’s business and I will not engage
in any other business activity that conflicts with my duties to the
Company. I will advise the president of the Company (or, if I am an
executive officer of the Company, the Company’s Board of Directors) or his or
her nominee at such time as any activity of either the Company or another
business presents me with a conflict of interest or the appearance of a conflict
of interest as an employee of the Company. I will take whatever
action is requested of me by the Company to resolve any conflict or appearance
of conflict which it finds to exist.
5.
Developments
.
I will make full
and prompt disclosure to the Company of all inventions, discoveries, designs,
developments, methods, modifications, improvements, processes, algorithms,
databases, computer programs, formulae, techniques, trade secrets, graphics or
images, and audio or visual works and other works of authorship (collectively
“
Developments
”),
whether or not patentable or copyrightable, that are created, made, conceived or
reduced to practice by me (alone or jointly with others) or under my direction
during the period of my employment. I acknowledge that all work
performed by me is on a “work for hire” basis, and I hereby do assign and
transfer and, to the extent any such assignment cannot be made at present, will
assign and transfer, to the
Company and its
successors and assigns all my right, title and interest in all Developments that
(a) relate to the business of the Company or any customer of the
Company or any of the products or services being researched, developed,
manufactured or sold by the Company or which may be used with such products or
services; or (b) result from tasks assigned to me by the Company; or (c) result
from the use of premises or personal property (whether tangible or intangible)
owned, leased or contracted for by the Company (“
Company-Related
Developments
”), and all related patents, patent applications, trademarks
and trademark applications, copyrights and copyright applications, and other
intellectual property rights in all countries and territories worldwide and
under any international conventions (“
Intellectual Property
Rights
”).
To
preclude any possible uncertainty, I have set forth on
Exhibit A
attached
hereto a complete list of Developments that I have, alone or jointly with
others, conceived, developed or reduced to practice prior to the commencement of
my employment with the Company that I consider to be my property or the property
of third parties and that I wish to have excluded from the scope of this
Agreement (“
Prior
Inventions
”).
If disclosure of any such
Prior Invention would cause me to violate any prior confidentiality agreement, I
understand that I am not to list such Prior Inventions in
Exhibit A
but am only
to disclose a cursory name for each such invention, a listing of the party(ies)
to whom it belongs and the fact that full disclosure as to such inventions has
not been made for that reason. I have also listed on
Exhibit A
all patents
and patent applications in which I am named as an inventor, other than those
which have been assigned to the Company (“
Other Patent
Rights
”). If no such disclosure is attached, I represent that
there are no Prior Inventions or Other Patent Rights. If, in the
course of my employment with the Company, I incorporate a Prior Invention into a
Company product, process or machine or other work done for the Company, I hereby
grant to the Company a nonexclusive, royalty-free, paid-up, irrevocable,
worldwide license (with the full right to sublicense) to make, have made,
modify, use, sell, offer for sale and import such Prior
Invention. Notwithstanding the foregoing, I will not incorporate, or
permit to be incorporated, Prior Inventions in any Company-Related Development
without the Company’s prior written consent.
As
required pursuant to Section 2872 of the California Labor Code, I acknowledge
that the Company has notified me that the provisions of this paragraph 5 do not
apply to an invention which qualifies fully under the provisions of Section 2870
of the California Labor Code. Specifically, such provisions do not
apply to, and I am not required to transfer to the Company, any invention
developed entirely on my own time without using the Company’s equipment,
supplies, facilities, or trade secret information except for those inventions
that either (a) relate at the time of conception or reduction to practice of the
invention to the Company’s business, or actual or demonstrably anticipated
research or development of the Company; or (b) result from any work performed by
the Employee for the Company. However, I will also promptly disclose
to the Company any such Developments for the purpose of determining whether they
qualify for such exclusion. I understand that to the extent this
Agreement is required to be construed in accordance with the laws of any state
which precludes a requirement in an employee agreement to assign certain classes
of inventions made by an employee, this paragraph 5 will be interpreted not to
apply to any invention which a court rules and/or the Company agrees falls
within such classes. I also hereby waive all claims to any moral
rights or other special rights which I may have or accrue in any Company-Related
Developments.
6.
Documents
and Other Materials
.
I will keep and
maintain adequate and current records of all Proprietary Information and
Company-Related Developments developed by me during my employment, which records
will be available to and remain the sole property of the Company at all
times.
All
files, letters, notes, memoranda, reports, records, data, sketches, drawings,
notebooks, layouts, charts, quotations and proposals, specification sheets, or
other written, photographic or other tangible material containing Proprietary
Information, whether created by me or others, which come into my custody or
possession, are the exclusive property of the Company to be used by me only in
the performance of my duties for the Company. Any property situated
on the Company’s premises and owned by the Company, including without limitation
computers, disks and other storage media, filing cabinets or other work areas,
is subject to inspection by the Company at any time with or without
notice. In the event of the termination of my employment for any
reason, I will deliver to the Company all files, letters, notes, memoranda,
reports, records, data, sketches, drawings, notebooks, layouts, charts,
quotations and proposals, specification sheets, or other written, photographic
or other tangible material containing Proprietary Information, and other
materials of any nature pertaining to the Proprietary Information of the Company
and to my work, and will not take or keep in my possession any of the foregoing
or any copies.
7.
Enforcement
of Intellectual Property Rights
.
I will cooperate
fully with the Company, both during and after my employment with the Company,
with respect to the procurement, maintenance and enforcement of Intellectual
Property Rights in Company-Related Developments. I will sign, both
during and after the term of this Agreement, all papers, including
without limitation copyright applications, patent applications, declarations,
oaths, assignments of priority rights, and powers of attorney, which the Company
may deem necessary or desirable in order to protect its rights and interests in
any Company-Related Development. If the Company is unable, after
reasonable effort, to secure my signature on any such papers, I hereby
irrevocably designate and appoint each officer of the Company as my agent and
attorney-in-fact to execute any such papers on my behalf, and to take any and
all actions as the Company may deem necessary or desirable in order to protect
its rights and interests in any Company-Related Development.
8.
Non-Solicitation
.
During my
employment and for a period of twelve (12) months following the termination of
my employment for any reason (the “
Restricted Period
”),
I will not, directly or indirectly, in any manner, other than for the benefit of
the Company, solicit, entice or attempt to persuade any other employee or
consultant of the Company to leave the services of the Company for any
reason. I acknowledge and agree that if I violate any of the
provisions of this paragraph 8, the running of the Restricted Period will be
extended by the time during which I engage in such violation(s).
9.
Government
Contracts
.
I acknowledge
that the Company may have from time to time agreements with other persons or
with the United States Government or its agencies which impose obligations or
restrictions on the Company regarding inventions made during the course of work
under such agreements or regarding the confidential nature of such
work. I agree to comply with any such obligations or restrictions
upon the direction of the Company. In addition to the rights assigned under
paragraph 5, I also assign to the Company (or any of its nominees) all rights
which I have or acquired in any Developments, full title to which is required to
be in the United States under any contract between the Company and the United
States or any of its agencies.
10.
Prior
Agreements
.
I hereby
represent that, except as I have fully disclosed previously in writing to the
Company, I am not bound by the terms of any agreement with any previous employer
or other party to refrain from using or disclosing any trade secret or
confidential or proprietary information in the course of my employment with the
Company or to refrain from competing, directly or indirectly, with the business
of such previous employer or any other party. I further represent
that my performance of all the terms of this Agreement as an employee of the
Company does not and will not breach any agreement to keep in confidence
proprietary information, knowledge or data acquired by me in confidence or in
trust prior to my employment with the Company. I will not disclose to the
Company or induce the Company to use any confidential or proprietary information
or material belonging to any previous employer or others.
11.
Remedies
upon Breach
.
I understand that the restrictions contained in this
Agreement are necessary for the protection of the business and goodwill of the
Company and I consider them to be reasonable for such purpose. Any
breach of this Agreement is likely to cause the Company substantial and
irrevocable damage and therefore, in the event of such breach, the
Company, in addition to
such other remedies which may be available, will be entitled to specific
performance and other injunctive relief.
12.
Use of
Voice, Image and Likeness
.
I give the
Company permission to use any and all of my voice, image and likeness, with or
without using my name, in connection with the products and/or services of the
Company, for the purposes of advertising and promoting such products and/or
services and/or the Company, and/or for other purposes deemed appropriate by the
Company in its reasonable discretion, except to the extent expressly prohibited
by law.
13.
Publications
and Public Statements
.
I will obtain the
Company’s written approval before publishing or submitting for publication any
material that relates to my work at the Company and/or incorporates any
Proprietary Information. To ensure that the Company delivers a
consistent message about its products, services and operations to the public,
and further in recognition that even positive statements may have a detrimental
effect on the Company in certain securities transactions and other contexts, any
statement about the Company which I create, publish or post during my period of
employment and for six (6) months thereafter, on any media accessible by the
public, including but not limited to electronic bulletin boards and
Internet-based chat rooms, must first be reviewed and approved by an officer of
the Company before it is released in the public domain.
14.
No
Employment Obligation
.
I understand that
this Agreement does not create an obligation on the
Company or any other
person to continue my employment. I acknowledge that, unless
otherwise agreed in a formal written employment agreement signed on behalf of
the Company by an authorized officer, my employment with the Company is at will
and therefore may be terminated by the Company or me at any time and for any
reason.
15.
Survival
and Assignment by the Company
.
I understand that
my obligations under this Agreement will continue in accordance with its express
terms regardless of any changes in my title, position, duties, salary,
compensation or benefits or other terms and conditions of employment. I further
understand that my obligations under this Agreement will continue following the
termination of my employment regardless of the manner of such termination and
will be binding upon my heirs, executors and administrators. The
Company will have the right to assign this Agreement to its affiliates,
successors and assigns. I expressly consent to be bound by the
provisions of this Agreement for the benefit of the Company or any parent,
subsidiary or affiliate to whose employ I may be transferred without the
necessity that this Agreement be resigned at the time of such
transfer.
16.
Disclosure
to Future Employers
.
I will provide a copy of
this Agreement to any prospective employer, partner or coventurer prior to
entering into an employment, partnership or other business relationship with
such person or entity.
17.
Severability
.
In case any
provisions (or portions thereof) contained in this Agreement shall, for any
reason, be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect the other provisions
of this Agreement, and this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had never been contained
herein. If, moreover, any one or more of the provisions contained in
this Agreement shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, it shall be construed by
limiting and reducing it, so as to be enforceable to the extent compatible with
the applicable law as it shall then appear.
18.
Interpretation
.
This Agreement
will be deemed to be made and entered into in the State of California, and will
in all respects be interpreted, enforced and governed under the laws of the
State of California. I hereby agree to consent to personal
jurisdiction of the state and federal courts situated within San Diego County,
California for purposes of enforcing this Agreement, and waive any objection
that I might have to personal jurisdiction or venue in those
courts.
[End of
Text]
I
UNDERSTAND THAT THIS AGREEMENT AFFECTS IMPORTANT RIGHTS. BY SIGNING
BELOW, I CERTIFY THAT I HAVE READ IT CAREFULLY AND AM SATISFIED THAT I
UNDERSTAND IT COMPLETELY.
IN WITNESS WHEREOF,
the undersigned has
executed this agreement as a sealed instrument as of the date set forth
below.
Signed:
|
|
|
|
(Employee’s
full name)
|
Type or print name:
|
|
|
|
Social Security Number:
|
|
|
Date:
|
|
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EXHIBIT
A
To: NexMed,
Inc.
From: ____________________
Date: _____________________
SUBJECT:
|
Prior
Inventions
|
The following is a complete list of all
inventions or improvements relevant to the subject matter of my employment by
the Company that have been made or conceived or first reduced to practice by me
alone or jointly with others prior to my engagement by the Company:
No
inventions or improvements
See
below:
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
Additional
sheets attached
The
following is a list of all patents and patent applications in which I have been
named as an inventor:
None
See
below:
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
EXHIBIT
10.44
PURCHASE
AGREEMENT
THIS
PURCHASE AGREEMENT (“Agreement”) is made as of the 15
th
day of
March, 2010 by and among NEXMED, INC., a Nevada corporation (the “Company”), and
the Purchasers set forth on the signature page affixed hereto (each a
“Purchaser” and collectively the “Purchasers”).
Recitals
A. The
Company and the Purchasers are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by Section
4(2) under the Securities Act of 1933, as amended; and
B. The
Purchasers wish to purchase, and the Company wishes to sell and issue to the
Purchasers, upon the terms and subject to the conditions stated in this
Agreement an aggregate of $4,000,000.00 in principal amount of the Company’s 7%
Convertible Notes due December 31, 2012 in the form attached hereto as
Exhibit A
(the “Notes”), which
Notes may be converted into shares of common stock of the Company, $0.001 par
value per share (the “Common Stock”), in accordance with the terms of the Notes,
in such amounts as are set forth on the signature page attached hereto and
executed by each such Purchaser, for an aggregate purchase price of
$4,000,000.00.
C.
Contemporaneous with the execution and delivery of this Agreement, the parties
hereto are executing and delivering a Registration Rights Agreement, in the form
attached hereto as
Exhibit
B
(the “Registration Rights Agreement”), pursuant to which the Company
has agreed to provide certain registration rights under the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder, and
applicable state securities laws; and
In
consideration of the mutual promises made herein and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
1.
Definitions
. In
addition to those terms defined above and elsewhere in this Agreement, for the
purposes of this Agreement, the following terms shall have the meanings here set
forth:
1.1. “
Affiliate
” means,
with respect to any Person, any other Person which directly or indirectly
controls, is controlled by, or is under common control with, such Person, where
“
control
” means
the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
1.2. “
Agreements
” means
this Agreement, the Registration Rights Agreement, the Subsidiary Guaranty, the
Mortgage and the Notes.
1.3. The
“
Company
” shall
refer to the Company (as defined in the first paragraph hereof) together with
its subsidiaries wherever applicable (including without limitation with respect
to all representations of the Company unless the context otherwise
requires).
1.4. “
Closing
” means the
consummation of the transactions contemplated by this Agreement, and “Closing
Date” means the date of such Closing.
1.5. “
Convertible
Securities
” means any convertible securities, warrants, options or other
rights to subscribe for or to purchase or exchange for, shares of Common
Stock.
1.6. “
Material Adverse
Effect
” means a material adverse effect on the (i) condition (financial
or otherwise), business, assets or results of operations of the Company; (ii)
ability of the Company to perform any of its material obligations under the
terms of the Agreements; or (iii) material rights and remedies of a Purchaser
under the terms of the Agreements.
1.7. “
Mortgage
” means the
Mortgage, Security Agreement and Assignment of Leases and Rents, in the form
attached hereto as
Exhibit
C
, executed by the Operating Subsidiary in favor of the Purchasers dated
on or about the date hereof, securing the Company’s obligations under the
Notes.
1.8. “
Notes
” shall have
meaning set forth in the recitals to this Agreement.
1.9. “
Operating Subsidiary
”
means NexMed (U.S.A.), Inc., a Delaware corporation which is wholly-owned by the
Company.
1.10. “
Participation
Percentage
” means the product of (a) 25% multiplied by (b) a fraction,
the numerator of which equals the then aggregate outstanding principal amount of
all Notes and the denominator of which equals the original aggregate principal
amount of all Notes.
1.11. “
Person
” means an
individual, corporation, partnership, limited liability company, trust, business
trust, association, joint stock company, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization, governmental authority or any other
form of entity not specifically listed herein.
1.12. “
SEC
” means the U.S.
Securities and Exchange Commission.
1.13. “
SEC Filings
” means
the Company’s Annual Report on Form 10-K for the fiscal year ended December 31,
2008 and all other reports filed by the Company pursuant to the 1934 Act since
December 31, 2008.
1.14. “
Securities
” means the
Notes and Underlying Shares.
1.15. “
Subsidiary
Guaranties
” means the Subsidiary Guaranties, in the form attached hereto
as
Exhibit D
, executed
by each of the Operating Subsidiary and Bio-Quant Inc. in favor of the
Purchasers, guaranteeing the Company’s obligations under the Notes.
1.16. “
Underlying Shares
”
means the shares of Common Stock issued or issuable upon conversion of, as
payment for interest or accreted amounts under, or otherwise pursuant to, the
Notes.
1.17. “
Variable Rate
Transaction
” means a transaction in which the Company issues or sells, or
agrees to issue or sell, Common Stock or Convertible Securities in which the
applicable sale, conversion, exercise or exchange price or rate may directly or
indirectly effectively be reduced, reset or repriced based upon future events or
occurrences, future trading prices or quotations, or future issuances of Common
Stock or Convertible Securities (including such resets effected directly or
indirectly by the issuance of additional securities), including an “equity line”
transaction but excluding standard provisions for rights of first refusal on
additional financings and standard anti-dilution provisions including
weighted-average anti-dilution provisions substantially similar to those set
forth in the Notes which are contained in Convertible Securities.
1.18. “
1933 Act
” means the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder.
1.19. “
1934 Act
” means the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
1.20. “
2008 Notes
” means the
Company’s 7% Convertible Notes due December 31, 2011 issued to the Purchasers on
June 30, 2008.
1.21. “
2009 Notes
” means the
Company’s 7% Convertible Notes due December 31, 2011 issued to the Purchasers on
or about November 10, 2009.
2.
Purchase and Sale of the
Notes
. Subject to the terms and conditions of this Agreement
and on the basis of the representations and warranties made herein, each of the
Purchasers hereby severally, and not jointly, agrees to purchase, and the
Company hereby agrees to sell and issue to each of the Purchasers, the principal
amount of Notes set forth on such Purchaser’s signature page attached hereto and
as indicated on the Schedule of Investors attached hereto. Each
Purchaser’s aggregate purchase price (the “
Purchase Price
”) for
the Notes to be purchased hereunder is set forth on such Purchaser’s signature
page attached hereto and on such Schedule of Investors.
3.
Closing
.
3.1.
Closing
Procedure
. The Company shall promptly deliver to Purchasers’
counsel, Peter J. Weisman, P.C., in trust, Notes registered in the names of the
Purchasers as indicated on the signature pages to this Agreement, representing
all of the Notes, with instructions that such Notes are to be held in escrow for
release to the Purchasers only upon payment of the Purchase Price to the Company
and confirmation of receipt by the Company or its counsel. Upon
receipt by counsel to the Purchasers of the Notes and the execution and/or
delivery of such other documents contemplated hereby to be executed and/or
delivered on or prior to the Closing, each Purchaser shall promptly cause a wire
transfer in same day funds to be sent to the account of the Company as
instructed in writing by the Company, in an amount representing the Purchase
Price, provided that the Purchasers may deliver all or a portion of such
Purchase Price equal to the outstanding amount under the 2008 Notes and 2009
Notes by surrendering such Notes to the Company. On the date the
Company receives such funds and 2008 Notes and 2009 Notes, the Notes shall be
released to the Purchasers (and such date shall be deemed the “
Closing
Date
”).
3.2.
Closing Date
Deliveries
.
(a) On
the Closing Date, the Company shall deliver to the Purchasers:
(i) Notes
in the form attached as Exhibit A;
(ii) The
executed Registration Rights Agreement in the form attached as Exhibit
B;
(iii) The
Subsidiary Guaranty in the form attached as Exhibit D and the Mortgage in the
form attached as Exhibit C, in each case executed and acknowledged by the
Operating Subsidiary, and the Subsidiary Guaranty executed by Bio-Quant,
Inc.;
(iv) A
Subordination, Non-Disturbance and Attornment Agreement, in the form attached as
Exhibit E, executed and delivered by the Operating Subsidiary and the tenant
under that certain lease dated as of December 16, 2009 pursuant to which the
Premises (as defined in the Mortgage) were leased to such tenant (“
SNDA
”);
(v) The
opinion(s) of counsel referred to in Section 7.5 below;
(vi) An
officer’s certificate in form and substance reasonably satisfactory to the
Purchasers and the Purchasers’ counsel, executed by an officer of the Company
and the Operating Subsidiary, certifying as to satisfaction of applicable
closing conditions, incumbency of signing officers, the true, correct and
complete nature of the Certificate of Incorporation and By-laws, good standing
and authorizing resolutions, in each case of the Company and the Operating
Subsidiary; and
(vii) Cash
for all accrued but unpaid interest on the 2008 Notes and 2009 Notes through the
Closing Date, which amount may be deducted by the Purchasers from the cash
amount payable pursuant to subsection (b)(i) below; and
(viii) A
stamped copy of the amendment to the Company’s Articles of Incorporation to
effect an increase of the number of authorized shares of Common Stock to at
least 200 million shares.
(b) On
the Closing Date, the Purchasers shall deliver to the Company:
(i) The
Purchase Price set forth on the Purchasers’ signature page hereto, which shall
consist of the surrender of the 2008 Notes and 2009 Notes and the additional
cash (if any), all as designated on the Schedule of Investors attached hereto;
and
(ii) The
executed Registration Rights Agreement.
(iii) A
copy of the SNDA executed by the collateral agent under the Mortgage on behalf
of the Purchasers.
(c) Effective
as of the Closing, the Company shall repay to Solomon Strategic Holdings, Inc.
the remaining outstanding balance under the 2008 Notes and 2009 Notes held by
such Purchaser and surrendered at Closing as indicated on the Schedule of
Investors, which payment shall be made within three (3) business days following
the Closing Date (the failure of which shall constitute an Event of Default
under the Notes).
4.
Representations and
Warranties of the Company
. The Company hereby represents and
warrants to the Purchasers that:
4.1.
Organization, Good Standing
and Qualification
. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to carry on its business as now conducted and own its
properties. The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the conduct of
its business or its ownership or leasing of property makes such qualification or
licensing necessary unless the failure to so qualify would not be reasonably
likely to result in a Material Adverse Effect. All of the Company’s
subsidiaries are listed by name and jurisdiction on
Schedule 4.1
attached
hereto. All subsidiaries are wholly-owned by the
Company. The Operating Subsidiary is a wholly-owned subsidiary of the
Company and owns all the Mortgaged Property (as defined in the
Mortgage).
4.2.
Authorization
. The
Company has full power and authority and has taken all requisite action on the
part of the Company, its officers, directors and stockholders necessary for (i)
the authorization, execution and delivery of the Agreements, (ii) authorization
of the performance of all obligations of the Company hereunder and thereunder,
and (iii) the authorization, issuance (or reservation for issuance) and delivery
of the Securities. The Agreements constitute the legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability,
relating to or affecting creditors’ rights generally and except to the extent
the indemnification provisions contained in the Registration Rights Agreement
may be limited by applicable federal or state securities laws.
4.3.
Capitalization
. Set
forth on
Schedule
4.3
hereto is (a) the authorized capital stock of the Company on the date
hereof; (b) the number of shares of capital stock issued and outstanding on the
date hereof; (c) the number of shares of capital stock issuable pursuant to the
Company’s stock plans; and (d) the number of shares of capital stock issuable
and reserved for issuance pursuant to securities (other than the Notes)
exercisable for, or convertible into or exchangeable for any shares of capital
stock. All of the issued and outstanding shares of the Company’s
capital stock have been duly authorized and validly issued and are fully paid
and nonassessable, except to the extent that the failure of the foregoing to be
true and correct would not have a Material Adverse Effect. Except as
set forth on
Schedule
4.3
, no Person is entitled to preemptive or similar statutory or
contractual rights with respect to any securities of the
Company. Except as set forth on
Schedule 4.3
, there
are no outstanding warrants, options, convertible securities or other rights,
agreements or arrangements of any character under which the Company is or may be
obligated to issue any equity securities of any kind, and except as contemplated
by this Agreement or set forth on Schedule 4.3, the Company is not currently in
negotiations for the issuance of any equity securities of any
kind. Except as set forth on
Schedule 4.3
, the
Company has no knowledge of any voting agreements, buy-sell agreements, option
or right of first purchase agreements or other agreements of any kind among any
of the securityholders of the Company relating to the securities of the Company
held by them. Except as set forth on
Schedule 4.3
, the
Company has not granted any Person the right to require the Company to register
any securities of the Company under the 1933 Act, whether on a demand basis or
in connection with the registration of securities of the Company for its own
account or for the account of any other Person.
