Exhibit 10.1

 

DYNAMIC HEALTH PRODUCTS, INC.

 

SECURITIES PURCHASE AGREEMENT

 

September 30, 2004

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TABLE OF CONTENTS

 

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1.

   Agreement to Sell and Purchase    1

2.

   Fees and Warrant    1

3.

   Closing, Delivery and Payment.    2      3.1   Closing    2      3.2  
Delivery    2

4.

   Representations and Warranties of the Company    2      4.1   Organization,
Good Standing and Qualification    2      4.2   Subsidiaries    3      4.3  
Capitalization; Voting Rights    4      4.4   Authorization; Binding Obligations
   4      4.5   Liabilities    5      4.6   Agreements; Action    5      4.7  
Obligations to Related Parties    6      4.8   Changes    6      4.9   Title to
Properties and Assets; Liens, Etc.    7      4.10   Intellectual Property    8  
   4.11   Compliance with Other Instruments    8      4.12   Litigation    9  
   4.13   Tax Returns and Payments    9      4.14   Employees    9      4.15  
Registration Rights and Voting Rights    10      4.16   Compliance with Laws;
Permits    10      4.17   Environmental and Safety Laws    10      4.18   Valid
Offering    11      4.19   Full Disclosure    11      4.20   Insurance    11  
   4.21   SEC Reports    11      4.22   Listing    12      4.23   No Integrated
Offering    12      4.24   Stop Transfer    12      4.25   Dilution    12     
4.26   Patriot Act    12

5.

   Representations and Warranties of the Purchaser    13      5.1   No Shorting
   13      5.2   Requisite Power and Authority    13      5.3   Investment
Representations    13      5.4   Purchaser Bears Economic Risk    14      5.5  
Acquisition for Own Account    14      5.6   Purchaser Can Protect Its Interest
   14      5.7   Accredited Investor    14      5.8   Legends    14

 

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6.

   Covenants of The Company    15      6.1   Stop-Orders    15      6.2  
Listing    15      6.3   Market Regulations           6.4   Reporting
Requirements    16      6.5   Use of Funds    16      6.6   Access to Facilities
   16      6.7   Taxes    16      6.8   Insurance    17      6.9   Intellectual
Property    18      6.10   Properties    18      6.11   Confidentiality    18  
   6.12   Required Approvals    18      6.13   Reissuance of Securities    19  
   6.14   Opinion    19      6.15   Margin Stock    20      6.16   Financing
Right of First Refusal    20

7.

   Covenants of the Purchaser    20      7.1   Confidentiality    20      7.2  
Non-Public Information    20

8.

   Covenants of the Company and Purchaser Regarding Indemnification    21     
8.1   Company Indemnification    21      8.2   Purchaser’s Indemnification    21

9.

   Conversion of Convertible Note    21      9.1   Mechanics of Conversion    21

10.

   Registration Rights.    23      10.1   Registration Rights Granted    23     
10.2   Offering Restrictions    23

11.

   Miscellaneous    23      11.1   Governing Law    23      11.2   Survival   
23      11.3   Successors    24      11.4   Entire Agreement    24      11.5  
Severability    24      11.6   Amendment and Waiver    24      11.7   Delays or
Omissions    24      11.8   Notices    24      11.9   Attorneys’ Fees    25     
11.10   Titles and Subtitles    26      11.11   Facsimile Signatures;
Counterparts    26      11.12   Broker’s Fees    26      11.13   Construction   
26

 

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LIST OF EXHIBITS

 

Form of Convertible Term Note

   Exhibit A

Form of Warrant

   Exhibit B

Form of Opinion

   Exhibit C

Form of Escrow Agreement

   Exhibit D

 

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SECURITIES PURCHASE AGREEMENT

 

THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”) is made and entered into
as of September 30, 2004, by and between Dynamic Health Products, Inc., a
Florida corporation (the “Company”), and Laurus Master Fund, Ltd., a Cayman
Islands company (the “Purchaser”).

 

RECITALS

 

WHEREAS, the Company has authorized the sale to the Purchaser of a Convertible
Term Note in the aggregate principal amount of Six Million Dollars ($6,000,000)
(as amended, modified or supplemented from time to time, the “Note”), which Note
is convertible into shares of the Company’s common stock, $0.01 par value per
share (the “Common Stock”) at an initial fixed conversion price of $ [    ] per
share of Common Stock (“Fixed Conversion Price”);

 

WHEREAS, the Company wishes to issue a warrant to the Purchaser to purchase up
to 1,375,000 shares of the Company’s Common Stock (subject to adjustment as set
forth therein) in connection with Purchaser’s purchase of the Note;

 

WHEREAS, Purchaser desires to purchase the Note and the Warrant (as defined in
Section 2) on the terms and conditions set forth herein; and

 

WHEREAS, the Company desires to issue and sell the Note and Warrant to Purchaser
on the terms and conditions set forth herein.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:

 

1. Agreement to Sell and Purchase. Pursuant to the terms and conditions set
forth in this Agreement, on the Closing Date (as defined in Section 3), the
Company agrees to sell to the Purchaser, and the Purchaser hereby agrees to
purchase from the Company, a Note in the aggregate principal amount of
$6,000,000 convertible in accordance with the terms thereof into shares of the
Company’s Common Stock in accordance with the terms of the Note and this
Agreement. The Note purchased on the Closing Date shall be known as the
“Offering.” A form of the Note is annexed hereto as Exhibit A. The Note will
mature on the Maturity Date (as defined in the Note). Collectively, the Note and
Warrant and Common Stock issuable in payment of the Note, upon conversion of the
Note and upon exercise of the Warrant are referred to as the “Securities.”

 

2. Fees and Warrant. On the Closing Date:

 

(a) The Company will issue and deliver to the Purchaser a Warrant to purchase up
to 1,375,000 shares of Common Stock in connection with the Offering (as amended,
modified or supplemented from time to time, the “Warrant”) pursuant to

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Section 1 hereof. The Warrant must be delivered on the Closing Date. A form of
Warrant is annexed hereto as Exhibit B. All the representations, covenants,
warranties, undertakings, and indemnification, and other rights made or granted
to or for the benefit of the Purchaser by the Company are hereby also made and
granted in respect of the Warrant and shares of the Company’s Common Stock
issuable upon exercise of the Warrant (the “Warrant Shares”).

 

(b) Subject to the terms of Section 2(d) below, the Company shall pay to Laurus
Capital Management, L.L.C., the manager of the Purchaser, a closing payment in
an amount equal to three and nine-tenths percent (3.90%) of the aggregate
principal amount of the Note. The foregoing fee is referred to herein as the
“Closing Payment.”

 

(c) The Company shall reimburse the Purchaser for its reasonable expenses
(including legal fees and expenses) incurred in connection with the preparation
and negotiation of this Agreement and the Related Agreements (as hereinafter
defined), and expenses incurred in connection with the Purchaser’s due diligence
review of the Company and its Subsidiaries (as defined in Section 6.8) and all
related matters. Amounts required to be paid under this Section 2(c) will be
paid on the Closing Date and shall be $44,500 for such expenses referred to in
this Section 2(c).

 

(d) The Closing Payment and the expenses referred to in the preceding clause (c)
(net of deposits previously paid by the Company) shall be paid at closing out of
funds held pursuant to the Escrow Agreement (as defined below) and a
disbursement letter (the “Disbursement Letter”).

 

3. Closing, Delivery and Payment.

 

3.1 Closing. Subject to the terms and conditions herein, the closing of the
transactions contemplated hereby (the “Closing”), shall take place on the date
hereof, at such time or place as the Company and Purchaser may mutually agree
(such date is hereinafter referred to as the “Closing Date”).

 

3.2 Delivery. Pursuant to the Escrow Agreement, at the Closing on the Closing
Date, the Company will deliver to the Purchaser, among other things, a Note in
the form attached as Exhibit A representing the aggregate principal amount of
$6,000,000 and a Warrant in the form attached as Exhibit B in the Purchaser’s
name representing 1,375,000 Warrant Shares and the Purchaser will deliver to the
Company, among other things, the amounts set forth in the Disbursement Letter by
wire transfer.

