Document:

Exhibit 10.5

RECORDING REQUESTED BY AND

WHEN RECORDED MAIL TO:

Ralph
G. Santos

Greenberg
Traurig, LLP

2200
Ross Avenue

Suite
5200

Dallas,
Texas 75201

	
  

  
	
  [SPACE ABOVE
  LINE FOR RECORDER’S USE ONLY]

  

 

ASSIGNMENT OF RENTS, LEASES AND RECEIVABLES

THIS ASSIGNMENT OF RENTS,
LEASES AND RECEIVABLES (this “Assignment”) made as of the               
day of September, 2007, by BEHRINGER HARVARD MOCKINGBIRD COMMONS, LLC, a
Delaware limited liability company, having its principal place of business at 15601
Dallas Parkway, Suite 600, Addison, Texas 75001, as assignor (“Borrower”) to BANK OF AMERICA, N.A., a national
banking association, as Administrative Agent (“Administrative Agent”) on
behalf of itself and certain other Lenders (herein so called) having an address
of 901 Main Street, 21st Floor,
Dallas, Texas 75201, as assignee.

INTRODUCTORY PROVISIONS:

The following matters are
true and correct, are a part of this Assignment, and form the basis for this
Assignment:

A.                                   Borrower owns certain real property in
Dallas County, Texas (the “Hotel Tract”) more particularly described on Exhibit A attached hereto and made a
part hereof for all purposes, upon which is situated, a hotel and other
amenities related thereto (collectively, the “Hotel”).  The Hotel Tract and the Hotel are
collectively referred to as the “Property”.

B.                                     Borrower has executed the Note of even date
pursuant to the terms of the Loan Agreement.

C.                                     The Note is secured by the Deed of Trust and
the Loan Documents.

D.                                    Borrower desires to assign the Leases, Rents
and Receivables to the Administrative Agent for the ratable benefit of all
Lenders.

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ARTICLE I

DEFINITIONS

Section 1.1             Definitions.  Capitalized
terms which are not defined in this Assignment shall have the respective
meanings set forth in the Deed of Trust. 
As used in this
Assignment, the following terms shall have the meanings set forth below:

Bankruptcy Code:  The
United States Bankruptcy Code, 11 U.S.C. § 101 et seq.,
as the same may be amended from time to time.

Bankruptcy Claims:  All
of Borrower’s claims and rights to the payment of damages and other claims
arising from any rejection by a lessee of any Lease under the Bankruptcy Code.

Deed of Trust:  The
Deed of Trust, Security Agreement, Fixture Filing and Financing Statement dated
of even date herewith given by Borrower for the benefit of Administrative Agent
covering Borrower’s leasehold estate in the Property, for the purposes of
securing the payments under the Note.

Leases:  Any
and all existing or future lease,
sublease (to the extent of Borrower’s rights thereunder) or other agreement
under the terms of which any person has or acquires any right to occupy or use
the Property, or any part thereof, or interest therein, and all extensions,
renewals, modifications and replacements of each such lease, sublease, or
agreement, whether or not in writing, providing for the use, enjoyment
or occupancy of all or any part of Property in which Borrower is the lessor
thereunder, together with any extension, renewal or replacement of the same,
whether entered into before or after the filing by or against Borrower of any
petition for relief under the Bankruptcy Code.

Lease Guaranties:  All
claims and rights under any and all lease guaranties, letters of credit and any
other credit support (individually, a “Lease Guaranty”, and
collectively, the “Lease Guaranties”) given to Borrower by any guarantor
in connection with any of the Leases (individually, a “Lease Guarantor”,
and collectively, the “Lease Guarantors”).

Lease Rent Notice: 
A notice from
Administrative Agent to each lessee under the Leases (with a copy to Borrower)
that each such lessee under the Leases is directed to pay to Administrative
Agent all Rents thereafter accruing, provided, however, no Lease Rent Notice
shall be sent to hotel guests.

Loan Agreement:  The
Construction Loan Agreement dated of even date herewith, executed by and
between Borrower and Administrative Agent and any other Lender now or hereafter
made a party thereto.

Loan Documents: 
Certain documents (other than this Assignment) now or hereafter executed
by Borrower and/or others and by or in favor of Administrative Agent which by
their terms wholly or partially secure or guarantee the payments under the Note
or are defined as “Loan Documents” in the Deed of Trust.

Note: 
Collectively, whether one or more, each Deed of Trust Note issued by
Borrower and pursuant to the terms of the Loan Agreement in the aggregate
principal amount of up to $42,000,000 (together with all extensions, renewals,
modifications, substitutions and amendments thereof), with interest from the
date thereof at the rates set forth in the Loan

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Agreement, principal and
interest to be payable in accordance with the terms and conditions provided in
the Loan Agreement.

Operating Expenses:  All
costs and expenses related to the ownership, operation, management, repair and
leasing of the Property, including, without limitation, ground lease payments,
costs and expenses associated with the operation of any parking garage,
insurance charges and premiums, Impositions, the costs of prevention of waste,
ordinary repairs, maintenance, environmental audits, property management,
security, normal fees paid to accountants, reasonable marketing and promotional
expenses, reasonable legal expenses, and all costs related to compliance with
applicable Governmental Requirements.

Receivables: All of Borrower’s rights and interests in
and to all payments for goods or property sold or leased or for services
rendered, whether or not yet earned by performance, and not evidenced by an
instrument or chattel paper, in connection with the operation of the Property,
including, without limiting the generality of the foregoing, (i) all accounts,
contract rights, book debts, and notes arising from the operation of the Hotel
or arising from the sale, lease or exchange of goods or other property and/or
the performance of services, (ii) Borrower’s rights to payment from any
consumer credit/charge card organizations or entities which sponsor and
administer such cards as, by way of example but not limitation, the American
Express Card, the Visa Card and the Mastercard, (iii) Borrower’s rights in, to
and under all purchase orders for goods, services or other property, (iv)
Borrower’s rights to any goods, services or other property represented by any
of the foregoing, (v) monies due to or to become due to Borrower under all
contracts for the sale, lease or exchange of goods or other property and/or the
performance of services including the right to payment of any interest or
finance charges in respect thereto (whether or not yet earned by performance on
the part of Borrower), and (vi) all collateral security and guaranties of any
kind given by any person or entity with respect to any of the foregoing.
Receivables shall include those now existing or hereafter created,
substitutions therefor, proceeds (whether cash or non-cash, movable or
immovable, tangible or intangible) received upon the sale, exchange, transfer,
collection or other disposition or substitution thereof and any and all of the
foregoing and proceeds therefrom.

Rents:  All
right, title and interest of Borrower in and to all income, rents, room rates,
issues, profits, revenues, deposits, accounts and other benefits from the
operation of the Hotel, including, without limitation, all revenues and credit
card receipts collected from guest rooms, restaurants, bars, mini-bars, meeting
rooms, banquet rooms and recreational facilities and otherwise, all
receivables, customer obligations, installment payment obligations and other
obligations now existing or hereafter arising or created out of sale, lease,
sublease, license, concession or other grant of the right of the possession,
use or occupancy of all or any portion of the Property, or personality located
thereon, or rendering of services by Borrower or any entity generating such
income for the benefit of Borrower, including, without limitation, any operator
or manager of the hotel or the commercial space located in the Property or
acquired from others including, without limitation, from the rental of any
office space, retail space, commercial space, guest room or other space, halls,
stores or offices located on the Property, including any deposits securing
reservations of such space, exhibit or sales space of every kind, license,
lease, sublease and concession fees and rentals, health club and spa membership
fees, food and beverage wholesale and retail sales, service charges, vending
machine sales and proceeds, if any, from business interruption or other loss of
income insurance relating to the use, enjoyment or

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occupancy of the Property,
whether paid or accruing before or after the filing by or against Borrower of
any petition for relief under Debtor Relief Laws.

“Revenues”: 
Rents and Receivables.

Additional Definitions.  As
used herein, the following terms shall have the following meanings:

(a)           “Hereof”, “hereby”, “hereto”, “hereunder”, “herewith”, and similar
terms mean of, by, to, under and with respect to, this “Assignment or to the
other documents or matters being referenced.

(b)           “Heretofore” means before, “hereafter” means after, and “herewith”
means concurrently with, the date of this “Assignment.

(c)           All pronouns, whether in masculine, feminine or neuter form, shall be
deemed to refer to the object of such pronoun whether same is masculine,
feminine or neuter in gender, as the context may suggest or require.

(d)           All terms used herein, whether or not defined in Section 1.1
hereof, and whether used in singular or plural form, shall be deemed to refer
to the object of such term whether such is singular or plural in nature, as the
context may suggest or require.

Any capitalized term utilized herein has the
meaning as specified in the Deed of Trust given by Borrower, unless such term
is otherwise specifically defined herein.

ARTICLE II

ASSIGNMENT

Section 2.1             Property Assigned.  As additional security for the Secured
Indebtedness, Borrower does absolutely and unconditionally assign Borrower’s
entire right, title and interest in and to the following property, rights,
interests and estates, whether now owned, or hereafter acquired (the “Assignment
Property”):

(a)           Revenues. Any and all Revenues;

(b)           Bankruptcy Claims.  Any
and all Bankruptcy Claims;

(c)           Lease Guaranties. Any and all Lease Guaranties;

(d)           Proceeds.  All proceeds from any sale or
other disposition of the Leases, the Revenues, the Lease Guaranties and the
Bankruptcy Claims;

(e)           Other Rights of Borrower.  All
rights, powers, privileges, options and other benefits of Borrower (i) to make
claim for, receive, collect and apply all Revenues payable or receivable in
connection with the operation of the Hotel (and to apply the same to the
payment of the Secured Indebtedness or the other Obligations), and (ii) as
lessor under the Leases and under the Lease Guaranties, including without
limitation the immediate and continuing right to make claim for, receive,
collect and apply all Rents

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payable
or receivable under the Leases and all sums payable under the Lease Guaranties
or pursuant thereto (and to apply the same to the payment of the Secured Indebtedness
or the other Obligations).

(f)            Entry and Possession.  The
right, at Administrative Agent’s option upon revocation of the license granted
herein, to enter upon the Property in person, by agent or by court-appointed
receiver, to collect the Revenues and enforce the Leases and Contracts.

(g)           Power of Attorney. 
Borrower’s irrevocable power of attorney, coupled with an interest, to
take any and all of the actions set forth in Section 5.1 of this
Assignment and any or all other actions reasonably designated by Administrative
Agent for the proper management and preservation of the Property.  Administrative Agent agrees it will not
exercise such Power of Attorney until after the occurrence of an Event of
Default.

(h)           Other Rights and Agreements.  Any
and all other rights of Borrower in and to the items set forth in subsections (a)
through (g) above, and all amendments, modifications, replacements,
renewals, extensions, supplements, restatements and substitutions thereof.

ARTICLE III

CONSIDERATION

Section 3.1             Consideration.  This Assignment is made in consideration of
that certain loan made by Administrative Agent to Borrower evidenced by the
Note, Loan Agreement and secured by the Deed of Trust and the Loan Documents.

