EXHIBIT
10.1


 


ESCROW
AGREEMENT


 


This ESCROW AGREEMENT dated
                        ,
2008 (this “Escrow Agreement”), is by and
among Certified Diabetic Services, Inc., a Delaware corporation with a
mailing address of 3030 Horseshoe Drive South, Suite 200, Naples, Florida
34104 (“CDIP”); Andover Medical, Inc.,
a Delaware corporation with a mailing address of 510 Turnpike Street, Suite 204,
N. Andover, Massachusetts 01845 (“Andover,”
collectively with CDIP, the “Target Companies”
and sometimes each individually referred to as a “Target
Company”); Medical Solutions Management Inc., a Nevada
corporation with a mailing address of 237 Cedar Hill Street, Marlboro,
Massachusetts 01752 (“MSMT”); and
Continental Stock Transfer & Trust Company, as escrow agent with a mailing
address of 17 Battery Place, 8th Floor, New York, New 10004 (the “Escrow Agent”).  MSMT and the Target Companies are each
sometimes referred to individually as a “Constituent Company”
and collectively as the “Constituent Companies.”
Capitalized terms not otherwise defined herein shall have the meaning set forth
in the Plan of Reorganization (as defined below).


 


BACKGROUND


 


The
Constituent Companies have executed that certain Asset Purchase Agreement and
Plan of Reorganization dated as of July [*], 2008 (the “Plan of Reorganization”) pursuant
to which MSMT will issue shares of its capital stock to each Target Company in
exchange for substantially all of the assets of each Target Company.  Pursuant to Section 1.7 of the Plan of
Reorganization, MSMT has agreed to issue shares of MSMT Common Stock equal to
eight percent (8%) of the issued and outstanding shares of MSMT Common Stock (calculated
immediately following the Closing of the Plan of Reorganization and after
giving effect to the conversion or exercise of all outstanding shares of MSMT
Preferred Stock and all convertible debentures of MSMT which are convertible
into shares of MSMT Common Stock, but excluding any shares of MSMT Common Stock
issuable upon the exercise of warrants or options of MSMT) (collectively, the “Escrow
Shares”) to the Escrow Agent to be distributed to the preferred
and common stockholders of record of each Target Company existing on the
Closing Date based upon the respective performances of the Target Companies in
achieving revenue and earnings targets during the fiscal year ended December 31,
2008.


 


Contemporaneous
with the execution of this Escrow Agreement, the Escrow Shares, represented by
share certificate [      ], along with a
stock power in a form sufficient to cause a transfer/distribution of the Escrow
Shares if properly presented to MSMT’s stock transfer agent, have been delivered to and deposited with the
Escrow Agent to be held and disbursed in accordance with the terms and
conditions set forth in this Escrow Agreement.  Each Target Company has, in turn, delivered
to the Escrow Agent a list of the preferred and common stockholders of record
of each Target Company as of the close of business on the Closing Date (each, a
“Shareholder List,” and
collectively, the “Shareholder Lists,”
and the shareholders named on such Shareholder Lists being referred to herein
as the “Shareholders”).


 


The Escrow Agent has
agreed to serve as escrow agent and to hold the Escrow Shares in accordance
with the terms and conditions hereinafter set forth.  Now, therefore, in consideration of the
foregoing and of the mutual covenants and agreements hereinafter set forth, the
parties, intending to be bound legally, agree as follows:


 

















 


OPERATIVE PROVISIONS


 


1.                                      Establishment
of Escrow.  Simultaneously with the
execution and delivery of this Escrow Agreement, MSMT shall deliver the Escrow
Shares and each Target Company shall deliver its Shareholder List to the Escrow
Agent, which Escrow Shares shall be held and disbursed by the Escrow Agent as
hereinafter set forth.  All dividends and
other distributions, if any (collectively, the “Earnings”)
with respect to the Escrow Shares earned while the Escrow Shares are in escrow
pursuant to this Escrow Agreement shall also be held in escrow pursuant to the
terms of this Escrow Agreement and distributed with the Escrow Shares as set
forth herein.


