Exhibit 10.1

 

GLOBAL SETTLEMENT AGREEMENT AND RELEASE

 

This Global Settlement Agreement and Release (the “Agreement”) is entered into,
by and among, Otto Bock Healthcare LP, a Minnesota limited partnership (“OB”),
on the one hand, and Andover Medical Inc., a Delaware corporation (“Andover”),
Edwin A. Reilly, a resident of Massachusetts, Francis P. Magliochetti, Jr., a
resident of Massachusetts and Patricia Magliochetti, a resident of Massachusetts
(jointly referred to herein as the “Magliochettis”) (collectively, the “Andover
Respondents”), on the other hand, on the last date acknowledged below.

 

W I T N E S S E T H:

 

WHEREAS, on January 6, 2005, OB and the Magliochettis entered into an Asset
Purchase Agreement (the “APA”) by which the Magliochettis sold the assets of
OrthoRehab, Inc., a Delaware corporation (“ORI”), and OrthoMotion, Inc., an
Ontarian corporation (“OMI”), to OB;

 

WHEREAS, the APA and exhibits thereto contained: certain non-competition
agreements involving the Magliochettis and their affiliates (the
“Non-Competition Agreements”);  a Contingency Reserve; and certain
indemnifications provisions;

 

WHEREAS, various disputes arose between OB and the Magliochettis as to the
Contingency Reserve, the Non-Competition Agreements and the indemnifications;

 

WHEREAS, various disputes arose between OB and Andover and Edwin A. Reilly as to
the Non-Competition Agreements;

 

WHEREAS, in or about 2006, OB commenced an arbitration (No. 11-489-Y-1207-06,
herein referred to as “the Arbitration”), against Francis Magliochetti and
Patricia Magliochetti

 

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before the American Arbitration Association; including in pleading dated
October 12, 2006  (attached hereto as Exhibit A);

 

WHEREAS, on or about February 27, 2007, OB made various claims against the
Andover Respondents relating to the Non-Competition Agreements;

 

WHEREAS, OB and the Andover Respondents and all of their respective affiliates
(collectively, the “Parties”) desire to settle and resolve all of their
controversies and disputes; and

 

WHEREAS, the Parties intend that the full terms and conditions of the compromise
and global settlement be set forth in this Agreement.

 

NOW, THEREFORE, in consideration of the amounts to be paid hereunder and mutual
promises and covenants herein set forth, and for other good and valuable
consideration, the Parties agree as follows:

 

1.             Cash Consideration.  Andover shall, upon the execution of this
Agreement signed by all parties hereto, pay the total sum of Five Hundred
Thousand and 00/100 Dollars ($500,000.00) (the “Cash Consideration”), by
certified check or wire transfer payable to Otto Bock Healthcare, LP, which OB
accepts in accordance with the terms and conditions set forth herein and
together with the other consideration (collectively, the “Consideration) set
forth herein, in full and final settlement, release and discharge of all claims
asserted against the Andover Respondents, their parents, subsidiaries, officers,
directors, shareholders, employees, heirs, successors and assigns, of all such
entities and individuals, as applicable (collectively, the “Andover
Respondents”), as set forth in the Releases provided in Section 5 herein.

 

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2.             Stock Consideration.

 

(i)            Andover, shall, promptly upon execution of this Agreement, signed
by all parties hereto, cause to be delivered to OB, or its assigns, shares of
Common Stock of Andover Medical, Inc. (the “Shares”) with a Fair Market Value of
One Million Five Hundred Thousand ($1,500,000) Dollars.  The Shares are being
issued in satisfaction of the Stock Consideration of One Million ($1,000,000)
Dollars, as set forth in subsection (iii) below.  The Shares will be subject to
the restrictions set forth in this Agreement and under federal and state
securities laws.  “Fair Market Value” for purposes of this Agreement shall mean
(i) if the Common Stock is listed or admitted to trade on a national securities
exchange, the average closing price of the Common Stock on the Composite Tape,
as published in The Wall Street Journal, of the principal national securities
exchange on which the Common Stock is so listed or admitted to trade for the ten
(10) consecutive days preceding the execution of this Agreement; (ii) if the
Common Stock is not listed or admitted to trade on a national securities
exchange, the mean between the closing bid and asked price for the Common Stock
for such 10 trading days, as furnished by the Over-The-Counter Bulletin Board
(the “OTCBB”) maintained by FINRA; (iii) if the Common Stock is not listed or
admitted to trade on a national securities exchange and closing bid and asked
prices are not furnished by the OTCBB, the mean between the closing bid and
asked price for the Common Stock for such 10 trading days, as furnished by the
Pink Sheets, LLC (“Pink Sheets”) or similar organization.