 

4. Representations and Warranties of the Company. The Company hereby represents
and warrants to the Purchaser as follows (which representations and warranties
are supplemented by the Company’s filings under the Securities Exchange Act of
1934 (collectively, the “Exchange Act Filings”), copies of which have been
provided to the Purchaser) :

 

4.1 Organization, Good Standing and Qualification. Each of the Company and each
of its Subsidiaries is a corporation, partnership or limited liability company,
as the case

 

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may be, duly organized, validly existing and in good standing under the laws of
its jurisdiction of organization. Each of the Company and each of its
Subsidiaries has the corporate power and authority to own and operate its
properties and assets, to execute and deliver (i) this Agreement, (ii) the Note
and the Warrant to be issued in connection with this Agreement, (iii) the Master
Security Agreement dated as of the date hereof between the Company, certain
Subsidiaries of the Company and the Purchaser (as amended, modified or
supplemented from time to time, the “Master Security Agreement”), (iv) the
Registration Rights Agreement relating to the Securities dated as of the date
hereof between the Company and the Purchaser (as amended, modified or
supplemented from time to time, the “Registration Rights Agreement”), (v) the
Subsidiary Guaranty dated as of the date hereof made by certain Subsidiaries of
the Company (as amended, modified or supplemented from time to time, the
“Subsidiary Guaranty”), (vi) the Subsidiary Stock Pledge Agreement dated as of
the date hereof among the Company, certain Subsidiaries of the Company and the
Purchaser (as amended, modified or supplemented from time to time, the
“Subsidiary Stock Pledge Agreement”), (vii) the Funds Escrow Agreement dated as
of the date hereof among the Company, the Purchaser and the escrow agent
referred to therein, substantially in the form of Exhibit D hereto (as amended,
modified or supplemented from time to time, the “Escrow Agreement”), (viii)
those certain agreements related to the lockbox and clearing account
arrangements maintained by the Company and its Subsidiaries at Commerce Bank for
the benefit of the Purchaser (as amended, modified or supplemented from time to
time, the “Clearing Account Agreements”), (ix) the Supplemental Stock Pledge
Agreement dated as of the date hereof by and between the Company, Pharma Labs
RX, Inc. and the Purchaser (as amended, modified or supplemented from time to
time, the “Supplemental Stock Pledge Agreement”), (x) that certain Guaranty made
by Jugal K Taneja in favor of the Purchaser dated the date hereof (as amended,
modified or supplemented from time to time, the “Supplemental Guaranty”) and
(xi) all other agreements related to this Agreement and the Note and referred to
herein (the preceding clauses (ii) through (xi), collectively, the “Related
Agreements”), to issue and sell the Note and the shares of Common Stock issuable
upon conversion of the Note (the “Note Shares”), to issue and sell the Warrant
and the Warrant Shares, and to carry out the provisions of this Agreement and
the Related Agreements and to carry on its business as presently conducted. Each
of the Company and each of its Subsidiaries is duly qualified and is authorized
to do business and is in good standing as a foreign corporation, partnership or
limited liability company, as the case may be, in all jurisdictions in which the
nature of its activities and of its properties (both owned and leased) makes
such qualification necessary, except for those jurisdictions in which failure to
do so has not, or could not reasonably be expected to have, individually or in
the aggregate, a material adverse effect on the business, assets, liabilities,
condition (financial or otherwise), properties, operations or prospects of the
Company or the Company and it Subsidiaries, taken as a whole (a “Material
Adverse Effect”).

 

4.2 Subsidiaries. Each direct and indirect Subsidiary of the Company, the direct
owner of such Subsidiary and its percentage ownership thereof, is set forth on
Schedule 4.2. For the purpose of this Agreement, a “Subsidiary” of any person or
entity means (i) a corporation or other entity whose shares of stock or other
ownership interests having ordinary voting power (other than stock or other
ownership interests having such power only by reason of the happening of a
contingency) to elect a majority of the directors of such corporation, or other
persons or entities performing similar functions for such person or entity, are
owned, directly or indirectly, by such person or entity or (ii) a corporation or
other entity in which such person or entity owns, directly or indirectly, more
than 50% of the equity interests at such time.

 

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4.3 Capitalization; Voting Rights.

 

(a) The authorized capital stock of the Company, as of the date hereof consists
of 22,000,000 shares, of which 20,000,000 are shares of Common Stock, par value
$0.01 per share, 12,774,834 shares of which are issued and outstanding [, and
2,000,000 are shares of preferred stock, par value $0.01 per share of which 0
shares of preferred stock are issued and outstanding.] The authorized capital
stock of each Subsidiary of the Company is set forth on Schedule 4.3.

 

(b) Except as disclosed on Schedule 4.3, other than: (i) the shares reserved for
issuance under the Company’s stock option plans; and (ii) shares which may be
granted pursuant to this Agreement and the Related Agreements, there are no
outstanding options, warrants, rights (including conversion or preemptive rights
and rights of first refusal), proxy or stockholder agreements, or arrangements
or agreements of any kind for the purchase or acquisition from the Company of
any of its securities. Except as disclosed on Schedule 4.3, neither the offer,
issuance or sale of any of the Note or the Warrant, or the issuance of any of
the Note Shares or Warrant Shares, nor the consummation of any transaction
contemplated hereby will result in a change in the price or number of any
securities of the Company outstanding, under anti-dilution or other similar
provisions contained in or affecting any such securities.

 

(c) All issued and outstanding shares of the Company’s Common Stock: (i) have
been duly authorized and validly issued and are fully paid and nonassessable;
and (ii) were issued in compliance with all applicable state and federal laws
concerning the issuance of securities.

 

(d) The rights, preferences, privileges and restrictions of the shares of the
Common Stock are as stated in the Company’s Articles of Incorporation (the
“Charter”). The Note Shares and Warrant Shares have been duly and validly
reserved for issuance. When issued in compliance with the provisions of this
Agreement and the Company’s Charter, the Securities will be validly issued,
fully paid and nonassessable, and will be free of any liens or encumbrances;
provided, however, that the Securities may be subject to restrictions on
transfer under state and/or federal securities laws as set forth herein or as
otherwise required by such laws at the time a transfer is proposed.

 

4.4 Authorization; Binding Obligations. All corporate, partnership or limited
liability company, as the case may be, action on the part of the Company and
each of its Subsidiaries (including the respective officers and directors)
necessary for the authorization of this Agreement and the Related Agreements,
the performance of all obligations of the Company and its Subsidiaries hereunder
and under the other Related Agreements at the Closing and, the authorization,
sale, issuance and delivery of the Note and Warrant has been taken or will be
taken prior to the Closing. This Agreement and the Related Agreements, when
executed and delivered and to the extent it is a party thereto, will be valid
and binding obligations of each of the Company and each of its Subsidiaries,
enforceable against each such person in accordance with their terms, except:

 

(a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application affecting enforcement of creditors’ rights;
and

 

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(b) general principles of equity that restrict the availability of equitable or
legal remedies.

 

The sale of the Note and the subsequent conversion of the Note into Note Shares
are not and will not be subject to any preemptive rights or rights of first
refusal that have not been properly waived or complied with. The issuance of the
Warrant and the subsequent exercise of the Warrant for Warrant Shares are not
and will not be subject to any preemptive rights or rights of first refusal that
have not been properly waived or complied with.

 

4.5 Liabilities. Neither the Company nor any of its Subsidiaries has any
material contingent liabilities, except current liabilities incurred in the
ordinary course of business and liabilities disclosed in any Exchange Act
Filings.

 

4.6 Agreements; Action. Except as set forth on Schedule 4.6 or as disclosed in
any Exchange Act Filings:

 

(a) there are no agreements, understandings, instruments, contracts, proposed
transactions, judgments, orders, writs or decrees to which the Company or any of
its Subsidiaries is a party or by which it is bound which may involve: (i)
obligations (contingent or otherwise) of, or payments to, the Company in excess
of $50,000 (other than obligations of, or payments to, the Company arising from
purchase or sale agreements entered into in the ordinary course of business); or
(ii) the transfer or license of any material patent, copyright, trade secret or
other proprietary right to or from the Company (other than licenses arising from
the purchase of “off the shelf” or other standard products); or (iii) provisions
restricting the development, manufacture or distribution of the Company’s
products or services; or (iv) indemnification by the Company with respect to
infringements of proprietary rights.

 

(b) Since March 31, 2004, neither the Company nor any of its Subsidiaries has:
(i) declared or paid any dividends, or authorized or made any distribution upon
or with respect to any class or series of its capital stock; (ii) incurred any
indebtedness for money borrowed or any other liabilities (other than ordinary
course obligations) individually in excess of $50,000 or, in the case of
indebtedness and/or liabilities individually less than $50,000, in excess of
$100,000 in the aggregate; (iii) made any loans or advances to any person not in
excess, individually or in the aggregate, of $100,000, other than ordinary
course advances for travel expenses; or (iv) sold, exchanged or otherwise
disposed of any material portion of its assets or rights, other than the sale of
its inventory in the ordinary course of business.