 


2.                                      Receipt.  The Escrow Agent hereby acknowledges receipt
of and accepts the Escrow Shares and the Shareholder Lists in escrow and agrees
to hold and keep same in accordance with the terms and conditions hereof.


 


3.                                      Earnings,
Ownership for Tax Purposes.  All
Earnings on the Escrow Shares shall be allocated and distributed upon
distribution of the Escrow Shares as provided for under Section 4
hereof.  For purposes of U.S. federal and
other taxes based on income, the party to whom the Escrow Shares are
distributed will be treated as the owner of the Escrow Shares and will report
all Earnings, if any, that are earned on, or derived from, the Escrow Shares as
its income, in the taxable year or years in which such income is distributed
and properly includible and pay any taxes attributed thereto as may be required
by law.


 


4.                                      Distribution
of the Escrow Shares.  The Escrow Shares shall be distributed as
follows:


 


a.                                   Preparation
of Pro-forma Income Statement. 
Within ten (10) Business Days after MSMT’s receipt from its
independent public accountants (the “Auditor”)
of the audited financial statements of MSMT and its subsidiaries for the fiscal
year ended December 31, 2008, the Chief Financial Officer or other senior
finance officer of MSMT (herein, the “CFO”) shall
prepare and deliver to the representatives of the stockholders of CDIP and
Andover designated on Schedule 4(a) (each, a “Representative”
and collectively, the “Representatives”),
a pro-forma condensed income statement of MSMT for the fiscal year ended December 31,
2008, which shall be prepared in accordance with GAAP and reflect the
consolidated operations of each of the MSMT Subsidiaries, the CDIP Subsidiaries
and the Andover Subsidiaries, as if the Reorganization had occurred effective
as of January 1, 2008 (the “Pro-forma Income Statement”).  The Pro-forma Income Statement shall be
presented in columnar form showing (i) the condensed  income
statements of each Constituent Company for the fiscal year ended December 31,
2008; (ii) any pro-forma adjustments; and (iii) the pro-forma
results.  The Pro-forma Income Statement
shall not include actual or allocated costs for the Constituent Companies
relating to expenses directly attributable to the Reorganization.


 


b.                                      Review
of Pro-forma Income Statement.  The
Representatives shall have ten (10) Business Days from the date on which
the Pro-forma Income Statement is delivered to them by the CFO (the “Review Period”) to review such statement.  If any Representative 


 


2

















 


disagrees with any item
or amount shown or reflected in the Pro-forma Income Statement, the
Representative may, on or prior to the last day of the Review Period, deliver a
notice to the CFO (and copies to the other Representatives) setting forth, in
reasonable detail, each disputed item or amount and the basis for the
Representative’s disagreement therewith, together with supporting calculations
(each, a “Dispute Notice”).  If no Dispute Notice is received by the CFO
on or prior to the last day of the Review Period, the Pro-forma Income
Statement shall be deemed accepted by the Representatives.  If, however, the CFO and the Representatives
shall not have resolved all of the issues set forth in the Dispute Notice(s),
if any, within ten (10) Business Days after the conclusion of the Review
Period, the parties will engage the Auditor to resolve any such disputed
matters in accordance with the terms of this Escrow Agreement.  The Auditor shall act as an arbitrator to
determine, based solely on presentations by the CFO and each Representative,
and not by independent review, only those items still in dispute (including any
dispute regarding the exclusion of costs pursuant to the last sentence of Section 4(a) hereof),
which items shall be submitted to the Auditor. 
The Auditor’s determination shall be made within ten (10) Business
Days after the submission of the items remaining in dispute under the Dispute
Notice(s), and shall set forth in a report the Auditor’s determination with
respect to each of the disputed items specified in the Dispute Notice(s), and
the revisions, if any, to be made to the Pro-forma Income Statement, together
with supporting calculations.  The conclusions
of the Auditor shall be conclusive and binding on all parties in the absence of
manifest error.  The Pro-forma Income
Statement approved in accordance with this Section 4(b) shall be
referred to as the “Approved Pro-forma Income
Statement.”