 

(ii)           Andover hereby represents and warrants that the Shares upon
issuance:

 

(A)          will be, free and clear of any security interests, liens, claims or
other encumbrances (except as provided in this Agreement), subject to
restrictions upon transfer

 

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under the Securities Act of 1933, as amended (the “1933 Act”) and any applicable
state securities laws;

 

(B)           will be, duly and validly authorized and on the date of issuance
will be duly and validly issued, fully paid and nonassessable (and if registered
pursuant to the 1933 Act, and resold pursuant to an effective registration
statement, will be free trading and unrestricted, provided that OB, or its
assigns, complies with the prospectus delivery requirements of the 1933 Act and
any state securities laws and is not deemed to be an “affiliate” of Andover, as
such term is defined in the 1933 Act);

 

(C)           will not have been issued or sold in violation of any preemptive
or other similar rights of the holders of any securities of Andover; and

 

(D)          will not subject the holders thereof to personal liability by
reason of being such holders.

 

(iii)  Pursuant to this Agreement, OB, or its assigns, may sell in the open
market at prevailing market prices.  Shares for aggregate proceeds of One
Million Dollars ($1,000,000) (the “Stock Consideration”). Notwithstanding the
fact that $1,500,000 of Andover Common Stock is being issued in the name of OB,
or its assigns, such parties shall only be entitled to Stock Consideration of
$1,000,000.  If and when OB, and/or its assigns, has received $1,000,000 in net
proceeds from the sale of the Shares, any and all remaining Shares held by OB,
or its assigns, shall be immediately returned to Andover and OB shall have no
rights or claims to any of such Shares.  In the event that the OB, or its
assigns, receives less than $1,000,000 in net proceeds from the sale of the
Shares, the Andover Respondents shall have no obligation to pay any additional
consideration to the OB Claimants.  The Shares in excess of $1,000,000 Fair

 

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Market Value on the date of issuance were issued solely to cover any decrease in
Fair Market Value of the Shares until they are sold.

 

(iv)          Notwithstanding the foregoing, Andover may, on ten (10) business
days prior notice, redeem from OB, or its assigns, all, but not less than all,
of the Shares which have not been sold by such parties at such time for an
aggregate redemption price equal to $750,000 minus the net proceeds received by
OB, or its assigns, from the sale of Shares prior to the date of such
redemption.   Upon OB’s receipt of such notice from Andover, OB may not dispose
of any of such Shares other than to Andover under such redemption.

 

(v)           Subject to compliance with all applicable securities or “Blue Sky”
laws, OB, or its assigns, may enter into lawful hedging transactions involving
Andover Common Stock, but may not engage in any uncovered short sales thereof.

 

(vi) Andover shall prepare and file with the Securities and Exchange Commission
(the “SEC”) a registration statement for the resale of all of the Shares
pursuant to the terms and conditions of the Registration Rights Agreement
attached hereto as Exhibit B.

 

(vii)         Notwithstanding Andover’s registration of the Shares pursuant to
subparagraph (vi) above, the Shares may also be sold commencing 6 months from
the date of issuance pursuant to Rule 144 under the 1933 Act , subject to the
following limitations.  OB and its assigns acting together as a group may not
sell in the aggregate more than 20,000 of the Shares in any one week and more
than 250,000 of the Shares in any three (3) month period on a non-cumulative
basis.