4.4.
Valid
Issuance
. As of the Closing, the Company has reserved a
sufficient number of shares of Common Stock for the issuance upon conversion of,
as payment for interest on or repayment of principal of, and otherwise pursuant
to, the Notes. The Notes are duly authorized, and the Underlying
Shares, when issued in accordance herewith and, in respect of the Underlying
Shares issued pursuant to the terms of the Notes, will be validly issued, fully
paid, non-assessable and free and clear of all encumbrances and restrictions,
except for restrictions on transfer imposed by applicable securities
laws. The number of shares to be reserved hereunder shall be
determined without regard to any restrictions on beneficial ownership or
issuance contained in the Agreements.
4.5.
Consents
. The
execution, delivery and performance by the Company of the Agreements and,
subject to the truth and accuracy of the representations made by the Purchasers
in Section 5 of this Agreement, the offer, issuance and sale of the Securities,
require no consent of, action by or in respect of, or filing with, any Person,
governmental body, agency, or official, other than filings that have been made
pursuant to applicable state securities laws and post-sale filings pursuant to
applicable state and federal securities laws and the requirements of the Nasdaq
Stock Market, which the Company undertakes to file within the applicable time
periods. The Company has been orally advised by NASDAQ that the
transactions contemplated hereby, when integrated with the Company’s February
2010 offering of convertible promissory notes due August 4, 2010 (the “2010
Offering”), should not violate NASDAQ Marketplace Rules (subject to the NASDAQ’s
review of the final transaction documents for the transactions contemplated
hereby). The Company does not believe that the transactions
contemplated hereby will be integrated with any prior offering or issuance of
securities by the Company, including without limitation the offering and sale of
the 2008 Notes and 2009 Notes and the 2010 Offering, for purposes of the 1933
Act such that the Company would not be able to rely on the registration
exemption provided in Section 4(2) of the 1933 Act with respect to the
transactions contemplated hereby. Other than the 2010 Offering, the Company does
not believe that the transactions contemplated hereby will be integrated with
any prior offering or issuance of securities by the Company, including without
limitation the offering and sale of the 2008 Notes and 2009 Notes, for purposes
of the Nasdaq Stock Market rules and regulations (including those requiring
stockholder approval in certain circumstances) such that stockholder approval
would be required in connection with the transactions contemplated
hereby.
4.6.
Delivery of SEC Filings;
Business
. The SEC Filings represent all filings required of
the Company pursuant to the 1934 Act since December 31, 2008. The SEC
Filings complied as to form in all material respects with the requirements of
the 1934 Act and did not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. The Company is engaged only in the business described in
the SEC Filings, and the SEC Filings contain a complete and accurate description
of the business of the Company in all material respects. The Company
has not provided to any Purchaser (i) any information required to be filed under
the 1934 Act that has not been so filed or (ii) any material nonpublic
information.
4.7.
Use of
Proceeds
. The proceeds of the sale of the Securities hereunder
shall be used by the Company for working capital and general corporate
purposes.
4.8.
No Material Adverse
Change
. Since December 31, 2008, except as disclosed and
described in the SEC Filings, there has not been:
(i)
any change in the consolidated assets, liabilities, financial
condition or operating results of the Company from that reflected in the
financial statements included in the Company’s Form 10-K for the fiscal year
ended December 31, 2008, except changes in the ordinary course of business which
have not had, in the aggregate, a Material Adverse Effect;
(ii)
any declaration or payment of any dividend, or any authorization or
payment of any distribution, on any of the capital stock of the Company, or any
redemption or repurchase of any securities of the Company;
(iii) any
material damage, destruction or loss, whether or not covered by insurance, to
any assets or properties of the Company or any of its subsidiaries;
(iv) any
waiver by the Company of a material right or of a material debt owed to
it;
(v) any
satisfaction or discharge of any lien, claim or encumbrance or payment of any
obligation by the Company, except in the ordinary course of business and which
is not material to the assets, properties, financial condition, operating
results or business of the Company taken as a whole (as such business is
presently conducted and as it is proposed to be conducted);
(vi) any
material change or amendment to a material contract or arrangement by which the
Company or any of its assets or properties is bound or subject;
(vii) any
material labor difficulties or labor union organizing activities with respect to
employees of the Company;
(viii) any
transaction entered into by the Company other than in the ordinary course of
business; or
(ix) any
other event or condition of any character that may have a Material Adverse
Effect.
4.9.
Registration Statements;
Material Contracts
.
(a) During
the preceding two years, each registration statement and any amendment thereto
filed by the Company pursuant to the 1933 Act, as of the date such statement or
amendment became effective, complied as to form in all material respects with
the 1933 Act and did not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements made therein, in light of the circumstances under which
they were made, not misleading; and each prospectus filed pursuant to Rule
424(b) under the 1933 Act, as of its issue date and as of the closing of any
sale of securities pursuant thereto did not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
(b) Except
as set forth in the SEC Filings or on
Schedule 4.3
hereto,
there are no agreements or instruments currently in force and effect that
constitute a warrant, option, convertible security or other right, agreement or
arrangement of any character under which the Company is or may be obligated to
issue any material amounts of any equity security of any kind, or to transfer
any material amounts of any equity security of any kind.
4.10.
Form S-3
Eligibility
. The Company is currently eligible to register the
resale of its Common Stock on a registration statement on Form S-3 under the
1933 Act, subject to offering size limitations that may be imposed by the
Commission under Rule 415 under the 1933 Act.
4.11.
No Conflict, Breach,
Violation or Default; Compliance with Law
. The execution,
delivery and performance of the Agreements by the Company and the issuance and
sale of the Securities will not conflict with or result in a breach or violation
of any of the terms and provisions of, or constitute a default under (i) the
Company’s Articles of Incorporation (including any certificates of designation)
or the Company’s Bylaws, both as in effect on the date hereof (copies of which
have been provided to the Purchasers before the date hereof), or (ii) except
where it would not have a Material Adverse Effect, (A) any statute, rule,
regulation or order of any governmental agency or body or any court, domestic or
foreign, having jurisdiction over the Company or any of its properties, or (B)
any agreement or instrument to which the Company is a party or by which the
Company is bound or to which any of the properties of the Company is
subject. Except where it would not have a Material Adverse Effect and
except as set forth on
Schedule 4.11
, the
Company (i) is not in violation of any statute, rule or regulation applicable to
the Company or its assets, (ii) is not in violation of any judgment, order or
decree applicable to the Company or its assets, and (iii) is not in breach or
violation of any agreement, note or instrument to which it or its assets are a
party or are bound or subject. The Company has not received notice
from any Person of any claim or investigation that, if adversely determined,
would render the preceding sentence untrue or incomplete.
4.12.
Tax
Matters
. The Company has timely prepared and filed all tax
returns required to have been filed by the Company with all appropriate
governmental agencies and timely paid all taxes owed by it, in each case taking
into account permitted extensions. The charges, accruals and reserves
on the books of the Company in respect of taxes for all fiscal periods are
adequate in all material respects, and there are no material unpaid assessments
against the Company nor, to the knowledge of the Company, any basis for the
assessment of any additional taxes, penalties or interest for any fiscal period
or audits by any federal, state or local taxing authority except such as which
are not material. All material taxes and other assessments and levies
that the Company is required to withhold or to collect for payment have been
duly withheld and collected and paid to the proper governmental entity or third
party when due. There are no tax liens or claims pending or
threatened against the Company or any of its respective assets or
property. There are no outstanding tax sharing agreements or other
such arrangements between the Company and any other corporation or
entity.
4.13.
Title to Properties and
Securities
. Except as disclosed in the SEC Filings, the
Company has, or will at or prior to Closing have, good and marketable title to
all real properties and all other properties and assets owned by it, in each
case free from liens, encumbrances and defects (other than the Mortgage) that
would materially affect the value thereof or materially interfere with the use
made or currently planned to be made thereof by them; and except as disclosed in
the SEC Filings, the Company holds any leased real or personal property under
valid and enforceable leases with no exceptions that would materially interfere
with the use made or currently planned to be made thereof by
them. Except as disclosed in the SEC Filings, the
Operating Subsidiary
owns all the Mortgaged Property (as defined in the Mortgage) free and clear of
all liens, claims, encumbrances and defects (other than the Mortgage) except
those that would not individually or in the aggregate materially affect the
value thereof or materially interfere with the use made or currently planned to
be made thereof. The Company (excluding its subsidiaries) does not
own any assets other than the securities of each of its wholly-owned
subsidiaries and does not engage in any operating activities other than acting
as a holding company of the securities of such subsidiaries. All of
the Company’s operating assets and properties (including without limitation all
Equipment, as defined in the Mortgage) are owned or leased by the Operating
Subsidiary and/or Bio-Quant Inc., a wholly-owned subsidiary of the Company,
except for the Company’s intellectual property rights which are entirely owned
by NexMed Holdings, Inc., a Delaware corporation (“Holdings”), which is
wholly-owned subsidiary of the Company, and except for assets located outside
the United States, which are entirely owned by NexMed International Limited, a
corporation which is organized under the laws of the British Virgin Islands and
which is wholly-owned subsidiary of the Company
(“International”). Holdings does not engage in any activities except
for holding the intellectual property rights of the Company, and International
and its two subsidiaries do not engage in any business or activities in the
United States.
4.14.
Certificates, Authorities
and Permits
. The Company possesses adequate certificates,
authorities or permits issued by appropriate governmental agencies or bodies
necessary to conduct the business now operated by it and has not received any
notice of proceedings relating to the revocation or modification of any such
certificate, authority or permit that, if determined adversely to the Company,
would individually or in the aggregate have a Material Adverse
Effect.
4.15.
No Labor
Disputes
. Except as disclosed in the SEC Filings, no material
labor dispute with the employees of the Company exists or, to the knowledge of
the Company, is imminent.
4.16.
Intellectual
Property
. The Company owns or possesses adequate rights or
licenses to the inventions, know-how, patents, patent rights, copyrights,
trademarks, trade names, licenses, approvals, governmental authorizations, trade
secrets confidential information and other intellectual property rights
(collectively, “Intellectual Property Rights”), free and clear of all liens,
security interests, charges, encumbrances, equities and other adverse claims,
necessary to conduct the business now operated by it, or presently employed by
it, and presently contemplated to be operated by it, and the Company has not
received any notice of infringement of or conflict with asserted rights of
others with respect to any Intellectual Property Rights except as disclosed in
the SEC Filings. Except as set forth on Schedule 4.16 hereto or as
disclosed in the SEC Filings, none of the Company's Intellectual Property Rights
have expired or terminated, or are expected to expire or terminate within three
years from the date of this Agreement, except where such expirations or
termination would not result, either individually or in the aggregate, in a
Material Adverse Effect. To the knowledge of the Company, the Company’s patents
and other Intellectual Property Rights and the present activities of the Company
do not infringe any patent, copyright, trademark, trade name or other
proprietary rights of any third party where such infringement may cause a
Material Adverse Effect on the Company, and there is no claim, action or
proceeding being made or brought against, or to the Company's knowledge, being
threatened against, the Company regarding its Intellectual Property Rights, and
the Company is unaware of any facts or circumstances which might give rise to
any of the foregoing. The Company has no knowledge of the material
infringement of its Intellectual Property Rights by third parties and has no
reason to believe that any of its Intellectual Property Rights is unenforceable,
and the Company is unaware of any facts or circumstances which might give rise
to any of the foregoing. The Company has taken commercially
reasonable security measures to protect the secrecy, confidentiality and value
of all of its intellectual properties.
4.17.
Mortgage
Representations
. All of the representations and warranties
contained in the Mortgage are true and correct as of the date
hereof.
4.18.
Litigation
. Except
as disclosed in the SEC Filings, there are no pending actions, suits or
proceedings against or affecting the Company or any of its properties that, if
determined adversely to the Company, would individually or in the aggregate have
a Material Adverse Effect or would materially and adversely affect the ability
of the Company to perform its obligations under the Agreements, or which are
otherwise material in the context of the sale of the Securities; and to the
Company’s knowledge, no such actions, suits or proceedings are threatened or
contemplated.
4.19.
Financial
Statements
. The financial statements included in each SEC
Filing present fairly and accurately in all material respects the consolidated
financial position of the Company as of the dates shown and its consolidated
results of operations and cash flows for the periods shown, and such financial
statements have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis. Except as set forth in the
financial statements of the Company included in the SEC Filings filed prior to
the date hereof, the Company has no liabilities, contingent or otherwise, except
those which individually or in the aggregate are not material to the financial
condition or operating results of the Company.
4.20.
Insurance
Coverage
. The Company maintains in full force and effect
insurance coverage that the Company reasonably believes to be adequate against
all liabilities, claims and risks against which it is customary for comparably
situated companies to insure.
4.21.
Compliance with Nasdaq
Continued Listing Requirements
. Except as set forth in the SEC
Filings or on Schedule 4.21, the Company is, or will upon the Closing be, in
compliance with all applicable Nasdaq Capital Market continued listing
requirements. Except as set forth in the SEC Filings or on Schedule
4.21, there are no proceedings pending or to the Company’s knowledge threatened
against the Company relating to the continued listing of the Company’s Common
Stock on the Nasdaq Capital Market and the Company has not received any notice
of, nor to the knowledge of the Company is there any basis for, the delisting of
the Common Stock from the Nasdaq Capital Market.
4.22.
Brokers and
Finders
. Neither the Purchasers nor the Company shall have any
liability or responsibility for the payment of any commission or any finder,
agent, broker or consultant fee to any third party in connection with or
resulting from this agreement or the transactions contemplated by this Agreement
by reason of any agreement of or action taken by the Company, and the Company
shall not pay any such commission or fee.
4.23.
No General
Solicitation
. Neither the Company nor any Person acting on its
behalf has conducted any general solicitation or general advertising (as those
terms are used in Regulation D promulgated under the 1933 Act) in connection
with the offer or sale of any of the Securities.
4.24.
No Integrated
Offering
. Neither the Company nor any of its Affiliates, nor
any Person acting on its or their behalf has, directly or indirectly, made any
offers or sales of any security or solicited any offers to buy any security,
under circumstances that would adversely affect reliance by the Company on
Section 4(2) of the 1933 Act for the exemption from registration for the
transactions contemplated hereby or would require registration of the Securities
under the 1933 Act. The offer and sale of the Securities and the
transactions contemplated hereby does not require any stockholder approval by
the Company, including without limitation pursuant to the rules of the Nasdaq
Stock Market.
4.25.
Disclosures
. No
representation or warranty made by the Company under any section hereof and no
written information furnished by the Company to the Purchasers or any authorized
representative of the Purchasers, pursuant to the Agreements or in connection
therewith, contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein and
therein, in light of the circumstances under which the statements were made, not
misleading.
4.26
Share
Increase
. On March 2, 2010, the Company’s shareholders
approved the increase of the number of authorized shares of Common Stock to at
least 200 million shares, and the Company has duly filed an amendment to its
Articles of Incorporation to effect such increase.
5.
Representations and
Warranties of the Purchaser
. Each of the Purchasers hereby
severally, and not jointly, represents and warrants to the Company as to itself
only that:
5.1.
Organization and
Existence
. The Purchaser is a validly existing corporation,
partnership or limited liability company and has all requisite corporate,
partnership or limited liability company power and authority to invest in the
Securities pursuant to this Agreement.
5.2.
Authorization
. The
execution, delivery and performance by the Purchaser of this Agreement and the
Registration Rights Agreement have been duly authorized and this Agreement and
the Registration Rights Agreement will each constitute the valid and legally
binding obligation of the Purchaser, enforceable against the Purchaser in
accordance with their terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability,
relating to or affecting creditors’ rights generally.
5.3.
Purchase Entirely for Own
Account
. The Securities to be received by the Purchaser
hereunder will be acquired for the Purchaser’s own account, not as nominee or
agent, and not with a view to the resale or distribution of any part thereof in
violation of securities laws, and the Purchaser has no present intention of
selling, granting any participation in, or otherwise distributing the same in
violation of securities laws. The Purchaser is not a registered
broker dealer or an entity engaged in the business of being a broker
dealer.
5.4.
Investment
Experience
. The Purchaser acknowledges that it can bear the
economic risk and complete loss of its investment in the Securities and has such
knowledge and experience in financial or business matters and in private
placement transactions of companies similar to the Company so that it is capable
of evaluating the merits and risks of the purchase contemplated
hereby.
5.5.
Disclosure of
Information
. The Purchaser has had an opportunity to receive
documents related to the Company and to ask questions of and receive answers
from the Company regarding the Company, its business and the terms and
conditions of the offering of the Securities and has received and read the SEC
Filings filed via EDGAR at least five days prior to the date
hereof. Neither such inquiries nor any other due diligence
investigation conducted by the Purchaser shall modify, amend or affect the
Purchaser’s right to rely on the Company’s representations and warranties
contained in this Agreement or made pursuant to this Agreement.
5.6.
Restricted
Securities
. The Purchaser understands that the Securities are
characterized as “restricted securities” under the U.S. federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws, applicable state laws and
applicable regulations such securities may be resold without registration under
the 1933 Act only in certain limited circumstances.
5.7.
Legends
.
(a)
It is understood that, until such time
as certificates evidencing the Underlying Shares are required to be issued
without legends pursuant paragraph (b) below, certificates evidencing the
Securities may bear one or all of the following legends or legends substantially
similar thereto:
(i)
“The shares represented by this certificate may not be transferred without
(i) the opinion of counsel reasonably satisfactory to the corporation that such
transfer may lawfully be made without registration under the Securities Act of
1933 or qualification under applicable state securities laws; or (ii) such
registration or qualification.”
(ii)
If required by the authorities of any state in
connection with the issuance of sale of the Securities, the legend required by
such state authority.
(b) Upon
registration for resale pursuant to the Registration Rights Agreement or upon
the first anniversary of the Closing Date (and the holder thereof confirming
that it is not an affiliate of the Company), the Company shall promptly cause
certificates evidencing the Underlying Shares previously issued to be replaced
with certificates (or cause to be issued original certificates if not previously
issued) which do not bear such restrictive legends, and all Underlying Shares
subsequently issued shall not bear such restrictive legends. In
addition, in the event of any sales of Underlying Shares by the holder thereof
pursuant to Rule 144(b)(1)(i) under the 1933 Act prior to the first anniversary
of the Closing Date, the Company shall promptly cause certificates evidencing
such Underlying Shares previously issued to be replaced with certificates (or
cause to be issued original certificates if not previously issued) which do not
bear such restrictive legends. In the event that the Company does not
issue new, unlegended certificates in replacement of the legended certificates
as required under this Section 5.7 within 10 business days of a written request
to do so, or if any subsequently issued Underlying Shares are issued with
restrictive legends when unlegended certificates are required under this Section
5.7, the Company shall be liable to the Purchaser (or subsequent holder thereof)
for damages in an amount of $500 cash for each such day beyond the replacement
date (or issuance date, in the case of newly converted Notes) that such
unlegended certificates are not issued and delivered to the Purchaser or
subsequent holder.
5.8.
Accredited
Investor
. The Purchaser is an “accredited investor” as defined
in Rule 501(a) of Regulation D, as amended, under the 1933 Act.
5.9.
No General
Solicitation
. The Purchaser did not learn of the investment in
the Securities as a result of any public advertising or general
solicitation.
6.
Closing
Documents
. The parties acknowledge and agree that part of the
inducement for the Purchasers to enter into this Agreement is the Company’s
execution and delivery of the Registration Rights Agreement and the execution
and delivery of the Subsidiary Guaranty and the Mortgage by the Operating
Subsidiary. The parties acknowledge and agree that on or prior to the
Closing, the Registration Rights Agreement, the Subsidiary Guaranty and the
Mortgage will be duly executed and delivered by the parties
thereto.
7.
Covenants and Agreements of
the Company
.
7.1.
Rule
144
. Until such time that the Purchasers no longer own any
Notes, the Company covenants to file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the 1934 Act even if the Company
is not then subject to the reporting requirements of the 1934 Act. As
long as any Purchaser owns Notes, if the Company is not required to file reports
pursuant to the 1934 Act, it will prepare and furnish to such Purchaser and make
publicly available in accordance with Rule 144(c) such information as is
required for the Purchaser to sell the Securities under Rule 144. The
Company further covenants that it will take such further action as any holder of
Notes may reasonably request, to the extent required from time to time to enable
such Person to sell the Underlying Shares without registration under the
Securities Act within the requirements of the exemption provided by Rule
144. So long as any Notes are outstanding, the Company shall cause
itself to be subject to the reporting requirements of Section 13 or 15(d) of the
1934 Act and file all reports required to be filed thereunder. The Company
agrees that, for purposes of determining the holding period under Rule 144 of
the 1933 Act for Underlying Shares issued upon conversion of the Notes, the
holding period of such Underlying Shares shall be tacked to the holding period
of the Notes.
7.2.
Limitation on
Transactions
.
(a)
So long as any of the Notes remain outstanding, without
the prior written consent of the holders of a majority-in-interest of the Notes
(which consent may be withheld in such holders’ discretion), the Company shall
not issue or sell or agree to issue or sell any securities in a Variable Rate
Transaction,
provided,
however
, that without such consent, the Company may issue or sell for
cash any securities in a Variable Rate Transaction so long as the total number
of shares of Common Stock issued and/or agreed to be issued in the aggregate for
all such transactions (determined as if all such securities as of their issuance
are deemed fully converted, exercised and exchanged into Common Stock without
regard to limitations or restrictions contained therein) represents less than
seven percent (7%) of the total number of the Company’s issued and outstanding
shares of Common Stock as of the closing date of any such
transaction.
(b)
So long as any Notes remain outstanding, the Company and the Operating
Subsidiary shall not directly or indirectly, create, incur, assume or permit or
suffer to exist any lien, mortgage, security interest or encumbrance (other than
statutory liens imposed by law incurred in the ordinary course of business for
sums not yet delinquent or being contested in good faith, if such reserve or
other appropriate provision, if any, as shall be required by GAAP shall have
been made in respect thereof) upon any of the Mortgaged Property (as defined in
the Mortgage) except for those created by the Mortgage and shall not directly or
indirectly sell, transfer or lease any of the Mortgaged Property, subject to
Section 7.2(c) below and except for any Lease (as defined in the Mortgage) which
may be entered into in compliance with the terms of the Mortgage.