 


c.                                       Allocation
of Escrow Shares and Delivery of Final Distribution Instructions to Escrow
Agent.  Based upon the Approved
Pro-forma Income Statement, the Escrow Shares will be distributed as follows:


 


(i)                                     fifty percent (50%) of the Escrow Shares
shall be allocated to the shareholders of the Target Companies based on each
Target Company’s respective subsidiaries’ contributions to the consolidated
revenues as reflected in the Approved Pro-forma Income Statement; and


 


(ii)                                  fifty percent (50%) of the Escrow Shares
shall be allocated to the Target Companies based on each Target Company’s
respective subsidiaries’ contributions to the consolidated EBITDA as reflected
in and derived from the Approved Pro-forma Income Statement; provided, however, in the event that only one Target Company’s
respective subsidiaries’ contributions to EBITDA is greater than zero ($0.00),
then the Shareholders of such Target Company shall be allocated all Escrow
Shares available for allocation pursuant to this Section 4(c)(ii); and in
the event that none of the Target Companies’ respective subsidiaries’
contributions to EBITDA is greater than zero ($0.00), then the Escrow Shares
available for distribution shall be allocated in accordance with Section 4(c)(i) hereof.  For purposes of this Escrow Agreement, the
term “EBITDA” shall mean and be
calculated as follows: net income, plus (A) depreciation, amortization,
and all other non-cash charges that were deducted in arriving at net income for
such period; (B) provisions for taxes based on income that were deducted
in arriving at net income for such period, (C) interest expense; (D) all
public company costs such as audit fees, SEC filing fees (including attorney
and auditor reviews and printing expenses), 


 


3

















 


directors and officers’
insurance and investor relations expenses; and (E) actual or allocated
costs for the Constituent Companies relating to expenses directly attributable
to the Reorganization.


 


Schedule 4(c) contains
an example of the distributions contemplated by this Section 4.


 


The Representatives and
the CFO shall jointly execute and deliver final distribution instructions (the “Final Distribution Instructions”)
to the Escrow Agent within five (5) Business Days after the finalization
of the Approved Pro-forma Income Statement. 
The Final Distribution Instructions will include (i) instructions
signed by the two Representatives and the CFO stating the number of Escrow
Shares to be allocated to the Shareholders of each of the two Target Companies,
and (ii) with respect to each Target Company whose Shareholders are to be
allocated Escrow Shares, instructions signed by such Target Company’s
Representative, stating the number of Escrow Shares to be distributed to each
Shareholder appearing on such Target Company’s Shareholder List and instructing
the Escrow Agent to return to MSMT for retirement the balance of the Escrow
Shares remaining after such distribution. 
No fraction of an
Escrow Share will be distributed to the Shareholders of the Target
Companies.  In lieu thereof, the
Representatives of the Target Companies shall round down any fractional shares
otherwise distributable to such Shareholders to the nearest whole number of
Escrow Shares and instruct the Escrow Agent to return to MSMT for retirement any
Escrow Shares remaining after distribution to its respective Shareholder List.


 


d.                                      Distribution
of Escrow Shares.  Upon receipt by
the Escrow Agent of Final Distribution Instructions, the Escrow Agent shall
distribute the Escrow Shares in accordance with the Final Distribution
Instructions to the Shareholders of the Target Companies as set forth in the
Final Distribution Instructions.


 


5.                                       Rights
and Limitations Upon Duty of Escrow Agent: 
The Escrow Agent:


 


a.                                        shall
not be responsible in any manner for the validity, correctness or sufficiency
of any document or instrument received by or made available to it, in its
capacity as Escrow Agent hereunder; nor for the status or failure of any
investment into which subscription deposits have been placed with the approval
of the remaining parties.


