Joint Venture Agreement

Contract for the Establishment of
NexMed Pharmaceuticals (Zhongshan) Ltd.
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Table of Contents


Chapter One General Principles


Chapter Two Parties to the Joint Venture Company


Chapter Three Establishment of the Joint Venture Company


Chapter Four Objectives and Business Scope


Chapter Five Total Investment and Registered Capital


Chapter Six Rights, Duties and Responsibilities of Contracting Parties


Chapter Seven Equipment and Technology


Chapter Eight Production Material and Product Sales


Chapter Nine Board of Directors


Chapter Ten Operation and Management Organizations


Chapter Eleven Financial Management


Chapter Twelve Labor Management


Chapter Thirteen Term of the Joint Venture Company


Chapter Fourteen Insurance


Chapter Fifteen Amendment, Change or Termination of Contract


Chapter Sixteen Breach of Contract and Responsibilities for Breach


Chapter Seventeen Settlement of Disputes [SEAL APPEARS HERE]
After proofreading & check- Chapter Eighteen Effectiveness of Contract ing I hereby verify that
the English version of this
document is in consistency
with the Chinese original
in meaning. 30 Aug. '97.


[CHINESE SCRIPT APPEARS
HERE]
ZHUHAI TRANSLATORS ASSOCIATION


Pages of English version checked [SIGNATURE APPEARS HERE]
15 pages ------------------------
Date of Confirmation: 97 _ 8_30_ Chairman


Contract for the Establishment of
NexMed Pharmaceuticals (Zhongshan) Ltd.
---------------------------------------


Chapter One General Principles


After friendly consultations, Zhongshan Xiao Lan Pharmaceutical Factory (Party A) and NexMed (Asia) Limited (Party B) have agreed to jointly invest in and establish a joint venture company in Zhongshan City, Guangdong Province, People's Republic of China on the basis of equality and mutual benefits and in accordance with the "Corporate Law for Sino-Foreign Joint Ventures in the People's Republic of China" and other Chinese laws, rules and regulations, and have formulated the following joint venture contract (the "Contract").


Chapter Two Parties to the Joint Venture Company


Article 1 Parties Signing This Contract:


Party A: Zhongshan Xiao Lan Pharmaceutical Factory
(registered in Zhongshan City, Guangdong
Province, China) Legal address: 63 Hongshan Road, Xiaolan Town, Zhongshan City,
Guangdong Province, People's Republic
of China Legal Representative: Wei-Jie Zeng Position: Director of the Factory Nationality: People's Republic of China
Party B: NexMed (Asia) Limited
(a wholly owned subsidiary of NexMed Inc., U.S.A.) Legal address: Room 2208, 22/F Windsor House, 311 Gloucester Road,
Causeway Bay, Hong Kong Tel.: 28816718 Legal Representative: Y. Joseph Mo Position: Chairman of the Board of Directors Nationality: United States of America


Chapter Three Establishment of the Joint Venture Company


Article 2 Party A and Party B agree to jointly invest in and establish NexMed Pharmaceuticals (Zhongshan) Ltd. (the "JVC") in China in accordance with the "Corporate Law of Sino-Foreign Joint Ventures of the People's Republic of China" and other Chinese laws, rules and regulations.


Article 3 Name of the Corporation: NexMed Pharmaceuticals (Zhongshan) Ltd. Legal address of the Corporation: 63 Hongshan Road, Xiaolan Town, Zhongshan City, Guangdong Province, People's Republic of China.


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Article 4 The JVC shall be a limited liability corporation. Party A and Party B shall be liable to the JVC within the limits of their investments. They shall share the profits, risks and losses of the JVC according to the registered proportion of their investment. The administration agency of the JVC shall be Zhongshan Xiaolan Industry Corporation, which shall have the right to instruct, assist and supervise the JVC in accordance with the laws, rules, regulations and Contract and Chapters of Incorporation as approved by the Chinese government.


Article 5 The activities of the JVC must abide by the Chinese laws, rules and regulations.


Chapter Four Objectives & Business Scope


Article 6 Objectives of the JVC: To produce and supply quality and effective routine medical products; to introduce and produce both domestic and foreign newly-invented and special purpose medicine; to improve and develop new usage of traditional medical products; to strengthen the R&D and joint development of new pharmaceutical products by domestic and foreign researchers, to expand the production scale and improve competitiveness through technical reform and scientific management of the production factory.