(c)
Notwithstanding anything contained herein or the other
Agreements, the Company or the Operating Subsidiary may sell the Mortgaged
Property in its entirety,
provided that
(i) upon or
prior to such sale, the Company shall deposit into escrow for the benefit of the
Purchasers an amount of cash equal to (x) the aggregate then outstanding
principal amount of all Notes, plus (y) all Accreted Amounts (as defined in the
Notes) accrued to date thereon, plus (z) all Accreted Amounts scheduled to
accrue under the Notes from such date through the Maturity Date (as defined in
the Notes) (“
Escrow
Funds
”), which Escrow Funds shall secure all obligations under the Notes,
and (ii) thereafter the Purchasers may at any time and from time to time demand
immediate repayment of all or part of the amounts (including principal and
Accreted Amounts) then outstanding and accrued under the Notes, which repayment
shall be made from the Escrow Funds. In the event that the Company
shall be required to deposit Escrow Funds in escrow pursuant to this Section
7.2(c), an independent escrow agent (the “
Escrow Agent
”)
mutually acceptable to the Company and the Purchasers shall be appointed to hold
such Escrow Funds in escrow pursuant to an escrow agreement on terms mutually
acceptable to the Company and the Purchasers (the “
Escrow
Agreement
”). The Escrow Agreement shall provide that each
Purchaser may make any demand of repayment as contemplated in clause 7.2(c)(ii)
above directly to the Escrow Agent, whereupon such repayment shall be made to
such Purchaser from such Escrow Funds. Upon deposit of the Escrow
Funds into escrow, the Company shall, and shall cause the Operating Subsidiary
to, execute and deliver in favor of the Purchasers a control agreement in form
and substance reasonably acceptable to the Purchasers and such other agreements
and documents to ensure that (1) the Purchasers have a first priority security
interest in and lien on such Escrow Funds, (2) to the extent possible
such Escrow Funds may not be released except as set forth in such Escrow
Agreement, and (3) to the extent possible such Escrow Funds will not be subject
to any claims by any of the Company’s or Operating Subsidiary’s
creditors. The deposit of the Escrow Funds into escrow and the
creation of a security interest therein in accordance with the terms of this
Section 7.2(c) shall be a condition precedent to any sale of the Mortgaged
Property and neither the Company nor the Operating Subsidiary shall effectuate
any such sale unless and until such condition has been satisfied. To
the extent any principal amount of Notes and/or Accreted Amounts is converted
into shares of Common Stock pursuant to the terms of the Notes, an amount of
cash equal to such principal amount and/or Accreted Amounts may be released to
the Company. For clarification purposes (1) following any such sale of the
Mortgaged Property the Notes shall remain outstanding and in full force and
effect in accordance with the terms set forth therein, except for the Purchasers
right to repayment upon demand as set forth above, (2) the Company (and the
Operating Subsidiary pursuant to the Subsidiary Guaranty) shall remain liable
under the Notes in accordance with the terms thereof notwithstanding the escrow
contemplated hereby, and (3) Escrow Funds remaining in escrow after no Notes
remain outstanding shall be returned to the Company.
7.3.
Right of the Purchasers to
Participate in Future Transactions
. So long as any Notes
remain outstanding, the Purchasers will have a right to participate in any sales
of any of the Company’s securities in a capital raising transaction on the terms
and conditions set forth in this Section 7.3,
provided
that this Section
7.3 shall not apply with respect to any capital raising transaction with an
effective Per Share Selling Price per share of Common Stock in excess of $1.00
occurring after March 31, 2010 (the securities issued in such transaction being
the “New Securities”). Within five (5) business days following each
closing of any non-public offer or sale of any of the Company's equity
securities or any securities convertible into or exchangeable or exercisable for
such securities in a capital raising transaction, the Company shall give written
notice to the Purchasers of such transaction together with a comprehensive term
sheet containing all significant business terms of such transaction and all
transaction documents in connection with such transaction. The
Purchasers shall have the right (pro rata in accordance with the Purchasers’
participation in this offering), exercisable at any time within the 15-day
period following the Purchasers’ receipt of such notice and
documents, to participate in such transaction by purchasing in such transaction
an amount of the identical securities issued in such transaction equal to up to
the Participation Percentage of the aggregate amount of such securities issued
to the Purchasers and such other investors together for the same consideration
and on the same terms and conditions as such third-party sale. If,
subsequent to the Company giving notice to a Purchaser hereunder but prior to
the Purchaser exercising its rights hereunder, the terms and conditions of the
third-party sale are substantively changed from that disclosed in the
comprehensive term sheet provided to such Purchaser, the Company shall be
required to provide a new notice to the Purchaser hereunder and the Purchasers
shall have the right to exercise their rights to purchase the identical
securities in such transaction on such changed terms and conditions as provided
hereunder. The rights and obligations of this Section 7.3 shall in no
way diminish the other rights of the Purchaser pursuant to this Section
7. Notwithstanding anything to the contrary contained herein, the
number of shares of Common Stock that may be acquired by any Purchaser pursuant
to any capital raising transaction as described in this Section 7.3 shall not
exceed a number that, when added to the total number of shares of Common Stock
deemed beneficially owned by such Purchaser (other than by virtue of the
ownership of securities or rights to acquire securities that have limitations on
the Purchaser’s right to convert, exercise or purchase similar to the limitation
set forth herein), together with all shares of Common Stock deemed beneficially
owned by the Purchaser’s “affiliates” (as defined in Rule 144 of the 1933 Act)
that would be aggregated for purposes of determining whether a group under
Section 13(d) of the 1934 Act, exists, would exceed 9.9% of the total issued and
outstanding shares of the Common Stock.
7.4.
No
Integration
. Neither the Company nor any of its Affiliates,
nor any Person acting on its or their behalf, shall directly or indirectly make
any offers or sales of any securities or solicit any offers to buy any
securities under circumstances that would cause the loss of the 4(2) exemption
under the Securities Act for the transactions contemplated
hereby. Subject to any consent or approval rights of the Purchasers
hereunder, in the event the Company contemplates an offering of its equity or
debt securities within six months following the Closing Date, the Company agrees
that it shall notify the Purchasers of such offering (without providing any
material non-public information to any Purchaser without its prior approval),
and upon the reasonable request of Purchasers purchasing at least 75% in
principal amount of the Notes hereunder, the Company shall first disclose the
terms and conditions and other relevant facts of such proposed transaction to
Nasdaq and obtain from Nasdaq its verbal advice (subject to the its review of
the executed transaction documents for such transaction) that such
transaction should not be integrated with the offering which is the subject of
this Agreement for purposes of the Nasdaq rules requiring shareholder approval
of the issuance of 20% or more of an issuer’s outstanding common
stock. In the event the Company fails to obtain such advice, then the
Company shall not issue or sell any such securities without the prior written
consent of Purchasers purchasing at least 75% in principal amount of the Notes
hereunder, provided that the Company may sell or issue securities without such
consent if (i) it obtains prior shareholder approval for such sale or issuance
in compliance with the Nasdaq Stock Market Manual rules, (ii) such sale or
issuance is to a pharmaceutical company or contract medical research
organization in connection with a strategic transaction and not primarily as a
capital raising transaction, so long as the Company has not affirmatively been
notified (orally or in writing) by the staff of the Nasdaq Stock Market that it
is reasonably likely to treat such sale or issuance as being integrated with the
transactions contemplated under this Agreement, or (iii) none of the Notes are
then outstanding, so long as the Company has not affirmatively been notified
(orally or in writing) by the staff of the Nasdaq Stock Market that it is
reasonably likely to treat such sale or issuance as being integrated with the
transactions contemplated under this Agreement. In the event that the
transactions contemplated under this Agreement are deemed integrated with any
other transaction(s) by the staff of the Nasdaq Stock Market, then the Company
shall as soon as possible seek the approval of its stockholders and take such
other action to authorize the issuance of the full number of Underlying Shares
and the full amount of securities issued and/or to be issued in such other
transaction.
7.5.
Opinions of
Counsel
. On or prior to the Closing Date, the Company will
deliver to the Purchasers the opinions of legal counsel to the Company
substantially in the form and substance reasonably acceptable to the
Purchasers.
7.6.
Reservation of Common Stock
issuable upon Conversion of Notes
. The Company hereby agrees
at all times to reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of providing for the full
conversion of Notes (including payment and repayment of interest and principal
thereon), such number of shares of Common Stock as shall from time to time equal
the number of shares sufficient to permit the full conversion of Notes
(including payment and repayment of interest, accreted amounts and principal
thereon) in accordance with the terms of the Notes. All calculations
pursuant to this paragraph shall be made without regard to restrictions on
beneficial ownership.
7.7.
Reports
. For
so long as the Purchasers beneficially own the Notes, the Company will furnish
to the Purchasers the following reports, each of which shall be provided to the
Purchasers by air mail or reputable international courier (within one week of
filing with the SEC, in the case of SEC filings), to the extent not filed on and
available at that time via EDGAR:
(a)
Quarterly
Reports
. As soon as available and in any event within 45 days
after the end of each fiscal quarter of the Company, the Company’s quarterly
report on Form 10-Q or, in the absence of such report, consolidated balance
sheets of the Company as at the end of such period and the related consolidated
statements of operations, stockholders’ equity and cash flows for such period
and for the portion of the Company’s fiscal year ended on the last day of such
quarter, all in reasonable detail and certified by the Company to have been
prepared in accordance with generally accepted accounting principles, subject to
year-end and audit adjustments.
(b)
Annual
Reports
. As soon as available and in any event within 90 days
after the end of each fiscal year of the Company, the Company’s Form 10-K or, in
the absence of a Form 10-K, consolidated balance sheets of the Company as at the
end of such fiscal year and the related consolidated statements of earnings,
stockholders’ equity and cash flows for such year, all in reasonable detail and
accompanied by the report on such consolidated financial statements of an
independent certified public accountant selected by the Company and reasonably
satisfactory to the Purchaser.
(c)
Securities
Filings
. As promptly as practicable and in any event within
five days after the same are issued or filed, copies of (i) all notices, proxy
statements, financial statements, reports and documents as the Company shall
send or make available generally to its stockholders or to financial analysts,
and (ii) all periodic and special reports, documents and registration statements
(other than on Form S-8) which the Company furnishes or files, or, to the extent
also delivered to the Company, any officer or director of the Company (in such
person’s capacity as such) furnishes or files with the SEC.
(d)
Other
Information
. Such other information relating to the Company as
from time to time may reasonably be requested by any Purchaser provided the
Company produces such information in its ordinary course of business, and
further provided that the Company, solely in its own discretion, determines that
such information is not confidential in nature and disclosure to the Purchaser
would not be harmful to the Company or violate any rules or regulations of the
SEC or the Nasdaq Stock Market.
7.8.
Press
Releases
. Any press release or other publicity concerning this
Agreement or the transactions contemplated by this Agreement shall be submitted
to the Purchasers for comment at least two (2) business days prior to issuance,
unless the release is required to be issued within a shorter period of time by
law or pursuant to the rules of the NASDAQ Stock Market or a national securities
exchange. The Company shall issue a press release concerning the fact and
material terms of this Agreement within one business day of the
Closing.
7.9.
No Conflicting
Agreements
. The Company will not take any action, enter into
any agreement or make any commitment that would conflict or interfere in any
material respect with the obligations to the Purchasers under the
Agreements.
7.10.
Insurance
. For
so long as any Purchaser beneficially owns any of the Securities, the Company
shall have in full force and effect (a) insurance reasonably believed by the
Company to be adequate on all assets and activities, covering property damage
and loss of income by fire or other casualty, and (b) insurance reasonably
believed to be adequate protection against all liabilities, claims and risks
against which it is customary for companies similarly situated as the Company to
insure.
7.11.
Compliance with
Laws
. So long as the Purchasers beneficially own any
Securities, the Company will use reasonable efforts to comply with all
applicable laws, rules, regulations, orders and decrees of all governmental
authorities, except to the extent non-compliance (in one instance or in the
aggregate) would not have a Material Adverse Effect.
7.12.
Listing of Underlying Shares
and Related Matters
. The Company hereby agrees, promptly
following the Closing of the transactions contemplated by this Agreement, to
take such action to cause the Underlying Shares to be listed on the Nasdaq
Capital Market as promptly as possible following the Closing but no later than
the effective date of the registration contemplated by the Registration Rights
Agreement. The Company further agrees that if the Company applies to
have its Common Stock or other securities traded on any other principal stock
exchange or market, it will include in such application the Underlying Shares
and will take such other action as is necessary to cause such Common Stock to be
so listed. For so long as any Notes remain outstanding, the Company
will take all action necessary to continue the listing and trading of its Common
Stock on the Nasdaq Stock Market, the New York Stock Exchange or the NYSE Amex
(collectively, “
Approved Markets
”),
and the Company will comply in all respects with the Company’s reporting, filing
and other obligations under the bylaws or rules of such exchange or market, as
applicable, to ensure the continued eligibility for trading of the Underlying
Shares thereon.
7.13.
Corporate
Existence
. So long as any Notes remain outstanding, the
Company shall maintain its corporate existence, except in the event of a merger,
consolidation or sale of all or substantially all of the Company’s assets, as
long as the surviving or successor entity in such transaction (a) assumes the
Company’s obligations hereunder and under the agreements and instruments entered
into in connection herewith, regardless of whether or not the Company would have
had a sufficient number of shares of Common Stock authorized and available for
issuance in order to fulfill its obligations hereunder and effect the conversion
(including payment on) in full of all Notes outstanding as of the date of such
transaction; (b) has no legal, contractual or other restrictions on its ability
to perform the obligations of the Company hereunder and under the agreements and
instruments entered into in connection herewith; and (c)(i) is a publicly traded
corporation whose common stock and the shares of capital stock issuable upon
conversion of the Notes are (or would be upon issuance thereof) listed for
trading on an Approved Market or (ii) if not such a publicly traded corporation,
then the buyer agrees that it will, at the election of the Purchasers, purchase
such Purchasers’ Securities at a price equal to the greater of (a) 110% of
the Purchase Price of such Securities or (b) the fair market value of such
Securities on an as-converted basis based on the closing price immediately
preceding such transaction or the redemption date, whichever is
greater.
7.14.
[Intentionally
Omitted
.]
7.15.
Overall Limit on Common
Stock Issuable
. Notwithstanding anything herein or in the
Notes to the contrary, the Company may not issue, upon conversion of the Notes,
more than 14,524,000 shares of Common Stock (the “
Issuable Maximum
”) in the
aggregate (such figure to be appropriately and equitably adjusted for any stock
splits and similar events). Each Holder of Notes shall be entitled to
a portion of the Issuable Maximum equal to the quotient obtained by dividing (x)
the aggregate principal amount of the Notes issued and sold to such Holder by
(y) the aggregate principal amount of all Notes issued and sold by the
Company. If any Holder shall no longer hold any Notes, then such
Holder’s remaining portion of the Issuable Maximum, if any, shall be reallocated
pro-rata among the remaining Holders.
8.
Survival
. All
representations, warranties, covenants and agreements contained in this
Agreement shall be deemed to be representations, warranties, covenants and
agreements as of the date hereof and shall survive the execution and delivery of
this Agreement and terminate upon expiration of the applicable statute of
limitations.
9.
Miscellaneous
.
9.1.
Successors and
Assigns
. This Agreement may not be assigned by a party hereto
without the prior written consent of the other parties hereto which consent may
not be unreasonably withheld or delayed, except that without the prior written
consent of the Company, but after notice duly given, a Purchaser may assign its
rights and delegate its duties hereunder in whole or in part to an Affiliate or
to any Person to which such Purchaser has transferred or assigned all or part of
its Notes in accordance with the terms of the Notes, provided in each case that
such Affiliate, transferee or assignee acknowledges in writing to the Company
that the representations and warranties contained in Section 5 hereof shall
apply to such Affiliate, transferee or assignee. The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective permitted successors and assigns of the
parties. Nothing in this Agreement, express or implied, is intended
to confer upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in this
Agreement.
9.2.
Counterparts
. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument. This Agreement may be executed by facsimile.
9.3.
Titles and
Subtitles
. The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
9.4.
Notices
. Unless
otherwise provided, any notice required or permitted under this Agreement shall
be given in writing and shall be deemed effectively given only by delivery to
each party to be notified by (i) personal delivery, (ii) facsimile, provided it
is sent with electronic confirmation of complete transmittal, or (iii) an
internationally recognized overnight air courier, addressed to the party to be
notified at the address as follows, or at such other address as such party may
designate by ten days’ advance written notice to the other party:
If to the
Company:
NexMed,
Inc.
6330
Nancy Ridge Drive
San
Diego, CA 92121
Fax: (858)
866-0482
Attention: Chief
Financial Officer
With a
copy to:
Goodwin
Procter LLP
Three
Embarcadero Center, 24th Floor
San
Francisco CA 94111
Fax: 415.677.9041
Attention: Ryan
A. Murr, Esq.
If to the
Purchasers, to the addresses set forth on the
signature
pages hereto, with a copy to:
Peter J.
Weisman, P.C.
767 Third
Avenue, 6th Floor
New York,
NY 10017
Telephone: 212-676-5667
Facsimile: 212-676-5665
Email: pweisman@pweisman.com
Any
notice or other communication or deliveries hereunder shall be deemed delivered
(i) upon receipt, if delivered personally, (ii) if sent by facsimile, upon
receipt if received on a Business Day prior to 5:00 p.m. (Eastern Time), or on
the first Business Day following such receipt if received on a Business Day
after 5:00 p.m. (Eastern Time) or (iii) two (2) Business Days following deposit
with an internationally recognized overnight courier service.
9.5.
Expenses
.
(a) The
parties hereto shall pay their own costs and expenses in connection herewith,
except that the Company shall pay to Tail Wind Advisory and Management Ltd.
(“TWAM”) a non-refundable sum equal to $10,000 as and for legal and due
diligence expenses incurred in connection herewith, which shall be paid upon
Closing.
(b) The
Company shall pay the costs of all title, UCC, judgment, lien and similar
searches in connection with the Mortgage, and shall pay all title insurance
premiums on the Mortgaged Property in connection with Purchasers’ title
insurance policy (updated through the Closing Date). The Company
shall also pay all costs and expenses hereafter incurred in amending,
implementing, perfecting, collecting, defending, declaring and enforcing and
otherwise relating to the Purchasers’ rights and security interests in the
Mortgaged Property hereunder or under the Notes or any other instrument or
agreement delivered in connection herewith or therewith, including, but not
limited to, searches and filings after the date hereof (provided that the
Company shall not be responsible for any costs and expenses incurred by the
Purchasers in connection with the negotiation, execution and delivery of the
Mortgage or any other Agreements, except as may be provided above or elsewhere
herein or therein). For clarification, the costs payable by the
Company pursuant to this Section 9.5(b) are in addition to the sum payable to
TWAM pursuant to Section 9.5(a) above.
9.6.
Amendments and
Waivers
. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and 75% in interest of the Purchasers, provided,
however, that any such amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any Securities purchased under
this Agreement at the time outstanding, each future holder of all such
securities, and the Company.
9.7.
Severability
. If
one or more provisions of this Agreement are held to be unenforceable under
applicable law, such provision shall be excluded from this Agreement and the
balance of this Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
9.8.
Entire
Agreement
. This Agreement, including the Exhibits and
Schedules hereto, and the Registration Rights Agreement, the Notes, the Mortgage
and other documents contemplated hereby constitute the entire agreement among
the parties hereof with respect to the subject matter hereof and thereof and
supersede all prior agreements and understandings, both oral and written,
between the parties with respect to the subject matter hereof and
thereof.
9.9.
Further
Assurances
. The parties shall execute and deliver all such
further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.
9.10.
Applicable
Law
. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York without regard to principles
of conflicts of laws.
9.11.
Remedies
.
(a) The
Purchasers shall be entitled to specific performance of the Company’s
obligations under the Agreements.
(b) The
Company on the one hand, and each Purchaser severally and not jointly on the
other hand, shall indemnify the other and hold it harmless from any loss, cost,
expense or fees (including attorneys’ fees and expenses) arising out of any
breach of any representation, warranty, covenant or agreement in any of the
Agreements, or arising out of the enforcement of this Section 9.11.
9.12.
Jurisdiction
. The
parties hereby agree that all actions or proceedings arising directly or
indirectly from or in connection with this Agreement or the other Agreements
shall be litigated only in the Supreme Court of the State of New York or the
United States District Court for the Southern District of New York located in
New York County, New York, except for actions or proceedings arising directly or
indirectly from or in connection with the Mortgage, which may be
litigated in the applicable court(s) in New Jersey. The parties
consent to the jurisdiction and venue of the foregoing courts and consent that
any process or notice of motion or other application to either of said courts or
a judge thereof may be served inside or outside the State of New York or the
Southern District of New York by registered mail, return receipt requested,
directed to the party being served at its address set forth in this Agreement
(and service so made shall be deemed complete three (3) days after the same has
been posted as aforesaid) or by personal service or in such other manner as may
be permissible under the rules of said courts. The Company and the
Purchasers hereby waive any right to a jury trial in connection with any
litigation pursuant to this Agreement or the other Agreements.
9.13.
Like Treatment of Purchasers
and Holders
. Neither the Company nor any of its affiliates
shall, directly or indirectly, pay or cause to be paid any consideration
(immediate or contingent), whether by way of interest, fee, payment for the
redemption, conversion or exercise of the Securities, or otherwise, to any
Purchaser or holder of Securities, for or as an inducement to, or in connection
with the solicitation of, any consent, waiver or amendment of any terms or
provisions of the Agreements, unless such consideration is required to be paid
to all Purchasers or holders of Securities bound by such consent, waiver or
amendment. The Company shall not, directly or indirectly, redeem any
Securities unless such offer of redemption is made pro rata to all Purchasers or
holders of Securities, as the case may be, on identical terms. For
clarification purposes, this provision constitutes a separate right granted to
each Purchaser by the Company and negotiated separately by each Purchaser, and
shall not in any way be construed as the Purchasers acting in concert or as a
group with respect to the purchase, disposition or voting of Securities or
otherwise.
9.14.
Actions of
Purchasers
. The obligations of each Purchaser hereunder and
under the documents contemplated hereby are several and not joint with the
obligations of any other Purchaser, and no Purchaser shall in any way be
responsible for the performance of the obligations of any other Purchaser under
any such document. Nothing contained herein or in any other document
contemplated hereby, and no action taken by any Purchaser pursuant hereto or
thereto, shall be deemed to constitute any of the Purchasers as a partnership,
an association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated hereby or
thereby. Each Purchaser confirms that it has independently
participated in the negotiation of the transaction contemplated hereby with the
advice of its own counsel and advisors. Each Purchaser shall be
entitled to independently protect and enforce its rights, including, without
limitation, the rights arising out of this Agreement or out of any other
document contemplated hereby, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. Notwithstanding anything herein to the contrary, the actions
and obligations of the Purchasers hereunder shall at all times be considered
several and
not
joint, and the Purchasers are not, under any circumstances, agreeing to act
jointly with respect to the Securities or any of their actions or obligations
under the Agreements, and shall not constitute a “group” under the 1934
Act. Each Purchaser acknowledges that no other Purchaser has acted as
agent for such Purchaser in connection with making its investment hereunder and
that no other Purchaser will be acting as agent of such Purchaser in connection
with monitoring its investment hereunder. Each Purchaser shall be entitled to
independently protect and enforce its rights, including without limitation, the
rights arising out of this Agreement or out of the other Agreements, and it
shall not be necessary for any other Purchaser to be joined as an additional
party in any proceeding for such purpose. The Company has elected to
provide all Purchasers with the same terms and Agreements for the convenience of
the Company and not because it was required or requested to do so by the
Purchasers.
9.15.