 


b.                                       shall
be entitled to act upon any written certificate, statement, notice, demand,
request, consent, agreement or other instrument whatever, not only in reliance
upon its due execution and the validity and effectiveness of its provisions,
but also as to the accuracy and completeness of any information therein
contained, which the Escrow Agent shall in good faith believe to be genuine and
to have been signed or presented by any authorized person.


 


c.                                        shall
be entitled to request and receive from any party hereto such documents in
addition to those provided for herein as the Escrow Agent may deem necessary to
resolve any questions of fact involved in the administration of its duties
hereunder.


 


d.                                       may,
at the expense of the remaining parties, consult independent counsel of its
choice in respect to any question relating to its duties or responsibilities
under this Escrow 


 


4

















 


Agreement, and shall not
be liable for any action taken or omitted in good faith on advice of such
counsel.


 


e.                                        shall
be under no obligation to advance any monetary sum in connection with the
maintenance or administration of this Escrow Agreement, to institute or defend
any action, suit or legal proceeding in connection herewith, or to take any
other action likely to involve the Escrow Agent in expense, unless first
indemnified by the remaining parties to the Escrow Agent’s satisfaction.


 


f.                                          shall
not be bound by any amendment to this Escrow Agreement or by any other such
amendment or agreement unless the same shall have been executed by the Escrow
Agent.


 


g.                                       shall
have only such duties and responsibilities as are expressly set forth in this
Escrow Agreement, together with a general fiduciary duty of reasonable
diligence in the performance of its obligations hereunder.


 


h.                                       may
resign and be discharged from its duties hereunder at any time by furnishing
notice of such intended resignation to the remaining parties, specifying a date
when such resignation shall take effect (which date shall be no fewer than
fifteen (15) days after the date of mailing or other delivery of such notice)
and furnishing to the remaining parties, on or prior to such date, a final
accounting of all financial activity within the escrow account from the date of
the Escrow Agent’s appointment until the date of such resignation (the “Accounting”).  Upon receipt of such notice, the remaining
parties shall appoint a successor escrow agent, such successor to become Escrow
Agent hereunder upon the resignation date specified in the subject notice or,
if later, upon the Escrow Agent’s presentation of the Accounting.  If the remaining parties are unable to agree
upon the identity of a successor escrow agent within fifteen (15) days after
the date of such notice, the Escrow Agent shall be entitled to appoint its own
successor and shall continue to act in its fiduciary capacity until its
successor accepts the escrow by notice to the parties hereto and takes
possession of the Escrow Shares.  If the
Escrow Agent is unable, despite the use of its best efforts, to obtain the
services of a successor, it may petition a court of competent jurisdiction for
an appointment effecting such an appointment or providing another remedy, and,
pending entry, may deposit the Escrow Shares then within its possession in the
registry of the court, together with the Accounting (prepared, in such event,
through the end of the business day immediately preceding such a deposit).  The remaining parties may at any time agree
to substitute a new escrow agent by giving notice thereof to the Escrow Agent
then acting.


 


i.                                           shall
be indemnified and held harmless by MSMT against any and all liabilities
incurred by it hereunder (including all costs, expenses and fees incurred in
defending any legal action or administrative proceeding or in resisting any
claim), except for those resulting from its own willful misconduct or gross
negligence.


 


j.                                           may,
if it becomes uncertain concerning its rights and responsibilities with respect
to the escrow or receives instructions with respect to the Escrow Shares that
it believes to be in conflict with this Escrow Agreement or is advised that a
dispute has arisen with respect to 


 


5

















 


the Escrow Shares,
without liability refrain from taking any action other than to use its best
efforts to safeguard the Escrow Shares until it is directed otherwise in a
writing signed by the remaining parties or by an order of a court of competent
jurisdiction.  The Escrow Agent is not
obligated to institute or defend any legal proceedings, although it may, in its
sole discretion and at the remaining parties’ expense, institute or defend such
proceedings (including proceedings seeking a declaratory judgment), join
interested parties and deposit the Escrow Shares in the registry of the court.