ARTICLE IV

TERMS OF ASSIGNMENT

Section 4.1             Present  Assignment. For Ten Dollars ($10.00) and other good and valuable consideration,
including the Secured Indebtedness evidenced by the Note, the receipt and
sufficiency of which are hereby acknowledged and confessed, Borrower has
absolutely GRANTED, BARGAINED, SOLD, CONVEYED, TRANSFERRED, ASSIGNED AND SET
OVER and by these presents does absolutely and unconditionally GRANT, BARGAIN,
SELL, CONVEY, TRANSFER, ASSIGN AND SET OVER, the Assignment Property unto
Administrative Agent on behalf of itself and the Lenders, in order to provide a
source of future payment of the Secured Indebtedness and the Obligations,
subject only to the Permitted Exceptions applicable thereto and the License
(herein defined), it being the intention of Borrower and Administrative Agent
that this conveyance be presently effective; TO HAVE AND TO HOLD the Assignment
Property unto Administrative Agent on behalf of itself and the Lenders, forever, and Borrower does hereby bind itself, its
successors, and assigns to warrant and forever defend the title to the
Assignment Property unto Administrative Agent against every person whomsoever
lawfully claiming or to claim the same or any part thereof; provided, however,
that if Borrower shall pay or cause to be paid the Secured Indebtedness as and
when same shall become due and payable and shall perform and discharge or cause
to be performed and

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discharged the Obligations
on or before the date same are to be performed and discharged, then this
Assignment shall terminate and be of no further force and effect, and all
rights, titles, and interests conveyed pursuant to this Assignment shall become
vested in Borrower without the necessity of any further act or requirement by
Borrower or Administrative Agent.

Section 4.2             Limited License.   Administrative Agent hereby grants to
Borrower a limited license (the “License”) subject to termination of the
License and the other terms and provisions hereof, to (i) exercise and enjoy
all incidences of the status of a lessor with respect to the Rents, including
without limitation, the right to collect, demand, sue for, attach, levy,
recover, and receive the Rents, and to give proper receipts, releases, and
acquittances therefore, and (ii) collect, demand, sue for, attach, levy,
recover, and receive the Receivables, and to give proper receipts, releases,
and acquittances therefore.  Borrower
hereby agrees to collect and retain all Revenues and apply the Revenues
collected by Borrower first to the payment of the Secured Indebtedness (to the
extent then due and payable) next to payment of Operating Expenses and next to
the performance and discharge of the Obligations (to the extent then due).  Thereafter, Borrower may use the balance of
the Revenues collected in any manner not inconsistent with the Loan Documents.  Neither this Assignment nor the receipt of
Revenues by Administrative Agent shall effect a pro  tanto payment
of the debt evidenced by, or arising under the Secured Indebtedness, and such
Revenues shall be applied as provided in this Section 4.2.  Furthermore, and notwithstanding the
provisions of this Section 4.2, no credit shall be given by
Administrative Agent for any Revenues until the money collected is actually
received by Administrative Agent at its principal office in Dallas, Texas, or
at such other place as Administrative Agent shall designate in writing, and no
such credit shall be given for any Revenues after termination of the License,
after foreclosure or other transfer of the Property (or part thereof from which
Revenues are derived pursuant to the Deed of Trust) to Administrative Agent or
any other third party, except to the extent Administrative Agent actually
applies such Revenues to the Secured Indebtedness.

Section 4.3             Notice to Lessees.
During the continuation of a Default, Administrative Agent may deliver Lease
Rent Notices to any or all lessees of all or any portion of the Property.  Upon receipt from Administrative Agent of a
Lease Rent Notice, each lessee under the Leases is hereby authorized and directed
to pay directly to Administrative Agent all Rents thereafter accruing and the
receipt of Rents by Administrative Agent shall be a release of such lessee to
the extent of all amounts so paid.  The
receipt by a lessee under the Leases of a Lease Rent Notice shall be sufficient
authorization for such lessee to make all future payments of Rents directly to
Administrative Agent and each such lessee shall be entitled to rely on such
Lease Rent Notice and shall have no liability to Borrower for any Rents paid to
Administrative Agent after receipt of such Lease Rent Notice.  Rents so received by Administrative Agent for
any period prior to foreclosure under the Deed of Trust or acceptance of a deed
in lieu of such foreclosure shall be applied by Administrative Agent to the
payment of the following (in such order and priority as Administrative Agent
shall determine): (a) all Operating Expenses; and all expenses incident to
taking and retaining possession of the Property and/or collecting Rent as it
becomes due and payable; and (b) the Secured Indebtedness and/or to the
operation and management of the Property, including the payment of management,
brokerage and attorney’s fees and expenses. 
In no event will the provisions of this Section 4.3  reduce the Secured Indebtedness except to the
extent, if any, that Rents are actually received by Administrative Agent and
applied upon or after said receipt to such Secured Indebtedness in accordance
with the preceding sentence.  Without

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impairing its rights
hereunder, Administrative Agent may, at its option, at any time and from time
to time, release to Borrower, Rents so received by Administrative Agent or any
part thereof.  As between Borrower and
Administrative Agent, and any person claiming through or under Borrower, other
than any lessee under the Leases who has not received a Lease Rent Notice, this
Assignment is intended to be absolute, unconditional and presently effective
(and not an assignment for additional security), and the Lease Rent Notice
hereof is intended solely for the benefit of each such lessee and shall never
inure to the benefit of Borrower or any person claiming through or under
Borrower, other than a lessee who has not received such notice.  It shall never be necessary for
Administrative Agent to institute legal proceedings of any kind whatsoever to
enforce the provisions of the Deed of Trust with respect to Rents or
Receivables.  BORROWER
SHALL HAVE NO RIGHT OR CLAIM AGAINST ANY LESSEE FOR THE PAYMENT OF ANY RENTS TO
ADMINISTRATIVE AGENT HEREUNDER, AND BORROWER HEREBY INDEMNIFIES AND AGREES TO
HOLD FREE AND HARMLESS EACH LESSEE FROM AND AGAINST ALL LIABILITY, LOSS, COST,
DAMAGE OR EXPENSE SUFFERED OR INCURRED BY SUCH LESSEE BY REASON OF SUCH LESSEE’S
COMPLIANCE WITH ANY DEMAND FOR PAYMENT OF RENTS MADE BY ADMINISTRATIVE AGENT
CONTEMPLATED BY THIS DEED OF TRUST.

Section 4.4             Termination of Assignment.  Upon payment in full of the
Secured Indebtedness and the delivery and recording of a reconveyance, release,
satisfaction or discharge of the Deed of Trust duly executed by Administrative
Agent, this Assignment shall become null and void and shall be of no further
force and effect.

ARTICLE V

REMEDIES

Section 5.1             REMEDIES OF ADMINISTRATIVE AGENT.

(a)           Subject to the terms of the Collateral Assignment and the Hotel
Operating Agreement, upon or at any time after the occurrence and during the
continuation of an Event of Default, Borrower hereby agrees that Administrative
Agent shall have the right (in its sole discretion), to terminate the limited
license granted to Borrower in Section 4.2 hereof, and thereafter
direct the lessees under the Leases pursuant to a Lease Rent Notice to pay
directly to Administrative Agent the Rents due and to become due under the
Leases and attorn in respect of all other obligations thereunder directly to
Administrative Agent, or Trustee on Administrative Agent’s behalf, without any
obligation on the part of Trustee or such lessee to determine whether an Event
of Default does in fact exist or has in fact occurred.  The Lease Rent Notice shall to the fullest
extent permitted by applicable law be sufficient action by Administrative Agent
to entitle Administrative Agent to immediate and direct payment of the Rents
(including delivery to Administrative Agent of Rents collected for the period
in which the Lease Rent Notice is given and for any subsequent period), for
application as provided in this Assignment. 
All Revenues collected by Administrative Agent, or Trustee acting on
Administrative Agent’s behalf, shall be applied as provided for in Section
4.3 hereof or the Deed of Trust given by Borrower; provided, however, that
if the costs, expenses, and attorneys’ fees shall exceed the amount of Revenues
collected, the excess shall be added to the Secured Indebtedness,

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shall
bear interest at the Default Rate, and shall be immediately due and
payable.  The entering upon and taking
possession of the Property, the collection of Revenues, and the application
thereof as aforesaid shall not cure or waive any Event of Default or notice of
default, if any, hereunder nor invalidate any act done pursuant to such notice,
except to the extent any such default is fully cured.  Failure or discontinuance by Administrative
Agent, or Trustee on Administrative Agent’s behalf, at any time or from time to
time, to collect said Revenues shall not in any manner impair the subsequent
enforcement by Administrative Agent, or Trustee on Administrative Agent’s
behalf, of the right, power and authority herein conferred upon Administrative
Agent.  Nothing contained herein, nor the
exercise of any right, power, or authority herein granted to Administrative
Agent, or Trustee on Administrative Agent’s behalf, shall be, or shall be
construed to be, an affirmation by it of any tenancy, lease, or option, nor an
assumption of liability under, nor the subordination of, the lien or charge of
the Deed of Trust, to any such tenancy, lease, or option, nor an election of
judicial relief, if any such relief is requested or obtained as to Leases or
Revenues, with respect to the Property or any collateral given by Borrower to Administrative
Agent.

(b)           In addition, upon the occurrence and during the continuation of an
Event of Default, Administrative Agent, at its option, may (i) complete any
construction on the Property in such manner and form as Administrative Agent
deems advisable; (ii) exercise all rights and powers of Borrower, including,
without limitation, the right to enter into, negotiate, execute, cancel,
enforce or modify Leases, obtain and evict tenants, and demand, sue for,
collect and receive all Revenues from the Property and all sums payable under
the Assigned Property; (iii) either require Borrower to pay monthly in advance
to Administrative Agent, or to any receiver appointed to collect the Revenues,
the fair and reasonable value for the use and occupancy of such part of the
Property as may be in possession of Borrower, or require Borrower to vacate and
surrender possession of the Property to Administrative Agent or to such
receiver and, in default thereof, Borrower may be evicted by summary
proceedings or otherwise.

Section 5.2             Other Remedies.  Nothing contained in this Assignment and no
act done or omitted by Administrative Agent pursuant to the power and rights
granted to Administrative Agent hereunder shall be deemed to be a waiver by
Administrative Agent of its rights and remedies under the Note, the Deed of
Trust, or the Loan Documents and this Assignment is made and accepted without
prejudice to any of the rights and remedies possessed by Administrative Agent
under the terms thereof.  The right of
Administrative Agent to collect the Secured Indebtedness and to enforce any
other security therefor held by it may be exercised by Administrative Agent
either prior to, simultaneously with, or subsequent to any action taken by it
hereunder.  Borrower hereby absolutely, unconditionally
and irrevocably waives any and all rights to assert any setoff, counterclaim or
crossclaim of any nature whatsoever with respect to the obligations of Borrower
under this Assignment, the Note, the Deed of Trust, the Loan Documents or otherwise
with respect to the loan secured hereby in any action or proceeding brought by
Administrative Agent to collect same, or any portion thereof, or to enforce and
realize upon the lien and security interest created by this Assignment, the
Note, the Deed of Trust, or any of the Loan Documents (provided, however, that
the foregoing shall not be deemed a waiver of Borrower’s right to assert any
compulsory counterclaim if such counterclaim is compelled under local law or
rule of procedure, nor shall the foregoing be deemed a waiver of

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Borrower’s right to assert
any claim which would constitute a defense, setoff, counterclaim or crossclaim
of any nature whatsoever against Administrative Agent in any separate action or
proceeding).