Collateral
Agent
. The Purchasers hereby appoint (or confirm the continued
appointment of) The Tail Wind Fund Ltd. as “Collateral Agent” under the
Mortgage. The Collateral Agent may be removed, and a successor
Collateral Agent may be appointed, by a majority-in-interest of holders of the
Notes, and any Collateral Agent may resign from such position upon thirty days
prior notice to the Company (which shall constitute notice to the Operating
Subsidiary) and the holders of Notes. If a successor Collateral Agent
does not take such position within 30 days after the retiring Collateral Agent
resigns or is removed, the retiring Collateral Agent or a majority-in-interest
of the holders of the Notes may petition any court of competent jurisdiction for
the appointment of a successor Collateral Agent. The Collateral Agent
will act or refrain from acting based on the direction of a majority-in-interest
of holders of the Notes, and may take any action or refrain from taking any
action as provided in the Mortgage as it shall determine in its reasonable
judgment and discretion. With respect to any monies or property held
by, or expended by, the Collateral Agent on behalf of the holders of the Notes,
such amounts shall be allocated pro rata based on the principal amount of Notes
outstanding. The Collateral Agent shall be reimbursed by the holders
of Notes for all reasonable expenses incurred in connection with acting as
Collateral Agent under the Mortgage (provided that this shall in no way affect
any liability of the Operating Subsidiary or the Company under the
Mortgage). The Collateral Agent may refuse to perform any duty or
exercise any right or power unless it receives indemnity satisfactory to it
against any loss, liability or expense. No implied covenants or
obligations shall be read into this Agreement or the Mortgage against Collateral
Agent. Except for Collateral Agent's own willful misconduct, bad
faith or gross negligence, the Collateral Agent (i) may rely and/or act upon any
written instrument, document or request believed by the Collateral Agent in good
faith to be genuine and to be executed and delivered by the proper person(s),
and may assume in good faith the authenticity, validity and effectiveness
thereof and shall not be obligated to make any investigation or determination as
to the truth and accuracy of any information contained therein, and (ii) shall
not be responsible for the acts or omissions of the other parties hereto or
holders of Notes. In consideration of its acceptance of the
appointment as the Collateral Agent, each of the Purchasers (and any subsequent
holder of the Notes) jointly and severally agree to indemnify the Collateral
Agent against, and hold the Collateral Agent harmless from, all costs, damages,
expenses (including reasonable attorney's fees and disbursements) and
liabilities that the Collateral Agent may incur or sustain in connection with
serving as Collateral Agent under the Mortgage, unless such costs, damages,
expenses and liabilities are caused by the Collateral Agent's own willful
misconduct, bad faith or gross negligence.
[REMAINDER
OF PAGE INTENTIONALLY BLANK]
IN WITNESS WHEREOF
, the
parties have executed this Agreement as of the date first above
written.
The
Company:
|
NEXMED,
INC.
|
|
|
|
|
By:
|
/s/ Vivian Liu
|
|
Name:
|
Vivian
Liu
|
|
Title:
|
Executive
Vice
President
|
The Purchasers:
|
|
THE
TAIL WIND FUND LTD.
|
By:
|
TAIL
WIND ADVISORY AND
|
|
MANAGEMENT
LTD., as
|
|
investment
manager
|
|
|
|
|
By:
|
/s/ David Crook
|
|
Name:
|
David
Crook
|
|
Title:
|
CEO
|
Principal
Amount of Notes/ Aggregate Purchase
Price: $3,400,000
Resident:
|
BVI
|
|
|
Address
for Notices:
|
The
Tail Wind Fund Ltd.
|
|
c/o
Tail Wind Advisory and Management Ltd.
|
|
Attn: David
Crook
|
|
77
Long Acre
|
|
London
WC2E 9LB UK
|
|
Facsimile:
44-207- 420 3819
|
|
Email:
dcrook@tailwindam.com
|
|
|
|
with
a copy to:
|
|
|
|
Peter
J. Weisman, P.C.
|
|
767
Third Avenue, 6
th
Floor
|
|
New
York, NY 10017
|
|
Telephone: 212-676-5667
|
|
Facsimile:
212-676-5665
|
|
Email:
pweisman@pweisman.com
|
SOLOMON
STRATEGIC HOLDINGS, INC.
|
|
|
By:
|
/s/ Andrew P. MacKellar
|
|
Name:
|
Andrew
P. MacKellar
|
|
Title:
|
Director
|
Principal
Amount of Notes/ Aggregate Purchase
Price: $300,000
Resident:
|
BVI
|
|
|
Address
for Notices:
|
Solomon
Strategic Holdings, Inc.
|
|
c/o
Andrew P. MacKellar (Director)
|
|
Greenlands
|
|
The
Red Gap
|
|
Castletown
|
|
IM9
1HB
|
|
British
Isles
|
|
Telephone: +011
(44) 1624 824171
|
|
Facsimile:
+011 (44) 1624 824191
|
|
|
|
with
a copy to:
|
|
|
|
Peter
J. Weisman, P.C.
|
|
767
Third Avenue, 6
th
Floor
|
|
New
York, NY 10017
|
|
Telephone: 212-676-5667
|
|
Facsimile:
212-676-5665
|
|
Email: pweisman@pweisman.com
|
TAIL
WIND ADVISORY AND MANAGEMENT LTD.
|
|
|
By:
|
/s/ David Crook
|
Name:
|
David
Crook
|
Title:
|
CEO
|
Principal
Amount of Notes/ Aggregate Purchase
Price: $300,000
Resident:
|
UK
|
|
|
Address
for Notices:
|
Tail
Wind Advisory and Management Ltd.
|
|
Attn: David
Crook
|
|
77
Long Acre
|
|
London
WC2E 9LB UK
|
|
Facsimile:
44-207- 420 3819
|
|
Email: dcrook@tailwindam.com
|
|
|
|
with
a copy to:
|
|
|
|
Peter
J. Weisman, P.C.
|
|
767
Third Avenue, 6
th
Floor
|
|
New
York, NY 10017
|
|
Telephone: 212-676-5667
|
|
Facsimile:
212-676-5665
|
|
Email: pweisman@pweisman.com
|
|
|
|
|
|
|
|
|
|
|
Purchase
|
|
|
|
Price
|
|
The
Tail Wind Fund Ltd.
|
|
$
|
3,400,000.00
|
|
Solomon
Strategic Holdings, Inc.
|
|
$
|
300,000.00
|
|
Tail
Wind Advisory & Management Ltd.
|
|
$
|
300,000.00
|
|
Total
|
|
$
|
4,000,000.00
|
|
EXHIBIT
10.45
REGISTRATION RIGHTS
AGREEMENT
This Registration Rights Agreement (the
“Agreement”) is made and entered into as of this 15
th
day of
March, 2010 by and between NexMed, Inc., a Nevada corporation (the “Company”),
and the “Purchasers” named in that Purchase Agreement of even date herewith by
and between the Company and the Purchasers (the “Purchase
Agreement”).
The parties hereby agree as
follows:
1.
Certain
Definitions
As used in this Agreement, the
following terms shall have the following meanings:
“
Common Stock
” shall
mean the Company’s common stock, par value $0.001 per share.
“
Investor
” and “
Investors
” shall mean
the Purchaser(s) identified in the Purchase Agreement and any transferee of the
Purchaser(s) who is a permitted assignee of any Notes or Registrable
Securities.
“
Notes
” shall mean the
Company’s 7% Convertible Notes Due December 31, 2012 issued and sold to the
Purchasers pursuant to the Purchase Agreement.
“
Prospectus
” shall
mean the prospectus included in any Registration Statement, as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Registrable Securities covered by such
Registration Statement and by all other amendments and supplements to the
prospectus, including post-effective amendments and all material incorporated by
reference in such prospectus.
“
Register
,” “
registered
” and
“
registration
”
refer to a registration made by preparing and filing a registration statement or
similar document in compliance with the 1933 Act (as defined below), and the
declaration or ordering of effectiveness of such registration statement or
document.
“
Registrable
Securities
” shall mean (a) the Underlying Shares (without regard to any
limitations on beneficial ownership contained in the Notes) or other securities
issued or issuable to each Holder or its permitted transferee or designee (i)
upon conversion of the Notes, or (ii) upon any distribution with respect to, any
exchange for or any replacement of such Notes or (iii) upon any conversion,
exercise or exchange of any securities issued in connection with any such
distribution, exchange or replacement; (b) securities issued or issuable upon
any stock split, stock dividend, recapitalization or similar event with respect
to the foregoing; and (c) any other security issued as a dividend or other
distribution with respect to, in exchange for or in replacement of the
securities referred to in the preceding clauses.
“
Registration
Statement
” shall mean any registration statement filed under the 1933 Act
of the Company that covers the resale of any of the Registrable Securities
pursuant to the provisions of this Agreement, amendments and supplements to such
Registration Statement, including post-effective amendments, all exhibits and
all material incorporated by reference in such Registration
Statement.
“
SEC
” means the U.S.
Securities and Exchange Commission.
“
1933 Act
” means the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder.
“
1934 Act
” means the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
2.
Registration
.
(a)
Registration
Statements
. Promptly following the closing of the purchase and
sale of the Notes contemplated by the Purchase Agreement (the “Closing Date”)
(but no later than thirty (30) days after the Closing Date), the Company shall
prepare and file with the SEC one Registration Statement on Form S-3 (or, if
Form S-3 is not then available to the Company, on such form of registration
statement as is then available to effect a registration for resale of the
Registrable Securities, subject to the Investor’s consent) covering the resale
of the Registrable Securities in an amount equal to 130% of the number of shares
of Common Stock necessary to permit the conversion in full of the Notes (without
regard to any limitations on beneficial ownership contained
therein). Such Registration Statement also shall cover, to the extent
allowable under the 1933 Act and the Rules promulgated thereunder (including
Rule 416), such indeterminate number of additional shares of Common Stock
resulting from stock splits, stock dividends or similar transactions with
respect to the Registrable Securities. Except for 250,000 shares of
Common Stock underlying warrants issued to Southpoint Master Fund LP, no
securities shall be included in the Registration Statement other than the
Registrable Securities without the consent of the Investors holding a majority
of the Registrable Securities (on an as-converted basis), which consent shall
not be unreasonably withheld. The Registration Statement (and each
amendment or supplement thereto, and each request for acceleration of
effectiveness thereof) shall be provided in accordance with Section 3(c) to the
Investor and its counsel prior to its filing or other submission. In
the event any Registrable Securities are not covered by the Registration
Statement, the Company shall promptly amend such Registration Statement or
prepare and file with the SEC a new Registration Statement in accordance with
the terms hereof in order to cause such Registrable Securities to be covered by
a Registration Statement. If the Registration Statement covering the
Registrable Securities is not filed within 30 days following the Closing Date,
then the Company will make pro-rata payments to the Purchasers as liquidated
damages and not as a penalty, in an amount equal to 2% of the sum of the
aggregate principal amount then outstanding under the Notes for each month (or
portion thereof) following such 30
th
day
during which such Registration Statement has not yet been filed (such damages
not to exceed 36% in aggregate). Each such payment shall be due and
payable within five (5) days of the end of each month (or ending portion
thereof) until such Registration Statement is so filed. Such payments
shall be in partial compensation to the Purchasers, and shall not constitute the
Purchasers’ exclusive remedy for such events.
(b)
Expenses
. The
Company will pay all expenses associated with each registration, but excluding
discounts, commissions, fees of underwriters, selling brokers, dealer managers
or similar securities industry professionals.
(c)
Effectiveness
.
(i) The Company shall use
its best efforts to have each Registration Statement declared effective as soon
as practicable, but in no event later than the earlier of (a) 120 days following
the Closing Date (or the date of the occurrence of additional Registrable
Securities, as the case may be) and (b) 5 days following the date on which the
SEC notifies the Company or its counsel that the Registration Statement is not
subject to any further review. In connection therewith, the Company
shall respond to all SEC comments on the Registration Statement and file any
amendments to the Registration Statement within 15 business days following any
date on which the SEC furnishes comments to, asks questions of, or requests
further information from, the Company or its counsel with respect to the
Registration Statement or any part thereof or any document incorporated by
reference therein. After any Registration Statement is declared
effective by the SEC, the Company shall cause such Registration Statement to
remain effective in accordance with the terms hereof, subject to permitted
suspension of such effectiveness only for Allowed Delays (as defined
below). On or prior to the date any Registration Statement is
declared effective by the SEC, the Company shall cause the Registrable
Securities to be specifically listed or included for quotation on an Approved
Market, and maintain such listing and quotation for the Registrable Securities
and the Common Stock in general.
(ii) For not more than
twenty (20) consecutive Trading Days (as defined in the Notes) and for a total
of not more than thirty (30) Trading Days in any twelve (12) consecutive month
period, the Company may delay the disclosure of material non-public information
concerning the Company, by terminating or suspending effectiveness of any
registration contemplated by this Section not containing such information, the
disclosure of which at the time is not, in the good faith opinion of the
Company, in the best interests of the Company (an “Allowed Delay”); provided,
that the Company shall promptly (a) notify the Investor in writing of the
existence of (but in no event, without the prior written consent of the
Investor, shall the Company disclose to the Investor any of the facts or
circumstances regarding) material non-public information giving rise to an
Allowed Delay, and (b) advise the Investor in writing to cease all sales under
the Registration Statement until the end of the Allowed Delay. The
duration of the Registration Period will be extended by the number of days of
any and all Allowed Delays.
(d)
Underwritten
Offering
. If any offering pursuant to a Registration Statement
pursuant to Section 2(a) hereof involves an underwritten offering, the Company
shall have the right to select an investment banker and manager to administer
the offering, which investment banker or manager shall be reasonably
satisfactory to the Investor.
(e)
Registration
Defaults
. If the Company fails, refuses or is
otherwise unable to timely issue Underlying Shares in accordance with the terms
of the Notes, or unlegended certificates for the Underlying Shares as required
under the Agreements, in each case within ten (10) business days following the
Purchaser’s written demand for issuance of such Underlying Shares or
certificates, then the Company will make pro-rata payments to the Purchasers as
liquidated damages and not as a penalty, in an amount equal to 1% of the sum of
the aggregate principal amount then outstanding under the Notes for each month
(pro rated for partial months) following the Registration Date during which any
such events described above occurs and is continuing (the “RRA
Default Period”) (such damages not to exceed 36% in the
aggregate). Each such payment shall be due and payable within five
(5) days of the end of each month (or ending portion thereof) of the RRA Default
Period until the termination of the RRA Default Period. Such payments
shall be in partial compensation to the Purchasers, and shall not constitute the
Purchasers’ exclusive remedy for such events. The RRA Default Period
shall terminate upon delivery of such shares. The amounts payable as
liquidated damages pursuant to this paragraph shall be payable in lawful money
of the United States.
3.
Company
Obligations
. The Company will use its best efforts to effect
the registration of the Registrable Securities in accordance with the terms
hereof, and pursuant thereto the Company will, as expeditiously as
possible:
(a) use
its best efforts to cause such Registration Statement to become effective and to
remain continuously effective for a period (the “Registration Period”) that will
terminate upon the earlier of the date on which all Registrable Securities,
covered by such Registration Statement, as amended from time to time (i) have
been sold or (ii) become available for resale without registration or limitation
pursuant to Rule 144 of the 1933 Act (but not less than one year following the
Closing Date).
(b) prepare
and file with the SEC such amendments and post-effective amendments to the
Registration Statement and the Prospectus as may be necessary to keep the
Registration Statement effective for the period specified in Section 3(a) and to
comply with the provisions of the 1933 Act and the 1934 Act with respect to the
distribution of all Registrable Securities; provided that, at least three (3)
days prior to the filing of a Registration Statement or Prospectus, or any
amendments or supplements thereto, the Company will furnish to the Investor
copies of all documents proposed to be filed;
(c) permit
counsel designated by the Investor to review each Registration Statement and all
amendments and supplements thereto no fewer than five (5) business days prior to
their filing with the SEC and not file any document to which such counsel
reasonably objects on the basis that such document contains a material
misstatement or omission;
(d) furnish
to the Investor and its legal counsel (i) promptly after the same is prepared
and publicly distributed, filed with the SEC, or received by the Company, one
copy of any Registration Statement and any amendment thereto, each preliminary
prospectus and Prospectus and each amendment or supplement thereto, and each
letter written by or on behalf of the Company to the SEC or the staff of the
SEC, and each item of correspondence from the SEC or the staff of the SEC, in
each case relating to such Registration Statement (other than any portion of any
thereof which contains information for which the Company has sought confidential
treatment, and provided that such items shall be redacted prior to delivering to
the Investor and its counsel to the extent necessary to avoid disclosure of
material non-public information concerning the Company), and (ii) such number of
copies of a Prospectus, including a preliminary prospectus, and all amendments
and supplements thereto and such other documents as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor;
(e) in
the event the Company selects an underwriter for the offering, the Company shall
enter into and perform its reasonable obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the underwriter of such
offering;
(f) if
required by the underwriter, at the request of the Investor, the Company shall
furnish, on the date that Registrable Securities, as applicable, are delivered
to an underwriter, if any, for sale in connection with the Registration
Statement (i) an opinion, dated as of such date, from counsel representing the
Company for purposes of such Registration Statement, in form, scope and
substance as is customarily given in an underwritten public offering, addressed
to the underwriter and the Investor and (ii) a letter, dated such date, from the
Company’s independent certified public accountants in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering, addressed to the underwriter and the
Investor;
(g) make
reasonable effort to prevent the issuance of any stop order or other suspension
of effectiveness and, if such order is issued, obtain the withdrawal of any such
order at the earliest possible moment;
(h) prior
to any public offering of Registrable Securities, use its reasonable best
efforts to register or qualify or cooperate with the Investor and its counsel in
connection with the registration or qualification of such Registrable
Securities for offer and sale under the securities or blue sky laws
of such jurisdictions as the Investor reasonably requests in writing and do any
and all other reasonable acts or things necessary or advisable to enable the
distribution in such jurisdictions of the Registrable Securities covered by the
Registration Statement, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions, or to become subject to any tax in any such state or jurisdiction
where it is not otherwise subject;
(i) cause
all Registrable Securities covered by a Registration Statement to be listed on
each securities exchange, interdealer quotation system or other market on which
similar securities issued by the Company are then quoted or listed;
(j) immediately
notify the Investor, at any time when a Prospectus relating to the Registrable
Securities is required to be delivered under the Securities Act, upon discovery
that, or upon the happening of any event as a result of which, the Prospectus
included in such Registration Statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing, and at the request of any such holder,
promptly prepare and furnish to such holder a reasonable number of copies of a
supplement to or an amendment of such Prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
Prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing; and
(k) otherwise
use its best efforts to comply with all applicable rules and regulations of the
SEC under the 1933 Act and the 1934 Act, take such other actions as may be
reasonably necessary to facilitate the registration of the Registrable
Securities hereunder; and make available to its security holders, as soon as
reasonably practicable, but not later than the Availability Date (as defined
below), an earnings statement covering a period of at least twelve months,
beginning after the effective date of each Registration Statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the 1933 Act
(for the purpose of this subsection 3(l), “Availability Date” means the 45th day
following the end of the fourth fiscal quarter that includes the effective date
of such Registration Statement, except that, if such fourth fiscal quarter is
the last quarter of the Company’s fiscal year, “Availability Date” means the
90th day after the end of such fourth fiscal quarter).
4.
Obligations of the
Investor
.
(a) It
shall be a condition precedent to the obligations of the Company to complete the
registration pursuant to this Agreement with respect to the Registrable
Securities, that the Investor shall furnish in writing to the Company such
information regarding itself, the Registrable Securities held by it and the
intended method of disposition of the Registrable Securities held by it, as
shall be reasonably required to effect the registration of such Registrable
Securities, and shall execute such documents in connection with such
registration as the Company may reasonably request. At least fifteen
(15) business days prior to the first anticipated filing date of any
Registration Statement, the Company shall notify the Investor of the information
the Company requires from the Investor if the Investor elects to have any of the
Registrable Securities included in the Registration Statement. The
Investor shall provide such information to the Company at least ten (10)
business days prior to the first anticipated filing date of such Registration
Statement if the Investor elects to have any of the Registrable Securities
included in the Registration Statement.
(b) The
Investor, by its acceptance of the Registrable Securities, agrees to cooperate
with the Company as reasonably requested by the Company in connection with the
preparation and filing of a Registration Statement hereunder, unless such
Investor has notified the Company in writing of its election to exclude all of
its Registrable Securities from the Registration Statement, in which case the
Investor shall be deemed to have waived its rights to have Registrable
Securities registered under this Agreement, unless the Investor has good cause
for such an election.
(c) In
the event the Company determines to engage the services of an underwriter, the
Investor agrees to enter into and perform its obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the managing underwriter of
such offering and take such other actions as are reasonably required in order to
expedite or facilitate the dispositions of the Registrable
Securities.
(d) The
Investor agrees that, upon receipt of any notice from the Company of the
happening of any event rendering a Registration Statement no longer effective,
the Investor will immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities,
until the Investor’s receipt of the copies of the supplemented or amended
prospectus filed with the SEC and declared effective and, if so directed by the
Company, the Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in the Investor’s possession of the prospectus covering the
Registrable Securities, current at the time of receipt of such
notice.
(e) The
Investor may not participate in any underwritten registration hereunder unless
it (i) agrees to sell the Registrable Securities on the basis provided in any
underwriting arrangements in usual and customary form entered into by the
Company, (ii) completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements, and (iii) agrees to pay its
pro rata share of all underwriting discounts and commissions and any expenses in
excess of those payable by the Company pursuant to the terms of this
Agreement.
5.
Indemnification
.
(a)
Indemnification by
Company
. The Company agrees to indemnify and hold harmless, to
the fullest extent permitted by law the Investor, its officers, directors,
stockholders and employees and each person who controls such Investor (within
the meaning of the 1933 Act) against all losses, claims, damages, liabilities,
costs (including, without limitation, reasonable attorney’s fees) and expenses
imposed on such person caused by (i) any untrue or alleged untrue statement of a
material fact contained in any Registration Statement, Prospectus or any
preliminary prospectus or any amendment or supplement thereto or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
the same are based upon any information furnished in writing to the Company by
such Investor, expressly for use therein, or (ii) any violation by the Company
of any federal, state or common law, rule or regulation applicable to the
Company in connection with any Registration Statement, Prospectus or any
preliminary prospectus, or any amendment or supplement thereto, and shall
reimburse in accordance with subparagraph (c) below, each of the foregoing
persons for any legal and any other expenses reasonably incurred in connection
with investigating or defending any such claims. The foregoing is
subject to the condition that, insofar as the foregoing indemnities relate to
any untrue statement, alleged untrue statement, omission or alleged omission
made in any preliminary prospectus or Prospectus that is eliminated or remedied
in any Prospectus or amendment or supplement thereto, the above indemnity
obligations of the Company shall not inure to the benefit of any indemnified
party if a copy of such corrected Prospectus or amendment or supplement thereto
had been made available to such indemnified party and was not sent or given by
such indemnified party at or prior to the time such action was required of such
indemnified party by the 1933 Act and if delivery of such Prospectus or
amendment or supplement thereto would have eliminated (or been a sufficient
defense to) any liability of such indemnified party with respect to such
statement or omission. Indemnity under this Section 5(a) shall remain
in full force and effect regardless of any investigation made by or on behalf of
any indemnified party and shall survive the permitted transfer of the
Registrable Securities.