 


6.                                      Voting
of Escrow Shares.  Until the
termination of this Escrow Agreement, each Shareholder named on a Shareholder
List of any Target Company shall have the right to vote that number of Escrow Shares
set forth by such Shareholder’s name on the Shareholders Lists as the record
holder of such Escrow Shares.  Voting of
the Escrow Shares shall be allocated (a) among the Shareholders of the two
Target Companies as though all of the Escrow Shares were distributed upon the
Closing Date with CDIP shareholders receiving 56.25% of the Escrow Shares and
Andover shareholders receiving 43.75% of the Escrow Shares, and (b) among
the Shareholders of any one Target Company in accordance with the pro rata
shareholdings of such Target Company’s common stock (voting on an as-converted
basis and after giving effect to the conversion or exercise of all outstanding
shares of preferred stock reflected on the Shareholder Lists).


 


7.                                      Termination.  This Escrow Agreement shall terminate upon
the completion of the distribution of the Escrow Shares and the Earnings, if
any, in accordance with Section 4 of this Escrow Agreement, or upon mutual
written agreement of the parties hereto.


 


8.                                       Miscellaneous.


 


a.                                        Notices.  All notices or other communications hereunder
shall be in writing and shall be deemed given if delivered in accordance with Section 7.3
of the Plan of Reorganization.  Any
notice to the Escrow Agent shall be addressed as follows:
                                                          .


 


b.                                       Rules of
Construction.  The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Escrow
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.


 


c.                                        Counterparts. 
This Escrow Agreement may be executed in counterparts, all of which
shall be considered one and the same agreement and shall become effective when
counterparts have been signed by each of the parties and delivered to the other
parties, it being understood that all parties need not sign the same
counterpart.


 


d.                                       Entire Agreement. 
This Escrow Agreement, together with the Plan of Reorganization, and any
documents delivered by the parties in connection herewith constitutes 


 


6

















 


the entire agreement and
supersede all prior agreements and understandings, both written and oral, among
the parties hereto, or any of them, with respect to the subject matter hereof.


 


e.                                        Governing Law;
Jurisdiction and Venue.  This Escrow Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware without
regard to its rules of conflict of laws. 
Each Constituent Company hereby irrevocably and unconditionally consents
to submit to the exclusive jurisdiction of the courts of the State of Delaware
and of the United States of America located in the State of Delaware (the “Delaware Courts”)
for any litigation arising out of or relating to this Escrow Agreement and the
transactions contemplated hereby (and agrees not to commence any litigation
relating thereto except in such courts), waives any objection to the laying of
venue of any such litigation in the Delaware Courts, and agrees not to plead or
claim in any Delaware Court that such litigation brought therein has been
brought in any inconvenient forum.  Each
of the parties hereto agrees, (a) to the extent such party is not
otherwise subject to service of process in the State of Delaware, to appoint
and maintain an agent in the State of Delaware as such party’s agent for
acceptance of legal process, and (b) that service of process may also be
made on such party by prepaid certified mail with a proof of mailing receipt
validated by United States Postal Service constituting evidence of valid
service. Service made pursuant to (a) or (b) above shall have the
same legal force and effect as if served upon such party personally with the
State of Delaware.


 


[Signatures
on following page]


 


7

















 


	
  ANDOVER MEDICAL, INC.

  	
   

  	
  CONTINENTAL STOCK
  TRANSFER & 

  TRUST COMPANY

  
	
  By:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Edwin A. Reilly, Chief Executive Officer

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  CERTIFIED DIABETIC SERVICES, INC.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
  Lowell M. Fisher, Jr., Chief Executive Officer

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  MEDICAL SOLUTIONS MANAGEMENT INC.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
  Marshall Sterman,

  	
   

  	
   

  
	
   

  	
  Chairman of the Board of Directors

  	
   

  	
   

  



 


 


[SIGNATURE PAGE TO ESCROW AGREEMENT]


 


8

















 


Schedule 4(a)


 


Representatives


 


	
  Andover Medical, Inc.

  	
  Edwin A. Reilly

  
	
   

  	
   

  
	
  Certified Diabetic Services, Inc.

