exv10w19



 



EXHIBIT 10.19



ESCROW AGREEMENT


     THIS ESCROW AGREEMENT (this “Agreement”) dated November 25, 2002 is
entered into by and among Advanced Neuromodulation Systems, Inc., a Texas
corporation (“Parent”), Thomas E. Brust, as a duly appointed representative
(the “Representative”) of all of the shareholders of MicroNet Medical, Inc., a
Minnesota corporation (“Company”) and Computershare Trust Company, Inc. as
escrow agent (the “Escrow Agent”). Parent, the Representative and the Escrow
Agent are collectively referred to in this Agreement as the “parties.”


RECITALS


     Pursuant to that certain Agreement and Plan of Merger dated as of November
4, 2002, by and among Parent, MicroNet Acquisition, Inc., a Delaware
corporation and wholly-owned subsidiary of Parent (“Merger Sub”), Company and
certain shareholders of Company (the “Merger Agreement”), Merger Sub is merging
with and into Company (the “Merger”), with Company being the Surviving
Corporation and wholly-owned subsidiary of Parent. In accordance with the
terms of the Merger Agreement, the issued and outstanding shares of common
stock, $0.01 par value per share, of Company, other than those constituting
Dissenting Shares will be converted into the right to receive shares of common
stock, $0.05 par value, of Parent, all as set forth in the Merger Agreement.


     The Merger Agreement provides that an escrow fund comprised of shares of
Parent Common Stock to be issued to the shareholders of the Company as of the
Effective Time of the Merger (the “Company Shareholders”) will be established
to provide payment to the Company Shareholders if and when certain Milestones
are achieved as set forth in Article II of the Merger Agreement and (b)
security to Parent with respect to the potential indemnification obligations of
the Company Shareholders.


     NOW, THEREFORE, for good, valid and binding consideration, the receipt and
adequacy of which is hereby acknowledged, the parties, intending to be legally
bound by this Agreement, agree as follows:


     1.     Except as otherwise defined in this Agreement, the capitalized terms
used in this Agreement have the meanings ascribed to them in the Merger
Agreement.


     2.     Pursuant to the terms and conditions of the Merger Agreement, 89,606
Shares (having an aggregate value of $3,000,000, based on the Average Trading
Price on the Closing Date) have been issued as part of the Merger Consideration
in the names of the respective Company Shareholders, in accordance with their
pro rata ownership of Company, and have been delivered to the Escrow Agent
(together with any shares of capital stock, cash or other property, such Shares
as may be converted or exchanged after the date hereof, by stock split or
otherwise, the “Escrowed Shares”). The Escrowed Shares will be held by the
Escrow Agent upon the terms and conditions contained in this Agreement and will
be released by the Escrow Agent in accordance with this Agreement. The
Escrowed Shares and all dividends or other economic benefits (but no other
benefits, including but not limited to voting or transfer rights) associated
with the Escrowed Shares will accrue to the Escrowed Shares for the benefit of
the applicable Company Shareholders from the Closing Date, will be deposited
into the Escrow Account and will be subject to forfeiture in the


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event the Milestones are not timely achieved, as provided in Section 2.01
of the Merger Agreement. The Escrow Agent agrees that it does not and will not
have any right of setoff or other rights or claims with respect to the Escrowed
Shares.


     3.     In accordance with Article II of the Merger Agreement, if and when each
Milestone is achieved, Parent will promptly instruct the Escrow Agent in
substantially the form of Exhibit A attached to this Agreement (a “Certificate
of Instruction”) that the applicable number of the Escrowed Shares, as set
forth in Exhibit B attached to this Agreement, plus any accrued dividends or
other economic benefits thereon, are to be released to the respective Company
Shareholders. The Escrow Agent, upon receipt of the Certificate of Instruction
from Parent, will, not later than ten business days following its receipt of
such Certificate of Instruction, release to the applicable Company Shareholders
such number of Escrowed Shares, plus any accrued dividends or other economic
benefits thereon.