(b)
Indemnification by
Holder
. In connection with any registration pursuant to the
terms of this Agreement, the Investor will furnish to the Company in writing
such information as the Company reasonably requests concerning the holders of
Registrable Securities or the proposed manner of distribution for use in
connection with any Registration Statement or Prospectus and agrees to indemnify
and hold harmless, to the fullest extent permitted by law, the Company, its
directors, officers, employees, stockholders and each person who controls the
Company (within the meaning of the 1933 Act) against any losses, claims,
damages, liabilities and expense (including reasonable attorney’s fees)
resulting from any untrue statement of a material fact or any omission of a
material fact required to be stated in the Registration Statement or Prospectus
or preliminary prospectus or amendment or supplement thereto or necessary to
make the statements therein not misleading, to the extent, but only to the
extent that such untrue statement or omission is contained in any information
furnished in writing by such Investor to the Company specifically for inclusion
in such Registration Statement or Prospectus or amendment or supplement thereto
and that such information was substantially relied upon by the Company in
preparation of the Registration Statement or Prospectus or any amendment or
supplement thereto. In no event shall the liability of an Investor be
greater in amount than the dollar amount of the proceeds (net of all expense
paid by such Investor and the amount of any damages such holder has otherwise
been required to pay by reason of such untrue statement or omission) received by
such Investor upon the sale of the Registrable Securities included in the
Registration Statement giving rise to such indemnification
obligation.
(c)
Conduct of Indemnification
Proceedings
. Any person entitled to indemnification hereunder
shall (i) give prompt notice to the indemnifying party of any claim with respect
to which it seeks indemnification and (ii) permit such indemnifying party to
assume the defense of such claim with counsel reasonably satisfactory to the
indemnified party;
provided
that any
person entitled to indemnification hereunder shall have the right to employ
separate counsel and to participate in the defense of such claim, but the fees
and expenses of such counsel shall be at the expense of such person unless (a)
the indemnifying party has agreed to pay such fees or expenses, or (b) the
indemnifying party shall have failed to assume the defense of such claim and
employ counsel reasonably satisfactory to such person or (c) in the reasonable
judgment of any such person, based upon written advice of its counsel, a
conflict of interest exists between such person and the indemnifying party with
respect to such claims (in which case, if the person notifies the indemnifying
party in writing that such person elects to employ separate counsel at the
expense of the indemnifying party, the indemnifying party shall not have the
right to assume the defense of such claim on behalf of such person); and
provided
,
further
, that the
failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations hereunder, except to the
extent that such failure to give notice shall materially adversely affect the
indemnifying party in the defense of any such claim or litigation. It
is understood that the indemnifying party shall not, in connection with any
proceeding in the same jurisdiction, be liable for fees or expenses of more than
one separate firm of attorneys at any time for all such indemnified
parties. No indemnifying party will, except with the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement
that does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect of such claim or litigation.
(d)
Contribution
. If
for any reason the indemnification provided for in the preceding paragraphs (a)
and (b) is unavailable to an indemnified party or insufficient to hold it
harmless, other than as expressly specified therein, then the indemnifying party
shall contribute to the amount paid or payable by the indemnified party as a
result of such loss, claim, damage or liability in such proportion as is
appropriate to reflect the relative fault of the indemnified party and the
indemnifying party, as well as any other relevant equitable
considerations. No person guilty of fraudulent misrepresentation
within the meaning of Section 11(f) of the 1933 Act shall be entitled to
contribution from any person not guilty of such fraudulent
misrepresentation. In no event shall the contribution obligation of a
holder of Registrable Securities be greater in amount than the dollar amount of
the proceeds (net of all expenses paid by such holder and the amount of any
damages such holder has otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission) received by it upon
the sale of all the Registrable Securities sold by such indemnified party which
were covered by the relevant Registration Statement or Prospectus contained
therein.
6.
Miscellaneous
.
(a)
Amendments and
Waivers
. This Agreement may be amended only by a writing
signed by the parties hereto. The Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company shall have obtained the written consent to such amendment,
action or omission to act, of the Investor.
(b)
Notices
. All
notices and other communications provided for or permitted hereunder shall be
made as set forth in the Purchase Agreement.
(c)
Assignments and Transfers by
Investor
. This Agreement and all the rights and obligations of
the Investor hereunder may not be assigned or transferred to any transferee or
assignee except to a holder of any Notes or Registrable Securities which is a
permitted assignee pursuant to the assignment provisions of such
instruments.
(d)
Assignments and Transfers by
the Company
. This Agreement may not be assigned by the Company
without the prior written consent of Investor, except that without the prior
written consent of the Investor, but after notice duly given, the Company shall
assign its rights and delegate its duties hereunder to any successor-in-interest
corporation, and such successor-in-interest shall assume such rights and duties,
in the event of a merger or consolidation of the Company with or into another
corporation or the sale of all or substantially all of the Company’s
assets.
(e)
Benefits of the
Agreement
. The terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective permitted successors
and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
(f)
Counterparts
. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
(g)
Titles and
Subtitles
. The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
(h)
Severability
. If
one or more provisions of this Agreement are held to be unenforceable under
applicable law, such provision shall be excluded from this Agreement and the
balance of this Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms to the fullest
extent permitted by law.
(i)
Further
Assurances
. The parties shall execute and deliver all such
further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.
(j)
Entire
Agreement
. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
(k)
Applicable
Law
. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York without regard to principles
of conflicts of law.
IN WITNESS WHEREOF, the parties have
executed this Agreement as of the date first written above.
The
Company:
|
NEXMED,
INC.
|
|
|
|
By:
|
/s/ Vivian H.
Liu
|
|
Name: Vivian
H. Liu
|
|
Title:
Executive Vice President
|
The
Investors:
|
THE
TAIL WIND FUND LTD.
|
|
By:
|
TAIL
WIND ADVISORY AND
|
|
|
MANAGEMENT
LTD., as
|
|
|
investment
manager
|
|
|
|
|
|
By:
|
/s/ David
Crook
|
|
|
Name:
David Crook
|
|
|
Title:
CEO
|
|
TAIL
WIND ADVISORY AND
|
|
MANAGEMENT
LTD.
|
|
|
|
|
By:
|
/s/ David Crook
|
|
Name:
David Crook
|
|
Title: CEO
|
|
|
|
|
SOLOMON
STRATEGIC HOLDINGS, INC.
|
|
|
|
|
By:
|
/s/ Andrew P.
MacKellar
|
|
Name:
Andrew P. MacKellar
|
|
Title:
Director
|
EXHIBIT
10.46
NEITHER
THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION IN RELIANCE
UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
THIS
NOTE DOES NOT REQUIRE PHYSICAL SURRENDER OF THE NOTE IN THE EVENT OF A PARTIAL
REDEMPTION OR CONVERSION. AS A RESULT, FOLLOWING ANY REDEMPTION OR
CONVERSION OF ANY PORTION OF THIS NOTE, THE OUTSTANDING PRINCIPAL AMOUNT
REPRESENTED BY THIS NOTE MAY BE LESS THAN THE PRINCIPAL AMOUNT AND ACCRETED
AMOUNTS SET FORTH BELOW.
7% CONVERTIBLE NOTE DUE
DECEMBER 31, 2012
OF
NEXMED,
INC.
Note
No.: _________
|
Original
Principal Amount: $____________
|
Issuance
Date: March __, 2010
|
New
York, New York
|
This
Note
(“
Note
”) is
one of a duly authorized issue of Notes of
NEXMED,
INC.
, a corporation duly organized and existing under the laws of the
State of Nevada (the “
Company
”), designated as the
Company's 7% Convertible Notes Due December 31, 2012 (
“Maturity Date”
) in an
aggregate principal amount (when taken together with the original principal
amounts of all other Notes) which does not exceed (U.S. $4,000,000.00 (the
“
Notes”
).
For
Value Received
, the Company hereby promises to pay to the order of
_____________
or its
registered assigns or successors-in-interest (
“Holder”
) the principal sum of
U.S.$______________, together with all accrued but unpaid accretions thereto, if
any, on the Maturity Date, to the extent such principal amount and accretion has
not been repaid with or converted into the Company's Common Stock, $0.001 par
value per share (the
“Common
Stock”
), in accordance with the terms hereof. The unpaid
principal balance hereof shall automatically increase daily at the rate of 7%
per annum from the date of original issuance hereof (the
“Issuance Date”
) until the
same becomes due and payable on the Maturity Date, or such earlier date upon
acceleration or by conversion or redemption in accordance with the terms hereof
or of the other Agreements. Such principal accretion under this Note
shall occur daily commencing on the Issuance Date and shall be computed on the
basis of a 360-day year and shall be payable in accordance with Section 2
hereof. Notwithstanding anything contained herein, this Note shall
bear interest on the due and unpaid Principal Amount from and after the
occurrence and during the continuance of an Event of Default pursuant to Section
5(a), at the rate (the “
Default
Rate
”) equal to the lower of twenty percent (20%) per annum or the
highest rate permitted by law. Unless otherwise agreed or required by
applicable law, payments will be applied first to any unpaid collection costs,
then to unpaid default interest and Accreted Amounts (as defined below) and
fees, and any remaining amount to principal.
All
payments of principal (including accreted principal) and default interest on
this Note which are not paid in shares of Common Stock as permitted or required
hereunder shall be made in lawful money of the United States of America by wire
transfer of immediately available funds to such account as the Holder may from
time to time designate by written notice in accordance with the provisions of
this Note or by Company check. This Note may not be prepaid in whole
or in part except as otherwise provided herein or in the other
Agreements. Whenever any amount expressed to be due by the terms of
this Note is due on any day which is not a Business Day (as defined below), the
same shall instead be due on the next succeeding day which is a Business
Day.
The
following terms and conditions shall apply to this Note:
Section
1.
Definitions
.
Capitalized terms
used herein and not otherwise defined shall have the meanings set forth in the
Purchase Agreement dated on or about the Issuance Date pursuant to which the
Notes were originally issued (the
“Purchase
Agreement”
). For purposes hereof the following terms shall
have the meanings ascribed to them below:
“
Bankruptcy
Event
” means any of the following events: (a) the Company or any
subsidiary commences a case or other proceeding under any bankruptcy,
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction relating to the
Company or any subsidiary thereof; (b) there is commenced against the Company or
any subsidiary any such case or proceeding that is not dismissed within 60 days
after commencement; (c) the Company or any subsidiary is adjudicated insolvent
or bankrupt or any order of relief or other order approving any such case or
proceeding is entered; (d) the Company or any subsidiary suffers any appointment
of any custodian or the like for it or any substantial part of its property that
is not discharged or stayed within 60 days; (e) the Company or any subsidiary
makes a general assignment for the benefit of creditors; (f) the Company or any
subsidiary fails to pay, or states that it is unable to pay or is unable to pay,
its debts generally as they become due; or (g) the Company or any subsidiary, by
any act or failure to act, expressly indicates its consent to, approval of or
acquiescence in any of the foregoing or takes any corporate or other action for
the purpose of effecting any of the foregoing.
“Business
Day”
shall mean any day other than a Saturday, Sunday or a day on which
commercial banks in the City of New York are authorized or required by law or
executive order to remain closed.
“
Change in Control
Transaction
” will be deemed to exist if (i) there occurs any
consolidation, merger or other business combination of the Company with or into
any other corporation or other entity or person (whether or not the Company is
the surviving corporation), or any other corporate reorganization or corporate
transaction or series of related transactions in which in any of such events the
voting stockholders of the Company prior to such event cease to own 50% or more
of the voting power, or corresponding voting equity interests, of the surviving
corporation after such event (including without limitation any “going private”
transaction under Rule 13e-3 promulgated pursuant to the Exchange Act or tender
offer by the Company under Rule 13e-4 promulgated pursuant to the Exchange Act
for 20% or more of the Company's Common Stock), (ii) any person (as defined in
Section 13(d) of the Exchange Act), together with its affiliates and associates
(as such terms are defined in Rule 405 under the Securities Act), beneficially
owns or is deemed to beneficially own (as described in Rule 13d-3 under the
Exchange Act without regard to the 60-day exercise period) in excess of 50% of
the Company's voting power, (iii) there is a replacement of more than one-half
of the members of the Company’s Board of Directors which is not approved by
those individuals who are members of the Company's Board of Directors on the
date thereof, (iv) in one or a series of related transactions, there is a sale
or transfer of all or substantially all of the assets of the Company, determined
on a consolidated basis, (v) the Company enters into an agreement providing for
an event set forth in (i), (ii), (iii) or (iv) above, or (vi) any of the
foregoing occurs with respect to the Company or the Operating
Subsidiary.
“
Conversion
Price
”
shall
initially equal $0.58 (which Conversion Price shall be subject to adjustment as
set forth herein).
“
Convertible
Securities
” means any convertible securities, warrants, options or other
rights to subscribe for or to purchase or exchange for, shares of Common
Stock.
“
Effective
Registration
”
shall mean (i) the
resale of all Underlying Shares is either covered by an effective registration
statement in compliance with the Securities Act which registration statement is
not subject to any suspension or stop orders or permitted without registration
under the Securities Act and without any limitations or restrictions pursuant to
Rule 144 promulgated under the Securities Act (provided that independent counsel
for the Company furnishes to the Company’s transfer agent a written legal
opinion confirming such permitted resale under Rule 144, which counsel and form
of opinion shall be reasonably acceptable to the Holder); (ii) the resale of
such Underlying Shares may be effected either pursuant to a current and
deliverable prospectus that is not subject at the time to any blackout or
similar circumstance or pursuant to Rule 144 promulgated under the Securities
Act without registration and without any limitations or restrictions (provided
that independent counsel for the Company furnishes to the Company’s transfer
agent a written legal opinion confirming such permitted resale under Rule 144,
which counsel and form of opinion shall be reasonably acceptable to the Holder);
(iii) such Underlying Shares are listed, or approved for listing prior to
issuance, on an Approved Market and are not subject to any trading suspension
(nor shall trading generally have been suspended on such exchange or market),
and the Company shall not have been notified of any pending or threatened
proceeding or other action to delist or suspend the Common Stock on the Approved
Market on which the Common Stock is then traded or listed; (iv) the requisite
number of shares of Common Stock shall have been duly authorized and reserved
for issuance as required by the terms of the Agreements; (v) the closing bid
price of the Common Stock on the Principal Market shall be at least $1.00; and
(vi) none of the Company or any direct or indirect subsidiary of the Company is
subject to any Bankruptcy Event.
“
Exchange
Act
” shall mean the Securities Exchange Act of 1934, as
amended.
“
Market
Price
” shall equal the average of the daily VWAPs over the five (5)
consecutive Trading Days immediately preceding the date on which the Market
Price is being determined.
“
Per Share Selling
Price
” shall include the amount actually paid by third parties for each
share of Common Stock in a sale or issuance by the Company. In the
event a fee is paid by the Company in connection with such transaction directly
or indirectly to such third party or its affiliates, any such fee shall be
deducted from the selling price pro rata to all shares sold in the transaction
to arrive at the Per Share Selling Price. A sale of shares of Common
Stock shall include the sale or issuance of Convertible Securities, and in such
circumstances the Per Share Selling Price of the Common Stock covered thereby
shall also include the exercise, exchange or conversion price thereof (in
addition to the consideration received by the Company upon such sale or issuance
less the fee amount as provided above). In case of any such security
issued in a Variable Rate Transaction, the Per Share Selling Price shall be
deemed to be the lowest conversion or exercise price at which such securities
are converted or exercised or might have been converted or exercised, or the
lowest adjustment price, as the case may be, over the life of such
securities. If shares are issued for a consideration other than cash,
the Per Share Selling Price shall be the fair value of such consideration as
determined in good faith by independent certified public accountants mutually
acceptable to the Company and the Holder. In the event the Company
directly or indirectly effectively reduces the conversion, exercise or exchange
price for any Convertible Securities which are currently outstanding, then the
Per Share Selling Price shall equal such effectively reduced conversion,
exercise or exchange price.
“
Principal
Amount
” shall refer to the sum of (i) the original principal amount of
this Note, (ii) all accrued but unpaid Accreted Amounts hereunder, and (iii) any
default payments (including default interest) owing under the Agreements but not
previously paid or added to the Principal Amount.
“Principal
Market”
shall mean the NASDAQ Capital Market or such other principal
market or exchange on which the Common Stock is then listed for
trading.
“
Securities
Act
” shall mean the Securities Act of 1933, as amended.
“
Stock Payment
Price
” on any particular day shall mean the lesser of (a) 95% of the
Market Price as of such day, or (b) the Market Price as of such day less
$0.08.
“Trading
Day”
shall mean a day on which there is trading on the Principal
Market.
“
VWAP
”
shall mean the daily dollar
volume-weighted average sale price for the Common Stock on the Principal Market
on any particular Trading Day during the period beginning at 9:30 a.m., New York
City Time (or such other time as the Principal Market publicly announces is the
official open of trading), and ending at 4:00 p.m., New York City Time (or such
other time as the Principal Market publicly announces is the official close of
trading), as reported by Bloomberg through its "Volume at Price" functions or,
if the foregoing does not apply, the dollar volume-weighted average price of
such security in the over-the-counter market on the electronic bulletin board
for such security during the period beginning at 9:30 a.m., New York City Time
(or such other time as the Principal Market publicly announces is the official
open of trading), and ending at 4:00 p.m., New York City Time (or such other
time as the Principal Market publicly announces is the official close of
trading), as reported by Bloomberg, or, if no dollar volume-weighted average
price is reported for such security by Bloomberg for such hours, the average of
the highest closing bid price and the lowest closing ask price of any of the
market makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the VWAP cannot be calculated for such
security on such date on any of the foregoing bases, the VWAP of such security
on such date shall be the fair market value as mutually determined by the
Company and the holders of at least a majority of the principal amount of the
Notes then outstanding. All such determinations of VWAP shall to be
appropriately and equitably adjusted in accordance with the provisions set forth
herein for any stock dividend, stock split, stock combination or other similar
transaction occurring during any period used to determine the Market Price (or
other period utilizing VWAPs).
Section
2.
Accretion
.
(a)
Payment Dates
.
On the first day of each
calendar quarter after the Issuance Date beginning on April 1, 2010 (each an
“
Accretion Payment
Date
”), the Company shall either pay in cash the dollar amount accrued
and accreted to the principal amount hereunder since the prior Accretion Payment
Date (or Issuance Date if no such Accretion Payment Date has yet to occur)
(“
Accreted Amount
”) or
effect the automatic conversion of such Accreted Amount as provided in this
Section 2.
(b)
Payment or Automatic
Conversion
. Subject to the terms hereof, the Company shall
either (i) pay the Accreted Amount in full in cash on each Accretion Payment
Date or (ii) effect an automatic conversion of such Accreted Amount into shares
of Common Stock in accordance with the terms hereof, but not both, at the
Company’s option. Prior to each Accretion Payment Date the Company
shall deliver to all the holders of Notes a written irrevocable notice electing
to pay such Accreted Amount in cash or effect such automatic conversion on such
Accretion Payment Date. Such notice shall be delivered at least five
(5) Trading Days prior to the applicable Accretion Payment Date but no more than
twenty (20) days prior to such Accretion Payment Date. If such notice
is not delivered within the prescribed period set forth in the preceding
sentence, then the Accreted Amount shall be paid in cash. If the
Company elects to pay any Accreted Amount in cash on an Accretion Payment Date,
then on such date the Company shall pay to the Holder an amount equal to the
Accreted Amount due in satisfaction of such obligation. If the
Company elects to effect an automatic conversion of such Accreted Amount into
shares of Common Stock, the number of such shares to be issued for such
Accretion Payment Date shall be the number determined by dividing (x) the
Accreted Amount due, by (y) the Stock Payment Price as of such Accretion Payment
Date. Such shares shall be issued and delivered within three (3)
Trading Days following such Accretion Payment Date and shall be duly authorized,
validly issued, fully paid, non-assessable and free and clear of all
encumbrances, restrictions and legends. If any Holder does not
receive the requisite number of shares of Common Stock in the form required
above within such three Trading Day period, the Holder shall have the option of
either (a) requiring the Company to issue and deliver all or a portion of such
shares or (b) canceling such election to effect such automatic conversion of the
Accreted Amount (in whole or in part), in which case the Company
shall immediately pay in cash the Accreted Amount due hereunder or such portion
as the Holder specifies is to be paid in cash instead of being
converted. Except as otherwise provided in this Section 2, all
holders of Notes must be treated equally with respect to such payment and
conversion of Accreted Amounts. Any conversion of the Accreted Amount
hereunder into shares of Common Stock pursuant to the terms hereof shall
constitute and be deemed a conversion of such portion of the Principal Amount of
this Note for all purposes under this Note and the other Agreements (except that
such conversion shall be at the Stock Payment Price and except as otherwise
provided herein).
(c)
Limitations to Automatic Conversion
into Common Stock
. Notwithstanding anything to the contrary
herein, the Company shall be prohibited from exercising its right to effect an
automatic conversion of any Accreted Amount hereunder (and must deliver cash in
respect thereof) on the applicable Accretion Payment Date (1) if at any time
within ten (10) Trading Days prior to the Accretion Payment Date there fails to
exist Effective Registration or an Event of Default hereunder exists or occurs,
unless otherwise waived in writing by the Holder in whole or in part at the
Holder’s option, (2) if the Company’s net cash on hand (including cash
equivalents) as of such Accretion Payment Date is greater than $3 million (any
conversion election by the Company under this Section 2 shall constitute a
representation by the Company that such net cash amount is below $3 million),
and (3) to the extent, and only to the extent, that such conversion into shares
of Common Stock would result in the Holder hereof exceeding the limitations
contained in Section 3(i) below.
Section
3.
Conversion
.
(a)
Conversion
Right
. Subject to the terms hereof and restrictions and
limitations contained herein and in the Purchase Agreement, the Holder shall
have the right, at such Holder's option, at any time and from time to time to
convert the outstanding Principal Amount under this Note in whole or in part by
delivering to the Company a fully executed notice of conversion in the form of
conversion notice attached hereto as
Exhibit A
(the
“Conversion Notice”
), which
may be transmitted by facsimile. Notwithstanding anything to the
contrary herein, this Note and the outstanding Principal Amount hereunder shall
not be convertible into Common Stock to the extent that such conversion would
result in the Holder hereof exceeding the limitations contained in, or otherwise
violating the provisions of, Section 3(i) below.
(b)
Common Stock Issuance Upon
Conversion
.
(i)
Conversion Date
Procedures
. Upon conversion of this Note pursuant to Section
3(a) above, the outstanding Principal Amount hereunder shall be converted into
such number of fully paid, validly issued and non-assessable shares of Common
Stock, free of any liens, claims and encumbrances, as is determined by dividing
the outstanding Principal Amount being converted by the then applicable
Conversion Price. The date of any Conversion Notice hereunder shall
be referred to herein as the
“Conversion
Date”
. If a conversion under this Note cannot be effected in
full for any reason, or if the Holder is converting less than all of the
outstanding Principal Amount hereunder pursuant to a Conversion Notice, the
Company shall promptly deliver to the Holder (but no later than five Trading
Days after the Conversion Date) a Note for such outstanding Principal Amount as
has not been converted if this Note has been surrendered to the Company for
partial conversion. The Holder shall not be required to physically
surrender this Note to the Company upon any conversion hereunder unless the full
outstanding Principal Amount represented by this Note is being
converted. The Holder and the Company shall maintain records showing
the outstanding Principal Amount so converted and the dates of such conversions
or shall use such other method, reasonably satisfactory to the Holder and the
Company, so as not to require physical surrender of this Note upon each such
conversion.