 

3.             Contingency Reserve and Indemnification Payments.

 

(i)            Pursuant to Section 2.1(e) of the APA, Marcum & Kleigman LLP was
selected to determine any dispute concerning the adjustment to the Purchase
Price based on the

 

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difference between the Magliochettis’ valuation of Net Assets and OB’s valuation
of Net Assets under the APA.  A Contingency Reserve of $2,560,543 was
established via a corresponding holdback by OB of such amount from payment of
the purchase price to the Magliochettis.  Under the terms of this Agreement, the
Magliochettis hereby waive any and all rights they may have to any part of the
Contingency Reserve of $2,560,543, which OB shall retain in full.  The
Magliochettis shall be responsible for payments to Marcum & Kleigman of their
half of the fees incurred by Marcum & Kleigman in connection with the
Contingency Reserve, as previously billed to them by Marcum & Kleigman.  With
the exceptions of any claims related to the fees referenced in this paragraph,
Otto Bock shall indemnify and hold harmless the Magliochettis and/or the Andover
Respondents from any and all claims asserted by Marcum & Kleigman relating to
the Contingency Reserve.

 

(ii)           Pursuant to Section 6.3(c) of the APA, OB deposited $1,000,000 of
the Purchase Price into a bank account for the benefit of the Magliochettis in
the name of FPM Holdings, Inc., Bank of America, Andover, MA 01810; Account
No. 9421192478.  As per the terms of the APA, OB’s lien rights terminated on
January 31, 2006.  OB hereby confirms that it has waived any and all rights it
might have had to the funds in the above described bank account.

 

(iii)          With respect to the Purchased Receivables acquired pursuant to
the APA as described in Section 3.1 (gg) therein and as identified in the Net
Asset calculation set forth in Exhibit A of the APA, $1,289,000.00 of said
Purchased Receivables have been deemed uncollectible and the parties in that
case agree that Otto Bock, may, in its sole discretion, book this variance as
goodwill on its financial statements.

 

4.             Indemnification.  Pursuant to the APA, OB was entitled to certain
indemnification payments with regard to representations and warranties under the
APA.  This

 

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Agreement settles all of OB’s claims for such payments that were set forth in
OB’s Demand for Arbitration filed in the Arbitration (“the Arbitration Claims”).
As detailed in Paragraph 5 of this Agreement, and subject to the limitations and
exclusions therein, OB relinquishes and otherwise irrevocably waives any and all
rights to any further indemnification from any of the Andover Respondents under
the APA and all ancillary documents in connection with the Arbitration Claims or
any other claims that were or could have been brought for conduct or actions of
the Andover Respondents. Notwithstanding the preceding two sentences, the
Magliochettis hereby agree to indemnify and hold harmless OB and its agents,
employees, officers, directors, shareholders, administrators, successors and
assigns against any and all losses, claims, damages, expenses or liabilities,
joint or several (which shall, for purposes of this Agreement, include, but not
be limited to, all expenses whatsoever incurred in investigating, preparing or
defending against any litigation, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation and all reasonable
attorneys’ fees) (collectively referred to as “Losses”), to which OB may become
subject, insofar as such Losses arise solely out of or are based upon actions
taken by Revenue Canada or other Canadadian tax authorities (“CTA”) related to
the operations of OrthoMotion, Inc. prior to January 6, 2005.  While the CTA
have not, as of this date, commenced legal proceedings in connection any such
Losses, they have nevertheless communicated a belief that operations of
OrthoMotion, Inc. prior to January 6, 2005 created an unsatisfied tax liability
totaling approximately $200,000 (with costs and interest).  In the event that OB
receives notice of any potential losses from the CTA, OB shall promptly give
such notice to the Magliochettis.  The Magliochettis shall have the right, at
their own expense, to defend against any such claim by CTA and to appeal from
any judgment of liability that may be

 

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entered in any such matter commenced by the CTA.  OB will reasonably cooperate
with the Maglicohettis in order for the Maglicohettis to defend or appeal any
such claim or judgment.

 

5.             Releases.

 

(i)            OB on the one hand and Andover and Edwin Reilly on the other
hand, agree to release and discharge all of the other’s past or present
officers, directors, agents, partners, employees, shareholders, principals,
representatives, assigns, predecessors, attorneys, parent or subsidiary
corporations, and successors and predecessors in interest, from any and all
actions, causes of action, suits, debts, dues, sums of money, accounts,
reckonings, bonds, bills, specialties, covenants, contracts, controversies,
agreements, promises, variances, trespasses, damages, judgments, extents,
executions, claims, and demands whatsoever, in law, admiralty or equity
(collectively, “Claims”), which against the other, the releasing party and its
successors and assigns ever had, now have or hereafter can, shall or may have,
for, upon, or by reason of any matter, cause or thing whatsoever from the
beginning of the world to the day of the date of this Agreement except pursuant
to the terms and conditions of this Agreement.