Chapter 7 Business Scope of the JVC:


The JVC shall manufacture the following medical products:


1. Ointment: alprostadil, acyclovir, ketoprofen;


2. Tablet: maidimycin, mycostatin, furazolidone, erythromycin, griseofulcin,
ATP, inosine, prednisone, analgesic, analginum, tetracyclin, terramycin,
acetyl spiramycin;


3. Capsule: cephalosporin series, haloperidol, rifampin, leinitiding,
cimetidini, liver medicine, royal jelly;


4. Injection: gentamycin, kanamycin, lincomycin, chloromycepin, inosine,
cimetidini, ATP, dexamethasone, diphosphonic choline, analgesic,
analginum, Vitamin C, inframicrobe medicine, 50% glucose;


5. Syrup: Children's cough syrup, ginseng and Chinese magnoliavine
syrup, loquat cough syrup, pericarpium syrup, mint syrup and other oral
liquids;


6. Instant medicine: American ginseng instant medicine, chiretti instant blood
tonic, etc.; The joint venture plans to produce 20,000,000 pcs of paste,
500,000,000 tablets, 250,000,000 capsules, 100,000,000 injection ampules,
600,000 liters of syrup and 30,000 kgs of instant medicine. The annual
output value will reach USD$80,000,000.00.


7. Powder and injection ampules.


Article 8 The projected business scale of the JVC shall be as follows:


1. At the initial stage, the sales volume of the joint venture shall be
USD$20,000,000.00.


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2. The sales volume may be increased to USD$80,000,000.00 in five years with
the development of production, including USD$35,000,000.00 of the original
products of Party A and USD$45,000,000.00 of the new products.


3. The corporation shall sell its products to domestic and overseas markets,
60% of its products will be exported and 40% of the products sold to
domestic market.


Chapter Five Total Investment and Registered Capital


Article 9 The total investment of the JVC shall be USD$12,500,000.00


Article 10 The registered capital of the JVC shall be USD$5,000,000.00


Article 11 The investment proportion contributed by the parties shall be as
follows:


Party A: USD$1,500,000.00; 30% of the registered capital. Party B: USD$3,500,000.00; 70% of the registered capital.


Article 12 Form of Investment: Party A shall invest with machinery, equipment and intangible assets; Party B shall invest with cash for purchase of part of Party A's assets, introduction of equipment and GMP reconstruction. The JVC shall lease the land and factory buildings from Party A (details see Article 13).


Article 13 Party A and Party B shall agree to: The registered capital shall be paid in three stages. The two parties shall jointly invest a total of USD$3,100,000.00 during the first month of the first year, a total of USD$1,000,000.00 during the second year, and a total of USD$900,000.00 during the third year.


The two parties agree that upon the approval of the Contract (determined by the issuance of the JVC approval certificate), Party A shall assign USD$1,640,000.00 worth of net assets from its original assets. The net assets assigned shall become be the initial net assets of the JVC. The assets and net assets itemized in the attached Supplemental Documents shall become the initial total assets of the JVC upon its establishment.


The two parties have agreed that both parties shall contribute their investments within 30 days after the issuance of the JVC's commercial license. Party B must deposit USD$2,170,000.00 into the JVC's account within 15 days after Party A assigns the USD$930,000.00 worth of machinery, equipment and intangible assets to the JVC.


During the second year (within the 13th to 24th months after the approval of the Contract), Party A shall contribute USD$300,000.00 in cash and Party B shall contribute USD$700,000.00 in cash to the JVC. The two parties shall contribute their investments at the same time and complete the capital verification process.


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During the third year (within the 25th to 36th months after the approval of the Contract), Party A shall contribute USD$270,000.00 in cash and Party B shall contribute USD$630,000.00 in cash to the JVC. The two parties shall contribute their investments simultaneously and complete the capital verification process.


Article 14 After the two parties contributed investments, the JVC shall engage an accountant registered in China to verify the investment and issue a report. The JVC shall issue an investment certificate accordingly.


If any party fails to contribute its investment within the time limit, such party shall pay an interest to the JVC at the foreign exchange lending interest rate of the Bank of China. If the JVC should incur a loss as a result of the delay, the party in fault shall be responsible for the loss.


The JVC shall not reduce the registered capital during the period of the joint operation. Increase in registered capital or change in investment proportion shall be approved by the Board of Directors and the original approving agency.


Article 15 If any party plans to sell or assign all or part of its investment, it shall obtain the approval of the other party and the original approving agency. The other party shall have a right of first refusal under the same conditions.


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