(ii)
Stock Certificates or
DWAC
. The Company will deliver to the Holder not later than
three (3) Trading Days after the Conversion Date, a certificate or certificates,
which shall be free of restrictive legends and trading restrictions if a
registration statement has been declared effective covering the resale of the
Underlying Shares or the Underlying Shares are freely tradable under Rule 144 of
the Securities Act without restrictions, representing the number of shares of
Common Stock being acquired upon the conversion of this Note. In lieu
of delivering physical certificates representing the shares of Common Stock
issuable upon conversion of this Note, provided the Company's transfer agent is
participating in the Depository Trust Company (“
DTC
”) Fast Automated
Securities Transfer (“
FAST
”) program, upon request
of the Holder, the Company shall use commercially reasonable efforts to cause
its transfer agent to electronically transmit such shares issuable upon
conversion to the Holder (or its designee), by crediting the account of the
Holder’s (or such designee’s) prime broker with DTC through its Deposit
Withdrawal Agent Commission system (provided that the same time periods herein
as for stock certificates shall apply). If in the case of any
conversion hereunder, such certificate or certificates are not delivered to or
as directed by the Holder by the fifth Trading Day after the Conversion Date,
the Holder shall be entitled by written notice to the Company at any time on or
before its receipt of such certificate or certificates thereafter, to rescind
such conversion, in which event the Company shall immediately return this Note
tendered for conversion. If the conversion has not been rescinded in
accordance with the previous sentence and the Company fails to deliver to the
Holder such certificate or certificates (or shares through DTC) pursuant to this
Section 3(b) (free of any restrictions on transfer or legends, if such shares
have been registered) in accordance herewith, prior to the seventh Trading Day
after the Conversion Date, the Company shall pay to the Holder, in cash, an
amount equal to 2% of the Principal Amount per month until such delivery takes
place (pro rated for partial months).
(c)
Conversion Price
Adjustments
.
(i)
Stock Dividends, Splits and
Combinations
. If the Company or any of its subsidiaries, at
any time while the Notes are outstanding (A) shall pay a stock dividend or
otherwise make a distribution or distributions on any equity securities
(including instruments or securities convertible into or exchangeable for such
equity securities) in shares of Common Stock, (B) subdivide outstanding Common
Stock into a larger number of shares, or (C) combine outstanding Common Stock
into a smaller number of shares, then each Affected Conversion Price (as defined
below) shall be multiplied by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding before such event and the
denominator of which shall be the number of shares of Common Stock outstanding
after such event. Any adjustment made pursuant to this Section
3(c)(i) shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision or combination.
As used
in this Note, the Affected Conversion Prices (each an
“Affected Conversion Price”
)
shall refer to: (i) the Conversion Price; and (ii) each reported VWAP
occurring on any Trading Day included in the period used for determining the
Market Price, which Trading Day occurred before the record date in the case of
events referred to in clause (A) of this subparagraph 3(c)(i) and before the
effective date in the case of the events referred to in clauses (B) and (C) of
this subparagraph 3(c)(i).
(ii)
Distributions
. If
the Company or any of its subsidiaries, at any time while the Notes are
outstanding, shall distribute to all holders of Common Stock evidences of its
indebtedness or assets or cash or rights or warrants to subscribe for or
purchase any security of the Company or any of its subsidiaries (excluding those
referred to in Section 3(c)(i) above), then concurrently with such distributions
to holders of Common Stock, the Company shall distribute to holders of the Notes
the amount of such indebtedness, assets, cash or rights or warrants which the
holders of Notes would have received had all their Notes then held been
converted into Common Stock at the applicable Conversion Price immediately prior
to the record date for such distribution.
(iii)
Common Stock
Issuances
. In the event that the Company or any of its
subsidiaries (A) issues or sells any Common Stock or Convertible Securities or
(B) directly or indirectly effectively reduces the conversion, exercise or
exchange price for any Convertible Securities which are currently outstanding,
at or to an effective Per Share Selling Price which is less than the Conversion
Price, then in each such case the Conversion Price in effect immediately prior
to such issue or sale or record date, as applicable, shall be automatically
reduced effective concurrently with such issue or sale to an amount determined
by multiplying the Conversion Price then in effect by a fraction, (x) the
numerator of which shall be the sum of (1) the number of shares of Common Stock
outstanding immediately prior to such issue or sale, plus (2) the number of
shares of Common Stock which the aggregate consideration received by the Company
for such additional shares would purchase at such Conversion Price and (y) the
denominator of which shall be the number of shares of Common Stock of the
Company outstanding immediately after such issue or sale. The
foregoing provision shall not apply to any issuances or sales of Common Stock or
Convertible Securities (i) pursuant to any Convertible Securities currently
outstanding on the date hereof in accordance with the terms of such Convertible
Securities in effect on the date hereof, (ii) pursuant to the Notes, (iii) to
any officer, director, employee or Consultant (as defined below) of the Company
pursuant to a bona fide option or equity incentive plan duly adopted by the
Company, provided that any such issuances or sales to Consultants must be
reasonable consideration for the services rendered by such Consultants and shall
not exceed more than $1 million in market value to all Consultants in the
aggregate under any circumstances, or (iv) made in connection with mergers,
acquisitions, licenses or other similar strategic transactions, provided any
such issuance shall only be made in connection with a transaction involving a
Person which is, itself or through its subsidiaries, an operating company in a
business synergistic with the business of the Company and in which the Company
receives substantial benefits in addition to the investment of funds, but shall
not include a transaction in which the Company is issuing securities primarily
for the purpose of raising capital or to an entity whose primary business is
investing in securities. “Consultant” shall mean any natural person
providing bona fide services to the Company which are not in connection with the
offer or sale of securities in a capital raising transaction and which do not
directly or indirectly promote or maintain a market for the Company’s
securities. The Company shall give to the Holder written notice of
any such sale of Common Stock within 24 hours of the closing of any such sale
and shall within such 24 hour period issue a press release announcing such sale
if such sale is a material event for, or otherwise material to, the
Company.
(iv)
Rounding of Adjustments
.
All calculations under
this Section 3 or Section 2 shall be made to the nearest cent or the nearest
1/100th of a share, as the case may be.
(v)
Notice of Adjustments
.
Whenever any Affected
Conversion Price is adjusted pursuant to Section 3(c)(i), (ii) or (iii) above,
the Company shall promptly deliver to each holder of the Notes, a notice setting
forth the Affected Conversion Price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment, provided that any
failure to so provide such notice shall not affect the automatic adjustment
hereunder.
(vi)
Change in Control
Transactions
. In case of any Change in Control Transaction,
the Holder shall have the right thereafter to, at its option, (A) convert this
Note, in whole or in part, at the then applicable Conversion Price into the
shares of stock and other securities, cash and/or property receivable upon or
deemed to be held by holders of Common Stock following such Change in Control
Transaction, and the Holder shall be entitled upon such event to receive such
amount of securities, cash or property as the shares of the Common Stock of the
Company into which this Note could have been converted immediately prior to such
Change in Control Transaction would have been entitled if such conversion were
permitted, subject to such further applicable adjustments set forth in this
Section 3 or (B) require the Company or its successor to redeem this Note, in
whole or in part, at a redemption price equal to 110% of the outstanding
Principal Amount being redeemed. The terms of any such Change in
Control Transaction shall include such terms so as to continue to give to the
Holders the right to receive the amount of securities, cash and/or property upon
any conversion or redemption following such Change in Control Transaction to
which a holder of the number of shares of Common Stock deliverable upon such
conversion would have been entitled in such Change in Control Transaction, and
default interest and Accreted Amounts payable hereunder shall be in cash or such
new securities and/or property, at the Holder’s option. This
provision shall similarly apply to successive reclassifications, consolidations,
mergers, sales, transfers or share exchanges.
(vii)
Notice of Certain
Events
. If:
|
A.
|
the
Company shall declare a dividend (or any other distribution) on its Common
Stock; or
|
|
B.
|
the
Company shall declare a special nonrecurring cash dividend on or a
redemption of its Common Stock; or
|
|
C.
|
the
Company shall authorize the granting to all holders of the Common Stock
rights or warrants to subscribe for or purchase any shares of capital
stock of any class or of any rights;
or
|
|
D.
|
the
approval of any stockholders of the Company shall be required in
connection with any reclassification of the Common Stock of the Company,
any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, or any
compulsory share of exchange whereby the Common Stock is converted into
other securities, cash or property;
or
|
|
E.
|
the
Company shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the
Company;
|
then the
Company shall cause to be filed at each office or agency maintained for the
purpose of conversion of this Note, and shall cause to be mailed to the Holder
at its last address as it shall appear upon the books of the Company, on or
prior to the date notice to the Company's stockholders generally is given, a
notice stating (x) the date on which a record is to be taken for the purpose of
such dividend, distribution, redemption, rights or warrants, or if a record is
not to be taken, the date as of which the holders of Common Stock of record to
be entitled to such dividend, distributions, redemption, rights or warrants are
to be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange.
(d)
Reservation and Issuance of
Underlying Securities
. The Company covenants that it will
thereafter at all times reserve and keep available out of its authorized and
unissued Common Stock solely for the purpose of issuance upon conversion of this
Note (including repayments in stock), free from preemptive rights or any other
actual contingent purchase rights of persons other than the holders of the
Notes, not less than such number of shares of Common Stock as shall (subject to
any additional requirements of the Company as to reservation of such shares set
forth in the Purchase Agreement) be issuable (taking into account the
adjustments under this Section 3 but without regard to any ownership limitations
contained herein) upon the conversion of this Note hereunder in Common Stock
(including conversion of Accreted Amounts into Common Stock). The
Company covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly authorized, validly issued, fully paid,
nonassessable.
(e)
No
Fractions
. Upon a conversion hereunder the Company shall not
be required to issue stock certificates representing fractions of shares of
Common Stock, but may if otherwise permitted, make a cash payment in respect of
any final fraction of a share based on the closing price of a share of Common
Stock at such time. If the Company elects not, or is unable, to make
such a cash payment, the Holder shall be entitled to receive, in lieu of the
final fraction of a share, one whole share of Common Stock.
(f)
Charges, Taxes and
Expenses
. Issuance of certificates for shares of Common Stock
upon the conversion of this Note (including conversion of Accreted Amounts)
shall be made without charge to the holder hereof for any issue or transfer tax
or other incidental expense in respect of the issuance of such certificate, all
of which taxes and expenses shall be paid by the Company, and such certificates
shall be issued in the name of the Holder or in such name or names as may be
directed by the Holder;
provided
,
however
, that in the
event certificates for shares of Common Stock are to be issued in a name other
than the name of the Holder, this Note when surrendered for conversion shall be
accompanied by an assignment form; and
provided
further
, that the
Company shall not be required to pay any tax or taxes which may be payable in
respect of any such transfer.
(g)
Cancellation
. After
all of the Principal Amount (including accrued but unpaid interest and Accreted
Amounts and default payments at any time owed on this Note) have been paid in
full or converted into Common Stock, this Note shall automatically be deemed
canceled and the Holder shall promptly surrender the Note to the Company at the
Company’s principal executive offices.
(h)
Notices
Procedures
. Any and all notices or other communications or
deliveries to be provided by the Holder hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered personally,
by confirmed facsimile, or by a nationally recognized overnight courier service
to the Company at the facsimile telephone number or address of the principal
place of business of the Company as set forth in the Purchase
Agreement. Any and all notices or other communications or deliveries
to be provided by the Company hereunder shall be in writing and delivered
personally, by facsimile, or by a nationally recognized overnight courier
service addressed to the Holder at the facsimile telephone number or address of
the Holder appearing on the books of the Company, or if no such facsimile
telephone number or address appears, at the principal place of business of the
Holder. Any notice or other communication or deliveries hereunder
shall be deemed delivered (i) upon receipt, when delivered personally, (ii) when
sent by facsimile, upon receipt if received on a Business Day prior to 5:00 p.m.
(Eastern Time), or on the first Business Day following such receipt if received
on a Business Day after 5:00 p.m. (Eastern Time) or (iii) upon receipt, when
deposited with a nationally recognized overnight courier service.
(i)
Beneficial Ownership
Limitation
. Notwithstanding anything to the contrary contained
herein, the number of shares of Common Stock that may be acquired by the Holder
upon conversion pursuant to the terms hereof (including conversion of Accreted
Amounts into Common Stock hereunder) shall not exceed a number that, when added
to the total number of shares of Common Stock deemed beneficially owned by such
Holder (other than by virtue of the ownership of securities or rights to acquire
securities (including the Notes) that have limitations on the Holder’s right to
convert, exercise or purchase similar to the limitation set forth herein),
together with all shares of Common Stock deemed beneficially owned at such time
(other than by virtue of the ownership of securities or rights to acquire
securities that have limitations on the right to convert, exercise or purchase
similar to the limitation set forth herein) by the holder’s “affiliates” at such
time (as defined in Rule 144 of the Securities Act) (“
Aggregation Parties
”) that
would be aggregated for purposes of determining whether a group under Section
13(d) of the Exchange Act exists, would exceed 9.9% of the total issued and
outstanding shares of the Common Stock (the “
Restricted Ownership
Percentage
”). Each holder shall have the right (x) at any time
and from time to time to reduce its Restricted Ownership Percentage immediately
upon notice to the Company and (y) (subject to waiver) at any time and from time
to time, to increase its Restricted Ownership Percentage immediately in the
event of the announcement as pending or planned, of a Change in Control
Transaction. The Company’s obligation to issue shares of Common Stock
which would exceed such limits referred to in this Section 3(i) shall be
suspended to the extent necessary until such time, if any, as shares of Common
Stock may be issued in compliance with such restrictions.
Section
4.
Principal
Repayments
.
(a)
Maturity
Date
.
(i)
Holder
Election
. The Holder may elect to have the all or part of the
principal balance hereunder remaining outstanding on the Maturity Date, together
with all Accreted Amounts accrued thereon through the Maturity Date (“
Maturity Amount
”), repaid on
the Maturity Date either in cash or by automatically converting such amount into
shares of Common Stock, or a combination thereof, at the Holder’s
option.
(ii)
Exercise
Procedure
. Prior to the Maturity Date the Holder shall deliver
a written notice, which may be by email (“
Maturity Election Notice
”),
specifying the dollar amount of the Maturity Amount to be converted into Common
Stock and the dollar amount of the Maturity Amount to be repaid in
cash.
(iii)
Payment/Conversion
. On
the Maturity Date, (x) the Company shall pay to the Holder in cash the portion
of the Maturity Amount elected to be repaid in cash in the Maturity Election
Notice and (y) the portion of the Maturity Amount elected to be converted into
stock in the Maturity Election Notice shall be automatically converted into
Common Stock in accordance with the terms hereof. If the Holder does
not receive the requisite amount of cash in connection with such repayment
within three (3) Trading Days following the Maturity Date, such amount shall
thereafter bear interest hereunder at the Default Rate. To the extent
the Holder elects to make any such repayment by converting all or a portion of
the Maturity Amount into shares of Common Stock pursuant to this Section 4(a),
the number of such shares to be issued upon such conversion as of the Maturity
Date shall be the number determined by dividing (x) the portion of the Maturity
Amount to be converted into Common Stock, by (y) the Conversion Price as of the
Maturity Date. Such shares shall be issued and delivered within three
(3) Trading Days following the Maturity Date and shall be duly authorized,
validly issued, fully paid, non-assessable and free and clear of all
encumbrances, restrictions and legends. Notwithstanding anything to
the contrary herein, the Holder shall be prohibited from exercising its right to
convert any portion of the Maturity Amount into shares of Common Stock on the
Maturity Date to the extent, and only to the extent, that such conversion into
shares of Common Stock would result in the Holder hereof exceeding the
limitations contained in Section 3(i) above. Any conversion hereunder
into shares of Common Stock pursuant to the terms hereof shall constitute and be
deemed a conversion of such portion of the Principal Amount of this Note for all
purposes under this Note and the other Agreements.
(b)
Defeasement
. In
the event the Mortgage is defeased as set forth in Section 7.2(c) of the
Purchase Agreement, then the Holder may at any time and from time to time
thereafter demand immediate repayment of all or part of the amounts (including
principal and Accreted Amounts) then outstanding and accrued under this
Note.
Section
5.
Defaults and
Remedies
.
(a)
Events of
Default
. An “
Event of Default
”
is:
(i) a
default in payment of the Principal Amount under any of the Notes on or after
the date such payment is due, which default continues for five (5) Business Days
after written notice of such non-payment has been received by the Company, or a
default in payment of accrued but unpaid Accreted Amounts under any of the Notes
on or after the date such payment is due, which default continues for fifteen
(15) days after written notice of such non-payment has been received by the
Company;
(ii) a
default in the timely issuance of Underlying Shares upon and in accordance with
terms hereof, which default continues for five (5) Business Days after the
Company has received written notice informing the Company that it has failed to
issue shares or deliver stock certificates within the third Trading Day
following the Conversion Date;
(iii) failure
by the Company or the Operating Subsidiary for thirty (30) days after written
notice has been received by the Company to comply with any material provision of
any of the Notes, the Purchase Agreement, the Subsidiary Guaranty or the
Mortgage or any other agreement between the Holder, on the one hand, and the
Company and/or the Operating Subsidiary, on the other hand (including without
limitation the failure to issue the requisite number of shares of Common Stock
upon conversion hereof and the failure to redeem Notes upon the Holder’s request
following a Change in Control Transaction pursuant to this Note);
(iv) any
representation, warranty or statement made or furnished by the Company or any of
its subsidiaries to the Holder (or any collateral agent on behalf of the Holder)
under the Purchase Agreement, Subsidiary Guaranty, Mortgage or any other
agreement between the Holder and the Company or any certificate of schedule
required thereby, is false or misleading in any material respect when
made;
(v) the
Subsidiary Guaranty or Mortgage ceases to be in full force and effect (including
failure to create a valid and perfected first priority lien on and security
interest in the Mortgaged Property (as defined in the Mortgage) at any time for
any reason, or, if the Mortgage is defeased in accordance with Section 7.2(c) of
the Purchase Agreement, the Escrow Funds fail to be held in accordance with the
terms of such Section and the Escrow Agreement (as such terms are defined in
such Section);
(vi) any
material adverse change in the condition, value or operation of a material
portion of the Mortgaged Property or, if the Mortgage is defeased in accordance
with Section 7.2(c) of the Purchase Agreement, any material adverse change in
the condition or value or a material portion of the Escrow Funds;
(vii) any
acceleration prior to maturity of, any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
indebtedness for money borrowed by the Company or any of its subsidiaries for in
excess of $250,000 or for money borrowed the repayment of which is guaranteed by
the Company or any of its subsidiaries for in excess of $250,000, whether such
indebtedness or guarantee now exists or shall be created hereafter;
(viii) [Reserved];
(ix) the
dissolution or termination of the Company or the Operating Subsidiary as a going
concern; or
(x) if
the Company is subject to any Bankruptcy Event.
(b)
Remedies
. If
an Event of Default occurs and is continuing with respect to any of the Notes,
the Holder may declare all of the then outstanding Principal Amount of this Note
and all other Notes held by the Holder, including any default interest and
Accreted Amounts due thereon, to be due and payable immediately, except that in
the case of an Event of Default arising from events described in clauses (ix)
through (xi) of Section 5(a), this Note shall become due and payable without
further action or notice. In the event of such acceleration, the
amount due and owing to the Holder shall be the greater of (1) 120% of the
outstanding Principal Amount of the Notes held by the Holder (plus all accrued
and unpaid default interest and Accreted Amounts, if any) and (2) the product of
(A) the highest closing price for the five (5) Trading Days immediately
preceding the Holder’s acceleration and (B) the outstanding Principal Amount
divided by the Conversion Price. In either case the Company shall pay
interest on such amount in cash at the Default Rate to the Holder if such amount
is not paid within 7 days of Holder’s request. The remedies under
this Note shall be cumulative.
Section
6.
Security
and Guaranty
. The Company’s and the Operating Subsidiary’s
obligations under this Note and the other Agreements are secured by Mortgaged
Property (as defined in the Mortgage) pursuant to the terms of the Mortgage (or
the Escrow Funds (as defined in the Purchase Agreement), if the Mortgage is
defeased pursuant to Section 7.2(c) of the Purchase Agreement) and the
obligations under this Note are guaranteed by the Operating Subsidiary pursuant
to the Subsidiary Guaranty.
Section
7.
General
.
(a)
Payment of
Expenses
. The Company agrees to pay all reasonable charges and
expenses, including attorneys' fees and expenses, which may be incurred by the
Holder in successfully enforcing this Note and/or collecting any amount due
under this Note. This includes, without limitation and subject to any
limits under applicable law, Holder’s reasonable collection costs under Section
5(b) and Holder’s reasonable attorneys’ fees and legal expenses whether or not
there is a lawsuit, including reasonable attorneys’ fees and legal expenses for
bankruptcy proceedings (including efforts to modify or vacate
any automatic stay or
injunction), appeals and any anticipated post-judgment collection
services. If not prohibited by applicable law, the Company also will
pay any court costs, in addition to all other sums provided by law.
(b)
Savings
Clause
. In case any provision of this Note is held by a court
of competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
so that it is enforceable to the maximum extent possible, and the validity and
enforceability of the remaining provisions of this Note will not in any way be
affected or impaired thereby. In no event shall the amount of
interest paid or converted hereunder (which for this purpose shall include all
default interest, all Accreted Amounts and all other consideration or charges
deemed to be interest) exceed the maximum rate of interest on the unpaid
principal balance hereof allowable by applicable law. If any sum is
collected in excess of the applicable maximum rate, the excess collected shall
be applied to reduce the principal debt. If the interest actually
collected hereunder is still in excess of the applicable maximum rate, the
interest rate shall be reduced so as not to exceed the maximum allowable under
law.
(c)
Amendment
. Neither
this Note nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the Company and the
Holder.
(d)
Assignment,
Etc.
The Holder may assign or transfer this Note to any
transferee only with the prior written consent of the Company, which may not be
unreasonably withheld or delayed, provided that (i) the Holder may assign or
transfer this Note to any of such Holder's Affiliates without the consent of the
Company and (ii) upon any Event of Default, the Holder may assign or
transfer this Note without the consent of the Company, provided in each case
that such Affiliate, transferee or assignee acknowledges in writing to the
Company that the representations and warranties contained in Section 5 of the
Purchase Agreement shall apply to such Affiliate, transferee or
assignee. The Holder shall notify the Company of any such assignment
or transfer promptly. This Note shall be binding upon the Company and
its successors and shall inure to the benefit of the Holder and its successors
and permitted assigns.
(e)
Waiver
.
(i) No
failure on the part of the Holder to exercise, and no delay in exercising any
right, remedy or power hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise by the Holder of any right, remedy or power
hereunder preclude any other or future exercise of any other right, remedy or
power. Each and every right, remedy or power hereby granted to the
Holder or allowed it by law or other agreement shall be cumulative and not
exclusive of any other, and may be exercised by the Holder from time to
time. The release of any party liable under this Note shall not
operate to release any other party liable under this Note.
(ii) Except
as otherwise provided herein, the Company and any other person who signs,
guarantees or endorses this Note, to the extent allowed by law, hereby expressly
waives demand and presentment for payment, notice of nonpayment, protest, notice
of protest, notice of dishonor, notice of acceleration or intent to accelerate,
all other notices whatsoever and bringing of suit and diligence in taking any
action to collect amounts called for hereunder, and will be directly and
primarily liable for the payment of all sums owing and to be owing hereunder,
regardless of and without any notice, diligence, act or omission as or with
respect to the collection of any amount called for hereunder.
(f)
Governing Law;
Jurisdiction
.
(i)
Governing
Law.
THIS NOTE WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY CONFLICTS OF LAWS
PROVISIONS THEREOF THAT WOULD OTHERWISE REQUIRE THE APPLICATION OF THE LAW OF
ANY OTHER JURISDICTION.