 

(ii)           OB on the one hand, and the Magliochettis on the other hand,
agree to release and discharge each other (including the Magliochettis
personally) and all of the other’s past or present officers, directors,
employees, agents, partners, employees, shareholders, principals,
representatives, assigns, predecessors, attorneys, parent or subsidiary
corporations, and successors and predecessors in interest from any and all
Claims which OB and/or OB’s successors and assigns ever had, now have or
hereafter can, shall or may have, for, upon, or by reason of any matter, cause
or thing whatsoever from the beginning of the world to the day of the date of
this Agreement , that relate solely to the Non-Competition Agreements (as
defined in Paragraph 7 herein).

 

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(iii)          OB on the one hand and the Magliochettis on the other hand, agree
to release and discharge each other (including the Maglicohettis personally) and
all of the others past or present officers, directors, agents, partners,
employees, shareholders, principals, representatives, assigns, predecessors,
attorneys, parent or subsidiary corporations, and successors and predecessors in
interest from any and all claims under or related to the APA, exclusive of the
Non-Competition Agreements, as described in Subparagraph (ii) above, except
for:   any potential claims under the representations and warranties of the APA
that are not now known by OB, and could not have been reasonably discovered by
OB prior to the date of this Agreement, but only to the extent that any such
claims could be made in the future pursuant to the terms and conditions of
Section 6 of the APA in its entirety, including, without limitation, all
limitations set forth in Section 6 of the APA.  Without limiting the generality
of the foregoing, this Paragraph shall have no effect on any rights or
obligations of any party relating to an Excluded Liability (as defined in the
APA) under the APA.  Specifically, the parties agree that this Paragraph shall
neither create nor extinguish any rights and obligations that might otherwise
exist as asserted by Otto Bock in the ongoing action entitled Lynn Johnson, et
al. v. Saddleback Memorial Medical Center, et al. Case No. 06CC10651, California
Superior Court (Orange County) and such rights and obligations, if any, shall be
controlled by the APA.  The parties to this Paragraph agree that its intent is
to conclude the parties’ current dealings with each other, except as such
dealings are necessary under other parts of this Agreement or relate to the
legal disputes or proceedings referenced in, and not settled or precluded by,
this Agreement.

 

6.             Patent Assignments. Pursuant to the terms and conditions of this
Agreement, Francis Magliochetti hereby agrees to sell, assign and transfer to OB
as per to the terms of the APA his entire right, title and interest in all
patents and all divisional, continuing, substitute,

 

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renewal, reserve and other patent applications and to all original and reissued
patents which have been or shall be issued in the United States and the rest of
the world.  In addition, to the extent that ORI is obligated to execute and file
additional documents in order to complete or perfect assignments of patents and
patent rights to OB, Francis Magliochetti – both individually and in his
capacity to act on behalf of OrthoRehab, Inc. – agrees to execute and file such
additional documents within sixty (60) days of the execution of this Agreement.

 

7.             APA and Non-Competition Agreements.  Upon execution of this
Agreement and payment of the Cash Consideration referred to in paragraph 1, the
Covenant Not to Compete by OrthoRehab and OrthoMotion contained in
Section 4.1(k) of the APA, the Non-Competition Agreement of Francis P.
Magliochetti, Jr. dated January 6, 2005, and Non-Competition Agreement of
Patricia Magliochetti dated January 6, 2005, and any and all other restrictive
covenants in writing or under common law by and between any of the Andover
Respondents and OB, its parents, subsidiaries, officers, directors,
shareholders, partners, employees, heirs, successors and assigns shall be null
and void (collectively, the “Non-Competition Agreements”).

 

8.             Discontinuance.  By executing this Agreement, the parties
authorize and instruct their respective attorneys to file a Stipulation of
Discontinuance with Prejudice of the Arbitration, with each party to bear its
own costs and attorneys’ fees.

 

9.             Representation of Ownership and Authority.  OB warrants and
represents that it is the sole owner of the claims being released herein, and
has full authority to release claims and shall indemnify and hold harmless the
Andover Respondents for any breach of this representation and warranty.  Each of
the parties to this Agreement hereby represents and warrants that (s)he has the
authority to sign on behalf of and bind all parents, subsidiaries,

 

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predecessors, affiliates, shareholders, officers, directors, partners, owners,
insurers, employees, agents, representatives, and attorneys to the terms of this
Agreement.