Section 5.3             Other Security.  Administrative Agent may take or release
other security for the payment of the Secured Indebtedness, may release any
party primarily or secondarily liable therefor and may apply any other security
held by it to the reduction or satisfaction of the Secured Indebtedness without
prejudice to any of its rights under this Assignment.

Section 5.4             Non-Waiver.  The exercise by Administrative Agent of the
right granted it in Section 5.1 of this Assignment and the
collection of the Revenues and other sums payable in relation to the Assignment
Property and the application thereof as herein provided shall not be considered
a waiver of any default by Borrower under the Note, the Deed of Trust, the
Leases, this Assignment or the Loan Documents. 
The failure of Administrative Agent to insist upon strict performance of
any term hereof shall not be deemed to be a waiver of any term of this
Assignment.  Borrower shall not be
relieved of Borrower’s obligations hereunder by reason of (a) the failure of
Administrative Agent to comply with any request of Borrower or any other party
to take any action to enforce any of the provisions hereof or of either or both
of the Deed of Trust, the Note or the Loan Documents, (b) the release
regardless of consideration, of the whole or any part of the Property, or (c)
any agreement or stipulation by Administrative Agent extending the time of
payment or otherwise modifying or supplementing the terms of this Assignment,
the Note, the Deed of Trust or the Loan Documents.  Administrative Agent may resort for the
payment of the Secured Indebtedness to any other security held by
Administrative Agent in such order and manner as Administrative Agent, in its
discretion, may elect.  Administrative
Agent may take any action to recover the Secured Indebtedness, or any portion
thereof, or to enforce any covenant hereof without prejudice to the right of
Administrative Agent thereafter to enforce its rights under this
Assignment.  The rights of Administrative
Agent under this Assignment shall be separate, distinct and cumulative and none
shall be given effect to the exclusion of the others.  No act of Administrative Agent shall be
construed as an election to proceed under any one provision herein to the
exclusion of any other provision.

ARTICLE VI

FURTHER ASSURANCES/NO LIABILITY

Section 6.1             Further Assurances.  Borrower will, at the cost of Borrower, and
without expense to Administrative Agent, do, execute, acknowledge and deliver
all and every such further acts, conveyances, assignments, notices of
assignments, transfers and assurances as Administrative Agent shall, from time
to time, reasonably require for the better assuring, conveying, assigning,
transferring and confirming unto Administrative Agent the property and rights
hereby assigned or intended now or hereafter so to be, or which Borrower may be
or may hereafter become bound to convey or assign to Administrative Agent, or
for carrying out the intention or facilitating the performance of the terms of
this Assignment or for filing, registering or recording this Assignment and, on
demand, will execute and deliver and hereby authorizes Administrative Agent to
execute in the name of Borrower to the extent Administrative Agent may lawfully
do so, one or more financing statements, chattel mortgages or comparable security
instruments, to evidence more effectively the lien and security interest hereof
in and upon the Leases.

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Section 6.2             No Liability of Administrative Agent or Lenders.  This
Assignment shall not be construed to bind Administrative Agent or any Lender to
the performance of any of the covenants, conditions or provisions contained in
any Lease or Lease Guaranty or otherwise impose any obligation upon
Administrative Agent.  Neither
Administrative Agent nor any Lender shall not be liable for any loss sustained
by Borrower resulting from Administrative Agent’s failure to let the Property
after an Event of Default or from any other act or omission of Administrative
Agent in managing the Property after an Event of Default unless such loss is
caused by the willful misconduct and bad faith of Administrative Agent.  Administrative Agent shall not be obligated
to perform or discharge any obligation, duty or liability under the Leases or
any Lease Guaranties or under or by reason of this Assignment and BORROWER SHALL, AND HEREBY AGREES, TO INDEMNIFY
ADMINISTRATIVE AGENT FOR, AND TO HOLD ADMINISTRATIVE AGENT HARMLESS FROM, ANY
AND ALL LIABILITY, LOSS OR DAMAGE WHICH MAY OR MIGHT BE INCURRED UNDER THE
ASSIGNMENT PROPERTY OR UNDER OR BY REASON OF THIS ASSIGNMENT AND FROM ANY AND
ALL CLAIMS AND DEMANDS WHATSOEVER, INCLUDING THE DEFENSE OF ANY SUCH CLAIMS OR
DEMANDS WHICH MAY BE ASSERTED AGAINST ADMINISTRATIVE AGENT BY REASON OF ANY
ALLEGED OBLIGATIONS AND UNDERTAKINGS ON ITS PART TO PERFORM OR DISCHARGE ANY OF
THE TERMS, COVENANTS OR AGREEMENTS CONTAINED IN THE LEASES OR ANY LEASE
GUARANTIES, EXCEPT FOR ADMINISTRATIVE AGENT’S WILLFUL MISCONDUCT OR GROSS
NEGLIGENCE OR ANY LIABILITY THAT IS ATTRIBUTABLE TO ANY EVENT THAT FIRST OCCURS
AFTER FORECLOSURE OR TRANSFER OF THE PROPERTY BY DEED IN LIEU THEREOF.  Should Administrative Agent incur any such
liability, the amount thereof, including costs, expenses and reasonable
attorneys’ fees, shall be secured by this Assignment and by the Deed of Trust
and the Loan Documents and Borrower shall reimburse Administrative Agent
therefor immediately upon written demand and upon the failure of Borrower so to
do Administrative Agent may, at its option, declare all sums secured by this
Assignment and by the Deed of Trust and the Loan Documents immediately due and
payable.  This Assignment shall not
operate to place any obligation or liability for the control, care, management
or repair of the Property upon Administrative Agent, nor for the carrying out
of any of the terms and conditions of the Leases or any Lease Guaranties; nor
shall it operate to make Administrative Agent responsible or liable for any
waste committed on the Property by the tenants, occupants or any other parties,
or for any dangerous or defective condition of the Property, including without
limitation the presence of any Hazardous Substances (as defined in the
Environmental Indemnity Agreement), or for any negligence in the management,
upkeep, repair or control of the Property resulting in loss or injury or death
to any tenant, licensee, employee or stranger, except for Administrative Agent’s
willful misconduct or gross negligence or any liability that is attributable to
any event that first occurs after foreclosure or transfer of the Property by
deed in lieu foreclosure.

Section 6.3             No Mortgagee in Possession.  Nothing herein contained shall
be construed as constituting Administrative Agent a “mortgagee in possession”
in the absence of the taking of actual possession of the Property by
Administrative Agent.  In the exercise of
the powers herein granted Administrative Agent, no liability, except for
Administrative Agent’s willful misconduct or gross negligence or any liability
arising out of acts or omissions of Administrative Agent after foreclosure or
transfer of the Property by deed in lieu thereof, shall be

 10
 

asserted or enforced against
Administrative Agent, all such liability being expressly waived and released by
Borrower.

ARTICLE VII

APPLICABLE LAW

Section 7.1             Applicable
Law.  THIS ASSIGNMENT, AND
ITS VALIDITY, ENFORCEMENT AND INTERPRETATION, SHALL BE GOVERNED BY AND
CONSTRUED, INTERPRETED AND ENFORCED IN ACCORDANCE WITH AND PURSUANT TO THE LAWS
OF THE STATE OF TEXAS (WITHOUT REGARD TO ANY CONFLICT OF LAWS PRINCIPLES) AND
APPLICABLE UNITED STATES FEDERAL LAW.

Section 7.2             Provisions Subject to Applicable Law.  All
rights, powers and remedies provided in this Assignment may be exercised only
to the extent that the exercise thereof does not violate any applicable
provisions of law and are intended to be limited to the extent necessary so
that they will not render this Assignment invalid, unenforceable or not
entitled to be recorded, registered or filed under the provisions of any
applicable laws.

ARTICLE VIII

MISCELLANEOUS PROVISIONS

Section 8.1             Conflict of Terms.  In case of any conflict between the terms of
this Assignment and the terms of the Deed of Trust, the terms of the Deed of
Trust shall prevail.

Section 8.2             Authority.  Borrower represents and warrants that it has
full power and authority to execute and deliver this Assignment and the
execution and delivery of this Assignment has been duly authorized and does not
conflict with or constitute a default under any law, judicial order or other
agreement affecting Borrower or the Property.

Section 8.3             Duplicate Originals; Counterparts.  This Assignment may be
executed in any number of duplicate originals and each such duplicate original
shall be deemed to be an original.  This
Assignment may be executed in several counterparts, each of which counterparts
shall be deemed an original instrument and all of which together shall
constitute a single assignment.  The
failure of any party hereto to execute this Assignment, or any counterpart
hereof, shall not relieve the other signatories from their obligations
hereunder.

Section 8.4             Notices.  All notices required or permitted hereunder
shall be given as provided in the Deed of Trust.

Section 8.5             Forum;
Waiver of Jury Trial.  All
Secured Indebtedness which may be owing hereunder at any time by Grantor shall
be payable at the place designated in the Loan Agreement (or if no such
designation is made, at the address of Administrative Agent indicated at the
end of this Assignment).  Grantor hereby
irrevocably submits generally and unconditionally for itself and in respect of
its property to the non-exclusive jurisdiction of any State court, or any
United States federal court, sitting in Dallas, Texas, and to the non-exclusive
jurisdiction of any State court or any United States federal court sitting in
the state in which any of the Property is located, over any suit, action or
proceeding arising out of or relating to this

 11
 

Assignment or the Secured Indebtedness.  Grantor hereby irrevocably waives, to the
fullest extent permitted by law, any objection that Grantor may now or
hereafter have to the laying of venue in any such court and any claim that any
such court is an inconvenient forum. 
Grantor hereby agrees and consents that, in addition to any methods of
service of process provided for under applicable law, all service of process in
any such suit, action or proceeding in any State court in which the Property is
located, or any United States federal court, sitting in the State in which the
Secured Indebtedness is payable may be made by certified or registered mail,
return receipt requested, directed to Grantor at its address stated at the end
of this Assignment, or at a subsequent address of Grantor of which
Administrative Agent received actual notice from Grantor in accordance with
this Assignment, and service so made shall be complete five (5) days after the
same shall have been so mailed.  Nothing
herein shall affect the right of Administrative Agent to serve process in any
manner permitted by law or limit the right of Administrative Agent to bring
proceedings against Grantor in any other court or jurisdiction.  TO THE FULLEST EXTENT PERMITTED BY LAW,
GRANTOR WAIVES THE RIGHT TO TRIAL BY JURY IN CONNECTION WITH ANY ACTION, SUIT
OR OTHER PROCEEDING ARISING OUT OF OR RELATING TO THIS ASSIGNMENT OR ANY OTHER
LOAN DOCUMENT.