     4.     In accordance with and subject to the limitations of Article VIII of
the Merger Agreement, Parent and the Surviving Corporation are authorized to
setoff and apply Claims of any Indemnified Party against Parent’s obligation to
release any or all of the Escrowed Shares from the Escrow Account. If Parent
notifies the Escrow Agent by a Certificate of Instruction of its intention to
apply the Escrowed Shares against any such Claim, the Escrow Agent will, not
later than three business days following its receipt thereof give written
notice to the Representative of its receipt, together with a copy of such
Certificate of Instruction. Concurrently with the delivery of the Certificate
of Instruction to the Escrow Agent, Parent will deliver to the Representative
written notice setting forth in reasonable detail the facts giving rise to
Parent’s right of setoff contained in the Certificate of Instruction.


          (a) If the Escrow Agent (i) has not, within 30 days after it has given
such notice to the Representative, received from the Representative a
certificate in substantially the form of Exhibit C attached to this Agreement
(an “Objection Certificate”) in respect of the Certificate of Instruction to
which such notice relates, or (ii) has received such an Objection Certificate
within such 30 days but thereafter receives a copy of a joint notice signed by
the Representative and by Parent, or a final award of an arbitrator pursuant to
Section 11.01 of the Merger Agreement to the effect that the Owed Amount (as
defined in the Certificate of Instruction) referred to in such Certificate of
Instruction or a specified portion thereof constitutes a Claim which may be
setoff and against which Parent may apply all or a portion of the Escrowed
Shares, such shares being valued for this purpose at the Average Trading Price
prior to the date of setoff, then the Escrow Agent will, on the business day
following the expiration of ten days or the receipt by the Escrow Agent of such
joint notice or award, as applicable, release to Parent a number of Escrowed
Shares valued at the Average Trading Share Price before the date of setoff.



          (b) Upon receipt of an Objection Certificate, the Escrow Agent will, not
later than three business days following receipt thereof, give written notice
to Parent of its receipt together with a copy of the Objection Certificate.
The Representative and Parent will resolve any Dispute with respect to all or a
specified portion of an Owed Amount in accordance with Section 11.01 of the
Merger Agreement. If Parent and the Representative engage in mediation and/or
arbitration, the Escrow Agent will have no duty or obligation with respect to
such mediation and/or arbitration other than to retain the Escrowed Shares in
safekeeping until it receives a copy of the arbitration award or a joint notice
as described in Section 4(a) of this Agreement. Each of the

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Parent (on the one hand) and the Representative (on the other) agrees to
pay 50% of such reasonable fees and expenses incurred, if any, in connection
with such dispute resolution process.



          (c) Upon receipt by the Escrow Agent of a copy of a joint notice from
Parent and the Representative, or an arbitration award to the effect that the
Owed Amount (or a specified portion thereof) referred to in a Certificate of
Instruction in respect of which the Escrow Agent had received an Objection
Certificate is not an amount properly payable as a Claim against which the
Escrowed Shares may be applied, such Certificate of Instruction (or such
specified portion of the Owed Amount set forth therein) will be deemed
canceled. The Escrow Agent will have no duty to determine if the arbitration
award is final or binding, but may act in accordance therewith.



          (d) Upon determining that it has no right of setoff with respect to an
Owed Amount referred to in a Certificate of Instruction or a specified portion
of the Owed Amount set forth therein, Parent will promptly give notice in
writing to the Escrow Agent to cancel such Certificate of Instruction (or such
specified portion).



     5.     On the fifth year anniversary of the Closing of the Merger (the
“Expiration Date”), the Escrow Agent will release to Parent for cancellation
any Escrowed Shares, together with all accrued dividends or economic benefits
arising therefrom, then remaining in the Escrow Account and the Company
Shareholders will have no rights with respect thereto. After such release, the
Parent will distribute any earned Escrowed Shares to the Company Shareholders,
if such Company Shareholders are so entitled. Notwithstanding the foregoing,
if prior to the Expiration Date, a Change in Control (as defined in Section
2.01(c)(v) of the Merger Agreement) occurs, Parent will immediately send a
Certificate of Instruction to the Escrow Agent authorizing the release of the
Escrowed Shares to the Company Shareholders. Upon the release by the Escrow
Agent to Parent or the Company Shareholders, as applicable, of all the Escrowed
Shares, together with any accrued dividends or other economic benefits thereon,
this Agreement will automatically terminate, except for the provisions
affecting the reimbursement of expenses, indemnity and fees of the Escrow
Agent.


