Joint Venture Agreement

Exhibit 10.1

JOINT VENTURE AGREEMENT
______________

among

BASIN INDUSTRIAL LIMITED

and

ALPHARX INTERNATIONAL HOLDINGS LIMITED

and

ALPHA AP INC.



JOINT VENTURE AGREEMENT

This Joint Venture Agreement ("Agreement") is entered into as of this 22nd day of April, 2005 between Basin Industrial Limited , a British Virgin Islands corporation located at 12 Dai Fu Street, Tai Po Industrial Estate, Tai Po, New Territories, Hong Kong ("Basin"), AlphaRx International Holdings Limited , a British Virgin Islands corporation located at Unit A, 19/F Sang Woo Building, Nos. 227-228, Gloucester Road, Causeway Bay Hong Kong ("AIH"), and Alpha AP Inc. , a British Virgin Islands corporation located at c/o Advance Pharmaceutical Co., Ltd., 12 Dai Fu Street, Tai Po Industrial Estate, Tai Po, New Territories, Hong Kong ("Alpha").

WHEREAS:

A. AlphaRx, Inc. ("AlphaRx") is an emerging speciality pharmaceutical company that develops, formulates and commercializes innovative therapeutic products using proprietary drug delivery technologies, and in particular is focused on the discovery, development and marketing of products in pain management an inflammation treatment;

B. AIH is a wholly-owned subsidiary of AlphaRx;

C. Basin is a wholly-owned subsidiary of Advance Pharmaceutical Company Limited ("APC"); and

D. Basin and AIH have established Alpha, which joint venture company will specialize in the manufacturing, distribution and commercialization of the Products in the Territory, all in accordance with the terms of this Agreement and the related agreements contemplated by this Agreement.

NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual agreements set forth herein, the parties hereto agree as follows:

1. DEFINITIONS AND EXHIBITS

Wherever used in this Agreement, the following words and terms shall have the respective meanings ascribed to them as follows:

1.1 "Accountant" means the auditor or accountant, as the case may be, of Alpha appointed from time to time;

1.2 "Affiliate(s)" means with respect to any corporation, any other corporation which directly or indirectly controls or is controlled by or is under direct or indirect common control with such first mentioned corporation or any corporation which is directly or indirectly controlled by a corporation which controls the first mentioned corporation.

1.3 "AIH License Agreement" means the license agreement between AlphaRx and AIH whereby AlphaRx has granted AIH all the necessary rights to enable it to enter into




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and perform its obligations under the AIH Manufacturing and Distribution License Agreement and to grant certain licenses to the Products.

1.4 "AIH Manufacturing and Distribution License Agreement" means the manufacturing and distribution license agreement between AIH and Alpha whereby AIH has granted Alpha manufacturing and distribution rights to the Products in the Territory.

1.5 "AIH Shares" means the Shares from time to time owned by AIH.

1.6 "Alpha IPO" means the initial underwritten public offering of Alpha's Shares on: (i) a recognized securities exchange in Hong Kong, or (ii) a recognized securities exchange worldwide if agreed between the Holders.

1.7 "Alpha Liquidity Event" means either: 1.7.1 an Alpha IPO, or 1.7.2 an Alpha Reverse Takeover.

1.8 "Alpha Reverse Takeover" means a reverse takeover whereby the Holders sell all Shares in Alpha to a public company in exchange for shares of the public company, such public company to be listed on: (a) a recognized securities exchange in Hong Kong, or (b) a recognized securities exchange worldwide if agreed between the Holders.

1.9 "Ancillary Agreements" means the AIH License Agreement and the AIH Manufacturing and Distribution License Agreement.

1.10 "Articles" means the Memorandum and Articles of Association, Articles of Incorporation, or other charter document of Alpha, including any amendments thereto. The initial Articles will be substantially in the form of Schedule "A".

1.11 "Basin Shares" means the Shares from time to time owned by Basin.

1.12 "Board" means the board of directors of Alpha.

1.13 "Business Day" means any day other than a Saturday, a Sunday, or a day which is a common law or statutory bank holiday in Hong Kong.

1.14 "Countries" means each of the countries that collectively form the Territory which countries are listed in Schedule "B" as such Schedule may be amended from time to time on the mutual agreement of the Parties

1.15 "Effective Date" means the date of this Agreement set out on page 1 hereof.

1.16 "Founder" means Basin or AIH, as applicable and "Founders" means Basin and AIH together.

1.17 "Holder" means any holder of Shares who is a Party to this Agreement.




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1.18 "HK$" means Hong Kong Dollars.

1.19 "Party" means each of Basin, AIH, any other Holder, or Alpha, as applicable, and "Parties" means all of the foregoing.

1.20 "Products" means the authorized products as listed in Schedule "C" attached hereto, manufactured, purchased, marked, sold or otherwise used in accordance with the AIH Manufacturing and Distribution License Agreement.

1.21 "Shares" means common shares of Alpha as specified in the Articles.