 

(c) For the purposes of subsections (a) and (b) above, all indebtedness,
liabilities, agreements, understandings, instruments, contracts and proposed
transactions involving the same person or entity (including persons or entities
the Company has reason to believe are affiliated therewith) shall be aggregated
for the purpose of meeting the individual minimum dollar amounts of such
subsections.

 

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4.7 Obligations to Related Parties. Except as set forth on Schedule 4.7, there
are no obligations of the Company or any of its Subsidiaries to officers,
directors, stockholders or employees of the Company or any of its Subsidiaries
other than:

 

(a) for payment of salary for services rendered and for bonus payments;

 

(b) reimbursement for reasonable expenses incurred on behalf of the Company and
its Subsidiaries;

 

(c) for other standard employee benefits made generally available to all
employees (including stock option agreements outstanding under any stock option
plan approved by the Board of Directors of the Company); and

 

(d) obligations listed in the Company’s financial statements or disclosed in any
of its Exchange Act Filings.

 

Except as described above or set forth on Schedule 4.7, none of the officers,
directors or, to the best of the Company’s knowledge, key employees or
stockholders of the Company or any members of their immediate families, are
indebted to the Company, individually or in the aggregate, in excess of $50,000
or have any direct or indirect ownership interest in any firm or corporation
with which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation which competes with the Company, other
than passive investments in publicly traded companies (representing less than
one percent (1%) of such company) which may compete with the Company. Except as
described above, no officer, director or stockholder, or any member of their
immediate families, is, directly or indirectly, interested in any material
contract with the Company and no agreements, understandings or proposed
transactions are contemplated between the Company and any such person. Except as
set forth on Schedule 4.7, the Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.

 

4.8 Changes. Since March 31, 2004, except as disclosed in any Exchange Act
Filing or in any Schedule to this Agreement or to any of the Related Agreements,
there has not been:

 

(a) any change in the business, assets, liabilities, condition (financial or
otherwise), properties, operations or prospects of the Company or any of its
Subsidiaries, which individually or in the aggregate has had, or could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect;

 

(b) any resignation or termination of any officer, key employee or group of
employees of the Company or any of its Subsidiaries;

 

(c) any material change, except in the ordinary course of business, in the
contingent obligations of the Company or any of its Subsidiaries by way of
guaranty, endorsement, indemnity, warranty or otherwise;

 

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(d) any damage, destruction or loss, whether or not covered by insurance, has
had, or could reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect;

 

(e) any waiver by the Company or any of its Subsidiaries of a valuable right or
of a material debt owed to it;

 

(f) any direct or indirect loans made by the Company or any of its Subsidiaries
to any stockholder, employee, officer or director of the Company or any of its
Subsidiaries, other than advances made in the ordinary course of business;

 

(g) any material change in any compensation arrangement or agreement with any
employee, officer, director or stockholder of the Company or any of its
Subsidiaries;

 

(h) any declaration or payment of any dividend or other distribution of the
assets of the Company or any of its Subsidiaries;

 

(i) any labor organization activity related to the Company or any of its
Subsidiaries;

 

(j) any debt, obligation or liability incurred, assumed or guaranteed by the
Company or any of its Subsidiaries, except those for immaterial amounts and for
current liabilities incurred in the ordinary course of business;

 

(k) any sale, assignment or transfer of any material patents, trademarks,
copyrights, trade secrets or other intangible assets owned by the Company or any
of its Subsidiaries;

 

(l) any change in any material agreement to which the Company or any of its
Subsidiaries is a party or by which either the Company or any of its
Subsidiaries is bound which either individually or in the aggregate has had, or
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect;

 

(m) any other event or condition of any character that, either individually or
in the aggregate, has had, or could reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect; or

 

(n) any arrangement or commitment by the Company or any of its Subsidiaries to
do any of the acts described in subsection (a) through (m) above.

 

4.9 Title to Properties and Assets; Liens, Etc. Except as set forth on Schedule
4.9, each of the Company and each of its Subsidiaries has good and marketable
title to its properties and assets, and good title to its leasehold estates, in
each case subject to no mortgage, pledge, lien, lease, encumbrance or charge,
other than:

 

(a) those resulting from taxes which have not yet become delinquent;

 

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(b) minor liens and encumbrances which do not materially detract from the value
of the property subject thereto or materially impair the operations of the
Company or any of its Subsidiaries; and

 

(c) those that have otherwise arisen in the ordinary course of business.

 

All facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by the Company and its Subsidiaries are in good operating
condition and repair and are reasonably fit and usable for the purposes for
which they are being used. Except as set forth on Schedule 4.9, the Company and
its Subsidiaries are in compliance in all material respects with all material
terms of each lease to which it is a party or is otherwise bound.

 

4.10 Intellectual Property.

 

(a) Each of the Company and each of its Subsidiaries owns or possesses
sufficient legal rights to all patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information and other proprietary rights
and processes necessary for its business as now conducted and to the Company’s
knowledge, as presently proposed to be conducted (the “Intellectual Property”),
without any known infringement of the rights of others. There are no outstanding
options, licenses or agreements of any kind relating to the foregoing
proprietary rights, nor is the Company or any of its Subsidiaries bound by or a
party to any options, licenses or agreements of any kind with respect to the
patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information and other proprietary rights and processes of any other
person or entity other than such licenses or agreements arising from the
purchase of “off the shelf” or standard products.

 

(b) Neither the Company nor any of its Subsidiaries has received any
communications alleging that the Company or any of its Subsidiaries has violated
any of the patents, trademarks, service marks, trade names, copyrights or trade
secrets or other proprietary rights of any other person or entity, nor is the
Company or any of its Subsidiaries aware of any basis therefor.

 

(c) The Company does not believe it is or will be necessary to utilize any
inventions, trade secrets or proprietary information of any of its employees
made prior to their employment by the Company or any of its Subsidiaries, except
for inventions, trade secrets or proprietary information that have been
rightfully assigned to the Company or any of its Subsidiaries.

 

4.11 Compliance with Other Instruments. Neither the Company nor any of its
Subsidiaries is in violation or default of (x) any term of its Charter or
Bylaws, or (y) of any provision of any indebtedness, mortgage, indenture,
contract, agreement or instrument to which it is party or by which it is bound
or of any judgment, decree, order or writ, which violation or default, in the
case of this clause (y), has had, or could reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect. The
execution, delivery and performance of and compliance with this Agreement and
the Related Agreements to which it is a party, and the issuance and sale of the
Note by the Company and the other Securities by the

 

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Company each pursuant hereto and thereto, will not, with or without the passage
of time or giving of notice, result in any such material violation, or be in
conflict with or constitute a default under any such term or provision, or
result in the creation of any mortgage, pledge, lien, encumbrance or charge upon
any of the properties or assets of the Company or any of its Subsidiaries or the
suspension, revocation, impairment, forfeiture or nonrenewal of any permit,
license, authorization or approval applicable to the Company, its business or
operations or any of its assets or properties.

 

4.12 Litigation. Except as set forth on Schedule 4.12 hereto, there is no
action, suit, proceeding or investigation pending or, to the Company’s
knowledge, currently threatened against the Company or any of its Subsidiaries
that prevents the Company or any of its Subsidiaries from entering into this
Agreement or the other Related Agreements, or from consummating the transactions
contemplated hereby or thereby, or which has had, or could reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect or any change in the current equity ownership of the Company or any of
its Subsidiaries, nor is the Company aware that there is any basis to assert any
of the foregoing. Neither the Company nor any of its Subsidiaries is a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company or any of its Subsidiaries currently
pending or which the Company or any of its Subsidiaries intends to initiate.

 

4.13 Tax Returns and Payments. Each of the Company and each of its Subsidiaries
has timely filed all tax returns (federal, state and local) required to be filed
by it. All taxes shown to be due and payable on such returns, any assessments
imposed, and all other taxes due and payable by the Company or any of its
Subsidiaries on or before the Closing, have been paid or will be paid prior to
the time they become delinquent. Except as set forth on Schedule 4.13, neither
the Company nor any of its Subsidiaries has been advised:

 

(a) that any of its returns, federal, state or other, have been or are being
audited as of the date hereof; or

 

(b) of any deficiency in assessment or proposed judgment to its federal, state
or other taxes.

 

The Company has no knowledge of any liability of any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for.