 

10.          No Admission.  The parties to this Agreement expressly recognize
that any payments or agreements made herein are not considered admission of any
liability or responsibility for, or of the correctness of, any of the claims
which were or may have been asserted in the Arbitration and otherwise, but are
made solely for purposes of avoiding the costs and/or risks of further
arbitration and threatened litigation.

 

11.          Careful Review of Agreement and Understanding Thereof.  The parties
each represent that they have CAREFULLY read this Agreement, and understand its
terms and conditions without reservation.  The parties each acknowledge that
they have had ample opportunity to consult with their respective legal counsel
and was not relied on any representations or statements of any other party or
their counsel with respect to the subject matter of this Agreement.  The parties
further understand that this is a FULL, COMPLETE, AND FINAL release and OB is
forever relinquishing and releasing all claims it has or may have had against
the Andover Respondents except as set forth herein, and the Andover Respondents
are forever relinquishing an releasing any and all claims they have or may have
against OB.  The Parties each acknowledge that they understand the terms and
provisions of this Agreement, and that this Agreement contains the entire
agreement between them and supersedes any and all prior agreements,
arrangements, or understandings between them relating to the subject matter.

 

12.          Severability.  If any portion or portions of this Agreement may be
held by a court of competent jurisdiction to conflict with any federal, state or
local law, and as a result such portion or portions are declared to be invalid
and of no force or effect in such jurisdiction, all

 

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remaining provisions of this Agreement shall otherwise remain in full force and
effect and be construed as if such invalid portion or portions has not been
included herein.

 

13.          Confidentiality and Non-Disparagement.  The parties agree that the
settlement of their dispute is a private and confidential matter among them, and
therefore they shall not disclose to anyone except for their attorneys and
accountants the terms of this settlement, or as otherwise required by the
rules and regulations of the SEC or any other governmental body.   Further,
neither party shall disparage or otherwise speak negatively or derogatively
about the other to any third party.

 

14.          Notices.  All notices, requests, instructions, consents, and other
communications relating to this Agreement (collectively, “notices”) shall be
sent to the parties at the addresses set forth below.  All notices shall be in
writing and shall be deemed received (i) on the same day if delivered in person,
by e-mail, or fax transmission; (ii) on the next day if delivered by overnight
mail; or (iii) on the date indicated on the return receipt, or if there is no
such receipt, on the third calendar day (excluding Sundays) if delivered by
certified or registered mail, postage prepaid, to the party for whom intended at
the address set forth below:

 

(i)

If to Otto Bock Healthcare LP to:

 

 

 

Otto Bock Healthcare, LP

 

Two Carlson Parkway, Suite 100

 

Minneapolis, MN 55447

 

Attention: Rick Schmidt

 

Telecopier: (763) 519-9017

 

with a copy to:

 

Faegre & Benson , LLP

 

2200 Wells Fargo Center

 

90 S. 7th Street

 

Minneapolis MN 55402

 

Attention: John Connelly, Esq.

 

Telecopier: (612) 766-1600

 

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(ii)

If to Andover Medical, Inc. to:

 

 

 

Andover Medical, Inc.

 

510 Turnpike Street, Ste 204

 

N. Andover, MA 01845

 

Attention: Edwin A. Reilly, CEO

 

Telecopier: (978) 557-1004

 

 

(iii)

If to Edwin A. Reilly to:

 

 

 

Andover Medical, Inc.

 

510 Turnpike Street, Ste 204

 

N. Andover, MA 01845

 

Attention: Edwin A. Reilly, CEO

 

Telecopier: (978) 557-1004

 

 

(iv)

If to Andover or Reilly, a copy to:

 

 

 

Phillips Nizer LLP

 

666 Fifth Avenue

 

New York, NY 10103

 

Attention: Elliot H. Lutzker

 

Telecopier: (212) 262-5152

 

 

(v)

If to Francis R. Magliochetti to:

 

 

 

Francis Magliochetti

 

61 Mill Pond

 

North Andover, MA 01845

 

Attention: Francis R. Magliochetti

 

Telecopier: (978) 824-2396

 

 

(vi)