Section 8.6             Liability.  This Assignment shall be binding upon and
inure to the benefit of Borrower and Administrative Agent and their respective
successors and assigns forever.

Section 8.7             Headings, Etc.  The headings and captions of various
paragraphs of this Assignment are for convenience of reference only and are not
to be construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.

Section 8.8             Discretion of Administrative Agent. 
Wherever pursuant to this Assignment (a) Administrative Agent
exercises any right given to it to approve or disapprove, (b) any arrangement
or term is to be satisfactory to Administrative Agent, or (c) any other
decision or determination is to be made by Administrative Agent, the decision
of Administrative Agent to approve or disapprove, all decisions that
arrangements or terms are satisfactory or not satisfactory and all other
decisions and determinations made by Administrative Agent, shall be in
Administrative Agent’s sole discretion, using good faith business judgment, except
as may be otherwise expressly and specifically provided herein.

Section 8.9             Costs and Expenses of Borrower.  Wherever pursuant to this
Assignment it is provided that Borrower pay any costs and expenses, such costs
and expenses shall include, but not be limited to, legal fees and disbursements
of Administrative Agent, whether with respect to retained firms, the
reimbursement of the expenses for in-house staff or otherwise.

Section 8.10           Entire Agreement; Amendment.  THIS ASSIGNMENT, THE DEED OF
TRUST AND THE LOAN DOCUMENTS EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE
PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS,
REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE
SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR
DISCUSSIONS OF THE PARTIES HERETO.  THERE
ARE NO ORAL

 12
 

AGREEMENTS AMONG THE PARTIES
HERETO.  THE PROVISIONS HEREOF AND THE
OTHER LOAN DOCUMENTS MAY BE AMENDED OR WAIVED ONLY BY AN INSTRUMENT IN WRITING
SIGNED BY BORROWER AND ADMINISTRATIVE AGENT.

This Assignment, together
with the covenants and warranties therein contained, shall inure to the benefit
of Administrative Agent and any subsequent holder of the Deed of Trust and
shall be binding upon Borrower, its heirs, executors, administrators,
successors and assigns and any subsequent owner of the Property.

(Remainder of Page Intentionally Left Blank)

 13

IN WITNESS WHEREOF, Borrower
has executed this instrument as of the day and year first above written.

	
  

  	
  OWNER:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  BEHRINGER HARVARD MOCKINGBIRD

  	
   

  	
   

  
	
   

  	
  COMMONS, LLC, a Delaware limited liability company

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  BEHRINGER HARVARD MOCKINGBIRD

  	
   

  	
   

  
	
   

  	
   

  	
  COMMONS GP, LLC,

  	
   

  	
   

  
	
   

  	
   

  	
  a Texas limited liability company,

  	
   

  	
   

  
	
   

  	
   

  	
  its Manager

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Gerald
  J. Reihsen, III

  	
   

  
	
   

  	
   

  	
   

  	
  Executive
  Vice President – Corporate

  	
   

  
	
   

  	
   

  	
   

  	
  Development
  & Legal and Secretary

  	
   

  
						

 

	
  STATE OF TEXAS

  	
   

  	
  §

  
	
   

  	
   

  	
  §

  
	
  COUNTY OF

  	
   

  	
  §

  

 

This instrument was acknowledged before me on the day of       
September, 2007, by Gerald J. Reihsen, III, Executive Vice President-Corporate
Development & Legal and Secretary of Behringer Harvard Mockingbird Commons
GP, LLC, a Texas limited liability company, on behalf of said limited liability
company, in its capacity as the General Partner of Behringer Harvard
Mockingbird Commons, LLC, a Delaware limited liability company, on behalf of
said limited liability company.

[S E A L]

	
  Notary Public, State of Texas

  	
   

  	
   

  
	
  My Commission Expires:

  	
   

  	
   

  
	
  Printed Name of Notary Public

  	
   

  	
   

  
					

 

 

Signature Page

EXHIBIT A

Legal Description of Land

BEING:

(i)  certain condominium
units of M CENTRAL MASTER CONDOMINIUM, as described in that certain MASTER
CONDOMINIUM DECLARATION FOR M CENTRAL MASTER CONDOMINIUM, filed September 16,
2005, recorded in Volume 2005182, Page 00111, Condominium Records of Dallas
County, Texas (the “Master Condominium Declaration”), and being the following
Units: the Hotel Unit, the Retail Unit, the Hotel Room Units and certain
Sub-Units described in (ii) below, and which are more particularly described in
the Map (as defined in the Master Condominium Declaration), together with all
General Common Elements and Limited Common Elements (as defined in the Master
Condominium Declaration) appurtenant thereto and all other rights, title and
interest appurtenant thereto under the Master Condominium Declaration,

together with

(ii)  certain
condominium units of M CENTRAL RESIDENCES, A CONDOMINIUM, as described in that
certain RESIDENTIAL CONDOMINIUM DECLARATION FOR M CENTRAL RESIDENCES, A
CONDOMINIUM (the “Residential Condominium Declaration”), filed September 16,
2005, recorded in Volume 2005182, Page 00204, Condominium Records of Dallas
County, Texas, which is a Sub-Unit Declaration and creates a Sub-Unit
Condominium, and being the following Residences designated in Exhibit C to the
Residential Condominium Declaration: Loft 201, Loft 205, Loft 304 and the
Penthouse in Hotel Tower, and which are more particularly described in the
Residential Map (as defined in the Residential Condominium Declaration), together
with all Residential Common Elements (as defined in the Residential Condominium
Declaration) appurtenant thereto and all other rights, title and interest
appurtenant thereto under the Residential Condominium Declaration.

 1Exhibit 4.1

SERIES B PREFERRED

SUBSCRIPTION AGREEMENT

THIS SUBSCRIPTION AGREEMENT
(this “Agreement”), dated as of August __, 2007, by and between Andover
Medical, Inc., a Delaware corporation (the “Company”), and each subscriber
identified on the signature page hereto (the “Subscriber”).

WHEREAS, the
Company and the Subscriber are executing and delivering this Agreement in
reliance upon an exemption from securities registration afforded by the
provisions of Section 4(2), Section 4(6) and/or Regulation D (“Regulation D”)
as promulgated by the United States Securities and Exchange Commission (the “SEC”)
under the Securities Act of 1933, as amended (the “1933 Act,” collectively the “Offering
Exemption”); and

WHEREAS, the
parties desire that, upon the terms and subject to the conditions contained
herein, the Company shall issue and sell (the “Series B Offering”) to the
Subscriber, at $1,000 per unit (the “Unit Purchase Price”), Units (defined
below) of its securities.  Each “Unit”
will consist of (i) one share of Series B Convertible Preferred Stock of the
Company (“Share,” or “Series B Preferred Stock”), convertible at the holder’s
option into 2,857 shares of common stock, $.001 par value (“Common Stock”) at
$0.35 per share (the “Conversion Price”), (ii) one Class C Common Stock
Purchase Warrant to purchase 2,857 shares of Common Stock exercisable for a
period of five years from the Effective Date (as defined below) at a price of
$0.35 per share (“C Warrant”), and (iii) one Class D Common Stock Purchase
Warrant to purchase 2,857 shares of Common Stock exercisable for a period of
five years from the Effective Date at a price of $0.35 per share (“D Warrant,”
together with the C Warrant, collectively referred to herein as the “C and D
Warrants” or the “Warrants”).  The Units,
Shares, Warrants and Common Stock issuable upon conversion of the Shares and
upon exercise of the Warrants, are collectively referred to herein as the “Securities;”

NOW, THEREFORE,
in consideration of the mutual covenants and other agreements contained in this
Agreement, the Company and the Subscribers hereby agree as follows:

1.             Purchase and Sale of Shares and
Warrants.  Subject to the
satisfaction (or waiver) of the terms and conditions of this Agreement, the
Subscriber hereby irrevocably agrees to purchase Units, consisting of Shares
and Warrants in the amounts designated on the signature page hereto at the Unit
Purchase Price and the Company shall sell such Shares and Warrants to the
Subscriber.

2.1           Conversion of the Shares.  Each Share will convert into 2,857 shares of
Common Stock at the holder’s sole discretion on 5 days’ prior written notice,
at any time at the Conversion Price of $.35 per share, subject to adjustment
under certain circumstances. The Series B Preferred Stock, pursuant to the form
of Certificate of Designations, as amended, attached hereto as Exhibit A,
is also convertible at the Conversion Price at the Company’s sole discretion
any time after the Effective Date of the registration statement of the Company
on Form SB-2, or another suitable form permitted by the SEC, registering the
shares of Common Stock underlying the Series B Preferred Stock and the C and D
Warrants (the “Series B Registration Statement”), 

 1
 

provided that the Common Stock is trading above 500%
of the Conversion Price per share for the 30 consecutive days ending not more
than 15 days prior to the date of notice of conversion.

2.2           Exercise Period and Price of the
Warrants.  Each C Warrant and D
Warrant, the forms of which are attached hereto as Exhibit B and Exhibit
C, respectively, will entitle the holder to purchase 2,857 shares of Common
Stock for a period of five (5) years from the Effective Date (the “Exercise
Period”), at an exercise price of $0.35 per share in each case, subject to
adjustment in certain circumstances to prevent dilution. The Warrants will be
subject to redemption by the Company at $.01 per Warrant on not less than 30
days’ prior written notice to the holders of the Warrants at any time after the
Effective Date provided (i) the average closing bid quotation or last sales
price of the Common Stock, as applicable, exceeds $1.75 per share for a period
of 20 consecutive trading days ending not more than 15 days prior to the date
on which the Company gives notice of redemption, and (ii) the Series B
Registration Statement allowing the resale of the shares underlying the
Warrants is in effect. The Warrants will be exercisable until 5:00 p.m.
(Eastern Standard Time) on the day immediately preceding the date fixed for
redemption.

3.1           Closing.  At the closing of the purchase and sale of
the Units (the “Closing”), the Subscriber shall purchase and the Company shall
sell and issue, in the aggregate, 570 Units consisting in the aggregate of 570
shares of Series B Preferred Stock, 570 C Warrants and 570 D Warrants for
$570,000.  The Closing shall occur upon
satisfaction of the conditions set forth in Section 3.2 (the “Closing Date”).

3.2           Closing Conditions.

(a)           At
the Closing, the Company shall deliver or cause to be delivered to the
Subscriber:

(i)            this Agreement duly
executed by the Company;

(ii)           a certificate
evidencing shares of Series B Preferred Stock equal to the Subscriber’s
Subscription Amount at the Closing divided by the per Unit Purchase Price,
registered in the name of the Subscriber; and

(iii)          C and D Warrants,
registered in the name of the Subscriber, pursuant to which the Subscriber
shall have the right to acquire, with respect to each Warrant, up to the number
of shares of Common Stock equal to the product of (i) the Subscriber’s
Subscription Amount at the Closing divided by the per Unit Purchase price, and
(ii) 2,857.