 

4.14 Employees. Except as set forth on Schedule 4.14, neither the Company nor
any of its Subsidiaries has any collective bargaining agreements with any of its
employees. There is no labor union organizing activity pending or, to the
Company’s knowledge, threatened with respect to the Company or any of its
Subsidiaries. Except as disclosed in the Exchange Act Filings or on Schedule
4.14, neither the Company nor any of its Subsidiaries is a party to or bound by
any currently effective employment contract, deferred compensation arrangement,
bonus plan, incentive plan, profit sharing plan, retirement agreement or other
employee compensation plan or agreement. To the Company’s knowledge, no employee
of the Company or any of its Subsidiaries, nor any consultant with whom the
Company or any of its Subsidiaries has contracted, is in violation of any term
of any employment contract, proprietary information

 

9

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agreement or any other agreement relating to the right of any such individual to
be employed by, or to contract with, the Company or any of its Subsidiaries
because of the nature of the business to be conducted by the Company or any of
its Subsidiaries; and to the Company’s knowledge the continued employment by the
Company or any of its Subsidiaries of its present employees, and the performance
of the Company’s and its Subsidiaries’ contracts with its independent
contractors, will not result in any such violation. Neither the Company nor any
of its Subsidiaries is aware that any of its employees is obligated under any
contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with their duties to the Company or
any of its Subsidiaries. Neither the Company nor any of its Subsidiaries has
received any notice alleging that any such violation has occurred. Except for
employees who have a current effective employment agreement with the Company or
any of its Subsidiaries, no employee of the Company or any of its Subsidiaries
has been granted the right to continued employment by the Company or any of its
Subsidiaries or to any material compensation following termination of employment
with the Company or any of its Subsidiaries. Except as set forth on Schedule
4.14, the Company is not aware that any officer, key employee or group of
employees intends to terminate his, her or their employment with the Company or
any of its Subsidiaries, nor does the Company or any of its Subsidiaries have a
present intention to terminate the employment of any officer, key employee or
group of employees.

 

4.15 Registration Rights and Voting Rights. Except as set forth on Schedule 4.15
and except as disclosed in Exchange Act Filings, neither the Company nor any of
its Subsidiaries is presently under any obligation, and neither the Company nor
any of its Subsidiaries has granted any rights, to register any of the Company’s
or its Subsidiaries’ presently outstanding securities or any of its securities
that may hereafter be issued. Except as set forth on Schedule 4.15 and except as
disclosed in Exchange Act Filings, to the Company’s knowledge, no stockholder of
the Company or any of its Subsidiaries has entered into any agreement with
respect to the voting of equity securities of the Company or any of its
Subsidiaries.

 

4.16 Compliance with Laws; Permits. Neither the Company nor any of its
Subsidiaries is in violation of any applicable statute, rule, regulation, order
or restriction of any domestic or foreign government or any instrumentality or
agency thereof in respect of the conduct of its business or the ownership of its
properties which has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. No governmental
orders, permissions, consents, approvals or authorizations are required to be
obtained and no registrations or declarations are required to be filed in
connection with the execution and delivery of this Agreement or any other
Related Agreement and the issuance of any of the Securities, except such as has
been duly and validly obtained or filed, or with respect to any filings that
must be made after the Closing, as will be filed in a timely manner. Each of the
Company and its Subsidiaries has all material franchises, permits, licenses and
any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.

 

4.17 Environmental and Safety Laws. Neither the Company nor any of its
Subsidiaries is in violation of any applicable statute, law or regulation
relating to the

 

10

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environment or occupational health and safety, and to its knowledge, no material
expenditures are or will be required in order to comply with any such existing
statute, law or regulation. Except as set forth on Schedule 4.17, no Hazardous
Materials (as defined below) are used or have been used, stored, or disposed of
by the Company or any of its Subsidiaries or, to the Company’s knowledge, by any
other person or entity on any property owned, leased or used by the Company or
any of its Subsidiaries. For the purposes of the preceding sentence, “Hazardous
Materials” shall mean:

 

(a) materials which are listed or otherwise defined as “hazardous” or “toxic”
under any applicable local, state, federal and/or foreign laws and regulations
that govern the existence and/or remedy of contamination on property, the
protection of the environment from contamination, the control of hazardous
wastes, or other activities involving hazardous substances, including building
materials; or

 

(b) any petroleum products or nuclear materials.

 

4.18 Valid Offering. Assuming the accuracy of the representations and warranties
of the Purchaser contained in this Agreement, the offer, sale and issuance of
the Securities will be exempt from the registration requirements of the
Securities Act of 1933, as amended (the “Securities Act”), and will have been
registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws.

 

4.19 Full Disclosure. Each of the Company and each of its Subsidiaries has
provided the Purchaser with all information requested by the Purchaser in
connection with its decision to purchase the Note and Warrant, including all
information the Company and its Subsidiaries believe is reasonably necessary to
make such investment decision. Neither this Agreement, the Related Agreements,
the exhibits and schedules hereto and thereto nor any other document delivered
by the Company or any of its Subsidiaries to Purchaser or its attorneys or
agents in connection herewith or therewith or with the transactions contemplated
hereby or thereby, contain any untrue statement of a material fact nor omit to
state a material fact necessary in order to make the statements contained herein
or therein, in light of the circumstances in which they are made, not
misleading. Any financial projections and other estimates provided to the
Purchaser by the Company or any of its Subsidiaries were based on the Company’s
and its Subsidiaries’ experience in the industry and on assumptions of fact and
opinion as to future events which the Company or any of its Subsidiaries, at the
date of the issuance of such projections or estimates, believed to be
reasonable.

 

4.20 Insurance. Each of the Company and each of its Subsidiaries has general
commercial, product liability, fire and casualty insurance policies with
coverages which the Company believes are customary for companies similarly
situated to the Company and its Subsidiaries in the same or similar business.

 

4.21 SEC Reports. Except as set forth on Schedule 4.21, the Company has filed
all proxy statements, reports and other documents required to be filed by it
under the Securities Exchange Act 1934, as amended (the “Exchange Act”). The
Company has furnished the Purchaser with copies of: (i) its Annual Reports on
Form 10-KSB for its fiscal year ended

 

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March 31, 2004; and (ii) its Quarterly Reports on Form 10-QSB for its fiscal
quarter ended [June 30], 2004, and the Form 8-K filings which it has made during
the fiscal year 2005 to date (collectively, the “SEC Reports”). Except as set
forth on Schedule 4.21, each SEC Report was, at the time of its filing, in
substantial compliance with the requirements of its respective form and none of
the SEC Reports, nor the financial statements (and the notes thereto) included
in the SEC Reports, as of their respective filing dates, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.

 

4.22 Listing. The Company’s Common Stock is traded on the National Association
of Securities Dealers Over the Counter Bulletin Board (“NASD OTCBB”)and the
Company has satisfied all requirements for the continuation of such trading. The
Company has not received any notice that its Common Stock will not be eligible
to be traded on the NASD OTCBB or that its Common Stock does not meet all
requirements for such trading.

 

4.23 No Integrated Offering. Neither the Company, nor any of its Subsidiaries or
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 cause the offering of the
Securities pursuant to this Agreement or any of the Related Agreements to be
integrated with prior offerings by the Company for purposes of the Securities
Act which would prevent the Company from selling the Securities pursuant to Rule
506 under the Securities Act, or any applicable exchange-related stockholder
approval provisions, nor will the Company or any of its affiliates or
Subsidiaries take any action or steps that would cause the offering of the
Securities to be integrated with other offerings.

 

4.24 Stop Transfer. The Securities are restricted securities as of the date of
this Agreement. Neither the Company nor any of its Subsidiaries will issue any
stop transfer order or other order impeding the sale and delivery of any of the
Securities at such time as the Securities are registered for public sale under a
currently effective registration statement or an exemption from registration is
available, except as required by state and federal securities laws.

 

4.25 Dilution. The Company specifically acknowledges that its obligation to
issue the shares of Common Stock upon conversion of the Note and exercise of the
Warrant is binding upon the Company and enforceable regardless of the dilution
such issuance may have on the ownership interests of other shareholders of the
Company.