1.22 "Territory" means the geographic area comprised of the Countries.

2. INITIAL MATTERS

2.1 Incorporation and Continuance of Alpha. Alpha shall be incorporated as a British Virgin Islands corporation.

2.2 Subscription. Upon the Effective Date, Alpha shall issue severally and not jointly (a) 5,000 Shares to Basin at the issue price of HK$1 per share for an aggregate issue price of HK$5,000, and (b) 5,000 Shares to AIH at the issue price of HK$1 per share for an aggregate issue price of HK$5,000. Alpha shall prepare documents for subscription of the Shares in the names of Basin and AIH, and Alpha shall issue to Basin and AIH certificates evidencing the Shares purchased.

2.3 Funding. Basin and AIH acknowledge that Alpha will require initial funding of HK$15,000,000 in order to manufacture and distribute the Products in the Territory. In order to fund this requirement, Basin has agreed to provide debt financing to Alpha of HK$1,250,000 quarterly for three years, which shall be repayed without any interest and as soon as net profit appears in the management accounts of Alpha from time to time or upon the occurrence of an Alpha Liquidity Event, subject to the terms and conditions of the Alpha Liquidity Event (including but not limited to conditions placed on the use of proceeds and restrictions that may be imposed by underwriters).

2.4 Initial Public Offering or Reverse Takeover. The Holders shall take no action which would prevent Alpha from (i) maintaining records adequate to permit a Liquidity Event and (ii) obtaining an annual audit of Alpha's financial statements. The Holders may cause the Board, subject to their fiduciary duties, to consider an Alpha Liquidity Event. If the Board determines to pursue an Alpha Liquidity Event, then, subject to subsection 4.3.17, each Holder shall:

2.4.1 in the case of an Alpha IPO, sign customary agreements requested by the IPO underwriters (such as lockups and questionnaires required for regulatory compliance) which are signed by other Alpha shareholders; and

2.4.2 in the case of an Alpha Reverse Takeover, provide such further documents or instruments reasonably required by the other Holders or any applicable third




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party to effect the Alpha Reverse Takeover or to carry out its obligations thereunder.

However, this Section 2.4 does not require a Holder to take any action that it reasonably believes would be detrimental to Alpha's or the Holder's business and does not constitute a representation or warranty by a Holder or by Alpha that an Alpha Liquidity Event will occur.

3. BUSINESS OF ALPHA

3.1 Business of Alpha. Alpha shall be granted an exclusive license in the Territory by AIH to manufacture, distribute, market and sell the Products, on the understanding that Alpha will sub-contract the manufacturing of the Products to APC, as described in this Agreement and as provided for in the AIH Manufacturing and Distribution License Agreement and any sub-contracting agreement to be entered into between Alpha, Basin and APC.

3.2 License and Royalty Fees. Alpha will pay AIH the license fee and royalties as provided for in the AIH Manufacturing and Distribution License Agreement.

3.3 Management Fees. Alpha will pay Basin a management fee of five percent (5%) of gross revenues of Alpha, as provided for in the AIH Manufacturing and Distribution License Agreement and any sub-contracting agreement to be entered into between Alpha, Basin and APC.

4. MANAGEMENT OF ALPHA

4.1 Board of Directors.

4.1.1 The Board shall initially have four authorized positions. Basin and AIH shall each have the right to nominate two members to the Board, subject to the other provisions of this Section 4.1.1. Should the number of Board positions be increased or decreased, Basin and AIH will continue to hold equal Board seats, subject to the other provisions of this Section 4.1.1. Each Founder shall have the right to replace any director which it is exclusively entitled to nominate at any time effective upon notice to Alpha, the director to be removed and the other Founder. Basin and AIH together shall have the right to request removal of any other director upon notice to Alpha and the director to be removed. Each Holder will vote all Shares held by it or to which it has the right to direct the vote so as to elect the Founders' nominees, remove Founders' directors for whom removal has been requested by the respective Founder, and to otherwise maintain the Board constituency described in this Section 4.1.1.

4.1.2 Directors of Alpha will serve without compensation. Each Founder shall indemnify the other Founder and Alpha against any claim for compensation made by a Alpha director nominated by that Founder. Alpha will reimburse reasonable travel costs of any director attending a Board meeting.




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4.1.3 The directors shall from time to time shall select a director to act as chairman of the Board.

4.2 Quorum of the Board of Directors; Approval by Board of Directors. A quorum of the Board requires the presence (physically, by telephone or by other permitted means) of at least two of the directors, including at least one director nominated by Basin and one nominated by AIH (if they are entitled to nominate one or more directors at the relevant time under Section 4.1.1.). Except as provided in Section 4.3, any action or determination by the Board requires the affirmative vote of a majority of the Board members present at the meeting. In the case of an equality of votes, the chairman shall not have a second or casting vote. Subject to any requirements of applicable law, Board meetings shall be held at least quarterly in Hong Kong at times and places to be determined by the Board.