(b)           At the Closing, the
Subscriber shall deliver or cause to be delivered to the Company the following:

(i)            this Agreement duly
executed by the Subscriber;

(ii)           the Subscriber’s Subscription
Amount by (a) check or wire transfer to the Company pursuant to the wiring
instructions provided to the Subscriber by the Company;

 2
 

 

(iii)          an executed and
properly completed copy of the appropriate Confidential Purchaser
Questionnaire; and

(iv)          an executed and
properly completed copy of the form of Registration Rights Agreement.

(c)           All representations
and warranties of the other party contained herein shall remain true and
correct as of the Closing.

(d)           As of the Closing,
there shall have been no Material Adverse Effect (as defined below) with
respect to the Company since the date hereof.

(e)           From the date hereof
to the Closing, trading in the Common Stock shall not have been suspended by
the SEC and, at any time prior to the Closing, trading in securities generally
as reported by Bloomberg Financial Markets shall not have been suspended or
limited, or minimum prices shall not have been established on securities whose
trades are reported by such service, or on any trading market, nor shall a banking
moratorium have been declared either by the United States or New York State
authorities.

4.             Subscriber’s
Representations and Warranties.  The
Subscriber hereby represents and warrants as of the date hereof and as of the
Closing, to and agrees with the Company that:

(a)           Information on
Company.  The Subscriber has either
obtained or has access to (through the EDGAR website of the SEC or otherwise)
the Company’s Form 10-KSB for the year-ended December 31, 2006, together with
the Company’s Form SB-2 Registration Statement declared effective on January
20, 2006, and all other Forms 10-KSB, 10-QSB, 8-K, and any amendments thereto,
including any exhibits filed with such Forms, and all other filings previously
made with the SEC (hereinafter referred to collectively as the “Reports”).  In addition, the Subscriber has received in
writing from the Company such other information concerning its operations,
financial condition and other matters as the Subscriber has requested in
writing (such other information is collectively, the “Other Written Information”),
and considered all factors the Subscriber deems material in deciding on the
advisability of investing in the Securities.

(b)           Information on
Subscriber.  The Subscriber is, and
will be at the time of conversion of the Shares and exercise of the Warrants,
an “accredited investor” as defined in Section 2(15)  of the 1933 Act and Rule 501 promulgated thereunder. The
Subscriber is not required to be registered as a broker-dealer under Section 15
of the Securities Exchange Act of 1934, as amended (the “1934 Act”), is
experienced in investments and business matters, has made investments of a
speculative nature, understands that an investment in the Securities involves a
high degree of risk, has purchased securities of United States publicly-owned
companies in private placements in the past and, with its representatives, has
such knowledge and experience in financial, tax and other business matters as
to enable the Subscriber to utilize the information made available by the Company
to evaluate the merits and risks of and to make an informed investment decision
with respect to the proposed purchase, which represents a speculative 

 3
 

investment.  The Subscriber has the authority and is duly
and legally qualified to purchase and own the Securities.  The Subscriber is able to bear the risk of
such investment for an indefinite period and to afford a complete loss
thereof.  The information set forth on
the signature page hereto regarding the Subscriber is accurate.  The sale of the Securities to the Subscriber
as contemplated in this Subscription Agreement complies with or is exempt from
the applicable securities legislation of the jurisdiction of the residence of
the Subscriber.

(c)           Purchase of
Shares and Warrants.  At the Closing,
the Subscriber will purchase the Shares and Warrants as principal for its own
account for investment only and not as a nominee or agent and not with a view
towards or for resale in connection with the distribution of the Securities.

(d)           Compliance with
Securities Act.  The Subscriber
understands and agrees that the Securities are “restricted securities” and have
not been registered under the 1933 Act or any applicable state securities laws,
by reason of their issuance in a transaction that does not require registration
under the 1933 Act (based in part on the accuracy of the representations and
warranties of the Subscriber contained herein), and that such Securities must
be held indefinitely unless a subsequent disposition is registered under the
1933 Act or any applicable state securities laws or is exempt from such
registration.

(e)           Shares Legend.  The Shares and the Warrants shall bear the
following or similar legend:

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

(f)            Warrants Legend.  The Warrants shall bear the following or similar legend:

“THIS
WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.  THIS WARRANT AND THE SHARES OF COMMON STOCK
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 UNDER SAID ACT
OR ANY APPLICABLE 

 4
 

STATE SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO ANDOVER MEDICAL, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.”

(g)           Communication of
Offer.  The offer to sell the
Securities was directly communicated to the Subscriber by the Company.  At no time was the Subscriber presented with
or solicited by any leaflet, newspaper or magazine article, radio or television
advertisement, or any other form of general advertising, or solicited or
invited to attend a promotional meeting otherwise than in connection and
concurrently with such communicated offer.

(h)           Organization;
Authority.  The Subscriber is an
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization with full right, corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Series B Offering and otherwise to carry out its
obligations thereunder.

(i)            Authority;
Enforceability.  This Agreement and
other agreements delivered together with this Agreement or in connection
herewith have been duly authorized, executed and delivered by the Subscriber
and are valid and binding agreements enforceable in accordance with their
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors’ rights generally and to general principles of equity; and the
Subscriber has full corporate power and authority necessary to enter into this
Agreement and such other agreements and to perform its obligations hereunder
and under all other agreements entered into by the Subscriber relating hereto.

(j)            Correctness of
Representations.  The Subscriber
represents that the foregoing representations and warranties are true and
correct as of the date hereof and, unless the Subscriber otherwise notifies the
Company prior to the Closing, shall be true and correct as of the Closing.  The foregoing representations and warranties
shall survive the Closing Date for a period of three years.

(k)           No
Tax or Legal Advice.   The Subscriber
understands that nothing in this Agreement, any other agreement or any other
materials presented to the Subscriber in connection with the purchase and sale
of the Units constitutes legal, tax or investment advice and such information may
not be used, for the purpose of (i) avoiding tax-related penalties under the
Internal Revenue Code or (ii) promoting, marketing or recommending to another
party any tax-related matters addressed herein.  The Subscriber has consulted such
legal, tax and investment advisors as it, in its sole discretion, has deemed
necessary or appropriate in connection with its purchase of the Units.

Circular 230 disclosure:
pursuant to recently-enacted U.S. treasury department regulations, the
Subscriber should be advised that, unless otherwise expressly indicated, any
federal tax advice contained in this Agreement is not intended or written to be
used, and may not be used, for the purpose of (i) avoiding tax-related
penalties under the 

 5
 

Internal
Revenue Code or (ii) promoting, marketing or recommending to another party any
tax-related matters addressed herein.

5.             Company Representations and
Warranties.  The Company represents and
warrants to and agrees with the Subscriber that:

(a)           Due Incorporation.  The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has the requisite corporate power to own its properties and to carry on its
business as now being conducted.  The
Company is duly qualified as a foreign corporation to do business and is in
good standing in each jurisdiction where the nature of the business conducted or
property owned by it makes such qualification necessary, where the failure to
be so qualified or in good standing, as the case may be, would not have or
reasonably be expected to result in (i) a material adverse effect on the
legality, validity or enforceability of this Agreement or any other document in
connection with the Series B Offering, (ii) a material adverse effect on the
results of operations, assets, business or financial condition of the Company,
or (iii) a material adverse effect on the Company’s ability to perform in any
material respect on a timely basis its obligations under this Agreement (any of
(i), (ii) or (iii), a “Material Adverse Effect”).

(b)           Outstanding Stock.  All issued and outstanding shares of capital
stock of the Company have been duly authorized and validly issued and are fully
paid and non-assessable.

(c)           Authority;
Enforceability.  This Agreement and
the Warrants have been duly authorized, executed and delivered by the Company
and are valid and binding agreements enforceable in accordance with their
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors’ rights generally and to general principles of equity; and the
Company has full corporate power and authority necessary to enter into this
Agreement, the Warrants, and such other agreements and to perform its
obligations hereunder and under all other agreements entered into by the
Company relating hereto.

(d)           Consents.  No consent, approval, authorization or order
of any court, governmental agency or body or arbitrator having jurisdiction
over the Company, or any of its affiliates, the NASD, Inc., Nasdaq, the OTC
Bulletin Board nor the Company’s stockholders is required for execution of this
Agreement and all other agreements entered into by the Company relating
thereto, including, without limitation, the issuance and sale of the
Securities, and the performance of the Company’s obligations hereunder and
under all such other agreements.

(e)           No Violation or
Conflict.  Assuming the
representations and warranties of the Subscriber in Section 4 are true and
correct, neither the execution and delivery of this Agreement nor the issuance
and sale of the Securities nor the performance of the Company’s obligations
under this Agreement and all other agreements entered into by the Company
relating thereto by the Company will:

 6
 

 

(i)            violate, conflict
with, result in a material breach of, or constitute a default (or an event
which with the giving of notice or the lapse of time or both would be
reasonably likely to constitute a default) or give to others any rights of
termination, amendment, acceleration or cancellation under (A) the certificate
of incorporation or bylaws of the Company, (B) any decree, judgment, order,
law, treaty, rule, regulation or determination applicable to the Company of any
court, governmental agency or body, or arbitrator having jurisdiction over the
Company or any of its affiliates (including federal and state securities laws
and regulations) or over the properties or assets of the Company or any of its
affiliates, (C) the terms of any bond, debenture, note or any other evidence of
indebtedness, or any agreement, stock option or other similar plan, indenture,
lease, mortgage, deed of trust or other instrument to which the Company or any
of its affiliates is a party, by which the Company or any of its affiliates is
bound or affected, or to which any of the properties or assets of the Company
or any of its affiliates is subject, or (D) the terms of any “lock-up” or
similar provision of any underwriting or similar agreement to which the
Company, or any of its affiliates is a party except the violation, conflict,
breach, or default of which would not have a Material Adverse Effect on the
Company; or

(ii)           result in the
creation or imposition of any lien, charge or encumbrance upon the securities
or any of the assets of the Company or any of its affiliates.

(f)            The Securities.  The Securities upon issuance:

(i)            are, or will be,
free and clear of any security interests, liens, claims or other encumbrances,
subject to restrictions upon transfer under the 1933 Act and any applicable
state securities laws;

(ii)           have been, or 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 Series B Registration Statement
will be free trading and unrestricted, provided that the Subscriber complies
with the prospectus delivery requirements of the 1933 Act and any state
securities laws);

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

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

(g)           Litigation.  There is no pending or, to the best knowledge
of the Company, threatened action, suit, proceeding inquiry, notice of
violation, or investigation before any court, governmental or administrative
agency or regulatory body (federal, state, county, local or foreign), or
arbitrator having jurisdiction over the Company, or any of its affiliates that
would challenge the legality, validity or enforceability of this Agreement 

 7
 

and/or the
Series B Offering, or otherwise affect the execution by the Company or the
performance by the Company of its obligations under this Agreement, and all
other agreements entered into by the Company relating hereto.  Except as disclosed in the Reports or Other
Written Information, there is no pending or, to the best knowledge of the
Company, threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the
Company, or any of its affiliates which litigation if adversely determined
could have a Material Adverse Effect on the Company.