(ii)
Jurisdiction
. The
Company irrevocably submits to the exclusive jurisdiction of any State or
Federal Court sitting in the State of New York, County of New York, over any
suit, action, or proceeding arising out of or relating to this
Note. The Company irrevocably waives, to the fullest extent permitted
by law, any objection which it may now or hereafter have to the laying of the
venue of any such suit, action, or proceeding brought in such a court and any
claim that suit, action, or proceeding has been brought in an inconvenient
forum.
The
Company agrees that the service of process upon it mailed by certified or
registered mail (and service so made shall be deemed complete three days after
the same has been posted as aforesaid) or by personal service shall be deemed in
every respect effective service of process upon it in any such suit or
proceeding. Nothing herein shall affect Holder's right to serve
process in any other manner permitted by law. The Company agrees that
a final non-appealable judgement in any such suit or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on such judgment
or in any other lawful manner.
(iii)
NO JURY TRIAL
. THE
COMPANY HERETO KNOWINGLY AND VOLUNTARILY WAIVES ANY AND ALL RIGHTS IT MAY HAVE
TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION BASED ON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS NOTE.
(g)
Replacement
Notes
. This Note may be exchanged by Holder at any time and
from time to time for a Note or Notes with different denominations representing
an equal aggregate outstanding Principal Amount, as reasonably requested by
Holder, upon surrendering the same. No service charge will be made
for such registration or exchange. In the event that Holder notifies
the Company that this Note has been lost, stolen or destroyed, a replacement
Note identical in all respects to the original Note (except for registration
number and Principal Amount, if different than that shown on the original Note),
shall be issued to the Holder, provided that the Holder executes and delivers to
the Company an agreement reasonably satisfactory to the Company to indemnify the
Company from any loss incurred by it in connection with this Note.
[Signature
Page Follows]
IN WITNESS WHEREOF
, the
Company has caused this Note to be duly executed on the day and in the year
first above written.
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NEXMED,
INC.
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By:
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Name:
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Vivian
Liu
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Title:
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Executive
Vice President
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By:
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Name:
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Mark
Westgate
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Title:
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Vice
President and Chief Financial
Officer
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EXHIBIT
A
FORM
OF CONVERSION NOTICE
(To be
executed by the Holder
in order
to convert a Note)
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Re:
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Note
(this “Note”) issued by NEXMED, INC. to ______________________________ on
or about March
___, 2010 in the
original principal amount of
$_____________.
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The
undersigned hereby elects to convert the aggregate outstanding Principal Amount
(as defined in the Note) indicated below of this Note into shares of Common
Stock, $0.001 par value per share (the “Common Stock”), of
NEXMED, INC
.
(the “Company”) according to
the conditions hereof, as of the date written below. If shares are to
be issued in the name of a person other than undersigned, the undersigned will
pay all transfer taxes payable with respect thereto and is delivering herewith
such certificates and opinions as reasonably requested by the Company in
accordance therewith. No fee will be charged to the holder for any
conversion, except for such transfer taxes, if any. The undersigned
represents as of the date hereof that, after giving effect to the conversion of
this Note pursuant to this Conversion Notice, the undersigned will not exceed
the “Restricted Ownership Percentage” contained in Section 3(i) of this
Note.
Conversion
information:
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Date
to Effect Conversion
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Aggregate
Principal Amount of Note Being Converted
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Aggregate
Accreted Amount Thereon
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Number
of Shares of Common Stock to be Issued
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Applicable
Conversion Price
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Signature
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Name
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Address
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EXHIBIT
10.47
NEXMED,
INC.
SUBSCRIPTION
AGREEMENT
AND
INSTRUCTIONS
NO PERSON
WILL BE ACCEPTED AS A PURCHASER PRIOR TO A CLOSING OF THE
OFFERING. NEXMED, INC. (THE “
COMPANY
”) RESERVES THE RIGHT
TO REJECT ANY SUBSCRIPTION, IN WHOLE OR IN PART, OR TO ALLOT ANY PROSPECTIVE
PURCHASER LESS THAN THE AMOUNT SUBSCRIBED FOR BY SUCH PROSPECTIVE
PURCHASER. ANY REPRESENTATION TO THE CONTRARY IS UNAUTHORIZED AND MAY
NOT BE RELIED UPON.
Please
read the Subscription Agreement carefully. In order to subscribe you
must:
1.
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Check
the appropriate boxes in the Subscription Agreement on pages 13 and
14.
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2.
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Sign
and complete the appropriate signature page to the Subscription
Agreement.
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3.
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Sign
and complete the Internal Revenue Service Form W-9 or, if applicable,
Form W-8BEN (applicable for non-US
investors).
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4.
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Sign
and complete the enclosed Investor Suitability
Questionnaire.
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5.
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Return
the above materials along with payment
to:
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NexMed,
Inc.
c/o
Goodwin Procter LLP
4365
Executive Drive, 3rd Floor
San
Diego, California 92121
Attn:
Ryan A. Murr, Esq.
Facsimile:
+1 (858) 457-1255
Checks
for the amount subscribed (as indicated on the signature page of the
Subscription Agreement) should be made payable to “
NexMed, Inc.
” and will be held
until closing, at which time they will be cashed by NexMed.
Alternatively,
payment can be made by wire transfer to the following client trust account
maintained by NexMed’s legal counsel Goodwin Procter, LLP, which funds will
similarly be distributed to NexMed upon the closing of the
transaction:
Citizens
Bank
Riverside,
R.I.,
ABA#
Swift
#
Account
name: Goodwin Procter LLP
Account
number #
Reference: NexMed,
Inc. (attn: Ryan Murr)
The
Company will notify investors as to the date and time of any initial closing
and/or final closing of the transaction.
6.
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Each
prospective purchaser may be required to provide such additional
information as the Company shall reasonably request. In this
connection, please note:
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(a)
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A
partnership may be required to provide a copy, among other items, of its
partnership agreement, as amended, as well as all other documents that
authorize the partnership to invest in the
Company.
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(b)
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A
corporation may be required to provide a copy, among other items, of its
Certificate of Incorporation and Bylaws, as amended, in effect, as well as
all other documents that authorize the corporation to invest in the
Company.
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(c)
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A
trust may be required to provide a copy, among other items, of its
Declaration of Trust or other governing instrument, as amended, as well as
other documents that authorize the trust to invest in the
Company.
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NEXMED,
INC.
SUBSCRIPTION
AGREEMENT
Ladies
and Gentlemen:
1.
Subscription;
Payment
. The undersigned (referred to herein as “
Investor
”), intending to be
legally bound under this Subscription Agreement (the “
Agreement
”), hereby
irrevocably agrees to purchase from NexMed, Inc., a Nevada corporation (the
“
Company
”), this
subscription (the “
Subscription
”) to purchase the
unsecured promissory note of the Company (the “
Note
,” and, together with this
Agreement, the “
Transaction
Agreements
”)), in the form attached hereto as
Exhibit A
, in an
aggregate principal amount set forth on the signature page attached hereto (the
“
Capital
Commitment
”).
Investor
shall either: (i) enclose herewith a certified or official bank check
payable to the Company or (ii) transmit by wire transfer the amount of the
Capital Commitment. The Company shall deposit all proceeds received
for the Subscription in an account maintained by the Company, pending acceptance
of the Subscription.
2.
Acceptance of Subscription;
Closing
. The Investor understands and agrees that the Company
in its sole discretion reserves the right to accept or reject this or any other
subscription in whole or in part, notwithstanding prior receipt by Investor of
notice of acceptance. If this Subscription is rejected by the Company
in whole or in part, the Company shall promptly return all funds received from
the Investor without interest or deduction and this Subscription Agreement shall
thereafter be of no further force or effect. If the Subscription is
accepted in whole or in part, the Company shall notify the Investor of the
date(s) of the closing of the purchase and sale of the Notes (each, a “
Closing
”), which Closing shall
occur after the close of market at the offices of the Company.
At
Closing, the Company shall deliver to the Investor a Note evidencing the Capital
Commitment, with the original Note to be delivered promptly following the
Closing.
3.
Representations and
Warranties of the Company
. The Company hereby represents and
warrants to the Investor as of the date of Closing as follows:
(a) The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Nevada. The Company has all required
corporate power and authority to carry on its business as presently conducted,
to enter into and perform the Transaction Agreements and to carry out the
transactions contemplated hereby.
(b) The
Transaction Agreements are valid and binding obligations of the Company
enforceable against the Company in accordance with their respective terms,
except (i) as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of, creditors’ rights and remedies or by
other principles of general application, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be
limited by applicable law. The execution, delivery and performance of
the Transaction Agreements executed and delivered by the Company pursuant hereto
and the issuance and delivery of the Notes have been duly authorized by all
necessary corporate or other action of the Company. When, as and if
issued in partial or full payment of amounts due under the Notes, the Company’s
shares of common stock, par value $0.001 per share, (the “
Shares
”) so issued will be
duly and validly issued, fully paid and non-assessable and free and clear of all
liens and encumbrances, other than restrictions on transfer provided for in the
Transaction Agreements or imposed by applicable securities laws, and shall not
be subject to preemptive or similar rights.
(c) The
execution and delivery of the Transaction Agreements by the Company pursuant
hereto, and the issuance and delivery of the Notes, do not and will not: (i)
violate, conflict with, or result in a violation of, or constitute or result in
a default or loss of any benefit under, any provision of the Amended and
Restated Articles of Incorporation (the “
Charter
”), or bylaws of the
Company, or cause the creation of any encumbrance upon any of its assets; (ii)
violate, conflict with, or result in a violation of, or constitute a default
under, any provision of any applicable law, regulation or rule, or any order of,
or any restriction imposed by, any court or governmental agency of competent
jurisdiction; (iii) require from the Company any notice to, declaration or
filing with, or consent or approval of, any governmental authority or other
third party; or (iv) violate, conflict with, or result in a violation of, or
constitute or result in a default under, accelerate any obligation under, or
give rise to a right of termination of, any material contract, agreement,
permit, license, authorization or other obligation to which the Company is a
party or by which the Company or any of its assets are bound, in each case
except as would not be reasonably expected to have a Material Adverse Effect
(defined below).
(d) Assuming
the accuracy of the representations and warranties of Investor in this
Agreement, the Notes and, if applicable, the Shares, will be issued in
compliance with all applicable federal and state securities laws.
(e) The
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it under the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder (the “
Exchange Act
”), including
pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date
hereof (or such shorter period as the Company was required by law or regulation
to file such material) (the foregoing materials, including the exhibits thereto
and documents incorporated by reference therein, being collectively referred to
herein as the “
SEC
Reports
”) on a timely basis or has received a valid extension of such
time of filing and has filed any such SEC Reports prior to the expiration of any
such extension, except where the failure to file on a timely basis would not
have or reasonably be expected to result in a Material Adverse Effect (as
defined below). As of their respective filing dates, or to the extent
corrected by a subsequent restatement, the SEC Reports complied in all material
respects with the requirements of the Securities Act and the Exchange Act and
the rules and regulations of the United Stated Securities and Exchange
Commission (the “
Commission
”) promulgated
thereunder. “
Material Adverse Effect
” means
a material adverse effect on the results of operations, assets, prospects,
business or financial condition of the Company and its consolidated
subsidiaries, taken as a whole, except that any of the following, either alone
or in combination, shall not be deemed a Material Adverse Effect: (i) effects
caused by changes or circumstances affecting general market conditions in the
U.S. economy or which are generally applicable to the industry in which the
Company operates, provided that such effects are not borne disproportionately by
the Company, (ii) effects resulting from or relating to the announcement or
disclosure of the sale of the Notes or other transactions contemplated by this
Agreement, or (iii) effects caused by any event, occurrence or condition
resulting from or relating to the taking of any action in accordance with this
Agreement.
(f) The
financial statements of the Company included in the SEC Reports comply in all
material respects with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect at the time of
filing (or to the extent corrected by a subsequent restatement). Such
financial statements have been prepared in accordance with U.S. generally
accepted accounting principles (“
GAAP
”) applied on a consistent
basis during the periods involved, except as may be otherwise specified in such
financial statements or the notes thereto and except that unaudited financial
statements may not contain all footnotes required by GAAP, and fairly present in
all material respects the financial position of the Company and its consolidated
subsidiaries taken as a whole as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal, immaterial year-end audit
adjustments.
(g) Attached
hereto as Exhibit B-1 are the audited consolidated financial statements
(including related notes thereto) of Bio-Quant, Inc. (“
Bio-Quant
”) and its
subsidiaries for the two years ended December 31, 2008 and the unaudited
consolidated financial statements (including any related notes thereto) of
Bio-Quant for the nine months ended September 30, 2009 (collectively, the “
Bio-Quant
Financials
”). On December 14, 2009, the Company acquired
Bio-Quant in a merger transaction, the material terms of which are set forth in
the Company’s Current Report on Form 8-K filed with the SEC on December 17,
2009. Attached hereto as Exhibit B-2 are the unaudited pro forma
condensed combined financial statements of the Company, as adjusted to give
effect to the acquisition of Bio-Quant for the year ended December 31, 2008, and
for the nine months ended and as of September 30, 2009 (the “
Pro Forma Financials
” and,
together with the Bio-Quant Financials, the “
Supplemental Financial
Information
”).
(h) Since
the date of the latest audited financial statements included within the SEC
Reports and except as set forth in the Supplemental Financial Information or as
specifically disclosed herein or in a subsequent SEC Report filed prior to the
date hereof, (i) there have been no events, occurrences or developments that
have had or would reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect, (ii) the Company has not incurred any
material liabilities (contingent or otherwise) other than (A) trade payables and
accrued expenses incurred in the ordinary course of business consistent with
past practice and (B) liabilities not required to be reflected in the Company's
financial statements pursuant to GAAP or disclosed in filings made with the SEC,
(iii) the Company has not altered materially its method of accounting or the
manner in which it keeps its accounting books and records, and (iv) the Company
has not declared or made any dividend or distribution of cash or other property
to its stockholders or purchased, redeemed or made any agreements to purchase or
redeem any shares of its capital stock (other than in connection with
repurchases of unvested stock issued to employees of the Company).
(i) Assuming
the accuracy of Investor’s representations and warranties set forth in Section 4
of this Agreement and the accuracy of the information disclosed in the Investor
Suitability Questionnaire provided by Investor, no registration under the
Securities Act is required for the offer and sale of the Notes (and any Shares
issuable thereunder) by the Company to Investor under the Transaction
Agreements.
4.
Representations and
Warranties
. Investor hereby acknowledges, represents and
warrants to, and agrees with, the Company as follows:
(a) Investor
understands that the offering and sale of the Notes (and any Shares issuable
thereunder) are intended to be exempt from registration under the Securities Act
as a private placement of securities by virtue of Section 4(2) of the Securities
Act, and in accordance therewith and in furtherance thereof, Investor represents
and warrants and agrees as follows:
(i) Investor
has been afforded an opportunity to review information relating to the Company,
the Company’s business and finances, the offering by the Company of the Notes
(and any Shares issuable thereunder) and any and all other information deemed
relevant by Investor in order to make an informed investment decision regarding
the Notes (and any Shares issuable thereunder) (collectively, the “
Information
”), and has
reviewed and received such Information and understands the Information and the
Transaction Agreements;
(ii) Investor
acknowledges that all documents, records and books pertaining to this investment
(including, without limitation, the Information) have been made available for
inspection by Investor, Investor’s attorney, accountant or
advisor(s);
(iii) Investor
and/or Investor’s advisor(s) has/have had a reasonable opportunity to ask
questions of and receive answers from a person or persons on behalf of the
Company concerning the offering of the Notes (and any Shares issuable
thereunder) and all such questions have been answered to the full satisfaction
of Investor;
(iv)
No oral or written representations have been made other than as stated, or in
addition to those stated, in the Information, and no oral or written information
furnished to Investor or Investor’s advisors in connection with the offering of
the Notes (and any Shares issuable thereunder) was in any way inconsistent with
the information stated in the Information;
(v)
Investor is not subscribing for the Notes (or any Shares
issuable thereunder) as a result of or subsequent to any advertisement, article,
notice, other communication published in any newspaper, magazine or similar
media or broadcast over television or radio, or presented at any seminar or
meeting, or any solicitation of a subscription by a person other than a
representative of the Company;
(vi)
If Investor is a natural person, Investor has
reached the age of majority in the jurisdiction in which Investor
resides;
(vi) The
address set forth below is Investor’s true and correct domicile;
(vii) Investor
has adequate means of providing for Investor’s current financial needs and
contingencies, is able to bear the substantial economic risks of the purchase of
the Notes (including the potential repayment of the Notes in Shares) for an
indefinite period of time, has no need for liquidity in such investment, and, at
the present time, could afford a complete loss of such investment;
(ix) Investor
has such knowledge and experience in financial, tax and business matters so as
to enable Investor to utilize the information made available to Investor in
connection with the offering of the Notes (and any Shares issuable thereunder)
to evaluate the merits and risks of an investment in the Company and to make an
informed investment decision with respect thereto;
(x) Investor
is not relying on the Company with respect to the legal, tax and other economic
considerations of an investment and has obtained, or had the opportunity to
obtain the advice of Investor’s own legal, tax and other advisors;
(xi) Investor
will not sell or otherwise transfer the Notes (or any Shares issuable
thereunder) without registration under the Securities Act or applicable state
securities laws or an exemption therefrom. Neither the Notes nor any
Shares issuable thereunder have been registered under the Securities Act or
under the securities laws of any other jurisdiction. Investor
represents that Investor is purchasing the Notes (and any Shares issuable
thereunder) for Investor’s own account, for investment and not with a view to
resale or distribution except in compliance with the Securities
Act. Investor has not offered or sold any portion of the Notes being
acquired (or any Shares issuable thereunder) nor does Investor have any present
intention of selling, distributing or otherwise disposing of any portion of the
Notes (or any Shares issuable thereunder), either currently or after the passage
of a fixed or determinable period of time or upon the occurrence or
nonoccurrence of any predetermined event or circumstance in violation of the
Securities Act. Investor is aware that an exemption from the
registration requirements of the Securities Act pursuant to Rule 144 promulgated
thereunder is not presently available; that the Company has no obligation to
register Investor’s Notes (or any Shares issuable thereunder) or to make
available an exemption from the registration requirements pursuant to such Rule
144 or any successor rule for resale of Investor’s Notes (or any Shares issuable
thereunder);
(xii) Investor
(A) was not organized or reorganized for the specific purpose of acquiring the
Notes (or any Shares issuable thereunder), (B) has made investments prior to the
date hereof, and each beneficial owner thereof has and will share the same
proportion in each investment and (C) Investor’s investment in the Company will
not constitute more than forty percent (40%) of Investor’s total
capital;
(xiii) INVESTOR
UNDERSTANDS AND ACKNOWLEDGES THAT HIS OR HER INVESTMENT IN THE COMPANY INVOLVES
A HIGH DEGREE OF RISK AND IS SUITABLE ONLY FOR INVESTORS OF SUBSTANTIAL MEANS
WHO HAVE NO IMMEDIATE NEED FOR LIQUIDITY OF THE AMOUNT INVESTED, AND THAT SUCH
INVESTMENT INVOLVES A RISK OF LOSS OF ALL OR A SUBSTANTIAL PART OF SUCH
INVESTMENT; and
(xiv) Investor
is an “accredited investor” within the meaning of Rule 501 of Regulation D
promulgated under the Securities Act.
(b) Investor’s
overall commitment to investments which are not readily marketable is reasonable
in relation to Investor’s net worth.
(c) Investor
hereby agrees to provide such information and to execute and deliver such
documents as may reasonably be necessary to comply with any and all laws and
ordinances to which the Company is subject, including, without limitation, such
additional information as the Company may deem appropriate with regard to
Investor’s suitability.
(d) Investor
acknowledges:
(i) In
making an investment decision Investor has relied on Investor’s own examination
of the Company and the terms of the offering of the Notes (and any Shares
issuable thereunder), including the merits and risks involved. THE
NOTES (AND ANY SHARES ISSUABLE THEREUNDER) OFFERED IN THIS SUBSCRIPTION
AGREEMENT HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES
COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING
AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THE
INFORMATION OR THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE;
(ii) Investor,
if executing the Transaction Agreements in a representative or fiduciary
capacity, has full power and authority to execute and deliver the Transaction
Agreements in such capacity and on behalf of the subscribing individual, ward,
partnership, trust, estate, corporation, limited liability company or other
entity for whom Investor is executing the Transaction Agreements, and such
individual, ward, partnership, trust, estate, corporation, limited liability
company or other entity has full right and power to perform pursuant to the
Transaction Agreements and make an investment in the Company; and
(iii) The
representations, warranties, and agreements of Investor contained herein and in
any other writing delivered in connection with the transactions contemplated
hereby shall be true and correct in all respects on and as of the date of the
sale of the Notes as if made on and as of such date and shall survive the
execution and delivery of the Transaction Agreements and the purchase of the
Notes.
(e) Investor
understands that the Notes being offered and sold (and any Shares issuable
thereunder) to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that the
Company is relying in part upon the truth and accuracy of, and such Investor’s
compliance with, the representations, warranties, agreements, acknowledgements
and understandings of such Investor set forth herein in order to determine the
availability of such exemptions and the eligibility of such Investor to acquire
the Notes.
(f) The
Investor acknowledges that the Supplemental Financial Information attached
hereto is confidential and may constitute material non-public information until
such time as this information is publicly disclosed. Investor further
acknowledges that he/she has agreed to maintain such information in confidence
and to not trade in Company securities on the basis of such
information.
5.
Conditions to
Closing
.
(a) The
obligation of Investor to acquire Notes at the Closing is subject to the
fulfillment of the following, on or prior to the date of Closing of the
following (unless waived by Investor):
(i)
The
representations and warranties of the Company contained in Section 3 herein
shall be true and correct in all material respects (except for those
representations and warranties which are qualified as to materiality, in which
case such representations and warranties shall be true and correct in all
respects) as of the date of Closing, as though made on and as of such date,
except for such representations and warranties that speak as of a specific
date.
(ii)
The
Company shall have performed, satisfied and complied in all material respects
with all covenants, agreements and conditions required by the Transaction
Agreements to be performed, satisfied or complied with by it at or prior to the
Closing and shall have obtained in a timely fashion any and all consents,
permits, approvals, registrations and waivers necessary for consummation of the
purchase and sale of the Notes, all of which shall be and remain so long as
necessary in full force and effect.
(iii) the
Company shall deliver to the Investor:
(1) this
Agreement, duly executed by the Company; and
(2)
a
facsimile copy of the Notes, in the name of the name of Investor as set forth on
the signature page hereto, with the original Notes to be delivered as promptly
as practicable following the Closing.
(b) On
or prior to the Closing, the Investor shall issue, deliver or cause to be
delivered to the Company the following:
(i) The
representations and warranties of the Investor contained in Section 4 herein
shall be true and correct in all material respects (except for those
representations and warranties which are qualified as to materiality, in which
case such representations and warranties shall be true and correct in all
respects) as of the date when made and as of the date of Closing, as though made
on and as of such date, except for such representations and warranties that
speak as of a specific date.
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(ii)
Investor shall have performed, satisfied and complied in all material
respects with all covenants, agreements and conditions required by the
Transaction Agreements to be performed, satisfied or complied with by it
at or prior to the Closing and shall have obtained in a timely fashion any
and all consents, permits, approvals, registrations and waivers necessary
for consummation of the purchase and sale of the Notes, all of which shall
be and remain so long as necessary in full force and
effect.