     6.     The duties and obligations of the Escrow Agent will be determined
solely by the provisions of this Agreement, and the Escrow Agent will not be
liable except for the performance of such duties and obligations as are
specifically set forth in this Agreement, with no duties to be implied. In
furtherance and not in limitation of the foregoing:


          (a) the Escrow Agent will be fully protected in relying in good faith upon
any written certification, notice, direction, request, waiver, consent, receipt
or other document that the Escrow Agent believes to be genuine and duly
authorized, executed and delivered;



          (b) the Escrow Agent will not be liable for any error of judgment, or for
any act done or omitted by it, or for any mistake in fact or law, or for
anything that it may do or refrain from doing in connection therewith,
including its own mere negligence. The Escrow Agent will, however, be liable
for its willful misconduct, recklessness or gross negligence. The Company
Shareholders, through the Representative, and Parent, jointly and severally,
agree to indemnify Escrow Agent for, and to hold it harmless against, any
damages, liability or expense (including, without limitation, reasonable
attorneys’ fees) incurred by it without gross negligence, recklessness or
willful misconduct on its part arising out of or in connection with its
entering into this Agreement

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and carrying out its duties hereunder, including the costs and expenses of
defending itself against any claim of liability arising out of this Agreement,
it being the express intent to indemnify and hold the Escrow Agent harmless
against its own mere negligence. The costs and expenses of enforcing the right
of indemnification will also be paid by Parent and the Company Shareholders
through the Representative, jointly and severally. This right of
indemnification will survive the termination of this Escrow Agreement and the
removal or resignation of the Escrow Agent;


          (c) the Escrow Agent may seek the advice of legal counsel in the event of
any dispute or question as to the construction of any of the provisions of this
Agreement or its duties hereunder, and it will incur no liability and will be
fully protected in respect of any action taken, omitted or suffered by it in
good faith in accordance with the opinion of such counsel;



          (d) in the event that the Escrow Agent is, in any instance and in good
faith, uncertain as to its duties or rights under this Agreement, it will be
entitled to refrain from taking any action in that instance and its sole
obligation, subject to those of its duties under this Agreement as to which
there is no such uncertainty, will be to keep safely all property held in
escrow until it is directed otherwise in writing by the Representative and
Parent or by a final order or judgment of a court of competent jurisdiction
which is accompanied by a legal opinion of the presenting party satisfactory to
the Escrow Agent to the effect that such opinion or judgment is final and
enforceable and is not subject to further appeal;



          (e) the Escrow Agent will not be required to institute legal proceedings
of any kind and will not be required to initiate or defend any legal
proceedings, which may be instituted against it in respect of the subject
matter of this Agreement. In the event of any conflicting or inconsistent
claims or demands being made in connection with the subject matter of this
Agreement, however, or in the event that the Escrow Agent is in doubt as to
what action it should take under this Agreement, the Escrow Agent is hereby
authorized to petition any court of competent jurisdiction for instructions or
to interplead the funds or assets so held into such court. The parties agree
to the jurisdiction of such court over their persons as well as the Escrowed
Shares, waive personal service of process, and agree that service of process by
certified or registered mail, return receipt requested, to the business
addresses set forth in this Agreement will constitute adequate service. The
Company Shareholders through the Representative, on the one hand, and Parent,
on the other hand, jointly and severally agree to indemnify and hold the Escrow
Agent harmless from any liability or damages occasioned thereby and to pay any
and all of its costs, expenses, and reasonable attorneys’ fees incurred in any
such action and agree that, upon the filing of such petition or interpleader
action, the Escrow Agent, its servants, agents, employees or officers will be
relieved of further liability; and



          (f) all parties acknowledge and agree that the Escrow Agent is acting
solely and exclusively as a custodian under this Agreement.



