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.


2


“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.


3


“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).


4




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).


5




(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.


6


(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).


7


(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.


8




(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;


9


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.


10




(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.


11




(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;


12




(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.


13




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 vacateany 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.


14


(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.


15




(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]


16


IN WITNESS WHEREOF, the
Company has caused this Note to be duly executed on the day and in the year
first above written.





NEXMED,
      INC.By:Name:
                        Vivian
      LiuTitle:
                        Executive
      Vice PresidentBy:Name:
                        Mark
      WestgateTitle:
                        Vice
      President and Chief Financial
Officer


17


EXHIBIT
A





FORM
OF CONVERSION NOTICE





(To be
executed by the Holder


in order
to convert a Note)





Re:
            Note
      (this “Note”) issued by NEXMED, INC. to ______________________________ on
      or about March___, 2010 in the
      original principal amount of
$_____________.





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:Date
      to Effect ConversionAggregate
      Principal Amount of Note Being ConvertedAggregate
      Accreted Amount ThereonNumber
      of Shares of Common Stock to be IssuedApplicable
      Conversion PriceSignatureNameAddress