  	
  Lowell M.
  Fisher, Jr.

  



 


9

















 


Schedule 4(c)


 


Agreement on Distribution of Escrow Shares


 


1.     Fifty percent (50%) of the Escrow Shares
shall be allocated to the shareholders of the Target Companies based on each
Target Company’s respective subsidiaries’ contributions to the consolidated
revenues as reflected in the Approved Pro-forma Income Statement; and


 


2.     Fifty percent (50%) of the Escrow Shares
shall be allocated to the Target Companies based on each Target Company’s
respective subsidiaries’ contributions to the consolidated EBITDA as reflected
in and derived from the Approved Pro-forma Income Statement.


 


3.     Example:


 


	
   

  	
   

  	
  Revenues

  	
   

  	
  % of Revenues

  	
   

  
	
  CDIP

  	
   

  	
  $

  	
  14.0

  	
   

  	
  45.6

  	
  %

  
	
  MSMT

  	
   

  	
  $

  	
  6.7

  	
   

  	
  21.8

  	
  %

  
	
  Andover

  	
   

  	
  $

  	
  10.0

  	
   

  	
  32.6

  	
  %

  
	
  TOTAL

  	
   

  	
  $

  	
  30.7

  	
   

  	
  100

  	
  %

  



 


	
   

  	
   

  	
  EBITDA

  	
   

  	
  % of EBITDA

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  CDIP

  	
   

  	
  $

  	
  1.4

  	
   

  	
  64

  	
  %

  
	
  MSMT

  	
   

  	
  $

  	
  0.0

  	
   

  	
  0.0

  	
  %

  
	
  Andover

  	
   

  	
  $

  	
  0.80

  	
   

  	
  36

  	
  %

  
	
  TOTAL

  	
   

  	
  $

  	
  2.2

  	
   

  	
  100

  	
  %

  
								



 


DISTRIBUTION OF ESCROW SHARES BASED ON ACTUAL PERFORMANCE


 


	
   

  	
   

  	
  Revenues

  	
   

  	
  % of Revenues

  	
   

  	
  Escrow Shares

  Allocable to Revenue

  	
   

  
	
  CDIP

  	
   

  	
  $

  	
  14.0

  	
   

  	
  58.3

  	
  %

  	
  2.33

  	
  %

  
	
  Andover

  	
   

  	
  $

  	
  10.0

  	
   

  	
  41.7

  	
  %

  	
  1.67

  	
  %

  
	
  TOTAL

  	
   

  	
  $

  	
  24.0

  	
   

  	
  100

  	
  %

  	
  4.00

  	
  %

  



 


	
   

  	
   

  	
  EBITDA

  	
   

  	
  % of EBITDA

  	
   

  	
  Escrow Shares

  Allocable to EBITDA

  	
   

  
	
  CDIP

  	
   

  	
  $

  	
  1.40

  	
   

  	
  64

  	
  %

  	
  2.55

  	
  %

  
	
  Andover

  	
   

  	
  $

  	
  0.80

  	
   

  	
  36

  	
  %

  	
  1.45

  	
  %

  
	
  TOTAL

  	
   

  	
  $

  	
  2.2

  	
   

  	
  100

  	
  %

  	
  4.00

  	
  %

  



 


TOTAL DISTRIBUTIONS


 


	
   

  	
   

  	
  Revenues

  	
   

  	
  EBITDA

  	
   

  	
  TOTAL

  	
   

  
	
  CDIP

  	
   

  	
  2.33

  	
  %

  	
  2.56

  	
  %

  	
  4.89

  	
  %

  
	
  MSMT

  	
   

  	
  0.00

  	
  %

  	
  0.00

  	
  %

  	
  0.00

  	
  %

  
	
  Andover

  	
   

  	
  1.67

  	
  %

  	
  1.44

  	
  %

  	
  3.11

  	
  %

  
	
  TOTAL

  	
   

  	
  4.00

  	
  %

  	
  4.00

  	
  %

  	
  8.00

  	
  %

  



 


10