4.3 Founders' Approval. As permitted under British Virgin Islands law, Alpha shall not take the following actions under this Section 4.3 without prior and independent approval of each of the Founders (except for Section 4.3.4, which will only require the approval of the Founder that originally nominated the director). A Founder's approval will be considered given if all of the Founder's representatives who are present at a shareholder meeting or directors present at a Board meeting, vote in favour of the action, or approve of the action by a written resolution executed by all directors of Alpha.

4.3.1 Making any basic change in the general nature or scope of business of Alpha as defined or contemplated in Section 3.1, including, without limitation Alpha entering into any new line of business.

4.3.2 Amending the Articles, including, without limitation, changing its name or the name under which it carries on business, increasing or decreasing the number of authorized shares of Alpha, creating a new class of shares of Alpha, or changing the rights, preferences or privileges of the Shares.

4.3.3 Increasing or decreasing the authorized number of directors on the Board.

4.3.4 Removing a director nominated by a Founder.

4.3.5 Dissolving, winding up or liquidating Alpha.

4.3.6 Repurchasing, redeeming or cancelling Shares; or increasing the number of shares reserved for issuance under any Share option or purchase plan.

4.3.7 Amalgamating, merging or consolidating Alpha with another entity, or selling, leasing, or otherwise disposing all or substantially all of the assets of Alpha, whether in one transaction or a series of transactions.

4.3.8 Entering into any transaction not in the ordinary course of business having a value or involving an expense in excess of [HK$1,000,000] or having a term greater than two years.




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4.3.9 Investing in any other entity.

4.3.10 Entering into any agreement with any director or shareholder of Alpha or an Affiliate of that director or shareholder (except this Agreement but including the Ancillary Agreements) , except as otherwise permitted in any agreement between Alpha and each Founder.

4.3.11 Declaring dividends.

4.3.12 Acquiring assets for consideration in excess of [HK$1,000,000] except as otherwise provided for in Alpha's then-approved budget.

4.3.13 Borrowing in excess of [HK$1,000,000] (other than from Basin in accordance with this Agreement).

4.3.14 Sale of securities other than pursuant to a prospectus to any person reasonably deemed to compete with Alpha or either Founder.

4.3.15 Encumbering its technology, except as otherwise permitted in this Agreement or any agreement between Alpha and AIH.

4.3.16 Opening an office outside of the Territory.

4.3.17 Deciding to effect the Alpha IPO.

4.3.18 Changing the rights described in this Section 4.3.

4.3.19 Changing Alpha's executive management structure.

4.3.20 Approving annual budgets, budget revisions, business plans or business plan revisions during the period.

4.3.21 Issuing any security of Alpha, whether Shares, securities convertible into Shares or debt securities.

4.3.22 Entering into, or amending once entered into, any agreement that represents an expense, over the life of the contract, in excess of [HK$50,000] .

4.3.23 Incorporating any subsidiary.

4.3.24 Entering into any partnership or joint venture arrangement, except in the ordinary course of business for the purpose of establishing offices and branches within the Territory.

4.3.25 Factoring or assigning any of its book debts.

4.3.26 Giving any guarantee or indemnity for or otherwise securing the liabilities or obligations of any person.




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4.3.27 Making, amending or terminating any arrangements relating to franchising, patents, know-how or trade marks.

4.3.28 Purchasing or selling any freehold or leasehold property or any interest therein.

4.3.29 Taking any action in relation to pensions, retirement schemes, share options, profit sharing or bonus schemes or any other officer or employee benefits.

4.3.30 Granting any power of attorney or delegating director's powers.

4.3.31 Changing its auditors.

4.3.32 Altering its financial year end.

4.3.33 Amending its accounting policies or reporting practices.

4.3.34 Electing, settling or compromising any major tax claims or elections.

4.3.35 Commencing, defending or settling any litigation, arbitration or other proceedings which are material in the context of Alpha's business.

4.4 Officers. The Board shall elect the officers of Alpha. For a period of six months from the Effective Date, this election shall be subject to Basin and AIH together reviewing and approving the recommendations for each proposed officer.

4.5 Financial Statements and Accounting Records. Alpha's fiscal year will be January 1 through December 31. Alpha's external auditors shall be an independent accounting firm acceptable to Basin and AIH. Alpha shall prepare its annual financial statements in compliance with generally accepted accounting principles in the Territory. Alpha shall provide each Holder:

4.5.1 audited financial statements within 90 days after each fiscal year end;

4.5.2 monthly unaudited balance sheets, profit and loss statements and statements of sources and uses of cash within 30 days after each month end; and

4.5.3 quarterly 90-day projections plus yearly annual projections of Alpha revenues.

4.6 Right of Inspection. During office hours of Alpha, each Founder will, subject to the provisions for the protection of Confidential Information set forth in Section 7.1 and Schedule "D" to this Agreement, have full access to all propertie ...