 

4.26 Patriot Act. The Company certifies that, to the best of Company’s
knowledge, neither the Company nor any of its Subsidiaries has been designated,
and is not owned or controlled, by a “suspected terrorist” as defined in
Executive Order 13224. The Company hereby acknowledges that the Purchaser seeks
to comply with all applicable laws concerning money laundering and related
activities. In furtherance of those efforts, the Company hereby represents,
warrants and agrees that: (i) none of the cash or property that the Company or
any of its Subsidiaries will pay or will contribute to the Purchaser has been or
shall be derived from, or related to, any activity that is deemed criminal under
United States law; and (ii) no contribution or payment by the Company or any of
its Subsidiaries to the Purchaser, to the extent that they are within the
Company’s and/or its Subsidiaries’ control shall cause the Purchaser to be in
violation of the United States Bank Secrecy Act, the United States

 

12

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International Money Laundering Control Act of 1986 or the United States
International Money Laundering Abatement and Anti-Terrorist Financing Act of
2001. The Company shall promptly notify the Purchaser if any of these
representations ceases to be true and accurate regarding the Company or any of
its Subsidiaries. The Company agrees to provide the Purchaser any additional
information regarding the Company or any of its Subsidiaries that the Purchaser
deems necessary or convenient to ensure compliance with all applicable laws
concerning money laundering and similar activities. The Company understands and
agrees that if at any time it is discovered that any of the foregoing
representations are incorrect, or if otherwise required by applicable law or
regulation related to money laundering similar activities, the Purchaser may
undertake appropriate actions to ensure compliance with applicable law or
regulation, including but not limited to segregation and/or redemption of the
Purchaser’s investment in the Company. The Company further understands that the
Purchaser may release confidential information about the Company and its
Subsidiaries and, if applicable, any underlying beneficial owners, to proper
authorities if the Purchaser, in its sole discretion, determines that it is in
the best interests of the Purchaser in light of relevant rules and regulations
under the laws set forth in subsection (ii) above.

 

5. Representations and Warranties of the Purchaser. The Purchaser hereby
represents and warrants to the Company as follows (such representations and
warranties do not lessen or obviate the representations and warranties of the
Company set forth in this Agreement):

 

5.1 No Shorting. The Purchaser or any of its affiliates and investment partners
has not, will not and will not cause any person or entity, to directly engage in
“short sales” of the Company’s Common Stock as long as the Note shall be
outstanding.

 

5.2 Requisite Power and Authority. The Purchaser has all necessary power and
authority under all applicable provisions of law to execute and deliver this
Agreement and the Related Agreements and to carry out their provisions. All
corporate action on Purchaser’s part required for the lawful execution and
delivery of this Agreement and the Related Agreements have been or will be
effectively taken prior to the Closing. Upon their execution and delivery, this
Agreement and the Related Agreements will be valid and binding obligations of
Purchaser, enforceable in accordance with their terms, except:

 

(a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application affecting enforcement of creditors’ rights;
and

 

(b) as limited by general principles of equity that restrict the availability of
equitable and legal remedies.

 

5.3 Investment Representations. Purchaser understands that the Securities are
being offered and sold pursuant to an exemption from registration contained in
the Securities Act based in part upon Purchaser’s representations contained in
the Agreement, including, without limitation, that the Purchaser is an
“accredited investor” within the meaning of Regulation D under the Securities
Act of 1933, as amended (the “Securities Act”). The Purchaser confirms that it
has received or has had full access to all the information it considers
necessary or appropriate to make an informed investment decision with respect to
the Note and the Warrant to be purchased by it under this Agreement and the Note
Shares and the Warrant Shares acquired by it

 

13

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upon the conversion of the Note and the exercise of the Warrant, respectively.
The Purchaser further confirms that it has had an opportunity to ask questions
and receive answers from the Company regarding the Company’s and its
Subsidiaries’ business, management and financial affairs and the terms and
conditions of the Offering, the Note, the Warrant and the Securities and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify any information furnished to the Purchaser or to which the
Purchaser had access.

 

5.4 Purchaser Bears Economic Risk. The Purchaser has substantial experience in
evaluating and investing in private placement transactions of securities in
companies similar to the Company so that it is capable of evaluating the merits
and risks of its investment in the Company and has the capacity to protect its
own interests. The Purchaser must bear the economic risk of this investment
until the Securities are sold pursuant to: (i) an effective registration
statement under the Securities Act; or (ii) an exemption from registration is
available with respect to such sale.

 

5.5 Acquisition for Own Account. The Purchaser is acquiring the Note and Warrant
and the Note Shares and the Warrant Shares for the Purchaser’s own account for
investment only, and not as a nominee or agent and not with a view towards or
for resale in connection with their distribution.

 

5.6 Purchaser Can Protect Its Interest. The Purchaser represents that by reason
of its, or of its management’s, business and financial experience, the Purchaser
has the capacity to evaluate the merits and risks of its investment in the Note,
the Warrant and the Securities and to protect its own interests in connection
with the transactions contemplated in this Agreement and the Related Agreements.
Further, Purchaser is aware of no publication of any advertisement in connection
with the transactions contemplated in the Agreement or the Related Agreements.

 

5.7 Accredited Investor. Purchaser represents that it is an accredited investor
within the meaning of Regulation D under the Securities Act.

 

5.8 Legends.

 

(a) The Note shall bear substantially the following legend:

 

“THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE,
STATE SECURITIES LAWS. THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION
OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH SHARES
UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO DYNAMIC HEALTH SOLUTIONS, INC. THAT SUCH REGISTRATION
IS NOT REQUIRED.”

 

14

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(b) The Note Shares and the Warrant Shares, if not issued by DWAC system (as
hereinafter defined), shall bear a legend which shall be in substantially the
following form until such shares are covered by an effective registration
statement filed with the SEC:

 

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND
APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
DYNAMIC HEALTH SOLUTIONS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.”

 

(c) The Warrant shall bear substantially the following legend:

 

“THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE
UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
WARRANT OR THE UNDERLYING SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
DYNAMIC HEALTH SOLUTIONS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.”

 

6. Covenants of the Company. The Company covenants and agrees with the Purchaser
as follows:

 

6.1 Stop-Orders. The Company will advise the Purchaser, promptly after it
receives notice of issuance by the Securities and Exchange Commission (the
“SEC”), any state securities commission or any other regulatory authority of any
stop order or of any order preventing or suspending any offering of any
securities of the Company, or of the suspension of the qualification of the
Common Stock of the Company for offering or sale in any jurisdiction, or the
initiation of any proceeding for any such purpose.

 

6.2 Listing. The Company shall cause the shares of Common Stock issuable upon
conversion of the Note and upon the exercise of the Warrant to be eligible for
trading on

 

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the NASD OTCBB (the “Principal Market”) and shall maintain such eligibility so
long as any other shares of Common Stock shall be quoted on such Principal
Market. The Company will maintain the quotation of its Common Stock on the
Principal Market (or such other market acceptable to the Purchaser), and will
comply in all material respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of the National Association of Securities
Dealers (“NASD”) and such exchanges, as applicable.Market Regulations. The
Company shall notify the SEC, NASD and applicable state authorities, in
accordance with their requirements, of the transactions contemplated by this
Agreement, and shall take all other necessary action and proceedings as may be
required and permitted by applicable law, rule and regulation, for the legal and
valid issuance of the Securities to the Purchaser and promptly provide copies
thereof to the Purchaser.

 

6.4 Reporting Requirements. The Company will timely file with the SEC all
reports required to be filed pursuant to the Exchange Act and refrain from
terminating its status as an issuer required by the Exchange Act to file reports
thereunder even if the Exchange Act or the rules or regulations thereunder would
permit such termination.

 

6.5 Use of Funds. The Company agrees that it will use (x) up to $5,000,000 of
the proceeds of the sale of the Note to consummate the Company’s acquisition of
Bob O’Leary Health Food Distributor Co., Inc., a Pennsylvania corporation,
pursuant to a Stock Purchase Agreement in form and substance satisfactory to the
Purchaser and (y) the remainder of the proceeds of the Note and the proceeds of
the Warrant for general working capital purposes.

 

6.6 Access to Facilities. Each of the Company and each of its Subsidiaries will
permit any representatives designated by the Purchaser (or any successor of the
Purchaser), upon reasonable notice and during normal business hours, at such
person’s expense and accompanied by a representative of the Company, to:

 

(a) visit and inspect any of the properties of the Company or any of its
Subsidiaries;

 

(b) examine the corporate and financial records of the Company or any of its
Subsidiaries (unless such examination is not permitted by federal, state or
local law or by contract) and make copies thereof or extracts therefrom; and

 

(c) discuss the affairs, finances and accounts of the Company or any of its
Subsidiaries with the directors, officers and independent accountants of the
Company or any of its Subsidiaries.

 

Notwithstanding the foregoing, neither the Company nor any of its Subsidiaries
will provide any material, non-public information to the Purchaser unless the
Purchaser signs a confidentiality agreement and otherwise complies with
Regulation FD, under the federal securities laws.