     7. The Escrow Agent is entitled to its reasonable fees and costs,
including reasonable attorneys’ fees, as set forth in Attachment I. Fees are
payable in advance as compensation for the ordinary administrative services to
be rendered under this Agreement, and Parent agrees to pay such fees and
expenses. In no case will the Escrow Agent satisfy such obligations by offset
against the Escrowed Shares.


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     8.     The Representative and Parent severally agree to provide to the Escrow
Agent all instruments and documents within their respective powers to provide
which may be necessary for the Escrow Agent to perform its duties and
responsibilities hereunder.


     9.     Any notices or other communication required or permitted under this
Agreement must be in writing and must be delivered personally, sent by
facsimile transmission or sent by certified, registered or express mail,
postage prepaid. Notices will not be deemed to be given until actually
received.



	 	 	 	 	 
	 	 	(a)	 	If to Parent to:
	 	 	 	 	 
	 	 	 	 	Advanced Neuromodulation Systems, Inc.

6501 Windcrest Drive

Suite 100

Plano, Texas 75024

Facsimile No.: (972) 309-8150

Attention: Kenneth G. Hawari

	 	 	 	 	 
	 	 	 	 	with a copy to:
	 	 	 	 	 
	 	 	 	 	Hughes & Luce, LLP

1717 Main Street

Suite 2800

Dallas, Texas 75201

Facsimile No.: (214) 939-5849

Attention: Laura M. Kalesnik
	 	 	 	 	 
	 	 	
(b)
	 	If to the Representative to:
	 	 	 	 	 
	 	 	 	 	MicroNet Medical, Inc.

1839 Buerkle Road

St. Paul, Minnesota 55110

Facsimile No.: (651) 773-3190

Attention: Mr. Thomas E. Brust
	 	 	 	 	 
	 	 	 	 	with a copy to:
	 	 	 	 	 
	 	 	 	 	Oppenheimer, Wolff & Donnelly, LLP

Plaza VII Suite 3300

45 South Seventh Street

Minneapolis, Minnesota 55402

Facsimile No.: (612) 607-7100

Attention: D. William Kaufman
	 	 	 	 	 
	 	 	
(c)
	 	If to Escrow Agent to:
	 	 	 	 	 
	 	 	 	 	Computershare Trust Company, Inc.

350 Indiana Street



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	 	 	 	 	Suite 800

Golden, CO 80401

Facsimile No.: (303) 262-0700

Attention: John Wahl



     Any party may, by notice given in accordance with this Section 9 to the
other parties, designate another address or person for receipt of notices under
this Agreement.


     10.     The Escrow Agent may resign at any time by giving written notice of
its resignation to the other parties at their addresses set forth in this
Agreement at least ten business days prior to the date such resignation is to
take effect. Upon the effective date of such resignation, all property then
held by the Escrow Agent under this Agreement will be delivered by it to such
person as may be designated in writing by each of the other parties (and the
parties will use reasonable best efforts to name a successor escrow agent prior
to the date specified for the Escrow Agent’s resignation to take effect),
whereupon all of the Escrow Agent’s obligations under this Agreement will,
except as hereinafter provided, cease and terminate. If no successor escrow
agent has been designated by such date, all obligations of the Escrow Agent
under this Agreement will nevertheless, except as hereinafter provided, cease
and terminate. The Escrow Agent’s sole responsibility thereafter will be to
keep safely all property then held by it and to deliver the same to a person
designated by each of the other parties or in accordance with the directions of
a final order or judgment of a court of competent jurisdiction. A termination
under this paragraph will in no way discharge the provisions of this Agreement
affecting the reimbursement of expenses, indemnity and fees of the Escrow
Agent.