(h)           Reporting Company.  The Company is subject to reporting
obligations pursuant to Section 15(d) of the 1934 Act.  Pursuant to the provisions of the 1934 Act,
the Company has filed all reports and other materials required to be filed
thereunder with the SEC during the preceding twelve months.

(i)            No Market
Manipulation.  The Company has not
taken, and will not take, directly or indirectly, any action designed to, or
that might reasonably be expected to, cause or result in stabilization or
manipulation of the price of the common stock of the Company to facilitate the
sale or resale of the Securities or affect the price at which the Securities
may be issued or resold.

(j)            Information
Concerning Company.  The Reports
contain all material information relating to the Company and its operations and
financial condition from August 31, 2006 through their respective dates for
which information is required to be disclosed therein.  Since the date of the financial statements
included in the Reports, and except as modified in the Other Written
Information, there has been no Material Adverse Effect in the Company’s
business, financial condition or affairs not disclosed in the Reports.  The Reports do not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances when made.  The Company (i) has not incurred
any liabilities (contingent or otherwise) other than (A) trade payables and
accrued expenses incurred in the ordinary course of business consistent with
past practice and (B) liabilities not required to be reflected in the Company’s
financial statements pursuant to GAAP or required to be disclosed in filings
made with the SEC, (ii) has not altered its method of accounting, (iii) has not
declared or made any dividend or distribution of cash or other property to its
stockholders or purchased, redeemed or made any agreements to purchase or
redeem any shares of its capital stock and (iv) does not have pending before
the SEC any request for confidential treatment of information.

(k)           SEC Action; Stop
Transfers.  To the Company’s best
knowledge there has not been, there is not pending or contemplated, any
investigation by the SEC involving the Company.  The SEC has not issued
any stop order or other order suspending the effectiveness of any registration
statement filed by the Company or any subsidiary under the 1933 Act or the 1934
Act.  The Securities, when issued, will
be restricted securities.  The Company
will not issue any stop transfer order or other order impeding the sale, resale
or delivery of any of the Securities, except as may be required by any applicable
federal or state securities laws.  Except
as described in this Agreement, the Company will 

 8
 

not issue any
stop transfer or other order impeding the sale, resale or delivery of the
Securities unless contemporaneous notice of such instruction is given to the
Subscriber.

(l)            Defaults.  The Company is not in violation of its
Certificate of Incorporation or ByLaws. 
The Company is (i) not in default under or in violation of any other
material agreement or instrument to which it is a party or by which it or any
of its properties are bound or affected, which default or violation would have
a Material Adverse Effect on the Company, (ii) not in default with respect to
any order of any court, arbitrator or governmental body or subject to or party
to any order of any court or governmental authority arising out of any action,
suit or proceeding under any statute or other law respecting antitrust,
monopoly, restraint of trade, unfair competition or similar matters, or (iii)
to its knowledge in violation of any statute, rule or regulation of any
governmental authority which violation would have a Material Adverse Effect on
the Company.

(m)          No General
Solicitation.  Neither the Company,
nor any of its affiliates, nor to the Company’s knowledge, any person acting on
its or their behalf, has since August 31, 2006, directly or indirectly made any
offers or sales of any security or solicited any offers to buy any security,
except as described in the Company’s selling stockholder registration statement
on Form SB-2 (No. 333-128526) declared effective by the SEC on January 20, 2006
and the Reports, that would cause the offer of the Securities pursuant to this
Agreement to be integrated with prior offerings by the Company for purposes of
the 1933 Act or any applicable stockholder approval provisions. The Company or
any of its affiliates will not take any action or steps that would cause the
offer of the Securities to be integrated with other offerings if such
integration would eliminate the Series B Offering Exemption.

(n)           Listing.  The Company’s common stock is listed for
trading on the Over-The-Counter Bulletin Board (“OTCBB”). Except for prior
notices, which as of the date hereof have been satisfied, and as provided for
in Section 9(b) below, the Company has not received any oral or written notice
that its common stock will be delisted from the OTCBB nor that its common stock
does not meet all requirements for the continuation of such quotation and the
Company satisfies the requirements for the continued listing of its common
stock on the OTCBB.

(o)           No Undisclosed
Liabilities.  The Company has no
liabilities or obligations which are material, individually or in the
aggregate, which are not disclosed in the Reports and/or Other Written
Information, other than those incurred in the ordinary course of the Company’s
businesses since the August 31, 2006 change in control of the Company and
which, individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect on the Company’s financial condition.

(p)           No Undisclosed
Events or Circumstances.  There has
been no event or circumstance that has occurred or exists with respect to the
Company or its businesses, properties, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the Reports.

 9
 

 

(q)           Capitalization.  The authorized and outstanding capital stock
of the Company is set forth in the Reports. No person has any right of first
refusal, preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by this Series B Offering. 
Except as described in the Reports and/or as a result of the purchase and sale
of the Securities and except for employee stock options under the Company’s
stock option plans and except for employee rights under the Company’s employee
stock purchase plan, there are no outstanding options, warrants, script rights
to subscribe to, calls or commitments of any character whatsoever relating to,
or securities, rights or obligations convertible into or exchangeable for, or
giving any person any right to subscribe for or acquire, any shares of Common
Stock, or contracts, commitments, understandings or arrangements by which the
Company or any subsidiary is or may become bound to issue additional shares of
Common Stock, or securities or rights convertible or exchangeable into shares
of Common Stock.  Except as required by agreements filed as exhibits to
the Reports, the issue and sale of the Units will not obligate the Company to
issue shares of Series B Preferred Stock or other securities to any person
(other than the Subscriber) and will not result in a right of any holder of Company
securities to adjust the exercise, conversion, exchange or reset price under
such securities.

(r)            Correctness of
Representations.  The Company
represents that the foregoing representations and warranties are true and
correct as of the date hereof in all material respects The foregoing
representations and warranties shall survive until the earlier of:  one year after the Closing Date, or the
Subscriber owns less than an aggregate of 25% of the Company’s issued and
outstanding shares of Series B Preferred Stock.

(s)           Title to Assets. 
Except as disclosed in the Reports, the Company has good and marketable title
in fee simple to all real property owned by it that is material to the business
of the Company, and good and marketable title in all personal property owned by
it that is material to the business of the Company, in each case free and clear
of all liens, charges, security interests, encumbrances, rights of first
refusal or other restrictions (collectively “Liens”) except for Liens as do not
materially affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the Company and
Liens for the payment of federal, state or other taxes, the payment of which is
neither delinquent nor subject to penalties.  Any real property and
facilities held under lease by the Company are held by them under valid,
subsisting and enforceable leases with which the Company is in material
compliance.

(t)            Disclosure. 
The Company confirms that, neither the Company nor any other person acting on
its behalf has provided the Subscriber or its agents or counsel with any
information that constitutes or might constitute material, non-public
information.   The Company understands and confirms that the Subscriber
will rely on the foregoing representations and covenants in effecting
transactions in securities of the Company. All disclosure provided to the
Subscriber regarding the Company, its business and the transactions
contemplated hereby, furnished by or on behalf of the Company are true and
correct and do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading.

 10
 

 

(u)           Internal
Accounting Controls.  The Company and its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management’s general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management’s general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
The Company has established disclosure controls and procedures (as defined in
the 1934 Act Rules 13a-14 and 15d-14) for the Company and designed such
disclosure controls and procedures to ensure that material information relating
to the Company (but not any proposed acquisition), and each subsidiary, is made
known to the certifying officers by others within those entities, particularly
during the period in which the Company’s Form 10-KSB or 10-QSB, as the case may
be, is being prepared.

(v)           Registration
Rights.  Except as set forth in the
Reports and the Series B Preferred Subscription Agreement, dated as of April
16, 2007, by and among the Company and the Subscriber (the “April 16
Subscription Agreement”), no person has any right to cause the Company to
effect the registration under the 1933 Act of any securities of the Company.

6.             Regulation D Offering.  This Series B Offering is being made pursuant
to the exemption from the registration provisions of the 1933 Act afforded by
Section 4(2) or Section 4(6) of the 1933 Act and/or Rule 506 of Regulation D
promulgated thereunder.  On the Closing
Date, the Company will provide an opinion reasonably acceptable to the
Subscriber from the Company’s legal counsel opining on the availability of an
exemption from registration under the 1933 Act as it relates to the offer and
issuance of the Securities, exclusive of the issue of integration with prior
offerings of the Company.  The Company
will provide, at the Company’s expense, such other legal opinions in the future
as are reasonably necessary for the conversion of the Series B Preferred Stock,
exercise of the Warrants, and resale of the shares of Common Stock underlying
such securities.

7.             Reissuance of Securities.  The Company agrees to reissue certificates
representing the Shares and the Warrant Shares without the legends set forth in
Sections 4(e) and 4(f) above at such time as (a) the holder thereof is
permitted to and disposes of the Securities pursuant to Rule 144(d) and/or Rule
144(k) under the 1933 Act in the opinion of counsel reasonably satisfactory to
the Company, or (b) upon resale subject to an effective registration statement
after the shares of Common Stock underlying the Series B Preferred Stock and
the Warrants are registered under the 1933 Act. 
The Company agrees to cooperate with the Subscriber in connection with
all resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions
at the Company’s expense necessary to allow such resales provided the Company
and its counsel receive reasonably requested written representations from the
Subscriber and selling broker, if any. 
Provided the Subscriber provides required certifications and
representation letters, if any, if the Company fails to remove any legend as
required by this Section 7 (a “Legend Removal Failure”), then beginning on the
tenth (10th) day
following the date that the Subscriber has requested the removal of the legend
and delivered all items reasonably required by the Company to be delivered by
the Subscriber, that the Company continues to fail to remove such legend, the 

 11
 

Company shall pay to the Subscriber or assignee
holding shares of Common Stock underlying the Shares and Warrants, subject to a
Legend Removal Failure, as liquidated damages and not a penalty an amount equal
to ten percent (10%) of the purchase price of the Shares and shares of Common
Stock underlying the Shares subject to a Legend Removal Failure for each 15-day
period or part thereof that such failure continues.  If during any twelve (12) month period, the
Company fails to remove any legend as required by this Section 7 for an aggregate
of thirty (30) days, the Subscriber or assignee holding Securities subject to a
Legend Removal Failure may, at its option, require the Company to purchase all
or any portion of the Shares or shares of Common Stock underlying the Shares
and Warrants subject to a Legend Removal Failure held by the Subscriber or
assignee at a price per share equal to 110% of the purchase price of such
Shares.  Notwithstanding the foregoing,
the Company shall not be required to pay liquidated damages for a Legend
Removal Failure that resulted solely from the delay or failure on the part of
the Company’s transfer agent.

8.             NASD Member Firm Compensation.
 The
Company on the one hand, and the Subscriber on the other hand, agree to
indemnify the other against and hold the other harmless from any and all
liabilities to any persons claiming brokerage commissions on account of
services purported to have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated hereby and arising
out of such party’s actions.