 

6.7 Taxes. Each of the Company and each of its Subsidiaries will promptly pay
and discharge, or cause to be paid and discharged, when due and payable, all
lawful taxes, assessments and governmental charges or levies imposed upon the
income, profits, property or business of the Company and its Subsidiaries;
provided, however, that any such tax, assessment, charge or levy need not be
paid if the validity thereof shall currently be contested in good faith

 

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by appropriate proceedings and if the Company and/or such Subsidiary shall have
set aside on its books adequate reserves with respect thereto, and provided,
further, that the Company and its Subsidiaries will pay all such taxes,
assessments, charges or levies forthwith upon the commencement of proceedings to
foreclose any lien which may have attached as security therefor.

 

6.8 Insurance. Each of the Company and its Subsidiaries will keep its assets
which are of an insurable character insured by financially sound and reputable
insurers against loss or damage by fire, explosion and other risks customarily
insured against by companies in similar business similarly situated as the
Company and its Subsidiaries; and the Company and its Subsidiaries will
maintain, with financially sound and reputable insurers, insurance against other
hazards and risks and liability to persons and property to the extent and in the
manner which the Company reasonably believes is customary for companies in
similar business similarly situated as the Company and its Subsidiaries and to
the extent available on commercially reasonable terms. The Company, and each of
its Subsidiaries will jointly and severally bear the full risk of loss from any
loss of any nature whatsoever with respect to the assets pledged to the
Purchaser as security for its obligations hereunder and under the Related
Agreements. At the Company’s and each of its Subsidiaries’ joint and several
cost and expense in amounts and with carriers reasonably acceptable to
Purchaser, the Company and each of its Subsidiaries shall (i) keep all its
insurable properties and properties in which it has an interest insured against
the hazards of fire, flood, sprinkler leakage, those hazards covered by extended
coverage insurance and such other hazards, and for such amounts, as is customary
in the case of companies engaged in businesses similar to the Company’s or the
respective Subsidiary’s including business interruption insurance; (ii) maintain
a bond in such amounts as is customary in the case of companies engaged in
businesses similar to the Company’s or the respective Subsidiary’s insuring
against larceny, embezzlement or other criminal misappropriation of insured’s
officers and employees who may either singly or jointly with others at any time
have access to the assets or funds of the Company or any of its Subsidiaries
either directly or through governmental authority to draw upon such funds or to
direct generally the disposition of such assets; (iii) maintain public and
product liability insurance against claims for personal injury, death or
property damage suffered by others; (iv) maintain all such worker’s compensation
or similar insurance as may be required under the laws of any state or
jurisdiction in which the Company or the respective Subsidiary is engaged in
business; and (v) furnish Purchaser with (x) copies of all policies and evidence
of the maintenance of such policies at least thirty (30) days before any
expiration date, (y) excepting the Company’s workers’ compensation policy,
endorsements to such policies naming Purchaser as “co-insured” or “additional
insured” and appropriate loss payable endorsements in form and substance
satisfactory to Purchaser, naming Purchaser as loss payee, and (z) evidence that
as to Purchaser the insurance coverage shall not be impaired or invalidated by
any act or neglect of the Company or any Subsidiary and the insurer will provide
Purchaser with at least thirty (30) days notice prior to cancellation. The
Company and each Subsidiary shall instruct the insurance carriers that in the
event of any loss thereunder, the carriers shall make payment for such loss to
the Company and/or the Subsidiary and Purchaser jointly. In the event that as of
the date of receipt of each loss recovery upon any such insurance, the Purchaser
has not declared an event of default with respect to this Agreement or any of
the Related Agreements, then the Company and/or such Subsidiary shall be
permitted to direct the application of such loss recovery proceeds toward
investment in property, plant and equipment that would comprise “Collateral”
secured by Purchaser’s security interest pursuant to its security agreement,
with any surplus funds to be

 

17

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applied toward payment of the obligations of the Company to Purchaser. In the
event that Purchaser has properly declared an event of default with respect to
this Agreement or any of the Related Agreements, then all loss recoveries
received by Purchaser upon any such insurance thereafter may be applied to the
obligations of the Company hereunder and under the Related Agreements, in such
order as the Purchaser may determine. Any surplus (following satisfaction of all
Company obligations to Purchaser) shall be paid by Purchaser to the Company or
applied as may be otherwise required by law. Any deficiency thereon shall be
paid by the Company or the Subsidiary, as applicable, to Purchaser, on demand.

 

6.9 Intellectual Property. Each of the Company and each of its Subsidiaries
shall maintain in full force and effect its existence, rights and franchises and
all licenses and other rights to use Intellectual Property owned or possessed by
it and reasonably deemed to be necessary to the conduct of its business.

 

6.10 Properties. Each of the Company and each of its Subsidiaries will keep its
properties in good repair, working order and condition, reasonable wear and tear
excepted, and from time to time make all needful and proper repairs, renewals,
replacements, additions and improvements thereto; and each of the Company and
each of its Subsidiaries will at all times comply with each provision of all
leases to which it is a party or under which it occupies property if the breach
of such provision could, either individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.

 

6.11 Confidentiality. The Company agrees that it will not disclose, and will not
include in any public announcement, the name of the Purchaser, unless expressly
agreed to by the Purchaser or unless and until such disclosure is required by
law or applicable regulation, and then only to the extent of such requirement.
Notwithstanding the foregoing, the Company may disclose Purchaser’s identity and
the terms of this Agreement to its current and prospective debt and equity
financing sources.

 

6.12 Required Approvals. For so long as twenty-five percent (25%) of the
principal amount of the Note is outstanding, the Company, without the prior
written consent of the Purchaser, shall not, and shall not permit any of its
Subsidiaries to:

 

(a) (i) directly or indirectly declare or pay any dividends, other than
dividends paid to the Parent or any of its wholly-owned Subsidiaries, (ii) issue
any preferred stock that is mandatorily redeemable prior to the one year
anniversary of the Maturity Date (as defined in the Note) or (iii) redeem any of
its preferred stock or other equity interests;

 

(b) liquidate, dissolve or effect a material reorganization (it being understood
that in no event shall the Company dissolve, liquidate or merge with any other
person or entity (unless the Company is the surviving entity);

 

(c) become subject to (including, without limitation, by way of amendment to or
modification of) any agreement or instrument which by its terms would (under any
circumstances) restrict the Company’s or any of its Subsidiaries right to
perform the provisions of this Agreement, any Related Agreement or any of the
agreements contemplated hereby or thereby;

 

18

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(d) materially alter or change the scope of the business of the Company and its
Subsidiaries taken as a whole;

 

(e) (i) create, incur, assume or suffer to exist any indebtedness (exclusive of
trade debt and debt incurred to finance the purchase of equipment (not in excess
of five percent (5%) of the fair market value of the Company’s and its
Subsidiaries’ assets) whether secured or unsecured other than (x) the Company’s
indebtedness to the Purchaser, (y) indebtedness set forth on Schedule 6.12(e)
attached hereto and made a part hereof and any refinancings or replacements
thereof on terms no less favorable to the Purchaser than the indebtedness being
refinanced or replaced, and (z) any debt incurred in connection with the
purchase of assets in the ordinary course of business, or any refinancings or
replacements thereof on terms no less favorable to the Purchaser than the
indebtedness being refinanced or replaced; (ii) cancel any debt owing to it in
excess of $50,000 in the aggregate during any 12 month period; (iii) assume,
guarantee, endorse or otherwise become directly or contingently liable in
connection with any obligations of any other Person, except the endorsement of
negotiable instruments by the Company for deposit or collection or similar
transactions in the ordinary course of business or guarantees of indebtedness
otherwise permitted to be outstanding pursuant to this clause (e); and

 

(f) create or acquire any Subsidiary after the date hereof unless (i) such
Subsidiary is a wholly-owned Subsidiary of the Company and (ii) such Subsidiary
becomes party to the Master Security Agreement, the Stock Pledge Agreement and
the Subsidiary Guaranty (either by executing a counterpart thereof or an
assumption or joinder agreement in respect thereof) and, to the extent required
by the Purchaser, satisfies each condition of this Agreement and the Related
Agreements as if such Subsidiary were a Subsidiary on the Closing Date.

 

6.13 Reissuance of Securities. The Company agrees to reissue certificates
representing the Securities without the legends set forth in Section 5.8 above
at such time as:

 

(a) the holder thereof is permitted to dispose of such Securities pursuant to
Rule 144(k) under the Securities Act; or

 

(b) upon resale subject to an effective registration statement after such
Securities are registered under the Securities Act.