If to Patricia Magliochetti to:

 

 

 

Patricia Magliochetti

 

30 Coachman Lane

 

North Andover, MA 01845

 

Attention: Patricia Magliochetti

 

Telecopier:

 

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15.          Entire Agreement.  This Agreement contains the entire understanding
of the parties with respect to the subject matter hereof and supersedes all
prior agreements and understandings, whether written or oral, between them with
respect to the subject matter hereof.  Each party has executed this Agreement
without reliance upon any promise, representation, or warranty other than those
expressly set forth herein.  Each party acknowledges that (i) it has carefully
read this Agreement; (ii) the meaning and effect of the various terms and
provisions hereof have been fully explained to it by such counsel; (iii) it has
conducted such investigation, review, and analysis as it has deemed necessary to
understand the provisions of this Agreement and the transactions contemplated
hereby; and (iv) the undersigned officers/members of the entities that comprise
the parties hereto have been duly authorized to enter into this Agreement on
behalf of the parties.

 

16.          Governing Law; Venue  This Agreement shall be governed and
construed by the laws of the Commonwealth of Massachusetts without regard to
principles of conflicts of laws.  Any Proceeding brought by either party against
the other concerning the transactions contemplated hereby shall be brought only
in the State courts of Massachusetts or in the federal courts located in the
State of Massachusetts within Essex County.  The parties to this Agreement
hereby irrevocably: (i) accept the in personam jurisdiction of said courts;
(ii) waive trial by jury; (iii) waive any objection to jurisdiction and venue of
any Proceeding instituted hereunder; and (iv) agree they shall not assert any
defense based on lack of jurisdiction or venue or based upon forum non
conveniens.  THE PARTIES EXECUTING THIS AGREEMENT AND THE TRANSACTION DOCUMENTS
ON BEHALF OF THE COMPANY AGREE TO SUBMIT TO THE IN PERSONAM JURISDICTION OF SUCH
COURTS AND HEREBY

 

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IRREVOCABLY WAIVE TRIAL BY JURY FOR ANY PROCEEDINGS CONTEMPLATED BY THIS
PARAGRAPH.

 

17.          Counterparts.  This Agreement may be signed in several
counterparts, but all when taken together shall constitute but a single document
when executed by all parties. This Agreement shall not constitute the agreement
of the parties until such time as it has been executed by all parties.

 

18.          Binding effect.  This Agreement shall be binding upon and shall
inure to the benefit of the parties, their respective heirs, beneficiaries,
personal representatives, successors, and assigns.

 

19.          Amendments.  This Agreement and all documents and instruments
executed in connection herewith or in furtherance hereof may not be amended,
modified or supplemented, except by an instrument in writing signed by all
parties hereto.

 

20.          Further Assurances.  Each party agrees to execute such further and
additional documents, instruments and writing as may be necessary, proper,
required, desirable or convenient for the purpose of fully effectuating the
terms and provisions of this Agreement.

 

21.          Joint Preparation of Agreement.  This Agreement shall not be
construed against the party preparing it, but shall be construed as if it were
prepared jointly by the parties herein, and any uncertainty or ambiguity, or
both, shall not be interpreted against any person or entity.

 

IN WITNESS WHEREOF, the parties and their respective counsel have executed this
Agreement on the dates acknowledged below.

 

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/s/ Francis P. Magliochetti

 

Francis P. Magliochetti

 

Date: December 28, 2007

 

 

/s/ Patricia Magliochetti

 

Patricia Magliochetti

 

Date: December 28, 2007

 

 

[END OF PAGE]

 

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/s/ Edwin A. Reilly

 

Edwin A. Reilly

 

Date: December 28, 2007

 

[END OF PAGE]

 

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ANDOVER MEDICAL, INC.

 

 

 

By:

/s/ James A. Shanahan

 

 

Name: James A. Shanahan

 

Title: Chief Financial Officer

 

 

 

Date: December 28, 2007

 

 

 

[END OF PAGE]

 

 

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OTTO BOCK HEALTHCARE L.P.

 

 

 

 

 

By:

/s/ Elbert P. Harman

 

 

 

Name:

Elbert P. Harman

 

 

Title:

CEO

 

 

 

 

 

 

Date: December 26, 2007

 

 

 

 

 

[END OF PAGE]

 

 

 

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