9.             Covenants of the Company.  The Company covenants and agrees with the
Subscriber that from the Closing Date until the earlier of (i) the Subscriber
owns less than 20% of the aggregate Series B Preferred Stock, or (ii) two years
from the Closing as follows:

(a)           Stop Orders.  The Company will advise the Subscriber,
promptly after it receives notice of issuance by 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.

(b)           Listing.  If applicable, the Company shall use its
reasonable best efforts to promptly secure the listing of the shares of Common
Stock underlying the Series B Preferred Stock and the Warrants to be purchased
hereunder upon each national securities exchange, or automated quotation
system, if any, upon which shares of common stock are then listed (subject to
official notice of issuance) and shall use its reasonable best efforts to
maintain such listing so long as any Securities are outstanding.  The Company shall use its reasonable best
efforts to maintain the listing of its Common Stock on the American Stock
Exchange, Nasdaq Capital Market, Nasdaq Global Market, OTC Bulletin Board, or
New York Stock Exchange (whichever of the foregoing is at the time the principal
trading exchange or market for the Common Stock (the “Principal Market”)), and
will comply in all material respects with the Company’s reporting, filing and
other obligations under the bylaws or rules of the Principal Market, as
applicable.  The Company will provide the
Subscriber copies of all notices it receives notifying the Company of the
threatened and actual delisting of the Common Stock from any Principal Market.

 12
 

 

(c)           Market
Regulations.  If required, the
Company shall notify the SEC, the Principal Market and applicable state
authorities, in accordance with their requirements, if any, 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
Subscribers and promptly provide copies thereof to Subscriber.

(d)           Reporting
Requirements.  The Company will (i)
comply in all respects with its reporting and filing obligations under the 1934
Act, (ii) comply with all reporting requirements that are applicable to an
issuer with a class of shares registered pursuant to Section 15(d) of the 1934
Act, as applicable, and (iii) comply with all requirements related to any
registration statement filed pursuant to this Agreement.  The Company will use its best efforts not to
take any action or file any document (whether or not permitted by the 1933 Act
or the 1934 Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under said Acts.  Until the earlier of
the resale of the Shares, and shares of Common Stock underlying the Shares and
the Warrants by the Subscriber or at least two (2) years after the Shares have
been converted and the Warrants have been exercised, the Company will use
reasonable efforts to continue the listing or quotation of the Common Stock on
the Principal Market and will comply in all respects with the Company’s
reporting, filing and other obligations under the bylaws or rules of the
Principal Market.

(e)           Use of Proceeds.  The Purchase Price will be used by the
Company for working capital and the settlement of the Otto Bock Healthcare
claim, and may not and will not be used for accrued and unpaid officer and
director salaries, payment of financing related debt, redemption of redeemable
notes or equity instruments of the Company.

(f)            Reservation of
Common Stock.  The Company undertakes
to reserve from its authorized but unissued common stock, at all times that
Shares and Warrants remain outstanding, a number of shares of Common Stock
equal to the amount of Common Stock issuable upon conversion of the Shares and
exercise of the Warrants.

(g)           Taxes.  The Company 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; 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 by appropriate proceedings and if the
Company shall have set aside on its books adequate reserves with respect
thereto, and provided, further, that the Company 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 therefore.

(h)           Insurance.  The Company is insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which the Company is
engaged.  The Company has no reason to believe that it will not be able to
renew its existing insurance coverage as and 

 13
 

when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business without a significant increase in cost.  The Company 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 the Company’s line of business, in amounts sufficient
to prevent the Company from becoming a co-insurer and not in any event less
than 100% of the insurable value of the property insured; and the Company 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 customary for companies in similar businesses similarly situated
and to the extent available on commercially reasonable terms.

(i)            Books and
Records.  The Company will keep true
records and books of account in which full, true and correct entries will be
made of all dealings or transactions in relation to its business and affairs in
accordance with generally accepted accounting principles applied on a
consistent basis.

(j)            Governmental
Authorities.  The Company shall duly
observe and conform in all material respects to all valid requirements of
governmental authorities relating to the conduct of its business or to its
properties or assets.

(k)           Intellectual
Property.  To the knowledge of the
Company, the Company has, or has rights to use, all patents, patent
applications, trademarks, trademark applications, service marks, trade names,
copyrights, licenses necessary to conduct business and other similar rights
that are necessary or material for use in connection with its business as
described in the Reports and which the failure to so have could have or
reasonably be expected to result in a Material Adverse Effect (collectively,
the “Intellectual Property Rights”).  In the last three years, the
Company has not received a written notice that the Intellectual Property Rights
used by the Company or any subsidiary violates or infringes the rights of any
person.  The Company shall maintain in full force and effect its corporate
existence, rights and franchises and all licenses necessary to conduct business
and other rights to use intellectual property owned or possessed by it and
reasonably deemed to be necessary to the conduct of its business.

(l)            Properties.  The Company 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 the Company 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 material provision could reasonably be
expected to have a Material Adverse Effect.

10.          Covenants of the Company and Subscriber Regarding
Indemnification.

(a)           The Company agrees
to indemnify, hold harmless, reimburse and defend the Subscriber, the Subscriber’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 

 14
 

Subscriber or
any such person which results, arises out of or is based upon (i) any material
misrepresentation by Company or breach of any warranty by Company in this
Agreement or other agreement delivered pursuant hereto; or (ii) after any
applicable notice and/or cure periods, any breach or default in performance by
the Company of any covenant or undertaking to be performed by the Company
hereunder, or any other agreement entered into by the Company and the
Subscriber relating hereto.

(b)           The Subscriber
agrees to indemnify, hold harmless, reimburse and defend the Company and each
of the Company’s officers, directors, agents, affiliates, control persons
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon
the Company or any such person which results, arises out of or is based upon
(i) any material misrepresentation by the Subscriber in this Agreement or other
agreement delivered pursuant hereto; or (ii) after any applicable notice and/or
cure periods, any breach or default in performance by the Subscriber of any
covenant or undertaking to be performed by the Subscriber hereunder, or any
other agreement entered into by the Company and the Subscriber relating hereto.

(c)           The procedures set
forth in Section 11.6 shall apply to the indemnifications set forth in Sections
10(a) and 10(b) above.

11.1         Registration Rights.  The
Company shall file the Series B Registration Statement registering the shares
of Common Stock underlying the Series B Preferred Stock, the C and D Warrants
(collectively, “Registrable Securities”), within 30 days following the Closing
Date of the Series B Offering (the “Scheduled Filing Date”), subject to
compliance with Rule 415 under the Securities Act, and use its best efforts to
have the Series B Registration Statement declared effective (the “Effective
Date”) by the SEC within six (6) months of the effectiveness of the
registration statement of the Company on Form SB-2, or another suitable form
permitted by the SEC, registering the shares of Common Stock underlying the
Series A Preferred Stock and the A and B Warrants included in the Series A
offering (the “Series A Registration Statement”).  For purposes of clarification, the parties
acknowledge that the SEC may require a certain portion of the Registrable
Securities to be removed from the Series B Registration Statement, as a
precondition to declaring it effective, in order to ensure that the Company is
in compliance with Rule 415 under the 1933 Act. 
The parties acknowledge that the Series B Registration Statement shall
also register the shares of Common Stock underlying the Series B Units
previously purchased by the Subscriber pursuant to the April 16, 2007
Subscription Agreement, as well as the Series A Units previously purchased by
the Subscriber pursuant to the November 14, 2006 Subscription Agreement.

Notwithstanding the foregoing, the obligations of
the Company under this Section 11.1 shall terminate as to the Subscriber at
such time as (i) all Registrable Securities held by the Subscriber can be sold
within a single three month period pursuant to Rule 144 under the 1933 Act (or
any successor provision of such 1933 Act, and (ii) the number of shares of
Common stock held by the Subscriber and issuable upon conversion of the Shares
and exercise of the Warrants held by the Subscriber is less than one percent of
the outstanding capital stock of the Company on an as converted basis (adjusted
for stock dividends, stock splits, reverse stock splits, combinations and the
like occurring after the date hereof).

 

 15

 

With a view of making available to the Subscriber
the benefits of Rule 144 promulgated under the 1933 Act or any other similar
rule or regulation of the SEC that may at any time permit the Subscriber to
sell securities of the Company to the public without registration during the
registration period, the Company for a period of two years which period shall
commence on the date hereof, agrees to:

(a)           make and keep public information
available, as those terms are understood and defined in Rule 144.

(b)           file with the SEC in a timely manner
all reports and other documents required of the Company under the 1933 Act and
the 1934 Act so long as the Company remains subject to such requirements and
the filing of such reports and other documents as required for the applicable
provisions of Rule 144; and

(c)           furnish to the Subscriber so long as
the Subscriber owns Registrable Securities, promptly upon request, (i) a
written statement by the Company that it has complied with the reporting
requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) a copy of the
most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, (iii) such other information as may be
reasonably requested to permit the Subscriber to sell such securities pursuant
to Rule 144 without registration.

11.2         Registration
Procedures. With respect to the registration of the Securities as required
by Section 11.1, the Company will, as expeditiously as possible:

(a)           subject to the timelines provided in
this Agreement, prepare and file with the SEC the Registration Statement
required by Section 11, with respect to such securities and use its reasonable
best efforts to cause such Registration Statement to become and remain
effective for the period of the distribution contemplated hereby, and promptly
provide to the holder of Registrable Securities (the “Seller”) copies of all
filings;

(b)           prepare and file with the SEC such
amendments and supplements to the Registration Statement and the prospectus
used in connection therewith as may be necessary to keep such Registration
Statement effective for a period of two (2) years, or the Subscriber no longer
own the Securities, whichever is earlier, and comply with the provisions of the
1933 Act with respect to the disposition of all of the Registrable Securities
covered by the Registration Statement in accordance with the Seller’s intended
method of disposition set forth in the Registration Statement for such period;

(c)           furnish to the Seller, at the Company’s
expense, such number of copies of the Registration Statement and the prospectus
included therein (including each preliminary prospectus) as such person
reasonably may request in order to facilitate the public sale or their
disposition of the securities covered by such Registration Statement;

(d)           use its best efforts to register or
qualify the Seller’s Registrable Securities covered by such Registration
Statement under the securities or “blue sky” laws of such 

 16
 

jurisdictions as the
Seller shall request, provided, however, that the Company shall not for any
such purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction;

(e)           if applicable, list the Registrable
Securities covered by such registration statement with any securities exchange
on which the Common Stock of the Company is then listed; and

(f)            immediately notify the Seller when a
prospectus relating thereto is required to be delivered under the 1933 Act, of
the happening of any event of which the Company has knowledge as a result of
which the prospectus contained in such Registration Statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing.

11.3.        Provision of Documents.  In connection with the registration described
in this Section 11, the Seller will furnish to the Company in writing such
information and representation letters with respect to itself and the proposed
distribution by it as reasonably shall be necessary in order to assure
compliance with federal and applicable state securities laws.