 

The Company agrees to cooperate with the Purchaser in connection with all
resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions
necessary to allow such resales provided the Company and its counsel receive
reasonably requested representations from the selling Purchaser and broker, if
any.

 

6.14 Opinion. On the Closing Date, the Company will deliver to the Purchaser an
opinion acceptable to the Purchaser from the Company’s external legal counsel.
The Company will provide, at the Company’s expense, such other legal opinions in
the future as are deemed reasonably necessary by the Purchaser (and acceptable
to the Purchaser) in connection with the conversion of the Note and exercise of
the Warrant.

 

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6.15 Margin Stock. The Company will not permit any of the proceeds of the Note
or the Warrant to be used directly or indirectly to “purchase” or “carry”
“margin stock” or to repay indebtedness incurred to “purchase” or “carry”
“margin stock” within the respective meanings of each of the quoted terms under
Regulation U of the Board of Governors of the Federal Reserve System as now and
from time to time hereafter in effect.

 

6.16 Financing Right of First Refusal. (a) The Company hereby grants to the
Purchaser a right of first refusal to provide any Additional Financing (as
defined below) to be issued by the Company and/or any of its Subsidiaries,
subject to the following terms and conditions. From and after the date hereof,
prior to the incurrence of any additional indebtedness and/or the sale or
issuance of any equity interests of the Company or any of its Subsidiaries (an
“Additional Financing”), the Company and/or any Subsidiary of the Company, as
the case may be, shall notify the Purchaser of its intention to enter into such
Additional Financing. In connection therewith, the Company and/or the applicable
Subsidiary thereof shall submit a fully executed term sheet (a “Proposed Term
Sheet”) to the Purchaser setting forth the terms, conditions and pricing of any
such Additional Financing (such financing to be negotiated on “arm’s length”
terms and the terms thereof to be negotiated in good faith) proposed to be
entered into by the Company and/or such Subsidiary. The Purchaser shall have the
right, but not the obligation, to deliver its own proposed term sheet (the
“Purchaser Term Sheet”) setting forth the terms and conditions upon which
Purchaser would be willing to provide such Additional Financing to the Company
and/or such Subsidiary. The Purchaser Term Sheet shall contain terms no less
favorable to the Company and /or the Subsidiary than those outlined in Proposed
Term Sheet. The Purchaser shall deliver such Purchaser Term Sheet within ten
business days of receipt of each such Proposed Term Sheet. If the provisions of
the Purchaser Term Sheet are at least as favorable to the Company and/or such
Subsidiary, as the case may be, as the provisions of the Proposed Term Sheet,
the Company and/or such Subsidiary shall enter into and consummate the
Additional Financing transaction outlined in the Purchaser Term Sheet.

 

(b) The Company will not, and will not permit its Subsidiaries to, agree,
directly or indirectly, to any restriction with any person or entity which
limits the ability of the Purchaser to consummate an Additional Financing with
the Company or any of its Subsidiaries.

 

7. Covenants of the Purchaser. The Purchaser covenants and agrees with the
Company as follows:

 

7.1 Confidentiality. The Purchaser agrees that it will not disclose, and will
not include in any public announcement, the name of the Company, unless
expressly agreed to by the Company or unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement.

 

7.2 Non-Public Information. The Purchaser agrees not to effect any sales in the
shares of the Company’s Common Stock while in possession of material, non-public
information regarding the Company if such sales would violate applicable
securities law.

 

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8. Covenants of the Company and Purchaser Regarding Indemnification.

 

8.1 Company Indemnification. The Company agrees to indemnify, hold harmless,
reimburse and defend the Purchaser, each of the Purchaser’s officers, directors,
agents, affiliates, control persons, and principal shareholders, against any
claim, cost, expense, liability, obligation, loss or damage (including
reasonable legal fees) of any nature, incurred by or imposed upon the Purchaser
which results, arises out of or is based upon: (i) any misrepresentation by the
Company or any of its Subsidiaries or breach of any warranty by the Company or
any of its Subsidiaries in this Agreement, any other Related Agreement or in any
exhibits or schedules attached hereto or thereto; or (ii) any breach or default
in performance by Company or any of its Subsidiaries of any covenant or
undertaking to be performed by Company or any of its Subsidiaries hereunder,
under any other Related Agreement or any other agreement entered into by the
Company and/or any of its Subsidiaries and Purchaser relating hereto or thereto.

 

8.2 Purchaser’s Indemnification. Purchaser agrees to indemnify, hold harmless,
reimburse and defend the Company and each of the Company’s officers, directors,
agents, affiliates, control persons and principal shareholders, at all times
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon the
Company which results, arises out of or is based upon: (i) any misrepresentation
by Purchaser or breach of any warranty by Purchaser in this Agreement or in any
exhibits or schedules attached hereto or any Related Agreement; or (ii) any
breach or default in performance by Purchaser of any covenant or undertaking to
be performed by Purchaser hereunder, or any other agreement entered into by the
Company and Purchaser relating hereto.

 

9. Conversion of Convertible Note.

 

9.1 Mechanics of Conversion.

 

(a) Provided the Purchaser has notified the Company of the Purchaser’s intention
to sell the Note Shares and the Note Shares are included in an effective
registration statement or are otherwise exempt from registration when sold: (i)
upon the conversion of the Note or part thereof, the Company shall, at its own
cost and expense, take all necessary action (including the issuance of an
opinion of counsel reasonably acceptable to the Purchaser following a request by
the Purchaser) to assure that the Company’s transfer agent shall issue shares of
the Company’s Common Stock in the name of the Purchaser (or its nominee) or such
other persons as designated by the Purchaser in accordance with Section 9.1(b)
hereof and in such denominations to be specified representing the number of Note
Shares issuable upon such conversion; and (ii) the Company warrants that no
instructions other than these instructions have been or will be given to the
transfer agent of the Company’s Common Stock and that after the Effectiveness
Date (as defined in the Registration Rights Agreement) the Note Shares issued
will be freely transferable subject to the prospectus delivery requirements of
the Securities Act and the provisions of this Agreement and the Registration
Rights Agreement and will not contain a legend restricting the resale or
transferability of the Note Shares.

 

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(b) Purchaser will give notice of its decision to exercise its right to convert
the Note or part thereof by telecopying or otherwise delivering an executed and
completed notice of the number of shares to be converted to the Company (the
“Notice of Conversion”). The Purchaser will not be required to surrender the
Note until the Purchaser receives (i) in the event that the Company is DWAC (as
defined below) eligible, a credit to the account of the Purchaser’s prime broker
through the DWAC system, or (ii) in the event that the Company is not DWAC
eligible, stock certificates representing the Note Shares or until the Note has
been fully satisfied. Each date on which a Notice of Conversion is telecopied or
delivered to the Company in accordance with the provisions hereof shall be
deemed a “Conversion Date.” Pursuant to the terms of the Notice of Conversion,
the Company will issue instructions to the transfer agent accompanied by an
opinion of counsel within one (1) business day of the date of the delivery to
the Company of the Notice of Conversion and shall cause the transfer agent to
transmit the certificates representing the Conversion Shares to the Holder by
(x) in the event that the Company is DWAC eligible, crediting the account of the
Purchaser’s prime broker with the Depository Trust Company (“DTC”) through its
Deposit Withdrawal Agent Commission (“DWAC”) system or (y) in the event that the
Company is not DWAC eligible, delivering stock certificates representing the
Note Shares to the Purchaser or the Purchaser’s designated broker, in each case,
within three (3) business days after receipt by the Company of the Notice of
Conversion (the “Delivery Date”). The provisions above relating to delivery of
Conversion Shares through the DWAC system shall not apply with respect to shares
issuable to any person or entity other than Laurus Master Fund, Ltd., or an
entity owned and controlled by it.