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(iii) Investor
shall deliver to the Company:
(1)
this
Agreement, duly executed by Investor;
(2)
the
Capital Commitment, in United States dollars and in immediately available funds,
and completed Internal Revenue Service Form W-9 or, if applicable, W-8BEN;
and
(3)
an
executed and completed Investor Suitability Questionnaire, attached hereto as
Exhibit
C
.
6.
Legend of Certificates;
Transfer
. Each certificate evidencing the Notes and the Shares
shall bear the following (or substantially equivalent) legends on the face or
reverse side thereof:
“THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. NO SALE, GIFT, TRANSFER OR OTHER DISPOSITION
THEREOF OR OF ANY INTEREST THEREIN SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL
SUCH SECURITIES ARE (I) REGISTERED PURSUANT TO THE PROVISIONS OF SUCH ACT AND
REGISTERED OR QUALIFIED UNDER APPLICABLE STATE SECURITIES OR ‘BLUE SKY’ LAWS OR
(II) EXEMPT FROM SUCH REGISTRATION.”
Any
certificate issued at any time in exchange or substitution for any certificate
bearing such legends (except a new certificate issued upon the completion of a
public distribution of Shares represented thereby) shall also bear such legends,
unless in the opinion of counsel to the Company, the securities represented
thereby need no longer be subject to the restrictions contained
herein. Investor will not sell or otherwise transfer any Notes or
Shares acquired by such Investor except pursuant to registration under the
Securities Act or in accordance with an opinion of counsel satisfactory to the
Company to the effect that registration under the Securities Act is not required
in connection with such transfer. The provisions of this Subscription
Agreement shall be binding upon, and shall inure to the benefit of, Investor and
all subsequent holders of the Notes or Shares who acquired such Notes or Shares
directly or indirectly from Investor in a transaction or series of transactions
not involving any public offering.
7.
Indemnification
. Investor
agrees to indemnify and hold harmless the Company its officers, members,
directors, employees, consultants, advisors, attorneys, agents and affiliates
against any and all loss, liability, claim, damage and expense whatsoever
(including, without limitation, any and all expenses reasonably incurred in
investigating, preparing, or defending against any litigation commenced or
threatened or any claim whatsoever) arising out of or based upon any false
representation or warranty or breach or failure by Investor to comply with any
covenant or agreement made by Investor herein or in any other document furnished
by Investor to any of the foregoing in connection with this
transaction.
8.
Irrevocability; Binding
Effect; Entire Agreement
. Investor hereby acknowledges and
agrees that the Subscription hereunder is irrevocable by Investor, that, except
as required by law, Investor is not entitled to cancel, terminate or revoke this
Agreement or any agreements of Investor hereunder, and that this Agreement and
such other agreements shall survive the death or disability of Investor and
shall be binding upon and inure to the benefit of the parties and their heirs,
executors, administrators, successors, legal representatives and permitted
assigns. If Investor is more than one person, the obligations of
Investor hereunder shall be joint and several and the agreements,
representations, warranties and acknowledgments herein contained shall be deemed
to be made by and be binding upon each such person and his/her heirs, executors,
administrators, successors, legal representatives and permitted
assigns. The Transaction Agreements set forth the entire agreement
and understanding among the parties hereto with respect to the transactions
contemplated hereby and supersedes any and all prior agreements and
understandings relating to the subject matter hereof.
9.
Specific
Performance
. The parties hereto specifically acknowledge that
monetary damages are not an adequate remedy for violations of this Agreement,
and that any party hereto may, in its sole discretion, apply to a court of
competent jurisdiction for specific performance or injunctive or such other
relief as such court may deem just and proper in order to enforce this Agreement
or prevent any violation hereof and, to the extent permitted by applicable law
and to the extent the party seeking such relief would be entitled to the merits
to obtain such relief, each party waives any objection to the imposition of such
relief.
10.
Modification
. Neither
this Agreement nor any provisions hereof shall be waived, modified, discharged
or terminated except by an instrument in writing signed by the party against
whom any such waiver, modification, discharge or termination is
sought.
11.
Notices
. All
notices and other communications required or permitted hereunder shall be in
writing and shall be mailed by registered or certified mail, postage prepaid, or
otherwise delivered by facsimile transmission, by hand or by messenger,
addressed:
(a) If
to the Company, to:
NexMed,
Inc.
6330
Nancy Ridge Drive, Suite 103
San
Diego, California 92121
Attention: Chief
Executive Officer
Facsimile
number: (858) 587-2131
or at
such other address as the Company shall have furnished to the Investors, with a
copy (which shall not constitute notice) to Goodwin Procter LLP, 4365 Executive
Drive, 3
rd
Floor,
San Diego, California 92121, Attn.: Ryan Murr.
(b) If
to Investor, at the address set forth on the signature page hereof (or, in
either case, to such other address as the party shall have furnished in writing
in accordance with the provisions of this Section 11).
Each such
notice or other communication shall for all purposes of this Agreement be
treated as effective or having been given when delivered if delivered
personally, if sent by facsimile, the first business day after the date of
confirmation that the facsimile has been successfully transmitted to the
facsimile number for the party notified, or, if sent by mail, at the earlier of
its receipt or 72 hours after the same has been deposited in a regularly
maintained receptacle for the deposit of the United States mail, addressed and
mailed as aforesaid.
12.
Assignability
. This
Agreement and the rights and obligations hereunder are not transferable or
assignable by the Investor.
13.
Applicable Law;
Jurisdiction
. This Agreement shall be governed in all respects
by the internal laws of the State of California without regard to conflict of
laws provisions. The parties hereto (i) designate the courts of the
City and County of San Diego, California as the forum where all matters
pertaining to this Agreement may be adjudicated, and (ii) by the foregoing
designation, consent to the exclusive jurisdiction and venue of such courts for
the purpose of adjudicating all matters pertaining to this
Agreement.
14.
Severability
. If
any provision of this Agreement is held to be invalid or unenforceable in any
respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired thereby and the
parties will attempt to agree upon a valid and enforceable provision that is a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.
15.
Counterparts
. This
Agreement may be executed by facsimile, in any number of counterparts, each of
which shall be an original and all of which together shall constitute one
instrument.
16.
Nature of
Subscriber
. Investor is (check one):
¨
|
(a)
|
One
or more individuals
|
|
|
|
¨
|
(b)
|
A
corporation
|
|
|
|
¨
|
(c)
|
A
partnership
|
|
|
|
¨
|
(d)
|
A
trust
|
|
|
|
¨
|
(e)
|
Another
entity or organization, namely
|
|
|
|
|
|
_____________________
(please specify)
|
17.
Limitations on Investment in
Investment Companies
.
If
Investor is not an individual, initial the box below that correctly describes
the application of the following statement to your situation: Investor would
not, upon acquiring the Notes and Shares, have more than ten percent (10%) of
its assets invested in one or more investment companies that rely solely on the
exclusion from the definition of “investment company” provided in Section
3(c)(1)(A) of the Investment Company Act of 1940:
*
If the
“False” box is checked, Investor will as of the Closing have ___________
individual stockholders, partners or other record owners and non-individual
stockholders, partners or other record owners. Those non-individual
stockholders, partners or other record owners to whom application of the above
statement would be “False” have an aggregate of ___________ ultimate beneficial
owners who are either individuals or to whom application of the above statement
and the above statement would be “True.”
*
|
Section
3(c)(1)(A) provides, in pertinent
part:
|
“[N]one
of the following persons is an investment company. . .
(1) Any
issuer whose outstanding securities (other than short-term paper) are
beneficially owned by not more than one hundred persons and which is not making
and does not presently propose to make a public offering of its
securities. For purposes of this paragraph:
(A) Beneficial
ownership by a company shall be deemed to be beneficial ownership by one person,
except that, if such company owns 10 per centum or more of the outstanding
voting securities of the issuer, the beneficial ownership shall be deemed to be
that of the holders of such company’s outstanding securities (other than
short-term paper) unless, as of the date of the most recent acquisition by such
company of securities of that issuer, the value of all securities owned by such
company of all issuers which are or would, but for the exception set forth in
this subparagraph, be excluded from the definition of investment company solely
by this paragraph, does not exceed 10 per centum of the value of the company’s
total assets. . . .”
19.
Matters Relating to the
Undersigned’s Ownership of the Shares
.
(a) All
correspondence relating to Investor’s investment should be sent (check
one):
|
¨
|
(i)
to the address of Investor set forth on the signature page
hereof
|
|
¨
|
(ii) to
the following address:
|
(b) Investor
may be contacted by telephone at the following telephone numbers:
|
(i)
Home telephone:
|
__________________________
|
|
(ii) Business
telephone:
|
__________________________
|
|
(iii) Facsimile
telephone:
|
__________________________
|
(c) Investor
may be contacted by electronic mail at the following email address:
SUBSCRIPTION
AGREEMENT SIGNATURE PAGE
FOR
INDIVIDUALS
IN
WITNESS WHEREOF, the undersigned executed this Agreement this
21
day of
January
, 2010.
Capital
Commitment
|
|
Jacob May
|
(principal
amount of Note to be purchased):
|
|
Print
Name
|
|
|
|
$1,500,000
|
|
/s/ Jacob May
|
|
|
Signature
of Investor
|
|
|
|
Price
per Share for repayment of Note:
|
|
|
|
|
Social
Security / Taxpayer ID Number
|
|
|
|
0.36
¢
|
|
|
|
|
|
|
|
|
|
|
Residence
Address
|
If the
purchaser has indicated that the Notes will be held as JOINT TENANTS, as TENANTS
IN COMMON, or as COMMUNITY PROPERTY, please complete the following:
|
|
|
Print
Name of Spouse or Other Purchaser
|
|
|
|
|
|
Signature
of Spouse or Other Purchaser
|
|
|
|
|
|
Social
Security Number
|
ACCEPTED
AND AGREED:
|
NEXMED,
INC.
|
|
|
|
|
|
By:
|
/s/ Mark Westgate
|
|
|
Name:
|
Mark
Westgate
|
|
|
Title:
|
VP
& CFO
|
|
|
|
|
|
|
Dated:
|
January 21
, 2010
|
|
SUBSCRIPTION
AGREEMENT SIGNATURE PAGE
FOR
PARTNERSHIPS, CORPORATIONS, TRUSTS, OR OTHER ENTITIES
IN
WITNESS WHEREOF, the undersigned has executed this Agreement this
5
th
day of
February
, 2010.
Capital
Commitment
|
|
Leon
May Trust I.
|
(principal
amount of Note to be purchased):
|
|
u/w Mortimer May
|
|
|
Print
Name of Partnership, Corporation, Trust
or
other Entity
|
250,000.00
|
|
|
|
|
By:
|
/s/ Leon May
|
Price
per Share for repayment of Note:
|
|
|
(Signature
of Authorized Signatory)
|
|
|
|
Leon
May Trust I.
|
0.40
¢
|
|
Name:
|
u/w Mortimer May
|
|
|
|
|
|
Title:
|
|
|
|
|
|
|
Address:
__________________________________________
|
|
|
|
|
|
Jurisdiction
where organized: __________________________
|
|
|
|
|
|
Taxpayer
Identification
|
|
|
Number:
__________________________________________
|
|
|
|
|
|
Date
of Formation: __________________________________
|
|
|
|
|
|
Address
of Authorized Officer of Subscriber:
|
|
|
|
|
|
|
|
|
|
|
|
|
ACCEPTED
AND AGREED:
|
NEXMED,
INC.
|
|
|
|
|
|
By:
|
/s/ Mark Westgate
|
|
|
Name:
|
Mark
Westgate
|
|
|
Title:
|
V.P.
& CFO
|
|
|
|
|
|
|
Dated:
|
2/5/10
, 2010
|
|
SUBSCRIPTION
AGREEMENT SIGNATURE PAGE
FOR
INDIVIDUALS
IN
WITNESS WHEREOF, the undersigned executed this Agreement this
22nd
day of
January
,
2010.
Capital
Commitment
|
|
Foun-Chung
Fan
|
(principal
amount of Note to be purchased):
|
|
Print
Name
|
|
|
|
|
|
/s/ Foun-Chung
Fan
|
$550,000
|
|
Signature
of Investor
|
|
|
|
|
|
|
|
|
Social
Security / Taxpayer ID Number
|
Price
per Share for repayment of Note:
|
|
|
|
|
|
0.40
¢
|
|
|
|
|
|
|
|
Residence
Address
|
If the
purchaser has indicated that the Notes will be held as JOINT TENANTS, as TENANTS
IN COMMON, or as COMMUNITY PROPERTY, please complete the
following:
|
|
|
Print
Name of Spouse or Other Purchaser
|
|
|
|
|
|
Signature
of Spouse or Other Purchaser
|
|
|
|
|
|
Social
Security Number
|
ACCEPTED
AND AGREED:
|
NEXMED,
INC.
|
|
|
|
|
|
By:
|
/s/ Mark Westgate
|
|
|
Name:
|
Mark
Westgate
|
|
|
Title:
|
VP
& CFO
|
|
|
|
|
|
|
Dated:
|
January 21
,
2010
|
|
Exhibit
A
Form
of Note
-
CONFIDENTIAL -
NOTE
NON-DISCLOSURE AND NON-USE OBLIGATIONS
Exhibit
B-1
Historical
Bio-Quant Financials
-
CONFIDENTIAL -
NOTE
NON-DISCLOSURE AND NON-USE OBLIGATIONS
Exhibit
B-2
Pro
Forma Financials
Exhibit
C
Investor
Suitability Questionnaire
EXHIBIT
10.48
THIS NOTE
AND ANY SECURITIES ISSUABLE PURSUANT HERETO HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “
ACT
”), AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, SUBJECT TO THE TERMS SET FORTH IN THIS NOTE, IN THE
OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE ISSUER
OF THIS NOTE AND SUCH SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR
HYPOTHECATION IS IN COMPLIANCE THEREWITH.
NEXMED,
INC.
UNSECURED
PROMISSORY NOTE
US
$_________
|
Date:
February __, 2010
|
FOR VALUE
RECEIVED, the undersigned, NexMed, Inc., a Nevada corporation (“
NexMed
”), promises to pay as
provided herein to _________ (the “
Holder
”), in lawful money of
the United States of America the principal sum of _________________ dollars
($_____________), together with interest on such principal sum accruing from and
including the date hereof at the rate of ten percent (10%) per annum (which will
be computed on the basis of a 365-day year and paid for the actual number of
days elapsed). This Promissory Note (this “
Note
”) is issued pursuant to
that certain Subscription Agreement, dated _______________ by and between
NexMed and Holder (the “
Subscription
Agreement
”). Capitalized terms used but not otherwise defined
herein will have the meanings ascribed thereto in the Subscription
Agreement.
1.
Maturity
. Unless
the obligation to pay the principal hereunder is previously satisfied as set
forth in Section 2 hereof, the principal amount of this Note, plus interest
accrued thereon, will be due and payable in full, in the manner set forth in
Section 2 herein, on _______________
1
,
(the “
Maturity
Date
”). This Note may be prepaid in whole or in part at any
time without penalty hereunder.
2.
Payment
.
(a) On
the Maturity Date, the principal amount of this Note, plus interest accrued
thereon as provided in this Note up to but not including the Maturity Date, will
be paid by NexMed either directly to Holder or through deposit of immediately
available funds in the amount of such principal and accrued interest with an
escrow agent mutually acceptable to NexMed and Holder (the “
Payment Agent
”) for prompt
payment by such Payment Agent to the Holder. Upon such payment or
deposit to the Payment Agent, as applicable, all obligations under this Note
will have been performed and discharged in full.
1
This date shall be six months from the Closing
Date.
(b) Notwithstanding
anything to the contrary herein, NexMed may, in its sole discretion and in lieu
of making a cash payment as contemplated in Section 2(a), issue to the Holder
shares of NexMed common stock, par value $0.001 per share (the “
Note Satisfaction
Shares
”), valued at a price of
$_____ per share and subject to adjustment as set forth below (the “
Conversion
Price
”). In the event NexMed elects to issue Note Satisfaction
Shares in full or partial satisfaction of the amounts owed under this Note,
NexMed will either deliver the Note Satisfaction Shares to the Holder or to the
Payment Agent for prompt disbursement and payment by the Payment Agent to the
Holder.
(c) If,
at any time before the Maturity Date, the number of shares of NexMed Common
Stock outstanding is increased by a stock dividend payable in shares of NexMed
Common Stock or by a subdivision or split-up of shares of NexMed Common Stock,
then, following the record date fixed for the determination of holders of NexMed
Common Stock entitled to receive such stock dividend, subdivision or split-up,
the Conversion Price shall be decreased proportionately. If, at any
time before the Maturity Date, the number of shares of NexMed Common Stock
outstanding is decreased by a combination of the outstanding shares of NexMed
Common Stock, then, following the record date for such combination, the
Conversion Price shall be increased proportionately.
3.
Presentment;
Demand
. NexMed hereby waives any presentment, demand, protest
or notice of dishonor and protest of this Note.
4.
Securities Law
Compliance; Legend
. This Note and any Note Satisfaction Shares are
subject to the terms of the Subscription Agreement. The certificates
representing Note Satisfaction Shares will bear the following
legend:
“THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. NO SALE, GIFT, TRANSFER OR OTHER DISPOSITION
THEREOF OR OF ANY INTEREST THEREIN SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL
SUCH SECURITIES ARE (I) REGISTERED PURSUANT TO THE PROVISIONS OF SUCH ACT AND
REGISTERED OR QUALIFIED UNDER APPLICABLE STATE SECURITIES OR ‘BLUE SKY’ LAWS OR
(II) EXEMPT FROM SUCH REGISTRATION.”
5.
Miscellaneous
.
(a)
Governing
Law
. This Note shall be governed by, and construed in
accordance with, the internal laws of the State of California applicable to
contracts executed and fully performed within the State of California and
without regard to conflict-of-law principles. Any dispute arising out
of or relating to this Note shall be resolved by a court of competent
jurisdiction located in the City and County of San Diego, California and the
parties hereto agree to the sole and exclusive jurisdiction of such court(s) and
agree to waive any grounds for objection to the venue, such as
forum
non-conveniens
.
(b)
Amendments and
Waivers
. Any term of this Note may be amended and the
observance of any term of this Note may be waived only with the written consent
of NexMed and the holder of the Note.
(c)
Assignment and
Successors
. This Note will be binding on and inure to the
benefit of NexMed and the Holder and their respective successors and assigns;
provided
,
however
, that the
Holder may not assign this Note in whole or part on or prior to the Maturity
Date without the prior written consent of NexMed.
(d)
Severability
. If
any provision of this Note is held invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions of this Note
are not affected or impaired in any way and NexMed and the Holder agree to
negotiate in good faith to replace such invalid, illegal and unenforceable
provision with a valid, legal and enforceable provision, that achieves, to the
greatest lawful extent under this Note, the economic, business and other
purposes of such invalid, illegal or unenforceable provision.
(e)
Limitation of
Liability
. IN NO EVENT WILL NEXMED HAVE ANY LIABILITY ARISING
HEREUNDER OR IN CONNECTION HEREWITH TO ANY PARTY OR OTHER PERSON FOR ANY LOST
PROFITS OR OTHER CONSEQUENTIAL, SPECIAL, INCIDENTAL, INDIRECT, COLLATERAL OR
PUNITIVE DAMAGES OF ANY KIND, REGARDLESS OF WHETHER SUCH PARTY OR PERSON WILL BE
ADVISED, WILL HAVE OTHER REASON TO KNOW, OR IN FACT WILL KNOW OF THE POSSIBILITY
OF THE FOREGOING.
In Witness
Whereof
, the undersigned has executed this Promissory Note as of the date
set forth above.
NexMed, Inc.
, a Nevada
corporation
Exhibit
21
SUBSIDIARIES OF NEXMED,
INC.
1. NexMed
Holdings, Inc., incorporated in Delaware on February 28, 1997.
2. NexMed
(U.S.A.), Inc., incorporated in Delaware on June 18, 1997.
3. NexMed
International Limited, incorporated in the British Virgin Islands on August 2,
1996.
4. Bio-Quant,
Inc., incorporated in Utah on May 8, 1995
Exhibit
23.1
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders
NexMed,
Inc.:
We
consent to the incorporation by reference in the Registration Statements on
Forms S-3 (Nos. 333-148060, 333-107137, 333-122114, 333-117717,
333-125565, 333-140110, 333-152591, 333-132611, 333-111894,
333-1055509, 333-96813, 333-46976, and 333-91957) and Form S-8 (Nos. 333-152284,
333-138598, and 333-93435) of our report dated March 31, 2010, with respect to
the consolidated financial statements, schedule, of NexMed, Inc. and
Subsidiaries included in the Annual Report on Form 10-K for the year ended
December 31, 2009. Such report includes an uncertainty paragraph with
respect to the ability of Nexmed, Inc. to continue as a going
concern.
/s/
Amper, Politziner & Mattia, LLP
Date:
March 31, 2010
Edison,
New Jersey
Exhibit
31.1
CERTIFICATION
I, Bassam
Damaj, certify that:
|
1.
|
I
have reviewed this Annual Report on Form 10-K of NexMed,
Inc.;
|
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
|
4.
|
The
registrant’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15(d)-15(f)) for the registrant and
have:
|
|
(a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
|
(b)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
(c)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
|
(d)
|
Disclosed
in this report any changes in the registrant’s internal control over
financial reporting that occurred during the registrant’s fourth fiscal
quarter, that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting.
|
|
5.
|
The
registrant’s other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
functions):
|
|
(a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
|
(b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
Date:
March 31, 2010.
|
/s/ Bassam Damaj
|
|
Bassam
Damaj
|
|
Chief
Executive Officer
|
Exhibit
31.2
CERTIFICATION
I, Mark
Westgate, certify that:
|
1.
|
I
have reviewed this Annual Report on Form 10-K of NexMed,
Inc.;
|
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
|
4.
|
The
registrant’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15(d)-15(f)) for the registrant and
have:
|
|
(a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
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(b)
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Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
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(c)
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Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
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(d)
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Disclosed
in this report any changes in the registrant’s internal control over
financial reporting that occurred during the registrant’s fourth fiscal
quarter, that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting.
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5.
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The
registrant’s other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
functions):
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(a)
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All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
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(b)
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Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
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Date:
March 31, 2010.
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/s/ Mark Westgate
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Mark
Westgate
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Chief
Financial Officer
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Exhibit
32.1
CERTIFICATION
OF CHIEF EXECUTIVE OFFICER
PURSUANT
TO
18 U.S.C.
SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
I, Bassam
Damaj, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge, the Annual
Report of NexMed, Inc. on Form 10-K for the year ended December 31, 2009, fully
complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and that information contained in such Annual Report on
10-K fairly presents in all material respects the financial condition and
results of operations of NexMed, Inc.
Date:
March 31, 2010.
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By:
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/s/ Bassam Damaj
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Name:
Bassam Damaj
|
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Title:
Chief Executive Officer
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Exhibit
32.2
CERTIFICATION
OF CHIEF FINANCIAL OFFICER
PURSUANT
TO
18 U.S.C.
SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
I, Mark
Westgate, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge, the Annual
Report of NexMed, Inc. on Form 10-K for the year ended December 31, 2009, fully
complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and that information contained in such Annual Report on
10-K fairly presents in all material respects the financial condition and
results of operations of NexMed, Inc.
Date:
March 31, 2010.
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By:
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/s/ Mark Westgate
|
|
Name:
Mark Westgate
|
|
Title:
Chief Financial
Officer
|