     11.     THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE SUBSTANTIVE LAWS (BUT NOT THE CHOICE OF LAW PROVISIONS) OF THE STATE OF
DELAWARE.


     12.     The obligations of the parties (including the Escrow Agent) are unique
in that time is of the essence, and any delay in performance under this
Agreement by any party will result in irreparable harm to the other parties.
Accordingly, any party may seek specific performance and/or injunctive relief
before any court of competent jurisdiction in order to enforce this Agreement
or to prevent violations of the provisions of this Agreement, and no party may
object to specific performance or injunctive relief as an appropriate remedy.
The Escrow Agent acknowledges that its obligations under this Agreement, as
well as the obligations of the Representative and Parent, are subject to the
equitable remedies of specific performance and injunctive relief.


     13.     This Agreement may be amended, superseded, canceled, renewed or
extended, and its terms may be waived, only by a written instrument executed by
the parties, or in the case of a waiver, by the party waiving compliance. No
delay on the part of any party in exercising any right, power or privilege
under this Agreement will operate as a waiver thereof, nor will any waiver on
the part of any party of any such right, power or privilege, or any single or
partial exercise of any such right, power or privilege, preclude any further
exercise thereof or the exercise of any other such right, power, or privilege.
No waivers of or exceptions to any term, condition or provision of this
Agreement, in any one or more instances, will be deemed to be, or construed as,
a further or continuing waiver of any such term, condition or provision.


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     14.     This Agreement will be binding upon and inure to the benefit of the
parties and their respective successors and permitted assigns and legal
representatives. Neither this Agreement nor any of the rights, interests or
obligations under this Agreement may be assigned by any party without the prior
written consent of the other parties. No person or entity will be deemed a
third-party beneficiary of this Agreement, the Escrow Agent will have no duties
or obligations to any such person and the Escrow Agent may disregard any
instruction from such person.


     15.     This Agreement may be executed by the parties in separate
counterparts, each of which when so executed and delivered will be an original,
but all such counterparts will together constitute one and the same instrument.
Counterpart signature pages may be executed and delivered by facsimile
transmission.


[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


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     IN WITNESS WHEREOF, the parties have duly executed this Agreement on the
day and year first above written.



	 	 	 
	 	
ADVANCED NEUROMODULATION SYSTEMS, INC.
	 
	 	By:

 

Name:

Title:	
/s/ Christopher G. Chavez



Christopher G. Chavez

President and Chief Executive Officer
	 
	 	By:	
/s/ Thomas E. Brust



Thomas E. Brust,

in his individual capacity and as a Representative
	 
	 	
COMPUTERSHARE TRUST COMPANY, INC.
	 
	 	By:

 

Name:

Title:	
/s/ John M. Wahl



John M. Wahl

Trust Officer
	 
	 	By:

 

Name:

Title:	
/s/ K. Gwinn



K. Gwinn

VP



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ATTACHMENT I



ESCROW AGENT FEE SCHEDULE



	 	 	 	 	 
	Account Acceptance Fee
	 	$	2,500	 
	Annual Administrative Fee
	 	$	2,500	 
	Overnight Delivery Charges
	 	At Cost
	Out-of-Pocket Expenses
	 	At Cost



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EXHIBIT A


CERTIFICATE OF INSTRUCTION


TO


COMPUTERSHARE TRUST COMPANY, INC.,


as Escrow Agent


     The undersigned, Advanced Neuromodulation Systems, Inc., a Texas
corporation (“Parent”), pursuant to Section 3 or Section 4 of the Escrow
Agreement dated as of November 25, 2002 (the “Escrow Agreement”), by and among
Parent, the Representative and you as the Escrow Agent (terms defined in the
Escrow Agreement have the same meanings when used herein), hereby:



		
	 	     (a) certifies that (i)      Shares of Parent Common Stock are
owed to the Company Shareholders as payment for the achievement of a
Milestone pursuant to Section 3 of the Escrow Agreement, and (ii)
instructs you to release to the Company Shareholders from the Escrowed
Shares such number of shares of Escrowed Shares; or




		
	 	     (b) certifies that (i) $     (the “Owed Amount”) has been
incurred by Parent as a Claim, which may be setoff and against which
Parent may apply the Escrowed Shares pursuant to Section 4 of the Escrow
Agreement and Parent has given the Representative written notice thereof
and of its intent to apply the Escrowed Shares against such Claim, which
written notice sets forth in reasonable detail the facts giving rise to
the liability for such payment, and (ii) instructs you to release to
Parent from the Escrowed Shares      Shares of Parent Common Stock in
satisfaction of such Claim.