 

(c) The Company understands that a delay in the delivery of the Note Shares in
the form required pursuant to Section 9 hereof beyond the Delivery Date could
result in economic loss to the Purchaser. In the event that the Company fails to
direct its transfer agent to deliver the Note Shares to the Purchaser in the
manner, and within the time frame, set forth in Section 9.1(b) above and the
Note Shares are not delivered to the Purchaser by the Delivery Date, as
compensation to the Purchaser for such loss, the Company agrees to pay late
payments to the Purchaser for late issuance of the Note Shares in the form
required pursuant to Section 9 hereof upon conversion of the Note in the amount
equal to the greater of: (i) $500 per business day after the Delivery Date; or
(ii) the Purchaser’s actual damages from such delayed delivery. Notwithstanding
the foregoing, the Company will not owe the Purchaser any late payments if the
delay in the delivery of the Note Shares beyond the Delivery Date is solely out
of the control of the Company and the Company is actively trying to cure the
cause of the delay. The Company shall pay any payments incurred under this
Section in immediately available funds upon demand and, in the case of actual
damages, accompanied by reasonable documentation of the amount of such damages.
Such documentation shall show the number of shares of Common Stock the Purchaser
is forced to purchase (in an open market transaction) which the Purchaser
anticipated receiving upon such conversion, and shall be calculated as the
amount by which (A) the Purchaser’s total purchase price (including customary
brokerage commissions, if any) for the shares of Common Stock so purchased
exceeds (B) the aggregate principal and/or interest amount of the Note, for
which such Conversion Notice was not timely honored.

 

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Nothing contained herein or in any document referred to herein or delivered in
connection herewith shall be deemed to establish or require the payment of a
rate of interest or other charges in excess of the maximum permitted by
applicable law. In the event that the rate of interest or dividends required to
be paid or other charges hereunder exceed the maximum amount permitted by such
law, any payments in excess of such maximum shall be credited against amounts
owed by the Company to a Purchaser and thus refunded to the Company.

 

10. Registration Rights.

 

10.1 Registration Rights Granted. The Company hereby grants registration rights
to the Purchaser pursuant to a Registration Rights Agreement dated as of even
date herewith between the Company and the Purchaser.

 

10.2 Offering Restrictions. Except as previously disclosed in the SEC Reports or
in the Exchange Act Filings, or stock or stock options granted to employees or
directors of the Company (these exceptions hereinafter referred to as the
“Excepted Issuances”), neither the Company nor any of its Subsidiaries will
issue any securities with a continuously variable/floating conversion feature
which are or could be (by conversion or registration) free-trading securities
(i.e. common stock subject to a registration statement) prior to the full
repayment or conversion of the Note (together with all accrued and unpaid
interest and fees related thereto) (the “Exclusion Period”).

 

11. Miscellaneous.

 

11.1 Governing Law. THIS AGREEMENT AND EACH RELATED 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. ANY ACTION BROUGHT BY EITHER PARTY
AGAINST THE OTHER CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND
EACH RELATED AGREEMENT SHALL BE BROUGHT ONLY IN THE STATE COURTS OF NEW YORK OR
IN THE FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK. BOTH PARTIES AND THE
INDIVIDUALS EXECUTING THIS AGREEMENT AND THE RELATED AGREEMENTS ON BEHALF OF THE
COMPANY AGREE TO SUBMIT TO THE JURISDICTION OF SUCH COURTS AND WAIVE TRIAL BY
JURY. IN THE EVENT THAT ANY PROVISION OF THIS AGREEMENT OR ANY RELATED AGREEMENT
DELIVERED IN CONNECTION HEREWITH IS INVALID OR UNENFORCEABLE UNDER ANY
APPLICABLE STATUTE OR RULE OF LAW, THEN SUCH PROVISION SHALL BE DEEMED
INOPERATIVE TO THE EXTENT THAT IT MAY CONFLICT THEREWITH AND SHALL BE DEEMED
MODIFIED TO CONFORM WITH SUCH STATUTE OR RULE OF LAW. ANY SUCH PROVISION WHICH
MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW SHALL NOT AFFECT THE VALIDITY
OR ENFORCEABILITY OF ANY OTHER PROVISION OF THIS AGREEMENT OR ANY RELATED
AGREEMENT.

 

11.2 Survival. The representations, warranties, covenants and agreements made
herein shall survive any investigation made by the Purchaser and the closing of
the transactions contemplated hereby to the extent provided therein. All
statements as to factual

 

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matters contained in any certificate or other instrument delivered by or on
behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.

 

11.3 Successors. Except as otherwise expressly provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the successors,
heirs, executors and administrators of the parties hereto and shall inure to the
benefit of and be enforceable by each person who shall be a holder of the
Securities from time to time, other than the holders of Common Stock which has
been sold by the Purchaser pursuant to Rule 144 or an effective registration
statement. Purchaser may not assign its rights hereunder to a competitor of the
Company.

 

11.4 Entire Agreement. This Agreement, the Related Agreements, the exhibits and
schedules hereto and thereto and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and no party shall be liable or bound to any
other in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein.

 

11.5 Severability. In case any provision of the Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.

 

11.6 Amendment and Waiver.

 

(a) This Agreement may be amended or modified only upon the written consent of
the Company and the Purchaser.

 

(b) The obligations of the Company and the rights of the Purchaser under this
Agreement may be waived only with the written consent of the Purchaser.

 

(c) The obligations of the Purchaser and the rights of the Company under this
Agreement may be waived only with the written consent of the Company.

 

11.7 Delays or Omissions. It is agreed that no delay or omission to exercise any
right, power or remedy accruing to any party, upon any breach, default or
noncompliance by another party under this Agreement or the Related Agreements,
shall impair any such right, power or remedy, nor shall it be construed to be a
waiver of any such breach, default or noncompliance, or any acquiescence
therein, or of or in any similar breach, default or noncompliance thereafter
occurring. All remedies, either under this Agreement or the Related Agreements,
by law or otherwise afforded to any party, shall be cumulative and not
alternative.

 

11.8 Notices. All notices required or permitted hereunder shall be in writing
and shall be deemed effectively given:

 

(a) upon personal delivery to the party to be notified;

 

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(b) when sent by confirmed facsimile if sent during normal business hours of the
recipient, if not, then on the next business day;

 

(c) three (3) business days after having been sent by registered or certified
mail, return receipt requested, postage prepaid; or

 

(d) one (1) day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt.

 

All communications shall be sent as follows:

 

If to the Company, to:

  

Dynamic Health Solutions, Inc.

6911 Bryan Dairy Road, Suite 210

Largo, Florida 33777

Attention: Cani Shuman

Facsimile: (727_ 329-1846

     with a copy to:     

Shumaker, Loop & Kendrick, LLP

101 East Kennedy Boulevard, Suite 2800

Tampa, Florida 33602

    

Attention: Gregory C. Yadley, Esq.

Facsimile: (813) 229-1660

If to the Purchaser, to:

  

Laurus Master Fund, Ltd.

c/o M&C Corporate Services Ltd.

P.O. Box 309GT

Ugland House, George Town

South Church Street

Grand Cayman, Cayman Islands

Facsimile: 345-949-808

     with a copy to:     

John E. Tucker, Esq.

825 Third Avenue 14th Floor

New York, NY 10022

Facsimile: 212-541-4434

 

or at such other address as the Company or the Purchaser may designate by
written notice to the other parties hereto given in accordance herewith.

 

11.9 Attorneys’ Fees. In the event that any suit or action is instituted to
enforce any provision in this Agreement, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including, without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.

 

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11.10 Titles and Subtitles. The titles of the sections and subsections of this
Agreement are for convenience of reference only and are not to be considered in
construing this Agreement.

 

11.11 Facsimile Signatures; Counterparts. This Agreement may be executed by
facsimile signatures and in any number of counterparts, each of which shall be
an original, but all of which together shall constitute one instrument.

 

11.12 Broker’s Fees. Except as set forth on Schedule 11.12 hereof, each party
hereto represents and warrants that no agent, broker, investment banker, person
or firm acting on behalf of or under the authority of such party hereto is or
will be entitled to any broker’s or finder’s fee or any other commission
directly or indirectly in connection with the transactions contemplated herein.
Each party hereto further agrees to indemnify each other party for any claims,
losses or expenses incurred by such other party as a result of the
representation in this Section 11.12 being untrue.

 

11.13 Construction. Each party acknowledges that its legal counsel participated
in the preparation of this Agreement and the Related Agreements and, therefore,
stipulates that the rule of construction that ambiguities are to be resolved
against the drafting party shall not be applied in the interpretation of this
Agreement to favor any party against the other.

 

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES PURCHASE
AGREEMENT as of the date set forth in the first paragraph hereof.

 

COMPANY:

 

PURCHASER:

DYNAMIC HEALTH PRODUCTS, INC.

 

LAURUS MASTER FUND, LTD.

By:

 

/s/ Mandeep K. Taneja

--------------------------------------------------------------------------------

 

By:

 

/s/ David Grin

--------------------------------------------------------------------------------

Name:

 

Mandeep K. Taneja

 

 

Name:

 

David Grin

--------------------------------------------------------------------------------

Title:

 

CEO

 

 

Title:

 

Partner

--------------------------------------------------------------------------------

 

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