11.4.        Non-Registration Events.  In the event the Series B Registration
Statement is not filed on or before the Scheduled Filing Date or declared
effective within six (6) months from the date the Series A Registration
Statement is declared effective, the number of shares of Common Stock issuable
upon exercise of the C and D Warrants (the “Penalty Warrant Shares”), shall
automatically increase to twice the original amount.  For purposes of clarification, the Penalty
Warrant Shares shall not include any shares underlying the C and D Warrants if
either: (i) the SEC did not permit the Series B Registration Statement to be
filed on or before the Scheduled Filing Date or declared effective within 6
months from the date the Series A Registration Statement is declared effective,
or (ii) any portion of the Registrable Securities are removed from the Series B
Registration Statement, in order to ensure compliance with Rule 415 under the
Securities Act. The Company agrees to keep the Series B Registration Statement
effective until expiration of the C and D Warrants.

11.5.        Expenses.  All expenses incurred by the Company in
complying with Section 11, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
reasonable counsel fees) incurred in connection with complying with state
securities or “blue sky” laws, fees of the NASD, transfer taxes, fees of
transfer agents and registrars, and costs of insurance are called “Registration
Expenses.” Notwithstanding anything to the contrary herein, the Seller shall
pay the fees of its own additional counsel, if any.  The Company will pay all Registration
Expenses in connection with the Registration Statement.

11.6.        Indemnification and Contribution.

(a)           In connection with the registration
of Registrable Securities, the Company will, to the extent permitted by law,
indemnify and hold harmless the Seller, each officer 

 17
 

of the Seller, each director of the Seller, each
underwriter of such Registrable Securities thereunder and each other person, if
any, who controls such Seller or underwriter within the meaning of the 1933
Act, against any losses, claims, damages or liabilities, joint or several, to
which the Seller, or such underwriter or controlling person may become subject
under the 1933 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement under which such Registrable Securities were
registered under the 1933 Act pursuant to Section 11, any preliminary
prospectus or final prospectus contained therein, or any amendment or
supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances when made, and will, subject to the provisions of Section
11.6(c), reimburse the Seller, each such underwriter and each such controlling
person for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable to
the Seller to the extent that any such damages arise out of or are based upon
an untrue statement or omission made in any preliminary prospectus if (i) the
Seller failed to send or deliver a copy of the final prospectus delivered by
the Company to the Seller with or prior to the delivery of written confirmation
of the sale by the Seller to the person asserting the claim from which such
damages arise, (ii) the final prospectus would have corrected such untrue
statement or alleged untrue statement or such omission or alleged omission, or
(iii) to the extent that any such loss, claim, damage or liability arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission so made in conformity with information furnished by any
such Seller, or any such controlling person in writing specifically for use in
such Registration Statement or prospectus, and provided, however, that the
liability of the Company hereunder shall be limited to the gross proceeds
received by the Company from the sale of Securities covered by such
Registration Statement.

(b)           Upon registration of the Registrable
Securities, the Seller will, to the extent permitted by law, indemnify and hold
harmless the Company, and each person, if any, who controls the Company within
the meaning of the 1933 Act, each officer of the Company who signs the
Registration Statement, each director of the Company, each underwriter and each
person who controls any underwriter within the meaning of the 1933 Act, against
all losses, claims, damages or liabilities, joint or several, to which the
Company or such officer, director, underwriter or controlling person may become
subject under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in the registration statement under which such Registrable
Securities were registered under the 1933 Act pursuant to Section 11, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereof, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company and each such officer, director, underwriter and controlling person
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, 

 18
 

claim, damage, liability
or action, provided, however, that the Seller will be liable hereunder in any
such case if and only to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with information pertaining to such Seller, as such, furnished in
writing to the Company by such Seller specifically for use in such registration
statement or prospectus, and provided, further, however, that the liability of
the Seller hereunder shall be limited to the gross proceeds received by the
Seller from the sale of Registrable Securities covered by such Registration
Statement.

(c)           Promptly after receipt by an
indemnified party hereunder of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party hereunder, notify the indemnifying party in writing
thereof, but the omission so to notify the indemnifying party shall not relieve
it from any liability which it may have to such indemnified party other than
under this Section 11.6(c) and shall only relieve it from any liability which
it may have to such indemnified party under this Section 11.6(c), except and
only if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in and, to the extent
it shall wish, to assume and undertake the defense thereof with counsel reasonably
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 11.6(c) for any legal expenses subsequently incurred
by such indemnified party in connection with the defense thereof, provided,
however, that, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to it
which are different from or additional to those available to the indemnifying
party or if the interests of the indemnified party reasonably may be deemed to
conflict with the interests of the indemnifying party, the indemnified parties,
as a group, shall have the right to select one separate counsel and to assume
such legal defenses and otherwise to participate in the defense of such action,
with the reasonable expenses and fees of such separate counsel and other
expenses related to such participation to be reimbursed by the indemnifying
party as incurred.

(d)           In order to provide for just and
equitable contribution in the event of joint liability under the 1933 Act in
any case in which either (i) the Seller, or any controlling person of the
Seller, makes a claim for indemnification pursuant to this Section 11.6 but it
is judicially determined (by the entry of a final judgment or decree by a court
of competent jurisdiction and the expiration of time to appeal or the denial of
the last right of appeal) that such indemnification may not be enforced in such
case notwithstanding the fact that this Section 11.6 provides for
indemnification in such case, or (ii) contribution under the 1933 Act may be
required on the part of the Seller or controlling person of the Seller in
circumstances for which indemnification is not provided under this Section
11.6; then, and in each such case, the Company and the Seller will contribute
to the aggregate losses, claims, damages or liabilities to which they may be
subject (after 

 19
 

contribution from others)
in such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement provided, however, that, in
any such case, (y) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities offered by it
pursuant to such registration statement; and (z) no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 10(f) of the 1933
Act) will be entitled to contribution from any person or entity who was not
guilty of such fraudulent misrepresentation. 
Notwithstanding anything to the contrary in this Section, the liability
of the Company hereunder shall be limited to the gross proceeds received by the
Company from the sale of Securities covered by such registration statement.

11.7         Delivery of
Unlegended Shares.

(a)           Within five (5) business days (such
fifth business day, the “Delivery Date”) after the business day on which the
Company has received (i) a notice that Registrable Securities have been sold,
(ii) a representation that the prospectus delivery requirements, if applicable,
have been satisfied, and (iii) the original share certificates representing the
shares of Common Stock that have been sold, the Company at its expense, (i)
shall deliver, and shall cause legal counsel selected by the Company to
deliver, to its transfer agent (with copies to Subscriber) an appropriate
instruction and opinion of such counsel, for the delivery of unlegended shares
of Common Stock issuable pursuant to any effective and current registration
statement described in Section 11 of this Agreement (the “Unlegended Shares”);
and (ii) cause the transmission of the certificates representing the Unlegended
Shares together with a legended certificate representing the balance of the
unsold shares of Common Stock, if any, to the Subscriber at the address
specified in the notice of sale, via express courier, by electronic transfer or
otherwise on or before the Delivery Date.

(b)           In lieu of delivering physical
certificates representing the Unlegended Shares, if the Company’s transfer
agent is participating in the Depository Trust Company (“DTC”) Fast Automated
Securities Transfer program, upon request of a Subscriber and its compliance
with the provisions contained in this paragraph, so long as the certificates
therefore do not bear a legend and the Subscriber is not obligated to return
such certificate for the placement of a legend thereon, the Company shall cause
its transfer agent to electronically transmit the Unlegended Shares by
crediting the account of Subscriber’s prime broker with DTC through its Deposit
Withdrawal Agent Commission system.

12.          Miscellaneous.

(a)           Notices.  All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, 

 20
 

addressed as
set forth below or to such other address as such party shall have specified
most recently by written notice.  Any
notice or other communication required or permitted to be given hereunder shall
be deemed effective (a) upon hand delivery or delivery by facsimile, with
accurate confirmation generated by the transmitting facsimile machine, at the
address or number designated below (if delivered on a business day during
normal business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a business day
during normal business hours where such notice is to be received) or (b) on the
second business day following the date of mailing by express courier service,
fully prepaid, addressed to such address, or upon actual receipt of such
mailing, whichever shall first occur. 
The addresses for such communications shall be: (i) if to the Company,
to: Andover Medical, Inc., 510 Turnpike Street, Suite 204, N. Andover, MA
01845, Attn: Edwin A. Reilly, Chief Executive Officer, telecopier: (978)
557-1004, and (ii) if to the Subscriber, to: the address and facsimile number
indicated on the signature page hereto, with a copy by facsimile only to:
Elliot H. Lutzker, Esq., Phillips Nizer LLP, 666 Fifth Avenue, New York, NY
10103,  telecopier: (212) 262-5152.

(b)           Entire Agreement;
Assignment.  This Agreement and other
documents delivered in connection herewith represent the entire agreement
between the parties hereto with respect to the subject matter hereof and may be
amended only by a writing executed by both parties.  Neither the Company nor the Subscriber have
relied on any representations not contained or referred to in this Agreement
and the documents delivered herewith.  No
right or obligation of either party shall be assigned by that party without
prior notice to and the written consent of the other party.

(c)           Execution.  This Agreement may be executed by facsimile
transmission, and in counterparts, each of which will be deemed an original.

(d)           Law Governing
this Agreement.  This 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 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 other 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 other 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 any agreement.

(e)           Specific
Enforcement, Consent to Jurisdiction. 
The Company and the Subscriber acknowledge and agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached.  It is accordingly agreed that
the parties shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of 

 21
 

this Agreement
and to enforce specifically the terms and provisions hereof or thereof, this
being in addition to any other remedy to which any of them may be entitled by
law or equity.  Subject to Section 12(d)
hereof, each of the Company and the Subscriber hereby waives, and agrees not to
assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. 
Nothing in this Section shall affect or limit any right to serve process
in any other manner permitted by law.

 

 22

 

SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (A)

Please acknowledge your acceptance of the foregoing
Subscription Agreement by signing and returning a copy to the undersigned
whereupon it shall become a binding agreement between us.

	
  

  	
  ANDOVER MEDICAL, INC.

  
	
   

  	
  A Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Edwin A. Reilly

  
	
   

  	
   

  	
  Name:

  	
  Edwin A. Reilly

  
	
   

  	
   

  	
  Title:

  	
  Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  Dated: September 10, 2007

  

 

	
  SUBSCRIBER

  	
   

  	
  PURCHASE

  PRICE

  	
   

  	
  SHARES

  	
   

  	
  C WARRANTS

  	
   

  	
  D WARRANTS

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  $ 

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (Signature)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
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  (Signature)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
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  (Signature)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
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LIST OF EXHIBITS 

	
  Exhibit A

  	
  Form of Certificate of Designations of Series B
  Preferred Stock

  
	
   

  	
   

  
	
  Exhibit B

  	
  Form of C Warrant

  
	
   

  	
   

  
	
  Exhibit C

  	
  Form of D Warrant

  
	
   

  	
   

  
	
  Exhibit D

  	
  Form of Legal Opinion

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