		
	 	     (c) certifies that Average Trading Price of the Escrowed Shares is
$          per share.




	 	 	 	 
	 	 	ADVANCED NEUROMODULATION SYSTEMS, INC.
	 
	 	 	By:	 


	 
	 	 	Name:	 


	 
	 	 	Title:	 


	 
	Date:            
             
	 










 


EXHIBIT B


ESCROWED SHARES SCHEDULE



	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	DOLLAR	 	PERCENTAGE OF	 	NUMBER OF
	MILESTONE	 	VALUE	 	ESCROW PAYMENT	 	SHARES
	
	 	
	 	
	 	

	MILESTONE I
	 	 	 	 	 	 	 	 	 	 	 	 
	510(k) Submission
	 	$	250,000.00	 	 	 	8.333	%	 	 	7,467	 
	510(k) Clearance
	 	$	250,000.00	 	 	 	8.333	%	 	 	7,467	 
	PMA Submission
	 	$	250,000.00	 	 	 	8.333	%	 	 	7,467	 
	PMA Approval
	 	$	250,000.00	 	 	 	8.333	%	 	 	7,468	 
	
	 	 	 	 	 	 	 	 	 	 	 	 
	MILESTONE II
	 	 	 	 	 	 	 	 	 	 	 	 
	510(k) Submission
	 	$	250,000.00	 	 	 	8.333	%	 	 	7,467	 
	510(k) Clearance
	 	$	250,000.00	 	 	 	8.333	%	 	 	7,467	 
	PMA Submission
	 	$	250,000.00	 	 	 	8.333	%	 	 	7,467	 
	PMA Approval
	 	$	250,000.00	 	 	 	8.333	%	 	 	7,468	 
	
	 	 	 	 	 	 	 	 	 	 	 	 
	MILESTONE III
	 	 	 	 	 	 	 	 	 	 	 	 
	IDE Submission
	 	$	333,333.33	 	 	 	11.111	%	 	 	9,956	 
	PMA Submission
	 	$	333,333.33	 	 	 	11.111	%	 	 	9,956	 
	PMA Approval
	 	$	333,333.33	 	 	 	11.111	%	 	 	9,956	 
	
	 	 	 	 	 	 	 	 	 	 	 	 
	TOTAL
	 	$	3,000,000	 	 	 	100	%	 	 	89,606	 










 


EXHIBIT C


OBJECTION CERTIFICATE


TO


COMPUTERSHARE TRUST COMPANY, INC.,


as Escrow Agent


     The undersigned Representative, pursuant to Section 4 of the Escrow
Agreement dated as of November 25, 2002 (the “Escrow Agreement”), by and among
Parent, the Representative and you as the Escrow Agent (terms defined in the
Escrow Agreement have the same meanings when used herein), hereby:



		
	 	     (a) certifies that (i) the [Owed Amount/$         of the Owed Amount]
referred to in the certificate to you of dated          , 20     , is
not a Claim against which Parent may apply the Escrowed Shares in
accordance with the Escrow Agreement, and (ii) the undersigned has
delivered to Parent a written statement dated              , 20      ,
setting forth in reasonable detail the facts supporting the statement
contained in clause (i) above; and




		
	 	     (b) objects to your making payment, and instructs you to not make
such payment, to Parent of the [Owed Amount/$         of the Owed Amount]
as provided in such certificate of Parent.




	 	 	 	 	 	 	 
	 	 	 	 	By:	 


[            ], Representative
	 
	Date: